Could more open credit-card rules result in higher fees?

New credit card regulations in Canada took effect Wednesday, and the changes designed to protect consumers have left lenders scrambling to find ways to make up any potential losses.

First announced nearly one year ago, the new rules mandate a minimum 21-day interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full.

In cases where multiple credit products are involved, card issuers must automatically allocate any payments made to the balance with the highest interest rate first or distribute payments proportionally to each type of balance.

Monthly statements must include the time it would take to repay the full amount if only the minimum payment is made each month. For example, a $1,000 bill on a credit card that charges 18% interest could take more than 10 years to pay off.

Any interest rate increases must be fully disclosed before they take effect, even if the information has been included in a credit contract.

“The regulations … will protect Canadians and their families from unexpected costs and provide clear information to help them make better financial decisions,” Finance Minister Jim Flaherty said in a statement Wednesday.

But while the new rules enforce transparency in the industry, there is concern a pattern that has developed in the U.S. could repeat itself here as lenders look to make up any revenue losses resulting from the new rules in other areas.

Sonia Baxendale, president of CIBC Retail Markets, recently told analysts on a conference call that the bank has been “working on a number of product changes” to offset expected rising costs of new credit card regulations, a CIBC spokesman confirmed to QMI Agency.

Baxendale was unavailable for additional comment.

The Canadian Bankers Association warned the Ottawa last spring that the new rules could prompt banks to reassess their credit card businesses.

“The broad scope and high costs of these regulations may also limit the banks’ ability to provide some of the services customers have come to expect, limit the number of credit card options and may reduce credit availability to some customers,” it said at the time.

In late August, the U.S. Credit Card Accountability Responsibility and Disclosure Act came into effect and lenders have been accused of hiking up rates in anticipation of lower margins.

Credit-card borrowing rates south of the border have hit a nine-year high in recent months. In the second quarter, average U.S. credit-card interest rates came in at 14.7%, according to global research firm Synovate. A year earlier, it was 13.1%.

When measured against the prime rate, which is sitting at historic lows, the gap is even bigger.

Credit-card interest rates in Canada tend to hover around the 19% mark.

Maura Drew-Lytle, a CBA spokeswoman, said the two markets are very different, primarily because there are more punitive fees in the U.S.

“It’s probably too early to tell at this point what the full impact of these changes will be,” she said, adding Canadian banks have incurred large costs to update computer systems already.