Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 32 - Evidence - January 31, 2018

OTTAWA, Wednesday, January 31, 2018

The Standing Senate Committee on Banking, Trade and Commerce met this day in public at 4:32 p.m. to give consideration to Bill S-237, An Act to amend the Criminal Code (criminal interest rate).

Senator Douglas Black (Chair) in the chair.


The Chair: Good afternoon, and welcome colleagues and members of general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the Web. My name is Doug Black, and I am chair of the committee.

Before getting under way, on behalf of the committee I welcome back Michaël Lambert-Racine, who has been on leave for a number of months. We are glad to have you back, and now we can get ahead with our very heavy agenda over the winter and spring. Thank you very much and welcome back.

Today, our committee will begin its hearings on Bill S-237, An Act to amend the Criminal Code (criminal interest rate).

As we all know, there will be votes at 5:30 this evening. There is a blizzard currently in Ottawa, as we have all come to learn, so we will have to compress our meeting. I’ve had a conversation with our colleague and first witness, Senator Ringuette. It’s conceived that today we will hear from Senator Ringuette and we will defer any questions we might have until after the panels are heard next week. This will also give Senator Ringuette an opportunity to hear. She has been gracious in agreeing to that.

At about 4:50, or perhaps a little earlier, we will continue the committee meeting in camera for a meeting on future business.

Let me remind you that the committee will continue its hearings on Bill S-237 tomorrow morning at 10:30 a.m., where there will be two panels of witnesses.

Our dear colleague, Senator Ringuette, welcome. You have the floor. After your presentation, if there is time, we may try for some questions, but I don’t want you to feel constrained.

Hon. Pierrette Ringuette, sponsor of the bill: Thank you, chair and colleagues, for the opportunity today to present to you the bill that I’ve tabled for the second time. When I tabled it in the House of Commons the first time, it dropped from the Order Paper because there was an election call.

I am back at it. Essentially, I am advocating that the criminal interest rate, which is in the Criminal Code of Canada under section 347, be amended to 20 per cent and the Bank of Canada overnight rate, which is currently at 1.25 per cent. The criminal interest rate for certain products would be maxed at 21.25 per cent instead of the 60 per cent that is here.

Why have I tied this to the Bank of Canada overnight rate? It’s to ensure that with time the flexibility is there. For instance, if we get a Bank of Canada rate of 10 per cent, it is to ensure lending institutions have the flexibility to adjust the rates. Also, it will be automatically adjusted in regard to its criminality.

In the last 10 years the Supreme Court cases involving this particular section of the Criminal Code all refer to contract law. None of the three Supreme Court decisions dealt with the crime of loan sharking in regard to a criminal interest rate.

Particular to this issue is that in 2006, and it was adopted through Parliament in 2007, the government of the day decided to carve out of the specific section of the Criminal Code a specific financial instrument, that is to say a loan of $1,500 or less for a term of 62 days or less. This financial product was carved out if the provinces wanted to be responsible to license these lending institutions that would prevail for that specific financial product. There were conditions for the provinces that had to be met by the Minister of Finance to be recognized to do that.

Since then all the provinces have regulated this specific financial product. However, the Province of Quebec has not asked to be licensed to regulate this specific product because within their consumer protection legislation they already have a maximum interest rate of 35 per cent, so the consumer groups are well protected.

I would also like to highlight that if an interest rate is within a federal status and here in the Criminal Code, it is because it is the constitutional responsibility of the Government of Canada under subsection 91(19) of the Constitution Act to regulate interest.

The specific bill in front of you applies to all loans for individuals, households and non-profit organizations. Therefore, you would be capped at 20 per cent, plus the Bank of Canada overnight rate. We would maintain the 60 per cent for businesses for loans up to $1 million. However, our research over the years has indicated that there are circumstances for large corporations to have bridge financing for a very short period of time, but that interest cost could be higher than 60 per cent. Therefore, we are removing from the Criminal Code the requirement for big corporations to have $1 million or more in loans.

I am able to share all the data. Let me tell you, I have done a lot of research on this. For instance, there’s also a situation with regard to annualized interest rates charged by phone and cable companies that are in excess of 42 per cent for households. How can you justify an interest rate of 42 per cent on an electricity or cable bill?

I would also like to stress that 18 states in the U.S., our neighbours, have regulations with regard to interest rates that are acceptable for consumer goods. In addition, three years ago the federal government enacted a particular bill in regard to Armed Forces members whereby they have a cap on the amount of interest rate that a loaning company can assign to the loans to them.

I will also say to you that this bill does not affect our chartered bank loans or lines of credit because they are lower than the 21.25 per cent. The prime rate would rise with the bank rate, so limits would go up as it rises, allowing banks offer loans at rates with changing economic conditions.

This bill will not affect the majority of credit cards because most of them are between 9.99 per cent and 19.99 per cent. Lines of credit and bank loans, from our research, are usually under 15 per cent, even though they are unsecured loans. This brings me to the carved-out product that was done in 2006 and 2007 because of the proliferation in the provinces of payday loans.

Some believe that the provinces are making regulations to cover the different financial products that these entities are marketing. I attended the Banking Committee and I must say that the chair of the Banking Committee at the time was against the bill. Now we can see it. It was giving Canadians across the land different rates in regard to loans, and he was not in agreement with that.

The Minister of Justice, Mr. Toews at the time, clearly indicated that the only financial product was limited to a maximum of $1,500, repayable in a maximum time frame of 62 days. It’s clear for us.

After that happened, I kept following what was going on in the marketplace with regard to this issue. Finally, the solution was what I am proposing to you. The proliferation of lending institutions has also moved into a proliferation of financial products that are not covered by provincial legislation but are covered by the Criminal Code because of what we did in 2006-07 with Bill C-26.

Therefore, all these financial products that are above $1,500 and/or more than 62 days in repayment come under the Criminal Code. It is very important that we seriously enact a measure that will provide some protection for the rest of the financial products that are offered outside the chartered banks.

I would also like to highlight that the document we received from the Library of Parliament, dated January 30 of this year, does not outline the specifics of the payday loan industry and the regulation mechanism that we provided for the province in 2006-07. I will provide some examples for you.

The Chair: I am noticing the clock. We’re coming up to 4:50. I do not want to restrict your time, so we can find some time at another time or you can wrap up now, whatever works best for you.

Senator Ringuette: For the sake of making sure you understand the specificity of the financial product that is now regulated by the provinces, I have provided the transcript of the Banking Committee. The parliamentary secretaries of both the Minister of Justice and Minister of Industry were responsible for bringing this issue forward. When you read this, and it’s in both French and English, you will understand that the provinces have one responsibility in regard to this one financial product. All other products come under the Criminal Code of Canada, section 347. Also, I want to indicate to you that at that time we were looking at two industries. One was payday loans with Cash Money or Money Mart. The other was loans online in Canada, which I googled today, and found that there were 10 pages of different entities offering loans, even some up to $200,000.

I will mention a few: Loan Away, Money Supplier, Magical Credit, iCash, LendDirect, Fair Return, Loan Express, GoDay, My Canada Payday, Cash Money, Credit Club, Loans Canada Online, 2010Loans, and lendmecash. It goes on and on. There are 10 pages of these different entities that are not being regulated. The consumer is very vulnerable. Honestly, I don’t think that the federal government, which is responsible to enforce the Criminal Act, has taken the time to really look at all these ongoing activities.

Some are very wise and the rate they advertise is 59.9 per cent. Some are a little less wise because the Federal Court and the Supreme Court of Canada, in their interpretation of interest rates, also includes administration fees, insurance, all the fees pertaining to the loan. We have a big issue in regard to Canadian consumers and how they are being treated. These abusive practices have to stop.

I will stop there. I am willing and able to provide all the research that I have. This is a major issue for Canadians across the land. I do hope that this bill will move to third reading and, at the end of the day when the bill is in the House of Commons, the government will decide that it wants to further the responsibility to the provinces in regard to these loan schemes. So be it, but right now there is nothing to protect Canadian consumers in dire need most of the time.

The Chair: Thank you, Senator Ringuette. Thank you very much for your commitment to this issue. We have seen this consistently. You believe strongly in this and you continue to come forward with it, so thank you for that. I am conscious of time and I am conscious of the conditions outside. We have to get back to the Senate Chamber.

I am wondering if it is simply not best, for those of you who have questions, to note them. Don’t forget them. We will likely have a question period with Senator Ringuette at the end of our panel next week, if that works for people.

We also had an in camera planned. I think we should postpone that until tomorrow, hopefully. We don’t need more than 15 minutes, so we’ll find time for that tomorrow. The deputy chair and I do require your input on a number of issues. We don’t want to rush things. There is no point to that.

Senator Ringuette: If I may, I have these documents for all the members to receive.

The Chair: Of course. Senator Ringuette, thank you very much for your presentation. Thank you for your commitment to this issue.

(The committee adjourned.)