Canadians who can only afford the minimum monthly payments on their credit cards could soon face their own personal credit crunch. Card companies are raising their monthly minimums as they face pressure from Ottawa to help reduce soaring personal debt levels. As of August, Canada’s biggest issuer of MasterCards, MBNA Canada Bank, will change the way it calculates minimum monthly payments, effectively raising them across the board. The idea is to prevent cardholders from falling into a cycle of debt where they only pay off interest and fees each month, leaving the principal virtually untouched. “We really think it’s a prudent thing to do for our customers,” says MBNA spokeswoman Cathy Velazquez.
But it’s not like the industry, with its 20 per cent interest rates, has suddenly decided to look out for our best interests. New rules coming this fall require card issuers to inform customers exactly how long it will take to pay off their balances with only minimum payments. Card issuers also have an incentive to forgo earning more interest if it helps ward off personal bankruptcies. “The defaults have been very high,” says Laurie Campbell, the executive director of Credit Canada. “There’s a recognition it could be a house of cards.”