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More than 70 million credit cards are in circulation in Canada, making it important for consumers to think before pulling out the plastic for purchases, experts say. ((Associated Press))

Credit card debt has eased, but is still plaguing millions of Canadians just over a year after new federal rules took effect — a warning to consumers not to pull out the plastic mindlessly as the holiday spending season approaches.

The Financial Consumer Agency of Canada (FCAC), an independent body established 10 years ago this week to protect and inform consumers of financial products and services, is tasked with ensuring credit card regulations are being followed by payment card network operators, including Visa and MasterCard.

The regulations include a minimum 21-day interest-free grace period on new purchases and clearer bills, but Finance Minister Jim Flaherty didn't move to cap exorbitantly high interest rates or retailer transaction fees, raising the ire of interest groups.

Some of the new federal credit card regulations:

  • 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full.
  • Any payment made in excess of the required minimum must either be allocated to the balance with the highest interest rate first, or distributed proportionally to each type of balance (i.e., cash advances, purchases, etc.).
  • Information must be put on the cardholder's monthly statement on the time it would take to fully repay the balance, if only the minimum payment is made each month.
  • Card companies must give advance disclosure of interest rate increases before they take effect.
  • Require express consent of cardholders for credit limit increases.

FCAC spokeswoman Julie Hauser says it's too early to tell if the new regulations are helping to reduce credit card debt.

"There is probably a growing awareness of the fact FCAC is here and people can contact us when they have concerns about things showing up on their credit cards and they feel they haven't been given the information they should receive," she said from Ottawa on Tuesday.

Lifestyle at root of debt problem

The FCAC's annual report, tabled in Parliament earlier this month, says its educational materials — including online tools that help consumers figure out how long it will take them to pay off their debt — are having an impact on improving Canadians' financial well-being. The agency, with expenses of about $12 million in fiscal 2010-11, also notes that from April 1, 2010, to March 31, 2011, of the 4,405 general consumer complaints it logged, 992 were related to credit cards.

Figures from other interest groups suggest consumers are getting a handle on their use of the more than 70 million credit cards in circulation in Canada.

Credit bureau TransUnion's quarterly analysis of Canadian credit trends found average credit card borrower debt declined 0.67 per cent year over year.

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"After six-plus years of accruing larger credit balances, Canadians appear to be making a concerted effort to stabilize their debt load," says Thomas Higgins, TransUnion's vice-president of analytics and decision services. "Though two quarters do not make a trend, the uncertain economy coupled with more conservative approaches to consumer credit use, could possibly make this a new development."

Keith Emery is operations director with Toronto-based Credit Canada, a non-profit credit counselling agency that offers financial coaching and helps work out four-year debt repayment programs with clients who are in extreme credit card and other debt. Emery says the debt load of people seeking help has dropped from an average of $31,000 to $30,000 over the past year.

'The issue we have with consumers and credit card debt isn't about disclosure — it's about attacking lifestyle issues, fundamental buying and spending.'—Keith Emery, Toronto-based Credit Canada

While the FCAC-monitored regulations have helped disclose a person's debt more clearly, they do nothing to change the root of problem credit card use, says Emery.

"The measures are good in the sense that they make the terms of the cards clearer to consumers — they may be in less worse shape than they were in 2010," he says. "But I don't think they have reduced the number of credit card problems we're seeing, primarily because the issue we have with consumers and credit card debt isn't about disclosure — it's about attacking lifestyle issues, fundamental buying and spending."

Emery and others who counsel debt-laden Canadians say changing card-use habits should be attacked at the root of the problem — helping people figure out whether they can really afford their purchases.

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"Over time, incomes have been diminishing on a real basis, but we've never been better as a society at generating wants," says Emery. "Take, for instance, the latest smartphone, a whole new product category that didn't exist until recent years. People are just buying one additional thing but it gradually has come to the point that people are spending large amounts of money on their mobile plans."

Under the new regulations, credit card companies must clearly print on their statements how long it will take to pay off the full balance of a card if only the minimum monthly payment is made.

Both Emergy and many consumers, including Elaine Soulliere, a nurse in Windsor, Ont., say that is helping shock people into strangling their debt.

"I kind of had the idea that paying the minimum due every month would take forever to pay off my card," says Soulliere, whose card carries an annual interest rate of 19 per cent. "But when I read that it would take me 36 years to pay my card off if I only paid whatever I had to every month, that killed it for me. I now pay my balance off every month."

Bruce Cran of the Consumers' Association of Canada says he commends some parts of the new regulations — including the 21-day interest-free grace period — but he has had numerous calls from consumers saying the payoff-period information "isn't the reality check someone might have expected."

Cran also points to Canadian Bankers Association information showing 64 per cent of Canadians pay off their credit cards fully every month — a much higher percentage than the U.S., for instance.

Consumers need 'very strong lifestyle tools'

However, that still means more than a third of Canadians are paying extremely high interest rates on the remaining balances.

Adds Emery: "To combat these issues, we need to give people very strong lifestyle tools — help them make hard decisions about what they can and can't afford in life."

The FCAC's annual report notes that while a growing number of Canadians are using FCAC resources to give them financial know-how, it faces "the ongoing challenge" of making people aware of what it does.

As well, the report says, the agency plans to expand its research to undertake several projects, including a study of behavioural factors that influence financial decision-making and a review of emerging trends in consumer finance, such as mobile payments.

"The findings will enable us to focus first on consumer education and then on compliance needs."

FCAC is also stepping up its outreach efforts, including to schools, and through social media and November's Financial Literacy Month, organized by the Financial Literacy Action Group (FLAG), a coalition of seven non-profit organizations working in collaboration with the FCAC.