Protecting Consumers and the Economic Recovery

February 19, 2010

Responsible management of our personal finances is a must, particularly during tough economic times yet, many of us do not have the tools or financial literacy to make informed decisions.

Government cannot make our personal financial decisions for us but it can ensure that Canadians have access to consumer credit on terms that are fair & transparent. 

In recent months, our Government has taken steps to protect consumers by improving the terms and conditions surrounding  credit cards, established Canada’s Task Force on Financial Literacy to improve financial education and, just this week, taken steps to protect consumers from assuming too high a mortgage debt.
We’ve all heard the horror stories in the United States of people losing their homes because they entered into big mortgages at low interest rates but could not afford payments once interest rates soared and faced foreclosure.  It affected families and it hurt the American economy.

While Canada has a very strong financial system in place and does not face the same threat, some Canadians are being tempted by low interest rates to take on debt loads they cannot sustain.

To ensure that this does not happen, the Finance Minister, this week, made some minor adjustments to the rules surrounding the lending of money for mortgage debt.

Primarily of interest to potential homeowners is the Government’s requirement that first-time homeowners must be able to meet their mortgage payments based on a 5 year, fixed term.  This ensures that when interest rates rise, new homeowners will still be able to meet their financial commitments.

In the case of credit cards, countless Canadians have signed up for credit cards hoping that this new found credit will make their lives better. For many Canadians, credit cards are the only form of credit that they hold.

While most of the almost twenty-five million Canadians who have credit cards use them responsibly, some Canadians find themselves spiralling into growing and unmanageable debt.  This is especially true during times of economic hardship.

It doesn’t help that some credit card companies have practices in place designed to draw in and confuse customers, while at the same time securing huge profits for themselves.

The Government has taken action to help protect Canadians with new regulations that will help inform and protect Canadians who choose to use credit cards.

New regulations require that:

• Credit card companies will have to spell out the terms of their contract clearly by providing a summary of minimum grace periods, interest rates on purchases, balance transfers and advances, and the length of time it will take to pay off your credit card if you only make minimum payments.
• Purchases will be interest-free for 21 days.
• Payments must be allocated so they are of the greatest financial benefit to the customer, instead of to the credit card company.
• No fees can be charged for exceeding your limit if your limit was exceeded due to holds put on customers’ accounts.
• Credit card companies must seek consent from the consumer before raising credit limits.
• Credit card companies must give customers timely notice when their interest rates change.

I think we all agree that access to credit is an important part of managing our finances and keeping our economy going, especially in times of economic restraint. 
Whether you are applying for a credit card or buying a house and assuming a mortgage, responsibly and prudently managing credit is important for all of us.

By ensuring Canadians are treated fairly by lenders and improving Canadians financial literacy, the Government is protecting consumers and the health of our economy.

Ron Cannan is the Member of Parliament for Kelowna-Lake Country and can be reached at 250 470-5075 or ron@cannan.ca.  For more information on ways the federal government is helping consumers, please go to www.fin.gc.ca or www.gc.ca .