Conservative Government Improving Canada’s Credit Card System

June 03, 2009

Most of us have received a flashy credit card application through the mail, promising thousands of dollars in credit and an easy application process. But how many have taken the time to read the huge, complicated and confusing list of terms and conditions that accompany the application?

As they are seductively easy to apply for, countless Canadians have signed up for credit cards hoping that this new found credit will make their lives better. For many Canadians, credit cards are the only form of credit that they hold. And while most of the almost twenty-five million Canadians who have credit cards use them responsibly, some Canadians find themselves spiraling into growing and unmanageable debt.

While individuals must act responsibility with their credit cards, it doesn’t help that some credit card companies have practices in place designed to draw in and confuse customers, while at the same time securing huge profits for themselves. That’s why the Conservative government is taking action to help protect Canadians with new proposed regulations that will help inform and protect Canadians who choose to use credit cards.

To encourage and reward those who pay their balance on time, all purchases will be interest-free for 21 days. This gives customers the option of paying off their full bill without generating any further costs.

Lots of Canadians use their credit cards for cash advances or transferring money, in addition to normal purchases at a shop or grocery store.  And sometimes, when those Canadians then pay off a chunk of their bill, the credit card company puts the payment towards a part of the bill that is having lower-interest charged on it. That means that the higher-interest cash transaction will still be sitting there, generating more interest and profit for the credit card company.

The new regulations say that payments must be allocated so they are of the greatest financial benefit to the customer, instead of to the credit card company.

Most credit card companies charge a fee for exceeding your credit limit. However, businesses like hotels and gas stations will frequently put a hold on your account that could force subsequent purchases to go over your limit. The new regulations prevent these fees from being charged in situations where holds are put on customers’ accounts.

While the limit on a customer’s card is agreed on between the credit card company and the customer, sometimes companies will decide to raise the customer’s limit without asking first. In some cases, customers are uncomfortable with having huge and unnecessary credit at their fingertips, feeling as though it is more temptation to spend on things they do not need. Now, credit card companies will have to seek your consent before they raise your credit limit.

And what about those long and confusing terms and conditions?

Now, credit card companies will have to spell out the terms of their contract clearly by providing a summary that clearly outlines the most important parts of the contract, including things like minimum grace periods, interest rates on purchases, balance transfers and advances. This way, customers will be able to compare and understand the benefits — and the pitfalls of what the credit card companies are offering.  As well, customers will be given information regarding how long it would take them to erase their debt by only making the minimum payments.
Finally, the Conservative government is requiring that credit card companies must give customers a timely notice when their interest rates change. Now, customers who receive a credit card will know ahead of time if their initial rate is going to change.

Access to credit is an important part of keeping the economy going, especially in this time of global economic trouble. But responsibly and prudently managing credit is equally, if not more, important for all of us. That’s why the Conservative government is taking action to help Canadians have a better understanding, and relationship with, credit cards.

Guy Lauzon, MP
Stormont-Dundas-South Glengarry