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Posts Tagged ‘service charges’

TD Bank To Impose New Services Charges on Lines of Credit NOT IN USE!!!

Thursday, January 29th, 2009

<Sigh>

Banks and service charges. Never was a more larcenous crew allowed to publically ply their trade until the banks got into the mix. With credit increasingly hard to get, TD has taken the step of now charging a $35 annual “inactivity” fee. Also, for those people that ARE using their lines of credit, the rate is rising from 3.9% to 4.4% above TD Prime Rate. BMO has also stepped up and increased interest on their lines of credit. Some people within the banks are saying that there is a cost to keep lines of credit open, even if you don’t use them. While this is true, it was never an issue before, but mounting loses in the financial sector, and tough lending costs to banks, has them passing the cost along to us.

WHEN PRIME RATE FALLS, OUR RATES DON’T ALWAYS FALL AS WELL

Every time there is the announcement that the Bank of Canada is lowering rates, my phones light up with calls with people wondering why their rate hasn’t fallen on their lines of credit, or mortgage, or what have you. The reality is that the banks must earn a profit on their business, or they won’t offer the product. With prime rate falling to record lows (currently 3% at most banks) the cost to borrow has never been cheaper. However, in an effort to make up some flagging profit margins, the banks are raising the discount from below prime to prime plus some amount. For example, lines of credit (secured) were typically prime rate for the past several years. With prime rate now soooo low, banks aren’t making enough money on the lines of credit to warrant servicing them. They are increasing rates anywhere from 1% to 2$. Sure, it’s still tied to prime rate, but now it is prime plus 1% up to prime plus 2% depending on your institution.

Bottom line: we can’t expect rates to fall forever. Eventually, the profit initiative will kick in. I’ve been shaking my head every time prime rate falls and the banks all scurry to follow the Bank of Canada. I’ve been calling for a while now that discounts will be eroded on lines of credit, and given that they are an OPEN credit facility, the bank can change the rates on you at any time, just like you can pay it out at any time and walk away. In the eyes of the bank, what is good for the goose, really is good for the gander.

I am re-publishing below, the article written by Sarah Schmidt in the Vancouver Sun:

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OTTAWA — Despite interest relief from the Bank of Canada, at least two of the country’s big banks are
increasing the borrowing cost for customers who tap into their lines of credit, and one is charging a new fee for those who don’t use it.

TD Canada is introducing a new $ 35 “ inactivity” fee in April for customers who don’t use their unsecured line of credit over the course of a year.

For those wo do, the interest rate is rising from 3.9 to 4.4 per cent above TD Prime, beginning March 1. The Bank of Montreal is also raising the borrowing cost for its unsecured line of credit by one per cent, from two to three per cent above BMO Prime, beginning March 4. The bank is not introducing any penalty fee for customers who don’t use their line of credit.

The changes were revealed in private correspondence to customers in recent days, just as the Bank of
Canada on Tuesday chopped its key lending rate by 0.5, to 1 per cent.

The banks, along with the rest of Canada’s big banks, immediately announced they were passing on the full measure of the latest interest-rate relief by cutting their prime lending rates by a half-point to a record low of three per cent.

The banks also announced reductions in some fixed and floating-rate mortgages. In a statement, a TD spokeswoman defended the decision to raise the cost of borrowing on its unsecured line of credit, saying it reflects “ the continued rise in the cost of lending.” Kelly Hechler added, “ We are working to balance our customers’ goals with prudent business practices, which is especially important during the current economic downturn.”

She also said the new penalty for inactive files is fair because there is a cost associated with maintaining them.

BMO spokesman Paul Gammal said despite the increase, the bank’s unsecured line of credit remains an attractive product for consumers. “ From our survey of the market, our personal-line-of-credit offering is competitive and, in fact, favourable, compared to some of our major competitors.”

Glenn Thibeault, consumer affairs critic for the New Democrats, wasn’t moved by that defence.
Thibeault singled out TD’s new inactivity fee as egregious. “ That one to me is just mind-boggling. You finally pay off your debt, and you get penalized for it.” A spokesman for Scotiabank said the company does not currently charge nonactivity fees on its lines of credit. He also said he would not speculate on any possible future interest rate changes. RBC and CIBC could not be reached for comment about whether their borrowing costs on unsecured lines of credit will be rising alongside TD’s and BMO’s.

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So what do you think? Banks win again. Common theme to this blog lately…