Consumers who use revolving lines of credit are seeing their interest charges rise as financial institutions alter lending practices in response to Canada’s rock-bottom prime rate.
Vancity began sending letters to its members last week telling them it’s adding a percentage point to interest rates it charges on all secured and unsecured lines of credit.
The interest rates are based on the credit union’s prime lending rate and the extra percentage point will be added across the board, according to Vancity CEO Tamara Vrooman.
Coast Capital Savings credit union has also announced that on June 1, it will increase all of its line of credit interest rates tied to prime rate by one percentage point.
Bank of Montreal made the move in March, while Scotiabank opted last fall to leave existing secured lines of credit alone, but add one percentage point to new revolving loans and existing unsecured ones.
“We don’t take rate increases lightly and certainly looked at all of our options as an organization before we made our decision,” said Joel Rosenberg, chief operating officer for Coast Capital Savings. “With the current economic environment, our margins are being squeezed . . . . “We needed to take these measures for the continued health of our organization.”
Other financial institutions have been able to increase their line of credit interest rates by simply notifying customers, but Vancity’s existing loan agreements don’t allow it to alter the percentage amount above prime.
The credit union must ask members to sign new loan agreements.
Vrooman said staff have been calling every member to explain the change, then following with a letter and a new loan agreement that will allow future changes without having to ask permission first.
Members who refuse to sign will be offered different loan products, but holding on to the lower interest rate is not an option.
“So far, most members understand the need for the change.”