The Toronto Star reported that new credit-card regulations will end up costing Canada’s banks “hundreds of millions of dollars” and could leave consumers feeling even more confused about their bills, the head of the Canadian Bankers Association says.
Nancy Hughes Anthony also warned Wednesday that implementing such complex regulations within a “compressed timeframe” could lead to other unforeseen consequences, such as less consumer choice and reduced credit availability.
“It is very expensive for banks to put this in place,” Hughes Anthony said in a telephone interview.
Regulations aimed at beefing up disclosures – such as a new customized calculator requiring banks to inform consumers how long it would take to pay off their bills if they make only the minimum monthly payment – are “hellishly complicated” given that 68 million card statements are mailed out each month.
Moreover, the added information “is going to end up being potentially more confusing for the consumer, than it is enlightening,” she said.
Banks may also react to the extra costs by reducing the number of products they offer. Fewer credit card options could result in less credit availability for consumers.
And the new paperwork burden for credit limit increases could make banks less flexible about granting on-the-spot hikes. The new rules require expressed consent from cardholders. If the consent is given orally, banks must provide written confirmation of that consent in short order.
“If you’re … in Ikea about to buy a sofa and your card bounces, then I’ll hope you’ll understand that’s as a result of these new regulations,” Hughes Anthony said.
Finance Minister Jim Flaherty said the majority of new rules would come into force on Jan. 1. He did cut banks some slack on one key provision – a 21-day grace period on new purchases when consumers pay an outstanding balance in full by the due date – by delaying its implementation until Sept.1, 2010.
The new rules, first announced in May, also require a “summary box” on credit contracts and application forms that clearly explains features such as credit card interest rates and fees. Also required: Advance disclosure of interest rate increases and limits on certain debt collection practices, along with other measures.
Opposition critics dismissed the regulations as a toothless information campaign. “Notification that your interest rates are going up doesn’t provide any real help to consumers,” said Liberal consumer affairs critic Dan McTeague.
Consumers, he said, should be given the right to “opt out” and choose a lower-rate product, such as a line of credit, if slammed with higher costs.
“We’re completely missing the boat on what’s really hammering Canadians in this economic downturn – these high interest rates and, of course, all of these excessive fees,” said Glenn Thibeault, the NDP’s consumer protection critic. He wants credit-card interest rates capped at five percentage points above the banks’ prime rates.
A leading consumer group said the proposals are good as far as they go but is expecting to see more after recent meetings with Flaherty.
Bruce Cran, president of the Consumers Association of Canada, declined to say what additional measures the group is hoping the minister will introduce.
“We’ve been in touch with Mr. Flaherty and his staff to add more items to the list which we believe we’ll see in future,” Cran said.
Retailers and small business operators say they welcome measures that protect consumers but are still waiting for Flaherty to do the same for them.
The business owners say the fees they pay to accept credit cards hit $4.5 billion last year and are spiralling out of control. They also fear the same thing is about to happen to debit as Visa and MasterCard enter that market.
“We’re hoping the minister will also consider looking at taking similar steps in relation to the banks and their credit card practises and merchants,” said Diane Brisebois, president and chief executive officer of the Retail Council of Canada.