Tories Introduce New Credit Card Rules

[Dave_ON]

Here's the link.

http://www.cbc.ca/canada/story/2009/05/21/...laherty021.html

So the Tories have introduced their new rules for credit cards. Most of them seem relatively reasonable and are distinctly consumer driven. However I'm left to wonder why this has been introduced. The NDP have been pushing for this for quite some time though they of course aren't happy with the CPC version of it. This type of regulation seems quite out of character for the CPC so I do wonder what the reasoning is behind it.

Will this actually do what it seeks to achieve? Prevent the consumer from being taken advantage of that is. I sincerely doubt that it will, as the banks will make up for lost revenues by either cutting back reward programs or adding additional fees. I for one feel the rules are completely unnecessary. If you are borrowing the banks money, they're the ones in control not you. Nothing gets you nothing and credit cards are no different. Free use of the banks money comes at a price and that comes in the form of fees and interest. I guess I'm of the mind that if you don't like it, you don't have to use the credit card.

[ToadBrother]

Here's the link.

http://www.cbc.ca/canada/story/2009/05/21/...laherty021.html

So the Tories have introduced their new rules for credit cards. Most of them seem relatively reasonable and are distinctly consumer driven. However I'm left to wonder why this has been introduced. The NDP have been pushing for this for quite some time though they of course aren't happy with the CPC version of it. This type of regulation seems quite out of character for the CPC so I do wonder what the reasoning is behind it.

Will this actually do what it seeks to achieve? Prevent the consumer from being taken advantage of that is. I sincerely doubt that it will, as the banks will make up for lost revenues by either cutting back reward programs or adding additional fees. I for one feel the rules are completely unnecessary. If you are borrowing the banks money, they're the ones in control not you. Nothing gets you nothing and credit cards are no different. Free use of the banks money comes at a price and that comes in the form of fees and interest. I guess I'm of the mind that if you don't like it, you don't have to use the credit card.

I disagree. One of the problems with the current meltdown is the willingness of banks to loan money to people who can't really afford it. I haven't read through Flaherty's plans yet, but one of the chief aims of the US plans is that they will force credit card companies and banks to be a good deal more upfront about the costs of credit cards, and to prevent people who can't really afford it from getting them so easily. Since the banks have not exactly been very forthright in the way they deal with high interest loans (which is what a credit card really is), I think it's time to make them so. If it cuts into their profitability, that's significantly better than seeing the kinds of defaults we've been seeing over the last six or seven months.

But this is an interesting shot across the bow, whatever your opinion, because a potentially much more expensive battle is about to be waged about merchant fees. I'm wondering if the Feds are using this to send a message to the financial institutions that the government will, if they get out of hand, step in.

[Radsickle]

The Leprechaun is merely posturing; sounding serious about new legislation that will put bold letters on some of the fine print of credit cards that any dolt should already know.

[Cameron]

Of course the dippers aren't happy...that doesn't surprise me one bit.

[Argus]

I disagree. One of the problems with the current meltdown is the willingness of banks to loan money to people who can't really afford it.

There was enormous pressure from the government in the US to increase home ownership. They not only pushed the banks into giving mortgages to people who shouldn't have had it but looked the other way in terms of regulatatory supervision. This push came from both sides of the US political divide.

Since the banks have not exactly been very forthright in the way they deal with high interest loans (which is what a credit card really is), I think it's time to make them so. If it cuts into their profitability, that's significantly better than seeing the kinds of defaults we've been seeing over the last six or seven months.

Actually, the banks deliberately target people who have insecure incomes and are less likely to pay back their credit card loans immediately. Those people represent a higher profit for the banks - even taking into account the higher rate of defaulters - because they tend to carry balances and make only the minimum payments. People who are financially secure, on the other hand, pay their accounts in full each month, and so are considerably less profitable. The banks are also less than forthcoming - though not as bad as they are in the US - in what your rate is and why it's that rate, and what additional services charges you'll wind up paying. Most of those service charges are aimed at poorer people who, for example, make late payments or have NSF cheques returned or charge over their limits.

[BubberMiley]

There was enormous pressure from the government in the US to increase home ownership. They not only pushed the banks into giving mortgages to people who shouldn't have had it but looked the other way in terms of regulatatory supervision. This push came from both sides of the US political divide.

While that's true, emphasizing the push to increase home ownership is a take on the problem that unfairly targets the poor (as the right is apt to do). The banks were offering unaffordable mortgages to both rich and poor, and even the upper middle class bought houses they couldn't afford.

[Keepitsimple]

I'd like to see the minimum payment go back to 10% of the outstanding balance - that's where it was when credit cards originally came into vogue. Over the years, it has steadily decreased and is now at only 2% of the outstanding balance. 70% of people pay off their balances completely every month. I can only guess who doesn't pay off their balance - obviously people who should not have extended themselves in the first place....and with a 2% minimum payment, they get suckered into paying more and more. Call it naivety, ignornance or a lack of education.....but if anyone can find a rational reason for a 2% minimum payment - other than sucking the blood out of corpses - I'd be glad to hear it.

As for some posters who question the Conservatives' motivations for introducing legislation, I think it's twofold. As someone has already pointed out, it could be a message to the Banks with regards to upcoming legislation to curb Merchant "unfairness". But also, Conservatives strongly believe in a free market - but that also involves reasonable protections for consumers....so it's simply part of basic, fundamental Conservative principles.

[Argus]

While that's true, emphasizing the push to increase home ownership is a take on the problem that unfairly targets the poor (as the right is apt to do). The banks were offering unaffordable mortgages to both rich and poor, and even the upper middle class bought houses they couldn't afford.

The burgeoning demand for housing on one end of the scale pushed the prices of that housing up - which tended to bump up all the other prices above them to unrealistic numbers, as well.

On top of that the legalization of derivitatives by the Clinton administration (unanimously supported by congress) has been described as the rocket fuel which powered the markets into the economic disaster they have found themselves.

All of it depended on continuing increases in housing prices. But as soon as that bubble burst the whole economic shambles collapsed.

Edited May 22, 2009 by Argus

[jdobbin]

I can only guess who doesn't pay off their balance - obviously people who should not have extended themselves in the first place....and with a 2% minimum payment, they get suckered into paying more and more. Call it naivety, ignornance or a lack of education.....but if anyone can find a rational reason for a 2% minimum payment - other than sucking the blood out of corpses - I'd be glad to hear it.

Lose your job and in the search for a new job, you can rack up debt on credit cards. It isn't always a trap but the most easily accessible credit when other credit might be harder to get. People then pay of that debt accordingly.

The point is that someone who loses their job might use the credit card to buy a suit, pay for transport to look for a job, cover the costs of an upgrade in education or training and be back working within a certain timeframe. I know lots of people like that who paying off a credit card in that regard.

I know others who were flooded out, used to card to pay for things not covered by insurance. Banks don't give you money to cover cost such as transportation and some possessions lost. Those people accessed the credit to help them get over the hump.

I don't think you can assume that anyone and everyone who does this is naive or ignorant. There are some who fall into the trap with no plan to get out while others use it to get over a tough patch and plan to pay up more quickly when on their feet again.

As for some posters who question the Conservatives' motivations for introducing legislation, I think it's twofold. As someone has already pointed out, it could be a message to the Banks with regards to upcoming legislation to curb Merchant "unfairness". But also, Conservatives strongly believe in a free market - but that also involves reasonable protections for consumers....so it's simply part of basic, fundamental Conservative principles.

I have no problem with the Conservative legislation.

I think it is smart and will be more transparent. We'll have to see how it works in practice to give a full thumbs up but it is a step in the right direction.

Edited May 22, 2009 by jdobbin

[Jerry J. Fortin]

Lose your job and in the search for a new job, you can rack up debt on credit cards. It isn't always a trap but the most easily accessible credit when other credit might be harder to get. People then pay of that debt accordingly.

The point is that someone who loses their job might use the credit card to buy a suit, pay for transport to look for a job, cover the costs of an upgrade in education or training and be back working within a certain timeframe. I know lots of people like that who paying off a credit card in that regard.

I know others who were flooded out, used to card to pay for things not covered by insurance. Banks don't give you money to cover cost such as transportation and some possessions lost. Those people accessed the credit to help them get over the hump.

I don't think you can assume that anyone and everyone who does this is naive or ignorant. There are some who fall into the trap with no plan to get out while others use it to get over a tough patch and plan to pay up more quickly when on their feet again.

I have no problem with the Conservative legislation.

I think it is smart and will be more transparent. We'll have to see how it works in practice to give a full thumbs up but it is a step in the right direction.

The legislation does nothing to solve the problem of itself. It does make the consumer more aware of the extent of usury involved.

[ToadBrother]

The legislation does nothing to solve the problem of itself. It does make the consumer more aware of the extent of usury involved.

I wouldn't call it usury (which does have a definition in law), but certainly these are high interest loans. Now, I'll admit that the reason they are high interest is because they're unsecured.

I think any legislation that makes things clearer to the consumer is important. The banks could have done most of things on Flaherty's laundry list without legislation, but they didn't, so now they'll be compelled.

But I still think this is the warning shot. Things are going to get real ugly in the near future over merchant fees.

[Dave_ON]

The legislation does nothing to solve the problem of itself. It does make the consumer more aware of the extent of usury involved.

I feel there is ample documentation out there for the consumer to take advantage of. IMV the problem is that many consumers do not avail themselves of it. Further if they are having issue understanding the documentation they can visit a bank branch or even call into the customer service line for further clarification. I think there is more than enough information out there, what I think is lacking is something the government can't legislate, self motivation to educate one’s self.

I have no problems with the Banks making money, and the attitude that banks are evil and wealthy institutions that don't have a right to make money irks me. Regulations are needed absolutely, but this legislation doesn't really bring anything new to the forefront, other than the way payments are to be applied. Really the legislation just forces banks to make it even more clear how the system works. This won't solve the fundamental issue, and people who neither have the time nor the inclination to learn about the system still won't be any more aware of it.

As for the CPC's motivation for introducing this now I'm still not sure. It comes on the heels of strikingly similar legislation from the US and after much harping on the issue from the NDP. Fortunately the CPC's are fiscally responsible enough to not include the rather inane interest rate caps the NDP were pushing for.

[DFCaper]

I feel there is ample documentation out there for the consumer to take advantage of. IMV the problem is that many consumers do not avail themselves of it. Further if they are having issue understanding the documentation they can visit a bank branch or even call into the customer service line for further clarification. I think there is more than enough information out there, what I think is lacking is something the government can't legislate, self motivation to educate one’s self.

I have no problems with the Banks making money, and the attitude that banks are evil and wealthy institutions that don't have a right to make money irks me. Regulations are needed absolutely, but this legislation doesn't really bring anything new to the forefront, other than the way payments are to be applied. Really the legislation just forces banks to make it even more clear how the system works. This won't solve the fundamental issue, and people who neither have the time nor the inclination to learn about the system still won't be any more aware of it.

As for the CPC's motivation for introducing this now I'm still not sure. It comes on the heels of strikingly similar legislation from the US and after much harping on the issue from the NDP. Fortunately the CPC's are fiscally responsible enough to not include the rather inane interest rate caps the NDP were pushing for.

The government knows that people will not go too far to educate themselves. So anything that makes it easier the better. I do believe in some level of protection for the mentally disadvantaged.

I also have no problemwith banks making money neither. I doubt this will solve the problem completely, but may make improvements. There's no easy solution that both educates people and doesn't have a negative impact towards the banks. I like small movements in the right direction. It leaves room for the government to make additional changes after seeing the effect of these.

Also, the NDP are rarely right when it comes to money. I say let the free market set the rates...

[Argus]

I have no problems with the Banks making money, and the attitude that banks are evil and wealthy institutions that don't have a right to make money irks me.

Have a look at a documentary called Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders, and you might change your mind about that. Granted, it's a US feature on US banks but I've seen nothing to indicate Canadian banks are any more honest or above board. Canadian banks charge, for example, the highest rates in the world to manage mutual funds, more than double what American banks do, and they are far from quick to inform people about exactly what those fees are for and how they are justified. I don't think any Canadian institutions have been caught in as sleazy a practice as, say, shredding payment cheques so they can claim bills went unpaid and charge late fees, as one major US institution did, but there have been sizeable ethical lapses.

The documentary is available on-line, btw.

Edited May 22, 2009 by Argus

[jdobbin]

The legislation does nothing to solve the problem of itself. It does make the consumer more aware of the extent of usury involved.

Which is why I said it is a step in the right direction.

I don't see ending revolving credit or setting low interest as a government mandate happening in the short term.

[Moonbox]

I know others who were flooded out, used to card to pay for things not covered by insurance. Banks don't give you money to cover cost such as transportation and some possessions lost. Those people accessed the credit to help them get over the hump.

I don't think you can assume that anyone and everyone who does this is naive or ignorant. There are some who fall into the trap with no plan to get out while others use it to get over a tough patch and plan to pay up more quickly when on their feet again.

Working in the industry I can say Jdobbin is absolutely right.

I have no problem with the Conservative legislation.

I think it is smart and will be more transparent. We'll have to see how it works in practice to give a full thumbs up but it is a step in the right direction.

Personally I think they could have done better. I find it REALLY pathetic how the banks are allowed to unilaterally raise interest rate spreads across the board on existing PLC's because of 'costs' but in the face of 16+% spreads on credit cards (unheard of in recent times) they do nothing to make things fairer for consumers.

Why? Because they can get away with it. If anything the banks need MORE regulation. They can easily be profitable without screwing people over on a regular basis.

[Keepitsimple]

Lose your job and in the search for a new job, you can rack up debt on credit cards. It isn't always a trap but the most easily accessible credit when other credit might be harder to get. People then pay of that debt accordingly.

The point is that someone who loses their job might use the credit card to buy a suit, pay for transport to look for a job, cover the costs of an upgrade in education or training and be back working within a certain timeframe. I know lots of people like that who paying off a credit card in that regard.

I know others who were flooded out, used to card to pay for things not covered by insurance. Banks don't give you money to cover cost such as transportation and some possessions lost. Those people accessed the credit to help them get over the hump.

I don't think you can assume that anyone and everyone who does this is naive or ignorant. There are some who fall into the trap with no plan to get out while others use it to get over a tough patch and plan to pay up more quickly when on their feet again.

I have no problem with the Conservative legislation.

I think it is smart and will be more transparent. We'll have to see how it works in practice to give a full thumbs up but it is a step in the right direction.

Now that's the Dobbin I used to know. You're right with regards to people who are down on their luck. Perhaps the intent of more transparency with regards to the various types of cards will get some of those people thinking that they should select a card without any of the frills and get the lowest interest rate.

[Molly]

This is positive action, long overdue. I hope they take some more of the steps, but they get credit for doing this much.

[jdobbin]

Now that's the Dobbin I used to know. You're right with regards to people who are down on their luck. Perhaps the intent of more transparency with regards to the various types of cards will get some of those people thinking that they should select a card without any of the frills and get the lowest interest rate.

I think a card with more information on how fast it will take to pay it off will be useful to those with a plan to pay it off.

My feeling is that banks and the government should be more helpful in getting people to consolidate debt to the lowest interest and the payment plan best suited to each individual and family.

If the Tories stuck to their knitting on competent government, they would be a whole closer to winning a majority. Things like this show that Harper is prepared to address consumer needs and if you want to appeal to people beyond a narrow base, this is the way to do it.

There might be more to do on the issue. The NDP wants to use a more blunt instrument on the banks but a more deft approach is probably what is required.

[jdobbin]

Personally I think they could have done better.

There may be more to do but it is important to show industry what the government believes is the direction they want on consumer protection.

Sometimes industry can surprise you. I often point out that the solutions to the poisoning of Tylenol bottles. Government indicated what sort of consumer protection was needed and Tylenol produced results that ensured safety in their product. It is really a textbook case.

I find it REALLY pathetic how the banks are allowed to unilaterally raise interest rate spreads across the board on existing PLC's because of 'costs' but in the face of 16+% spreads on credit cards (unheard of in recent times) they do nothing to make things fairer for consumers.

This might be the next step.

I believe that this is where a Parliamentary committee or a commission of inquiry or even a Royal Comission might be good.

It is an issue that all parties and I don't just mean political could have a chance to analyze but to come up with solutions.

This is the stick to your knitting work of Parliament that might actually come up with results that affect people at the very basic level of their lives. Finance. Debt. Solutions. Options. In short, a plan to access credit and a plan to pay debt.

This is what life is all about for many people in Canada on both personal and corporate money issues.

Why? Because they can get away with it. If anything the banks need MORE regulation. They can easily be profitable without screwing people over on a regular basis.

We need a good plan of action. I want to see what the banks are capable of when they know the direction the government wants to go in terms of consumer protection.

Edited May 22, 2009 by jdobbin

[BubberMiley]

The burgeoning demand for housing on one end of the scale pushed the prices of that housing up - which tended to bump up all the other prices above them to unrealistic numbers, as well.

Do you really believe high demand for an 800 sq.ft. home in a rundown neighbourhood will push up demand for a brand new 3000 sq.ft. home? If you look at what builders have been building in the past 10 years, it has not been dominated by tiny shacks. It's great big Mcmansions, built to accommodate home theatres, playrooms, games rooms, home spas, large ensuite bathrooms and walk-in closets. That's where the real demand is, and the people buying them were by no means considered "poor."

If you really need to align the credit crisis with your ideology, you might try blaming the Chinese for selling us all that cheap crap that makes what was once an average-size bungalow seem, by today's standards, impossibly small.

[Topaz]

One thing the US did that Canada didn't do was make it illegal for someone under the age of 21 to hold a credit card. Most of this age group are in school and don't make that much money and would have trouble making their payments. Also, those low interest cards, my bank had theirs at 10 %, then when talk started about the credit cards, they raised it to 11%.

[bush_cheney2004]

One thing the US did that Canada didn't do was make it illegal for someone under the age of 21 to hold a credit card....

Really ?...that's news to me. The U.S. legal age minimum is 18 years......less for pre-paid "training wheel" cards with limits.

[Argus]

Do you really believe high demand for an 800 sq.ft. home in a rundown neighbourhood will push up demand for a brand new 3000 sq.ft. home?

Of course it does. If you raise minimum wage, then the guy who was earning .50 cents an hour higher than minimum wage previously now wants a wage rate to bump him up higher, and that travels all the way up through the various wage levels in an economy.

If a crappy 1000 sq ft house now sells for 100k instead of 80k, then a nicer, slightly bigger place which used to be 100k now gets bumped up to 120, and so on and so on.

[BubberMiley]

If a crappy 1000 sq ft house now sells for 100k instead of 80k, then a nicer, slightly bigger place which used to be 100k now gets bumped up to 120, and so on and so on.

But if the demand is for small, crappy houses, that's what's going to rise in price. As much as Republicans have tried to blame the credit crisis on poor people exclusively, it is really the result of people of all income levels buying what they can't afford. The demand for housing was highest in the Mcmansion category, which starts around a half-mil where I come from in cheap Winnipeg.