A significant change in the rules for refunding the minimum payment on a credit card balance comes into effect on Monday.
Holders of a credit card before August 1, 2019 whose percentage of the minimum monthly payment was set at less than 3.5% must now make a payment each month which must correspond to 3.5% of the balance due indicated on account status.
This change is effective until July 31, 2023; it will be followed by a few other adjustments.
Indeed, the Office de la protection du consommateur du Québec (OPCQ) reports that as of August 1, 2023, the credit card issuer must require a minimum payment corresponding to at least 4% of the amount due. This percentage will be raised to 4.5% one year later, on August 1, 2024, and to 5% on August 1, 2025.
The OPCQ points out that it is the Consumer Protection Act that provides for the percentage of the minimum payment that may be required. Moreover, people who have had a credit card contract since August 1, 2019 already have a minimum payment to make each month, which must correspond to at least 5% of the balance due.
On the other hand, the issuer of a credit card has the right to claim a minimum payment of more than 3.5% of the balance, if the contract already provided for it. However, he cannot do so if he has modified the contract without the agreement of the cardholder so as to exceed 3.5%.
The Office de la protection du consommateur advises that it is always better to pay off the credit card balance each month, in order to save credit charges. Paying the minimum installment each month makes debt repayment low.
For example, if a person buys a good for $1,000 with his credit card having a credit rate of 19.90% and repays only with the minimum monthly payment of 3.5% of the balance due, the credit charges will amount to $927.95. It will take him nine years and nine months to repay everything.
Last June, a report by the credit analysis firm Equifax Canada indicated that Canadian consumers are using their credit cards more and more. Average monthly credit card spending increased by 17.5% in the first quarter of 2022 compared to the same period last year. The strongest increase in spending with this consumption tool, of 20.4%, was observed in Ontario, ahead of that of Quebec, where it increased by 18.4%.
In general, younger consumers have increased their credit card spending the most.
Equifax Canada also observed that the volume of new cards increased by 31.2% compared to the first quarter of 2021.