The Bank of Canada has serious concerns about the lending habits of credit card companies.
Officials find these companies are offering low-interest introductory rates and too many reward incentives, which encourages people to spend their way to cash-back bonuses and rewards.
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This is why Canadians are “losing their cognitive connection to cash,” says David Smith, president of Personal Bankruptcy Canada, a network of independent trustee practices that assist people with their debts.
What’s more, recent data from the Canadian Bankers Association indicates more than $301 billion was charged to major cards last year. In contrast, only $606 million was taken out in cash withdrawals from bank-owned ABMs.
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“Credit cards and debit cards with overdraft protection lead to people losing track of their financial realities,” adds Smith. People aren’t sticking to budgets and are spending more than they’re earning.
Further, a report released by Moneris Solutions finds both debit and credit spending is up over last year. Overall, Canadians have added more than $477 billion in consumer debt.
In addition, new stats from the Office of the Superintendent of Bankruptcy show the total number of insolvencies in Canada increased by 20.9% in January. Its latest data will be released today.
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“Through aggressive marketing tactics, credit companies and banks have positioned plastic as a preferred method of payment,” says Smith. “[But] each time they use their cards, they’re taking out a high interest, unsecured loan.”
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