Canadian consumer debt grows at fastest pace in two years

Canadian consumer debt grows at fastest pace in two years

Published on November 15, 2012 by Alexandra Villarreal

A report released on Wednesday revealed that Canadian consumer debt increased over the summer at its fastest pace in two years.

TransUnion’s quarterly report on Canadian credit trends found that average consumer non-mortgage debt increased 4.6 percent in the third quarter compared to the same period last year to an average of $26,768. Since the second quarter, debt increased by 2.1 percent this past summer, CBC News reports.

Thomas Higgins, the vice president of analytics and decision services at TransUnion, said that debt has increased 400 percent faster than the rate of inflation, a departure from the relatively stagnant debt increase over the past three years.

“Debt’s outpacing us and continues to outpace us, so at some point in time there’s going to be a reconciliation,” Higgins said, according to CBC News. “Hopefully it’s not drastic and hopefully it doesn’t hit everybody, but there’s going to be a correction somehow along the way.”

An 11 percent increase in auto loans as compared to the same period last year was the primary driver of growth in overall debt, as consumers gain enough confidence to make a big-ticket purchase that was previously put aside during the financial crisis.

“During the recession people held off on buying the new car, they refinanced the lease or continued with what they had longer than they would have,” Higgins said, CBC News reports.

Higgins said that a reduction in the amount of worrisome media coverage of the economy, and with Canada and the U.S. reporting a healthy jobs market and posting growth, respectively, could contribute to the ever-increasing consumer debt.

The report did, however, indicate some improvements in various areas of consumer debt. Canadian average credit card debt decreased one percent since last year, though it increased 0.5 percent from the previous quarter. Borrowing on credit lines also decreased by 0.2 percent since last year, though it has increased almost one percent since the second quarter, according to CBC News.

Loan delinquency rates – the number of people who pay late or default on a loan – also continue to remain low across all loan categories. Equifax Canada, TransUnion’s biggest competitor, said that delinquency rates have fallen to pre-recession levels, though the amount owed continued to increase.
Data from Statistics Canada revealed that household debt, however, has grown to 163 percent of disposable income. An earlier report by Moody’s Analytics said that with so many Canadian consumers in debt, it may be difficult to increase domestic spending to improve the economy if conditions take a turn for the worst, CBC News reports.

Higgins said that borrowing could increase even further during the fourth quarter, including the holiday shopping season.

“We’re moving into the Christmas season so I anticipate we might see another high increase year-over-year when we get to the Q4 numbers when we get some Christmas spending in there,” Higgins said, according to CBC News.