THE CANADIAN PRESS
TORONTO - Federal Finance Minister Jim Flaherty is imposing new rules on banks and other credit-card issuers which will cost them "tens of millions of dollars," requiring clearer information and a minimum 21-day interest-free period on new purchases.
However, Flaherty said Thursday he has no intention of limiting card interest rates, saying Canadians have adequate choice in a well functioning financial system.
"There are dozens and dozens of options for consumers - some credit cards with higher interest rates offer more frills and benefits and points and various things," he told a news conference.
"Our concern is to make sure that consumers have easily available, clear information so that they can make informed choices."
This provoked NDP Leader Jack Layton to jibe that Flaherty's changes merely mean that consumers will be told a little more about how they're going to be gouged.
"Today was a day when the banks won, and consumers and the middle class lost," Layton told reporters.
He called for legislation requiring banks to provide no-frills low-interest cards, saying the choice consumers have now is that "they can be gouged, or they can be gouged more deeply."
The new framework - particularly the 21-day grace period on all new purchases when cardholders pay the monthly balance in full by the due date - "was resisted by financial institutions," Flaherty declared.
"It is a major change; it will cost financial institutions tens of millions of dollars," he said.
"Right now the situation is that credit cards offer 15- to 24-day grace periods with most offering 21 days. However, many cards also charge consumers interest that accrues during that period, even if they pay their balance in full that month," Flaherty said.
"Moreover, if a consumer carries a balance from one month to another, some cards essentially give that consumer no grace period on new purchases - they charge interest on the full balance immediately on both the previous balance and the new purchases."
Under the new regulations, the 21-day grace period on new purchases applies even if an outstanding balance is carried forward from the previous month, as long as the full balance is paid by the current month's deadline.
The new regulations will also require that credit card contracts and applications feature a simple summary box of "all salient information, such as interest rates, grace periods and fees."
Additionally, monthly statements will have to show how long it would take to pay off a balance by making only minimum payments. This will give consumers a truer picture of their debt load, Flaherty said.
The regulations, open for comment until June 13, also include:
- Notice on monthly statements if interest rates are going to increase during the next statement period.
- Express consent from the consumer for credit limit increases.
- Requiring allocations of payments in favour of the consumer when balances are transferred to lower-interest cards.
- Some debt-collection practices would be prohibited, including contacting clients later than 9 p.m. on weekdays or Saturdays, and after 5 p.m. on Sundays.
Flaherty noted that about 25 million Canadians have credit cards and most pay their monthly balances in full, "which is a great credit to how prudent Canadians are generally."
But Layton said card issuers are encouraging consumers to use credit cards to buy groceries, and he meets people who are using cards to meet mortgage payments.
"In other words, they're up against the wall with a gun to their head," the NDP leader said, "and the banks refuse to give really fair interest rates to people like that, and the government is backing the banks."
In addition to not addressing interest rates, the rule changes released Thursday do not deal with credit card interchange fees levied on merchant transactions.
Flaherty noted that parliamentary committees are looking at this issue.
In Ottawa, Liberal finance critic John McCallum said Flaherty's moves are "not a bad start, but they have not finished the job."
McCallum, a former chief economist at the Royal Bank, said the new regulations do nothing to increase competition or address the issue of interchange - the processing fees paid by retailers on credit card purchases.
