Senator Pierrette Ringuette

DOUGH: HIGH-INTEREST CREDIT Rates have card holders seeing red

CARLY WEEKS If recession-weary Canadians were asked to name their personal source of financial animosity and frustration, chances are they would single out credit-card companies.

Complaints over high-interest rates of 18 to 24 per cent, hidden fees and increases to monthly payments have become a common refrain among consumers feeling strapped for cash or financially uncertain.

Adding insult to injury is the fact that the Bank of Canada's key interest rate is at an all-time low, and that federal economic stimulus cash will do nothing to stop the clockwork arrival of monthly statements or the double-digit interest rates being charged on last month's grocery purchase.

Fed up consumers have been using blogs and online forums to spew venomous outrage at the practices of credit-card companies during the economic downturn. One of the most commonly cited grievances is the fact that some card companies have started to raise interest rates after customers miss payments.

"It's frustrating for me," said Lesly Notter, who lives in Ajax, Ont. "I can't understand why the government hasn't stepped in." Ms. Notter said she and her husband have several credit cards and their interest payments are high every month. While she hasn't lost her job as a work-from-home administrative assistant, she said her interest rates were raised (since lowered after she called the card company to complain) and she has become increasingly frustrated on behalf of people who have been laid off or are struggling for money. So she created a Facebook group to criticize what she describes as unfair practices by the companies.

Consumers have to take responsibility for purchases made on credit, she said. But the current economic climate and increasing layoffs have forced a growing number of Canadians to rely on their credit cards, which is spurring anger over creeping interest rates and other fees.

"Everybody's got credit cards and this is what's killing people," Ms. Notter said. "Where's your money going to go first? Is it going to go to the credit card? No, it's going to make sure there's food on the table." The growing fervour made it onto the political agenda in last fall's federal election, with NDP leader Jack Layton calling for a cap on credit-card interest rates.

Despite the anger, many Canadians are resigned to believe that demanding lower interest rates and increased transparency from card issuers is a pointless battle.

But they could be wrong. Other countries have made credit-card reform a priority, showing that in the face of a brutal economic turndown, even age-old practices can change.

The U.S. House of Representatives passed a credit card "bill of rights" last September that would prohibit arbitrary rate increases, prohibit excessive fees, allow consumers to set limits on their credit and require Congress to improve oversight of the industry.

The bill died in the Senate - and President George W. Bush had promised to veto it if it gained approval. But the bill was recently reintroduced and many are hopeful it will pass and become law under the new administration.

In December, the Federal Reserve adopted new rules that would protect consumers from sudden interest rate increases and other controversial practices. The problem is the changes won't come into effect until July, 2010, so many lawmakers are hoping the credit-card bill of rights can become law quickly.

Australia was a pioneer of credit-card reform several years ago.

The government allowed stores to charge customers more for using credit cards, a move designed to help retailers pay credit-card transaction fees without having to raise prices on all consumer goods.

While the changes have been criticized by credit-card companies and even some consumer groups as not doing enough to benefit the public, Australia's actions are seen by some, including a Canadian senator currently pushing credit-card reform, as an example to follow.

In Canada, two separate investigations into credit card rates and fees led by Senate and House of Commons committees are set to begin in the coming weeks.

"From my perspective, we're lagging five years behind in regards to taking action," said Liberal Senator Pierrette Ringuette, who tabled a motion that led to the Senate banking committee's investigation of credit card rates and fees. "There's no rhyme and reason for [high interest rates] at all." But Canada's banks argue that's simply not true. Interest rates are higher on credit cards because they're high-risk loans, and consumers shouldn't expect a break at a time when more people are defaulting on payments and the worldwide economy continues to stumble, said Nancy Hughes Anthony, president and CEO of the Canadian Bankers Association. The association represents many of the country's banks, which issue credit cards and set interest rates.

"We are obviously starting to see a higher percentage of write-offs in the credit-card marketplace because of the nature of a credit card. It's priced higher than some other things because it's basically unsecured credit," she said.

A report released by Deloitte & Touche last month said credit-card delinquencies had risen between 5 and 10 per cent at the end of last year. The same report said consumer credit-card debt in Canada has risen nearly 40 per cent since 2004.

And while the Bank of Canada slashed its key interest rate to 0.5 per cent earlier this month, Ms. Hughes Anthony said that rate primarily affects only a small portion of short-term overnight loans.

The problem for banks and credit-card holders alike is that lending has slowed around the world, and available lending has become more expensive as a result.

Ms. Ringuette, however, doesn't buy that argument and said credit-card companies could easily afford to cap rates to make life easier for cash-strapped Canadians.

Visa Inc. referred questions about credit-card interest rates to the Canadian Bankers Association.

MasterCard Canada said in a statement that credit-card interest rates tend to be higher because "as unsecured loans, they are different than mortgages or other secured loans. . . .

Issuers must manage their portfolios in light of increasing rates and risk of consumer default in order to ensure the system continues to operate well." MasterCard Inc. said profit fell 21 per cent to $239.4-million (U.S.) in the fourth quarter of last year compared with the previous year. Visa Inc.'s profit rose 35 per cent to $574-million (U.S.) in the first quarter, compared with the same time last year.

"They're making huge profits," she said. "If they want to squeeze the consumers and the small and medium-sized businesses out of the economy, they won't have that profit."