The Rise in Consumer Credit and Bankruptcy: Cause for Concern?

Abstract

Canadian households are saddled with unprecedented amounts of debt. As a percentage of income, debt levels of Canadians are higher than at any point in recent history and are now higher than those of American households. Recent debates have largely focussed on the housing market and on the risks associated with household mortgage debt. This report looks more specifically at consumer credit – i.e., automobile loans, credit card debt, and lines of credit, most notably – and personal bankruptcies. Consumer credit accounts for roughly 45 percent of total household interest payments and often offers variable interest rates, leaving borrowers more vulnerable to higher interest rates. Further, the rapid extension and use of relatively new consumer credit products, especially home equity lines of credit, raises real concerns about whether lenders and borrowers have been overly optimistic in regards to the risks associated with high consumer debt levels.