Credit-card warning for holiday shoppers
As shoppers prepare to flood malls and boutiques for their Christmas shopping, a prominent consumer group is warning of the dangers of credit card debt.
The temptation to charge it and ignore a holiday budget can leave consumers struggling under a high-interest debt load.
Now Option Consommateurs is warning of five common credit card practices that can make that debt load even higher.
They include: cash-advance cheques, reduced minimum required payments, payment holidays, cash-back programs and low introductory interest rates.
"At first, consumers find these practices advantageous," said Elise Theriault, legal adviser for Option Consommateurs. "In reality, however, it is the card issuers who usually benefit from them."
Preferential rates
Preferential, low-interest rates are usually combined with balance transfers and are offered as a way for people to transfer their balances from one credit card to another.
People get a cheque, which can be used to pay off the high-interest card, transferring the balance to another company.
But Option consommateurs points out the reduced interest rates are only good for a short time, and later jump to levels that are equal to, or even higher than, those of the old credit card.
Cash-back clawback
A growing number of credit cards offer cash back on every purchase.
Once a year, one or two percent of purchases are given back to the consumer.
But those cash-back refunds can be clawed back if a shopper misses one payment, or goes over their credit limit.
Another danger is making only the minimum payment, especially if a credit company reduces, or even eliminates the amount that must be paid back.
While the idea of a bill-paying holiday may seem attractive, the interest on debt is still accumulating.
"You get to pay three times longer and five times more interest," said Theriault.
Recommendations
Option consommateurs wants Ottawa to tighten laws governing credit card companies.
Specifically, the group says companies should be forced to be more clear about exactly what customers will pay for the right to borrow money.
Michael Arnold, the director-general of Option Consommateurs, says federal legislation for a code of conduct is good, but just a start.
"Probably it will be good for consumer at the end of the day but for a direct protection for consumer -- it's not enough."
