Evidence of meeting #140 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was equifax.
A recording is available from Parliament.
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
We have been seeing credit card balances and the amounts that people are carrying month to month increasing year over year.
Liberal
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
Even during COVID-19 there was a slight dip, and then it started to increase. We've seen that increase continue since then.
Liberal
Ryan Turnbull Liberal Whitby, ON
Can you add any demographic features to the understanding of debt and delinquencies? Do you have that information? Can you disaggregate some of that information by demographic for us and give us some understanding of who is more likely to be delinquent?
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
In the second quarter of this year, we talked about how the average credit card balance per consumer continued to grow, but there was some evidence of a slowdown in consumer spending. The increase in balances then is attributed to a reduction in credit card payment rates. In other words, many consumers are paying a smaller percentage of their balance owing than they previously may have done.
We have seen that consumers under the age of 35 are seeing some of the fastest decline in card payment levels. They appear to be amongst those who are less and less able to pay their balances in full. We have seen that the increase in card balances for consumers of all ages was more significant for mortgage holders. For people who are carrying a mortgage, we saw the average credit card balance jump by almost 12% compared to the same period last year, whereas non-mortgage holders had an increase of about 7.7%. What we glean from that is that mortgage holders were carrying balances month to month on their credit cards at a rate that is increasing faster than the balance increases for non-mortgage holders.
Liberal
Ryan Turnbull Liberal Whitby, ON
Would those predominantly be variable-rate mortgage holders? Would you assume that, or do you have data on that?
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
We don't have data on that specifically, much like how the credit card interest rates are not reported in the standard reporting of data to Equifax. The same is true for the type of mortgage and mortgage interest rate.
Liberal
Ryan Turnbull Liberal Whitby, ON
I have one more question, and then I'm sure the chair is going to cut me off.
What are the trends that you're seeing in terms of interest rate drops with the central bank's interest rate drops? I know that those don't necessarily affect the cost of the interest on credit card debt, but they certainly impact consumers' ability to make minimum payments on their credit cards or to service that particular debt, especially if they have variable-rate mortgages and they're getting some relief right away with those central bank rate cuts and inflation coming down.
Have you seen that have an impact in the data you collect?
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
That's a very good question.
We have to remember that the data that is reported to credit bureaus is a bit of a lagging indicator, because we're often just receiving the data for the month prior and the payment that was made the month prior. It looks like we're seeing some early signs, but it's still a little too early to say definitively.
Senior Compliance Officer, Consumer Advocacy, Equifax Canada Co.
We're happy to share the data we have.
Liberal
The Chair Liberal Joël Lightbound
Thank you very much, MP Turnbull.
Before I turn it over to MP Patzer, I understand that Margaret Yu from Momentum has joined us and is on the line.
Thank you very much for joining us. Could you give us a few words for a sound check?
Financial Empowerment Coordinator, Momentum
It has started snowing. It's the first day of snow.
Liberal
The Chair Liberal Joël Lightbound
That's depressing.
Thank you very much for joining us.
If I have consent from my colleagues, we could give you five minutes for your opening remarks.
I see no objections, so the floor is yours.
Financial Empowerment Coordinator, Momentum
Thank you so much.
Thank you to the chair for the opportunity to speak with you today.
Momentum is so grateful to see important steps to improve the financial inclusion of Canadians. Momentum is a community development organization in Calgary that connects people living on lower incomes with economic opportunities. A big goal is to create a local economy that works better for everyone.
One of our key approaches is working with people living on lower incomes. It's a way to help them learn about and save money to become financially empowered. We have worked with people like Melanie, who moved to Canada from the Philippines.
After arriving, Melanie and her husband both struggled in survival jobs. Melanie and her husband also had a poor credit history, and they could not access traditional forms of credit, such as a line of credit from a bank. When Melanie's husband got sick, they had exhausted all their options, so Melanie used her five credit cards as life-saving tools. However, this came with a very steep price for her. Melanie and her husband accumulated over $18,000 in credit card debt.
While struggling to pay off her credit cards, Melanie was connected to Momentum and participated in a savings program in which people earn a match to their savings while they learn about money. Melanie also managed to open a registered education savings plan and accessed the Canada learning bond for her children. Despite the challenges, Melanie is now debt-free. Through proven financial empowerment interventions, Melanie became financially healthy.
High-cost credit cards often target low-income individuals and families struggling to make ends meet. Credit card options can be tempting when a person is in need of cash quickly, but they come with hidden costs and risks that lead to a cycle of debt. The need to borrow money can come up very quickly and without warning, especially for those living on a low income. With fewer financial assets like savings and investments, and fewer resources like income available to people living on lower incomes, they are less likely to absorb unexpected expenses without finding another source of cash.
In situations like this, high-cost credit card products can seem like the only solution. High-cost credit card products come in several forms and come with a lot of fees: account maintenance fees—a monthly fee some credit cards charge for maintaining the account—replacement card fees, insufficient fund fees, fees for going over the limit, balance transfer fees, foreign transaction fees, cash advance fees, late payment fees, annual fees and credit card balance insurance fees. Those are just a few.
Regardless of what form they take, credit card products are very expensive and can easily lead to a lifelong cycle of debt. We're asking the Government of Canada to implement important changes to the way high-cost credit products are regulated, changes that will eventually make these products a safer choice and will create opportunities for more Canadians like Melanie to become financially empowered.
The first specific proposed change we'd like to highlight is lowering the criminal rate of interest. We were very pleased to see the government reiterate the commitment made in budget 2023 to lower the criminal rate of interest to 35% APR. The proposal to improve enforcement of the criminal rate of interest is also a promising step to ensure Canadians are adequately protected from high-cost credit. Based on Melanie's experience with credit card debt, we think lowering the criminal rate of interest is an important policy change to implement.
Second is lowering allowable fees and charges associated with credit cards. These include the ones in my long laundry list of fees, like late payment fees, annual fees, foreign transaction fees, over-the-limit fees, cash advance fees, monthly maintenance fees and credit card balance insurance fees. High-cost credit cards can feel like a life jacket when you're sinking, but they are really often bricks, and the weight of interest fees and late fees is overwhelming.
Third is a focus on improving transparency in credit card terms, interest rates and fees using plain language or an explainer for the consumer about what this type of debt means and what they're taking on.
Fourth is investment in community financial supports. Prosper Canada has been promised $60 million over five years to expand community-delivered financial help services to approximately one million lower-income Canadians. This is a much-needed financial support, as many community-based, non-profit organizations that deliver financial empowerment services, like Momentum, receive very little government funding for this work.
With the rising cost of doing business, this funding can stabilize existing programs and enable important expansion. Many Canadians struggle to make ends meet, especially with our rising cost of living challenges, challenges that are ever more significant for Canadians living on lower incomes. At Momentum, we recognize the wisdom that people without an adequate income can't get by and that people without assets can't get ahead. The proposed changes can help more people get by through better access to benefits and will support Canadians to get ahead.
Thank you.
Liberal
The Chair Liberal Joël Lightbound
Thank you very much, Ms. Yu.
Mr. Patzer, you have the floor for five minutes.
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
Thank you, Mr. Chair.
This is a question for Fintechs. In 2023 the Canadian revenue authority changed the definition of financial services to exclude credit card surcharge revenue, making these payments eligible for GST/HST. Obviously, they weren't eligible prior to this. This was done by creating a special exception in the Excise Tax Act.
Because of this change, all credit card surcharges paid on or after March 29, 2023, are now subject to GST/HST. Is that correct?
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
Okay.
On their website, Stripe said that they wouldn't be passing along the savings from the Liberal announcement of their deal with Visa and Mastercard to lower fees for small businesses due to the fact that their “credit card processing in Canada for businesses on standard pricing increased by 0.036%...primarily due to the recent reintroduction of GST/HST taxes for certain card network scheme fees”.
That change on GST/HST eligibility probably would have significantly eaten into Stripe's profits. Is that right?
Executive Director, Fintechs Canada
I can't speak to how profitable or not Stripe is, but in general, when you slap a tax on something, you're going to increase the cost of it.
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
For sure.
Is it possible that Stripe isn't passing along the savings from the government's deal with Visa and Mastercard to lower fees for small businesses to offset the change in this GST/HST eligibility? Do you think that's possible?
Executive Director, Fintechs Canada
I couldn't possibly comment on that. It might be...or not.
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
Maybe. Probably. I can't see why not.
Essentially, what's happened here is that the government changed the definition of financial services to exclude credit card surcharge revenue, making these payments eligible for GST/HST. Then they turned around and made a deal with Visa and Mastercard to lower fees for small businesses, but those savings really went to offset Stripe's loss in profit due to the tax change.
It would seem reasonable to conclude that—wouldn't it?