Credit card balances: minimum payment increases begin in Quebec

A major change in the rules for paying off the minimum payment on a credit card balance goes into effect this Monday.

People who had a credit card prior to Aug. 1, 2019 and whose monthly minimum payment percentage was set at less than 3.5 per cent must now make a payment each month that is equal to 3.5 per cent of the balance owing indicated on the statement.

This change is effective until July 31, 2023, and will be followed by a few other adjustments.

The Quebec consumer protection office (OPCQ) said that as of Aug. 1, 2023, the credit card issuer must require a minimum payment of at least 4 per cent of the amount owing. This percentage will be increased to 4.5 per cent one year later, on Aug. 1, 2024, and to 5 per cent on Aug. 1, 2025.

The OPCQ points out that the Consumer Protection Act sets out the percentage of the minimum payment that may be required. In fact, people who have held a credit card contract since Aug. 1, 2019 already have a minimum payment to make each month that must correspond to at least 5 per cent of the balance owing.

On the other hand, a credit card issuer has the right to require a minimum payment of more than 3.5 per cent of the balance, if the contract already provided for it. However, the issuer may not do so if the contract has been modified without the cardholder's consent to exceed 3.5 per cent.

The consumer protection office advises that it is always better to pay the balance on the credit card each month to save on credit fees. Paying the minimum payment each month makes the debt repayment low.

For example, if a person makes an $1,000 purchase with his or her credit card that has a 19.90 per cent interest rate and only pays off the minimum monthly payment of 3.5 per cent of the balance owed, the credit fee will be $927.95. It will take him nine years and nine months to pay it all off.

Last June, a report from credit analysis firm Equifax Canada noted that Canadian consumers are increasingly using their credit cards. Average monthly credit card spending was up 17.5 per cent in the first quarter of 2022 compared to the same period last year. The largest increase in credit card spending, 20.4 per cent, was in Ontario, followed by Quebec, where spending increased by 18.4 per cent.

In general, younger consumers increased their credit card spending the most.

Equifax Canada also noted that new card volume increased by 31.2 per cent compared to the first quarter of 2021.

INSIGNIFICANT FOR SOME, BURDENSOME FOR OTHERS

Concordia economics professor Moshe Lander says that for a lot of people, the minimum payment change won't make a major difference.

"Let's say that you have $10,000 in credit card debt. The extra half percentage point minimum is merely an extra $50," he said.

That's why he'd like to see even higher percentages -- to force people to think twice about borrowing.

"I'm totally in favour of even higher numbers. Not just the five per cent for post-2019 credit cards. You can ramp it up to 10 to 20 per cent as a way to really make people think about their spending habits."

Portfolio manager Michael Zagari says an increased minimum payment will likely affect consumers with lower incomes, or seniors on a fixed pension.

"For people that are living pay-cheque-to-pay-cheque and are already spending money [with] higher costs on energy, gas, groceries, the timing of having a forced payment to credit cards may not be ideal for some consumers," he explained.

All the more reason to map out your finances, he says.

"Financial plans are becoming more of a necessity than I would say compared to last year."  

-- This report by The Canadian Press was first published in French on Aug. 1, 2022, with additional files from CTV's Matt Grillo.