In Debate: Protect Consumers & Small Business from Credit Card Gouging

Ms. Irene Mathyssen (London—Fanshawe, NDP): Madam Speaker, In these tough economic times, it is crucial that consumers are protected from companies whose priorities lie with shareholders and in making as much profit as possible as opposed to the public interest.

The motion before us today, and I am very proud that New Democrats have sponsored it, is in the public interest. New Democrats are calling for immediate action to protect consumers from credit card interest rates and fees that are increasing by leaps and bounds. We want to put an end to unfair penalties and gouging.

Usury has been illegal for centuries, but consumers are at the mercy of credit card companies and have been at this “untender” mercy for far too long. The latest increases in credit card rates and fees, combined with the economic recession, has resulted in families being unable to pay their mortgages, businesses shutting down and unbearable debt loads.

Research from the Library of Parliament shows us that in the last 20 years real income for families in the middle and lower-income brackets has declined significantly. People at the top have done very well, thanks very much, but for people in the lower and middle-income levels, it is becoming tougher and tougher. What they have to spend for their families is less and less incrementally and families are noticing that.

Twenty years ago, 80% of disposable income was taken up with debt. Now it is 125% of disposable income. Therefore, many families live from paycheque to paycheque. They would rather not use their credit cards for family necessities, but they have no choice.

Currently, consumers pay interest not on the current account balance, but on the previous month's balance. How frustrating it is to pay off one's credit card and see interest charges on the next month's balance.

The personal debt of Canadians is of great concern. In 2008, 84% of Canadians reported having some kind of debt and 40% of those people feared they would be unable to make payments if an unexpected event occurred, such as an illness, accident or unexpected car or home repairs. Twenty-eight per cent of those with debt feared for their retirement.

There is also the 25% who do not save at all, not even for retirement. These are people raising kids, trying to survive on part-time jobs and trying to save for their children's post-secondary education. As we all know, the cost of post-secondary education has increased exponentially and the amount the federal government gives to post-secondary education is nil. In fact, the debt load has been downloaded from the federal and provincial governments to students, who are the least able to manage.

To add to increasing fees and interest rates, many Canadians are in danger and worry about being unable to pay their bills. One in five households could not handle an unforeseen expenditure of as little as $5,000. Sadly, a great number of people, 20%, are being forced to tap into their RRSPs just to make ends meet. That means they will have a pretty bleak and barren retirement.

Credit card companies often target those who can least afford the card, which maximizes company profits, with little care for financial ruin or the realities of the users.

Seniors are often targeted and preyed upon by credit card companies. Results from a national public opinion poll reveal more than one-fifth of Canadians with credit cards have reported receiving those cards without ever asking for them. These are the new premium cards, about which we have heard, issued in the past year by companies such as MasterCard and Visa. The poll shows that among the group who receives these cards unsolicited were many elderly people, students too. People already burdened by huge debt, as I indicated, are seeing their interest rates creep higher and higher, pushing them further and further into debt.

These young people sometimes find that this becomes a hurdle to the completion of their education and they always find that it inhibits their ability to repay their loan after graduation. Cuts to the post-secondary education of our students, as I indicated, has created these unbearable debts.

Families already struggling to make ends meet are taking on bigger and bigger debt loads, including using their credit cards for essentials like groceries, hydro bills.

With the influx of the new premium cards, without knowing it, consumers are reducing the already small margins made by local businesses, and we have heard about this too. With charges of up to 4% on the total price of a sale instead of a flat transaction cost, businesses are on the brink of shutting down.

I thought the government was a friend of small business. That is what it says.

However, the Canadian Federation of Independent Business sent a letter to my office on behalf of 105,000 small and medium-sized businesses, asking for help with the staggering increases in costs. Eighteen business in my riding alone, including clothing stores, courier companies, drugstores, flower shops and automotive shops, just to name a few, sent a letter pleading for transparency and accountability.

Both consumers and businesses are hurting and things need to change.

According to the Canadian Federation of Independent Business, 82% of Canadians with credit cards support tighter rules on the industry. Owners of small businesses are very much in step with that general public opinion in wanting greater oversight on this industry.

In Canada there are about 50.4 million credit cards in circulation, which totals more than two credit cards per adult. About 22.2 million of those cards carry a balance. In contrast, in 1983 there were only 12.1 million cards, or less than one card per adult. In 1984 Canadians paid $6 billion in interest on credit cards, loans and lines of credit. Now, Canadians pay more than $22 billion. No wonder bank profits are ballooning.

This very much highlights the pervasiveness of credit cards in Canada and the potential danger that many families face. We know that the current economic climate and the fact that our economy is struggling is directly related to bad debt, and credit card companies are only making things worse by increasing the debt load of Canadians.

The Canadian Community Reinvestment Coalition has also spoken out about this issue and has stated:

The Conservatives claim that to help the economy they have to cut taxes to put money in our pockets, but they are doing nothing to stop the big banks from gouging money out of our pockets, and they are giving the banks hundreds of billions of dollars of our money and not requiring anything in return...

The CCR Coalition goes on to argue:

Any government that wants to help Canadians and job-creating businesses who are in a cash crunch, and help the Canadian economy overall, will regulate Canada’s big banks to ensure they serve everyone well at fair prices, and don't gouge or withdraw service from creditworthy customers...

Every dollar of excessive profit for the banks, and every person and business the banks unjustifiably cut off from credit, costs the Canadian economy because it means that the banks are overcharging for their essential services and loans, and choking off spending and job creation...

Sadly, many Canadians are stuck in a hole and they cannot dig themselves out. Credit card companies are making it harder and harder for people to climb out of that debt. It is more profitable for them to maintain people in debt and prohibit them or stop them from paying off their cards.

It is clear that credit card companies cannot be trusted to regulate themselves; they must be monitored and their powers limited. Canadians deserve better. It is time for the government to respond. I would suggest that time is now.

Mr. Jim Maloway (Elmwood—Transcona, NDP): Madam Speaker, one of the most outrageous features of the credit card business is the example of people who try to paydown their credit card every month. Sometimes if they owe a $1,000 balance on the card and make a payment of $980, leaving a balance of $20, they think that somehow the interest they owe will be based on that $20 balance, as it should be. However, in fact, when they get their statement, they find they have to pay interest on the entire $1,000, and that is absolutely outrageous.

What ways we can we go about changing that very unfair provision in credit card practices?
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Ms. Irene Mathyssen: Madam Speaker, it is very clear that people pay their balances in good faith and that they have to work very hard to do that. There are a lot of families who make great sacrifices in order to do that. The fact that interest rates stretch back into the previous month and ignore the fact that a payment has been made is usurious. We have to change that absolutely. The interest must be on the current balance and it must not be backdated.

If the banks were asked to backdate their payments to their clients and to their employees, I am sure they would refuse to do that.

Mr. Jim Maloway: Madam Speaker, I would like to ask a follow-up question.

The member is no doubt aware that small businesses in Canada have been very alarmed in recent months, and I include travel agencies in that, by changes that the credit card companies are making on the charges to small businesses, which in fact get passed on to the end consumer. I am really surprised that the government is not taking a more active interest in that whole area. The government should be supporting this resolution if for no other reason than its friends in the business community are putting a lot of pressure on the government on this very issue.

I would like to ask the member why she thinks that the government is sitting on its hands on this resolution and not supporting it.

Ms. Irene Mathyssen: Madam Speaker, in response to the first part of my colleague's question, this is double jeopardy. The banks are making money from the customers who make the purchases and up to 4% on the charges to the businesses that provide the service. The banks should be very gratified that merchants are prepared to provide this service. It is gouging of the worst kind.

In terms of the government's motives, I am at a loss. I guess big banks and those who have access to the ear of power have more clout than those hard-working small business people. The irony is that it is the small businesses that are the heart of our communities. They create the jobs. They keep our communities strong. To ignore them is unconscionable. In fact it is even worse than ignoring them; it is giving the back of its hand to these people.