Save the Big Banks: Screw the Little Guy November 13, 2008Posted by rogerhollander in Economic Crisis.
Tags: Bank of Canada, Bank of Montreal, Bank of Nova Scotia, Canada Banks, canada credit cards, Canada NDP, Canadian Bankers Association, consumer debt, Credit Canada, credit card debt, credit card interest, credit card interest charges, credit card interest rates, economic crisis Canada, interest rate increase, Jack Layton, MasterCard Canada, MasterCard interest rate, roger hollander, Stephen Harper, Visa interest rate
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Just as the federal government is moving to spend $50 billion more to entice Canadian banks to keep lending, many customers are getting hit with higher credit costs.
For example, Toronto-Dominion Bank – which has skirted the worst of the credit crisis – is the latest lender to toughen up key conditions of its credit card agreements.
The changes, effective Dec. 1, will drive up interest rates for most Visa customers who miss two consecutive minimum payments. Customers who take 30 days beyond the payment due date to make the minimum payment will pay interest at 24.75 per cent, a five percentage point jump.
“The changes align with the pricing practices of our competition,” a TD spokesperson said.
The trend is another headache for struggling consumers like Hayley Moffat. She started racking up credit card debt after she graduated from college five years ago and now finds herself among the many with out-of-control debt loads.
“I just got into the habit of putting everything on credit because I wasn’t making enough money to either buy groceries, or pay my bills, or do all the normal sort of things that I thought you should be doing,” said the 25-year-old funeral director.
“And it just kind of accumulated and it was like a snowball effect over the last few years. I paid it down to a manageable amount, but then life happens, life throws things at you, and then it got back up again.”
Moffat’s debt load became unwieldy about a year ago when her bank cancelled her credit line after it reassessed her creditworthiness, even though she says she had never missed a payment.
She couldn’t pay off the $7,000 balance, so she put it on one of her credit cards, which carried a much higher interest rate. That pushed the balance on her credit card so high the interest charges kept putting her over her credit limit, prompting hefty surcharges on top of her regular monthly payments.
With the help of a credit counsellor, Moffat is now trying to negotiate with creditors to get a handle on her debt, which includes $13,000 on a bank-issued Visa card and $2,000 on a furniture store card.
TD is following in the footsteps of the Bank of Nova Scotia, which revised grace periods and increased fees that apply to its Visa cards. As of May, its “interest-free grace period for new purchases” was reduced from 26 to 21 days.
Last week, Canadian Tire Corp. said it is lowering credit limits for some inactive customers’ credit cards because it is worried some who have tapped out their other credit may turn to Canadian Tire cards.
The tighter credit measures come at a time when the Bank of Canada, which sets rates for loans to financial institutions, has slashed its key rate to just 2.25 per cent in a bid to generally ease debt costs and stimulate the flagging economy.
Bank of Montreal, which issues MasterCard, has not made any changes to cardholder agreements this year. Royal Bank of Canada altered some terms of its Visa cardholder agreements in 2005, a spokesperson said.
Laurie Campbell, executive director of non-profit credit counselling service Credit Canada, said consumer debt loads are out of control.
“We’re seeing lines of credit, mortgages, payday loans, credit cards, absolutely, lots of credit cards. And really people that perhaps got into the housing market that really shouldn’t have gotten into the housing market and then have relied on credit to makes ends meet,” Campbell said. Some people are simply “living on the edge.”
According to the Canadian Bankers Association, there are about 64.1 million Visa and MasterCard cards in circulation in Canada. As of July, there were more than 65 “low-interest” card products with rates of 13.9 per cent or lower on the market. The association also notes 73 per cent of households pay their credit card balance in full each month. That statistic, however, is from 2005.
The Financial Consumer Agency of Canada acknowledged yesterday there is a need to “simplify” credit card documentation.
“Consumers may have trouble reading the fine print in credit card application forms because they find this information too dense,” said commissioner Ursula Menke.
The agency, along with MasterCard Canada, designed a “model plain language application form.” Said Menke: “The next step for both organizations will be to share these findings with members of the industry and encourage them to review their documentation and to consider using some of the best practices outlined in this model.”
During the recent federal election campaign, the NDP vowed to cap credit card interest rates at 5 per cent above prime while banning ATM fees.
NDP Leader Jack Layton again brought up the issue of interest rates in a meeting last night with Prime Minister Stephen Harper.
Layton said he told Harper if the banks and other large corporations are on the receiving end of federal help, consumers deserve something as well.
“There’s all kinds of help being given to companies right now,” Layton said.
“But people are still being gouged with interest rates that are outrageous, with hidden charges.”
- With files from The Canadian Press
The Crisis: A Canadian’s Perspective October 29, 2008Posted by rogerhollander in Economic Crisis.
Tags: Banking Crisis, Black Friday, Black Monday, economci crisis, economic crisis Canada, economic crisis McCain, economic crisis Obama, great depression, labor, New Deal, regulatory banking, roger hollander, self-regulating markets, stock market crash 1929, thomas walkom, unemployment, wages work, Wall Street
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Nineteen twenty-nine is the year no one wants to mention. We compare what is going on now in world stock markets to 1987′s so-called “Black Monday,” or perhaps to the Asian crisis of the late ’90s.
We desperately don’t want to draw comparisons to the granddaddy of them all, the stock market collapse that occurred 79 years ago this month. The implications are too grave.
The crash of ’29 wasn’t just a stock market bust. It was the trigger for 16 years of misery. In North America, it led to mass unemployment. In Europe and Asia, the depression it sparked laid the foundation for world war.
The lives of an entire generation were scarred.
Yet there are real points of comparison between the events of 1929 and those roiling world markets today. The two are not identical. Indeed, optimists can take heart at the fact that stock declines to date have not yet matched those of the 1930s depression.
Still, there are eerie and unsettling similarities.
Then, as now, the world economy was beset by fundamental imbalances. In the ’20s, the world’s premier imperial power, Britain, was politically strong but economically hobbled. Today, the U.S. plays the role of the weakened imperial lion.
Militarily, America remains ferocious. But in economic terms, it suffers from a multiplicity of weaknesses – a trade deficit that has sent middle-class jobs abroad; a fiscal deficit that relies for financing on the good will and confidence of foreigners; a savings deficit that has encouraged ordinary citizens to borrow beyond their means.
In 1929, like today, the self-regulating markets that were supposed to keep the economy in equilibrium only accentuated the crisis. Then too credit markets froze and commodity prices tanked. In 1929, prices of commodities such as wheat and minerals were already low (a singular difference from today). But as Charles Kindleberger writes in his masterful history of the period, The World in Depression: 1929-1939, the crash of ’29 accentuated this trend, driving down, among other things, the value of the Canadian dollar.
Then, as now, attention focused on the markets. Politicians railed against the greed of speculators and vowed tough new regulations.
But then too, there was too little heed paid to the real economy of wages and work. Political leaders, while acknowledging that the crisis was forcing government finances into deficit, kept trying to balance the fiscal books, thereby making matters worse.
No leader, including then U.S. president Franklin Roosevelt, was immune. Indeed, most historians reckon that it was not Roosevelt’s flawed New Deal recipe of public works that pulled America from depression but World War II.
“Often, no one in authority had any positive idea of what to do and responded to the disaster in … policy clichés,” writes Kindleberger.
And so it seems today. In the U.S., both presidential candidates propose populist non-solutions: Barack Obama wants to save the middle class in some unspecified way; John McCain promises to get tough with greed.
In Canada, the federal government focuses on the country’s financial sector rather than the economy at large, arguing on the one hand that the banks are strong and on the other that they need massive government aid.
Internationally, there are meetings. The great economic powers – Europe, Japan, China and the U.S. – are not yet at odds with one another. Yet neither are they pulling together to mitigate the recessionary forces now careering around the globe.
That too is eerily familiar.