Banks have some explaining to do

February 19 2009 by Ellen Roseman

Wow, I got a torrent of emails in response to yesterday’s column which said the banks were scoring a failing grade in communication.

At a time when Bank of Canada rate cuts are front page news, banks have to work harder to explain why they are raising rates on lines of credit. Vague talk about higher borrowing costs doesn’t make sense to most people.

Below is some of the reaction I heard, along with complaints about Rogers (which has some explaining to do about its rate increases) and Bell.

34 comments

  1. Yes We Can

    Feb 19 2009

    “Vague talk about higher borrowing costs doesn’t make sense to most people.”

    Well here’s a thought, Ellen. Why not refer your readers to today’s opinion article by Don Drummond, Chief Economist of TD? It’s a great article that debunks some of the prevailing myths about Canadian Banks. You know the myths I’m talking about…the ones you’re perpetuating with these haphazard blogs. What’s more…the article was published at thestar.com…so don’t tell me you weren’t aware of it.

    You could be educating your readers. Instead, you’re acting like the town gossip. Some leadership.

    For those who’d like to be enlightened, the article can be viewed by clicking the link below.

    http://www.thestar.com/article/589623

  2. Lior

    Feb 20 2009

    I personally do not care what BMO has to pay bondholders, KB.

    The banks made more than enough money when times were good. In fact, they were reaping in record profits quarter after quarter after quarter. Banking executives got bonuses and raises the likes of which the industry has never seen.

    But how the tables have turned. Just watch the second and third quarter when the unemployment figures would start taking their effect and you’ll see credit defaults skyrocket.

    With the amount of writeoffs they will have to do, I’m not sure the picture is so rosy for the Canadian banks in terms of not tapping into government bailout money.

  3. James Weimar

    Feb 20 2009

    What cracks me up is that the bank is now saying that the Bank of Canada rate has nothing to do with consumer rates.

    Funny how the Bank of Canada rate had LOTS to do with consumer rates (and was used as an excuse at the time) when the rate was up at 14.75% back in the early ’90s.

    People have short memories.

    Oh, and to “Yes We Can”…why don’t you go back to your bank job and lay off the propaganda for awhile, before you start believing it yourself.

  4. Yes We Can

    Feb 20 2009

    I feel quite comfortable putting my faith in what TD’s Chief Economist has to say, James. This isn’t a conspiracy. It’s an excuse for poor managers of money to point their fingers at the “big bad banks” when they suddenly realize they’ve borrowed more than they can pay back.

  5. M.B.

    Feb 20 2009

    Thank you, Ellen, for your excellent, informative columns and for your fight for fairness on behalf of consumers!

    I just received my CIBC line of credit statement today, along with an insert informing me that interest rates on Credit Lines will be going up by 1% as of April 6.

    For interest rates to take a MAJOR jump like that ALL AT ONCE when the Bank of Canada rates have continued to go down is obscene! Along with interest rates going up, a flyer outlining increased fees in bank services was also included.

    Considering the profits the banks have been making in recent years, I feel that they are totally ripping consumers off. I also find it strange how CIBC’s interest rates for Personal Lines of Credit go up IMMEDIATELY when Bank of Canada rates go up, and now that Bank of Canada rates have gone down, the banks see fit to move their interest rates in the opposite direction! Shame on them!

    Is there nothing we, as consumers, can do to fight this? I called the CIBC tonight and they took my number and said they would have someone call next week to discuss my concerns.

  6. M.B.

    Feb 20 2009

    P.S. The CIBC’s flyer inserts say its 1% interest rate increase is for Secured and for Unsecured Lines of Credit.

  7. Ellen Roseman

    Feb 20 2009

    CBC Marketplace had an excellent program tonight on how the banks sell credit balance insurance. Here’s a link, http://www.cbc.ca/marketplace/2009/credit_card_catch/main.html

    This product covers only your minimum balance if you get sick, not your entire monthly payments, and it’s very expensive for what it offers.

    Many people get this insurance without their knowledge. The banks give it out free for 30 days when you get a new credit card. There’s a letter included in your package of materials that gives the terms: Unless you cancel after the first month, the monthly fees stay on your bills forever.

    Markeplace focuses on two consumers. One of them gets a full refund of the fees she had paid, almost $2,000, which she uses to see a Madonna concert in New York.

    Even the federal bank watchdog, Ursula Menke of the Financial Consumer Agency of Canada, didn’t know the way this product is sold. She said it didn’t meet the standards of disclosure expected for banks.

    The FCAC has a useful brochure on credit balance insurance, http://www.fcac.gc.ca/eng/publications/creditcardsyou/balanceinsurance/BalanceInsurance_toc-eng.asp

    I bring up this product to show that banks don’t always have the consumer’s interest at heart. Far from it. They’re out to make money by marketing high-priced credit add-ons.

    Yes We Can, here’s a point I want to make about Don Drummond. Smart and articulate as he is, he works for a big bank and speaks for a big bank. He’s not the most credible defender of the banking industry’s health.

    Would you believe I was objective if I made the case for newspapers surviving in a digital age? Since my livelihood comes from a big newspaper, I don’t think my arguments would carry as much weight as an observer whose money comes from another source.

  8. Ric

    Feb 22 2009

    Two points from other readers’ comments.

    1. If you are concerned with credit card rates, you should be trying to modify your lifestyle. The only loans you should ever have is for the big IMPORTANT stuff like a car to get to work and a house to live in. Most people I know with credit card debt buy too may Timmy coffees, have 60″ TVs that cost more than the 5 tube sets I have in my house and think, even though their salary cannot support these purchases, they have some divine right to buy them.

    2. One reader pointed out correctly that a major bank was offering a 10.5 per cent rate on their bonds. My advisor has suggested getting into corporate bonds that will be paying high rates and stay there until the market recovers from the crash. Interesting to me that no one has questioned where all this interest will come from. Could it be another “too good to be true” offering ??

    Bottom line in 2009 is, get debt-free and don’t believe the advisers and financial “experts” at the major investment houses. If you don’t understand credit and investing, then learn about it because if you don’t you are going to be on the street looking for handouts.

  9. A. N.

    Feb 26 2009

    My problem with CIBC raising the interest rate by 1% is not so much the raise, but the fact that two months earlier, the consumer was notified that we would now only have to pay interest instead of interest and 3% of balance. I call that entrapment. Some people may have borrowed more money as their payments are now lower, then CIBC slaps them with higher interest. UNETHICAL!!!!!!!!!!!!!!

  10. N.V.J.

    Feb 27 2009

    HELP!

    This week I sold my first home (clearly in a buyer’s market, considering I sold $90,000 less than the original list).

    I bought the home from my parents two years ago. I was sold a 7 year mortgage term and foolishly agreed. The bank told me my student loans would be consolidated when I signed, but later this was not the case.

    I have just sold the property and the bank now tells me I owe a $24,500 mortgage penalty because interest rates recently dropped. Had rates not dropped, I would have owed $6,500. I don’t understand!

    When I was negotiating the mortgage, I had been clear that I didn’t intend to keep the house more than four years, but the broker assured me it would not a problem. I consider $24,500 to be a big problem.

    Additionally, I feel I saved myself from foreclosure, since I could not afford the monthly costs, especially since they did not consolidate the student loans. I feel like I’m beaten to a pulp on this penalty.

    I don’t mind if the penalty were $6,000-$7,000, but this feels ridiculous. I feel I was missold a product. How come they didn’t listen when I said I didn’t intend to keep the property more than four years?

    Do I have any recourse?

  11. P.D.

    Feb 27 2009

    My two cents worth on those banks that are raising interest rates by 1% (a 33% increase). In my case, it is the good old CIBC.

    I called them this morning and gave them my opinion of their practice, but something that happened just recently may help others who read this.

    RBC bank just contacted me in the last few days and offered me an unsecured line of credit at 3% prime until July 1, and then it will be prime + 3%. This is still 1/2% less than what CIBC charges me right now and it will be 1 1/2% less if CIBC goes ahead with its increase.

    I go gladly Monday afternoon to sign the papers with RBC. My advice is that anyone who is being ripped off by their bank for an additional 1% would do well to contact RBC and see if they can make the switch.

    We should all get behind banks that aren’t out to gouge us and support them. Maybe the others will get the message and if RBC is smart they will jump on this opportunity to bring more people to their place of business.

    Good luck and post any information you find out.

  12. Nazrul Islam

    Mar 7 2009

    STOP THESE LOOTERS!
    Banks are showing complete disregard to consumer feelingS by raising interest rates while government is lowering the borrowing rate to encourage borrowing/spending. Recently PC bank has informed that they will be adding 1% to existing prime + 1.75 to PLC and CIBC will charge prime + 1% for RRSP loans. Looks like bank CEO’s are more interested to increse their fat bonus at the expense of consumers pain, let us hope regulatos will do something to stop these looters!

  13. Tony Otto

    Mar 13 2009

    I just found this site and really enjoyed reading comments about the recent rate increases by the chartered banks.

    I see that I am not the only one incensed about this. Banks have essentially created the illusion that interest rates are coming down by lowering the prime rate and at the same time effectively raising the borrowing rates by raising the so called ‘fixed’ component of loans.

    I am amazed that some people here find that this is perfectly legitimate and quote the current interest rate spreads and the cost of borrowing by the banks!

    The principles here involved here are something entirely different:

    – most consumers have signed agreements to obtain loans or lines of credit (often fully secured with a collateral mortgage or another security) based on a variable rate, prime plus or minus a ‘fixed number’

    – most of those consumers believed they were signing a contract or agreement based on certain terms and conditions such as interest rates, terms of repayment etc.

    – What we are now finding (and most of us are guilty of not reading the entire agreeements, prefering to trust the banking agents’ representations) is that these agreements are really a ‘carte blanche.’ They essentially state that absolutely anything and everything (amount borrowed, interest rates, terms of repayment, right to suspend or cancel, right to call the amount in full even if borrower is not in default, terms of the agreement being signed, etc.) can be changed by the banks at their sole discretion and without notice!

    I believe these agreements come very close to being ‘deceptive’ and ‘unconscionable’ as defined in several consumer protection statutes in most provinces in Canada. I would love to see some more comments and wonder if a class action by a large group of consumers is possible. I think it would have a fair chance of success!!

  14. Garth Sambrook

    Apr 16 2009

    Has anyone started a petition to try to get this reversed quickly? If so, where can I find it?

  15. Billy

    Apr 18 2009

    I am very suprised there is no demonstration, no class action, everyone just swallows it quietly. Personally, the damage is 40% increase on interest payment. Next things you are going to see is the bank’s profit skyroketed, and CEO will get another huge bonus.

  16. Tom

    Jul 1 2009

    Scotia Bank has just informed me that our secured line of credit is going to go to prime plus one from prime as of August 1.

    It is clear from the contract that no adjustment factor was to be paid.

    I am pursuing now with the bank but am interested if there is anyone starting a class action suit against this deceptive bank practice.

    Also has anyone been successful getting it reversed through their dealings with their bank?