Most Canadians pay a much higher interest rate on their credit cards than they do for other forms of debt, which can make them an even greater burden in these economic times. unprecedented.
Vicky Assad runs a small digital print shop in Ottawa. She has been in business for 23 years, and until two weeks ago, 2020 was on the brink of a decent year for her financially.
But the COVID-19 pandemic has changed all that, as it has for many Canadians. She says she does what she can to keep her business afloat and keep her five-person staff on the payroll, but the interest rates between 13 and 23 percent she has on three different cards Personal and professional credit make hard work even more difficult. .
“I would like to make the minimum payment on my credit cards, but the interest rate is going to really hurt me,” she told CBC News. “I hear a lot from the government about the relief for the average Canadian, but I can’t hear anything about the drop in interest rates on credit cards … why [is that] not a priority? ”
Calgaire Mario Baggio has the same question.
“Some credit cards charge 29%, which seems silly at the time,” he told CBC News. “What are financial institutions and credit card companies doing to help Canadians and seniors during this crisis? “
Rates capped at 60%
Unlike mortgage rates, the price of which is largely based on what’s going on at the Bank of Canada or the bond market, the rules about how much a lender can charge for a credit card are much more profitable.
By law, interest rates over 60% per year are prohibited, but most of the 75 million active credit cards in Canada charge much less, about 20% per year. According to the Canadian Bankers Association, 30 different credit cards are currently available to Canadians and charge less than 13% per year.
It is still much higher than the rates for other forms of debt, including mortgages and business loans, and there are, in fact, many valid reasons why this is the case. Credit cards are known as “unsecured” debt because their credit is not guaranteed by any specific asset – there is no guarantee against the loan.
This differs from something like a mortgage, where the loan is secured against the house, which theoretically allows the lender to seize this asset if the borrower does not pay his bills.
Credit cards have higher rates to compensate for this higher risk, but rates are still high given the relatively low default rate. Credit monitoring firm TransUnion says that at the end of last year, less than 3% of Canadians were more than 90 days behind on their minimum credit card payments.
The average Canadian credit card was around $ 4,326 at the end of December.
“Take Action to Lighten the Burden”: Trudeau
Prime Minister Justin Trudeau said the government was working with credit card providers to provide some kind of relief to customers.
“We recognize that they represent a significant challenge for many Canadians at this stage,” said Trudeau during his daily press conference on March 26. “This is why we encourage them to take action to ease the burden on Canadians. “
Last month, Canada’s five largest banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Scotiabank and CIBC – pledged in unison with promises to work with homeowners to offer interest rate relief on their loans if necessary.
They all say they also work closely with clients who have commercial loans to make sure they can stay afloat.
The joint statement said the banks would also offer “the opportunity for relief on other credit products” but have had little to add since.
Banking association promises relief
In an email, the Canadian Bankers Association told CBC News that its members “have come together to help our country get through this difficult time.”
Its mortgage relief programs have been inundated with more than 213,000 requests for deferred payments, the association said.
The ABC says the big banks are willing to work with their customers who have problems with credit card debt to find solutions, but its statement did not give details on what it might look like.
“Banks will work with their customers to provide relief on other credit products, including credit cards and lines of credit,” said the ABC.
“Many banks have programs to help their customers make their debt more manageable and structure the right solution, including rolling credit card debt into term products with lower interest rates. Banks will work with Canadians to help them manage credit effectively during this difficult time. ”
This commitment stops long before rates are cut at all levels, which some politicians are calling for.
New Democrat finance critic Peter Julian and industry critic Brian Masse have been asking the federal government for several days to ask banks and credit card companies to cut rates. ‘interest.
“So far, the government has found ways to help businesses immediately, but they keep Canadians waiting weeks,” said Masse in a statement.
“Relinquishing interest on credit cards for two months would immediately help Canadians cope until federal programs take effect.”
PC Financial was to increase the rate on its PC Financial MasterCard by one percentage point from next month – from 19.97% to 20.97% per year – but suspended the plan, citing “unprecedented times” .
“We are closely monitoring the development of this situation and have decided to postpone this change until further notice”,
PC Financial told CBC News in a statement.
“We have also worked with clients, on a case-by-case basis, who may experience financial difficulties during this period. We hope this can help clients and their families. “