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Credit cards

No money down? Borrower beware Add to ...

When Farrell Macdonald got his first rental apartment in Toronto, he didn’t have much to fill it with, so he went to the local big-box store and charged $3,000 in furnishings to the store’s credit card, for which he wouldn’t have to pay a cent for a year.

Although the store’s staff didn’t mention it, Mr. Macdonald noticed in the contract’s fine print the “outrageous” interest he would face on the purchase once the promotional period was over.

“From the ads on television, they make it so attractive, but the hook is never even mentioned at all,” says Mr. Macdonald, a real estate sales representative.

As the holidays near, it seems like every furniture, electronics and office supplies store is offering to hold the payments and interest on big-ticket items. While it can be tempting to buy now and pay later, the devil is in the details. Miss your first payment on some of those store credit cards and you could be hit with close to 30-per-cent interest, retroactive from the date of purchase. And as the fine print will tell those who care to read it, these deals are subject to change.

That’s what happened to Judy Caruso and her husband, Nick, after they signed a three-year, no-interest contract on a flat-screen television. The Sault Ste. Marie, Ont., retirees bought the TV three years ago, put it on the store credit card and made their payments promptly every month. They balked, however, when the lender notified them midway through the contract that there was a new $21 annual fee on the card. The only way out of the deal was to pay the balance in full.

“My husband and I look with a jaundiced eye on anything now that says no interest and no payments for a year or pay by the month,” Ms. Caruso says. “It’s just not something that’s going to happen to us again.”

Store credit cards are a thorn in the side of Bruce Cran, president of the Consumers Association of Canada. “We’re getting lots of complaints on this at the moment. Some of them seem to be absolutely morally incomprehensible. People are being charged these huge penalties because they’re a day or two late with their payments.”

This year, the Department of Finance created new credit card regulations to improve billing transparency. According to department spokeswoman Stephanie Rubec, however, the new regulations do not apply to store-specific credit cards, because, unlike general credit cards, they aren’t issued by federally regulated institutions and therefore fall under provincial purview.

Mr. Cran says his association plans to take this matter up with the government in the new year. But until changes are made, it’s borrower beware.

“In some cases, some of these big stores, furniture suppliers in particular, have been accused of not being very helpful about reminding people that a payment is due on a certain date, otherwise this big penalty of all the interest for that year will suddenly hit you,” Mr. Cran says. “There’s nothing illegal about this, but morally, I suppose, maybe this is not where we want to go.”

It’s not just Canadians who are warning consumers about store credit card deals. In the United States, New York congressman Anthony Weiner recently conducted a study about the penalties and high interest that lurk beneath these teaser deals. His findings show that the interest rates on some cards can increase a further 12 percentage points if customers are late making the minimum payment for just two months.

A former furniture saleswoman, Leslie Bennett (she didn’t want her real name used), says she was pressured by managers at the Edmonton store where she worked to sign customers up for the store credit card, and was offered financial incentives by the lender to do so.

Ms. Bennett says customers would come into the store intending to buy a couch, learn they were approved for more credit than they needed, and then make more purchases to take advantage of the no-payment deal. It was a practice she found reprehensible.

“The staff was pushed to sell it so much, and I refused to and I got in trouble for it, but I was just like, ‘I don’t believe in this.’ ”

Another pitfall of store credit cards is the negative effect they can have on your credit score if used improperly, says Kelvin Mangaroo, president of the rate-comparison website RateSupermarket.ca. While sign-up incentives are enticing, they may not be worth it in the long run, he says.

“Especially around the holidays, many consumers start to think they can sign up for multiple cards and get the bonuses without any negative effects. However, they don’t realize that by applying for several of these cards in a relatively short period of time, they can negatively affect their credit score, even if they pay off the balance in full before the due date.”

For those who are stuck in a bad credit card deal, Mr. Cran advises them to take out a bank loan to pay off the high-interest debt. And for those who may be considering such a purchase, he implores them not to be pressured into buying on impulse.

“There are no freebies in this world. You’re going to pay for it, and those purchases are the very ones that can get you into trouble.”

Follow on Twitter: @diannenice

 

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