Credit card changes may be just right
By Peter Diekmeyer • Bankrate.com

Assessing the impact of government actions is surprisingly hard. Despite what skeptics think, most politicians really try to do the right thing. Yet almost any new initiative that benefits one group will inevitably leave another holding the bag. As a result, cynics often joke that any policy initiative that leaves all of the stakeholders complaining equally, though not too loudly, is probably the right course of action.

The new regulations governing credit card issuers published late last month offer a prime example. The rules run the gamut from mandating a 21-day, interest-free grace period on all new credit card purchases when a customer pays his balance in full, to forcing credit card companies to get express written consent before granting credit limit increases and forcing them to provide better disclosure on customers' monthly statements.

While the banks argue that such changes will cost a fortune to implement, consumer groups aren't much happier, calling for even tougher rules to be implemented. So, maybe, in the end, consumers are coming out on top.

Our stable companions
One thing that's certain is changes made to credit card rules affect a lot of people. According to the Canadian Bankers Association (CBA), there are now close to 75 million Visas and MasterCards in circulation. That works out to about three for every adult. However, those cards represent only part of story, since countless department stores and merchandisers market credit cards of their own.

Improper credit card use is one of the key facilitators for Canadians who spend too much or who take on too much debt. Furthermore, in recent years, credit card issuers have become far more aggressive in levying fees and raising interest rates.

Many of the proposed changes will help to keep the situation somewhat in check. For example, the regulations mandate a new summary box on all credit contracts and application forms that lists all of the key features, such as interest rates and fees. Consumers will also be informed how long it will take them to repay their balances if they only make the minimum payments each month.

Over-the-limit fees, rising solely from holds placed by merchants, will be prohibited, and debt collection practices will be curbed.

The banking industry is up in arms
According to Maura Drew-Lytle, a spokesperson for the CBA, the new regulations will be costly to implement and may make statements harder to read. "These are very big changes," says Drew-Lytle. "They require complex system changes by our members, which will result in significant costs that are in no way proportional to any benefit those changes may bring."

Worse, argues Drew-Lytle, the changes -- particularly one that forces banks to extend an interest-free period to some holders who are late with their payments -- could cause financial institutions to rethink just to whom they extend credit to.

The good news, though, is that Canadians currently benefit from considerable choice in the credit card market. Fully 17 of the CBA's 50 member banks market credit cards in one form or another. So in short, while the proposed rule changes may motivate some of those financial institutions to cut back their offerings, the relentless quest for consumer dollars will no doubt wake up the more aggressive competitors to jump in to fill the void.

Consumer groups argue changes don't go far enough
Isabelle Durand, a lawyer with Option Consommateurs, a Quebec-based consumer advocacy group, has a more nuanced take. "The changes are a net plus for consumers," says Durand. "However, credit card issuers have been earning vastly excess profits for years and so these changes do not go nearly far enough."

Durand argues that, for example, interest rate spreads have never been so high. "The Bank of Canada's policy rate is now close to zero, and many credit card companies are charging double-digit rates. It does not make sense," says Durand. 

So, who's right? The banking industry? Consumer groups? Well, maybe it's the cynics. Perhaps the government has just managed to implement a Goldilocks set of changes: not too hot for the credit-card issuers and not too cold for consumer advocates; one that leaves both groups screaming, but not too loudly.

Peter Diekmeyer is Bankrate.ca's economics columnist.