New credit card payment rules for Quebecers take effect today

Quebec's new rules on minimum credit card payments, which take effect Thursday, will likely be followed closely by other provinces, the head of a consumer advocacy group says.

The new rules require banks to set a minimum payment of at least two per cent of the balance owing starting Aug. 1. It will eventually rise to five per cent.

"I suspect that other provinces are looking at this carefully, looking to see the impact from this, [and if there are] any objections from the credit-granting community," said Scott Hannah, president and CEO of the Credit Counselling Society. 

"But really this just makes good fiscal sense. For those who've gotten themselves into debt, this will help them."

To whom do the rules apply?

In general, the rules will apply to credit cards used by Quebec residents. 

But it gets more complicated if people do some of their banking outside of the province. How that will work is not yet clear.

"This could bring very complicated jurisdictional issues, so I don't have a simple answer to that one," said Charles Tanguay, a spokesperson for l'Office de la protection du consommateur.

Why is it happening?

Quebec's previous government passed the law in 2017. It is intended to counter rising household debt by making people pay off more than just accumulated interest, Tanguay said. 

The move is a positive one for consumers, Hannah said.

"We're carrying an awful lot of debt," Hannah said. "The average Canadian, excluding their mortgage, is carrying $22,000 worth of credit card debt, lines of credit debt and other loan debt, which is substantially higher than in the past."

What will these changes mean for your monthly bill?

Imagine you make a $1,000 purchase using a credit card with a 19.9 per cent rate. 

If you paid two per cent of the outstanding balance each month and nothing more, it would take you nearly 26 years to pay off that purchase, and you'd have paid an extra $3,001 in interest. 

Increasing the minimum payment to three per cent would reduce the time to pay off that purchase to around 11 years and you'd pay just under $1,000 in interest. 

At a five per cent monthly payment, your interest charges would drop to $442 and you'd have paid off the purchase in six years.

Why five per cent?

Twenty years ago, a five per cent minimum payment was fairly standard, Tanguay said. But the minimum percentage has dropped since then. 

The three scenarios above demonstrate that financial institutions benefit when minimum payments are lower (though that's not necessarily what motivated the drop).

Banks have the option of raising the minimum payment rate to five per cent right away, although Hannah doubts many institutions will do so because that change could have negative consequences for people with higher debts.

"I think they're going to be very careful about that, because that could indeed put someone in financial difficulty very quickly," Hannah said. 

How might other provinces respond?

There are no federal rules about minimum payments, but there is nothing preventing other provinces from coming up with their own.

Consumer protection policies can happen at a provincial level, but Hannah said that there tends to be continuity between provinces on these kinds of rules. 

"Other provinces in Canada will be looking at this carefully, and if they're not seeing a lot of challenges or uproar from consumers or credit granters, they may elect to adopt similar legislation," he said.