How a year can change things! In early 2009, the Canadian Bankers Association reported 70 per cent of national households paid off their credit- card balances monthly. However, by the second quarter, delinquency rates – accounts 30 days past due – had shot up 23 per cent. Then last September, as stats showed an alarming 85 per cent of Canadians who reported debt also carried outstanding credit-card balances, the federal government stepped in with new regulations designed to address this trend. Some came into effect in January; the remainder will be enacted in September.
The new rules are a good thing, says Peter O’Neill, chief operating officer for Bridgewater Bank, a Canadian chartered bank and wholly owned subsidiary of the Alberta Motor Association. “Regulations help level the playing field among lenders and provide transparency to the consumer,” he says. “From a practical perspective, the more informed a borrower is, the less likely he or she is to enter into a difficult financial situation.”
With that in mind, here’s a summary of the changes being applied to your card.
Prior to the new legislation, credit-card companies had the power to increase their customers’ maximum credit limits without notification. But since January, issuers may only raise cardholders’ limits after obtaining written approval; any verbal agreements must be followed up with a statement confirming the customer’s authorization. The benefit to you? Removing automatic increases means less temptation to match rising debt with rising limits. But should you require an increase, you may still request it of your issuer.
Part of the “interest-free period,” the grace period is the time between the statement date and the payment due date. The length of both periods varies, depending on the credit-card issuer. In the past, some companies gave a 17- to 26-day “grace period” of no interest due after a new purchase. Others gave none at all. Most added the condition that the grace period only applied if the balance owing was paid in full. Now, all companies must give consumers a minimum of 21 days before the interest rate applies on new purchases, provided they pay the previous balance in full by the due date.
Out of sight, out of mind: paying on credit once offered the opportunity to blissfully ignore rising debt, so long as the monthly minimum payment was met. But that’s about to change — for the better. As of September, statements will include the eye-opening reality of exactly how long it would take to pay off your current balance if you only make the minimum each month. So when your statement shows it will take a jaw-dropping 10 years to pay off $1,000 on a card with an 18-per-cent interest rate, you may think twice before paying in plastic for that must-have item you could really live without.
Rate and Fee disclosure
Ask Canadians what the annual interest rate is on the card they use most, and a third won’t know, reports the Financial Consumer Agency of Canada (FCAC). And close to half aren’t aware of other important credit-card charges, such as the fact that interest always applies to cash advances, even if paid in full by the due date, or that currency conversion fees are often added to transactions priced in U.S. dollars. The new legislation aims to put a magnifying glass on the fine print by requiring all credit-card applications and agreements to feature an info box that clearly summarizes the details of interest rates, annual fees and charges for common transactions. Best of all, the wording must be translated from accountant-ese into consumer-friendly language.
Now that you can successfully decode your statement, it’s a good idea to review the terms of your current cards and see how they stack up against other options. A good starting point is FCAC’s comprehensive chart (fcac-acfc.gc.ca/eng/consumers/itools/CreditCards), which shows, for example, that interest rates range from 9.9 per cent to 14.9 per cent on low-rate cards, while retail plastic packs a wallop at 28.8 per cent to 29.9 per cent.
Take Note: While the new regulations make it easier to understand credit-card terms and policies, the onus remains on cardholders to do their home-work. Match the improvements by turning a laissez-faire approach to your statements into careful scrutiny. After all, as the lenders and regulators agree, self-education is the one way to make these changes pay off for you.
Learn more about AMA’s MasterCard with no annual fee and unlimited CAA Dollars earnings equal to 1% of the eligible net retail purchases. AMARewards.ca/AMAMasterCard