Ottawa has asked major Canadian banks to give credit card holders more time to pay their bills as they absorb the economic shock caused by COVID-19.
Prime Minister Justin Trudeau announced the discussions with lenders in a press conference on Thursday.
He said Finance Minister Bill Morneau has held regular talks to encourage them to offer a grace period for payments, and provide access to credit that would “cost much less than what is currently charged on credit cards.”
“We are encouraging them to take action to alleviate the burden for Canadians,” Trudeau said.
A spokesperson for the Bank of Montreal (BMO.TO) told Yahoo Finance Canada in an email that “BMO is offering deferral of payments on credit cards, including small business credit cards, as part of its financial relief programs.”
Yahoo Finance Canada is awaiting details from the other major banks.
The Bank of Canada has made two emergency cuts to its key lending rate to help insulate the economy as business activity slows. However, credit card rates, which are typically in the 20 per cent range, have yet to budge.
John Shmuel, managing editor at the Canadian financial product comparison website Lowestrates.ca, said it’s rare for credit card providers to pass on interest rate cuts to clients. However, he was not surprised to hear the federal government is stepping in given the circumstances.
“It will be interesting to see how this is implemented, because it seems with mortgages, there are a lot of questions and grey areas about how the deferral works,” he told Yahoo Finance Canada on Thursday.
Canadian banks have rolled out programs allowing clients who have lost income as a result of the virus to delay payments on mortgages and other loans for up to six months.
“We're hearing some people being denied deferrals, since it's on a case-by-case basis,” Shmuel said.
High household debt has consistently been flagged as a threat to Canada’s economy. The risk of a higher rate of defaults is climbing as more Canadians find themselves out of work, or earning less, due to COVID-19.
Shmuel said any move to drop credit card rates shifts risk onto banks and credit card companies already exposed to COVID-19-related uncertainty.
“If anything, card companies would probably want to raise interest rates to reflect higher risk right now,” he added.
Parliament passed an emergency bill on Wednesday that commits $107 billion to boosting access to employment insurance and other programs that will provide financial support to workers and businesses. Another $55 billion is earmarked for tax deferrals, allowing businesses and individuals to put off paying tax bills for months.
More to follow.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.