Canadian consumers are increasingly being targeted with credit products that offer attractive perks, such as rewards on rent payments, but experts warn these innovations may pose financial risks, particularly for vulnerable borrowers. A recent example involves a partnership between the Bank of Nova Scotia and fintech company Casa, which launched a zero-fee credit card enabling renters to earn points on their rent payments.

While such offerings may appear beneficial, the underlying business model raises concerns. Credit-card transactions typically incur interchange fees of up to 2 percent, costs landlords often resist. Casa’s arrangement involves absorbing these fees and passing rent payments on to landlords without any charges. To remain profitable, Casa depends on revenue generated by the Bank of Nova Scotia, which benefits from interest and penalty fees charged to cardholders who carry balances or make late payments.

Credit-card interest rates average around 20 percent on unpaid balances, with late fees ranging from $25 to $35, creating a revenue stream for the bank. Casa is compensated for bringing these new customers, enabling the partnership to offset the costs of interchange fees. This structure capitalizes on consumers’ tendencies toward immediate gratification and overconsumption, as well as their urgency to meet essential payments like rent, potentially undermining long-term financial stability.

Critics highlight that while such programs promise expanded financial opportunities, they may exacerbate economic disparities, particularly between renters and homeowners, and among different age groups. Recent data from Equifax show credit-card delinquency rates as high as 23.5 percent among Canadians under 36, a historically elevated figure. Though some renters may benefit from reward points, the programs effectively redistribute costs, as higher interest and fees paid by vulnerable users help subsidize rewards for those more financially secure.

Additionally, the funding of credit-card rewards impacts all consumers. Interchange fees charged to merchants tend to be higher for premium cards offering enhanced rewards—up to nearly double those charged for basic cards. Since merchants rarely reject credit cards regardless of type, they often increase prices across the board to recover these fees. As a result, consumer prices rise overall, indirectly transferring costs from better-off cardholders to the broader population, including lower-income individuals.

These developments occur amid broader financial pressures facing Canadians, including rising living costs, housing affordability challenges, and precarious entry-level employment. Although promotional credit offerings may seem to ease these burdens, experts warn they can increase household financial vulnerability and complicate the affordability crisis. The entrance of established banks like Scotiabank into these riskier credit products marks a notable shift from their traditionally cautious lending practices, raising questions about the long-term implications for consumers and the financial system alike.