Tag Archives: consumer legislation

Eight Financial Legislation Changes That Would Really Help Us

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Recently NDP leader Jack Layton held a press conference here in Edmonton to put the spotlight on credit card issuer. Mr. Layton comments focused on the high merchant fees and on credit card interest rates.

He’s half right, and half off the mark. The merchant fees that retailers have to pay in order to accept credit cards average around two percent. In addition, there are also a ton of other fees which add up to another one or two percent. They’re not optional, because it’s impossible for a retailer not to accept credit cards, they keep rising, and they are certainly built into the retail price of what you and I pay.

The issue of credit card rates is another matter. I’m always hopeful that Mr. Layton will use the massive media attention he can draw in a positive and constructive way. But, once again, I was disappointed. Two years ago, Mr. Layton called for the elimination, or drastic reduction of ATM fees. Sorry, but an ATM fee is a “lazy fee,” as we discussed at the time. Nobody has to pay them, if they just go another two or three blocks to their own bank machine where there’s never a charge.

Mr. Layton wants the government to force financial institutions to have at least one credit card at prime plus 5%. Sorry, but with write offs and other costs, that can’t happen, and won’t happen. But then, for anyone carrying a balance, there are cards with 11% rates out there. If you are going to carry a balance, it’s a quick fix to change from a 20% card to the low-rate card. Forget the perks and points. Most are never claimed in the first place, the worst of which are airline miles. where Consumer Report found that over 75% are never redeemed.

There isn’t a law that says you HAVE to use your credit card. It’s your choice and it’s one of the most expensive ways to finance things.

If you carry a credit card balance – stop using it until it’s paid off! Broke people can’t keep spending! We’re at 150% debt to net income – and it’s getting worse, and we’re now more broke, and saving less, than Americans! No law Mr. Layton may want to pass will stop broke people from continuing to dig their financial hole deeper and deeper.

Needless to say, I would do anything to get one-one hundredth of the media attention Mr. Layton can garner to make a difference in financial education and to actually help families. Mr. Layton missed a great opportunity to shine the spotlight on financial issues that matter and that can, and should, be addressed.

How about some legislation that Universities and Colleges can’t sell their student lists to credit card issuers? It’s our educational institutions selling out their students for a kick-back.

How about that you actually need a job to get a credit card, and preventing them from being issued to students until age 21 and with proof of an actual income?

How about changing the giant rip off of mortgage insurance with CMHC? CMHC has $8 billion in net assets and made almost a billion dollars in 2009. Yet we have to pay the insurance on less than 20% down payments. In the U.S. it’s monthly premiums until you do reach the 20% equity. At that point, the premium charge stops.
Here in Canada, it’s entirely front loaded, and adds $14,000 to $18,000 in costs to the average mortgage.
How about re-starting Bill C27 that died, making it a criminal offence to steal someone’s identity, with up to five years prison?

How about a credit freeze law that allows individuals to totally block their credit report, making it impossible to be the victim of identity theft? Because it’s the ONLY way to accomplish that.

How about legislation that forces financial institutions to advice customers when their transaction will trigger an overdraft with huge fees? This opt-in rule would be a no-brainer in having an ATM screen display that you are about to go into overdraft with this withdrawal.

Better yet, how about matching the U.S. legislation that requires customer consent before every allowing an overdraft? That way, people can’t be trapped into huge overdrafts they never consented to.

And back on credit cards, how about restricting the $30 or $40 over-limit fees to a percentage of the balance, or requiring specific customer permission before over-limiting the account in the first place? Right now, a $2 coffee can trigger a $30 overdraft.

How about championing a consumer bill of rights, including the right or ability to speak to a human being at the credit bureau with inquiries, or concerns about their credit file. Because, right now, one-third of files have errors serious enough to prevent obtaining credit.

Those are eight reasonable and reasonably simply issues that can be passed through the House of Commons and become legislation. Unfortunately, they are certainly not as sexy as talking about ATM fees, or mandated low-interest credit cards. But then, is it about cranking people up, or wanting to help and make a difference?

Prepaid Cards – The Good and the Bad

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Last January, I asked a credit card insider where the growth and focus of their company would be over the next couple of years. Without hesitation, the person told me that it would be in the area of prepaid credit cards.

With recent, and much stronger, consumer and financial legislations, more and more of the emphasis of credit card issuers will be on marketing prepaid reloadable debit or credit cards. For the last few years, we have become used to seeing them marketed as Christmas gift cards, but that will now be year-round.

These cards will be the main tool which banks will use to strengthen their relationship with younger people, and especially students, who cannot obtain a credit card on their own. The bank marketing will also focus on lower-income people, anyone with big credit problems, and those who have no current bank relationship. On the surface, prepaid cards can seem like a good idea, but be careful, because they are heavy on fees, and light on consumer protection.

Prepaid cards do not cover you for the same fraud protection as credit cards. If your card is lost, stolen, or fraudulently used, you are liable for the loss. Each issuer has voluntary guidelines and protections that you’ll need to understand before you get the card, and before something unforeseen happens.

Plus, you are not building, or rebuilding, credit with a prepaid card. You are paying the money up front and receive a plastic card to use up to the amount you have already given them. The issuer is not extending credit to you, so you will not have your activities reported to the credit bureau.

The good news is that provincial legislation, from BC to Ontario at least, now prevents cards from having an expiry date, or a monthly activity fee.

With a wide variety of other fees, here are some of the questions you need to get answered before choosing a card:

Activation fee amount: Most cards charge to get the card set up and activated. The Walmart Money card is one of the cheapest, but others can charge up to $30.

Cash advance fee: All cards will charge you a fee to get a cash advance from an ATM. As a result, you need to commit to never using the card to obtain cash. But do ask, because some have one or two free withdrawals.

Statement fee: All cards will let you check your balance online, but most will charge you for a mailed statement.

Balance inquiry fee: If you can’t wait until you can get online, almost all cards will charge you for a balance inquiry through an ATM. It’ll be their fee plus whatever the ATM provider charges on top of that.

Inactivity fees: The rule of thumb is that these won’t get charged for at least a year or more. If you are frequently using the card, it may not matter as much as someone who only intends to use the card occasionally.