Another article in the Toronto Star’s series on credit cards covered what the outrageous interest rates being charged actually cover:

The Canadian Bankers Association says there is no direct relation between the Bank of Canada’s key interest rate, which influences the commercial banks’ prime rates, and consumer rates on credit cards.

In fact, the Bank of Canada rate represents less than 1 per cent of banks’ overall funding costs, it says.

Many factors go into setting credit-card interest rates, including:

“Credit-card interest rates tend to be higher than other loans because there is no collateral involved so there is a higher risk for the issuer,” the association says.

Its president and chief executive officer, Nancy Hughes Anthony, also stresses that the vast majority of Canadians pay no interest at all.”They pay zero because … 70 per cent of Canadian households regularly pay off their credit card balances in full every month,” she said.

Tags: Credit cards, Interest rates