Feds announce credit card regulations to take effect within months

Canada's banks will now be required to increase payment details on credit card statements and to provide a standardized grace period to pay off purchases.

This, despite a warning from the Canadian Bankers Association about "unintended consequences" that could hurt consumers.

After a brief consultation period, Finance Minister Jim Flaherty on Wednesday said most of the new regulations will take effect Jan. 1, including a new summary box on credit contracts and application forms that highlights interest rates and details about how long it would take to fully repay the balance if only a minimum payment is made each month.

The biggest change — mandating Canada's federally registered banks to grant their customers a minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full — won't take effect until next September. Flaherty said this switch will cost banks "tens of millions of dollars" in lost revenue.

"Our government understands the pressures Canadians face in these tough economic times," said Flaherty. "The last thing they need is a surprise on their credit card statement. By increasing transparency, our government is taking real action to protect consumers."

The newly published regulations also will require cardholders' consent for credit limit increases; limit debt collection practices used by financial institutions; and prohibit over-the-limit fees solely arising from holds placed by merchants.

Banks also will be required to provide advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract; currently, banks are already required to provide 30 days' notice when they plan to hike rates.

After Flaherty presented the proposal in May, the Canadian Bankers Association warned that its members were "concerned about the potential for negative impacts on consumers" if the government moved forward with the regulations, including limiting the number of credit cards options available and reducing the availability of credit to some customers."

In an interview Wednesday, association president Nancy Hughes Anthony reiterated these concerns, saying each bank will have to assess its own business plans as it implements the new regulations.

"It's complex, it's obviously very costly for banks to implement all these things within the time frame required, and I hope that it will have the benefit to consumers that the intent is and we're going to try and absolutely make that happen," said Hughes Anthony.

Opposition politicians, however, say the regulations are incomplete.

"Obviously, it's missing the most important thing in our opinion, which is the high interest rates, the excessive fees and the unsolicited premium cards with even higher interest rates. So there's no protection and no relief coming there, and that's what I think Canadians with credit cards are looking for," said Ontario MP Glen Thibeault, consumer protection critic for the New Democrats.

Added Dan McTeague, the Liberal consumer affairs critic, "Notification that your interest rates are going up doesn't provide any real help to consumers."

Millions of consumers who don't deal with Canada's big banks won't see any difference in the way interest is calculated on outstanding balances.

That's because financial institutions such as National Bank, HSBC Bank, Laurentian Bank and the HBC retail credit card issued by GE Money Canada, along with provincially regulated financial institutions, already meet or exceed the federal government's new threshold for a minimum 21-day grace period and the accompanying new rule that will require cardholders to pay interest only on any balance — but still enjoy a 21-day grace period on new purchases.

However, the method currently used by the Bank of Montreal, Royal Bank, TD, Scotiabank and CIBC for the application of grace periods will have to be changed.

For example, if a customer currently using a card issued by BMO, CIBC, Scotiabank, RBC or TD carries a balance of $300 from April into May, and makes a new purchase of $50 in May, he has to pay interest on the $300 and on the new purchase of $50 in June, without any grace period, because he carried a balance from April.