NDP: Wants to cap credit card interest at prime+5% (8% currently) and to regulate credit card transaction fees. Just the interest rate cap will nab something on the order of $10 billion from credit card companies. Think about how much we'll all save - a wonderful free lunch! Whaaaa?
The credit card industry may generate high profits, but it also requires lots of capital. The question is how much excess profits it generates - i.e. profits over and above what all that capital would generate if invested elsewhere. The answer is, most probably, much less than $10 billion. After all, if offering cards were that profitable, banks would be falling over each other to give cards with better terms in order to attract more customers.
If only credit cards with 8% interest and low transaction fees can be offered, then:
1. there will be a lot fewer of them;
2. those that exist will have little or no rewards, and high annual fees.
Canadians will then have two choices:
- pony up that big annual fee up front; or
- use debit, keep checking their chequing account balance to make sure balance doesn't run low, and go through the hassles and uncertainty of getting a personal loan when a little extra is needed.
My guess is that few would choose the former option, so the NDP proposal would essentially kill credit cards in Canada. Most Canadians would simply end up losing the convenience of revolving credit and probably paying a bunch of extra bank fees instead of credit card interest. The NDP is probably smart enough to know this. Part of the party may even think that getting rid of credit cards is a good thing, though I would hope that the majority is not that paternalistic. Most likely, they are banking (probably rightfully so) on enough Canadians being naïve enough to support this policy, knowing full well that they'll never get a chance to implement it.When you think about it, he's not too far off the mark with it. The NDP is backing us into a corner that they either are very dumb to do, or are betting on our own ignorance to overlook. That's not a good position to be in.
He also takes a shot at the Conservative and Liberal policy announcements, and I kind of tend to agree on both points. However, the NDP policy is probably the most scary of them all.