Regulations designed to boost transparency for Canadian credit card users have been approved, but the industry is voicing concerns about the costs and unintended consequences that could result.

Federal finance minister Jim Flaherty said the newly approved regulations would be published in Part II of the Canada Gazette on Wednesday.

The changes build on the government’s earlier pledge to help protect recession weary consumers, and follow public consultations.

The new regulations will:

• provide a summary box on credit contracts and application forms that sets out key features, such as interest rates and fees;
• inform consumers how long it would take to fully repay their balance if they only make a minimum payment every month;
• mandate an effective minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full;
• lower interest costs by mandating allocations of payments in favour of the consumer;
• require express consent for credit limit increases;
• limit debt collection practices used by financial institutions;
• prohibit over-the-limit fees solely arising from holds placed by merchants; and
• mandate advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract.

The regulations apply to credit cards issued by federally regulated institutions. Some provisions in the regulations have broader application to other financial products, such as fixed- and variable-rate loans and lines of credit, the government says.

The Canadian Bankers Association considers the new regulations too complex, and fears that negative consequences could result.

“We agree that it’s important for people to understand all the terms and conditions of their credit cards, but these regulations are quite complex and costly to implement,” said Maura Drew-Lytle, director of communications at the CBA. “There are always unintended consequences when you impose restrictions on a market that is functioning well.”

One of the association’s concerns is that regulations requiring more information on credit card statements will create confusion, making it more challenging for consumers to find the information they’re looking for.

“There’s already a lot on those statements that banks are required to put on,” said Drew-Lytle.

In addition, the CBA is concerned that the banks will not have sufficient time to implement the changes properly. The majority of the regulations will come into force on Jan. 1, 2010. A few provisions, such as the 21-day grace period, will take effect on Sept. 1, 2010.

“A lot of them are very complex systems changes that need to be done,” said Drew-Lytle. “You obviously want to make sure that you have time to test it and re-test it to make sure that it’s up and running properly before they’re finalized.”

IE