The federal government is in talks with banks to find ways to alleviate the burden of credit-card interest rates for Canadians facing financial stresses caused by COVID-19, the Prime Minister’s Office said Thursday.
The Prime Minister said the government is working on measures to make credit less expensive for Canadians.
PMO spokesperson Alex Wellstead told The Globe and Mail that the government is not calling for cuts to existing credit-card rates.
Earlier in the day, Prime Minister Justin Trudeau blindsided Canada’s large banks by saying that the Department of Finance was in talks with banks about credit-card interest rates, which some interpreted to mean interest-rate cuts, financial industry sources told The Globe. The Globe is not identifying the sources because they were not authorized to speak on the subject.
Mr. Trudeau made the comments during his daily news conference in Ottawa.
“I can assure you that the Finance Minister has had conversations directly with the banks about credit-card interest rates. We recognize that they are a significant challenge for many Canadians at this point. That is why we are encouraging them to take action to alleviate the burden for Canadians,” Mr. Trudeau said.
At Ottawa’s urging, Canada’s Big Six banks have already agreed to defer mortgage payments for up to six months for customers facing financial hardship due to the coronavirus and to offer relief on certain credit products, which could include letting customers defer credit-card payments.
Credit cards are a highly profitable product and any move to reduce the interest charged on those cards would eat into banks’ profitability.
Treasury Board President Jean-Yves Duclos, who is vice-chair of the cabinet committee responsible for the federal response to COVID-19, said banks have a “social responsibility” to help Canadians and that this could include consolidating high-interest credit-card debt into lower-cost options.
“That means that they have also committed to offering ways of reducing interest rates on some of the loans that people already have, including credit-card debt. So there will be options for clients such as, for example, taking funds from credit cards that are high-interest credit cards and taking them and putting them into other types of credit that people can have access to,” Mr. Duclos said.
Maéva Proteau, a spokeswoman for Finance Minister Bill Morneau, declined to comment specifically on the government’s approach to credit-card debt.
“Canadian banks have committed to work with their customers on a case-by-case basis to find solutions to help them manage hardships caused by COVID-19,” she said in a statement in response to questions about Mr. Trudeau’s credit-card comments.
In times of economic stress, credit cards, which can have interest rates of 20 per cent or more, can also be a key driver of loan losses for banks, because the credit extended through the cards is unsecured.
Overall credit-card balances in Canada reached a record high of more than $100-billion in the second half of 2019, according to credit agency TransUnion Canada. The average credit-card balance for Canadians in late 2019 was $4,240, TransUnion said in a report published in December.
Canadian Bankers Association spokesman Mathieu Labrèche noted that 70 per cent of Canadians pay off their credit-card balances every month, so many are not hit by interest payments.
“Those that are experiencing hardship should probably talk to their banks to help them make the best choice and pick the most appropriate product. They can also roll credit-card debt into term loans, for instance,” Mr. Labrèche said.
In response to a request for comment, a Bank of Montreal spokesman pointed to earlier press releases that spoke of credit-card payment deferrals. National Bank declined to comment, while the other four big banks did not respond to requests for comment.
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