Amid fresh evidence cash-strapped Canadians are taking longer to pay off their credit cards, another major financial institution has moved to tighten up its lending practices.
Amex Bank of Canada said in a note to cardholders that the rates of interest on some American Express cards will rise between one and three percentage points to as much as 21.99 per cent, effective Feb. 11.
The move comes as a Bank of Canada report projects credit card losses could climb by as much as $800 million this year if present trends continue.
Canadians’ love of credit cards means the value of all outstanding balances has climbed 40 per cent since 2004, said Pat Daley, a partner with Deloitte & Touche.
Based on interviews with executives representing half the outstanding credit card balances in Canada in December, Deloitte & Touche concluded write-offs were rising by one per cent, or $800 million on an annualized basis.
“As recently as October-November they had started to see a change in behaviour in the way Canadians were paying off credit card debt. We found an increase in delinquencies. That’s when a customer misses a payment after a certain point of time. And delinquencies can turn into write-offs,” Daley explained.
Like other card issuers, including Canadian Tire and TD Bank, which have tightened their lending practices, Amex Bank explained its rate hike by saying the costs of borrowing have increased “substantially” in recent months.
It also said these changes are “in line with the market” and the majority of its cardholders pay their balance in full on time.