Government Helps to Protect Canadian Credit Card Users

After numerous public consultations, the Canadian government announced on September 30 that new credit card regulations were approved.

The Canadian Bankers Association has some opposition to these changes and they hope that these regulations do not have the unintended consequence of doing more harm than good to the consumer, as evidenced in the US.

Most of the new regulations will be effective on January 1, 2010. But others, like the 21-day interest-free grace period on all new purchases, won't come into effect until next September.

New regulations

Credit card issuers will be required to provide a summary box on contracts and application forms that clearly explain important factors such as the interest rate and card fees. The new law also makes it mandatory to inform credit card holders how long it would take to fully repay their balance if only a minimum payment is paid monthly.

The government is also urging banks to give consumers advance disclosure of interest rate increases prior to the increase taking effect, regardless of whether or not this information is in the credit card contract.

Currently, many credit cards automatically raise credit limits. This will no longer be permitted. Credit card holders will have to ask for express consent to have their credit limits increased.

Other regulations at a glance

• Allocations of payments will favor the consumer when balances are transferred to a lower-interest credit card.
• Some debt collection practices currently used by financial institutions will be limited.
• Over-the-limit fees that occur due to an item being placed on hold by a merchant will be banned.

Understanding interest rates, fees, and increases to monthly payments are challenges that many credit card holders face when managing their credit cards. Part of Canada's Economic Action Plan was designed to help credit card holders attain a better understanding of their credit cards.

Knowing more about credit cards may be important, but opposition politicians say that these new regulations are lacking the most important item. Interest rates in recent months have dropped to incredible lows. Meanwhile, credit card interest rates are still sitting high in too many cases. Credit card consumers will get no relief where it's needed the most: in a reduction of the interest rate.

Regardless of the opposition politicians, these changes are anticipated to help many Canadians credit card holders in 2010.