Usury laws

[SFMIKE]

I am fairly familiar about how usuary laws work in the US, but am curious about this in Canada.

Usuary laws are used to control the interest rate charged on loans and credit. In the late 70's and early 80's when credit cards began to become more common and consumers were switching from store cards to general use cards (Visa, MC, Amex, etc) two states had the brilliant foresight to make adjustments to their usuary laws (South Dakota and Delaware). (If you do not believe this I ask you to look on the back of the envelope the next time you receive a credit card solicitation--US residents, of course).) By making their laws more bank and credit card company friendly they were able to attract many white collar jobs to their states. As I understand it the interest rates are governed by the laws of the state in which they are issued. Makes no differennce where your bill comes from or where you send your payments. Initially your first rate will be a very competitive rate, but miss a payment or be late 1-2 times and your rate could (and does) increase immensly. These raises in interest rate are governed by the laws of the state in question. The more lax the laws of the issuing state, the more the consumer gets hit.

I realize this is an over-simplified version of the law but this is not a legal discussion. My curiousity is about how this is controlled in Canada. Is there one particular province where all the credit card offers come from or is each province in control of the rates their residents pay?

 

[ghostie]

I'm not 100% sure on this, but I can look it up and get back to you.

A couple of things I do know:

Banks are federally regulated and under federal jurisdiction in Canada (See section 91 of the Consitution Act, 1867). http://laws.justice.gc.ca/en/const/

The main act of the federal government regulating how banks operate (including how they lend money) is the Bank Act, http://laws.justice.gc.ca/en/B-2/

I'm not sure if the Bank Act regulates credit cards issued by banks, but it probably does. I'd have to sit down and go through it for awhile.

There is also a 'criminal rate of interest' offence in the Criminal Code (and like banks, criminal law and procedure is also federal jurisdiction under s. 91 of the Constitution Act, 1867). Criminal rate of interest provisions are very complex, but the basic idea is that you can't charge more 60% year, including service fees and the like.

Look at s. 347 in this link if you are interested:
http://laws.justice.gc.ca/en/c-46/42972.html

Credit cards don't really get into trouble with this, but "Payday Loans" outfits like Money Mart have been getting sued in class actions on this basis.

The kind of acceleration provisions that you are talking about do exist in Canada. I'm just on my way out the door now, but I'll think about it and get back to you as to which act governs what can and can't be done with those clauses.

 

[Maury Beniowski]

At one time, governments were determined to bring in strict usury laws, but lost the intestinal fortitude to do so when they checked their financial statements. Banks and money lenders are major contributors to political parties.

Credit card revenue used to be a drag on the balance sheets, but ceased to be when limits were raised to 24.9%. Strangely enough, 25% is considered the threshold for usury classification. And, as this level is applied mostly to delinquent accounts, or affinity cards, we have not to date, witnessed the public outcry that governments generally react to, vis-a-vis the stark recognition that these exhorbitant rates are finally deemed, or at the very least perceived to be usurious.

Until the economy collapses under the weight of excessive credit, and/or a stronger negative impact is brought to bear upon our middle classes, we are unlikely to see any resolve on the part of our stellar luminaries to control this systemic and corrosive problem.

 

[SFMIKE]

Thank you both for two very clear responses.

In the US so many people are getting into credit card trouble and now bankruptcy is a more difficult way to wipe out debt.

I still find it hard to believe that anyone would ever hold on to any kind of savings (except retirement type accounts) and only pay the minimun on their credit cards.

 

[ghostie]

This link has some good plain language summary of what the Bank Act says about credit card regulation.

http://www.cbc.ca/consumers/market/files/money/credit/regulations.html

Easier and more fun to read than trying to hack your way through the Bank Act!

 

[Maury Beniowski]

Interesting brief, and I see the (ahem) Senator is recommending an interest rate cap of 35%. I don't know how these folks can even stare at us peons with a straight face, after making bold statements like that. The banks must be rolling in the aisles, as none that I know currently breach the artificial self-imposed ceiling of 25%. Her recommendation borders on criminal, armed with the knowledge that banks are earning record profits from year to year, coming mostly from escalating fees, and the virtual elimination of interest payments on savings accounts. Cynically speaking, it's profits like these that give them the luxury of squandering same on snake oil schemes like Enron and the like.