CBC MARKETPLACE: YOUR FINANCES » CREDIT
Card Tricks: It pays to read the fine print in your cardholder agreement
Broadcast: February 27, 2005

Buried deep in the fine print of your cardholder’s agreement are fees and charges only a banker could love.

You may think you’re credit savvy, but do you really know the way credit cards work? Buried deep in the fine print of your cardholder’s agreement are fees and charges only a banker could love – tricks of the trade.

Moshe Milevsky is a professor at the Schulich School of Business at York University in Toronto, Ontario.

He tells his students to wake up and read the rules: “I think they have to understand that when someone borrows money, the person that’s lending them the money has the rules in their hands.”

Milevsky says the cardholder agreements are somewhat difficult to read “and I consider myself a specialist in finance.” He says someone who isn’t a specialist would have some trouble wading through the terms in his or her agreement. “It’s not written in plain English, let’s put it that way… they’re written by lawyers, for lawyers.”

MORE: Glossary of credit lingo »

Fighting back

“All the evidence that we see points to gouging in both the fees and the interest rates with credit cards,” says Duff Conacher, who keeps a close watch on credit cards and the banks in his work with the Canadian Community Reinvestment Coalition.

“What we want the federal government to do is require the banks to prove that the prices and the interest rates they’re charging are fair.”

Duff Conacher

Back in 2002, John McCallum, a former parliamentary secretary to the finance minister, slammed the interest rates on credit cards when he said: “They look grotesquely high especially at this time of economic slowdown and I think the banks should lower them.”

ARTICLE: Credit card rates 'grotesquely high' »

But nothing came of those pointed remarks, just as not much happened in 1997, when a House of Commons committee was charged with investigating the interest rates on credit cards. Parliament dissolved before the committee finished its report.

That said, in 1998, the McKay Task Force released a report on the Canadian financial service sector. In it, the task force made a number of recommendations relating to issues such as competition, consumer expectations and bank mergers.

The recommendations of the McKay report led to creation of the Financial Consumer Agency of Canada and to changes in the federal Bank Act.

MORE: Credit card regulations »

What the banks say

Conacher says it’s not right that companies in other areas of the economy, such as electricity, cable, and telephone services all “have to go before a board and have public hearings whenever they want to change their prices. And yet for this essential service of banking, the banks can change their prices at any time that they want. They don’t have to consult with anybody.”

Caroline Hubberstey

None of the banks or the credit card companies we contacted would agree to an interview with Marketplace. They passed us on to the Canadian Bankers Association. We spoke with Caroline Hubberstey, director of public affairs for the CBA:

SUSAN ORMISTON (Marketplace reporter): Why is there still such a big spread between the prime rate and the average credit card interest rate?

CAROLINE HUBBERSTEY: Well, it's important to look at the product itself. This card is first and foremost a payment tool. Yes, it has a credit component to it. But that credit component is unsecured, so there's a higher risk involved with it. And again, I'd go back to the infrastructure costs that surround the use of that payment system--

ORMISTON: So it's got nothing to do with the prime rate?

HUBBERSTEY: On the credit card, it's not tied to prime, like it would be on a lower--

ORMISTON: So are you suggesting that it costs 18 per cent interest to run credit card companies?

HUBBERSTEY: The banks are setting the rates on the cards and the credit card rates vary. We see cards at 18.5 per cent; we also see cards in the nine per cent to 13 per cent range. In the end, it's up to the card user to determine whether they wish to carry a balance.

TRICK #1: Partial Payment »

TRICK #2: Currency Conversion Fee »

TRICK #3: Interest Rate Increases »

TRICK #4: Payment Due Date »