CommunityLend blog

CGA Canada produced their 2010 report Canadians debts. Most of us quietly assess ourselves against others and against the average as one way to judge success in achieving our financial goals.  This report provides a window into the financial lives of Canadians and it is freely available.

Credit (excluding mortgages) all through the last three years has been increasing and at much higher rates than the US.

Drilling deeper we see that 77% of this debt is in loan products with floating (Line of Credit) or high rates (credit cards) and therefore essentially no amortization.  We know that if the minimum payment is regularly made on those products they will take over 30 years to repay in full, no matter the amount outstanding.  This is hardly a recipe for reducing debt.

The CGA worry about three future risks for Canadians.

1. Decline in income

2. Asset price shock

3. interest rate shock

At CommunityLend we want to help in any way we can with transparent prices and products designed to reduce debt while also providing some protection from the risks mentioned in this report.

Technorati Tags: Canada,consumers,debt,consumer loans,fixed rate,pay down,reduce debt,financial plan,personal loan,loan,asset price shock,interest rate shock,interest rate hike

The Globe and Mail carry a useful guide to the new credit card rules, and it is useful reading to see just how it will help and also not help the average consumer. The focus appears very much to be on disclosure.  Click through for details.

The new credit-card rules: a consumer’s guide | globe and mail

Canada’s credit-card industry would be required to improve disclosure to consumers and change some business practices under new regulations introduced yesterday by the federal government. But how exactly would the changes affect consumers once they come into force?

A timely and informative article on family budgetting.  It makes several excellent points, with the central theme that the entire family is in it together, so a common plan is useful and more likely to succeed when everyone has at least some idea of the general family finances.  It makes the point that not every detail on say credit cards needs to be shared, but some general direction on that is very useful to let everyone appreciate  the family situation.

Don’t have a family budget? Yikes! | Globe and Mail

“It’s beneficial to consider the family as a financial team,” Mr. Heath says. “All team members should be in on making decisions or being aware of the current status of the financial situation.” Making it a team effort will help cut down on the stress of constantly nagging the kids to turn off the lights or spend less time in the shower.

Good wake up piece here indicating the relative appetite for credit and in particular credit card and unsecured lines of credit in Canada vs the US.  Not sure the numbers sound completely right, but the indication is that Canadians have relatively much more unsecured debt that Americans, and that might come as a surprise to most Canadians. 

The article goes on to draw out the distinctions between passive saving while the stock market was rising, versus the current situation, whereby saving must come from monthly income – old fashioned saving as the CIBC economist calls it.

Plastic Nation: Canadians Drowning in Credit Card Debt | Epoch Times

“People have put themselves in this situation where they’ve got cars on lease or on loan, they have a huge mortgage on their homes and they may have $30,000 to $40,000 on lines of credit and unsecured debts such as credit cards and that’s just not sustainable.”

…

CIBC senior economist Benjamin Tal says savings rates went down because net rates went up. In recent years people were making a lot of money in the stock market and in the housing market, he explains, and this was their way of “passively saving.”

“But beyond that, now with the housing market levelling off we will see a situation in which people will go back to old fashioned saving, especially in an economic slowdown,” Tal predicts.

Interchange fees are an obscurity to most Canadians, but the impact on consumers is significent. Interchange is a hot political item in Australia and US and that war might be coming to Canada.

reportonbusiness.com: Credit card perks putting the squeeze on retailers

Banks take in an “interchange” fee, which is a percentage of the purchase, each time a customer uses the card. It covers many of the banks’ costs, including any loyalty or points programs they offer.

For Banks interchange is an easy charge because it is charged to the retailer, inside something call the Merchant Discount Fee, every time you use your credit card. In that way the consumer is not directly hit, and that is why you will see some retailers restrict which credit cards they accept.

However the Report on Business reports here that a new war is heating up in Canada, with the Card companies offerring higher end cards with additional loyalty benefits.

Visa Inc. [V-N]
, the dominant player in Canada, has revised its fee structure in
recent months. It’s trying to encourage growth in specific segments,
such as smaller purchases and bill payments. But it’s also trying to
help banks issue new high-end cards that go head-to-head with American Express Co. [AXP-N] , the leader in issuing cards to wealthy business customers.
….

They are geared to people with a family income of $100,000, a personal
income of $60,000, or an annual spend rate of about $30,000. The
company estimates that might be 12 to 14 per cent of Canadians. Many
cardholders are being converted to the new premium cards without having
asked for them, adding to the pressure facing retailers.

The kicker is that those new cards attract higher interchange fees. Witness the Bloor St Diner in Toronto.

Stephen Centner, president of Eatertainment Hospitality Inc., is one of
those feeling the pinch. His company’s Bloor Street Diner in Toronto is
facing a 20-per-cent boost in credit card fees related to Visa
transactions, which would raise his annual payout for all card fees to
about $120,000.

There is only one place that $120K can go and that is higher prices to consumers. This is the interchange problem. The amount merchants are charged is significant.

Mr. Centner says he “sort of freaked out” when his Bloor Street Diner
received a letter notifying it of fee changes. The diner’s merchant
discount rate was rising to 1.86 per cent on each Visa transaction, up
from 1.51 per cent; and 1.56 per cent of each MasterCard transaction,
up from 1.5 per cent. (The merchant discount rate includes interchange
fees).

Why this is big business in Canada.

Canadians held 71.6 million credit cards in 2007, up 9.2 per cent from
the year before, according to the Nilson Report, which tracks the
industry. The number of credit card purchases rose more than 11 per
cent, while the value of goods and services bought jumped nearly 13 per
cent to $261.47-billion (U.S.).

Even though this CNN piece is American the content is highly pertinent to Canadians too. The other items covered are noted below, and likely at least one is useful to you. Good advice.

Deadlines you can’t afford to miss – CNN.com

But when her credit card company changed its statement closing date, she found herself saddled with a $38 late-payment fee.

With billing cycle dates subject to change at any time, and grace periods shrinking, keeping track of credit card billing changes can be a challenge.
….

Nowadays it goes without saying that everything is programmed into a
computer somewhere, and that equally applies to credit cards. The
dates on that credit card statement are critical, and no human is
watching to help you out. You are in charge.

You also have to factor in the time delay between the Bank’s online
banking service getting the funds to your credit card company. The
fastest might be 24 hours, but from my experience, 48 hours – 72 hours
is the norm. That means your ‘pay by’ date on that credit card
statement is at least 2 – 3 days EARLIER than the date on the statement in
order to meet the deadline set by the credit card company.

Bear in mind too that just because you use the online banking service
of the same bank that you got your credit card means nothing. The
systems are no equally integrated at each bank, and in some cases, are
quite separate, so the 48 hours delay still applies there too.

Some other highlights from the CNN piece.

Unexpected triggers

Just because you’re hit with a late payment doesn’t mean there’s no recourse, Arnold says. If you’ve been paying your bills on time and you’ve been a good customer, you can usually get that late fee waived by calling customer service and asking to get the fee removed …..

Financing fees

Retailers may call out to you with promises of “buy now, pay later” offers. But what’s not so obvious is what happens if you don’t pay the balance in full by the due date. Namely, you’ll be socked with heavy fees. …..

Lost ATM/debit card fees

Losing your ATM or debit card is bad enough. But blow past some deadlines, and you could lose your entire savings — and then some …..

Student loans

When it comes to college, paying attention to deadlines can really pay off. [ the other content in this one is specific to US, but the relevance to dates is applicable]