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Layton's credit-card plan offers consumers protection - from themselves

NDP leader Jack Layton arrives at a campaign event in Brantford, Ont., on March 29, 2011. Mr. Layton announced his plan to limit credit card fees for consumers and small businesses.

GEOFF ROBINS/Geoff Robins/AFP/Getty Images

Finally, a federal political leader has shown the courage to deal with the debt binge of the Canadian consumer, and the irresponsible spending habits of low-income Canadians.

The leader in question is the NDP's Jack Layton, who is proposing bold measures that will force the working poor to live within their means, reduce the groaningly high levels of household debt in Canada, and as a happy side effect, reduce the bad debts foisted on this country's banks.

Now, Mr. Layton presents his policy in a slightly different light - he likes to call it a cap on credit-card interest rates, aimed at keeping chartered banks from fleecing their customers. Under the NDP proposal, rates would be capped at five percentage points above the prime rate, cutting rates to 8 per cent based on the current prime, less than half the current typical level of 19 per cent. In addition, Mr. Layton would seek to ban excessive fees on credit cards.

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Whatever the NDP's intention, the eventual outcome is clear enough. Consumers with shaky credit would see their credit limits fall - assuming they got to keep their cards at all. High interest rates allow banks to lend to those with poor credit; the resulting revenue offsets the cost of debt defaults. Cut the revenue, and the desirability of lending to those customers evaporates.

So, a large number of lower-income Canadians would have a sudden, involuntary encounter with the virtue of thrift, the joys of layaway plans and the thrill of providing Ottawa an example of how to instantly eliminate deficit financing. Debt levels, at least for the poorest Canadian consumers, would fall, assuming they could avoid the temptation to resort to payday loans, or worse.

There would be some consumers who would undoubtedly benefit: those with great credit, high incomes and a willingness to use the fiscal headroom provided by the NDP to head out on a spending spree.

The rich can spend, and the poor can save up. It's an indisputably brave proposal for fiscal rectitude.

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