The government proposed some new credit card regulations that, if passed, will require a minimum 21 day interest free period. Additionally, credit card issuers will post information on their statements such as interest rates, grace periods, minimum payments, annual fees and any upcoming interest rate increases. While these will help to stop the “snowball effect” of credit card debt, they will not have a huge impact for many Canadian, especially those who pay their credit card off every month.
There were two more parts to this announcement that caught my attention. The first is that credit card issuers would need express consent from card holders for increases to their credit limit. This may help by making it a little less convenient for banks to increase the amount of high-interest debt available to consumers.
The most interesting item might be the requirement for credit card statements to show how long it will take to pay off a balance if only paying the minimum payments at the current interest rate. More people might make an effort to pay more than the minimum payment once they see the years if can take to pay it off at that rate. While these are small steps, they are steps in the right direction.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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What would really be interesting would be showing the time to pay off the balance with a few different levels of payments above the minimum. That would be sure to drive down profits
Good point SP, something like “if you pay double your minimum payment” or “if you pay and extra $100″ would help people see how much quicker they could reduce their credit card debt.
The most important issue is being completely overlooked, the interest rate. Everyone agrees that a company extending credit deserves to make some money by doing so. There should be a nationwide legal limit of 10% and then competition, credit worthiness etc. should allow for bargaining down to the 5% range from company to company. There are millions of people carrying multiple cards with high balances and paying up to 25% interest which becomes almost insurmountable. Credit card interest rates are absolutely absurd, likely the biggest stress to hard working people trying to raise families and need to be capped or the financial crisis will not end at all.
Dan, high interest rates are definitely a problem. One of the earliest posts I wrote was on how to reduce your credit card interest rate. Another option, for those that can handle some debt without losing control, could be to get a line of credit to make sure the credit card balance is always paid off. I never carry a balance on my card, though if I made a large purchase I may need to pay the card off with my credit line and then pay that off over a month.
I would like to see a minimum size print, (aria 12), on all of there literature, particular the agreement part.
Myles,
Good point, they certainly take the term “fine print” to a new level!
Thanks for the great post about these new credit card rules. Your post brought up a lot of interesting points that I haven’t thought about. I’m looking forward to reading a lot more of your site in the future.
This is the link that will allow people to do find out how long it will take to get out of debt
http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp