Why are credit card rates not coming down in the COVID-19 crisis?

As governments rush to offer financial relief packages to homeowners, renters, small businesses and employees impacted by COVID-19, some Canadians are wondering why credit card bills aren't included in those measures.

As governments rush to offer financial relief packages to homeowners, renters, small businesses and employees impacted by COVID-19, some Canadians are wondering why credit card bills aren't included in those measures.

Most Canadians pay an interest rate that's far higher on their credit cards than they do for other forms of debt, which can make them an even more onerous burden that they have to carry in these unprecedented economic times.

Vicky Assad runs a small digital print shop in Ottawa. She has been in business for 23 years, and up until two weeks ago, 2020 was poised to be a decent year for her financially. 

But the COVID-19 pandemic has changed all that, just as it has for many Canadians. She says she's doing what she can to keep her business afloat and keep her staff of five on the payroll, but the interest rates between 13 and 23 per cent that she has on three different personal and business credit cards are making a hard job even harder. 

“I would like to make the minimum payment on my credit cards, but the interest rate is going to really hurt me,” she told CBC News. “I am hearing a lot from the government about relief to the average Canadian, but I am not hearing anything about lowering credit card interest rates … why [is that] not a priority?”

Calgarian Mario Baggio finds himself asking the same question.

“Some credit cards charge 29 per cent, which seems ridiculous during these times,” he told CBC News. “What are financial institutions and credit card companies doing to help out Canadians and seniors during this crisis?”

Rates capped at 60%

Unlike mortgage rates, which are largely priced based on what's happening at the Bank of Canada or the bond market, the rules concerning how much a lender can charge for a credit card are far more profitable.

By law, interest rates of more than 60 per cent per year are forbidden, but most of Canada's 75 million active credit cards charge much less than that, around 20 per cent per year. The Canadian Bankers Association says there are 30 different credit cards available for Canadians right now that charge under 13 per cent per year.

That's still much higher than rates for other forms of debt, including mortgages and business loans, and there are, indeed, many valid reasons why that's the case. Credit cards are known as “unsecured” debt because the credit on them isn't secured to any specific asset — there's no collateral against the loan.

That differs from something like a mortgage, where the loan is secured against the house, which theoretically makes it easier for the lender to seize that asset should the borrower not pay their bills.

Credit cards have higher rates in order to offset that higher risk, but the rates are still high considering how relatively low the default rate is. Credit monitoring firm TransUnion says that at the end of last year, less than three per cent of Canadians were more than 90 days behind on their credit card's minimum payment.

The average Canadian credit card had about $4,326 on it as of the end of December.

‘Take action to alleviate the burden': Trudeau

Prime Minister Justin Trudeau has said the government is working with credit card providers to offer some sort of relief to customers.

“We recognize that they are a significant challenge for many Canadians at this point,” Trudeau said at his daily press conference on March 26. “That is why we are encouraging them to take action to alleviate the burden for Canadians.”

Last month, Canada's five biggest banks — the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Scotiabank and CIBC  — came out in unison with pledges to work with homeowners to offer interest-rate relief on their loans if necessary.

They all say they are also working closely with customers who have business loans to make sure they can stay afloat.

The joint statement said the banks would also offer “the opportunity for relief on other credit products” but have had scant details to add to that since. 

Bank association promises relief

The Canadian Bankers Association told CBC News in an email that its members have “stepped up to help our country work through these challenging times.”

Its mortgage relief programs have been inundated with more than 213,000 requests for payments deferrals, the association said.

The CBA says the big banks are willing to work with their customers who are having trouble with credit card debt to find solutions, but its statement did not give specifics of what that might look like.

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“Banks will work with their customers to offer relief on other credit products, including credit cards and lines of credit,” the CBA said.

“Many banks have programs to help their customers make their debt more manageable and structure the right solution, including rolling in credit card debt into term products with lower interest rates. Banks will work with Canadians to help them manage credit effectively during this difficult time.”

That pledge stops well short of an across-the-board rate cut, something some politicians have been pushing for.

NDP finance critic Peter Julian and industry critic Brian Masse have been calling on the federal government for days to ask banks and credit-card companies to lower interest rates.

“So far, the government has found ways to help corporations right away, but they are still making Canadians wait weeks,” said Masse in a statement.

“Waiving the interest on credit cards for two months would immediately help Canadians get through until the federal programs kick in.”

PC Financial was set to increase the rate on its PC Financial MasterCard by one percentage point starting next month — from 19.97 per cent to 20.97 per cent per year — but has shelved that plan, citing the “unprecedented times.” 

“We've been closely monitoring as this situation evolves and have decided to defer this change until further notice,”

 PC Financial told CBC News in a statement.

“We've also been working with customers, case by case, who may be experiencing financial hardships during this time. We hope this can offer some relief for customers and their families.”

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