Credit Cards
Fast Fact:
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November 2008
73% of Canadian households pay their credit card balance in full each month1 There are more than 68 low interest options on the market2 Those consumers who do carry a balance pay 1/3 of their balance each month on average – not just the minimum3
The bottom line
Credit cards are a convenient payment tool that Canadians use wisely
What is a credit card?
A credit card is first and foremost a convenient and flexible payment tool accepted at approximately 652,000 outlets in Canada and 30 million locations worldwide. Among its many features it provides: • • • • • • Access to unsecured credit (no collateral required against amounts charged) Interest-free payment from time of purchase to the end of the billing period Instant payment of purchases, allowing for instant receipt of goods and services 24/7 access Fraud protection Other rewards and benefits, such as air travel points, car insurance, damage and loss insurance, and extended warranty programs
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64.1 million Visa and MasterCard cards are in circulation in Canada.
Banks offer consumers a choice of credit card products. Depending on the individual’s needs, customers may choose from among standard cards that typically do not have an annual fee, premium cards that carry a variety of rewards and features, and low-rate cards for when the interest rate is a key consideration influencing the card choice. Consumers are encouraged to check with their bank either in person, by phone or over the Internet - to learn more about the choices available and to select the product that best suits their needs. Just like any item or service that a customer buys, the customer has the choice to decide on their credit card product.
Consumers benefit from competition and choice
The credit card market in Canada is highly competitive – that translates into a lot of choice for consumers. • There are over 550 institutions in Canada issuing Visa and MasterCard products through 23 principal issuers. There are more than 68 card products with rates of 14.99% or lower.
Protections are in place to help consumers make an informed choice4
The Bank Act’s Cost of Borrowing Regulations deal specifically with credit cards, requiring disclosure of the interest rate at the time of solicitation or application, and on every one of your monthly statements. The Regulations also require monthly statements to include itemized transactions, the amount you must pay on or before the due date in order to have the benefit of a grace period, the sum for payments and the sum of purchases, credit advances, as well as interest and noninterest charges.
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www.cba.ca
Why card interest rates higher than rates on consumer loans?
Although a credit card has a loan component, the products are very different. Remember, a credit card is a payment tool, with no collateral required against amounts charged, and if the card balance is paid off every month, then no interest is charged on purchases made so, essentially, short-term credit is granted without the consumer paying any interest. For those people who do carry a balance, all of Canada’s largest banks offer low rate credit cards with rates under 13.9%. As well, other products, such as a line of credit, are a good alternative for longer-term credit needs.
June Canadian consumers use their 2008 cards wisely
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A 2005 survey by Statistics Canada found that 73% of Canadian households pay their balance off in full every month. This is higher than the UK, the US, or Australia.5 That means most Canadians pay little or no interest, ever. Canadians who do carry a balance on their credit card pay off between 32% and 35% of their balance every month – not just the minimum. Only 10% of Canadian card holders reached their credit card limit in 2003.6 51% of all cardholders spend $300 or less on all of their cards each month; the average is $102.7 Outstanding balances as a percentage of total card sales volume has declined from 34% in 1977 to 27% in 2007.8 Canadians carry an average of 2.6 credit cards9, including bank-issued cards, retail cards and gas cards, compared to an average of 5 per person in the U.S.10
General Statistics Visa & MasterCard Number of cards in circulation (million) Delinquency Ratios (90 days and over) Retail Sales Volume ($ billion) Sales Slips Processed (million) Average Sale ($) October 31, 2007 64.1
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Examples of how consumer loans and credit cards differ
Consumer Loan One major transaction (application approved and processed) Fixed term and loan amount Credit Card Multiple transactions – consumers free to use card whenever and wherever they choose Credit available up to a set limit that is accessible when the consumer wants it, providing funds instantly to the merchant Consumer may use card frequently, or only occasionally Amount outstanding can vary from a few dollars to the credit limit, and vary from month to month Higher number of small transactions The available credit limit is unsecured, with no collateral requirement (more risk for lender) It is the consumer’s decision - pay off balance for interest-free credit, or choose to carry a balance occasionally or more regularly
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Loan amount typically in excess of $10,000 (higher for mortgages)
May be required to be secured with an asset, e.g. car, house (less risk for lender) Predetermined payment schedule. Some loans, like mortgages may include an interest penalty for early repayment. Less product flexibility.
0.9% $240.52 2,224.0 $111.07 $275.21
64.1 million cards in circulation, with each consumer using their card in different ways 24/7 access to customer support 24/7 security monitoring to protect against fraudulent use of the card Reward programs and other benefits Credit card system has additional infrastructure costs: Seamless, secure processing of large transaction volumes Fraud losses Higher loan losses / write offs New technology and infrastructure maintenance Issuing statements / collecting payments Cost of value-added programs
Sales and Cash Advance Volume ($ billion)
General inquiries: 1-800-263-0231 or inform@cba.ca Media inquiries: Andrew Addison, Manager, Media Relations (416) 362-6093 ext.220 aaddison@cba.ca
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Survey of Financial Security – Statistics Canada, 2005 FCAC Card Comparison – as of November 2008 Moody’s, 2004 4 Note – these protections only extend to federally-regulated financial institutions (not other card issuers) 5 Survey of Financial Security – Statistics Canada, 2005 6 Ipsos Reid, Credit Card Report, September 2003 7 Ipsos Reid, Credit Card Report, September 2003. **the average of 102 comes from CBA Credit Card Statistics and is the 2003 figure for average sales. 8 Includes banks and credit unions. CBA Credit Card Statistics 9 Ipsos Reid, Credit Card Report, September 2003 10 FRB Study: Profitability of Credit Cards, June 2006
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