Mortgage amortization and credit cards

When the federal government tightened the rules on mortgage lending (Knowledge Bureau Report, June 27)  it was meant to slow Canadians in their accumulation of mortgage debt. But credit card debt is also a part of consumers' heavy debt load and the feds have not addressed credit card debt since May 2009. As Knowledge Bureau Report asks in its July poll, "Should governments have regulated exorbitant credit card rates instead of mortgage amortization periods?î

Certainly mortgage debt deserves consideration. This era of rock-bottom interest rates has made home buying very attractive, leading to overextended households and overheated housing markets in some parts of Canada. It has provoked concern from both the Organization for Economic Co-operation and Development (OECD) in its Economic Survey of Canada (Knowledge Bureau Report, June 20)  and the Bank of Canada in its June Financial System Review (FSR)  that Canadian households are vulnerable to economic shocks, such as higher interest rates.

Stated the FSR: "Both the share of indebted households with a debt-service ratio equal to or higher than 40% and the proportion of debt owed by these households have remained above their 2002ñ11 averages, despite record-low interest rates.î

It seems mortgage debt and consumer debt (which includes credit card debt) go hand in hand. According to a Statistics Canada article entitled "Household Debt in Canada,î by Raj K. Chawla and Sharanjit Uppal, in 2009, households with mortgages accounted for 39% of the population but 58% of debtors. "Debt was concentrated among mortgagees,î reported the authors, "who held 82% of outstanding debt (averaging $161,200 per debtor).

"The proportion of debtors with an outstanding credit card balance was 48%; 41% had an outstanding line of credit; 32% had other loans (e.g., personal loans); 18% had student loans; 3% had other debts (e.g., unpaid bills); and less than 1% had payday loans,î the article reported.

So the feds have every reason to be concerned about mortgage debt. But there are other considerations. As the FSR points out, in the past six months or so, the rate of debt accumulation in Canada has slowed and credit card debt particularly. Total household debt grew by slightly more than 4% in June vs 6%-plus growth in December. Residential mortgage growth declined to 6% from 8% in December and consumer debt sank to about 1% from almost 4% in that time period. One explanation for the latter decline is that credit card holders are transferring their very high-priced debt to their very cheap mortgages.

So the federal government may feel there is no need to interfere in credit card rates ó or it has no business interfering. The changes to the mortgage requirements, after all, were on new government-backed insured mortgages, which gives the government a vested interest. When it comes to credit cards, the feds have taken a more "consumer bewareî approach.

In May 2009, Finance Minister Jim Flaherty introduced a number of measures meant to educate consumers on the dangers of credit cards and restrict the opportunities of card providers to take advantage of consumers. An amendment to the Cost of Borrowing Regulations, for example, requires providers to produce a summary box that sets key features, such as interest rates and fees. You can go to the Financial Consumer Agency of Canada  for more information.