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Canadian households passed up on billions of dollars in potential savings by making relatively little use of the debt-relief programs offered by banks and other financial institutions in response to the disruption caused by Covid-19, new research finds.

In a new staff working paper published by the Bank of Canada (working papers don’t reflect the views of the central bank), researchers examined the take-up of debt-relief programs that could have saved households over $4 billion in aggregate.

Due to low participation in these programs, actual household savings only reached about 11% of their potential, the paper noted.

“For the credit-card program alone, over $1 billion was left on the table,” the paper said. This represented potential savings to the 34% of cardholders who typically carry monthly balances and could have benefited from reduced interest rates on those balances.

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The researchers also estimated that deferring low-interest mortgage payments and using the reprieve to repay high-interest credit card debt could have saved households another $3.35 billion.

“Together, the considerable potential savings but low take-up rates suggest that Canadians did not take full advantage of the deferral programs and left significant money on the table,” the paper said.

Indeed, researchers found that 24% took advantage of mortgage relief, and only 7% opted in to credit card relief offerings.

Researchers attributed the relatively low take-up of these programs to the fact that people either didn’t know about the programs or couldn’t be bothered applying.

In particular, the researchers noted that details on the credit card deferral programs were “initially difficult to find” — around 80% of people may have been unaware of credit card deferral opportunities.

“The mortgage deferral program was more widely promoted, but even its existence may not have been known to all,” the paper said.

Alongside this lack of awareness, the perceived hassle of enrolling in the programs may have discouraged participation, the researchers found.

“With reported wait-times in the hours at the launch of the deferral programs, many individuals might have given up,” the paper said, noting that previous research on household finance has found that hassle costs often cause some people to forgo potential savings.

Additionally, fear that applying for a deferral could impact future creditworthiness was another potential disincentive, the paper said.

“Our findings suggest that the effectiveness of debt-deferral programs depends on the extent to which people are aware of them and how easy they are to use,” the paper concluded.

“One way to ensure greater awareness would be through greater advertising by consumer protection agencies, similar to the increase in advertising by deposit insurance agencies during the financial crisis and pandemic.”

Making the programs easier to join would likely also increase enrolment. Accommodating a greater number of applicants “could be done by facilitating online applications with classic behavioural nudges, or by making opt-in the default option,” the paper said.