Mr. Speaker, I would like to thank my hon. colleague from Sudbury for his leadership on this issue. He has been front and centre on this issue for quite some time. If my memory serves me correctly, he has asked quite a number of questions of the Minister of Finance about this very issue and the minister's response has been that he would write a letter. The Conservatives' action plan probably contains a copy of that letter. Clearly we want to see action on this critical issue of credit cards and the usurious fees and interest rates that Canadians are suffering under, not just this year when there is a huge economic downturn in the economy, but in the years leading up to it.
Credit card interest rates pushing 20% are painful at the best of times, but they are simply outrageous when people are losing their jobs and facing real hardship. People in my riding of Welland are being hard hit by this recession. Soaring interest rate charges are trapping more and more families into a cycle of poverty. In times like these, hard-working families can quickly find themselves running credit card balances just to make ends meet. Unfair interest rates can blow that balance into a major financial burden that is extremely difficult for families to crawl back from, especially when people are losing their jobs or having the door to employment insurance slammed shut by the government's refusal to make the changes necessary for them to access the money they paid into that insurance program which was originally set up for that exact purpose.
Today Canadian households owe a staggering $300 billion on credit cards and other high interest debts. That kind of debt can entrap the most hard-working families. One alarming result is that the average savings rate has dropped from 20% in the mid-1980s to barely 2% today. That is not nearly enough to retire on. The NDP is committed to renewing our call to cap credit card rates at five points over the prime rate in good times and indeed in bad. That is fair and affordable for the average family.
As has been touched upon, in the U.S. the new Obama administration has announced plans to protect consumers from unfair credit card practices. It is time for the Conservative government to be committed to protecting Canadians also.
I say that in the context of my region, which has the second highest unemployment rate in this country. Folks are using their credit cards to buy food. Quite a number of years ago we could not use a credit card at the grocery store. In fact, the best we could do was write a cheque, but in this day and age of plastic, most places do not want a cheque; they want a credit card. Folks are actually going to grocery stores to buy the essentials and necessities of life and they are using a credit card that they know has a balance with an interest rate that is simply driving them further and further into debt. They end up potentially being trapped in a cycle of poverty.
When I think about that, I have never used a credit card in the grocery store, but I have used it numerous times at major retailers. I have had that credit card for some 20 years. Like many other Canadians, I received a notification out of the blue that told me my credit card interest rate was going to be increased by 2.5%. There was no reason given. It was not that I had not paid my bill on time, or was late, or carried a balance forward for too many months. In fact, I do not carry a balance on that card and never have. Before that, I had been told by that company that I was one of its preferred customers because indeed I paid my bill on time. Now I am about to be penalized because I pay on time. It seems that when it comes to credit cards, we get penalized when we do not pay on time and we get penalized if we do pay on time.
In yesterday's press, Bank of Canada Governor Mr. Carney talked about where he thought he would see the Bank of Canada interest rate in the foreseeable future. I believe that the inter-bank rate is less than 1.5%, and the prime rate is somewhere around 4.5% depending on whether one is a preferred customer. Yet we see credit card rates at all-time highs of 19.5% to 20%. We understand there has to be a spread between the prime rate and the retail rate, but clearly when there is a spread close to 15% or 16% and in some cases 19% or 20% for a retail credit card, that really is usury. It used to be in this country that those types of rates could not be charged, that it would be loansharking.
It seems to me that if we do not rein them in, we may want to call credit cards something else. They should be called debt cards, because that is what they trap folks in. They trap them into a cycle of debt. It is not about extending credit to people; it is about hooking them.
The credit card companies, through the banks and the other major financial institutions, have done a great job of ensuring that people get a card. The hon. member for Sudbury talked about how they trap young people. I have kids who are young adults now. They have grown up and have gone to university. They got their first credit card in the mail, unsolicited, just as they were about to leave high school. The cards showed up at our address, one after the other, for the three of them. I have twins who were born only three minutes apart. They got their cards on the same day. They did not ask for one. The cards did not come from the financial institution where they had their meagre savings accounts. It was not even their financial institution that sent them the credit cards thinking they might like to have a credit card. It was an altogether different institution that did not know them, but knew they were young people. The note that came with the cards indicated that as they head off to post-secondary education they may need a credit card. I would say that they did not need a credit card. What they needed was a good summer job to pay for that education.
Clearly, these companies have hooked young people, and they have hooked old people, in the sense of mature people like me, into using credit cards for their everyday existence. People are building up balances on their cards which at one time would be unthinkable. At one time, most folks had meagre amounts owing on their credit cards. Purchases were for $50, $60 and $70 at a time. Now they are in the hundreds of dollars. This convenience card, as it started out to be, is now portrayed as a need, that we need to have one in our lives because if we did not have one, we would not be able to do the things we should be doing and purchasing the things that we need to have in the lives we lead in this society. Financial institutions have been given that ability to continue to hook consumers, to have them believe that the cards are absolutely are essential.
For a long time my mother never had a credit card. She was in her fifties before she had one because she did not think she needed one. She thought she should just pay cash. She came from an era in which people paid cash for everything. She actually went to a store where she was encouraged not to pay with cash, but to pay with a credit card. When she said she did not have one, the store said it could get one for her, and the cycle begins.
In my estimation, there is not a real need to see that cycle continue in that form. We need to ensure that we limit the ability of the financial institutions to dangle that bait of convenience that really becomes the trap of high interest rates, and poverty for some, and a debt load that is now unmanageable for a great many Canadians across the country.
I am sure the banks are going to argue that these are really tough times and there are a lot of folks defaulting on the balances of their credit cards. Of course they are. If the banks had not driven the interest rate up to 19.5%, but had kept it at a reasonable rate, which would be somewhere around 9% to 10%, in fact people may have been able to handle the debt load, and perhaps eventually paid it off. What is going to happen is that debt is certainly going to accumulate.
As my colleague mentioned, yes, interest is paid on the $1,000 even if a payment of $800 has been made. It is in the fine print, and I defy anyone to try to read that fine print without a magnifying glass. Mr. Speaker, I know I am not supposed to demonstrate, but they are my glasses, and what I do with mine is that I actually move the bad lens over the good eye so that I actually can read that fine print because it is that difficult, even for me.
Ultimately this is about the protection of consumers who are saying to us that they are stuck, that they need our help. They have tried to negotiate. They have tried to argue. They have tried to get out from underneath the interest rate trap they are in with the credit card companies and financial institutions and the institutions will not let them out. We need to help those Canadians. I sincerely hope the members of this House will support this motion and make sure that Canadians, consumers, families, young people across this country, can get out from underneath the trap of credit card debt.
