Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 17 - Evidence
OTTAWA, Wednesday, March 21, 2007
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-26, to amend the Criminal Code (criminal interest rate), met this day at 4:05 p.m. to give consideration to the bill.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Ladies and gentlemen, I want to welcome you to our continuing study of Bill C-26. This hearing is being viewed on CPAC from coast to coast to coast and around the world via the Internet. Everything we say here will be carefully deliberated.
I will give the viewing public some background on the bill so that they will understand what we are grappling with today. Bill C-26 was introduced in the House of Commons on October 6, 2006, and received first reading in the Senate on February 7, 2007, barely a month ago. It received second reading on February 28, following which it was referred to this committee.
The bill would amend section 347 of the Criminal Code, which criminalizes the charging of usurious interest rates. Governments are obviously free to regulate any lending industry within their jurisdiction consistent with the limits set out in section 347 of the Criminal Code. However, an exemption from that section would require them to allow lending transactions exceeding the limit set out in the code.
This bill does not represent our first examination of this section of the Criminal Code, nor is it our first examination of the issues related to payday lenders. The committee has, in the past, examined a bill proposed by our former colleague Senator Plamondon — who, by the way, gave evidence before this committee — which also sought to amend section 347 of the Criminal Code. Moreover, we have examined the full range of issues related to the consumer protection of the financial services sector, which included hearings on alternative financial services providers, and resulted in the tabling of our report on this issue back in June of 2006. This committee has spent a lot of time looking at this question and the surrounding circumstances relating to the need for legislation.
According to section 347 of the Criminal Code, it is a criminal offence to enter into an agreement or an arrangement to receive interest at a criminal rate exceeding an annualized calculation of 60 per cent, or to receive a payment of interest at a criminal rate. The consent of a provincial Attorney General is required to prosecute an offence under this section. To date, according to our information, the provincial governments have not prosecuted any payday lenders. This section has not been used in the criminal context with respect to the day-to-day activities of payday lenders.
The growth of the payday sector suggests to the committee that services provided by such lenders are services that consumers indeed desire. The Constitution provides that the provinces and territories have jurisdiction over consumer protection through their authority over property and civil rights, while the federal jurisdiction exists with respect to the criminal law. In effect, we share this general pool of jurisdiction.
In the absence of regulation, the future of payday loan industries will be determined by civil suits, which in our view is not a satisfactory way of dealing with a service that Canadians obviously want and require. It seems that the payday loan sector is seeking some form of regulation, and we are holding hearings relating to the regime that would be put in place with Bill C-26.
We have with us today Bruno Lévesque and John Rossi from the Financial Consumer Agency of Canada; Colette Downie and Dave McAllister from the Competition Bureau; and David Agnew, Ombudsman for Banking Services and Investments.
I would invite Mr. Lévesque to please begin.
[Translation]
Bruno Lévesque, Acting Director, Consumer Education and Public Affairs Branch, Financial Consumer Agency of Canada: Mr. Chairman, first I would like to thank you and the Standing Committee for inviting the Financial Consumer Agency of Canada to appear before you today.
My name is Bruno Lévesque. I am the Acting Director of the Consumer Education and Public Affairs Branch. Seated beside me is John Rossi — the Director of the Compliance and Enforcement Branch.
Given the short length of time we have, and in keeping with the chairman's request, I will keep my opening remarks as brief as possible.
We understand that the committee is specifically interested in FCAC's role in informing Canadians about payday loans. My remarks will therefore focus on that, but before I begin, I would like to put FCAC in context in this discussion.
[English]
Our mandate is set out in the Financial Consumer Agency of Canada Act. We have a compliance and enforcement mandate, as well as a mandate to inform Canadian consumers on the topic of financial products and services generally. In order to fulfil our enforcement mandate, we ensure that financial institutions meet their obligations to consumers as outlined in the federal financial institutions statutes. Payday loan activities are not covered by the legislation that we oversee. Therefore, we do not have any authority to regulate payday loan services providers, nor do we have the authority to monitor how they conduct themselves in the marketplace.
[Translation]
The second part of our mandate is consumer education. Through its consumer education mandate, FCAC informs consumers about their rights and responsibilities when dealing with financial institutions and provides objective and timely information to help Canadians understand, and shop around for, common financial products and services.
We offer this information to consumers in a number of different ways, including through print publications, interactive tools on our website, and direct contact through our multiple outreach initiatives and partnerships.
Our publications and online interactive tools provide information on financial products and services, such as credit cards, mortgages, bank accounts, credit reports, and payday loans.
[English]
Since we first opened our doors five years ago, we have seen an exponential increase in demand for FCAC products and services. Every year, more and more Canadians contact us by phone, e-mail, letter or visit our website to download publications. The ongoing relationship that the FCAC has with consumers through these contacts is a great source of information that helps us develop and refine our consumer education program.
How did we come to produce a publication on payday loans? As far back as 2001-02, in its first annual report to Parliament, the FCAC expressed a concern that consumers could be using payday loan services without fully understanding the cost and without knowing about the other short-term options available to them. At the same time, the FCAC accepted a request from the federal-provincial Consumer Measures Committee to develop information and material to help consumers understand the costs and implications of using payday loan services. As a result, in conjunction with PIAC, the Public Interest Advocacy Centre, we created the publication the The Cost of Payday Loans, a copy of which has been distributed to you today. By first identifying the information gaps in the financial marketplace, we work directly or with partners to fill those gaps. The FCAC is being proactive in providing Canadians with the information and tools they need to help them navigate the complex financial marketplace.
[Translation]
So in closing, although we do not have a role to play in the regulation of payday loan service providers, we strive to ensure that Canadians have access to unbiased, factual sources of information that we hope will help them make the most suitable and less expensive choices for their needs.
We would like to thank you for the opportunity to appear before the committee and we look forward to answering any questions you may have.
[English]
Colette Downie, Acting Deputy Commissioner, Competition Bureau Canada: Honourable senators, I am here with my colleague Dave McAllister, who is Senior Advisor in the Legislative and Parliamentary Affairs Branch at the Competition Bureau. I send the apologies of the Commissioner of Competition, who was unavailable to appear today. In the interests of time, I have not prepared opening remarks as we are anxious to get to questions.
The Chairman: Do you have any general comments about the bill?
Ms. Downie: Generally, the bureau is very much in favour of anything that provides more information, disclosure and transparency to consumers, and this bill will give the provinces the ability to do that.
Generally speaking, the bureau tends to advocate reliance on market forces as a way to pick winners and losers in a marketplace, and we tend to be more reticent about price regulation. If I understand the testimony before this committee, it is the purpose of this legislation to give the provinces the ability to regulate prices if they choose to do so, and that is really for jurisdictional and consumer protection reasons that are beyond our mandate. We do not have any comments to make in that regard because it is beyond our expertise.
The legislation introduced by the provinces allows them to take the impact on competition or on consumer choice into account when they regulate prices. To the extent that such regulation takes place, the Competition Act will still apply to the payday lending industry in Canada.
David Agnew, Ombudsman for Banking Services and Investments: Honourable senators, it is good to be back before you. I know from previous experience that you value pithy opening remarks. I have distributed some comments, but I will speak briefly to them and start off, for the global audience, with a brief description of who we are.
The Ombudsman for Banking Services and Investments is an independent and impartial dispute resolution service. We look at unresolved complaints from the customers of more than 600 financial services providers across Canada in banking, loan and trust, investments, mutual funds and, I am happy to say, a growing number of credit unions — not, however, at least to this point, payday lenders, which is probably why I am here.
I will begin with a motherhood statement. It is a good thing that any financial services provider in Canada be regulated. It is almost surprising, in 2007, that there are any that are not so regulated. Therefore, at one level, this legislation is obviously a good thing. I confess to being agnostic about the method of regulation and, to that extent, that is properly in the realm of policymakers, which we are not.
Having heard much of the discussion about consumer protection, the one thing I have not heard being discussed in the context of this bill, and it is a very important part of consumer protection, is getting your money back, to put it in the vernacular, which is, when we deal with complaints, at the heart of the issue. It is what most consumers want. That is what we do. We look at disputes. If we see that there has been maladministration, an error, or that misinformation has been provided to the consumer, we will make a recommendation that the consumer be put back in the place they were prior to the transaction. We do not deal with damages; we are not regulators. We do not impose fines or sanctions. All of that is an important part of the system, but it is not what we do. We leave that to the regulators and we focus on restitution. That, too, is an important part of the system. In your deliberations and reflections, while this is an area that appears to be moving to the provinces to implement in terms of regulating the actual day-to-day operations of payday lenders, I would hope that that would be included as an important part of the consumer protections being offered.
When you look at our membership and our potential membership, a lot of encouragement has been given — whether it is by self-regulatory organizations or by the regulators themselves — that financial services providers join our service and offer our protections to consumers. Certainly, in your deliberations and the work that you do, anything that would similarly encourage payday lenders to become part of the ombudsman service would well serve the consumers. It is our objective that one day we can say that everyone in Canada who is using a banking service, or an investment product or service, is eligible to come to the ombudsman should they have an unresolved dispute.
The Chairman: Thank you so much. Perhaps I might introduce the members of the committee who are here so that you will be familiar with them.
I will start with Senator Baker from Newfoundland, followed by Senator Massicotte, Senator Banks, Senator Meighen, Senator Angus, Senator Harb, Senator Goldstein and Senator Biron. You have a full-fledged and serious- minded committee focused on your comments. I will now turn to Senator Angus, who the deputy chairman of the committee and the sponsor of this bill, to be the opening questioner.
Senator Angus: Let me first say, chairman, that I am not the sponsor of the bill although I am the deputy chairman of the committee. The sponsor is Senator Trevor Eyton, who has spoken eloquently about the bill already.
I have very few questions but I would like to reiterate the chairman's welcome. I have seen you all before, even Ms. Downie. You help our work very much in your efforts to not only make sure that the financial services sector functions properly but also that the consumers who use the system are treated fairly.
This bill, Bill C-26 goes right to the heart of that area of concern, namely, the consumer. Some of you will recall, having been witnesses thereto, the study that was done by this committee on how, five years after the last major amendments to the financial institutions legislation, the new measures designed to protect consumers were working. We found that they were working pretty well, and we issued a report to that effect. One of the things that we found, however, was that there now existed this new industry that had grown up like Topsy — and is continuing to grow like Topsy — called payday lending.
The issue here was whether or not the federal government was in a position to deal with that new industry. As the chairman has mentioned, that section of the Criminal Code was already in existance. If people in the industry were charging a rate that, if analyzed, would appear usurious in the criminal sense, even though the loan might only be for a few days, and the industry were asking for a way to get around that, then that was obviously an exemption from the Criminal Code provisions.
Canada's new government, in its wisdom, decided this was an area better dealt with at the provincial level, and that is what this act is all about. However, before we pass it, we want to make sure that people like you — the ombudsman, Mr. Agnew, the people from the consumer agency, the FCAC, and the Competition Bureau — are on side with it.
Some witnesses have expressed the concern that this could be anti-competition. In this industry there are a couple of big players and many smaller ones. It has been argued that perhaps the bill, as drafted, could be anti-competition, so we are anxious to know. My real question, which I will ask of all of you, is: Are you comfortable with the bill as drafted? Perhaps we could start with the Competition Bureau. Are you content that we pass this bill?
Ms. Downie: Yes, we are content that you go ahead and pass the bill for the reasons I outlined in my opening remarks.
Senator Angus: That is what I gathered. Are you okay with that, Mr. McAllister? Ms. Downie will not get fired tomorrow, will she?
Mr. McAllister: No.
Senator Angus: How about you, Mr. Agnew?
Mr. Agnew: I tend not to opine on public policy matters such as this, but obviously this is the product of many years of negotiation. It seems to have some consensus. It also leaves the provinces some freedom and latitude. Some provinces have opted in and some appear not to want to go down the road of taking advantage of the powers that this legislation would convey. However, the absence of regulation and the paralysis that has developed around this issue is not sustainable, and that is very bad for consumer protection.
Senator Angus: Are you saying that this would alleviate that paralysis?
Mr. Agnew: Yes.
Senator Angus: I think you noted in your opening that not only had Manitoba and Nova Scotia come forward but we all received notice this week that Saskatchewan has also done so, in terms of their legislation. The three provinces seem to be in harmony. I understand that this harmony would have been the result of consultation that took place between the federal government and the provincial people before this bill was put on the table. That would make some sense to me, and I gather that you agree with that.
Mr. Agnew: It would only be speculation, but I do not think any of the provinces, particularly the smaller ones, have the resources to reinvent the wheel. I would assume there has been some sharing of legislation and approach, not just in the legislative drafting but also where the power to separate may lie with the public utility commissions, and so on. I know New Brunswick also has signalled its intention to move ahead, and I think Alberta has, as well.
[Translation]
Senator Angus: Do you agree with your colleagues?
Mr. Lévesque: We do not have a mandate for commenting policies as they develop. That being said, the agency's main concern regarding payday loan products and services had to do with the fact that quite a few of the people who use these products or are targeted by these products did not seem to understand the costs and other implications of the product or to be aware of other short term loan services that were available.
With this in mind, we printed our publication on payday loans. However, we will not oppose the bill if it gives rives to regulations that meet the consumers' needs.
[English]
Senator Angus: Mr. Rossi, do you agree?
John Rossi, Director, Financial Consumer Agency of Canada: I can just reiterate the perspective of Mr. Lévesque. The agency is in favour of anything that will enhance consumer protection. However, it is important to say that, from the agency's perspective, our mandate is pretty clear and set out in our legislation. It is limited to the financial institution statutes, and this industry falls well outside of that mandate. Yes, we support the enhanced consumer protection; but from the agency's perspective, from strictly an enforcement perspective, it would fall outside our mandate.
Senator Angus: The chairman and I have been together for a long time in this mission, especially with the consumer study, and we were very impressed with your booklet. I am assuming it is in both official languages; the one I have here is in the English language, and it is fine, and I gather it is produced in French as well.
Mr. Lévesque: Yes.
Senator Angus: Terrific, thank you very much.
Senator Goldstein: Within the strictures that some of you have about commenting on public policy, it is encouraging to hear you effectively supporting this legislation.
I do not often have occasion to praise this new government, and I do not intend to praise it this time either, because it would be breaking the mould, but I consider that the manner in which this problem is proposed to be resolved is a particularly elegant one. The drafters have changed the characterization of the cost of a loan as interest, and characterized it instead as a function of the cost of a loan. This effectively brings it into provincial jurisdiction in terms of protecting consumers, given the fact that there are double limitations in play regarding the term of the loan and the quantity of the loan.
I would like to deal first with you Mr. Lévesque, to the extent that this concern becomes one of provincial jurisdiction. Will your role change in terms of the protection of consumers and the publications and complaints mechanism?
Mr. Lévesque: With respect to the consumer education mandate that we have, it is pretty large and it is pretty flexible in terms of the issues we can address, keeping in mind that we try not to duplicate any work already being done by other players at the federal and provincial levels. However, on this one, and on any other issues where we feel that there is an information gap that might affect the consumer, we proactively provide information to help the consumer better navigate the marketplace. Assuming that the legislation or the regulation of this industry were to be handled by a regulator, whose role would also be to provide information on the product they regulate, we would certainly be open to working with these organizations and to share expertise or to work on common projects in order to help the consumer better understand the products and services.
Senator Goldstein: Have you had experience in dealing with provincial — not equivalents, but effectively consumer protection agencies, in terms of collaborative education of the public?
Mr. Lévesque: Yes, on an ongoing basis and on specific projects, we deal with some organizations at the provincial level.
Senator Goldstein: Would I be correct in assuming that there is nothing in this bill that would affect your ability to communicate with the public?
Mr. Lévesque: You would be correct. It would not affect our ability to communicate with the public.
Senator Goldstein: You have no problem with that?
Mr. Lévesque: No.
Senator Goldstein: In terms of competition, some people have appeared before us who want us to propose an amendment to the bill that would include a cap, so that, in order to be recognized, provinces would need to have their legislation comply with that cap or be below it. In your view would that be a salutary way to deal with the issue of competition?
Ms. Downie: If I understand the proposals that have been put forward, it would be to set a maximum price cap, and the provinces could potentially settle a lower cap?
Senator Goldstein: Without characterizing it provincially or otherwise, that a cost be inserted into the federal legislation as a maximum. In your opinion, would this enhance or diminish competition, or have no effect?
Ms. Downie: It would really depend on at what level the cap was set. Any price cap set in this area will have an impact on which players can compete in the market below that price cap. It would depend on that. If there was a federal cap and a provincial cap, that would start to get confusing and would increase the cost of doing businesses, which costs might then be passed on to consumers. That is not a good thing. Similarly, any sort of duplication of regulation that might deter new entrants from coming in, or any uncertainty, can be harmful to competition. Generally speaking, that would be how we would view a federal cap.
Senator Goldstein: Are you aware that there is a very significant Internet industry in payday loans which emanates not from Canadian institutions but from foreign or foreign-controlled institutions, including some in Costa Rica and elsewhere, outside the jurisdiction of any province or, for that matter, Canada. Given the proliferation of these payday loan operations on the net, I cannot help wondering to what extent anything that we or the provinces can do will have an effect on this industry, in terms of controlling it. If, day by day, it is increasing on the Internet, and people are going more and more to the Internet to borrow small amounts of money, how can we have any effect on that? First, are any of you aware of the proliferation of these net payday loan people?
Ms. Downie: I am only aware to the extent that I have been reading about this industry in preparation for appearing here today. I have read some of the submissions to this committee that talked about it. I can say that certainly the Internet is a factor in enforcing the provisions of the Competition Act that exist today, so it is obviously a problem in price-fixing investigations and in misleading advertising investigations as well. What law enforcement agencies have had to do is to form partnerships with other jurisdictions in order to be able to tackle crimes.
David Allister, Senior Advisor, Competition Bureau of Canada: One of the things we have been contemplating, as we prepared to come here, is to have a look at the industry. Oddly enough, looked at from an outside point of view, there appear to be a number of players in the market: some large, some small, some Internet access for consumers, as well as a host of alternatives, but at the same time the rates appear to be very high and drawing public concern. It is not for me to say that they are inappropriate or what the right price is, but there are no barriers to entry into this industry. A number of market players exist, and yet the rates are very high. This does imply that there is a problem, whether it is with consumers not having adequate information or disclosure, or whatever. This seems to be driving the need for regulation, as we said earlier. I think we are reticent always about price regulation. We prefer to let the market work, but if there is a need for consumer protection in the form of regulation of price, then that is a decision for the provinces or the regulators to make.
Senator Goldstein: Mr. Agnew, you are the Ombudsman for Banking Services and Investments, and this committee has had occasion to hear from you in the past. If these institutions become regulated provincially, will you continue to have jurisdiction to deal with complaints emanating from consumers who have dealt with payday loan people in their respective provinces?
Mr. Agnew: Right now, we have no coverage over the payday loan industry at all. Our service started as a voluntary one in which businesses might participate. For at least certain of our members, it has since become less than voluntary because, in fact, an investment firm or mutual fund dealer or member of the Investment Funds Institute of Canada must be a member of our organisation.
There are proposals before the investment industry that would require all registrant firms to be a member of a dispute resolution service. It does not name us, but it says so as a federal piece of legislation. We would welcome any regulated financial services provider in the area of investments or banking services to participate in our service, but that has not been the case so far. The suggestion is that one of the reasons firms do become members of our organization is that there are pieces of legislation or regulation that tell them they must be a member of an independent or arm's- length dispute resolution service.
That is an essential part of consumer protection when it comes to financial affairs.
Senator Goldstein: Is that an amendment you are suggesting to this bill, or something you are suggesting to the provinces?
Mr. Agnew: Under the circumstances, not being a legislative expert, and given the tenor of this bill and what it is accomplishing, that is probably something that would best be handled at the provincial level.
Senator Goldstein: Have you made any representations to the provinces?
Mr. Agnew: I have.
Senator Goldstein: You have not succeeded, obviously. Do you know why?
Mr. Agnew: I do not know why, but it has been a relatively recent effort and can be handled through regulation or the licensing conditions. I have not given up hope.
Senator Goldstein: It can be regulations that follow the law.
Mr. Agnew: It can be voluntary on the part of the industry, as it is with several of our members.
Senator Harb: I would be interested to hear if the Competition Bureau has received any complaints about the industry, and if so, the nature of those complaints. I was also quite interested to hear you say that you supported the bill, because traditionally it has been your position, as well as my own, not to put a ceiling on a price. You have consistently defended the fact that we should not be put on a limit because once you do, the industry is bound to go right to that limit, and as a result you have anti-competitive behaviour in the industry. I would be interested in hearing from you about that, as well as about the 60 per cent.
How did this 60 per cent come about? Did this come out of a hat? Have analyses or studies been done? How do we handle that particular rate in comparison to other countries? Are you aware, for example, for what Europe charges? Do they include all of these fees, insurance fees, et cetera? I would be interested in finding out a little more because I think, as both the chair and you have said, obviously there is a market; consumers want the service, and there is therefore a need to be filled. However, is it relevant for us to be trying to tell the private sector, in a free and open market, what they have to charge?
Mr. McAllister: I will deal with your first question, and I thank you for it. We do not have objections to the bill, but that is not to say that we support price regulation. We are reticent about price regulation and consider it a means of last resort. We would always prefer competition and market forces to determine outcomes, as we said in our opening comments.
In this case, though, there has been a lot of discussion and it appears that there is a problem in this market, despite the number of players. There is sufficient public concern in a number of provinces with the rates being charged and it appears, for consumer protection reasons, that some of the provinces have decided that price regulation would be desirable. We recognize that. It is not for us to say that you should not regulate prices. That is their decision.
The only other thing I would add that might have a bearing is that we do have provision under the Competition Act, not just in enforcing the act in terms of offences but we can also make representations to regulators on how they regulate in terms of competition. This is something that we can consider in regard to this industry as provinces are coming forward with legislation, and so on. We do have an ability to make some representations and there can be different approaches that are less intrusive. We have that under consideration right now.
In regard to the second part of your question concerning the 60 per cent, I do not know where that comes from. My understanding is that the intent of that type of legislation is to deal with loan sharks, as opposed to payday loans. That came into being before the payday loan industry developed. That would be, I suppose, a legitimate form of industry. Consumers are demanding that service, and it is being provided. However, I have not undertaken a study of the status of the payday loan industry in other countries.
Senator Baker: First, I have a question on the definition in clause 2. How do you read the definition of ``payday loan'' as it is presently worded? It says that payday loan means an advancement of money in exchange for a postdated cheque, a preauthorized debt or a future payment of a similar nature, but not for any guarantee, and so on and so on. Now, do you interpret that to mean that a payday loan means an advancement of money in exchange for a postdated cheque then, continuing on, a preauthorized debt, meaning other than a postdated cheque, a preauthorized debt, or a future payment of a similar nature, but not for any guarantee? Is that the way you read that, or do you read that as not allowing a payday loan to be used or to be secured by a guarantee on property?
Do you understand where I am coming from here? The financial institutions are governed by the Bank Act. It is clear in the Bank Act what you can use as security for a loan. Do you read this as limiting the payday loan security that can be used by the company as simply a list of things defining payday loans, or do you see a problem with the way I am reading it?
Mr. Agnew: It is not my bill. It is not up to me to interpret it, but I know what the intention is, and that is to have a narrow definition of what a payday loan is, and to not allow payday lenders to secure against property.
Senator Baker: If you exclude things, or have an exclusionary clause that states that payday loans do not apply to this list here, which is very short in nature, five sentences, why could we not have five sentences in the Bank Act for the purposes of securing loans under the Bank Act? I presume what it means, according to the deputy chair, is that you cannot secure property with this particular loan. What about securing fishing licences? That is not included there.
Senator Angus: Any guarantee.
Senator Baker: Any guarantee whatsoever, and yet you list property, marginal loan, pawn-broking, a line of credit or a credit card. Why not simply say what the deputy chair just said and prohibit the use of anything as security? Why do you have a limited list of things there? It is simply a legal question, I am sure the deputy chairman would have an opinion on that. Do you have any opinion on it?
Mr. Agnew: I always defer to the deputy chairman's opinions on these matters.
Senator Baker: You do not find it strange to look at the Bank Act and see hundreds of pages of things that define what you can and cannot use as security, and only see five lines here in the same regard? Would it not be nice if the Bank Act were like that?
Senator Goldstein: It cannot be like that.
Senator Angus: The whole purpose is to get away from the Bank Act.
Senator Baker: Let me go to another question, then. The Newfoundland government is opposed to this bill for one reason. They have written to this committee and said that they go along with the Criminal Code amendment to exempt loans where the amount of the loan advanced under the agreement is $1,500 or less, and the term of the agreement is for 62 days or less, but they disagree that there should be a requirement for licensing and authorization of lenders under provincial law. In other words, the Newfoundland government is saying, ``Look, change the Criminal Code section, but do not force us to manage the payday loan people.'' They give, as a simple reason — and the deputy chair does not agree with this, of course, but he should — that it will cost the province money, not just for regulation but for enforcement, and that this will be passed on by the payday loan people to those who are getting the loans. They regard that as being unfair, so why not leave it in the federal jurisdiction. What do you feel about that?
Mr. Agnew: Unfortunately, it is a feature of our great country that we do not necessarily achieve unanimity when it comes to these kinds of matters. Not being in charge of public policy recently, it is not up to me or to any of us at this table right now to opine on what could have been or ought to have been instead, but to deal with the reality that we have.
What is not impressive now, from a consumer protection point of view, is the fact that we are in a no man's land when it comes to payday lenders. This is a route chosen that obviously is not acceptable to all. I know that certain other provinces, if not actively opposed, at least are not planning to pick up what has been handed to them as a jurisdictional issue. Perhaps Newfoundland can take another route to make it easier on themselves.
Senator Baker: If the bill passes the way it is, and the province does not regulate it, then they, the payday lenders, cannot operate in the province. Does anyone have an opinion on that? In other words, Newfoundland and Labrador would not have any payday lenders, according to the legislation.
Let me ask you one final question.
Mr. Agnew: My colleagues are getting restless for a question.
Senator Baker: Do your colleagues have any comment to make on the position of the Newfoundland government, as it relates to this bill; or any comment on the definition of ``payday loan'' that is in this legislation; or any comment on the change being made in the Criminal Code regarding offences that are committed and the punishment under summary conviction and indictable offences that are in this legislation?
Mr. Rossi: Respectfully, senator, you are asking some fundamental policy questions around the wording of the bill. The people you have around the table here are not policy-makers, per se, so it is difficult for us to answer a question like that.
My understanding is that the bill stemmed from discussions between two departments of the federal government and the provinces, and that is where the policy discussion happened. Therefore, it would be inappropriate for any of us to try to address that issue from your perspective, although I think we understand where you are coming from.
Senator Baker: Then I will ask one final question. If someone has a complaint against a financial institution or a bank and they go to any of your agencies, it appears to me as though you are all limited in what complaints you can address. You can address complaints within a particular transaction, but you are not instituted. I cannot seem to find, in writing, any body of people that exists to which a consumer can actually complain that a bank has gone outside its mandate under the Bank Act and is doing something that it should not be doing. Am I correct in that assumption or am I wrong?
Mr. Rossi: Actually, that would be the Financial Consumer Agency of Canada. We do handle complaints from consumers in terms of breaches of the federal financial institutions statutes. We follow up on those complaints and examine them to see if there is an actual breach. We take it to the full extent of our investigation and our commissioner has the ability, through our legislation, to note the violations of financial institutions under the federal financial institutions statutes. That is in effect for the banking sector, which you mentioned; it is what we would do from a systemic perspective. As an agency, we do not deal with restitution for the individual consumer. That is where the ombudsman's services come into play.
Senator Baker: In other words, if you have a problem with a bank, the ombudsman would suggest you go to the bank and try to straighten out your problem. Then you would go to the ombudsman if it is a matter of interpretation of legislation — if the consumer believes the bank or financial institution has gone outside the bounds. In other words, they have asked for a security that is not authorized under the Bank Act; or, in the case of payday loans, are asking for security not authorized under the definition of payday loans. In that case, they would go to you.
Mr. Rossi: Not for the payday loans; those would fall outside of the financial institution statutes. Under the system that presumably would be put into place under Bill C-26, that would fall under provincial jurisdiction. Again, we are limited to federal acts in terms of what we can do.
Senator Baker: If anyone has a complaint against a financial institution, if they believe that institution has gone outside the Bank Act in demanding security on their loans, then they go directly to your website — which is entitled what? — and put in a complaint?
Mr. Rossi: They can go to www.fcac.gc.ca, which lists what we as an agency can take on in terms of complaints.
Senator Baker: You have told me already that you can take on a complaint against a financial institution that a consumer believes has violated the Bank Act in relation to securities or loans.
Mr. Rossi: If it violated one of the consumer provisions of the Bank Act, yes. We are the Financial Consumer Agency of Canada and there are certain consumer provisions that are defined in our act. We enforce those aspects of the act. Anything falling outside of that would be regulated by the Office of the Superintendent of Financial Institutions. That would be the other regulator, or the provincial regulator. We have a set of consumer provisions set out in there and that is what we would cover off.
Senator Baker: Very good. Would you like to comment at all upon the new provisions to the Criminal Code, which obviously do not have anything to do with this particular subject but which are in the bill? No?
Senator Banks: I am a neophyte at this, so I would like to ask a question of the FCAC and Mr. Agnew as well, because I think that part of both your interests have to do with the protection of the interests of consumers. In one case, I gather it is sort of in the middle between banks and consumers and in the other case, it is in respect to consumers. If this was starting all over again and you had a nice clean sheet of paper, would you prefer that the things you deal with under the Bank Act — specifically under the consumer sections of that act — were devolved to the provinces?
Mr. Rossi: That is a fundamental policy question and we are not the policy-makers, even for the Bank Act. That falls to the Department of Finance. That kind of a question probably would be more appropriately directed to them.
Senator Banks: My question was, if you were the king and had a clean sheet of paper and wanted to do the best job of representing the interests of consumers of financial services, and if that were your subject and I were your subject, would you think that you could best represent the interests of consumers if the regulations existed under a federal act or a provincial act? I am asking you because you are an expert in this respect.
Mr. Rossi: There are two reasons in Canada that I cannot be king. First, there is a Constitution and that falls outside my level of expertise. That sets out certain powers, and those powers have to be respected. I could not be king for that reason.
Senator Banks: And you are not tall enough.
Mr. Rossi: The second reason is from an agency perspective. I am not the commissioner. I would not want to venture into guessing what our commissioner would or would not think about that particular question.
The Chairman: If your commissioner does have any views, please give them to us in writing. We are interested in those views, obviously.
Senator Banks: Are you not constrained by things which constrain folks who work for the government? This is the same question.
Mr. Agnew: Let me dodge it a different way, which is to say what is unhelpful. It is unhelpful to have a multiplicity of agencies, of jurisdictions and pieces of legislation. If a senator is confused about the roles of the people here and what we all do, then the average consumer who does not have much to do with us on a day-to-day basis will not be in a much better position. Indeed, I know that this has been the subject of this committee's work in terms of trying to make a very strong point about the need to smooth the path for consumers who have difficulties and complaints.
Senator Banks: I live in a province that has a city called Lloydminster, and the provincial boundary runs right down the middle of the main street. I am assuming that there is a possibility, at least, that the legislation that would be enacted by the respective provinces might have some differences in it. In fact, one might decide not to introduce that legislation at all.
Mr. Agnew: Indeed, we have seen the struggle that has taken place to harmonize in other areas amongst not just the 10 provinces but the three territories and the federal government as well in certain areas.
To keep it at the most general level, I think anything that can be done to harmonize and to demystify the path would be good. I am not so much concerned at this point on the regulation side in terms of the regulatory burden on firms. That is not what is particularly before the committee so much as the consumer protection issue. It does not obviously help consumers if they are confused about where to go. We have worked very hard together. For instance, the Financial Consumer Agency of Canada and my office, with provincial regulators and investments with other agencies to make sure that, in fact, when people call any one of us — and I borrowed the phrase from the federal government — it is the ``no wrong door'' approach. No matter where you go, you enter the system and you get to the right place. We are getting closer than we were not that long ago. At the end of the day, particularly from our commoner roots, that will be a lot more fruitful for us than trying to redesign the system.
Senator Banks: You would, I take it, agree with the proposition that, using my example of Lloydminster which could have a person living in Saskatchewan borrowing from a yellow front store in Alberta and the other way around, equality of access to consumer safety, representation, interests, would be better served if there were either absolute agreement and harmonization among legislation in the provinces or if there were federal legislation that applied universally in the country.
Mr. Agnew: We live in the world of the possible, and the world of the fantastic. The world of the possible is where14 governments can sit down together along with industry and consumer representatives and come up with a consensus, even if it is not absolute. The other is the world of the fantastic, which is, go ahead and make your arrangements, you two provinces. I will go to the net and borrow. That is a concern for all of us, in terms of how we get our arms around that problem.
This bill, as you know better than I, is treating a kind of a symptom, not the whole picture. We have a huge issue here on financial economic literacy. We have systemic issues about access to both bricks and mortar and to electronic systems that will allow people to access financial services.
Valhalla will be built one brick at a time. It will be your ultimate decision whether this is one of those bricks.
[Translation]
Senator Massicotte: My question is for Mr. Lévesque. If the right to regulate payday loans is delegated to the provinces, will the individual's address determine which regulations apply, or will it be the address of the company offering the loan?
Mr. Lévesque: I cannot speculate on the way in which the legislation will be implemented and enforced, but currently, in Quebec, payday lenders cannot get operating licences. Nevertheless, this does not stop Quebecers from crossing the border to get payday loans in Ontario, which is the case for people living in the Outaouais region, for instance.
Senator Massicotte: According to provincial legislation, the consumer's residential address is the determining factor. Therefore, does someone who owns a company near the border with another province have to deal with two different sets of regulations depending on where the consumer lives?
[English]
Mr. Rossi: The point of not speculating is the best way to go from our perspective. We do not know what discussions amongst the provinces would be in terms of setting out the regulatory system that this would bring into play. It would be very difficult for us to say how it would unfold if there could be agreements between provinces. That is outside of the discussions in which we would be involved.
[Translation]
Senator Massicotte: It is up to each province. There could be differences between the intent and the enforcement of the bill. This complicates things for the consumers. Even Ontario reacted to this. They maintain that calculating interest rates is a federal responsibility. We hope that there will be some uniformity, but it is not guaranteed. The federal level has no part in the practical application. There is no discipline as such. Therefore, things may get complicated for consumers.
Mr. Lévesque: Since consumers can choose among various financial products and services, we want to enable them to make informed choices that suit their needs at a minimum cost.
Senator Massicotte: Consumers will have to find the most favourable places and avoid the regulations of certain provinces. This might even be the case today.
Mr. Lévesque: This is possible, but I cannot comment.
Senator Massicotte: The consumer could also be a corporation with an important role in our economy. This bill is aimed at lenders who lend sums of no more than $1,500. On the market, there are many agreements whereby the lender may have some participation, equity, debts or profits in the borrower company. Consequently, the legislation places great constraints on such lenders. The business sector has always said that this problem must be solved. This bill does not solve anything.
Should we express regret that this has not been settled, or should we undertake to produce another bill to solve the problem?
Mr. Lévesque: In view of our mandate, as we mentioned earlier, given that we are not in a position to comment on the policies that will be developed, personally — and perhaps my colleague has the same opinion — I think that unfortunately, we cannot help you with this issue.
Mr. Rossi: In fact, the policymakers would be in a better position to answer this question because it is basically a political one.
[English]
Senator Meighen: I do not know whether any of you can answer this question for me, but it is along the lines of what Senator Baker was developing. Suppose Newfoundland and Labrador decide that they will not regulate. In what position would that decision leave us? The Criminal Code is there, of course, and are we in the status quo whereby the provincial Attorneys General have to give approval to any prosecution under section 347. Is that the situation in which we will find ourselves? Does anyone disagree?
The Chairman: I think they all agree. The provincial Attorneys General have the right. Obviously, there have been some complaints with payday loans. We assume the reason the provinces have pursued the civil route of class actions is that the provincial Attorneys General have decided not to use the criminal power in this area. The question as to why is left up to the choice of the individual provincial Attorney General, but that appears to be the case.
The evidence we have so far is that there have been a number of class actions right across the country but, based on our information at this moment, no criminal prosecutions have been triggered by provincial Attorneys General.
Senator Meighen: How do you quantify the danger of checkerboard legislation, jurisdiction shopping, and the dangers that fall from that? Is this something that concerns any of you?
Mr. Rossi: You are asking fundamental policy level questions, and none of us around the table are decision-makers with regard to policy. It is difficult to answer that kind of question.
Senator Meighen: I am not asking whether you agree or disagree with the policy. We are discussing a proposed policy. Assuming it comes into effect, what will that do to your job? Will it make it easier or harder?
Mr. Rossi: I can respond from the agency's perspective. It will have no impact in terms of our job from an enforcement perspective. Our enforcement framework is clearly set out in the Bank Act and the other financial institutions statutes. Our mandate is clear within the FCAC Act that we function from an enforcement perspective strictly within that framework.
The initial discussion we had in terms of education will play itself out over time, but as my colleague mentioned, from a federal perspective, our agency is there to fill gaps, which we can do even on a question that falls to provincial jurisdiction. In terms of the impact on our agency, that would probably be the extent of it, but certainly no impact from a compliance and enforcement perspective.
Senator Meighen: It may apply to you, Mr. Rossi, but what about the others?
Mr. Agnew: It is the difference between an ideal situation and the real situation. We measure our progress literally inch by inch. If it means that as of a certain date it is possible for consumers in six provinces to have an opportunity for restitution if something goes wrong with their payday loans, that is better than the situation today, which is zero. Does that mean that I fully embrace and love the legislation? No.
As I said, I am agnostic about the approach, to some extent, but to advance the consumer protection agenda, does this take away from it? That is a big public policy question. Does this actually retract from it? I see before us the possibility of, over time, bringing more and more people under a broader consumer protection framework, particularly those who today exist under another situation.
The Chairman: We have heard from Senator Baker, Senator Massicotte and now Senator Meighen, and I sense that all senators are concerned about a federal statute resulting in a patchwork of consumer protection across the country. Mr. Agnew has said that half a loaf or three-quarters of a loaf is better than no loaf at all. It does not satisfy totally the question of having this legislation vacate this power to the provinces so that we end up with a patchwork. It gives us some disquieting problems.
I wanted to express those thoughts because we have to balance the concern about plugging a consumer problem, on the one hand, yet by the same token being fair to establishing it across the country.
Senator Meighen: Mr. Chairman, we cannot let excellence be the enemy of the good.
The Chairman: I just raise it as an issue because that is the one we will have to deliberate upon.
The bulk of this payday loan activity happens in Ontario. We were delighted to receive a brief comment dated March 19, signed by an old colleague and friend of mine, Gerry Phillips, the Minister of Governmental Services for the Province of Ontario. I will read two paragraphs into the record for the edification of the witnesses, and I would ask them to comment because it does go to the question of their federal powers and responsibilities as federal officers. The last two paragraphs read as follows:
Ontario is a leader in consumer protection and it has long been Ontario's view, with regard to payday lending, that borrowers are best protected through a national rate-setting program under federal authority. However, I appreciate this view is not shared by several other provinces and territories, nor members of the federal House of Commons.
He concludes by saying:
In anticipation of Bill C-26 becoming law, Ontario will continue to explore ways to address the problematic practices of the payday lending sector, and examine options to enhance protection for borrowers. We will continue to provide Ontario consumers with the greatest possible level of protection, mindful of the federal government's position that regulation of this industry should be a provincial initiative.
The Province of Ontario is saying that they would prefer for there to be a federal regulation that effectively establishes national rate standards or a program through the federal power. They do not want to block this initiative.
I would like you to wear your hats as federal officials. They propose that a better way to go would be through a national rate-setting program with federal authority. What is your comment about that?
If you cannot respond now and would rather respond in writing after this meeting, we are prepared to receive that material. We are very interested in this question. You can see that senators are concerned about this matter. We do not like vacating federal power without being satisfied that such power is supplanted by something that preserves the public interest on an equal basis across the country. Help us with this.
In your responsibility, Mr. Rossi, Mr. Agnew, Ms. Downie, Mr. McAllister and Mr. Lévesque, give us your advice as federal officials. You have some responsibility for the federal power.
Mr. Agnew: I did not think you were speaking to me.
The Chairman: I am speaking to all of you.
Mr. Agnew: I am not in the pension plan.
The Chairman: You are a parliamentary officer; you are not a federal officer. At the end of the day, we are all feds here.
Mr. Agnew: I have expressed my view. You are vacating an authority that at the moment is, in the terms which this bill suggests, an exercise. In other words, the consumer protection part of this endeavour is not actually happening. That, then, is where we start; that is point A. Point B is somewhere as of yet undetermined. Obviously, this letter is suggesting that it is not a completely closed book and the situation will change if this power is handed off to the provinces. I think the situation changes for the provinces that have not yet picked up this issue because all of a sudden, unlike today, they have this suggestion directly put in their lap.
The Chairman: We have heard, Mr. Agnew, that even if this bill were passed unamended in the same form, Newfoundland and Labrador would effectively do the same as Quebec does, which essentially opts out of this business. Do you have any comments about my question on this problem that we have?
Ms. Downie: I have a couple of observations from a competition policy perspective. First, in terms of vacating this area, our perception is that this area is not regulated now so we do not see it as vacating this area, and the Competition Act would continue to apply to this sector. To the extent that there are complaints about misleading advertising or anti-competitive mergers or price-fixing, and other areas dealt with under the Competition Act, we would continue to be able to deal with those.
The Chairman: To sum up what you are saying, while we are vacating the criminal power in part, we are not vacating, essentially, the competition power. However, is not the utilization of the competition power the criminal power, in effect? In other words, is there not overlapping power there? The competition power, which is a federal power, has to utilize criminal powers to enforce competition law.
Ms. Downie: Although there are different criminal powers, there are criminal powers under the Competition Act and they will continue to apply.
The Chairman: They are both utilizing criminal powers, but in a different way.
Ms. Downie: The criminal powers under the Competition Act actually come from the provisions of the Competition Act itself.
The Chairman: They remain in place, and that gives us some level of confidence that this brief by the Competition Bureau is not vacated but that they continue to be a federal oversight. Is that a fair thing to say, assuming this bill were passed unamended?
Ms. Downie: The Competition Act will continue to apply.
Senator Harb: I am not sure I am following you. If the Province of Ontario passes legislation in order to regulate the industry in Ontario, are you telling us that you will continue to exercise your authority over what now becomes a provincial jurisdiction; in essence you are trying to have it both ways?
The Chairman: To be fair to the witness, I think she is saying that the competition bill, which uses the criminal power to enforce, is not exempted, whereas the Criminal Code power under this section is exempted.
Let me take it a step further. I would like you all to look at this little booklet that has been presented to us here today. This booklet is called The Cost of Payday Loans and has been put out by the Financial Consumer Agency of Canada, which is represented here. I would like you to turn to page 11. One of the witnesses — I think it was Mr. Agnew or someone else, said that they are not unhappy with this bill, I think it was the Competition Bureau of Canada, because essentially there is consumer choice. I believe it was Mr. Rossi or Mr. McAllister who said that the consumer has a choice here. We do not like to regulate. We like prices in the marketplace to regulate, and I do not quarrel with that. That is a good and sound economic policy, but then I want to talk about the question of choice.
If you have consumer choice, therefore consumers can exercise that choice. We have disquieting evidence that 10 per cent of the Canadian population cannot meet its bills on a monthly basis; it is not a question of choice; they cannot make ends meet. Ten per cent of the population has to resort to payday loans. That is the size of the marketplace at the first instance.
Let us look at how it works out and to see if it passes, as the late Mr. Justice Estey used to say, the small test. This is a disturbing chart. The audience does not have this so I will read it. It compares the cost of a $300 loan taken for 14 days.
To be fair, the bill talks about $1,500 and 62 days as being the captive area, but I assume that the Financial Consumer Agency of Canada took this as being an average amount. I assume there is some reason why these figures were selected. Mr. Lévesque says it is a conservative approach, and that is fair enough.
There are four headings here: Payday loan, cash advance on a credit card, overdraft protection on a bank account, and finally borrowing from an existing line of credit from a financial agency. It then shows the applicable fees on the cost of a $50 loan: $4.13, $2.42, $1.15. It finally concludes that the annual cost of the payday loans would be 435 per cent, the cash advance on a credit card is 36 per cent, overdraft protection on a bank account would be 21 per cent, and borrowing on a line of credit would be 10 per cent.
Let us assume, for the purpose of the discussion, which is the evidence we had before the committee, that 10 per cent of the population does not have the choice of cash advance on a credit card, bank account or credit line. They are compelled to utilize payday loans if they want to get some cash.
I started out by saying that we all understand that this is a service that Canadians obviously need. What are we to say when we are confronted with what anyone would say was exorbitant. I do not like to use any other adjectives, but that seems like a lot of money, 435 per cent per year.
I am now asking you as federal officials to wear your hat as federal officials. If this came to you and your agency and you were responsible for the regulation or the oversight of this, how would you feel about it? Would you bring this to the attention of your governments and your enforcement agencies? What would you do? I am not asking you to opine on a provincial matter. I am asking you to opine on a federal matter that is in your jurisdiction. Give us some help.
Mr. Agnew: Frankly, I am sure that has happened. These are not new numbers. This is actually an old pamphlet.
The Chairman: I take it that this is a very practical analysis.
Mr. Lévesque: I would say it is a conservative analysis.
Mr. Agnew: It is a very conservative analysis. We know that from your numbers as well. We could certainly put forward facts that would be far more shocking and have rates more exorbitant. These are facts. This is a known reality and, as you say, people continue to go back to the same well, time and time again.
To be completely repetitive and boring, right now there is absolutely nothing except class action suits that are being offered as some kind of protection in this area. We know that that is probably cold comfort in real life for most people. This is what the result is, to break that logjam. That is where we sit. Your adjective is as good as any I could come up with. There are lots that apply.
The Chairman: Perhaps the representatives from the Competition Bureau of Canada might help us here?
Mr. McAllister: I would like to clarify my earlier comments. In thinking about this industry, there are a number of players in the marketplace; they seem to cluster together. You would think, from observations, that consumers have a choice, and this should be a highly competitive sector. However, for some reason it appears to produce results such as are illustrated on page 11 here.
That is why I said we are not here to say ``Just rely on competition and market forces alone.'' It appears that there has been a great deal of consideration of this aspect. When you see these figures, it appears that a number of people have concluded that this situation cries out for some form of consumer protection, which this bill would enable.
Having said that, the Competition Bureau does not regulate prices on a daily basis. We rely on competition and market forces in most industries, and this strikes us as quite unusual in the sense that there are a number of market participants and yet there are apparently very high rates. Is it a question of a vulnerable class of consumers, or consumers not having adequate information to make informed decisions? We do not know, but it appears to cry out for some form of redress.
Senator Baker: Could we ask the witnesses if they would have any comment on the substantive nature, the particularization that you used in your question when you said that these other services were not available to a large number of people in our society. In other words, the banking institutions and the financial institutions being here regulated do not provide such service to these people. You said that is why this service is necessary to a group of people. Perhaps the problem here is the non-competitive nature of our financial institutions, that they have left the field; perhaps what we could be doing is legislating our financial institutions to fill the gap. What do you have to say about that?
Mr. Agnew: Clearly, it is my turn. I have a couple of things to say. One is that I do not know whether that is the answer. The frustration that I hear from the chair, and perhaps from other honourable senators, is that this is a very narrowly focused bill providing a certain opening for certain consumer protection measures in certain provinces, but it is not satisfactory. It is not an answer.
It is not for me to give you advice on what to do; but if I were you, as opposed to being king, I would want whatever I could do to ensure that those other issues that we have talked about — it is not just a lack of services; there is an embedded poverty that is driving some of this activity. There is a financial literacy problem that is driving parts of it. There are a whole bunch of things that go well beyond my expertise and domain that perhaps we can kick around.
The Chairman: I raise this question because tomorrow, by happenstance, we will be reviewing the Bank Act and financial institutions. Senator Baker was prescient in raising this issue, and I am sure this question will be raised by the bankers when they sit in those seats tomorrow.
Do you have any further comments about the proposition I have put to you?
Ms. Downie: No, I do not think I have any.
The Chairman: Does the lack of choice disturb you?
Ms. Downie: In fact, it appears that there is a great deal of choice in this sector, as they mention. In fact, something else must be going on; perhaps it is a consumer information problem. We have not studied the industry in detail to be able to say.
The Chairman: We did see some studies from an organization called Eterna that said essentially at least 10 per cent of the population has no choice but to use payday loans. That was the nature of the information we received. Therefore, it is not a question of choice; it is a question of necessity, which is different.
I believe in the competitive model, but that presumes a question of free choice in a free marketplace. However, when choice is limited, the wicked arm of the government has to reach out and try to protect consumers as best we can.
If you have a final comment you can make in 30 seconds or so, that would be fine, but we must move on to the next witnesses.
Mr. Agnew: Having looked at the transcripts from previous hearings on this bill from this committee, it struck me that figures have been thrown around on all sorts of facts, but we do not have good knowledge. This may be one measure but we should not let this be the last word on this subject.
The Chairman: Our problem is that if we pass this bill unamended in this particular form, we have, in effect, vacated the federal oversight, at least from Parliament, to deal with this matter other than through the Competition Bureau, as I understand it. Therefore, there is a problem. It is not a situation where we can come back for another kick at the can. That is why this is quite a crucial decision that this committee must undertake.
Ladies and gentlemen, thank you so much. We will ask the next witnesses to come forward, Mr. Bruce Cran and Mr. Mel Fruitman. These gentlemen represent the Consumers' Association of Canada. We are delighted to have you here. Please begin and then we will move to question and answers.
Mel Fruitman, Vice-President, Consumers' Association of Canada: I will try to be brief. The Consumers' Association of Canada is a 60-year-old, independent, not-for-profit, volunteer-based organization with a national office in Ottawa and with provincial and territorial representatives.
The stage for this current discussion was probably set 25 years ago with the repeal of the Small Loans Act and the concurrent inclusion of a criminal interest rate in the Criminal Code. During its history, the maximum allowable under small loans was raised from $500 to $1,500; and at the time of its repeal, the pressure was on to raise it to $5,000 and to raise the allowable interest rates. Given that loans at the lower end of the scale were declining, family incomes were rising and the Canadian economy was strong, perhaps it was felt that there would no longer be a need for Canadians to take out loans of only a few hundred dollars.
The dramatic growth of the payday loans industry over the past few years has shown that assumption to be disturbingly false. We have heard some numbers about the types of loans that are being taken out. While industry claims that the marketplace is working in providing a needed and acceptable form of service, it is clear that there is a need to provide balance between buyers and sellers.
Unfortunately, the federal government, with the passage of Bill C-26, is about to abrogate its responsibility to Canadians by devolving that responsibility to the provinces. It may be eloquent politically, but not from a consumer perspective. This devolution is further complicated by specifically defining payday loans, which leads to a situation in which there is no legislative protection except in cases which meet that definition. It would not take long for creative lenders to alter their offering in such a manner as to exclude them from this definition and, as a result, any oversight.
The environment of today is substantially different from that of only a generation ago, when universal credit cards were in their infancy, single income families were still the norm and living beyond one's means or buying on credit were anathema to most people. It is indeed an appropriate time to revisit consumer protection with respect to lending practices.
We recommend, first, that the usury provisions of the Criminal Code be retained and that there be an exception for a new small loans act to be drafted to encompass loans under $1,000 and for terms of less than three months. This would not include loans made on revolving credit accounts, such as those provided by universal credit cards; and that this new small loans act should be administered by the Financial Consumer Agency of Canada.
Under this new SMA, the definition of interest should be that proposed in Bill S-19, with the exclusion of the mortgage reference, which would not be necessary. The current maximum of 60 per cent should be retained. In addition, however, the act should allow for a one-time fee of $25 to cover the administrative costs of establishing an account for a borrower. Provisions should be made to ensure that the intent of this fee is not perverted and that it applies to all stores that are part of the same or related organizations, whether or not they operate under the same banner.
Also, in recognition of the administrative costs of processing a transaction, there should be an allowable minimum charge of $5 for each loan, even if that resulted in a so-called interest rate exceeding the maximum. In order to avoid abuse of that minimum, it should be restricted so that it could not be applied more than once during a 60-day period to any borrower.
Services would have to be licensed by the FCAC. Failure to abide by the provisions of the act would result in the revocation of the licence, and fines in the order of $100,000. Further, the FCAC should be given the authority to bring action under the Criminal Code against any person or organization which is unlicensed, and which contravenes the interest provisions of the code.
As we are under no strictures relating to public policy, we would be pleased to answer any questions.
The Chairman: This bill went through the House very quickly. Did you ask to appear before the House of Commons on this bill and give your advice? It went through the House of Commons without amendment, according to our calculation in less than a day. It might have been longer than that, and was certainly less than a day before the committee. Did you have an opportunity to present your evidence?
Bruce Cran, President, Consumers' Association of Canada: We were not asked to present. We were watching it and it went through like a bolt of lightning. We did not have an opportunity to present, and we would have so presented, given the opportunity.
The Chairman: Did you subsequently write to anyone about your position at all, or hope that we would come to the rescue as a chamber of sober second thought?
Mr. Cran: We believed that the Senate would be having a hearing, and we decided to go this route because of timing and the costs. We are not an affluent organization. There were no consumer groups calling for these changes. I know of no consumer group that is calling for these changes. Industry has a huge lobby structure and this has been rolling over the top of us.
I would also say that one of the things that may be hastening this is class action lawsuits. A number involve my organization. Last week we did get one of the big ones certified by Justice Brenda Brown of the Supreme Court of British Columbia. That particular case deals with interest of 1,850 per cent for the two nominated persons put forward on that one.
Mr. Fruitman: We have been pushing back to the best of our ability through the consumer advisory committee that I sit on in the province of Ontario and I would like to think we are instrumental in some of the comments that Minister Phillips has made.
Senator Goldstein: I will try to present this somewhat as a syllogism, although it is not quite a syllogism. Here is what I think has been reflected so far from the hearings and studying we have done. There is clearly a need in the Canadian population for this kind of lending, this kind of borrowing. Why that need arises and what the motivators are and which people have that need is, for the moment, outside of the question because once we determine that there is a need for this kind of loan, we then have a second choice to make. The second choice is either it will be unregulated, as is the case now, or we find some way to regulate it. If we characterize the charges as interest, then it becomes an issue of federal jurisdiction because that is what our Constitution tells us. If we characterize the charges as a cost and as fees, and take it out of the purview of the provisions of the Criminal Code, then arguably it becomes a question of consumer protection, in respect of which the federal government does not have jurisdiction.
Therefore, as legislators we are faced with the following situation. There is a need being fulfilled by an industry. I do not want to characterize the need or industry because it is not important for the moment. If that industry remains unregulated, then whatever abuses are now taking place will continue and they will not be resolved by the class action suits.
Clearly, the provincial Attorneys General have no great interest in authorizing prosecutions under the usury provisions of the Criminal Code because they have never done so, ever since those provisions were introduced in the Criminal Code in the last century. They have never been used. Realistically speaking, we find ourselves in the situation where we have either no regulations and havoc in the industry, or havoc amongst consumers. I am not interested in the industry. I am interested in the consumers, as you are, bearing in mind that, regulated or not, consumers will quickly find their way to the internet where, clearly, whatever we may do or whatever any province may do, will be irrelevant because those lenders are in Costa Rica or god knows where else. We are faced with a situation of either partial regulation or no regulation. We have a bad situation. I think that partial regulation is better than none. Do you disagree with that?
Mr. Fruitman: First, the need has been defined for small loans for a short period of time, not necessarily under the terms and conditions being offered now in the marketplace, which is why we are proposing a solution that we think in fact solves all the other problems that you have suggested. It takes it back to the federal level. It would provide a regulatory oversight agency and provide for fines and still leave the Criminal Code in place to deal with loan sharking, instead of legalizing loan sharking.
Senator Goldstein: Are you aware that the consumer protection agency in Quebec has, in fact, created regulations which preclude the payday loan lenders from doing business in the province as a result of which two things have happened: Number one, pawning has become all the rage for people who need temporary money. Second, they are borrowing money from bikers. They may not be paying the kind of interest that would please you and me, but they pay it. They pay it to avoid having their knees broken.
We are faced with a situation where there has to be some kind of regulation by somebody, somehow, because the consumer who has a need will find a way to fulfil that need. Better to have a regulated means to fulfil that need, all be it partially.
Mr. Fruitman: We are suggesting that it be regulated.
The Chairman: Please respond briefly because I want to give other senators a chance.
Mr. Fruitman: We are not suggesting partial regulation; we are suggesting that it be fully regulated through a Small Loans Act.
Mr. Cran: The situation in Quebec is acceptable. I would like to see that right throughout the lands. This is not a good industry. It is loan sharking at its worst. They might not break legs but they go as close to it as they possibly can. We get all sorts of complaints about their collection methods. The class action law suit I am talking about will be worth hundreds of millions of dollars if it goes in favour of the consumer, which I believe it will because actually a criminal offence is being committed here, and we are pursuing that. That will have an effect, a dampening effect, on the way some of these people operate. They also realize it.
Money Mart now has a clause in the loan agreement that you will not take part in a class action law suit. I am not sure that that is constitutionally legal but it is nevertheless there. It is an attempt on their part. The fact that Quebec reduced the loan amount to something like between 30 and 40 per cent, from memory, and this has put this group of people out of business, which indicates to us that they do want their hundreds and thousands. I have seen loans as high as 5,000 per cent.
You cannot make any money on these loans as a lender unless you are rolling over. It is the rollovers that they are looking for. I do not know how you can control that. I have had people in my office in the last few years who owed huge amounts of money, $5,000, $6,000 that started off with a $500 or $1,000 loan. That is what we do not want.
We are aware that the provinces have different approaches to the legislation that they want, and there will be a big hodgepodge about what is legal in one province or in another. That is not desirable, either.
As the senator mentioned before, the provinces have had this tool in the Criminal Code, and I would like to see it used. Manitoba has used it once or twice recently; they have actually charged people, although I did not hear the outcome of those charges. They then introduced legislation themselves.
I have been involved in the British Columbia case, the Ontario one and some of the Maritime ones, and I can, just at eye level, see the differences that will be a problem. What if you move from one province to another? Will that affect the way the money is collected from you? I do not know.
Senator Baker: Under class action law provincially, of course it is the individual who has to bring the action. Personally, you have been following this process. Did you follow the certification, the carriage and the whole thing?
Mr. Cran: Believe me, I know these things backwards, having recently been assessed $250,000 in costs in one class action lawsuit. CAC has a similar thing. Judges like this power. In the end, we have won some.
Senator Baker: That is the problem, of course; that you may lose.
We examined the class action lawsuits across the country and quite a few were seeking certification. Yours has actually received certification. If so, are you then seeking new certification in the other provinces?
Mr. Cran: We are involved in some of the other cases, but I do not think you can do that precisely because these are provincial laws. This is the first large one that has been certified. We had another one where we got a judgment and they had no money.
The Chairman: In which jurisdiction is that lawsuit?
Mr. Cran: The Supreme Court of British Columbia.
The Chairman: They are all provincially limited.
Senator Baker: Yes, but then he has the option of going to a province and getting certification as well.
Mr. Cran: After a certain point.
Senator Baker: Apart from the class action lawsuits, my question is based on what the chair had asked of the previous witnesses. We could find no criminal action taken in our check of Quicklaw and Carswell.
You advocate going to small loans under a small loans act. The problem with that, though, is that legislation on small loans initiated by the federal government requires a financial institution to handle things. In other words, a financial institution signs up, gets the guarantee from the federal government and then has the loan guaranteed for the small enterprise or person. Therefore, we are still left with the same problem.
With respect to the people affected by payday loans, the banks will not look at them at all. If a person comes off the street and into any chartered bank in this country, they have to deposit $100 and cannot touch it for a month. Only then will the bank give them access to the bank account. As the chair points out, if you are still dealing with the bank, do you think the class of people who need the services of payday lenders will still be denied access?
Mr. Fruitman: A small loans act, as we are suggesting, would take it outside of the Bank Act.
Senator Baker: How?
Mr. Fruitman: It would be a new piece of legislation.
Senator Baker: You still have to go to the bank.
Mr. Fruitman: No.
The Chairman: Senator Baker understands, and I think you should understand, Mr. Fruitman, that we are experienced in terms of federal agencies. It is one thing to pass a law, but it is another thing to make it work. We know there is a need in the marketplace. The concern is how do we fund it, and who will manage it on a cost-effective basis? It is an interesting proposal and it has a siren appeal, but at the end of the day we may be left with the same situation and a federal power that is not being properly exercised, either.
Mr. Fruitman: We already have an agency — the Financial Consumer Agency of Canada — that unfortunately has no teeth. You asked them how they would feel about having this power, and they were reluctant to answer. We are not reluctant to answer. I think they should have that power.
The Chairman: You can understand the complexities of what Senator Baker is saying. The proposal sounds good but, without funding and operating it properly, without making it available across the country equally and fairly, there may be a prodigious cost as well.
Mr. Fruitman: The proposed option now is to devolve it to the provinces, some of whom will and some will not. You will get a transfer of administrative costs to the provinces in any event, which is why some are pushing back. Newfoundland has already said ``Thanks, but no thanks.''
Senator Baker: To whom do you go to receive the benefit of the federal guarantee on the loan? You are still left with going to the very financial institutions who do not want to look at these people and who have all kinds of requirements on opening bank accounts, unless there is a requirement by law in the small loans act that you are talking about for them to deal with these people.
Mr. Fruitman: You are delving into the specifics of the act in more depth than we have had the opportunity to delve into it ourselves. We do not necessarily see it as being a federally guaranteed option. You are reading something else into it that we have not considered.
Senator Banks: When I borrow money from someone, the semantic difference between a fee, a charge and interest is of no consequence whatsoever — a duck is a duck is a duck.
The Chairman: It is called ``cash out of pocket.''
Senator Banks: People who lend money and who do so at rates which are usurious to others ought to be regulated. Given what they do, it may be the case that 435 per cent is a reasonable return. However, the people who operate those businesses ought to be regulated by the federal government, by a law which applies specifically to them. The semantic argument about whether it is a fee or a charge or interest is beside the point. This sector needs to be regulated. These services to the people who need them cannot and will not be provided by banks, and we cannot oblige banks to do so.
I realize that I am not taking into account the question of funding, but it is not the business of the government to say that there is an egregious need here in order to protect people who are being taken unfair advantage of and it costs too much to fix it. That is not the problem, and that ought not to be the recommendation of this committee.
The Chairman: Hold that thought until tomorrow.
Mr. Cran: With respect to removing the ability for these loan sharks to operate, I suppose you are aware that many of the states in the U.S. have banned them. There is a movement before Congress at the moment claiming that the military is being preyed upon by these people, and they want them to be banned.
We are just at the beginning of being successful with class action lawsuits. These people have wriggled in an effort to delay the class action lawsuits which, in theory, are supposed to be serviced in 30 or 60 days. It has taken us years to get to this point.
Senator Angus: I want to get this straight. Are you really saying that if we allow this bill to go forward, we are basically legitimizing what you are referring to as a nefarious business?
Mr. Cran: Yes, I would say so. I would also say that you might jeopardize our main class action lawsuit against Money Mart. In fact, when I was in court a few weeks ago, the basis put forward by the defence was that the law was just about to be changed so it was totally unfair that this should be certified. Justice Brenda Brown fortunately went the other way and commented, in the end, that she did not care whether the law was or was not changed. She still certified the class action lawsuit.
If this bill passes, I imagine there is a good chance of destroying the Money Mart case that we have just won after years of legal fighting, and probably prevent us from dealing with many of the other cases.
As I say, this is an industry-based push, and always has been. As consumer organizations, none of us have had a hand in it.
The Chairman: Mr. Cran, assuming that this legislation passes, do you have any legal advice that it would interfere with existing class action lawsuits? I am checking around the room. We have lawyers here, and I think there are some question marks and disagreements.
Mr. Cran: I suggest you read Justice Brenda Brown's comments.
The Chairman: Do you have a copy of that judgment, or could you refer it to the clerk?
Senator Baker: What is the name?
Mr. Cran: I will try to get that for you.
The Chairman: Thank you so much.
Senator Gustafson: Retired consumers are being bombarded on television every night with ads: Borrow a couple of hundred thousand dollars on your home or take out a small loan. Have you any experience with that? I sit there and get angry because I think these people might be losing their homes.
The Chairman: That issue is not within the parameters of this law. If you listen carefully to what Senator Baker has said, the definition exempts this area.
Senator Gustafson: I would like to hear what the witnesses have to say.
Mr. Cran: I could speak to it in detail, but I have not come prepared to deal with that subject. I have my suspicions that a lot of this is being spread around by the new industry of insurance on title. I do not think it is nearly as prevalent as it might be.
Senator Gustafson: Someone is paying for the advertisements.
Mr. Cran: At the moment, we are totally outclassed. We do not have lobbyists running around all over the place. This is an industry initiative, and that is what I will say for the moment.
The Chairman: Gentlemen, thank you very much. Your comments have been very enlightening. We want to thank you for your brief. You have given us a lot to think about. This is a complex matter, and we are trying to protect the consumer. We are trying to satisfy the market, which obviously has a great need for this type of service. It is a terrible balancing act that we are confronted with, but we will do our very best with it.
Thank you for your assistance. Any time that you have anything of concern to tell this committee, please feel free to write to us. We are always delighted to hear from you.
Gentlemen, we have completed the evidence. We will need some time to take a look at the transcript, consult with our caucuses and come back, we hope, at the end of next week.
Tomorrow we start our five-year review of the Bank Act. The next hearing will be the following Wednesday and Thursday. It is to be hoped that by the end of the hearings next Thursday, after we have an opportunity to hear from the banks, we will be in a better position to deal with this bill. I intend for the committee to deal with it as expeditiously as possible.
Senator Harb: I have an important question to ask. I have a copy of a letter sent by the Canadian Bar Association dated March 19, 2007. It talks about the fact that should the bill pass as it is currently drafted, it will create an extremely serious problem regarding the bridge financing of homes, as well as the refinancing of businesses. They state in their letter that, in fact, Bill S-19, which was considered in 2005 by this committee, dealt with this matter and that the committee was satisfied with that, but that this particular bill does not deal with it.
I do not want to delay the bill, but I need to find out in the meantime from the minister responsible just how this bill handles that matter.
Senator Goldstein: It does not.
The Chairman: We urged the Canadian Bar Association to appear before the committee. We were prepared to make time for them, and they chose not to appear, which puts us in the difficult situation of having to look at the four corners of the letter. It is available to all members of the committee.
In the next week or so, we will do our homework, read the transcript and seek information. I assume both caucuses will deal with this issue, and it is our intention to deal with the bill. The question is whether we will deal with it in its present form or with changes or with recommendations. Quite frankly, until I review the transcript, I am open-minded but I believe there is a necessity to deal with this matter. As Senator Angus points out to me, correctly, we started this discussion when we entered into our consumer study. We raised this issue. We discovered it and have been pushing it. To be fair to the government, they have tried to come up with a solution.
Senator Angus: I want you all to know that I have implored the chairman to move to clause-by-clause consideration of the bill tonight. We can see that the clock is no longer our friend in that regard, but this business of consulting the caucuses and reading the transcript I find to be one of the most spurious utterances ever to come from Senator Grafstein. It has never happened with any of the other bills we have studied. He has told me that he has a problem with the bill, and I would like to know what the problem is.
This bill will regulate what we have been told in many different adjectives is not a pretty industry. We were very concerned as a committee. We have had months of hearings, and every witness has said how bad these people are and how they need to be licensed and regulated, and that the appropriate place to do that is with the provinces.
This bill came to the Senate at the beginning of February and has been before the committee since February 28. All the provinces were invited to appear and they did not. We have some letters that were solicited at the last minute. Quite frankly, I have a big problem as the representative of the government side. This is a good bill. It is a small bill, consisting only of three clauses. I find it wrong that we are not going to clause-by-clause consideration tonight, but I would like an undertaking. We have never had a division. We try to do things by consensus at this committee, and I hope we will continue to do so. I have had talks with other regular members of the committee and I have not heard from anyone else who feels that we must delay the bill.
Out of respect and fairness for the process, please give me a sense as to why we cannot move to clause-by-clause consideration now?
Senator Massicotte: I am not in favour of going to our caucus. I like to emphasize the supposed independence of senators to deal with these issues, but we have been guilty of that many times, so I will not hold to that too often. What I would like to see is a debate or discussion amongst ourselves of some of the issues, although not necessarily clause-by- clause study of the bill. I need to be educated. I need to have a back and forth discussion about the issues. The issue that concerns me most is the fact that we could have a fragmented regulatory process.
I appreciate the argument that the bill represents an immense improvement over what exists today. The fundamental question I must come to terms with is whether it is good enough to be approved. I am very open-minded, but I would like some discussion amongst ourselves on this issue.
The Chairman: I think Senator Massicotte has summed up my position. I am open-minded on this question as well and would like some time to deliberate upon it. We have asked witnesses to appear before the committee. It is true that I asked the Province of Ontario to come forward with their recommendations because we had evidence that was not clear to the committee as to where Ontario stood. I do not apologize for that. My job is to try to get as much information as possible before members of the committee so that they can make their decision based on the evidence.
I agree with Senator Massicotte. We will have an open discussion amongst ourselves and I hope that that can be a fruitful discussion. We will do it in the way we have always done it in the past, free of partisanship in an effort to protect consumer interest. That is what I intend to do.
I need my own independent time to look at this issue because serious questions have been raised here.
Senator Massicotte: I guess the deputy chairman is asking when. Is it tomorrow?
Senator Angus: This bill has been approved in principle in both Houses. It had second reading in the Senate; it has gone through the process in the House of Commons. If you want to have a debate about it, I would be in favour of the last witness who said, ``Let us ban the industry.'' However, that is not what we are legislating here. We are talking about apples and oranges. As far as the apples are concerned, that is Bill C-26. To delay it any longer is irresponsible, and I am upset about it. I hope that message comes through clearly.
Senator Meighen: We can go on forever, but I think it is clear to all of us — and no one will contest this point — that this is not a perfect bill. However, is some regulation better than no regulation? We all have to come to a decision in that respect.
The Chairman: I would hope we could do it by a week this Thursday and, if possible, take half an hour in addition to the time that we have to study the Bank Act.
This committee is under time constraints. We are required to conduct a five-year review of a major piece of legislation, the Bank Act. We had hoped that the government would give it to us sooner, but it did not. We are stuck with it and therefore have a time constraint because we must deal with it by the end of the month.
I would like to work our schedule out to get an extra half an hour or an hour to do exactly what Senators Massicotte, Meighen and Angus have suggested, and that is, let us have an open debate amongst ourselves and come up with something that is in the best interests of this committee and the country.
I am not trying to hold up this bill, but I think serious questions have been raised. I was very unhappy with the fact that the provinces, who have a major stake in this legislation, did not come forward to help us with it.
Senator Meighen: Let the record so show.
The Chairman: Yes. Having said that, we have received some letters. We have letters from the Province of Nova Scotia and the Province of Ontario. Three provinces have already put legislation in place. We must look at all of this information and come back, hopefully with an open mind about how we deal with this bill. It is a difficult issue.
The thing that bothers me the most — and Senator Angus should understand this — is exactly what Senator Massicotte said. I do not like the idea of vacating federal powers and ending up with a patchwork of interests across the country. I would like to be satisfied that there is a common equality, and that is the difficulty.
Senator Angus: When will this occur?
The Chairman: I hope to make time between now and next Thursday, either at the tag end of our hearings a week Thursday, or maybe we can get an extra half an hour before either next Tuesday or Wednesday. We will all be here next week. I will try to make time for us to have a preliminary discussion and then a half an hour discussion. Then we can move to clause-by-clause consideration. I am not trying to hold up this bill. I agree that this is a pressing issue.
Senator Angus: The deadline that we have for Bill C-37 to receive Royal Assent is April 24. We are out of here next Friday for two more weeks, which leaves us only two hearing days to deal with all of that plus this bill. I have a big problem with that.
We can debate this until we are blue in the face. We have had all kinds of time. No one has come forward. Let the record show that the concerned provinces already have legislation in place. Saskatchewan sent us a copy of their bill over the weekend. Manitoba and Nova Scotia have theirs; British Columbia is ready to go. There is a lot of hooey going on here. We have some responsibility. I do not want to jam bills through, like we used to say before the new government came to power, but I also want to do the responsible thing, period.
The committee adjourned.