It won't do much to help solve Canada's household debt problem, but competition is heating up among credit card companies to attract more customers amid a slowdown in new account growth, a new report says.
Card-tracking company GreedyRates.ca says welcome bonus offers will get richer, extra points will be earned and more annual fees may be waived in an attempt to lure consumers into opening up new credit card accounts.
That's the good news, if you pay your bills. Those who don't will see penalty rates increase alongside higher balance-transfer and over-limit fees.
"The increasingly rich rewards programs offered by Canadian banks … is also having an impact on penalty rates and hidden fees, as banks try to maintain profitability," says Marc Felgar, founder and CEO of GreedyRates.ca.
According to the company's latest survey of more than 100 Canadian credit cards, 35 per cent of rewards cards offered a welcome bonus upon sign-up, which includes everything from airline points to gifts.
Felgar says the "turbulence" caused by Aeroplan possibly moving from CIBC to TD Bank will ramp up the number offers even further.
"These will be unprecedented times for Canadian cardholders," Felgar says.
The average interest rate for low-interest cards is 12.2 per cent compared to 19.7 per cent for all other cards, the report says. For people who don't pay their credit card bills, issuers are increasing penalty rates by as much as 8 per cent for a missed payment to an interest rate as high as 27.5 per cent.
Felgar says several issuers are also hiking balance transfer and over limit fees. "We have also seen cardholder agreement terms being amended in such a way as to make it easier for cardholders to get penalized," he warns.
Fees and surcharges under review
The report comes as Canada’s Competition Tribunal is set to rule as early as next week on a case filed in 2010 by the Competition Bureau against Visa and Mastercard that could result in credit card surcharges for purchases.
The Competition Bureau is challenging a rule put in place by the credit card companies that prevent retailers from passing on card fees to consumers. The tribunal will also decide whether retailers can refuse to accept “premium” credit cards that offer point and reward miles. Retailers are charged higher fees by the credit card companies for those cards.
The Competition Bureau, backed by Canadian Federation of Independent Business and the Retail Council of Canada, argues that merchants should be able to pass on credit card charges directly to consumers. The Consumers’ Association of Canada is siding with the credit card companies to try to avoid the charges.