TD advised its customers in a notice last week that it will start charging them compound interest on personal credit cards beginning in March.
In other words, TD is about to start charging interest on unpaid interest.
The way things currently work is that if someone’s monthly balance goes unpaid, TD calculates the interest owed based on the average daily balance until the amount is paid in full.
Under the new rules, however, if customers don’t pay the interest charges at the end of each statement period, TD will add those to the balance due.
“As a result, we charge interest on unpaid interest,” the notice said.
It’s a significant move, and something the other big banks aren’t currently doing.
According to Global News, RBC and CIBC don’t charge compound interest on unpaid credit card balances. Scotiabank charges compound interest only on its Scotia Momentum Mastercard. And BMO didn’t respond by the time the story was published.
The decision was made in a bid to stay competitive, according to TD.
“From time to time we review our products and services, ensuring we remain competitive in the marketplace while providing value to our customers,” the bank told Global News in an email.
“When pricing changes are made, we don’t make the decision lightly and look to provide our customers with options to avoid or reduce the impact of the changes.”
Paying down debt remains a top priority for Canadians in 2020, according to a recent CIBC poll. But these changes could make that resolution more difficult to achieve.
Frederick Crease, a TD Visa card customer from North Bay, Ont., received the notice from the bank and is concerned it will make it even more challenging for people who are struggling with debt.
It “will put an extra burden on those that can least afford it,” he told Global News. “Those on fixed incomes … single parents and families below the poverty level.”
According to TransUnion, in the third quarter of 2019, the average balance of credit cards was $4,240, up 1.45% from the year before. And 40% of Canadians don’t expect to ever escape debt, according to a November Manulife survey.