A Quick Overview of the New Credit Card Legislation

Earlier this year, the Standing Senate Committee on Banking, Trade and Commerce held hearings on consumer and small business issues related to credit and debit cards. A number of stakeholders that appeared before the committee called on the government to take action in respect to credit cards. As a result, on May 21, Canadian Finance Minister Jim Flaherty proposed changes to existing rules that govern credit cards.

The proposed credit card rules are aimed at helping Canadians who are unable to pay their outstanding credit card balances by ensuring they are treated fairly and that interest rates and penalties are clearly shown. 

The Proposed Credit Card Regulation Changes Would…

• Prohibit over-the-limit fees solely arising from holds placed by store merchants.
• Limit debt collection practices currently used by financial institutions in contacting a consumer to collect a debt.
• Mandate allocations of payment that will result in lower interest costs favouring the consumer.
• Assist consumers in keeping better track of their finances by having to ask their credit card company to raise their credit limit as opposed to the company automatically raising rates.
• Mandate a 21-day, interest-free grace period on all new credit card purchases.

The Proposed Changes to the Cost of Borrowing Rules Would…

• Provide clear information in credit contracts and application forms through a summary box that will state important information such as interest rates and fees.
• Offer assistance to consumers to help them manage their credit card responsibilities by providing important information such as how much time it will take to fully repay the balance if every month only the minimum payment is made.
• Mandate credit card companies to disclose interest rate increases before they take effect, regardless of whether or not this information appears in the signed contract.

Many Canadians do not fully understand interest rates, credit card fees and increases to monthly payments because credit contracts are full of legal jargon. This can make things very challenging when managing a credit card. The director of the Social and Enterprise Development Innovations' Canadian Centre for Financial Literacy, Casey Cosgrove, stated that the above proposed measures will help educate the public by providing clear information to the consumer. 

Finance Minister Jim Flaherty commented, "These proposed amendments will ensure Canada remains at the forefront of consumer protection in the financial services sector."

Support for Regulation Changes

An official statement released by MasterCard Canada on May 21 stated: "MasterCard supports all measures announced today designed to promote further transparency and disclosure for cardholders and appreciates the consultative process Minister Flaherty undertook in determining these measures." 

Retail Council of Canada president, Diane Brisebois, said the regulations are a step in the right direction. Ms. Brisebois commented, "It demonstrates that the federal government recognizes just how serious the problem has become."

The Department of Finance is accepting submissions from the public and the business sector who have concerns regarding the proposed regulations up until June 13, 2009. It is expected that these proposed regulations will be enacted later this year.

To see an interview from BNN with Finance Minister Flaherty, click here or on the photo above.

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This guest post was written by Karen Stephenson. Karen is a freelance writer, journalist and editor. Her work has been published in numerous magazines and newspapers as well as online publications. She currently writes for several web sites.

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