Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 15 - Evidence - Meeting of June 22, 2005
OTTAWA, Wednesday, June 22, 2005
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-19, to amend the Criminal Code (criminal interest rate), met this day at 5:05 p.m. to give clause-by-clause consideration to the bill.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Welcome, honourable senators. We are here to consider a private member's bill, Bill S-19, presented by Senator Plamondon, amend the Criminal Code to reduce the criminal interest rate from 65 per cent to 35 per cent.
I owe committee members an explanation. You will recall that this committee agreed to defer clause-by-clause consideration, notwithstanding the representations and the patience of Senator Plamondon, to allow the minister, who apparently opposed this bill, to have an opportunity to present his views to the committee. We thought we had a fixed date with him today, which was the reason clause-by-clause consideration was deferred to today. We were told late last week that the minister could not come today because he was appearing before another committee at the same time on a government bill, which takes priority.
We also had arranged for tomorrow to be a day available for the same thing. The clerk made direct representations to the minister's office. After telling us that he might be available tomorrow, we were told he would not be available tomorrow. That is the purpose of proceeding with the bill today.
In the interim, the minister sent me a letter dated June 1, which I understand was sent in French and English to all members. I would like to read his letter into the record. Senator Plamondon responded to his letter, since it is her bill. I will allow her an opportunity to read her response into the record as well. We will have a brief discussion and then move to clause-by-clause consideration.
The letter is on the letterhead of the Minister of Justice and Attorney General of Canada, dated June 1, 2005. It is not directed to the committee. The letters were directed to each individual senator, which is another question some senators might want to raise. The letter reads:
Dear Senator Grafstein:
I am writing to you on the issue of Bill S-19, An Act to amend the Criminal Code (criminal interest rate) currently before the Senate Standing Committee on Banking, Trade and Commerce. I understand that the Committee may soon resume its consideration of the Bill and I wanted to share with you my perspective on amendments to the Criminal Code that are proposed in the Bill.
I certainly understand and sympathize with the purpose underlying Bill S-19 in seeking to reduce the charges on high cost loans, especially those offered by certain finance companies in Canada and the pressures faced by financially vulnerable Canadians. Indeed, I have myself written on these matters as part of my work and publications on "Law and Poverty in Canada.'' However, upon full consideration, it is my view that the proposed amendments in Bill S-19 are not the appropriate vehicle to address these otherwise laudable goals of consumer protection. Further, I am of the view that the Bill is not in accordance with the essential nature and purpose of the criminal interest provision and represents inappropriate criminal law policy.
As was noted by an official of the Department ofJustice Canada testifying before the Senate Committee on Bill S- 19 this past February, the criminal rate of interest is not a provision aimed at consumer interest regulation within Canada's financial sector, but rather at the criminal extreme of loansharking. The original policy impetus for the introduction of the provision was these fundamentally criminal loan practices, that frequently are associated with threats and violence, and that are typically engaged in by organized crime. The offence at section 347 appears immediately adjacent to the offence of extortion in the Criminal Code, and the two sections are related.
With respect to consumer loans, Canada has largely adopted an open market approach to loan charges, accompanied by efforts to ensure competition, full disclosure of applicable rates, and education of consumers. And indeed, for many Canadian consumers, markets work to provide loans at reasonable rates. However, I agree that the rates at which certain loans are offered in Canada call for review of whether an unregulated market approach is necessarily appropriate for all situations.
While it presumably would be open to the Parliament of Canada to seek to remedy such situations by explicitly using section 347 of the Criminal Code to attempt to regulate market rates of interest, it would not be, in my view, an appropriate instrument to do this. It is true that, despite its fundamental criminal purpose, section 347 is drafted so as to apply broadly to interest arrangements and payments in Canada, with few exceptions. However, as noted by the Supreme Court of Canada, and further emphasized by the Uniform Law Conference of Canada, the Canadian Bar Association, and the Canadian Bankers Association, this approach, even at the existing interest rate specified in the section, is already leading to unwanted complications, unrelated to the section's ostensible criminal law purpose and unrelated to the goal of consumer protection. The reduction in the maximum interest rate under section 347 as proposed in Bill S-19 would exacerbate these complications.
While some of the complications now caused bysection 347 could perhaps be remedied by exemptions for certain commercial loans, this would still not lead section 347 to be an appropriate vehicle for financial regulation and consumer protection. Instead, if it is concluded that a legislative exclusion is needed to accommodate this financial regulation and consumer protection purpose, a more comprehensive regulatory solution specifically tailored to consumer loans likely would be a better option. As you may be aware, a federal/provincial/territorial policy review to seek a better, non-criminal regulatory approach is currently underway with respect to small short-term loans offered by payday lenders in Canada. Work on this policy review is ongoing and, in fact, is intensifying. While this particular review is limited, at present, to those particular loans, I consider such a policy review to represent the more appropriate path for furthering the goals underlying Bill S-19 as well.
I therefore respectfully request that the Standing Senate Committee on Banking, Trade and Commerce not give its support to Bill S-19 in order to allow suitable policy development leading to more appropriate solutions.
It is signed "Yours sincerely, Irwin Cotler.'' Copies of the letter went to the Honourable Ralph Goodale, Minister of Finance, and the Honourable David L. Emerson, Minister of Industry.
I would like to give Senator Plamondon an opportunity to read her response to the letter, and then we can have a brief discussion before we go to clause-by-clause consideration.
Senator Angus: I am sorry to be late. Have you already commented on the fact that the minister is not here and why he is not here?
The Chairman: I have. You can add your concerns.
Senator Angus: I will share them later on.
The Chairman: I have indicated my concerns and placed them on the record.
Senator Angus and I have had in camera discussions about this matter, and I have no objection to his offering the same views that he shared with me privately if he chooses to do so.
[Translation]
Senator Plamondon: When I received the letter, I thought it was addressed to me because I had sponsored the bill. After our last meeting, I realized that every member of the committee had received a letter from the Minister of Justice. I replied immediately and here is the tenor of that letter:
Dear Minister:
On June 1, 2005, you wrote to me by special mail concerning Bill S-19, which seeks to update the usury rate indicated in section 347 of the Criminal Code.
I was very surprised by your letter given that you had expressed your viewpoint on this directly and indirectly on three occasions.
1. Representatives of your department, accompanied by representatives of the Department of Industry, came to meet me in December 2004 to express your views;
2. In February 2005, the same representatives appeared before the Standing Senate Committee on Banking and Commerce to state the same thing; and
3. On March 14, you wrote to me expressing the same point of view.
These representations all expressed the same opinion, mainly that you disagreed with Bill S-19.
Your letter of June 1, which arrived a few hours before the committee met to resume examination of Bill S-19, left me quite perplexed. You had every possible opportunity to express your views and you will have more when this bill comes before the House of Commons. I found this procedure inappropriate.
As early as January 2005, I had written to you in order to explain the bill and invite you to come and express yourpoint of view. In response to this letter, you wrote to me on March 14, 2005. In your letter, you alluded to the fact thatBill S-19 would include a related question of strategy, that stakeholders would want to be exempted from section 347 of the Criminal Code and that joint work by federal and provincial departments "seeking to determine the best possible course of action to solve this problem'' was underway.
The bill simply seeks to update section 347 of the Criminal Code with regard to current interest rates which are far lower than what they were in 1981. There is no related or complex strategy underlying Bill S-19.
In your last letter of June 1, 2005, you raise the issue of small short-term loans and you argue that a regulatory, non-penal approach is being developed at the federal, provincial and territorial levels.
The testimonies and interventions of your departmental representatives, as well as those of the Department of Industry, clearly indicated that small short-term loan activity is considered a matter of provincial jurisdiction and that the provinces are working toward a consensus to supervise these activities.
Updating the Criminal Code does not prevent the provinces from adopting legislation and regulations in matters of consumer protection and abuse of transactions.
The current bill simply seeks to update section 347 without in any way changing the scope.
Respectfully yours,
[English]
The Chairman: We have received responses and I have referred to them before. We delayed the clause-by-clause consideration for six weeks to two months so as to allow all of the provinces to respond. We received responses from New Brunswick, Manitoba, Alberta, Saskatchewan, British Columbia and Quebec. We have heard from the Minister of Justice.
I read those responses into the record in the past. If committee members wish to talk about those, I am open to dealing with them. I have a brief summary of those responses. The Criminal Code is federal jurisdiction, but the application of it is provincial, and much of the regulation of this activity is provincial.
As senators representing the regions, we thought that we should give the provinces an opportunity to respond. I was taken aback that none of the provinces chose to appear before the committee. However, I felt that as senators representing the regions we had a duty to ensure they had an opportunity to present their views, which they did in writing.
This is a complicated issue. Unfortunately, the written responses did not give committee members an opportunity to cross-examine the provinces on their views. We have a lot of half information and half representations, and I understand deeply the frustration felt by Senator Plamondon.
Senator Angus: In respect to the minister, I have expressed to you in very strong language my personal views. I found that you were receptive to them, and I am satisfied that you, both through your leadership in the Senate and personally, have gone to great lengths to advise the minister. Indeed, I understand you have spoken to him directly about our displeasure. Not only did he twice undertake to appear before us, but he instead sent the letter to all members of the committee, which I found to be a very unusual step.
This most recent time, Senator Plamondon was advised by the Steering Committee that, in our view, it was appropriate to wait until today because the minister would come today. It was on that condition that Senator Plamondon agreed to back off.
My inclination is that the minister does not want to be heard. Let us move to clause-by-clause consideration and pass this bill.
The Chairman: I would like to throw it open for any senators to comment on the minister's letter, Senator Plamondon's response, or any matter affecting the federal-provincial relationship on this bill. Then we will move to clause by clause.
Senator Tkachuk: I agree with my deputy chair. However, I would like to know on what bill and before what committee the minister is appearing today.
The Chairman: I understand he is appearing before the Standing Senate Committee on Legal and Constitutional Affairs on a government bill. I have been told by the clerk that it isBill C-2.
That is why we had some flexibility. I spoke to the deputy chairman about deferring clause-by-clause consideration to tomorrow. We had arranged for two dates, June 22, which is today, or possibly June 23. The clerk was told that June 23 was open. We were subsequently told that because there was a conflict on June 22, he would attend on June 23, which is tomorrow morning. We now know that this is not the case.
After talking to our deputy chairman about direct efforts and with the help of our leadership, I saw the minister myself. I told him it was very important to be subject to cross-examination by this committee and that it would be useful for him to attend. He told me that he could not attend today and that he had a conflict tomorrow. I told him that there was displeasure, as Senator Angus said, in the committee, and that we would proceed with clause-by-clause consideration today. He was fully informed about the displeasure of the committee.
Senator Angus has summed up my views quite well. If a minister chooses on behalf of the government to oppose a bill, he owes some responsibility to come before the committee to defend those views, to be fair to Senator Plamondon, who has been ultra patient in terms of trying to respond. That does not take away as to how we deal with the subject matter of the bill. His appearance would just help us in our work.
Senator Tkachuk: We have spent over half of our committee meetings, if not more, talking about this issue.
[Translation]
Senator Massicotte: If I understand your comments correctly, I am a little frustrated and disappointed by the fact that the minister did not find time to come and meet us. At the same time, and this may sound contradictory, this does not motivate me to approve a measure that is not in the interest of Canadians. We will not punish Canadians in order to catch up with the minister. We will do what is necessary to formulate comments on the bill.
Senator Angus: The point is not to punish Canadians, on the contrary.
[English]
The Chairman: Senator Massicotte, I think we agree with your statement. Notwithstanding the frustration, we are here to deal with the bill, which we think is appropriate.
Senator Baker: Mr. Chairman, you said that you did read into the record of the committee the views from the provinces who responded to your request. Then you said you had done a summary of those responses. In a couple of sentences, what would that summary be?
The Chairman: Each province had a different view. Some were in favour of the bill. Others were not in favour of the bill. The Province of Quebec, for example, had no objection to the bill.
Senator Plamondon: Alberta was in favour.
The Chairman: New Brunswick's view of the proposed amendment does not differentiate between small loans, short- term loans or medium to large loans. They conclude, after reviewing provincial enforcement problems and so forth, that the proposed lowering of the threshold of criminal interest rates would be supportable if it applied to larger long- term loans. That seems to be inconsistent with what we have discovered.
Manitoba would welcome an amendment that would recognize the emergence of the payday lending industry and the need for controls. An amendment to section 347 of the Criminal Code would enable Manitoba to introduce its own regulatory proposals. They have a mixed view about that as well. Manitoba supports the proposed amendments to Bill S-19, and that was the proposed amendment that Senator Plamondon mentioned before.
Alberta supports the proposed amendments and agrees that the criminal interest rate be tied to the Bank of Canada rate. It agrees with the inclusion of insuring costs in the calculation of interest. I am not sure if that is in your proposal or not. It probably is in Senator Massicotte's proposed amendment.
Saskatchewan is concerned about the impact of Bill S-19 on short-term consumer rates and believes a regulatory framework is required before amending the Criminal Code to exemptshort-term loans from the scope of section 347.
British Columbia wants a comprehensive review ofsection 347, including maximum thresholds and treatment of insurance. They are calling for a wholesale review as opposed to just amending the solitary amendment contained in the bill.
Quebec has enacted similar provisions to those proposed in the amendment of section 347. Section 70 of their Consumer Protection Act provides that credit charges must include insurance premiums. They submitted a long, comprehensive letter. They conclude by saying that Bill S-19 provides only a partial solution to the problem of short- term loans, but they do not have any objection. They think this is a partial solution only.
We then have the letter from the Minister of Justice.
By the way, Senator Baker, we have not heard from the Province of Newfoundland.
Senator Baker: Mr. Chairman, the reason I asked you to do that is that someone researching this matter in the future would be interested in that summary, and I thought it would be appropriate to put it on the record.
Has anyone checked section 347(2) of the Criminal Code to review the case law that has evolved from that section? Would that case law negative what the minister has said in his letter that this section of the Criminal Code has nothing to do with what this committee or the sponsor of the legislation says it has to do with? Has anyone looked at that or done an analysis of it?
The Chairman: It is fair to say that the committee did not do an independent study of section 347. We heard representations of the arguments, as you suggested, and we heard from Senator Plamondon. The onus is upon her, as Bill S-19 is a private member's bill, to deal with these questions, unless the committee decides it does not have enough evidence and wishes to study this matter further.
Senator Baker: I mention that because it is a simple matter for any senator to put 347(2) in quotation marks and conduct a search using Quicklaw or Carswell law to determine whether the letter is on point as far as this bill is concerned.
Some of the positions taken in the letter are rather strange, Mr. Chairman. I find it hard to visualize going from the one extreme of saying in one paragraph that section 347 does not apply, then going to the next paragraph and saying it should not apply, then going to the next paragraph and saying we will study the whole thing to make it apply, and then finally saying it does apply.
It is a simple matter. I will look it up myself.
The Chairman: Perhaps Senator Plamondon can respond. The deputy chairman and I expected that the minister would show up and we would have an opportunity to explore questions like that. I have not done any independent research. I have not ordered that the committee do independent research, but the onus is upon Senator Plamondon. She might have studied this matter and perhaps can respond to your question.
Senator Angus: Did we invite the Canadian bar to give evidence? That may help Senator Baker.
The Chairman: There is a sense of frustration here, but I take Senator Massicotte's point. We can be frustrated, but we are obliged to produce what we think is appropriate legislation in the interest of all Canadians. We have been a little blindsided by the lack of cooperation both from the bar, because we did not receive submissions from them, and certainly from the various attorneys general or provincial ministers responsible. They all say they are looking at this question as part of an overall issue, and then we have the minister's response. We are left in a quandary.
I apologize; I have just been corrected. The Canadian Bar Association did appear and did make comments.
Senator Plamondon: There were two main objections toBill S-19. The first one was that it would not be fair to commercial loans. That is why I proposed an amendment to the bill, to cover loans from $100,000 and less and that we would leave commercial loans. That was to respond to Senator Massicotte's concerns.
The other concern was about the payday loans and the money marts. That is why our chairman asked the provinces to respond. We found that there are no payday loans in Quebec because they regulate the permits. In Quebec, you cannot have a permit to lend if you charge over 35 per cent. Quebec solved this problem.
I asked the payday loan industry why they did not go into Quebec. They said that it does not pay. We have our answer.
The Minister of Justice had some provincial and federal meetings. He wanted to have a common approach. As you can see by the comments, there is no common approach.
We know it may take five or ten years before there is a common approach to regulate on a provincial basis, where everyone regulates the same way. If you are familiar withfederal-provincial meetings, you know that it might take a long time.
Every province has laws to prevent abuse. They might use section 347 or they might not, but they have the power to regulate abusive practices.
To answer Senator Massicotte's concern, I decided to propose an amendment to the bill that included the $100,000 figure, and I discussed that amount with him. He said it was okay.
I found that it is up to the provinces to find their own solutions to regulate abusive practices.
I have only one concern, and my bill addresses it. In 1981 the prime rate was 21 per cent and the criminal rate was 60 per cent. I am simply adjusting to the present rate so that the government will not have to adjust perpetually when the prime rate changes. The criminal rate is 35 per cent over the prime rate. Right now the prime rate is 2.5 per cent, so the criminal rate would be 37.5 per cent. However, if were ever to return to an interest rate of 22 per cent, the criminal rate would be 57 per cent, which would almost be the same as the 60 per cent rate in 1981.
The situation had been rotting for 25 years and no one addressed it. Before I came into the Senate, I had spent 40 years defending the people who are involved with finance companies. As no one had touched on it, I decided to address it. The only thing I want to do is actualize the criminal rate to what it was in 1981. I do not want to cover all the problems associated with access to credit. I just want to actualize section 347.
The Chairman: Senator Baker, let me make a point. I misspoke because I had not read this letter as carefully as I should have. I want to again go back to Minister Cotler's letter. Here is what he said, in response to your question. On page 2, he writes:
However, as noted by the Supreme Court of Canada, and further emphasized by the Uniform Law Conference of Canada, the Canadian Bar Association, and the Canadian Bankers Association, this approach —
— that is, using the criminal code to regulate market interest rates —
— even at the existing interest rate specified in the section, is already leading to unwanted complications, unrelated to the section's ostensible criminal law purpose and unrelated to the goal of consumer protection. The reduction in the maximum interest rate under section 347 as proposed in Bill S-19 would exacerbate these complications.
I assume that this is what the Canadian Bar Association said as well. They did opine on it. They are saying that the criminal power is being used to deal essentially with a consumer protection item. We have heard the argument on the other side from Senator Plamondon.
Senator Baker: Mr. Chairman, the sentence you read is interesting. In general terms, it deals in some specificity with this bill and says that, in fact, there is case law on this section doing exactly what Bill S-19 intends to do in amending it. However, on the previous page of the letter, Mr. Cotler states that this bill "is not in accordance with the essential nature and purpose of the criminal interest provision and represents inappropriate criminal law policy.'' If it is inappropriate criminal law policy and it is being used in the courts and adjudicated upon by the Supreme Court of Canada, then why would someone all of a sudden say, "No, this is not the appropriate forum?'' That is why I asked if there was any case law or any adjudication regarding this particular section as it relates to the purpose of Bill S-19.
I have not heard of any case law except the general comment from the Supreme Court of Canada. I do not know what the minister is referring to when he says "as noted by the Supreme Court of Canada.'' Where and when was it noted? Was itin 1940? In what publication was it noted in what adjudication?
The Chairman: Senator Baker has emphasized the problem that I have as well because of lack of information. One of the things we do not know is, if it is on the statute books as a criminal code test, to what extent is it being prosecuted by the various provincial Attorneys General? We really do not have any evidence to that effect. Senator Plamondon has done more studies than all of us here. Maybe she can advise us about that. That is one of the reasons we wanted the provincial representatives to appear before the committee. We wanted to ascertain whether they are enforcing section 347 at all or to what extent.
It is not just a question of case law; it is also a question of the prosecutions that might not be noted in the law reports. I do not know, senator, if you have any sense about that. That is another issue for us.
Senator Plamondon: Section 347 has been referred to in civil cases, but it serves as a guideline to what we consider criminal. It is the Criminal Code, but it has been referred to in civil cases; so we have to look at not only what the Attorneys General are doing but how the civil cases are treating section 347. I can tell honourable senators that the police are expecting some help.
The Chairman: Senator Massicotte has some proposals to make. Perhaps he could speak to them in general terms, which will make it easier when we discuss the various amendments.
Senator Massicotte: One concern I have, as Senator Angus raised the other day, is that we do not know very much relative to the criminal provisions of loans; in other words, the issue of loans over $100,000. Senator Angus had a concern that we do not know enough about it. I have to openly say that I do have a concern, but at this point I am prepared to take the risk and hope that we will not make any serious mistakes in spite of our lack of knowledge surrounding that issue.
I have debated this issue with Senator Plamondon at length in this committee and also privately. I support her proposed amendment to her draft bill, but I have an additional amendment. Without it, I have problems with the proposed bill. As is, the current provisions of the criminal rate are not being used because they are not pertinent. There is no prosecution because it often distorts justice and real equity. The proposed amendment goes a long way to resolve that issue. It takes away all these complicated financing instruments.
The difficulty I have, though, is for short-term loans. If you borrow $75,000 from a bank, the bank will say that is fair.The interest rate is, let us say, prime plus one, which is very good, but the bank will also ask, in all fairness, to be reimbursedfor the costs of processing and administering the loan. It may cost $750, but usually there is a transaction fee indicating $750 plus a loan for two or three months, if it a bridge loan, or whatever you may wish.
The Chairman: That is for processing the loan.
Senator Massicotte: That is for processing the loan. The difficulty with the calculation of interest is that you will calculate the prime plus one, plus the criminal rate of interest, and you will probably come up to 55 per cent if you only borrow for a month or two months.
I think academically or in theory that is not where we want to go with this thing. In calculating the interest rate, there is a paragraph that says here is how you calculate it, which is pretty good; it is compounded and so on. I want to deduct that, the real cost to the lender of doing the loan. Pay loans are an average of $17 a loan. Banks will know the information. For this type of demand loan it is $75 or whatever. Without that calculation of interest, in spite of the good intentions of Senator Plamondon, it will become an irrelevant amendment. They will not use this proposed law because it will offend too many people.
You amendment must ensure that interest is really interest. Interest is return on the capital you lend. It is not repayment of internal costs or for doing a transaction. I think my views are clear.
With that amendment, I would support Senator Plamondon's proposed bill and her amendment.
Senator Plamondon: I understand the intention of Senator Massicotte's amendment, but I do not agree because it would cover something that has to be covered by the provinces. It could cover the payday loans, and I think that goes to the provinces.
When you talk about $75,000, it is not loansharking and I have not heard of someone in a bank being accused of being a criminal. They can justify what they do.
Let us say that there may also be legal fees. If we were to put that in the Criminal Code as well, we would have, as a result, all kinds of fees being included, which takes away from the substance of section 347. I would have to vote against my friend's amendment.
Senator Massicotte: Here is the issue I have. Let us sayyou borrow $10,000 at prime plus one and the bank charges a $250 processing fee. That is the cost for the loan. You borrow the money for a month. With that calculation immediately comes the criminal rate of interest, with that $250 plus prime plus one, which is very reasonable.
I agree with the pay loan provisions. Do not forget that the criminal rate of interest is a federal jurisdiction. Right now it is not being used whatsoever. The provinces are not giving licences. They are indirectly controlling the pay loan business where they can by saying, as in Quebec, that they will not give a licence to make loans. However, it does not take away from our responsibility to establish a criminal rate of interest. They are saying that this is their responsibility. However, if you start exempting applications of this law, again you will find that it will not be applied at all. If you are going to make an amendment to a law, you might as well make it equitable and have it work all the time, otherwise it will become irrelevant. They will not use it, as they are not using this one.
[Translation]
Senator Hervieux-Payette: For all intents and purposes, the issue of the $100,000 excludes the regular consumer.However, there are always fees. Regardless of the amount, whether it is 100, 500, 50,000 or $500,000, there are always fees, a bit more paperwork and more authority in the financial institutions, responsibility for authorizing loans according to the size of the loan. So there is a bit more process for a large loan than for a small one. If I have understood correctly, I just want to be sure that I understand your amendment compared to the other amendment. It seems to me that the two can go together, except that I do not see the point of indicating $100,000. I think that this should apply to everyone. I do not see why excessive fees should be applied to someone who borrows $100,000. I do not see why someone should have the right to pay more than someone else, or pay 35 per cent above the prime rate. Because if I have understood all this correctly, by deleting 60 per cent, we are putting 35 per cent plus the Bank of Canada rate.
That there be real fees incurred by the lender is one thing, provided these fees are not invented to make an additional profit disguised as interest. That is what I am wondering about. This would mean that all fees are included in the interest rate. By indicating $100,000 — and I am asking you and Senator Massicotte this question — I think that we could do both and serve the interests of borrowers.
The lender could not impose excessive fees on small borrowers. If someone borrows $500, they cannot be charged fees for teller transactions, 10 minutes of time and a form to fill out. That person cannot be charged $100 in administrative fees.
I am trying to understand the difference between your two amendments. There is a cost. Am I to understand that all costs, insurance, processing and administrative fees will all be included in the prime rate? Am I understanding this correctly?
Senator Plamondon: Exactly.
Senator Hervieux-Payette: This would apply to all loans under $100,000? Would those below that amount have to pay the 35 per cent?
[English]
Senator Plamondon: I will give a brief response. Let us say that five people go into a bank and get different rates, depending on the risk the bank is taking. It is in the interest rate that the bank calculates the risk. To add other fees is to calculate the risk twice.
With a criminal interest rate of 35 per cent over the prime rate, you have to include in that all the risks you are taking and the processing of the loan. It is of no use to then add a list of fees.
[Translation]
Senator Hervieux-Payette: I was trying to see whether we could reconcile the two. I notice that with the $100,000, these sums have to be explained.
[English]
Senator Baker: Mr. Chairman, Senator Massicotte gave the example of someone asking for a $10,000 loan and getting what the senator claimed was a reasonable rate charged on the loan; and then he said it would run afoul of what is proposed in this bill. This is what the senator said a moment ago. I was waiting for the answer from the sponsor of the bill as to whether or not he is correct. Is he right or wrong?
Senator Plamondon: I do not think he is right.
Senator Angus: Does what he has said make no sense?
Senator Plamondon: It makes no sense.
Senator Massicotte: Make the amount whatever you want. Contrary to what you are thinking, I am not saying it is fees.
Let us say the cost to the bank is $250 and you borrow the money for three weeks. The corresponding annual rate of interest is around 40 per cent. Therefore, the bank is now a criminal for charging prime plus one plus $250 for making the loan. I am saying that when the interest is calculated, the actual cost of doing the loan should be deducted. The bank knows that it costs $250 to process this loan. Make a deduction. Interest is being paid for borrowing money and the cost of doing the loan should not be in the loan. It should be separate.
Senator Plamondon: It is, too, because if you go into a bank and borrow $10,000, they will not ask you for any extra money to process your loan because it is included in the interest rate.
Senator Massicotte: They often charge. I have seen it many times.
The Chairman: Senators, I think Senator Massicotte has raised a factual matter.
Senator Angus: It would not be at that level, not at $10,000. I have never seen it done at that level.
Senator Massicotte: Be that as it may, there should be a deduction for the real costs, whether they charge or not.
Senator Plamondon: One hundred thousand dollars would cover both. It would cover everything.
The Chairman: Unless the committee decides otherwise, the normal procedure is to postpone consideration of the title until the end. Shall the committee proceed in the normal way?
Hon. Senators: Agreed.
The Chairman: Shall clause 1 carry?
I see an amendment from Senator Massicotte.
Senator Massicotte: I circulated a copy. I am proposing an amendment at line 30 of the English version, to reflect the cost to the lender of processing and administering a transaction as a deduction in the calculation of interest.
The Chairman: We are talking about a criminal procedure. It is a question of intent and mens rea. The proposed amendment reads, in part:
— required deposit balance or an amount that fairly reflects the costs of processing and administering the transaction —
Would that be vague for uncertainty or would that be precise as it applies to mens rea?
Senator Massicotte: It is the advice I received from the Senate legal staff. They really wanted the wording. They thought it would stand the test of time because eventually the bank has to say that this is the cost of the loan.
The Chairman: Mark Audcent was not available, but Michel Patrice is available. We should hear from him. This is a technical, legal question, one that goes to the question of mens rea.
Mr. Michel Patrice, Parliamentary Counsel, Legal Services, Senate of Canada: In terms of your question of regarding use of the word "fairly,'' this is an issue that would arise in the case of a prosecution before a tribunal. The defendant in that scenario would have to establish his cost of processing the transaction. It would be a question of fact, and the defendant would have to demonstrate the cost of the transaction.
The Chairman: Would "fairly'' be defined by the court?
Mr. Patrice: The court will have to assess that. It would depend on the type of loan and the activities, the type of lenders.
The Chairman: In your opinion, is this vague for uncertainty or do you think it is clear enough?
Mr. Patrice: It is clear enough.
Senator Baker: Does the word "fairly'' have any adjudicative history in case law, or would you, on second thought, prefer the word "reasonably?''
Mr. Patrice: "Reasonably'' has quite an adjudicative history attached to it. "Fairly'' would satisfy the court. Maybe it is a good thing that it does not have attached to it all the adjudicative history of "reasonable.''
The Chairman: Are you saying that you think "fairly'' is more acute than "reasonably'' because of the various tests applying to "reasonably,'' which is broader?
Mr. Patrice: Yes, it is broader.
The Chairman: Is that what you are saying?
Mr. Patrice: Yes.
Senator Baker: It would raise the very issues you brought up concerning the word. That is what he is saying. It would raise all of these questions. If the word "reasonably'' were put there, it has a long history in situations like this: "reasonably reflects the costs.''
Senator Angus: Is that not what he is saying?
Senator Baker: No, that is not what he is saying. That word has a history, but "fairly'' does not. I do not think it does. It would raise the issues you are talking about, but it is more specific. I think that is what he is suggesting.
The Chairman: Senator Angus, I never want to put myself in a place where I have to say what Senator Baker has said because he says it better, but I think what he is saying is that there is existing case law about the application of the word "reasonable.'' There is no case law with respect to the word "fairly.'' Therefore, his view is that to avoid uncertainty, it would be better to at least establish it based on existing case law than to try to cut a new furrow.
Senator Angus: I did not understand that. Mr. Patrice said that. Do you agree with that? I think he said the opposite.
Mr. Patrice: Could I have a copy of the amendment?
Senator Massicotte: The calculation of this thing is an accounting one. The word "fairly'' is used by auditors around the world. When you talk about GAAP, it is a fairly representative financial position. I am sure there is a lot of history in an accounting sense.
Again, this is an accounting calculation. The word "fairly'' is used by auditors and I think "fairly'' better represents the intent. "Reasonably'' could be construed as being unreasonably high. "Fairly'' is what is normal in the circumstances.
[Translation]
Mr. Patrice: In French, the expression "reflétant adéquatement'' is used.
[English]
It will be a question of facts, and the facts that will be establish before the tribunal by the defendant.
Senator Angus: "Reflecting adequately.''
The Chairman: The English version says "fairly'' and French says "reflecting adequately.'' Senator Massicotte, is there a difference between the two?
Senator Massicotte: I have a difficulty in French and English. We have had this debate.
The Chairman: Senator Massicotte, I think you raise an important point.
Senator Massicotte: I prefer the word "fairly.''
The Chairman: What would be the French terminology for the accounting term "fairly?''
[Translation]
Mr. Patrice: I am thinking of the word "équitablement.''
[English]
The Chairman: Mr. Patrice, do you have any knowledge about the accounting term?
Mr. Patrice: I am not an accountant, Mr. Chairman.
The Chairman: Senator Massicotte says that this is a practical term of art in the auditing profession. If you had to lead evidence about this, would you bring in a witness to say that, based on auditing principles and the adoption of the word "fairly'' to auditing texts, this is an appropriate use of the word. I hear what Senator Massicotte has to say. The question is, are the French and the English the same?
Mr. Patrice: Yes, they are the same.
The Chairman: Senator Massicotte, would you read your amendment, please?
Senator Massicotte: The amendment reads:
That Bill S-19 be amended in clause 1, on page 1, by replacing line 30 with the following:
— required deposit balance or an amount that fairly reflects the costs of processing and administering the transaction or, in the case of a —
In French it is line 16:
[Translation]
— required deposit balance or an amount that fairly reflects the costs of processing and administering the transaction or, in the case of a —
[English]
The Chairman: It was moved by the Honourable Senator Massicotte that Bill S-19 be amended in clause 1, on page one, by replacing line 30 with the following:
— required deposit balance or an amount that fairly reflects the costs of processing and administering the transaction or, in the case of a —
Is it your pleasure, honourable senators, to adopt the amendment?
Some Hon. Senators: Yes.
Some Hon. Senators: No.
The Chairman: All those in favour of the amendment?
All those contrary minded?
The amendment is defeated.
We will return to clause 1.
Senator Plamondon, do you have an amendment to clause 1?
[Translation]
Senator Plamondon: That Bill S-19 be amended in clause 1, on page 1:
by replacing line 4 with the following:
1.(1) The definitions "criminal rate'' and
by adding after line 32 the following:
(2) Section 347 of the Act is amended by adding the following after subsection (8):
(9) This section does not apply to any agreement or arrangement under which the credit advanced exceeds one hundred thousand dollars.
[English]
The Chairman: It is moved by the Honourable Senator Plamondon that Bill S-19 be amended in clause 1, on page 1:
(a) by replacing line 4 with the following:
"1. (1) The definitions "criminal rate'' and''; and
(b) by adding after line 32 the following:
"(2) Section 347 of the Act is amended by adding the following after subsection (8):
(9) This section does not apply to any agreement or arrangement under which the credit advanced exceeds one hundred thousand dollars.''.
Is it your pleasure, honourable senators, to adopt this motion?
Some Hon. Senators: Agreed.
The Chairman: All those in favour?
Senator Massicotte: On division.
The Chairman: We will take both of the amendments on division.
If the amendment is adopted, shall clause one, as amended, carry?
Some Hon. Senators: Agreed.
An Hon. Senator: On division.
The Chairman: On division.
Shall clause two carry?
Some Hon. Senators: Agreed.
An Hon. Senator: On division.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: The title shall carry without division.
Hon. Senators: Agreed.
The Chairman: Is it agreed that this bill be adopted with amendments or without amendments?
Some Hon. Senators: With amendments.
An Hon. Senator: On division.
The Chairman: On division.
Is it agreed that I report this bill, as amended, at the next sitting of the Senate?
Hon. Senators: Agreed.
The Chairman: Congratulations, Senator Plamondon.
As a comment, I have been criticized by allowing a private member's bill to be extended over a long period of time. However, I felt — and this sentiment was shared by the deputy chairman — that notwithstanding the fact that we gave an inordinate amount of time to this matter, we felt that it was an issue of important precedent and principle. We felt that we gave the government an adequate opportunity to respond.
Senator Angus: Including time to respond to the amendment regarding the $100,000 limit.
The Chairman: We felt that we gave the provinces more than an adequate opportunity to respond. Therefore, I feel that the committee has done its due diligence.
I want to commend Senator Plamondon for her patience. She understands that the process is complicated. We have fulfilled our duties here, and I wish her well as Bill S-19 moves to its next stage.
Senator Tkachuk: I would like to reiterate so that Senator Plamondon understands, as well as other members who may not have been here as long as I have, that the chair and deputy chairman should be commended for the way they have handled this bill. This is probably the best example of how a private member's bill should be handled in this place. In my experience, I have seen none handled in this fashion. With any other chairman, this bill would never have seen the light of day.
The Chairman: It is based on my own victimized treatment in committees. I have lost private member's bills with less time than it takes to say "boo.''
Senator Plamondon: I would like to give final thanks to the chair and every committee member, including Senator Massicotte. I like to be challenged and I liked the discussions that he and I conducted. I know that the provinces will respond to what he has said.
The committee adjourned.