Heather Scoffield: Ottawa eyes low-interest lines of credit for households battered by COVID-19

OTTAWA-Canadians may soon to be able to tap into low-interest lines of credit backed by the federal government, the Star has learned.

Prime Minister Justin Trudeau suggested Tuesday that help was on the way for Canadians who may have to take out loans to pay bills as they endure the economic shocks of business closures and unemployment during the COVID-19 pandemic.

"Those conversations continue with the banks. We're also looking at ways of easing access to credit for individuals so that they can shift their bank balances and their credit card balances to a lower interest line of credit," Trudeau said during his daily briefing.

"These are things that we're continuing to work on because we recognize that Canadians don't want to come through this with impossible levels of debt and we're going to be there to help them out."

Insiders say the banks have been talking to government officials for a couple of weeks about no-interest or low-interest lines of credit, targeting the middle class - those households whose regular expenses, such as the mortgage or monthly bills, are higher than anything Employment Insurance or the $2,000-a-month emergency benefit would give them.

According to those discussions, the idea is to have the banks offer lines of credit to individuals at zero interest and give them several years to pay it back. The lines of credit would be guaranteed by the federal government, so the banks wouldn't have to take any extra risk on their balance sheets and would have an incentive to approve applicants despite the collapsing economy.

In order to qualify, individuals would likely have to prove their attachment to the labour market. The lines of credit would be capped, perhaps at about $10,000 or $12,000 per person.

The arrangement would probably mean about 20 million people could qualify. If everyone took advantage of the arrangement, it could pump more than $200 billion into the economy at a relatively minimal cost to the federal government.

The outcome of those discussions is not clear yet, but it's evident from their public comments, that Trudeau and his ministers are pressing financial institutions to make low-interest options available to cash-strapped customers.

On Tuesday, for example, Treasury Board President Jean-Yves Duclos said the government wants banks to commit to allow deferral of interest as well as mortgage principal payments. "People are often stuck and don't have the means to pay their mortgages as they would do in normal times," Duclos told reporters.

"What we are expecting from the banks ... is not only to be aware of the precarious situation of many families but also to ensure that the way in which they provide loans through credit cards or other means be adapted to the present context," he said.

Citing the case of high-interest credit cards, Duclos said that Ottawa is "expecting" that financial institutions make "other means" available to individuals to pay back loans, and for them to "pay lower interest rates in the coming weeks and months."

"This message has been explained to the banks ... and we hope this message will lead to practical situations for families throughout the country," Duclos said.

Heather Scoffield is the Star's Ottawa bureau chief and an economics columnist. Follow her on Twitter: @hscoffield

Bruce Campion-Smith is an Ottawa-based reporter covering national politics. Follow him on Twitter: @yowflier