Canada's banks must feel great every time the Occupy Wall Street movement scores another media headline.
For four weeks, protestors have camped out on Wall Street in New York to show their anger over the way banks and investment firms have prospered while the rest of the country struggles economically.
There's talk about this movement coming to Canada, but so far nothing much has materialized. That's in part because our bank-led financial sector plays it much safer than its counterparts on Wall Street. Less gambling, less risk, less boom-bust.
If the Canadian banks do have a weak spot, it's complacency. Every so often, you notice a bank acting as if we are not living in an economically precarious time. An example would be those obnoxious credit card cheques the banks mail out to customers now and then. Talk about a product that's wrong for today's world.
Here's the sales pitch attached to some TD Canada Trust Visa cheques sent out recently: "There are times when you can't use a credit card for purchases, such as rent or utilities. Or you may want to consolidate higher interest non-TD balances, such as department store credit cards, on your TD Canada Trust Visa card."
TD is putting two notably bad ideas in the heads of customers here, both of them particularly unsuited for a time when Canadians are carrying record debt levels.
The first is paying your rent and utility bills with your credit card. That's what you do after you've lost your job, blown through your savings, plundered your registered retirement savings plan and risk eviction or having your hydro cut off. Strictly for emergencies of the direst kind, in other words. The second bad idea is paying off your department store credit cards with a regular Visa card. You could cut your interest rate by roughly one-third, but you'll still be paying in the area of 19 to 20 per cent.
TD spokesman Mohammed Nakhooda said in an e-mail that Visa cheques represent a very small portion of customer spending on its credit card products. Mainly, the cheques are used to consolidate high interest credit card debt.
"As for the choice of words in the marketing, it was simply an illustration and we'll continue to explore other examples in the future," Mr. Nakhooda added.
Sometimes, a bank will send credit card cheques that let you pay off the balance on another card using a super-low teaser rate. President's Choice Financial recently sent out MasterCard convenience cheques that came with a rate of 2.97 per cent for six months. After that, the usual rate kicks in.
Bulletin: You don't solve problems with credit cards by using other credit cards. A line of credit or a consumer loan is a better solution, but neither are as lucrative for banks.
Here's yet another negative to consider with credit card cheques. When you make out one of these cheques to someone and they cash it, the money is posted as a cash advance on your credit card.
This benefits the bank, not you. Unlike with a regular purchase on a credit card, there's no interest-free grace period with a cash advance. As one bank explains this on its website, "Interest is always charged on cash advances from the day the cash advance is made."
Another reason not to like credit card cheques is that the interest rate on cash advances is usually higher than on regular card balances. In the case of those PC Financial MasterCard cheques, the teaser rate of 2.97 per cent would rise to the 21.97-per-cent cash advance rate instead of the usual PC Financial MasterCard rate of 19.97 per cent. Still another strike against credit card cheques: Money you access using them does not generate reward points or other card benefits.
You just have to look to the United States to see what happens when banks fall out of synch with their customers. It's not just the Occupy Wall Street movement. In response to tighter government regulations, some banks recently cranked up fees on debit cards. The net result can be seen in this headline on a recent Reuters story: "Americans seethe as banks hit them with new fees."
Credit card cheques have been around a long time, so maybe the banks haven't got around to noting how out of step with the times they are. Dumping them would be a sign they're paying attention.
The pitch
Here's TD Canada Trust explaining to customers how they can use TD Visa Cheques (verbatim):
1. Complete and sign your TD Visa Cheques as you would any cheque, for any amount up to your available credit limit. You will also need to include your TD Canada Trust Credit Card Account number.
2. The amount will be processed directly to your TD Canada Trust Credit Card Account and listed as "TD Visa Cheque" on your statement. There is no fee to use TD Visa Cheques.
3. TD Visa Cheques are treated as Cash Advances, with interest applied at the Cash Advance rate that applies on your Account, from the transaction date until the Cheque amount is paid in full.
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Rob Carrick