(Adds comment from Credit Counselling Society)
By Kelsey Johnson
OTTAWA, Aug 2 (Reuters) - The Canadian province of Quebec has become the first in the country to require minimum credit card payments as legislators try to tackle rising household debt levels.
Effective Aug. 1, banks in Quebec must set a minimum payment of at least 2% of the balance owed on existing cards, the government said in a release. Under the new regulations, the minimum payment will gradually rise to 5% by 2025.
For new credit card contracts, the minimum payment cannot be less than 5%, the province said in a release.
The regulations also require banks and credit card companies to disclose the credit rate and applicable fees, as well as an estimated timeline for paying off the balance when a customer chooses to pay only the minimum.
Current Canadian household debt levels are unsustainable and must be addressed, said Gary Tymoschuk, vice president of operations for the Credit Counselling Society, a nonprofit group that helps Canadians in debt. “It’s going to come crashing down at some point if we don’t.”
Quebec’s measures, he added, will certainly force people to pay down debt. “It will have an impact in the right direction at least.”
The new rules follow legislation passed by Quebec’s previous Liberal government in 2017. The legislation was designed to reduce household debt by forcing consumers to pay off more than just the interest balance on their credit card.
Consumer spending accounts for about 60% of Canada’s economy. In Canada there are no federal laws regulating minimum credit card payments - although provinces are free to act on their own. “I think that other governments are going to be looking at this very, very carefully and may already be doing so,” Tymoschuk said when asked Friday whether more provinces might follow Quebec’s lead.
“Collectively all governments are telling us, and have been for some time, now, that we have too much debt as a society here in Canada,” he said, adding that the Bank of Canada has also warned it is concerned about Canadian debt levels.
Canada’s economy has grown more sensitive to interest rates after household debt-to-income more than doubled since 1990 to 173%, which means that Canadians owe about C$1.70 for every dollar of disposable annual income.
In comparison, the savings rate has fallen to nearly its lowest in 14 years at 1.1%. (Reporting by Kelsey Johnson; editing by Jonathan Oatis)