In a month, the Canadian unemployment rate has increased from 5.6 per cent in February to between 10.9 per cent and 13.5 per cent in March. Canadians who work in entertainment, airlines and retail didn’t just see business sales slow down — they literally stopped. U.S. Federal Reserve Bank of St. Louis president James Bullard said unemployment could hit 30 per cent in the United States and that GDP could drop 50 per cent. If that happens in the United States, it will eventually spill over into Canada. Make no mistake about it: Canada and the rest of the world are headed straight to recession, and possibly a depression.
That means millions of Canadians are going to be strapped for cash to pay for necessities like food, heat, hydro and more. When people lose their jobs, they are much more likely to use their credit cards to cover expenses. With interest rates ranging between 20-30 per cent, millions of Canadians will be easily racking thousands of dollars of debt to put the food on the table.
What are credit card companies doing to help their consumers during the coronavirus lockdown?
The only measure so far is a promise from TD, Scotiabank and PC Financial to not raise their fees or interest rates, or charge compound interest on certain, specific, credit cards. When people have been forced out of job and can’t pay their bills, these measures can’t even be described as half-measures. They are cruel.
If you visit Visa, MasterCard or American Express’ websites, they have posted absolutely no news or updates on their front pages about the coronavirus. In fact, the front page of Mastercard talks about how their credit card provides you with discounts to see Cirque du Soleil.
The federal NDP has been demanding the government make credit cards stop charging interest immediately. The NDP’s industry critic Brian Masse said “Waiving the interest on credit cards for two months would immediately help Canadians get through until the federal programs kick in.”
Thankfully, the Canadian government led by Justin Trudeau is asking credit card companies to lower their interest rates. It’s shameful the government even had to ask. You would think credit companies would voluntarily begin to take measures to help cash-strapped Canadians during this severe economic downturn.
What can credit companies do to ensure millions of Canadians don’t have to declare bankruptcy?
First, just like Masse stated above, credit card interest rates should be reduced to zero over the next two months. Anything purchased over the next two months should be charged zero percent interest.
Second, credit cards should cease debt collections for two months. No one should be required to pay their debts on their credit card if they are unemployed or become underemployed. If someone accrued large credit card bills over the last few months before the pandemic, it will be difficult for them to pay that off with a $2,000 monthly income.
Third, eliminate merchant processing fees on credit cards for two months. Numerous small and large businesses were forced to shut down to protect public safety. They literally have no revenue stream. Businesses should not be required to pay merchant fees to a credit card company that, under its current business model, provides no real value to helping solve the pandemic. Waiving merchant fees will help keep struggling business afloat. Every dollar for them counts right now.
Now some people might call these ideas “socialism,” “big government” or a whole list of other politically loaded attack words. But these measures are no different from what the federal government has done over the last month to deal with the pandemic.
Canada, and many other countries across the world, are taking emergency economic measures to prevent countless people from going bankrupt. Banks are allowing Canadians to defer mortgage payments for up to six months. Numerous provincial governments have passed moratoriums on evictions to ensure greedy landlords don’t evict innocent people who simply lost their job to stop the spread of a deadly disease.
If banks and landlords are expected to place a hold on mortgage payments and rent, credit card companies should be expected to do the same. There is no excuse to allow credit card companies to profit from the suffering of millions of Canadians who are doing their best to contain the spread of the novel coronavirus.
Greg Dwulit works in the non-profit sector in the Toronto area. He has an MBA from the Lazaridis School of Business and Economics.