Photo: Denis Charlet Agence France-Presse
The legislative change also requires that, since August 1, 2019, any new credit card agreement, involves at the outset a minimum payment periodic, which may not be less than 5% of the balance.
COVID-19 or not, as of 1 August, the minimum payment on a credit card will increase to 2.5 % of the balance. Begun last year, the increase in the statutory minimum will continue its ascent at the rate of half a percentage point annually to a maximum of 5% in 2025.
The Office de la protection du consommateur (OPC) indicated that these changes entered into force in August last year. They stem from a bill passed unanimously in the national Assembly in 2017, and are designed to prevent over-indebtedness.
“The card holders were able to see it coming. It may be that with the COVID-19, it is more difficult for some to comply with these new requirements. This is why we insist on the help that is available, ” stressed the spokesperson of the MUTUAL fund, Charles Tanguay. “In a context where the current pandemic is destabilizing the personal finances of many consumers, the Office wishes to recall that the consumers’ associations offer free and confidential services to people who are experiencing financial difficulties, ” says the institution in its press release.
The legislative change also requires that, since August 1, 2019, any new credit card agreement, involves at the outset a minimum payment periodic, which may not be less than 5 % of the balance.
The Office wishes to recall that the consumers ‘ associations offer free and confidential services to people who are experiencing financial difficulties
— Charles Tanguay
Difficult circumstances
According to the calculations of the MUTUAL fund, for a balance of $ 1000 on a card which the credit rate is 19.9 %, a consumer would make a minimum payment set at 2% last year to repay its debt in 25 years and 10 months, paying interest charges of about 3000 $. For a minimum payment of 2.5 %, it can repay its debt in 14 years and 7 months, by paying a fee of credit 1443,99 $. For a minimum payment of 5 %, it can repay its debt in 6 years and would have to pay 441,87 $ in cost of credit.
The statistics vary, but it holds generally that between 60% and 70% of card holders pay the entire balance. In contrast, between 10% and 15% will pay each month the minimum required. As an illustration, the results of an online survey conducted last year by RateSupermarket.ca with more than 2000 respondents said that the average balance is around $3,300.
This was before the health crisis. The results of a survey Question Retraite/SOM released in mid-June were particular to the fact that 30 % of respondents said they be much or somewhat affected by the current crisis in terms of personal finance. In addition, 45 % have reviewed their budget and their financial priorities. Among them, 67 % have done so by prudence and 33% obligation. “Of those who have reviewed their budget and their priorities, 85 % have reduced their consumption, 59 % have cancelled or postponed a major project, 25 % have used more of the credit, 29 % have deferred payment of some bills, and 30 % have reduced the minimum repayment on their credit cards,” continues the survey, conducted online from April 22 to may 1 from 1007 respondents, adults in Quebec. The maximum margin of error is 3.9 % (at confidence level of 95 %).
In his study of the first quarter of 2020, Equifax Canada reported, however, that the debt non-mortgage average decreased by 0.5% compared to the first three months of 2019 due to the sharp drop in consumer spending in march due to the pause of the economy, which is the first decrease in the average balances of over ten years. “At the same time, the credit card purchases have fallen sharply, which is reflected in the balances much lower. This trend has gained momentum in April, ” wrote the agency.
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