Proceedings of the Standing Senate Committee on
National Finance
Issue 30 - Evidence - March 22, 2011
OTTAWA, Tuesday, March 22, 2011
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2011.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: In February, honourable senators, we heard from the Superintendent of Bankruptcy. Over the course of those discussions we learned of some of the different professional groups that were involved, and in particular, bankruptcy trustees and credit counsellors. At a subsequent meeting, we were able to hear from representatives of the trustees in bankruptcy, but were unable at that time to hear representatives of the credit counsellors. We are therefore pleased this morning to fill this gap in our testimony and we welcome representatives of Credit Counselling Canada.
On behalf of Credit Counselling Canada we welcome Patricia White, Executive Director. She is accompanied by a member of the board, John Eisner, who is president of Credit Counselling Services of Atlantic Canada, Inc.
Ms. White, I believe you have introductory remarks. Normally our process is to hear your introductory remarks and then proceed to questions and answers with honourable senators.
Patricia White, Executive Director, Credit Counselling Canada: Good morning, honourable senators. It is a pleasure to receive an invitation to come before you. We would like to take an opportunity to provide you with an overview of Credit Counselling Canada and the work that our members carry out.
I will cover some of the most important points in the written piece, if I may, and then allow you ample opportunity to ask questions.
Let me first introduce my colleague, John Eisner, in a little more detail. As you mentioned, John Eisner is the president of Credit Counselling Services of Atlantic Canada. His agency has offices across the four Atlantic provinces. He is currently the chair of our creditor relations committee, and he is a member of the management advisory board for the Superintendent of Bankruptcy. He has served as a member of the Personal Insolvency Task Force. He also has been treasurer and board member of Credit Counselling Canada.
I was previously the executive director of the Ontario Association of Credit Counselling Services. I am a registered insolvency counsellor. I was the managing editor of the Insolvency Counsellor's Qualification Course, and I have managed the last two revisions of the course material and supplied examination questions for the ICQC exam bank over several years. I am also currently a member of two committees for the Financial Consumer Agency of Canada.
We are pleased to answer your questions to the best of our ability and should we not have information at hand, we would be happy to provide that information to the committee at the earliest opportunity.
Credit Counselling Canada is an association of not-for-profit credit counselling agencies and provincially administered orderly payment of debt programs that provide education and guidance on money management, credit and debt management strategies. All credit counselling members must be registered charities.
CCC, the association, is governed by a volunteer board of directors, with representatives from across the country. We oversee membership compliance with accreditation requirements, which demand the highest ethical standards, both administratively and in direct client services. We are constantly raising the bar to ensure excellence in service. Most recently, the association mandated the certification of credit counsellors through the Accredited Financial Counsellor Canada designation, which requires 30 hours of continuing education units every two years in addition to the original course of study.
CCC is the national voice for our members. CCC's 10 member agencies manage over 35 offices in every province across the country. Our members provide non-judgmental and objective assistance in person, by telephone and by Internet.
The most recent statistics for the first three quarters of this fiscal year show that members have helped over 100,000 Canadians. Agencies provide money management education through presentations to schools, community groups and in workplaces, reaching 10,000 individuals in the last nine months alone.
In addition, agencies offer debt repayment programs that are affordable for clients. Through these repayment efforts, over $63 million was returned to creditors in the last fiscal year. Debts are totally repaid through credit counselling agencies. At the same time, consumers learn better ways of managing their money and how to handle credit.
The vast majority of clients do not require a debt repayment program. Over 80 per cent of the people who come to credit counselling receive assistance through counselling and education. The majority of the donations support educating consumers in various aspects of personal financial management. CCC members reduce the frustration that Canadian consumers experience with their personal finances and help them clarify all their options.
Funding for member agencies is mainly through the voluntary donations of financial institutions, mostly banks and credit card companies, which support the work of not-for-profit credit counselling.
Agencies also receive various grants and donations for special projects. I have listed two here, as information for you. Minimal fees are charged to clients, but all members must provide service even if the client has no ability to pay a fee. Guidelines set by the association must be followed. Agencies risk their membership in CCC if they are not in compliance with these and other requirements.
Many Canadian consumers are in vulnerable positions. Our statistics and data that we have seen in the media and so on indicate the growing need, not only in bankruptcies and consumer proposals but in the whole field of financial literacy education. The latter is not new to us. Some of our members have been fulfilling the mandate to provide financial literacy education for over two decades, serving insolvent families and individuals — people who cannot make their financial commitments.
Our concern is with Canadians who are stressed by their finances. Statistics from our member agencies indicate that the financial problems almost always go hand in hand with other problems: breakdown of relationships, poor health, loss of income, and addictions; the list goes on.
We need to ensure that Canadians with financial issues and accompanying problems are well served. We suggest that trustees are not well equipped to handle the complex issues that people face. Even with extensive educational training, our counsellors are not qualified to handle these serious issues, but CCC members have excellent connections in the communities where people needing services can be referred immediately.
We are fortunate in Canada to have a number of options available to consumers facing financial difficulties. Too many times we hear from clients that they wish they had known about credit counselling before filing for bankruptcy.
Canadians have always been leaders in insolvency legislation. At this point, the United States has overtaken Canada with the addition of mandatory assessment prior to seeing a bankruptcy attorney. It is this stage that we feel Canadians are missing out on. We need to have an unbiased assessment of their financial situation, an outline of their options and an opportunity to make informed decisions.
Canadians who face these decisions also need the best information, tools and assistance to change their habits and their attitudes around money. That means the best assistance that is available in Canada. We think that credit counselling member agencies are the best at providing this assistance.
With the presentation of the Task Force on Financial Literacy report, we hope that the government will act as quickly as possible on the 30 recommendations. In the meantime, credit counsellors and trustees continue to assist hundreds of thousands of Canadians.
CCC members have excellent relationships with trustees across Canada, working in partnership to assist people with their financial problems. Counsellors discuss the options of consumer proposals and bankruptcy with people and these options are viable solutions. People need access to all the possible options: debt repayment, consumer proposals, bankruptcy and, most of all, education. We must work together to see that Canadians are well served.
Mr. Eisner and I are happy to answer any questions that you may have.
The Chair: Thank you very much, Ms. White. I appreciate you giving us that overview. There are a number of questions that arise from our earlier testimony and from the information you have given us.
Senator Marshall: I am familiar with your organization in Newfoundland and Labrador. Can you give some information on the sources of funding? You provide an excellent service, but I understand that funding comes from a variety of sources in small amounts. Can you give us an overview of what traditionally are your sources of funding?
John Eisner, President, Credit Counselling Services of Atlantic Canada, Inc., Credit Counselling Canada: The majority of our funding is voluntary through the various financial institutions. The largest support is from the banks and the credit cards, which are the greatest part of financial revenues coming through the door. Certainly, they see the value in the service we provide. Keep in mind that 80 per cent of the consumers coming through our doors do not need our services. They do not need to enter into a debt management program. Many are able to go back to their financial institutions with direction and budgeting skills to manage debt. The majority of our funding, about 70 per cent, comes from the financial institutions themselves.
Senator Marshall: Do any of the provincial governments provide funding?
Mr. Eisner: Ms. White might be able to answer regarding the various agencies in Ontario, but in our history of 17 years we have never leaned on the purse strings of the provincial or federal governments.
Senator Marshall: I notice from the website that you have statistics with regard to your clients. Do you know how many of your clients or what percentage of your clients eventually end up in bankruptcy?
I realize there is not necessarily a direct correlation all the time, but do you keep that kind of information?
Mr. Eisner: I believe you will find that for most of our agencies across the land we refer 10 per cent to 15 per cent of all consumers coming through our doors to the trustee community. Of course, obviously we would not know if they are filing for bankruptcy; it still could be a consumer proposal as well.
Senator Marshall: A big portion of your program is somewhat preventive. What sorts of educational seminars do you offer? Can you give us background information on those seminars?
Mr. Eisner: I can honestly tell you that our members across the land visit schools and universities to speak with youth about money. We feel it is vital to start there because the average age of the clients coming through our doors is 43 or 44. We know that we need to reach youth and give them the tools and the direction to ensure, hopefully, they do not fall into the same traps as perhaps some of us have fallen into. We also give a lot of workshops for major employers, for example, lunch-and-learn workshops, and so on. Employers see the value that we bring to the table, especially if they see changes coming. Perhaps employers provide a lot of overtime and they will be downsizing hours over time and anticipating layoffs. Employers will bring in the credit counselling industry to talk to their staff and to give them the tools to work with. Employers do not come out and say that they are getting ready for a layoff, but they want to ensure that they provide the skills to help employees through tough times, if they are coming.
Senator Marshall: What about the older age group? You talked about young people, employers and employees. What about seniors' groups? Do you cover that age group also?
Mr. Eisner: On that note, in Atlantic Canada we have been affiliated with some of the seniors' associations pertaining to that finances. That is a well-raised point, too, because we are seeing a trend in our industry where more seniors are coming through our doors with financial issues. It is heart breaking. Maybe a son or a daughter is bringing mom or dad in because they have never talked about money and they are seeing changes with mom or dad.
A lot of times we are seeing that they are cutting back on the necessities of life — that is, food, prescriptions or whatever — because they are from the old school. The old school is that they pay their bills, so they will cut the food and medications to make ends meet. We are seeing a new trend there as well.
Senator Marshall: Are your clients referred to you by specific groups? Where do your clients come from?
Mr. Eisner: Our clients are referred to us from all walks of life, whether it is from the social network of family services, the non-profit sector, the financial institutions or addiction services. We are out there in the general public. I am sure some of you have seen the marketing by the credit counselling industry. That marketing is to combat the competition and it is an awareness to let people know we are out there.
The Chair: It would be helpful if you could explain at the front end that yours is a voluntary association of not-for-profit charitable organizations. However, there are credit counsellors out there who are for profit and are not, obviously, charitable organizations. What relationship do you have with those for-profit organizations? What authority do you have under the province or federal government to provide the services you provide?
Ms. White: You are absolutely right. All our members are registered charities, with the exception of Saskatchewan, which offers an Orderly Payment of Debts program.
The Chair: That is provincial legislation?
Ms. White: The Orderly Payment of Debts program is federal legislation under Part X of the Bankruptcy and Insolvency Act, but it is overseen by the provincial government. That is an exception. The rest of our members are all registered charities. Members must maintain that status and do the appropriate filings to Canadian Revenue Agency, and so on, to ensure that status remains. Members must comply also with many other requirements that we ask of them as a not-for-profit organization, for example, with standards of service.
We have no affiliation with the for-profit organizations out there, although we see many people who have been, perhaps, to one of those organizations and have come to see one of our members to say: This is what happened when I was with such and such an organization; I had huge fees and I did not receive the service I expected; and what can you do for me?
They are then surprised by the fact that we have either low fees or no fees for them, and that we will deliver what we say we will to them in terms of education and assistance going forward.
Mr. Eisner: All the charitable organizations of credit counselling have trust accounts. They are also governed by a board of directors. The for-profit organizations do not have trust accounts to ensure they are legitimate. In my years of experience, we have seen a lot of these mom-and-pop shops set up, and consumers have been greatly affected because the money they thought was going to the creditors did not go where it was supposed to go.
There is no regulation in place for these organizations. We regulate our own members and we have stringent accreditations. At the board of directors, we have a good representation of the communities that we serve. Board members sit on our boards as well.
The Chair: The Superintendent of Bankruptcy has no regulatory responsibility in relation to your members?
Ms. White: No, the superintendent does not. In regard to the trust account, each agency must be registered in their province if there is particular legislation that governs the trust account, for example, under consumer legislation or whatever; it differs from province to province. Sometimes they need a bond for that trust account or they must fulfill other requirements. Those requirements are a piece of that regulation.
In reference to what Mr. Eisner said, we find that consumers do not know about credit counselling, and they are afraid to talk to someone about their finances. They feel the problem is personal and they are reluctant to talk about it. When they see one of the for-profit organizations advertising help for them, they are looking for that magic wand to find a solution and they do not ask a lot of questions necessarily about the help they will provide. Consumers often are taken in at a stressful time for them. That is why we want to try and promote the not-for-profit piece of the work, and that we are out there and available for them.
The Chair: When the Superintendent of Bankruptcy appeared before us, he indicated that he was contemplating or considering an expanded role for credit counsellors. Do you anticipate that expanded role might be to become involved, if necessary, in proposals for insolvent personnel, in which event you would be under the Superintendent of Bankruptcy legislation?
Ms. White: We know that role is under consideration. We have had much dialogue with our members since we submitted the consultation piece to the superintendent. We have been examining this role in terms of looking at how we best meet the needs of consumers. That is really what we are about, namely, what do people need and how can we help them access it?
We find that we need to focus absolutely on what we do best, which is education, looking at the options and looking at other services available for people in their communities. People find themselves in a complexity of situations these days. It is not only a problem with money or a financial problem; there are always other things. That is where we sit now in terms of looking at what we do best.
I am sorry that does not quite answer your question.
The Chair: I am interpreting that answer to be that you are not anxious to become involved in making proposals.
Ms. White: We would move ahead cautiously and look at that area carefully in terms of what we are able to do. We want to ensure that all those services are available to people broadly. That access is important to us and it is one of the pieces that we cited in our consultation paper. We feel that sometimes people are concerned about going to a trustee or going to investigate bankruptcy. One of the most important things might be to look at providing credit counselling and providing assessment at the forefront as an option, instead of the possibility or a proposal, as you say.
Senator Gerstein: Thank you, Ms. White and Mr. Eisner, for appearing before us, and particularly on short notice. Second, and perhaps more importantly, I think I speak for all the members of the committee in expressing our great appreciation to you and your associates for the tremendous service that you provide to your clients across Canada.
My question comes out of paragraph 2 on page 2 of your presentation, Ms. White. I want to ensure that I understood something you said. As I understand it, 80 per cent of your work ends up basically being counselling and education. I do not know if I interpret from that information that 20 per cent is focused on debt repayment programs that you work out with your various clients.
On page 2, you make reference to the fact that, through repayment efforts, over $63 million was returned to creditors in the last fiscal year. Then you go on to say that debts are totally repaid through credit counselling agencies.
Can you explain? Are you suggesting that an individual's debts are totally repaid through the services they require? In other words, do you make payments on behalf of clients to creditors?
Mr. Eisner: For a typical client that has more going out than coming in — robbing Peter to pay Paul, with too many creditors, and maybe the creditors are starting to call a collection agency — we put a payment plan together that is prorated over approximately 48 months. These are consumers that have surplus income; they are in a position to pay back the creditors. That is the 20 per cent of the consumers that we deal with in the debt management program.
Our programs are set up that we pay back the creditors 100 cents on the dollar. It is a little different than the consumer proposals, because they could be 5 cents, 10 cents or 20 cents on the dollar.
These consumers are in a position to pay back their debts in full, 100 per cent. That 20 per cent is where this $65 million that we have relayed back to the financial institutions comes from. Remember, the average length of the program that a consumer is on is approximately 33 months.
Senator Gerstein: In a sense, it is almost like pre-screening; I need to have more ability to pay back than what I owe, over a period of time, which you will help me schedule.
What if I appear before you and I am not in that fortunate position? Do you refer consumers to someone else?
Mr. Eisner: That is where the trustee comes in. If you remember, I referred to the 10 per cent to 15 per cent. For those consumers, there is no net worth; they are running a deficit position. Certainly, we would refer them to the trustee community.
First, a majority of the consumers want to pay their bills. I want to make that clear. We have consumers that come in all the time who say bankruptcy is the last alternative; it is ruled out.
Unfortunately, sometimes we have to be the bearers of bad news that bankruptcy is the only choice available when we take them through the numbers, the budget, and show them what the situation looks like. Chances are, when we refer them to the trustee community, they are ready; they are better prepared.
Sometimes they put up a wall and say, I am not going bankrupt, so they are out there on their own still fighting the battles. It affects the family and their job performance; it affects them in many ways. Those consumers are the 10 per cent to 15 per cent.
Then there is another group. Their credit is in good order; they have the means to pay their bills. It may be only a matter of going back to their financial institution and restructuring their debt.
Some of the key messages are because the average consumer coming through our doors is carrying four to six credit cards in their possession. With that information, we say: Go to your financial institution; consolidate and eliminate the credit cards; and keep and maintain one and one only. If we do not get that message through, chances are the consumer will maintain the four to six credit cards they have in their possession and, over time, they will be back in the same position.
Senator Gerstein: Is there something you are asking this committee to consider? Is there something we should give more thought to?
Mr. Eisner: Ms. White raised a good point. I am a firm believer that perhaps before any consumer files for bankruptcy, they should be referred through the credit counselling industry to explore all the options available.
We work closely with the trustee community. Many of our agencies across the land provide bankruptcy counselling. They are certified under the Bankruptcy and Insolvency Act, BIA.
In one of the submissions, I believe with the trustees, there was concern that they are looking to have that full control. That gives me concern because in the non-profit industry, there are certainly revenues that we make from the trustees with whom we work closely.
Not all trustees support the credit counselling industry. They see us as a threat or competition. I do not see it that way. We are out there to service the consumers that need help. We all play a vital role.
The agencies across the land provide a lot of bankruptcy counselling for the trustees and there is a revenue stream there as well. There is a piece in there that gave me some concern; if that was taken away, then the trustees could dominate us not providing that service whatsoever.
Make no bones about it; we are the experts in the industry. Much of the training to the trustee community has been provided by the credit counselling industry. The trustee community has taken some of the employees of the credit counselling industry and brought them under their roof. I say this in a good way — kudos to them. Of course, they are able to pay them a little better than we are in the non-profit sector, but we are the experts in the industry.
The Chair: As a supplementary question, are there any trustees in bankruptcy that have credit counsellors within their organization who are members of your association, because they are not for profit any longer?
Mr. Eisner: No, they would not be members. Let us say we have done all the professional development and training and then, the trustee community takes them out of our environment and puts them under their umbrella. Of course, they already have their designations, so they are free to work with the trustees.
Maybe Ms. White knows better than I do, but I would say about 15 per cent of the trustee community has their own in-house counselling, but much of the community relies on us to provide that service for them.
The Chair: They are required under trustees legislation to provide that credit counselling as one of their services to be licensed, as I understand it.
Mr. Eisner: Any consumer filing for bankruptcy is required to have two counselling sessions — stage 1 and stage 2. It is like any industry. We can talk about the non-profit and for-profit groups in our industry, and there are good and bad, as there are in the trustee community.
We have had consumers come through our doors who have said they never knew anything about the credit counselling industry. I see that as a flaw. Some consumers that we have known who have gotten their stage 1 counselling with some of the trustee community said they were in and out of there in 10 or 15 minutes. They were provided with a book or a video.
That is not counselling. That is providing only a band-aid service, and that is not what consumers need today. We need to learn from the mistakes.
Some people fall onto hard times. It may not be poor money management. Maybe the individual is self-employed and the business went the other way. It was not poor management. They always maintained a good status quo looking after their affairs for 20 or 30 years.
I can understand a shorter counselling session, but most consumers will tell you that the main causes for them coming through our doors are poor money management. When we ask what they believe is the cause of their being here, they say excessive use of credit and marital separation, divorce or breakdown. Those causes are the top three in our industry that impact the family.
Senator Callbeck: Thank you for the valuable service that you perform.
When we look at statistics, the numbers of personal bankruptcies, and compare Canada with other countries, we are high. Why do you think that is? Why do we have so many personal bankruptcies in Canada compared to many other countries, especially European countries?
Mr. Eisner: First, stigma: There is no stigma attached to bankruptcy anymore. There really is not.
Here is something that I think is vital, which the financial institutions and the trustee community have been preaching: If a consumer goes bankrupt, they are rated with an R9 credit rating on their credit file. If someone goes through a debt management program through credit counselling services and pays their debts 100 per cent, they are rated the same way. That is not right.
Most people are not aware of that situation. Years ago, when the legislation was put in place for a consumer proposal, the rating was supposed to be an R7 rating to show a difference between a consumer proposal and someone who went bankrupt. When we look at the ratings, for consumers that are doing the right thing by paying their bills, there is no thank you for that. They are penalized as if they went bankrupt.
We have preached this message loud and clear to the financial institutions, to Equifax credit bureau, to this committee and to all those involved. When you ask why bankruptcies are up, it is clear; there is no stigma attached. We hear it all the time in the financial industry for people who are paying their bills and trying to do the right thing: they would have been better to go bankrupt, start fresh, start over and start clean. That is the wrong message. That is what is happening.
Senator Callbeck: Mr. Eisner, you were a member of the Personal Insolvency Task Force.
Mr. Eisner: That is right.
Senator Callbeck: When did that task force report?
Mr. Eisner: Senator Goldstein was the chair of the committee at the time. Recommendations came out of that report that I felt strongly about. The one that stood out, loud and clear, was the student loans. Under the old system, student loans were there for ten years on their file from the time they exited from university or post-secondary education. Our recommendation was five years, but it was accepted at the seven-year level.
Prior to, I believe, 1992, if someone went bankrupt, their student loans disappeared. The new task force put in regulations to protect the student loans. When we get into the attachment to bankruptcy back then, consumers needed better protection.
The example I will give you is the Registered Retirement Savings Plan contribution. That component was key. Someone who may have been self-employed for many years, who always managed their affairs well, who built up a net worth of RRSPs and so forth, and ran into a bad whatever, unfortunately their RRSP contributions and everything had to be redeemed and cashed in. I think that was a good piece that was adopted as well. There was some good in that.
Ms. White: To answer the time frame question, I think it was 2001, 2002, from my memory.
Senator Callbeck: In my first question, you mentioned the stigma. Was that dealt with at all in that task force report? Were any sections devoted to stigma?
Mr. Eisner: I do not recall, to be honest with you.
Senator Callbeck: You come from the Atlantic area.
Mr. Eisner: That is correct.
Senator Callbeck: How does the Atlantic area compare with other regions in Canada in terms of personal bankruptcies?
Mr. Eisner: When we look at bankruptcies in the last couple of years, obviously the Ontario market took a major spike in bankruptcies, but that was related to the auto industry; Alberta was related to the oil industry and B.C. was related to the forestry industry. In Atlantic Canada, we came through it. We have had our peaks and valleys, but nothing startling.
Senator Callbeck: You look at personal bankruptcies for the last ten years, on a national level.
Mr. Eisner: In Atlantic Canada — and again I have not looked at those numbers for a while — I think we are right there; maybe a little higher at times. Keep in mind as well that one of the changes we noted in Atlantic Canada — I can speak only for Atlantic Canada, but I talk to my counterparts across the land — was that when I started the business 17 years ago, we were putting out our message about credit counselling, what we did and so forth, and what we brought to the consumer. If we look now, consumers are totally confused with marketing and advertising out there, because the trustee community is saying they are in the credit counselling business. We take as a compliment that the trustee community is advertising almost word for word everything that we currently provide now. Consumers are confused. They are advertising, come on in for credit counselling; it is not that bad; we will help you through it.
I mentioned that we refer 10 per cent to 15 per cent of all consumers coming through our doors to the trustee community. On the flip side, the trustee community referring to the credit counselling industry, I guarantee you it is less than 1 per cent. I find it hard to believe that the trustee community is seeing all these people coming through their doors and not saying there are other viable options available to them. That is a fact.
Senator Callbeck: You say you regulate and monitor your members, the credit counsellors. What enforcement mechanisms do you have here?
Ms. White: We have an accreditation program that each member agency must go through every five years. Standards are set out within accreditation that cover various components of the credit counselling agency. Accreditation includes components like governance issues, the type of board and how often it meets, the representation, due diligence on financial risk and whether the accounts are audited by an independent body; all those sorts of things, and a big component on human resources and on program delivery.
Each of those areas has requirements that the agency must comply with.
In addition, I mentioned in my piece the certification of credit counsellors, an additional piece we recently added on. We see it as important that counsellors have that requirement of education additionally, and have ongoing Continuing Education Units, CEUs. We have an annual compliance piece that each member is required to submit in terms of their audited reports: attestations and proof of certain things, like proof that their bonding is in place, their insurance is in place, that they have filed their tax returns for their charitable status; all those pieces that are essential. We monitor those things annually.
Senator Callbeck: You mentioned a number of things the agency must comply with. If they do not comply, are they terminated?
Ms. White: They no longer would be a member. Those things are absolute requirements. They are mandatory.
Senator Finley: Thanks for a fascinating presentation.
Where would I be best pointed to, if such things exist, for statistics on the reasons, for example, for people getting into financial crisis? It strikes me that you act as a sort of triage unit right at the front, so you are probably the first people to identify what the problems are.
Is there a statistical database within your organization that is able to say: in our view, the reason 65 per cent of the people who came to see us was because of marital breakup; 25 per cent was because of job loss; 15 per cent was because they did not know what the hell they were doing; 10 per cent was because of lifestyle; or whatever? Is there somewhere you can point me to?
Ms. White: Yes, senator. We are in the process of refining some of our statistics and gathering some of that information from our members. Our members have different kinds of software, and you can imagine the difficulties in trying to match definitions and so on. We are starting to gather that information. Mr. Eisner mentioned the kinds of things that generally he sees in his agency. Those things are common across the country. The statistics that we have gathered so far bear out those things.
Senator Finley: Are there trends developing? You mentioned the number of seniors. You would expect that trend as the leading edge of the baby boomer group starts to hit. One thing I would be interested in knowing as a sub-statistic, if you like, is the sort of life financial statistics for these seniors who are getting themselves into problems. Did they think about it? Were they able to think about it, in terms of pension planning and retirement planning, or are they literally being caught in this funnel of people hitting a certain age without any way of preparing themselves for it? In other words, is there something more systemic happening here?
Ms. White: I think it is a combination of things. Mr. Eisner may disagree with me, but we see people coming to our member agencies who did not prepare for retirement, absolutely, and thought that what they had with the company pension plan would be sufficient, that the Old Age Security would be there for them and so on. That might have been the case, but then something else happens. Perhaps one of them has poor health, they no longer have two incomes, and one of them has to leave work before 65, and they are short on income. Perhaps one of their children has separated from their spouse and they are coming back to live with mom and dad, and the expectation is that the parents help out and provide housing and other things for them. That means then that the parents, who are now in senior age and near retirement or in retirement, have to extend their credit. They extend their line of credit.
What I see is a combination. I am not sure that is a clear answer.
Senator Finley: Obviously, we are looking at a whole variety of things here through the committee work we do. One of our objectives has to be whether there are things within government or through the government that we should address. It strikes me that the kind of statistics or data that you have is the sort of data that we need to help direct us to where we need to go, particularly if it is what I would call non-judgmental; in other words, if it is neutral.
One thing you mentioned was that the average debt was $100,000. Ms. White, in her presentation, I believe mentioned that figure. Is that family debt or per person debt? Does it include a mortgage or not?
Ms. White: That figure came from the Vanier Institute. The institute recently submitted their report, which they submit annually on household finances. The institute says that family debt is at the $100,000 or the six-figure mark. That is what they stated recently. I have to assume that is family indebtedness.
Senator Finley: Does that include a mortgage?
Ms. White: Yes: Mr. Eisner explained about the average debt we see. We do not look at mortgage debt. We look only at consumer debt, which excludes a home mortgage. It is in the range of $35,000, and an average is usually six creditors per person.
Senator Finley: Going back to statistics, I am interested in the number of repeats. Do you have the number of people who have been through your hands and for some reason they come back through your hands again? Is the repeat rate high? Do you consider it to be a low rate? What is your opinion?
Mr. Eisner: In talking to my counterparts across the land, it is a very low figure. Consumers who come through our doors are at rock bottom. We help them through that tough time of their life and to get back on their feet again. We survey our clients and we have interesting data concerning what they feel when they first come through the door and after they are finished with us.
To come back to the point concerning the percentage of the consumers who fall back, we see some but very few. We track the number in our particular area, and it is less than 1 per cent right now. They have hit rock bottom. The problem is, if they have gone through the bankruptcy process, believe it or not, it is the fault of the current system. Someone can go bankrupt and nine months later, be back in the groove, not having learned anything from the process. What happens is $25,000 of debt is wiped away. We say that we have provided counselling. An hour of counselling does not cut the mustard, as far as I am concerned.
I could put it to this group right here. Ask yourself the question: Who taught you about your money management skills? It was never taught in schools. It was learned by trial and error. If mom and dad did a good job, chances are you learned from them. If mom and dad did not do such a great job, maybe you fall into that trap. The number one point is, we have to teach it in the schools. The wise use of money must be part of the school curriculum. When we talk to most people coming through our doors, and when we make a complete assessment — and we are talking about some of the simplest things — consumers tell us they never knew that and never thought about that. We are taking people back to the basics and we want to keep it simple, which is really what is intended so they had better understand, but we need to teach it in the schools.
Some of our members across the land are into the schools and universities. The curricula are tight in the schools and sometimes we are challenged. They ask us what we are trying to sell. We are selling education. It is a challenge, but we are doing it and will continue to do it.
Ms. White: Further to your comments, there was independent research by Equifax and TransUnion about the credit ratings of individuals who have successfully completed a debt repayment program. The research was conducted independently by those two agencies and was telling in terms of credit rating and use of credit after completion of the program. Indeed, the results were amazing. People carried much less debt on their credit card or less than the average person, and there were no default rates. They had learned through credit counselling how to manage their money. I believe that is the significant difference.
Based on that research, one of the financial institutions conducted a pilot study and gave successful clients a credit card. Their results showed that those people handled their credit card very well, with no defaults, used very little of the credit and so on. Those were amazing results that were researched independently.
Senator Finley: I have many questions, but I will ask one more, if I may.
You mentioned that one of the most difficult obstacles you face — and you alluded to this obstacle by talking about going to the schools — is the lack of knowledge about credit counselling among consumers generally. Are there things that the financial institutions themselves, whether they are a credit card operation, a bank, a finance company, a leasing company or whatever, could be either empowered or enforced to do to help with the education?
I do not know much about it, but I am sure the financial institutions must have some kind of trigger mechanism of their own that says, we have an account or a person here who is a little dodgy. Does someone talk to them? Do the institutions send them literature and let them know there is credit counselling?
Ms. White: Credit Counselling Canada has always dialogued with the banks and credit card companies about working together on things like education and the valuable rehabilitation of their customers. Only this February we had an advisory council meeting, bringing together the top five banks to talk to us about how we might work together. One of our key pieces was about someone who looks for a consolidation loan and does not receive the loan from the bank: what happens to that person? Our suggestion is that the person is referred immediately to credit counselling.
That suggestion went over well with those top five banks. They understood what we were talking about. We will keep pushing that agenda because we feel it is an important one. We need to have that connection with them.
Senator Finley: Do you think there is anything from a legislative point of view that might be helpful? I ask this question with a total agnostic view, but is there anything that you can suggest?
Mr. Eisner: A couple of key steps were taken by the current government. First is the disclosure of costs when it comes to credit cards and letting people know the true length of amortization. That step was huge because the average consumer had no idea, for example, when carrying a balance of $6,000 at 18 per cent and making only the minimal payment, how long it would take to pay off that balance.
I also want to endorse the government on its latest move on the mortgage component on the amortization. That step was another key step. Those were two great, proactive steps. Is there more? I think the financial institutions, through dialogue, as Ms. White mentioned, with the advisory team we are working with, all stepped forward. We asked them to come to the table, and I am pleased to say the seven major financial institutions in Canada had people sitting in that room with us. It was a great dialogue. We used to have that dialogue three or four years ago and have gotten away from it. I believe they are now starting to see the vital role of education. Education, bar none, is the key.
Something that will be another trigger, and I hate to say it but it is a fact, is mortgage rates. You all remember when mortgage rates were 18 per cent, 19 per cent and 20 per cent back in the 1980s. This time we do not need to see those interest rates to see the effect they will have. If we have interest rates of 8 per cent or 9 per cent on mortgages down the road, there will be an awful impact on consumers.
Senator Eggleton: This information is interesting; thank you. Education is key here, and I will pick up on that point. I am interested in the preventive aspect. In answer to an earlier question from Senator Marshall, you indicated that you were in the schools doing work there, which is good.
However, we are also seeing in recent reports that household debt is at record levels. Either you are not doing enough, or you are not doing the right things.
What more needs to be done, either by you or by government, through preventive work so that people do not get into this mess? Many of the people you are seeing are people in over their heads by the time they come through your door. How do we stop people from ever having to come to that point?
Mr. Eisner: I will come back to education with respect to young people and what they understand. We are all at fault, everyone in this room. One key message is, we have to talk about money. We have to be more open about it. We need to be able to share with the youth how much money we make, and what the expenses are. Mom and dad have a house, two cars, and they think they are rich. You take a five-year-old child with a parent when the parent puts a bank card in the machine, and it spits out money. It is visual; the child does not think the parent has to pay for it.
For example, in the high schools, we ask the football players what they think it costs mom and dad to feed them: $50 a month; $75 a month? They are lost. We are all at fault. We need to tell them what it truly costs. We need to talk about the basics: what does it cost to feed a family and to maintain a residence, regardless of where someone lives? We need to go there with the youth.
Coming back to your point, the average age of the consumer coming through our door is 43. That is because most consumers coming through the doors have never had any money management skill laid out to them. That problem will not go away.
However, on the financial side, there are only so many Canadians in Canada, and the financial institutions all want consumers to have their credit card. If we think back to many years ago, everyone remembers the Sears card. If we had a Sears card and maybe one bank card, we were doing well. Now we have four or six because every financial institution wants us to have one. Maybe we need to guide them. I probably will end up being shot by the financial institutions that supported what we are doing, but they know what we are doing. I can live with that. I am a former banker, so I understand, as I was the one giving out the credit cards many years ago.
On the flip side, we need to maintain the types of limits we are giving, whether on credit cards, lines of credit and so forth. There have been good steps by government to let consumers know what the true cost is. Those steps will stop many consumers from maintaining a balance on their credit card. In other words, consumers will learn from that to pay the balance in full, no interest.
I do not know if one could ever limit the number of credit cards that a consumer can have. I do not think that is possible. The average consumer coming through our doors carries four to six at this time.
I will give you something to observe. I do this all the time; it is a terrible habit. I watch the patterns of consumers: how many are taking cash out of their pockets and how many are using their credit cards. Now, we cannot gauge it fairly because with cards today, they receive so many Air Miles, and people are managing their affairs better in some respects, but there are many angles from which to approach it.
You mentioned seniors. One of the reasons seniors are falling into this situation is because they are on fixed incomes. With the cost of living and everything else, there will be a breaking point. Some seniors are now using credit. Every financial institution — it does not matter who the consumer is — wants a credit card in their possession from the time they are 18 to the day they die. It allows them to use other means versus paying cash. There are many hurdles.
Senator Eggleton: How will you step up the education or improve it?
Ms. White: We continue to do as much as we possibly can. I know member agencies are hiring more educators to deliver the seminars and topics they need to deliver, whether it is money management, checking a credit rating, or how to deal with irregular expenses. The list of topics we can supply goes on. Certainly, that education is important.
One thing that might be available for legislators is, rather than looking only at the lowest amount someone can pay, which is kind of the defaulted amount, look at increasing the amount that someone can pay. If the person pays can pay a little more, they pay it off faster. The default now is the lower payment, the minimum payment.
Senator Eggleton: How does legislation deal with this issue?
Ms. White: In terms of the way the financial institutions look at things, they could be pushed to say the consumer can pay more instead of the minimum.
Senator Eggleton: We legislate them to put in options for higher amounts?
Ms. White: Absolutely: The other thing is that people borrow based on their need. One trend we have seen over the last 10 years is the increasing lines of credit. People seem to be able to qualify for a line of credit worth thousands of dollars, with no real purpose in mind for it. By giving people that huge chunk of money, it is open for them to use. They think it is theirs, and then they get themselves into trouble, as opposed to there being a reason for obtaining the credit. I think that area might be in the purview of legislators. Those are two ideas.
Senator Eggleton: Mr. Eisner, a few moments ago you mentioned the government's action with respect to mortgages and information on credit. What do you think is the next big step government can take that would be helpful?
Mr. Eisner: Make it mandatory that a money management program is in school curricula across the land. I do not know what that right age is, but we have to deliver the education in the schools. If we deliver education at a young age and have curricula throughout the school years, we will give them the life skills.
Senator Eggleton: We will give them financial literacy.
Mr. Eisner: That is right. They will have the life skills they need for a lifetime, bar none.
Ms. White: One of the other times for mandatory education would be when buying a house. When people buy a house, if they are provided with education at that time, they probably would do better. A house is a big purchase. With more education, they likely would have more success.
Senator Runciman: Have some provinces mandated this education as part of the curricula?
Ms. White: Yes, they have. I do not think it is in all provinces, but in Ontario they recently legislated it, and I believe it will start in September of this year, which is an excellent move. I am not sure that all the provinces have mandated it, but we are moving in the right direction.
Senator Ringuette: Did you participate in the Task Force on Financial Literacy?
Ms. White: Yes, we did. All our members participated through the in-person consultations held across the country. Every member except one participated, and that was because of vacation conflicts, I believe, with the one date that was in Regina. For all the rest, we had a member presenting information to the task force members who were there at that time, and we prepared a written piece to cover our views nationally.
Senator Ringuette: Across the country, how many members are volunteering their time? You are a non-profit organization, and I suppose you have staff that you pay in order to operate.
Ms. White: Yes.
Senator Ringuette: How many counsellors do you have across the country?
Ms. White: I estimate that we have 75 counsellors. We have 10 members, some of which are small agencies. For example, Family Service PEI has 2 counsellors. Many of our board members are volunteers, and they support the agency on committees. The association has a voluntary board of directors.
Senator Ringuette: I am talking about direct counselling services.
Ms. White: None of the counsellors who provide direct service are volunteers. They are paid.
Senator Ringuette: You have 75 counsellors across the country?
Ms. White: Yes, and they are all paid.
Senator Ringuette: How much is your annual budget?
Ms. White: The budget for a member agency?
Senator Ringuette: Nationally.
Mr. Eisner: The association, of which Ms. White is the executive director, is supported by dues and so forth paid by the membership. That budget is in the range of $250,000.
Senator Ringuette: Are the 75 counsellors paid from your operating budget?
Mr. Eisner: No, they are not paid by the association. Each member agency creates its own projections, budgets and so forth. We currently have 28 employees throughout Atlantic Canada. Last year, our revenues and expenses were in the range of $2.5 million.
Senator Ringuette: Would it be $8 million to $10 million across the country?
Mr. Eisner: I would say it is more than that. We are a large agency. However, there are probably three agencies within our association that have bigger revenue streams, budgets and so forth. I will guess that it is in the range of $25 million to $30 million.
Senator Ringuette: Last year $63 million was repaid.
Mr. Eisner: That is correct.
Senator Ringuette: Looking at your guesstimate for operating expenses to supply the service and what is being returned to creditors, which is probably 75 per cent to financial institutions, including credit card companies, we can see that that is a good return on investment.
Mr. Eisner: It is a good return on the dollar for financial institutions. They see the benefit in the 80 per cent, in the preventive work we do before people get into trouble. They love the work that we do in schools and universities. I do not believe that anyone in the non-profit sector of the credit counselling industry is becoming rich.
Senator Ringuette: No, we know that the only groups of people in Canada that became more profitable during the recession are the financial institutions and credit card companies. I can understand that it is nice for them to say that they supply 75 per cent of your operating budget while you are returning $63 million to them annually from the people you counsel. I applaud them for supplying 75 per cent of your operating budget.
Mr. Eisner: It is in the range of approximately 70 per cent, yes.
Senator Ringuette: You have made recommendations with regard to consumer education. I support the flip side of that recommendation, which you have mentioned a number of times; the financial irresponsibility of institutions that provide credit cards to people who cannot afford them. That irresponsibility should be the first recommendation, because it is so evident.
You also said that the issue of minimum payments on credit cards should be tackled. Two years ago, the Senate committee looking at the credit card issue recommended an increase in mandatory minimum payments after they were lowered in the last five years. However, that recommendation was not accepted.
We do not do anything real to impact this vicious cycle. In addition to credit cards, financial institutions are now giving lines of credit, even to people who do not ask for them. Financial institutions encourage people to spend money they do not have, and then the interest rates those people are charged take them out of their financial comfort zones.
Senator Meredith: Thank you very much, Mr. Eisner and Ms. White, for appearing before us. I was nearly jumping out of my seat in my enthusiasm to become involved in this discussion.
I have seen the devastation caused to families by lack of finances, especially among our immigrant population. Banks feed them credit cards, and these families do not have the experience to handle them. I have personally counselled individuals who have gone through this experience. In addition to leading to violence in the home, it leads to great poverty. I have seen this effect in the various neighbourhoods where I have worked in Toronto.
Some for-profit organizations mislead people. They charge a fee for a service and then do not provide it.
You are to be commended for the work you are doing. Please continue to do it.
You said that you give seminars to educate community groups. What have you done with the faith groups? They are a captive audience for education, and if you have not explored that area, you should. Many of our immigrants are people of faith and they go to their faith leaders for leadership. You would be successful in reaching that leadership.
Ms. White: All our members look at community groups, including faith organizations because they are a natural fit in that people with needs gather there. Many of our agencies have good connections with faith groups as well as with immigrant settlement organizations. Those individuals have extreme needs in terms of understanding financial rules. We already do much work there.
Senator Meredith: What has been the response from them?
Ms. White: Generally it is very good. Community groups are looking for answers for the people that come to their organization — their church, their seniors group or whatever it is they are coming to. They are looking for that kind of information because those people have those needs. We are there to be a resource to them.
Senator Meredith: Excellent. I am happy to hear that.
Mr. Eisner, you talked about education. What high-level discussions have you had with the boards of education? I think sometimes the agents try to go directly to the principals. They have to escalated it to a higher level to obtain approvals. What high-level discussions have you had with the boards of education to push this education?
We talk about legislation, and sometimes I feel that things are always pushed back to the government to legislate it. Your organization has a certain autonomy to say: Look, this is critical; these are the facts here.
My honourable colleague, Senator Finley, talked about requesting statistics. I am also interested in that information, in terms of how these numbers play out in various sectors.
You have the statistics already to say, here are the families that are being affected because of a lack of education. Then the problem translates into the schools: These are the same families for whom we have a proportion of breakfast clubs in these same schools because they are not able to feed their children at home; therefore, Mr. Director, here is what I am proposing.
Have you had those discussions?
Mr. Eisner: We have approached many of the provincial governments, department of education and so forth, and they all agree what we are doing is vital and important. However, the school curricula are so tight that being able to fit this education into the school curricula is the problem.
We are doing much more with the universities, probably more than in the schools. I would rather reach students while they are in school and before they have student loans, because it is vital that they understand it is not how much they can get; it is what they need.
The challenge in getting into the schools will always be great. The financial literacy that the federal government is talking about, we are endorsing it in a major way. We think that is how literacy will funnel down.
I commend the Province of Ontario. Ms. White mentioned that they are trying to get into the schools. However, this education needs to be in every school in Canada.
Senator Meredith: This is an important issue. You spoke earlier about the statistics. I cannot remember where I read this report, but Canadians are spending 37 per cent more than they earn. They are seriously in debt. We talked about that statistic in coming back to another question with regard to the bankruptcy.
Have you looked at the possibility, if the boards are not instituting the education within the curriculum, that we could then have classes that your agency could provide on a Saturday morning for parents and for these same students at the high school and college level?
Again, we are talking about moving this issue in an expeditious manner rather than allowing it to drag on. We have to deliberate and legislate and so forth. This issue is an important one that is affecting families, and time is of the essence. Looking at all the immediate stop-gap situations that you could create to deliver that education, have you considered seminars in which you could utilize the same schools, even to obtain permission from them?
Ms. White: Our member credit counselling society is conducting a pilot study in at least one elementary school for grades 5 and 6. The member has approached the board of education. They asked if they could run a course for this age group, which I think is age 10 or 11, approximately, which we think is a good age. We think this idea is only one of many areas that other schools and their districts can pick up on and transfer it.
The other issue is that it is important for us to be able to train the trainer. We do not have all the resources to deliver all those things. We need to be able to teach the teachers in those classrooms in those schools to be able to teach that piece, and we are willing and able to do that. Part of what this pilot study is about is teaching those teachers; not only teaching the curriculum to the students.
We have also seen, and other studies have shown, there is a spinoff in that education to what happens with the parents at home.
Mr. Eisner: The biggest challenge, as everyone agrees, is bringing everyone in line. Probably the biggest hurdle is the resources. In the non-profit sector, there is only so much we can do. We will live the passion; we are out there knocking on doors and doing whatever we can to deliver the message out there.
From a national perspective, the financial literacy, we were asked and we presented right across the land. I think you will hear a consistency that we believe the education needs to be in the schools. To come back to your points, I cannot speak for all our counterparts across the land, but I know they are doing things such as working with parents.
Remember I said we need to talk about money. One message I want to put out there is that we can blame the government and the parents, but everyone has a role in this issue. Consumers are making those financial decisions that get them into money trouble as well. It happens; it is easy.
If you have a loved one who is sick, and I can tell you the stories we hear morning, noon and night. These consumers are well-educated; 50 per cent of the consumers coming through our doors are well educated.
Senator Ringuette: Is the newcomer into the financial market of Canada, the payday loan industry, contributing to your education efforts like the other financial institutions?
Mr. Eisner: We have taken a stance. We have gone before the hearings twice in Nova Scotia in reference to the payday loans. I do not know if I understand the question, but they are not helping.
The Chair: Are they contributing to your finances?
Mr. Eisner: In a small way. The consumers that are utilizing their services, usually those services are the last means of resources available to them. Unfortunately, I think the consumers that are being affected by payday loans are those who can least afford to deal with them; I am talking about people on fixed incomes.
Senator Meredith: Mr. Eisner, with respect to bankruptcy, you indicated that 80 per cent of those who come to you do not need you, but then there are others who definitely need your services. Once you have walked them through the bankruptcy process, and they have gone to the bankruptcy courts or bodies with respect to allowing them to sort out their debts, what support is there then for that family?
They have gone through this process. Their credit is now at an R9 level. Having worked for American Express, and knowing the rules of Equifax, I know the situation with R1s and R2s.
I have two questions: first, what support is provided to them once they have gone through that process; and second, what are you asking of this body with respect to the fact that those who declare bankruptcy are rated an R9 and those who pay 100 per cent of their debts back are still rated an R9? What are you asking of us in terms of the 30 recommendations that are in that report? You have spoken about three of them so far, but obviously there are others.
The Chair: Would you like to reply in writing, or can you answer quickly?
Mr. Eisner: I will give you a short version, but we would like to submit a report.
The Chair: You can send it to our clerk and it will be distributed in both official languages to everyone on the committee.
Mr. Eisner: We will send a written submission, but the short version is simple. For someone who has taken the hard road, there needs to be a reward at the end.
The Chair: Ms. White, do you agree with that point?
Ms. White: Absolutely.
The Chair: Thank you both very much for being here and helping us understand the Canadian consumer counselling side of things.
Ms. White: Thank you very much. I appreciate your time.
The Chair: This meeting is now concluded.
(The committee adjourned.)