Banks are breaking up with more and more Canadians, and vague explanations are leaving customers puzzled.

Just as customers have the right to stop banking with an institution, banks also have the right to end their relationship with a customer. This is called debanking. 

While debanking is not a new practice, it is on the rise. The Ombudsman for Banking Services and Investments (OBSI) is an organization that resolves disputes between customers and financial institutions across Canada free of cost and operates independently from the government.  The organization reports 419 cases of  “relationship ended” or debanking over the past six years, calling it one of Canada’s top five banking issues. 

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We talked to seasoned financial advisor Elaine Yan to get more information on potential causes and advice on what to do if you ever find yourself in that situation.  

Why are banks so vague about the reason for debanking customers?

Part of the reason is that the representative might not have the answer visible to them depending on their department. However, the refusal to bank with someone is completely within their rights as a business and they don’t have to provide reasons, because they’re a private corporation.

What are some common occurrences that lead to debanking? 

As shoppers we are not usually the most cognizant about the people and business we transact with. We don’t demand to know every vendor’s financial institution history or business intentions. To a consumer, it might seem like an innocent thrifting purchase, but behind the scenes that other person could have a complicated profile. 

Banks will conduct investigations on a case by case basis, but validation of a consumer’s claim is sometimes difficult to come by which could lead to banks cutting ties to mitigate risk. 

If someone has a radical political stance, would that be a reason for debanking? 

The stance would likely not be reason alone, but it could be a major risk factor. With the country’s current political landscape, there are several complications regarding political agency as it’s nearly impossible to know how involved someone is with a potentially risky organization. 

Observing transactions from a political lens opens up the possibility of involvement with organizations linked to extremely dangerous and illegal sectors like weapons, armory, money laundering and trafficking could also be seen as a risk.  

If someone receives a debanking notice, what should be their first course of action? 

If you find yourself in this position, contact the phone number listed on the notice and gather as much information about the case as possible. If you are able to seek professional advice or legal counsel then do so immediately.

I know it’s easy to say, but don’t panic. “Your money is recoverable. It’s just a matter of time and duration. If you are debanked by a large institution, that does not mean you’re not bankable by many other fintechs that are coming up, like Neos and equity banks and some credit unions.”

Do you recommend having an emergency fund outside of a bank?

Yan recommends  diversifying a little bit. “I don’t want to say people should be squaring things away at home when there are invasions and bad actors so readily available around us. But, if you were to keep money at home, avoid large amounts, rather you should store just enough for survival. Having at least one or two banks as alternative options would also be good.”

What advice do you have for customers to avoid being debanked? 

Spend a bit more time finding out about where you are spending your money, how things are going with your account and knowing your rights. There are government resources and non-partisan organizations like the Ombudsman for Banking Services and Investments that have useful information on these topics. 

This interview has been edited for length and clarity