Mr. Chair, the debate is on credit cards and of course that is a bit of a broad topic. Nevertheless, I know that Canadians have an interest in this particular subject from time to time. I hear at a constituency level from those Canadians who are in fact interested.
I want to make a few points about the general environment in which we find ourselves with respect to credit cards. The first and foremost point has to do with the fact that a credit card is a payment tool. It is a form of payment, whether one wants to use a credit card, a cheque or cash.
The benefit of putting it on a credit card as opposed to paying cash or cheque is that one can get up to 51 days of free credit. In other words, the money does not come out of one's account until upwards of 51 days. Most credit cards do not offer that kind of privilege, but nevertheless there are credit cards that in fact do that.
It also gives a form of unsecured credit to those who might not otherwise obtain credit. I will use my son as an example. He is in third year at the University of Toronto. He has no assets, his income is sporadic, and he is in school. He would not be considered by most banks and lending institutions to be credit worthy, yet he has a credit card and he is building up a credit record with the use of his credit card in a judicious and strategic fashion.
It is a form of extension to credit to those who would not otherwise qualify for credit. This is a 24/7 worldwide access. One can pretty well travel almost anywhere in the world and get access with a credit card. That is an enormous benefit for those who are both in the larger urban centres but also in more remote areas as well.
There are apparently something in the order of about 30 million worldwide outlets that use credit. This is quite advantageous for small and medium enterprises because these SMEs use this as a form of controlling their costs and a form of payment security. They much prefer to receive a credit card for the transaction on which they know they may have to discount it maybe four, five or six points. It will actually provide a security of payment versus a cheque which may or may not clear the account. It is a form of cost control. It is also a form of security for small and medium enterprises.
It also gives consumers options. The credit card can be linked to a line of credit, both a secured and an unsecured line of credit, and of course the more security given the bank or lending institution, rates on the card will come down. Some credit cards come are calculated at a point or two points above prime. I was reading some statistics that said one can get an unsecured credit card at 1.9% above prime.
Canadians seem to love their credit cards and they seem to be getting quite enthusiastic and sophisticated about the most advantageous use of credit cards. Statistics show us that 68% of Canadians pay off their credit card balances on a monthly basis. That leaves about 32% of people who carry balances on their cards. That has actually been declining over time. Canadians realized that carrying a balance at an interest rate is not always advantageous to them and either they pay cash and pay off that line of credit or they switch to more advantageous forms of credit in order to be able to pay down the balance on their credit card.
Apparently, there are 50 million credit cards in circulation in this country. The population is only 32 million, so that works out to well over one card per person in the country. That is quite an interesting statistic, but apparently it pales in comparison to the U.S. rate. The Americans have four credit cards for every American citizen.
Interestingly, only about 10% of credit card users max out on their balances and run it right up to the limit. Most pay off on a fairly regular basis. Interestingly as well, the delinquency rate is relatively quite low. It is only 2.4% and members should bear in mind that the 2.4% is among folks who might not otherwise get credit in any other circumstances. That compares to the Americans who have a delinquency rate twice that of Canadians. Canadians tend to be fairly conservative or prudent may be a better word. They certainly have seen the light and are not big C Conservatives. They in fact use the credit cards the way they are intended to be used, as a credit facility, a convenience payment and in fact pay down the balances over time.
Canadian institutions have in fact been leaders in the evolution of low rate credit cards. Canadians enjoy a huge competition among a variety of people who put forward credit cards.
Apparently, there is something in the order of about 600 credit cards that Canadians have to choose from, so that they can make choices among interest rates, the amount of money they have to have, the period of time that there is to pay it off, the benefits that are on the card, the rewards that are tied to a particular affinity program, et cetera. Canadians have enormous choice among the 600 cards to basically fashion a credit card that most suits their lending needs.
We also have a fairly decent level of protection. We have disclosure regulations that are required under the Bank Act when these credit cards are set up. In 2001 we made changes to the Bank Act which created the Financial Consumer Agency of Canada, FCAC. That is currently headed by a former NDP member of Parliament, Mr. Bill McKnight from Saskatchewan. He has been the head of that agency and by all reports he is doing quite a good job in terms of communicating to Canadians their rights, protecting them by way of a good regulatory environment, and informing them about things such as the cost of borrowing.
Canadians are urged to go to the website. There is material there to assess the kind of credit card that a person should have. Individuals fill in certain blanks as to the interest rate they are prepared to pay, the credit limit that is required, their income, availability for income, the payment frequency, and things of that nature. It will work out a chart for the cost of your borrowing.
The FCAC also protects consumers on application disclosure requirements and also on the agreement disclosure requirements. The Government of Canada protects vulnerable borrowers with very aggressive prosecution of corporate fraud and market illegality. The government has allocated something in the order of about $30 million annually to pursue those who would otherwise take advantage of vulnerable borrowers.
As well, the government has received the Wise Persons' Committee report, which is suggesting a single securities regulator. That is a good way to go when there too many jurisdictions competing in a regulatory environment. All it does is create an endless stream of paperwork, ratchets up the cost and for no discernible purpose.
We take the view that being involved in the marketplace and capping rates, and things such as that, as has been suggested by others is not the brightest idea that will ever see the light of day. In fact, the market provides a whole range of low cost credit cards that are currently available to Canadians and a very strong regulatory environment.
We also take the view that it would have the unintended consequences, if the government decided to cap rates, of cutting people out of entitlement to credit who might otherwise not be entitled to credit. The FCAC actually helps people shop for a card. It breaks out people's budgets and give them their limits. Then people can pick a credit card that most suits their particular environment.