Senator Pierrette Ringuette

Credit card debt measures an 'insult'; Vague proposals are no substitute for a cap on rates, critics charge

The federal government's clumsy attempt to regulate credit card lending through measures in the budget will do little to beef up consumer protections, critics charged.

Earlier this week, Finance Minister Jim Flaherty outlined a handful of proposals to better assist consumers in making "informed decisions" when using credit. But various politicians and some members of the business community said yesterday his plan lacks teeth.

Liberal Senator Pierrette Ringuette called Flaherty's proposals an "insult," arguing he should have introduced rules to shield consumers and businesses from rising interest rates and fees. She raised those concerns with Liberal Leader Michael Ignatieff but also urged the Senate to investigate the industry.

"Facing a difficult financial situation, some Canadians will depend more on credit," Ringuette said. "Given the current state of our economy, consumers need to pay less interest to sustain their purchasing power."

Flaherty's proposals include a new task force on financial literacy, while "strengthening disclosure requirements" on banks that issue credit cards. That involves simplifying the language on documents, while providing "clear and timely advance notice" of rate and fee changes.

Additionally, the government "will propose to further enhance consumer protection by limiting business practices that are not beneficial to consumers. " Measures could include minimum grace periods on new purchases and changes to debt collection. The budget, however, was short on specifics.

Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, said banks stand ready to work with the government on improving disclosure but also want more clarity on which business practices it would seek to limit. "I have to say that raises questions in a competitive market, such as the credit card market, what that exactly would mean to consumers?"

There are more than 23 companies issuing credit cards and there are more than 68 so-called low-rate cards on the market. Statistics also show most Canadians pay off their balance in full each month. Yet, new data suggest balances are rising for many others even though some banks have raised rates.

MP Dan McTeague, the Liberal consumer affairs critic, said Flaherty's proposals offer "cold comfort" to consumers facing rate hikes. He wants a cap on rates set at 12 per cent above the banks' prime rate. The NDP, meanwhile, wants the ceiling set at 5 per cent above prime.

"The real issue is the fact that so many Canadians right now are one or two paycheques away from poverty," said NDP deputy leader Thomas Mulcair. "Other people are using their credit cards for the types of purchases that would normally be considered currency expenses in a household - like groceries ... And they are racking up huge credit card debts that they have to pay off at 23 (or) 24 per cent."

Credit Canada's executive director Laurie Campbell doubts rates will fall and welcomes budget initiatives to improve financial literacy. "Credit cards are a huge problem for our clients," she said, yet few people understand how interest is charged. "We've done a crappy job of educating people."

Retailers, meanwhile, applauded Ottawa for taking steps to regulate credit cards. But the Retail Council of Canada also said Ottawa hasn't gone far enough to control fees paid by merchants, small business and others that accept credit cards.

"Canadian businesses continue to pay some of the highest merchant fees in the world and we will continue to press for a formal review of the Canadian credit and debit card systems," said president and CEO Diane Brisebois.