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| Credit Cards |
Layton pledged to cap credit card interest rates at five per cent over the prime rate. That would mean an interest rate of eight per cent today, compared with the average 19 per cent charged by credit card issuers.
It sounds good. But credit card issuers might well simply raise annual fees or deny cards to more people as a result. Consumers -particularly the least sophisticated -might increase debt if it were cheaper, an undesirable outcome.
A better solution is education and clearer information on credit card bills about the cost of debt, aimed at the 40 per cent of Canadians who carry an outstanding balance each month.
Layton's promise went beyond the interest rate issue. He also pledged to crack down on "excessive" transaction fees charged merchants each time consumers use a credit or debit card. And he committed to making the industry's voluntary code of conduct, introduced last year, the law.
Those measures would be useful. We have moved to a largely cashless society incrementally, with little public policy consideration of the impact of allowing financial institutions to charge a fee on every one of millions of daily transactions.
Market forces were supposed to keep costs low. That has not happened. Transaction fees are high, despite the dropping costs of providing the service, and merchants are captive to the major credit card companies and banks.
The federal Competition Bureau has accused the companies of using rules and regulations to limit competition and increase their profits. Canadian merchants -and ultimately consumers -pay almost twice as much as their counterparts in Australia, New Zealand and Europe, the bureau found. That's an extra $2.5 billion in fees.
Businesses are attempting to file a class action lawsuit in B.C. over the fees and alleged anti-competitive practices.
But it should not be up to them to bring fairness and economic efficiency. Layton's commitment is a useful step.
Sources: http://www.timescolonist.com
