We were already talking about it in 2011. The Quebec Minister of Justice at the time tabled a bill that included among its flagship measures the increase, from 2% to 5%, of the minimum monthly payment required for credit cards. It was unanimously adopted by the National Assembly in November 2017 and the measures have been in force since 1er August 2019. Today we are at 3.5%.
It was pointed out that between 15% and 20% of households only pay the required minimum each month. With a credit rate varying between 8.99% and 29.99%, averaging around 19.9%, we were invited to imagine the impact of compound interest on the increase in indebtedness. According to the Financial Consumer Agency of Canada (FCAC) calculator, for a balance of $1,000 on a card with a credit rate of 19.9%, a consumer who would make a minimum payment set at 2 % would pay off its debt in 25 years and 10 months, paying interest charges of some $3,000. With a minimum payment of 3.5%, the repayment period would increase to 8 years and 11 months, for an interest bill of $747.86. At 5%, the repayment spans 6 years with an interest expense of $442.
Since 1er August, the minimum threshold was increased to 3.5% for cards already issued. It will continue to rise, at the rate of 50 basis points annually, to reach 5% in 2025. New credit card contracts have been at the floor level of 5% since 2019.
As for the impact, we note that the increase is gradual and broken down over time. Also, that 70% of credit card holders pay their balance in full each month. To do this, however, many of them use their personal line of credit, which commands a rate lower than that of a credit card or a personal loan, but which has suffered since the beginning of the year impact of the rise in the cost of money. And 22% switched to a no-annual-fee card last year to avoid the costs, says consulting firm JD Power.
Moreover, more than thirty cards carry an interest rate of less than 13%, writes the Canadian Bankers Association on its site.
Finally, we note that 38% of cardholders use their card for accounting purposes, convenience or building a credit file, 30% for reward points, and 17% for online purchases. But they are 12% to mention the lack of money for reason of use, according to data from the ACFC compiled in 2019.
Sharp rise in spending
However, everything must be put in the context of increased use of credit cards, Equifax Canada told us in June. Average monthly credit card spending increased by 17.5% in the first quarter of 2022 compared to the first quarter of 2021. Ontario saw the largest increase in credit card spending, with an increase of 20, 4%, followed by Quebec (18.4%).
“Compressed demand and increased travel following the easing of COVID-19 restrictions, combined with skyrocketing inflation, has resulted in one of the largest increases in credit card spending. story credit. Unfortunately for consumers, at the same time, the Bank of Canada decided to raise interest rates,” said Rebecca Oakes, Vice President, Advanced Analytics at Equifax Canada.
We also observe that the volume of new cards has increased by 31.2% compared to the first quarter of 2021, and that the credit limits granted are higher. “During the quarter, the average credit limit issued to new cardholders was over $5,500, the highest in seven years. »
Finally, the average credit card balance is up 9.5% between the two comparison quarters, the largest increase since the start of the pandemic. Small consolation, these balances remain below pre-pandemic levels, adds Equifax.
Increased debt
According to the big picture, total consumer debt increased by 8.6% in the first quarter of 2022. Excluding mortgages, the average consumer debt per person is $20,744 , which represents an increase of 1.5% compared to the first quarter of last year.
“This is the first year-over-year increase since 2019,” Equifax said. Note that line of credit debt accounts for 16% of total household debt and credit card debt for 4%, according to Bank of Canada data. If the mortgage loan is excluded, this weight increases to 61% and 15% respectively.
In its update last June, the ACFC showed that 43% of Canadians with debt say that it has increased, compared to 37% in 2021 and 35% in 2020. They were 42% to say they have a fund equivalent to three months of expenses, compared to 64% in 2019. And 30% said they ran out of money at the end of the month, compared to 19% in 2019.