Traditional credit products are failing Canadians.
At a time when nearly half of Canadians say that rising costs are making it difficult to cover day-to-day expenses, their credit options are only making things worse. Compounding interest, late fees, and other opaque charges are leaving many Canadians with impossible trade-offs: cancelled family vacations, delayed essential purchases, and credit card balances that never seem to go down.
The recent federal budget included meaningful steps to protect Canadians from financial fraud, scams, and abuse — important progress in strengthening the country’s financial safeguards. As a next step, Canada has an opportunity to go further by modernizing how credit works for consumers. Credit should empower people, not entrap them.
Credit cards are easy to use, but create serious financial risks for consumers. Canadians collectively owe more than $120 billion in credit card debt. The average Canadian owes over $4,300 on their credit cards, and nearly half of cardholders revolve a balance month to month, with many of these making only the minimum payment. Those unpaid balances compound interest into principal and can accumulate quickly, allowing lenders to profit even when their customers are worse off. In the credit card business model, the incentives of the lender are fundamentally misaligned with the interests of the customer.
Late fees and deferred interest take the situation from bad to worse. By definition, they represent revenue and profit for lenders that arise only when a customer is overextended, makes a mistake, or fails to absorb all of the lender’s fine print.
Deferred interest is an especially egregious tool employed by some lenders in Canada. It is often advertised as a “0%” promotion at a retail store. But if the consumer still owes any balance at a specific future date, the lender retroactively applies months of back interest on the original loan amount. What looks like a good deal can quickly turn into a mound of surprise charges, all buried in the fine print of the loan agreement.
When you take the credit card business model and add on late fees and deferred interest, the alignment of interests between the lender and consumer is truly broken.
But it doesn’t have to be this way.
A new generation of lenders has shown that these financial penalties are unnecessary, and that it’s possible to extend fair credit to the vast majority of Canadians without late fees or deferred interest. Millions of Canadians are now choosing payment options without these negative surprises. Their growing adoption signals a broader trend where Canadians are seeking out financial services products and providers that will help them and not exploit them.
As policymakers craft the next steps in financial regulation, ending deferred interest and late fees should be high on the list. Without these excess revenue streams, lenders will need to raise their game in how they underwrite risk and deliver their products. The end result will be happier Canadian consumers who are under less financial strain — and have higher trust in the financial system.
Reforming the Canadian credit system is not just about fairness; it’s about long-term economic resilience. Canadians trapped in cycles of debt can’t save, invest, or fully participate in economic growth. It’s time to move forward by aligning the incentives of lenders with the interests of consumers.
Wayne Pommen is the Chief Revenue Officer of Affirm.
Its time to leave the late fees, and deferred interest in the past! We need a brighter future!