The Toronto Star is running a series on Canadians and credit cards this week which provides a great insight into how the high interest being charged on cards are really hurting Canadians already in trouble from the recent recession and mounting debt. The first installment on the weekend was called “Canadians struggling to dig out of debt“.
This has become such a huge topic that Finance Minister Jim Flaherty and the competition committee, is taking a look at the interest credit card companies charge and may impose limits and further restrictions on them.
Here are some of the most poignant facts from the story:
- Total outstanding credit-card debt hit an eye-popping $78 billion in September, up from $76 billion in September 2008, according to Equifax Canada
- Credit card delinquencies – bills at least 90 days overdue – shot up by 53 per cent during that time to $3.6 billion
- Among major cities, Toronto has the highest consumer delinquency rate in the country at 2.14 per cent in October. That’s up 24 per cent from October 2008 and well above the average national rate of 1.67 per cent.
- Canadians spent almost $267 billion on their credit cards last year.
- It now costs $4.5 billion a year in merchant fees alone to run the system, according to the Retail Council of Canada. That works out to about $400 per Canadian household, meaning consumers ultimately foot the bill in the form of higher prices.
- In fact, critics of the industry say low-income consumers are among the most lucrative cardholders for banks, which issue about 92 per cent of credit cards in Canada.
- The banks point out that about 70 per cent of Canadians pay off their bills in full every month, and do not incur any interest.
- Median earnings for the bottom 20 per cent of earners sank by 20.6 per cent from $19,367 in 1980 to $15,375 in 2005, according to Statistics Canada. Meanwhile, median earnings for the top 20 per cent of workers increased by 16.4 per cent to $86,253 over that same period.
- Low-income Canadians have also seen their net worth tumble in recent years. Families in the bottom 20 per cent saw their median net worth fall by 9.1 per cent to $1,000 from 1999 to 2005, while the median net worth of the richest group shot up by 28.5 per cent to $862,900.
- Against that backdrop, the poorest Canadians also experienced a 2.4 per cent increase in their debt load for each $100 of assets between 1999 and 2005. In contrast, the debt load for the top 20 per cent grew by only 1.6 per cent over that same period.
- This is worrisome because census data showed that 11.4 per cent of the total population, or more than 3.48 million people, lived in low income in 2005 on an after-tax basis.