Credit Canada

TD Jacks Rate For Late Payments

Canadians are carrying $1 trillion worth of personal debt and federal policy will only add to the burden, federal NDP leader Jack Layton says.

The federal government is moving toward injecting billions in capital into money markets to encourage bank lending at a time when consumers struggling with credit card debt face higher interest rates.

Toronto-Dominion Bank plans to impose a 5% increase starting Dec. 1 on those who miss two consecutive minimum payments, raising its interest rate to 24.75%.

"That's huge," Layton said yesterday. "Especially if someone in that situation is probably having trouble financially so (banks) are sticking it to them again. Clearly, the banks are helping themselves to Canadians' meagre resources."

Layton said he discussed the idea of a consumer protection package with Prime Minister Stephen Harper Wednesday night that would cap interest rates at 5% above prime and get rid of ATM fees.

He said the government must also be more specific about its plans to help the banking system.

"This is on top of $25 billion that was given already (last month), plus $200 billion in line of credit backstopping," Layton said.

"In the U.S., a bailout package of one-third that size had a huge debate in Congress. Here, we have no idea what conditions were established for the banks."

Consumer groups such as the Association of Community Organizations for Reform Now are also calling for government action on unregulated payday lenders, which can charge, in some cases, interest rates in excess of 600% for short-term loans.

"A lot of poor people are using payday lenders because they don't have any avenues to go to because the banks aren't giving them small interest loans, so where else are they supposed to go?" ACORN member Marva Burnett said.

"And then they get stuck in the cycle of borrowing and lending." As a result of all the borrowing without the means to pay it back, Credit Canada, a credit counselling agency based in Toronto, said that Canadians can expect to see higher personal bankruptcy rates in the next year.

Many people acquire debt through an expensive divorce, job loss or health issues but an alarming number just overspend without thinking, executive director Laurie Campbell said.

"We have such a great appetite for credit," Campbell said. "Savings are at an all-time low and we're maxed out."

Sylviane Desparois, a spokesman for the government's Financial Consumer Agency of Canada, suggested low-income earners can keep debt at bay by requesting a low-interest credit card at their bank, asking if they can consolidate their debts, getting a line of credit or discussing a payment plan with their financial advisor.

"It's just another message to Canadians that we need to educate ourselves and understand the terms of our contract," Campbell said.

"We should do what our grandmothers always told us to do, which is save for a rainy day."

Over your head in debt?

Canadians struggling to pay their debts often seek advice from a redit counsellor. What happens during a credit counselling meeting?

- Applicant will bring in last two paystubs, credit card bills and a list of their expenses.

- The counsellor will assess their full financial situation.

- Counsellor will review the applicant's budget and figure out ways to reduce expenses and manage money so they can pay off high-interest debt first.

- The counsellor can intervene with the consumer's creditors to try to freeze or lower the interest on the debts and to make monthly payments more affordable. Bankruptcy is a last resort.

- Credit Canada's Laurie Campbell said there is no judgment in these meetings. "We're here to look at ways to make things better."

* Reproduced with permission - Sun Media Corp.