Minimum Payment Changes

August 2, 2019

The media reported that Quebec is implementing new rules for credit card issuers – these minimum payment changes are long past due.  The current minimum monthly payment on credit cards is around 2% of the outstanding balance.  A strategy to keep borrowers in debt purgatory and able to avoid default while incurring more debt than they can afford to pay off.

It hasn’t always been this way, about 30 years ago the minimum payment level was around 5% of the outstanding balance, and that is precisely the level Quebec is moving to.  If your outstanding balance is $10,000 your payments will go from $200 per month (which is barely enough to pay the interest) up to $500 per month which will allow some of the money paid to actually reduce the principal balance.

But don’t worry, the phase in will be gradual for existing accounts but immediate for new accounts.  It would also be helpful if the government would cap interest rates on credit cards to say 12%.  Currently many bank issued cards are between 24% and 27% with some charging even higher rates of interest.

The effect of these changes will be to inhibit poor people from having access to credit cards in order to stay afloat, an unintended consequence will be to push more financially vulnerable people into payday loan lenders for even higher risk loans.  Perhaps this will serve as a wake up call to consumer protection agencies and bank regulators across the country to pass meaningful legislation to cool of Canada’s wild west lending policies.