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Her majesty the Queen in Right of Canada (Financial Consumer Agency of Canada) Cat. No.: FC5-23/2-2010E-PDF ISBN: 978-1-100-16576-9
March 2012
Table of Contents
Overview Your right to information
When you apply for a credit card When you get your credit card With your monthly credit card statement When your credit agreement changes
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Overview
Credit cards can be very convenient, but its important to keep in mind that when you apply for a credit card, you are entering into a contract. Like any contract, it is legally binding and gives each party certain rights and responsibilities. There are rules that federally regulated financial institutions have to follow to make it easier for you to understand the terms of your credit card contract. This publication will give you a brief overview of some of those rules. Note: In this publication, the term credit card issuer refers to a federally regulated financial institution.
Exceptions:
Your credit card issuer does not have to send you a monthly statement if: there is no outstanding balance at the end of the period, or you have defaulted on your payments and the issuer has notified you that the credit agreement has been suspended or cancelled. Also, your credit card issuer can send you a statement only every three months if the following three conditions are met: there have been no charges or payments, the outstanding balance is less than $10, and no fee or interest is being charged or accumulated.
Exceptions:
There are some changes to the terms and conditions of your credit card for which advance notice is not required. However, the changes have to be disclosed to you in the next statement you receive after the change is made. These changes are: an extension of your grace period, a decrease in the interest rate, a decrease in a charge that is not related to the interest rate, a decrease in your credit limit, a change to any optional service you accepted, if you have a card with a variable interest rate, the change in the benchmark rate or base rate to which it is linked (also known as the reference rate).
$5,000 These interest rates are in effect the day your account is activated. Promotional rate on purchases: 4.99% for your first three monthly statements Purchases: 19.75% following the promotional period Cash advances: 21.5% Balance transfers: 21.5% Your interest rate will increase to 24.75% on your next statement if you: make a late payment go over your credit limit make a payment that is returned fail to meet any of the terms in the cardholder agreement.
21 days When you use the card to make purchases, you will benefit from an interest-free grace period of at least 21 days if you pay off your balance in full by the due date. There is no interest-free period on cash advances or balance transfers.
If interest is charged, it is calculated on your daily average balance and charged monthly to your account on the last day of your billing cycle. 2% or $10 Your minimum payment will be the greater of 2% of the outstanding balance owing as shown on your monthly statement, or $10.
2% We will bill you in Canadian currency if you use your credit card account to make transactions in foreign currency. We will convert the amount directly to Canadian dollars at the exchange rate in effect at the time we post the transaction to your credit card account. When the transaction is posted to your account, in addition to the exchange rate, you will be charged a foreign currency conversion rate of 2% for each foreign currency transaction.
Annual fee
$50 To be charged on your first statement and annually on the anniversary date of your first statement.
Other fees
To be charged on the day the transaction occurs: Cash advance: $5 Over the credit limit: $20 Balance transfer: 1% of the amount transferred Extra copy of your monthly statement: $2
Example:
Rajiv made a new purchase on May 5. His statement covers transactions he made between May 1 and May 31. His statement shows the due date for his payment as June 21. This means that he will have a 21-day grace period from the last date included in the statement (May 31), provided that he pays the balance in full by June 21.
You are charged interest back to the date you made these purchases until you make a payment that covers the full amount of these purchases.
You are charged interest from the date you made the cash advance or balance transfer until the date you repay the total amount in full. You dont benefit from an interest-free period on these transactions.
Example:
Amy has an outstanding balance of $2,000.00 on a credit card with an 18% interest rate. Her minimum payment is $10.00 or 2% of the balance, whichever is greater. Amys minimum payment would initially be $40.00 (2% of $2,000). If Amy makes only the minimum monthly payment of $40.00 each month, it would take her 30 years and 10 months to pay off her balance in full AND she would end up paying $4,931.11 in interest. If Amy were to increase her monthly payment to $100.00, she would take only two years to pay off the balance in full and she would pay $395.65 in interest. This example illustrates how expensive it can be to pay only the monthly minimum amount. Increasing the monthly payment by even a small amount can drastically shorten the length of time it will take you to pay off a credit card balance.
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Example:
Lets say you are carrying a $2,000 balance that includes $1,500.00 of purchases and $500.00 of cash advances. If you make a payment of $700.00 in addition to the minimum payment, your payment could be applied as follows:
Using method one, your $700.00 payment (over the minimum payment required) would pay off all of the cash advances, which have a higher interest rate. The remaining portion of the payment ($200.00) would be applied to the portion of the balance with the lower interest rate (purchases).
Using method two, 25% of your payment ($175.00) would be applied to the cash advances, because cash advances account for only 25% of the balance. The other 75% of your payment ($525.00) would go toward the purchases, because they account for 75% of the balance. This means that you will continue to pay interest on $325.00 of cash advances at the higher interest rate.
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Who is liable?
Anyone who signs the application form can be liable for any outstanding balance. This applies whether or not you incurred the total debt. For some credit cards, the terms may state that authorized users (secondary cardholders) can also be held responsible for any outstanding balances, even if they dont sign the credit card application. Read the credit agreement carefully and make sure that you fully understand who is responsible. If you arent sure, ask the lender. If the credit card issuer considers all card users responsible as joint borrowers (sometimes called authorized users or secondary cardholders) that means each user can be held fully responsible for any outstanding balances each user has the right to receive the credit card agreement and monthly statements. the primary cardholder is responsible for all outstanding balances only the primary cardholder has to receive information about the credit card account.
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Visa, MasterCard and American Express have zero-liability policies, so that if your credit card is lost or stolen, or if someone uses your credit card number to make transactions you didnt authorize, you can usually be reimbursed. FCAC monitors these commitments, so if youre having difficulty, contact FCAC and we will review the complaint. The zero-liability policy applies to transactions made on the Internet, by phone or at retailers. However, it may exclude transactions made using a PIN (personal identification number) for example, a cash advance made with your card at an automated banking machine. It may also exclude transactions made with convenience cheques, or transactions made on corporate credit cards. Contact your credit card issuer to find out its policy on unauthorized transactions and how you can be protected. This type of policy is not usually listed in a credit card agreement, since it is a public commitment and not a legal requirement.
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Publications
Understanding Credit Card Fees Choosing the Right Credit Card for You Credit Cards: Understanding Your Rights and Responsibilities
Tip sheets
Be Smart with Your Credit Card: Tips to Help You Use Your Credit Card Wisely Protect Yourself from Credit Card Fraud
Online tools
Credit Card Selector tool Credit Card Payment Calculator
Online Quiz
Credit Card Quiz
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Notes
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