Canadian Families to Be Hit Hard By New Credit Card Guidelines
Those who hold credit cards that are issued by MBNA Canada Bank received notices recently that Canada’s number one issuer of MasterCard will be altering the formula for which it calculates the minimum monthly payments that are due from consumers. MBNA Canada Bank is not alone in its actions; nationwide, many other card companies are following suit, all in accordance with new federal guidelines that seek to make consumers more aware of the terms of their credit cards.
For illustration, MNBA cited that the minimum monthly payment that was previously $185 would skyrocket to $307, which is an astounding increase of around sixty-six percent. MNBA notes that the higher payment amount would help to reduce interest costs that will allow consumers to pay off their account balances faster.
Canadian households have been exploiting the low interest rates offered by card issuers to the point of taking on a record amount of personal debt that numbers into the trillions – a debt that has doubled within the past ten years to the equivalent of more than $40,000 of debt for every human being in the country, man, woman, or child. In fact, Canada now has the highest level of household debt of twenty of the most advanced economies in the West. As a consequence, the number of Canadian households that are filing for bankruptcy has also never been higher. In fact, the end of 2009 saw a twenty percent increase in the number of families who were in economic crisis.
Household debt encompasses mortgages, bank loans, and credit cards. But more and more of the credit card debt in this country is being written off as “bad’ loans, despite a marginal decline in the number of people defaulting on their credit cards nationwide. The credit card industry has gone from being one of the most profitable lending arenas to one of the least profitable, narrowly averting calamity. In fact, the credit card industry’s ‘brush with death’ has led it to modify the way that it operates, including strategic revisions of its business practices and its operating models, while some companies have decided to completely exit the credit card industry altogether.
Currently, Canadians hold outstanding debt of $72 billion, with over 37 million debit card and 72 million credit cards scattered around the country. But many are struggling already to meet their minimum monthly payments. In fact, the number of credit card holders that had a delinquency noted on their accounts rose by fifty percent in 2009. And while not all credit card holders that are delinquent with their payments will end up defaulting on the credit card, new strategies by card issuers like MBNA that require higher minimum payments may force many more of them into default. Millions of Canadians live close to the margin, and those who struggle to make a payment of $185 will no doubt have even more trouble coughing up $307.
