Canada to impose new credit card regulations
The new measures, to be voted on in June in Parliament, will grant cardholders an interest-free grace period of 21 days on purchases when they pay their card's balances in full. Currently most credit cards offer a 15-to-24 day grace period, but companies can run up interest on an account over that period even if the balance is paid in full that month.
The U.S. Congress' bill, signed into law by President Barack Obama on May 22, will require consumers receive at least 45 days' notice and an explanation before their interest rate is increased, and a consumer would have to be more than 60 days behind on a payment before seeing a rate increase. If the cardholder pays the minimum balance on time for six months, the lender would have to restore the original interest rate.
According to Canada Finance Minister Jim Flaherty, the regulations will not be as far-reaching as the American ones, but will guarantee that Canada fully protects its consumers, much to the chagrin of credit providers. "This is a major change that was resisted by financial institutions," Flaherty said. "It will cost them tens of millions of dollars a year."
In the proposed amendment, companies would also have to issue monthly statements telling consumers the estimated time it would take to pay off a balance using just minimum payments, and that the companies issue card contracts and applications that summarize a card's interest rate, grace period and fees. Companies would need to gain the consent of their customers to increase their credit limits. If a cardholder is in debt, companies will be prohibited from certain collection practices, such as contacting the customer during certain hours.
As is, the new rules will not cap interest rates, but will mandate that issuers warn consumers of changes in interest rates. According to Flaherty, the regulations will allow the price of credit to be more in the hands of the cardholder. "I believe in consumer choice," he said. "If someone wants a lower rate on a card, that information is available for consumers to choose from." While Canada does not immediately plan to limit credit card rates, Flaherty also said the notion of capping interest is being examined by parliamentary committees.
The Canadian government will begin hearing input on the proposed legislation beginning June 13.
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