Dear Ross, I just received a letter from TD Canada Trust advising me the interest rate on my personal line of credit has increased from 8.75% all the way up to 12.5%. Why is this happening?
Actually, I have had the same question four times in the past two days, so here is my unofficial, admittedly biased analysis of what is going on…………… The bank has issued a personalized form letter which reads:
This seems a very nice way of saying, we decided we need to squeeze revenues from our loan portfolio, and we are targeting everyone who has a personal line of credit. Hope you understand, but we are in business to make a profit, and we can do this whenever we want – check the fine print lady.
As I said, I received four such complaints this week. Let’s look at the four TD clients and see what conclusions we can draw.
Client # 1
A lawyer practicing law in the GTA. She is a TD Bank client twelve years, with a credit score consistently over 800. (That’s awesome folks)
She maintains her law practice trust and business account at TD Bank, has a TD Infinite Visa, and a personal checking account. She has a $13,000 PLC. Her current balance owing is only $23.
Her rate was bumped 3.75% to 12.5%
For comparison, her Scotiabank PLC is at 6%, and her high limit CIBC Aerogold Visa is at 11.9% – and that’s a credit card!
Client # 2
A self-employed gentleman, and a TD customer fifteen years, he also has an impeccable credit history with a score usually around 750. He has a $17,000 PLC, and has a zero balance currently. In fact, TD owes him $8 in this account as he overpaid last time he used it. He has five products with TD Canada Trust.
He also has a $20,000 Infinite Visa card, and operates a Select Checking account with a $24.95 monthly fee. (Waived because he maintains at least a $5,000 in the account at all times)
His rate was increased “only” 1% to 7.5%
Client #3
A young professional mid-level marketing manager at another financial institution. She banks her take home pay of $56,000 in her personal checking account, and also has a personal credit score over 800. She has been a TD Bank customer her whole life, and has five products with them.
She has a TD Waterhouse account; a TD RRSP, and a small TD Rewards Visa, which she does not use anymore. She has had a $29,000 PLC at TD for five years (given her while she was a full time university student!)
Her present balance on the PLC is around $11,000 – she used the money to buy a used car, and makes multiple payments each month against her balance. She never waits for the due date to make a payment
Her rate was increased 2.5%to 8.5%
Client #4
A middle aged chef in an ethic restaurant, making in the mid-forties each year; his credit score is around 700 – no derogatory information, and he has been a TD client four years. He also has a $10,000 TD Infinite Visa; four products with TD Bank altogether.
He has a balance of $9,500 against a limit of $12,500. He has never paid down the balance to zero, and the amount owing is most likely a case of exuberant spending
His rate was increased by 1.75% to 7.5%
Apparently, all clients were assessed an increase of anywhere from 1% to 4%.
Conclusions:
As my old statistics prof used to say, we have insufficient data to draw any conclusions. All of the above are model clients – never, ever a late payment anywhere by any of them. And yet, TD is increasing their interest rate. I wonder what they are doing to people who aren’t so perfect?
I am totally in favor of strong, profitable Canadian banks, but I think they should be careful in their account evaluation processes. These four people sound like keepers – why alienate them and risk them taking their business elsewhere?
Update – February 06, 2012. Ellen Roseman of the Toronto Star wrote a column today on this same subject. She cites a spokesperson at TD Bank who says that in fact, 60% of clients will see a rate increase, and 40% will actually see a rate decrease. I have hundreds of active clients, but I have yet to hear from one who has seen their interest rate go down though. Read Article…
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