Proceedings of the Standing Senate Committee on
National Finance
Issue 15 - Evidence
OTTAWA, Thursday, June 11, 1998
The Standing Senate Committee on National Finance to which was referred Bill C-36, to implement certain provisions of the budget tabled in Parliament on February 24, 1998, met this day at 9:45 a.m. to give consideration to the bill.
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: Mr. George Butcher is our witness this morning. Do you have an opening statement, Mr. Butcher?
Mr. George Butcher, McGill Association of Continuing Education Students: Honourable senators, my information comes from The Gazette in Montreal. I have been following what has been happening over the last ten days.
I am here because I was shocked by the idea that there is a unanimous opinion in Quebec that everything should be turned over to Quebec. Of course, I do not believe that to be true in any way whatsoever. I was also surprised when the continuing education executive suggested that I come to Montreal to explain my point of view.
I suppose the situation is somewhat like the David Levine situation in Ottawa, where there was a vast outpouring of public opinion against his appointment. Personally, I feel his appointment was fine, however, the people against it are the very people who voted for William Johnson in Alliance Quebec, and I back him.
I have distributed three articles that I have written in the last year. In addition to that, I have included two articles that I find particularly interesting. One is from the New York Times, and talks about the general idea of separation. It makes it absolutely clear, however, that in the United States it is not a matter of separating from a country or breaking up a country.
Ultimately, in the dream world, I would believe in Montreal as an eleventh province. That, however, is totally impractical. I merely mention it. I am a loyalist to the Montreal area.
The other article is of particular interest to McGill. It was printed in The Sunday Times in London, and it says that there are ten centres of excellence in the university world amongst the major western powers, and one of them is McGill. Five of them are in the United States, two in England, one in Germany, and one in France. I like the idea that McGill is in that company. I do not believe it, but I think it is a wonderful idea.
I am simply here to contest the idea that there is a unanimous desire in Quebec to walk all over the Canada Millennium Scholarship Foundation. I have reservations about it; however, I support it, even though I do not support the Liberal party in Ottawa.
The Chairman: Could you perhaps give us the reasons for which you would support the millennium fund?
Mr. Butcher: I make a clear distinction between bursaries and loans. A scholarship is something that should be based upon excellence and excellence alone, which means you must apply for it. It must have nothing to do with where you come from or what you study, et cetera.
I had a scholarship when I went to Yale, and I believe in that system. It is an arm's length system, as the foundation is supposed to be. I have reservations about this, however, because it is supposed to somehow pass through the hands of Quebec. I do not believe that it should.
The Sunday Times mentions ten universities. I have a degree from two of those, and I am involved with McGill as a senator. I connect with three out of ten.
Senator Bryden: Who are the McGill Continuing Education Students?
Mr. Butcher: There are roughly 7,000 adult students who are part-time, necessarily. In the case of McGill, there are a series of diplomas and certificates which they can receive, but none of them are recognized as being at the university in order to obtain a degree. Only 10 per cent of the continuing education students are in my own area of Cultural Studies. The rest of are in areas such as management. I am always in a minority.
Senator Bryden: If the distribution method for the scholarships were so that the provinces would designate the basis on which people would be chosen, in discussion with the foundation, and then supply a list of suitable candidates, would you have any objection?
Mr. Butcher: I do not mind supplying the list; I mind them paying any attention to it. I believe the process should be totally at arm's length. If you refer a list of people who would be chosen in Quebec, then it is not at arm's length. It is a very political situation.
Senator Forest: You mentioned your idea of a scholarship, and I think in academia that is the definition of a scholarship. It is given strictly on merit. The concerns here have been that a number of students have merit -- although they may not be at the top of the list -- and are in such dire financial need that they would not otherwise be able to attend university. The criteria are for students who have financial need. There are perhaps either moderate or very needy students who also have merit. A certain percentage of the funds would then be allotted strictly on the basis of merit. Do you have a problem with that?
Mr. Butcher: Philosophically, yes. I believe that bursaries and loans have to do with access and need, whereas this particular scholarship should be for excellence. That is what we are celebrating in 2000.
Senator Forest: Perhaps the percentage that is given on the basis of need should be termed bursaries, and the others referred to as scholarships.
Mr. Butcher: You are getting around the subject.
Senator Forest: Most people agree that this fund needs to take merit into account, but it also needs to consider the financial needs of students who might not otherwise be able to access post-secondary education.
Mr. Butcher: Merit has many different aspects. It is not simply a course grade. In other words, the way the Rhodes scholarships are decided has nothing to do with need. That is the way I see the Canada Millennium Scholarship Foundation. That is my idea. That does not mean that is what will happen.
Senator Forest: We are trying to address the financial needs of some students, but we also hope to make the funds available to those of outstanding merit, because I do agree that that is most important.
Senator Bolduc: Subclause 10(a) says:
the Board is knowledgeable about post-secondary education and learning in Canada and the needs of the Canadian economy; and
The scholarship would be given according to merit and need. In other words, what we have in the bill does not correspond to your idea of a scholarship.
Mr. Butcher: I am sure you are right.
Senator Bolduc: We heard yesterday from the student representatives that the rectors of the university, the principals of the universities in the province, the directors of colleges, the federation of the students at both levels, the union representatives representing teachers, college teachers and the university professors all think the bill should be revised. What do you say to that?
You said that there is no consensus, but all the people in education and the political parties in Quebec are all on the same side here.
Mr. Butcher: That is precisely why I am here: To contest that view. I have not read this morning's Gazette, so I do not know what happened yesterday. I am simply pushing the argument slightly in my direction because I disagree with the so-called consensus from Quebec. I disagree with it profoundly.
Senator Bolduc: When I say that, that includes Mr. Shapiro.
Mr. Butcher: I do not always have to agree with him, either.
The Chairman: Part of the argument the students put forward yesterday was that, since 1964, there has been a tradition of opting-out, as it were, from programs such as this one. They are concerned that that tradition is being broken by doing this. How do you respond to that?
Mr. Butcher: I am not necessarily in favour of tradition. It was tradition that said the Liberal party of Quebec should not run against Mr. Bouchard. The result of that was that I ran against Mr. Bouchard and came in as the runner-up -- only because the Liberals did not run, of course, I hasten to add.
The Chairman: You do not agree, then, with the concern that this sets a precedent. That is, since tradition was broken on this occasion, a similar tradition could quite readily be broken on another occasion for another reason?
Mr. Butcher: I do not see tradition as a higher level of government.
The Chairman: I would say it was an agreement which has been continued.
Mr. Butcher: Then it is time to change it.
The Chairman: Are you quite happy with the way the Canada Millennium Scholarship Foundation is set up, and the way it would be distributed? You do not have any concerns whatsoever?
Mr. Butcher: I have already expressed my concerns but, on balance, I am in favour of it.
The Chairman: Since there are no other questions, I thank you for your presentation.
Our next witnesses are representatives of the Canadian Bar Association, National Bankruptcy and Insolvency Section.
I believe the letter you wrote to the clerk has been distributed, as has your letter to Minister Martin.
Please proceed.
Ms Tamra L. Thomson, Director, Legislation and Law Reform, National Bankruptcy and Insolvency Section, Canadian Bar Association: Yes, we distributed the letter we sent to the Minister of Finance on this bill. Indeed, it addresses only one aspect of Bill C-36.
The Canadian Bar Association is a national association representing over 35,000 jurists across Canada, including lawyers, notaries, law professors and law students, representing all aspects of practice in law.
Amongst the primary objectives of the Canadian Bar Association is improvement in the law and in the administration of justice. It is in that rubric that we appear before this committee today.
I would like to ask Mr. Klotz to address the substantive issues in our letter to Minister Martin.
Mr. Robert A. Klotz, Chair, National Bankruptcy and Insolvency Section, Canadian Bar Association: Honourable senators, I am here to speak to you today on only one provision of Bill C-36, and that is clause 103. That is the clause that extends the non-dischargeability period for student loans in bankruptcy from the current two years to a 10-year period. My comments will first review the history of student loan treatment in bankruptcy. Then I will address our process concerns and finally our substantive concerns.
With respect to the history and the current status, before April of 1998, two months ago, student loans were treated no differently than other debts in a bankruptcy. They were extinguished by bankruptcy. There was some abuse, namely, the abuse of people who filed for bankruptcy when they really intended and planned to have substantial earnings, and had no other outstanding debts. Much of this abuse was caught by the discharge process in bankruptcy, because when one files for bankruptcy, roughly nine months later, one comes up, if any creditors object, to a court hearing where a judge determines the conditions on which the person may execute the bankruptcy. A judge could -- and still can -- order that the full debt be repaid if the debtor were manipulating the system. There are many examples in the case law of student loan bankruptcies where the debt was ordered to be repaid in full, or to some significant percentage exceeding 50 per cent.
The 1998 reform created a further disincentive to abuse. Under the current law, student loans are excluded from bankruptcy relief -- that is to say, they are not discharged by the bankruptcy if the bankruptcy is filed within two years of the individual in question ceasing to be a full- or part-time student. If the student does file within that two-year period, at the end of the two-year period, the student can apply to discharge the student loan if he or she can satisfy the court that he or she acted in good faith in filing the bankruptcy, and will be unable to repay the loan due to financial difficulties that he or she has and will continue to experience. Also in that 1998 reform is a mediation procedure when any creditor objects to the terms of discharge, or wishes a term imposed on the discharge.
Under our current law, the student loan issue -- the abuse issue -- can now be addressed in three forums. The first is the mediation forum, where the student loan department can ask for a mediation in which to address its concern, and strives to reach a consensual solution with the bankrupt debtor. The second is through the discharge hearing, where the student loan department, along with all of the creditors -- and perhaps in some of these cases there are no other significant creditors -- can attempt to persuade a judge that this bankruptcy is an abuse. They can argue that this debtor does not deserve the extinguishment of the loan because, after all, his or her future earning power is funded from the very education that was paid for through the loan. The third anti-abuse mechanism under existing law is this two-year hiatus period. If the bankruptcy is filed early, before the lapse of two years, the loan is not extinguished unless this hardship test can be overcome. Under this current law, these three anti-abuse mechanisms are available.
Clause 103 of Bill C-36 proposes to extend this period from two years to 10 years. If a student files for bankruptcy within, say, five years of his or her last part-time course, the student loan will not be extinguished. The student can only apply for special consideration to extinguish the loan after another five years has elapsed, so that a total of 10 years has elapsed from the last full- or part-time course. If the student does not succeed in getting the loan extinguished, the ex-student, at this point, would presumably have to file for bankruptcy again to extinguish it.
I will now comment on the process issues. Our section of the Canadian Bar Association, the Bankruptcy and Insolvency Section, first learned of this provision of the bill in late May, just days before it was passed by the House of Commons. We were surprised by this because of the extensive consultation process which underlay the bankruptcy reforms enacted in September 1997, and phased in as well in April 1998, to which I just referred.
The last round of bankruptcy reform was initiated in 1992 with the formation of the BIAC, the Bankruptcy and Insolvency Advisory Committee, which contained representatives of a broad cross-section of the insolvency and credit communities, as well as consumer groups. The legislation that resulted from that consultation was vetted and commented upon by most of the interested parties. That legislation provided for a further five-year review process, which is now underway.
By contrast, this amendment was passed in the other place with little or no consultation. We were unable to express our views in the other place. This is disturbing to us, because one of the problems with the last round of reform was the lack of statistical data on which to base consumer bankruptcy reform. Much of this lack applies to the student loan treatment in bankruptcy.
I would like to read some excerpts, if I may, from the Standing Senate Committee on Banking, Trade and Commerce report of Bill C-5, which was adopted by the full Senate. It commented on a variety of points that are applicable today. Unfortunately, I cannot cite page numbers because I am reading from the Internet version. The report stated:
Again, there is an implicit assumption that individuals are being manipulative, but there is little empirical evidence to substantiate this assumption. One possible effect of this change may be that individuals will be discouraged from using bankruptcy. The consequence of this will be creditors still unpaid, continuing problems of over indebtedness, stress and other social problems.
A few paragraphs later:
Bill C-5 --
-- which created the two-year non-dischargeability period --
-- would make student loan debts non-dischargeable where a bankruptcy occurred within two years after the debtor ceased being a full- or part-time student. Why should student loans be singled out for special treatment? Is there evidence that students are using the bankruptcy system to avoid their loan obligations?
This question was posed then, but it has not yet been answered.
Two paragraphs later:
Government witnesses agreed that there is very limited data that would contribute to an understanding of consumer bankruptcy. Industry Canada is currently financing a study that will profile debtors who have gone through the process of insolvency. This study will provide some very preliminary information about consumer bankruptcy. It will not, however, provide in-depth information needed for a comprehensive understanding of the causes and processes of consumer insolvency. The Committee expects the Department to use the results of its "pilot" study to undertake the much-needed extensive study. Such a comprehensive study, together with public debate, will be needed to permit a sound evaluation of public policy toward consumer bankruptcy. The same will be required for student bankruptcies.
A few paragraphs further down, the document states:
The Committee has already expressed its dissatisfaction with the process that culminated in Bill C-5. It is equally dissatisfied with the general treatment of consumer bankruptcy. It looks forward to a much more open consultation process in general for future amendments to the bankruptcy legislation and to a sound conceptual basis for the treatment of consumer bankruptcy, in particular. The Committee will work with Industry Canada officials to design the comprehensive study of consumer bankruptcy.
Despite the Senate's very clear concerns, we are here today without having had any consultation, and without statistical data.
In our view, it was inappropriate to make this change without data and consultation. I would pose the question: Why is this particularly important? In this regard, we can look to the U.S. experience. To some extent, they have replicated, before us, the reforms that are being contemplated here. Until 1976, the U.S. had the same treatment of student loans as we used to have -- that is, they were general debts. In 1976, the U.S. instituted a five-year hiatus period similar to our two-year hiatus period. In 1991, they increased that to a seven-year period. They have an exemption which a court may grant if undue hardship is proven.
This provision was recently the subject of an extensive review, along with the entire bankruptcy system in the United States. The report of the National Bankruptcy Review Commission was published on October 20, 1997. Section 1.4.5 deals specifically with student loans and this precise issue. This report recommended that these provisions be deleted. The reason for that recommendation is germane to our process concerns, because it centres on the fact that, in this area, the reality is different from the preconception. We have a preconception that there is much abuse, and that some students borrow lots of money, then file a manipulative bankruptcy to wipe out their debts. There is no doubt that this does occur some time. The question is: Does it occur much of the time, and how should this be weighed? In this respect, the National Bankruptcy Review Commission commented at some length. They said that the 1970 commission acknowledged that student loan abuse was more perception than reality.
They quoted a general accounting office data finding that only a fraction of one per cent of all matured student loans were discharged in bankruptcy, and that bankruptcy filings constituted only 3 to 4 per cent of student loan losses -- a rate that compared favourably to the consumer credit industry over all. When student loans were discharged in bankruptcy, that study found that debtors also had other significant debts, leading to the conclusion that those filings represented genuine financial need, not attempts to find an easy avenue to student debt relief.
I acknowledge that this is the U.S. experience. It is not necessarily the Canadian experience. However, it suggests that, if the reality was so much different in the United States than the perception, that might also be the case here in Canada.
The report continues:
According to empirical data on cases in 1981, less than 7/10 of 1 per cent of total debt for wage earners in all consumer cases was for educational loans.
It then addresses the undue hardship provision by stating:
The borrowers most likely to prevail in many courts --
Here they are attempting to prove undue hardship and, therefore, to extinguish the student loan. The report goes on to state:
...are those with the least possibility of being able to litigate the question. The risk of losing is also high. Failure to meet the burden of proof leaves the debtor with the student loan debts and substantial litigation expenses.
Further on it states:
As stated previously, the available evidence does not support the notion that the bankruptcy system was systematically abused when student loans were more easily dischargeable ...
The fear that soon-to-be rich professionals would line up for bankruptcy to do away with their student loans remains a questionable proposition judging by earlier experiences when student loans were dischargeable and by long-term data of influence on bankruptcy filings.
Surely we must review our own data to determine these issues. At the very least, in the U.S. they had their data. They could make an informed decision. Clearly, there was some abuse, and something had to be done about it. However, is what we have -- which is only two months old -- sufficient? If it is not sufficient, how severe must our response be without doing injustice to the innocents, namely, the good faith parties, the impoverished and the unemployed. This must be addressed soberly. The report continues:
The GAO reported the following defaulter characteristics: they had attended vocational or trade school; they had low incomes, with five studies finding that the majority of defaulters had incomes of $10,000 or less; the borrowers were unemployed at the time of default; they had borrowed small amounts; they had little or no financial support from others; many had minority backgrounds; some lacked high school diplomas; many did not complete the program for which they had obtained the student loans, often attending for one year or less.
There is more. In view of the Senate's report on Bill C-5 and the comments made in the National Bankruptcy Review Commission, it is inappropriate to make this change from two years to ten years without data and consultation.
Perception may vastly differ from reality. The truth is, we do not know the nature of the situation in Canada. That is why we have the five-year review that we thought we were in. That is why the Senate report stressed the need for this.
Finally, the issues raised by a ten-year hiatus period are quite different from those raised by a mere two-year hiatus period, which was the subject of extensive consultation. This takes me to the substantive concerns. These concerns will not be exhaustive. There are five concerns which I should like to note.
First, the bill discourages unemployed people from taking retraining courses or going back to school, even if they fund themselves. If they do this while they have an outstanding student loan, they will restart the ten-year hiatus period. They will then have to wait 10 years -- not from their last schooling, but from their fresh schooling -- in order to take some remedy under the Bankruptcy Act.
This is not an issue that arose in respect to the two-year period, because no one is too concerned about someone waiting two years after they finish school to go back for retraining; it is not a hardship. In the case of 10 years, however, it is unreasonable for someone to want retraining within that 10-year period. Should we not be encouraging that, rather than discouraging it?
Second, the bill presumes by its structure -- and, appropriately so -- that there are some people who act in good faith and who have no ability to repay their student loan now or in the future and that, for some people, it is appropriate to file for bankruptcy. That is the reason for the clause which provides for a court review after 10 years to determine if that is the case.
As passed in the other place, this issue can only be determined after 10 years have passed from the last full-time or part-time course. This keeps the honest, good-faith debtors in purgatory, without possibility of consideration of their good faith until many years later.
Why do we have the same 10-year period for this court determination of mercy as we do for the hiatus period for student loans being discharged generally? There is no reason for it. Under a two-year hiatus, fine; the issue does not arise. It is not a hardship to wait two years. It is appropriate to wait some period of time after your education is complete before someone finds a job. Why force someone to wait 10 years to demonstrate that they have operated in good faith, however; to show that they are impoverished, and to show that they cannot afford to put food on the table for their children?
There will be two hearings for these people: One for the general creditors, including student loans, when they get discharged from their bankruptcy; and the second at the end of the 10 years only for student loans.
In the U.S., these two hearings are done at the same time. They do not require a seven-year gap for this hearing. After all, the debtor is bankrupt. Why force a bankrupt debtor to have two hearings? There is no reason for the 10-year waiting period. This provision, if it is appropriate, can quite easily be set at two years or five years.
The third concern is that this provision encourages double bankruptcy. I might indicate to the honourable senators that one of the thrusts of bankruptcy reform is to try and prevent recidivism in bankruptcy. That is why the 1992 reforms brought in debtor counselling so that people could manage their money, and thereby avoid coming back and overburdening the system. If they have been unfortunate due to their own fault the first time, they will learn tools to help avoid these problems the second time. This reform encourages double bankruptcy; the first to take care of their creditors generally, and the second to deal with the one that gets through the net -- that is, student loans.
Our concern is that this amendment will encourage students or ex-students caught in this predicament to join the underground economy, contrary to the goal of rehabilitation of debtors as productive members of society. This is one of the goals of bankruptcy law. Unless you have a bankruptcy system, you get people working under the table, making their income and keeping it from their creditors.We use tax income that way, and we develop a sense of losses that way. I am not saying this problem is widespread, but it is something that legislation should discourage, and it is something at which bankruptcy is aimed. This amendment might encourage that.
Most Canadians, therefore, most bankrupt Canadians, are honest. Is this the appropriate way to weed out the bad apples with the residual unfairness and penalty being placed against all those people caught in this predicament, whether they acted in good faith or not? We just do not know that this is the proper balance.
In conclusion, we recognize the government's intention in extending the two-year period to ten years, and that intention is to prevent abuse of the system. We agree that abuse must be prevented. We question whether the extension of this period is the correct way to balance the problem of abuse inflicted by some against the injustice to many. We do not have the data to assess this, and we are concerned that this current approach is like using a sledgehammer when a fly swatter might do.
The Chairman: You are aware that one of the major banks has withdrawn from the Canada Student Loans Program?
Mr. Klotz: That may be.
The Chairman: I ran into two board members, and we gave them a hard time about it.
Senator Bolduc: You wrote to the minister on May 27, and explained the main thrust of your point of view. Have you had an answer to that letter?
Mr. Klotz: No, we have not. We did not anticipate an answer prior to this hearing.
Senator Bolduc: The case is overwhelming, and you are the specialist on the situation in the Canadian Bar. We have a whole file of people from whom we have heard, and we will hear more of them later. They all say we should take that clause out.
Mr. Klotz: Yes.
Senator Bolduc: You did not get any answer from the minister.
Mr. Klotz: If I may make one comment about the letter. The letter was written fairly promptly after we learned of this, and there was a very quick pace. There is one anomaly in the letter, because we understood that the two-year period in the last round of legislation corresponded to the two-year hiatus normally granted to student borrowers. I have read the minister's speech in the other place when he introduced this legislation. He indicates that the extension of the hiatus period to 10 years is intended to complement new and more lenient treatment of student borrowers and interest provisions on student loans. I understand the intention of the government is to make borrowing more lenient but, at the same time, to have a hammer for those who abuse it. I can appreciate that.
On the other hand, I still stand by my comments that it has not been established with data, and it may not have been thought out in its details.
Senator Bolduc: The intention of the minister to be more human with the students has not materialized in any formal way?
Mr. Klotz: I have not seen that in Bill C-36. I do note that there are provisions in clause 99 to prescribe circumstances in which a loan may be denied, or an interest-free period may be terminated. I read that as part of the minister's intention to somehow change the system so as to allow more leniency.
On the other hand, that is not a statutory matter -- that is discretionary -- and we do often have the scenario. Perhaps the representatives of the insolvency practitioners could speak to this with more assurance than I have. We do have the scenario of individuals who, indeed, are in a bad way and yet cannot convince a particular collection officer in student loans that they are in good faith. In our view, there needs to be a remedy for that, for those cases where an injustice is being sustained.
The Chairman: The parliamentary secretary was here and he said that interest is forgiven for up to five years.
Senator Joyal, would you like to respond?
Senator Joyal: I will touch on that issue, but I did not wish to interrupt Senator Bolduc's line of questions.
The Chairman: I would like that brought out.
Senator Joyal: I will return to that issue.
Senator Bryden: Some of this may address the issue which you just raised, Mr. Chairman. The background, at least as provided in the materials that we received from the department, indicated that part of the reason for the concern is that bankruptcies have risen an average of 38 per cent per year over the last five years, while loans have only risen by 14 per cent. There is a dramatic disproportion in the bankruptcies. Just to put it in context, in 1996-97, bankruptcies of student loans cost the Canadian taxpayer $105 million. It is not pocket change that we are talking about here; these are real figures.
As a result of what this bill is intended to implement, everyone who pays federal or provincial student loans will now receive a tax credit for the interest that they pay each year, whether it is federal student loans or provincial student loans. Those with financial difficulties will receive extended interest relief, and an extended amortization period. If it is still a hardship, there may be a reduction in the loan amount after five years. That reduction would be so that payments would be no more than 15 per cent of a person's earned income.
The department's position is that these new provisions -- and do I not wish to go into detail -- are intended as an alternative to bankruptcy for the students. Therefore, their position is that it is only unfair, having tried to deal with the specific situation, to then exempt them from the overall opportunity to benefit from two remedies instead of the specific. I wonder if you would comment.
Mr. Klotz: This is the point I was trying to address when I commented on my letter. My letter does not comment on the ten-year period, or on the extended relief, and the reason for that is that I did not see it in the legislation.
That was not in the legislation, and that gave me some concern, because policies can change at the same time as legislation. However, policies can change more easily without legislation.
Our concern is that we now have a 10-year period locked in. What if the student loan policy changes? What if the attitude of the collectors changes? What if there is a cutback in the exercise of discretion by fiat in a department? The legislation is locked in, and the inability to have a review to show good faith is not there until the 10 year period has elapsed.
I fully agree with the approach that says that, if bankruptcy ought not to occur because of lenient collection procedures and mercy shown by the student loan department itself, then bankruptcy would be abused. That can be caught under existing legislation, as well as under what is being proposed. It can generally be caught at the discharge hearing.
It is my concern first, that the policy may change, and second that the person who needs the benefit of the exemption created by this section cannot obtain recourse to it until the 10 years has elapsed.
I mentioned an example like this in the letter. It was about someone who goes into business, and the business fails. This is the kind of person whom bankruptcy relief is designed to help. If that person has a student loan, the issue of whether bankruptcy is appropriate for all the other reasons is not addressed until the 10 years have gone by. There is no need for that.
Senator Bryden: I am interested in your comment that the two-year period is acceptable. You then said that a five year might not present a problem. You believe, however, that a 10-year period is a problem.
Mr. Klotz: I am speaking specifically, senator, about the delay before one can apply for some kind of exercise of mercy by the court. There are two periods, in effect, with which we are dealing. One is the hiatus period for discharge; the other is the time one has to wait before applying for mercy.
Senator Bryden: Or applying for bankruptcy.
Mr. Klotz: Let me backtrack for a moment. Perhaps I have not made myself clear.
If you file for bankruptcy within that 10-year period, then the student loan is not wiped out. However, at some point you are entitled to apply for special mercy for student loan relief -- in effect, mercy to the bankruptcy court. There is a test set out in the proposed legislation. It is not in Bill C-103. It states that the court must be satisfied that the bankrupt has acted in good faith in connection with his or her liabilities under the loan. It also says that the bankrupt has and will continue to experience financial difficulties to such an extent that he or she will be unable to pay the liabilities under the loan. That court determination can only be requested under this amendment 10 years after the last class, so to speak.
When I said that the two-year period is acceptable, and that I could understand the five-year period, I was referring specifically to the time period that must elapse before someone can apply for that exercise of student loan mercy from the bankruptcy court. That is to say, you could have a 10-year hiatus period in which the loan could be discharged, and, at the same time, a lesser period for the right to apply for relief from it under the bankruptcy legislation. I do not think those two must be connected. They were connected in the original legislation, which is now two months old. Now that one period is increasing to 10 years, the other does not need to go up to ten. It is not necessary. Nor, in my view, is it appropriate.
Senator Bryden: The point I am making is this: If a five year period is better, then would a six-year period get under the wire? It is a matter of your judgment. In your judgment, what you are saying is it could be a shorter period than 10 years for this purpose. Obviously, government policy has determined that, in its judgment, they need 10 years. At this stage, it is a difference of opinion as to the period of time.
Mr. Klotz: I recognize this as a political question, provided that the matter has been fairly considered in its ramifications.
Yes, it is clearly a decision that is within the prerogative of the other place, and government policy.
Senator Bryden: I am somewhat concerned about your position that a person would make a determination whether to continue with post-secondary education or not based on when this application can be made.
Mr. Klotz: Yes. It seems to me that it works two ways. First, the person might consider this issue when deciding whether or not to take the class, or when to take it. Second, if the person does take the class, he or she will be penalized for it for the next ten years. Whether the person changes his or her conduct in advance, or whether he or she is simply penalized afterwards, are really two sides of the same problem. Why should these people be penalized afterward, even if they did not realize beforehand that they should change their conduct?
Senator Bryden: As I carefully read the bill, the budget provisions in the speech, and the notes that were provided to us to help us understand it, the intention is clearly to deal with two things. The first goal is to screen out obvious difficult situations at the beginning. By the way, I think there was a recommendation in a letter -- perhaps one of yours -- that that should be done. That is to say, people should go through some kind of credit check before they obtain a student loan. Currently, under the law, if you need the money, you get it. It does not matter if you have never paid back a debt in your life. That issue is being addressed to some extent in this bill.
The other issue is the ability not only to adjust interest rates but, in fact, to eliminate them for up to that 10-year period. The government can gratuitously, or voluntarily, reduce the amount of principal of the loan, certainly down to what would amount to 15 per cent of the person's income. This seems to be the manner in which it is attempting to target the specific situation of student loans, and the hardships that may arise from them, as opposed to running the students into the real world of the bankrupt and insolvent business.
I suppose I understand where you are coming from. I just wanted to make it clear that this is not because government policy is not sensitive to the issue or to the students' concerns. It may be wrong-headed. However, after consultation with the provinces in relation to student loans, this is what they have come up with as a solution. We must then judge between your solution and what the government has come up with.
Mr. Klotz: I agree that the context of your comment is generally correct. I agree that the intention is a fair and appropriate one. The concern we are addressing is simply whether it is a wise one. As well, why could there not have been both consultation and data available before making what may be a very wise decision if, indeed, this decision is the correct one?
[Translation]
Senator Joyal: I would like to come back to this question of figures you mention. Have you been in touch with the officers who administer the Canada Student Loans Program to find out how much students owe versus the issue of bankruptcy? You say there are not any figures, but my colleague mentioned some. There has to be someone in the student loan administration system who keeps accounts of who does not pay and who has filed for bankruptcy, and so on. Considering how easy it is to computerize everything nowadays, I think there have to be some figures somewhere.
To my mind, your claim that there are not any statistics seems to be a bit of a blanket statement. I think there have to be some. I am convinced of it; the Department of Finance gives us a figure showing a reasonable increase in the number of petitions in bankruptcy in recent years.
I am a bit puzzled in the face of such an absolute claim that there are not any statistics. Maybe they are not complete, but I have a hard time accepting that claim.
[English]
Mr. Klotz: I am not the only one who says this. The Senate, in its report on Bill C-5, also made that statement after hearing witnesses and having extensive briefing from the government. I the provisions contained in that report.
Statistics were not invented in 1997; they were invented before then. Presumably, if those statistics were available, they would have been presented to the Senate before it made a report saying that there are no statistics. The government witnesses concede this.
[Translation]
Senator Joyal: In other words, you took a statement from a report and used it for yourself, but you did not make any attempt to try and find some statistics?
[English]
That is what I want to get from you. You read a report and concluded from it that this conclusion is still valid today. You did not, on your own initiative, contact any responsible people in the administration of the loans program to learn whether there are more statistics now than there were two or three years ago. Am I correct in stating that?
Mr. Klotz: No, senator, in my view you are not. Since we learned of this amendment in late May, we have scrambled to learn where it was in the political process, to try to get consensus among our membership across the country on what approach we should take on this topic, to put together a letter to the minister to address our concerns, and to study it in as much detail as possible.
I have personally maintained my contacts with Industry Canada and particularly with the Office of the Superintendent of Bankruptcies. I have reviewed everything posted on its website, including a general study that does not focus on the student loan issues. I am quite interested in this area. Until approximately two weeks ago, however, I had no idea that this matter was coming up.
We have that review process built in. We are involved in designing that process. We want to be involved in the studies that are being designed.
On behalf of the Canadian Bar Association, I have written to the Minister of Industry indicating our intention to be involved in these issues, and the design of them. We were advised that these matters were underway; we were not advised that they had reached the stage of legislation being proposed in the House.
Perhaps I can be faulted for appearing before you without having, within the past 14 days or so, contacted the student loan department. On the other hand, I have not been inactive, senator. I have done what I felt was appropriate, and I have done what I could to address what I considered to be an emergency.
Senator Joyal: I understand that. I do not wish to be harsh with you. I am only trying to find out where we can find the figures if we decide to pursue this matter further.
Some witnesses have said that this provision could be an infringement upon the Charter of Rights, because it would create different classes of citizens. Section 15 of the Charter provides for equality of law and, as a result of this provision, some citizens would benefit from the Bankruptcy Act, and some would not.
I understand that the principle at stake is the same for a period of two years as it is for one of five years. It is not an issue of lengthening or shortening the period. The principle is whether this distinction would withstand the test of the courts.
I understand that in the United States where there is, of course, a constitutional right to equality before the law, this distinction has existed since approximately 1976, and that we have had it since Bill C-5.
The first question of the bar must always be whether proposed legislation meets the test of the Charter. Did you review this issue in that light?
Mr. Klotz: If I may, I will first respond to the previous question and complete the comments I wished to make.
You asked about statistics. I do not know what statistics you have been given. For example, do they include a study of how student loan discharges have fared at discharge hearings under our current law? That statistic would disclose whether that anti-abuse mechanism is sufficiently effective.
Do those statistics show how the new two-year hiatus period is working in practice? I suggest that they do not, because no bankruptcy discharges have come up in two months. It will take at least nine months from the first bankruptcy filing after April 30 for that issue to come up. There cannot be any statistics on that issue yet; not even any anecdotes.
Do those statistics give a profile of the student loan filer; do they ascertain whether the vast majority of filers are honest debtors, and do they quantify in some way the proportion of those who abuse the system and get away with it?
I keep in touch with the statistics and the studies as best I can. I do not claim to have all the studies. I certainly do not have the government studies. However, I do my best. I have not seen those statistics, and I do not think they can have come into existence since the Senate dealt with this, because that is what the five-year review process was for. Perhaps I am a bit stung at the suggestion that I have not done my homework, but in certain of these areas the homework cannot have yet been done.
In terms of the constitutional aspects, yes, the Constitution is at the forefront, although not usually in bankruptcy matters. I have not investigated this question, and I am not in a position to comment on it. I would leave that to a constitutional scholar or a constitutional lawyer -- I am neither.
Senator Joyal: You referred to the American experience. Does a provision similar to the one that we would have if this bill were implemented exist in the American system? Could someone in that system apply for an exemption from interest payments for up to five years?
Mr. Klotz: I am not aware of that. However, I will speculate for a moment. Knowing the political process in the United States, at least from afar, it is likely that, in order to sell the five- or seven-year grace period, it would have been tied in with some form of measure to give relief. However, I do not know that for a fact.
Senator Joyal: Clause 99 of this bill provides for a review of the overall amount of debt, so that a person can still get fair consideration on the basis of his or her capacity to pay. The overall debt can therefore be reduced according to financial situation. Do you know if such a system exists in the U.S.?
Mr. Klotz: I cannot answer that one way or the other.
Senator Joyal: I understand that you recognize the importance of the principle of establishing a period during which a person cannot be relieved of the responsibility for repaying a student loan. In recent years in Canada, and particularly through the last recession, there was an overall increase of petitions for bankruptcy in Canada. There was an increase in that even in the last month, if the statistics I heard are correct.
I do not wish to be harsh on students. In fact, the overall thrust of this bill is to help them. However, having been a student myself, I know that the story could circulate among students that when you finish university you can file for bankruptcy, wipe your slate clean, and start again.
This is certainly an issue which the legislation wishes to address because of the overall increase of petitions for bankruptcy in society.
It is a trend, and that trend is not always justified by economic conditions although a large number of students still cannot find jobs when they graduate. That is a reality recognized by everyone. The government tries to address that. It certainly is an aspect of reality which must be addressed in a fair and reasonable way for the taxpayer because, at the end, the taxpayer pays the $100 million increase in payments. It is not taken out of any other purse. Money which does not go into the system cannot be given back to the provinces to enrich other programs or to support the education system. There is a net loss.
This is part of the government responsibility. It must be addressed in some way, so that the system can be improved. The money should be used for the real objective of improving education in Canada in terms of quality and access. We cannot simply leave an easy way for students to get out of their responsibility by filing a bankruptcy petition. This is a very important issue.
Mr. Klotz: You must ask about the cause of the non-payment of someone who is bankrupt. Why does the student loan not get paid? Is it because of the bankruptcy, or is it because the person has lost his or her job, and is unemployed? When we look at the amount of money which is being lost through bankruptcy, is that entirely or substantially the fault of the bankruptcy system, or is it perhaps a reflection of unemployment in various areas of Canada?
Senator Lavoie-Roux: Is it because the person does not have a job?
Mr. Klotz: The system does not necessarily give rise to that, and changing this rule will not necessarily change that. There will still be unemployed people. There will still be people who are not paying. That is the reality.
Second, one statistic mentioned was the 38-per-cent rise in bankruptcies and the 14-per-cent rise in student loans. I have reviewed studies that look at that rise in bankruptcies. It is not just 38 per cent in one year. There has been a steady increase. They have contrasted that with the increase in consumer credit generally, through credit card, bank loans and so on, and found a very significant correlation between the two.
In other words, bankruptcies are still at the same level in relation to the amount of credit that people are using. The fact is that, as a social reality, Canadian citizens are generally using more credit and, as a result, they are utilizing their bankruptcy relief more often.
The interesting statistic is that student loans -- and I am fresh to this statistic -- do not appear to have increased in the same way that consumer credit has. That would suggest that better lending policies have been exercised by the student loan people. They are not having as much bad credit as credit card lenders and banks. That is a good thing, and an appropriate thing. That would mean a retrenchment from the undisciplined lending which has been described where no credit check is made, to a more disciplined lending process with credit checks made before the advancing of student loans.
I am advised that a 38-per-cent increase is consistent with the increase in credit and that the figure of 14 per cent is a good one. I am delighted that it has only increased by 14 per cent, when general borrowing has increased by so much more. Perhaps it means that student loans are not that available, and many people are borrowing from other sources to compensate for the lack of student loan availability. I do not know, but I do not think it necessarily answers the need for statistics.
Senator Beaudoin: The question asked by my colleague Senator Joyal has piqued my curiosity. Under the Bankruptcy Act, the application of the Charter of Rights does not give rise to many cases. Of course, everyone is equal under the law, and the law applies in the same manner to each person or class of persons. However, there may be some exceptions. There is no case, you say, about bankruptcy? The jurisprudence is very thin? Is that the case?
Mr. Klotz: That is the case. Let me start by saying I would be delighted to have a constitutional case in bankruptcy, and I have been looking for one for a long time.
Senator Beaudoin: I understand your interest.
Mr. Klotz: I would be delighted. In my experience, speaking personally from my bankruptcy practice, the issue has only come up twice in theory. The first had to do with court delays in getting a discharge hearing. At one point it was 15 months in Toronto Bankruptcy Court, and the idea was floated about that perhaps this was a deprival of due process, just like the Ascov decision in getting a criminal case heard. That was a bit subtle.
There is an impending constitutional issue coming up in the definition of spouse in the Bankruptcy and Insolvency Act. It is undefined. It probably means "married spouse" and perhaps you are familiar with the headlines about cases which say that restricting rights to married spouses is unconstitutional, because of the deprival of rights on the basis of sexual orientation. That is another of the constitutional issues.
Generally, bankruptcy is a business statute. It is primarily concerned with property, which is not protected in quite the same way by the Charter of Rights.
Senator Beaudoin: Would you say that the application is always uniform?
Mr. Klotz: The application of what?
Senator Beaudoin: The application of the law -- of equality before the law. The students are in a very different category in a sense. However, they are subject to the same laws.
We do have examples in our legislation where the application of a statute is not exactly the same for everyone. This is the case for the Young Offenders Act, and other such categories. In the field of students and loans to students, I am not aware of any different applications, except perhaps for this question of bankruptcy for ten years. It is obvious that the application of the law is not the same in that case for students as it is for the other people.
Mr. Klotz: I agree that there is a distinction. As to whether that is constitutionally permissible, I am not the person to ask, senator, because I do not know. Anything I say would be speculation.
Senator Beaudoin: According to the figures I have seen, students represent 3 per cent, and other people represent about 6 per cent. They are not in a delinquent category at all. They are doing even better than some others in society.
Mr. Klotz: If it is discriminatory, one then tries to determine whether it is justifiable in a free and democratic society. That would be the second threshold. There are certainly some arguments, such as those which we have been hearing from Senator Joyal, which could be made in response.
Senator Beaudoin: I do not make any affirmation. I just try to determine whether there is a problem. If the law applies differently to students in some cases, it must be justified, of course. You are not aware of any cases on this, then?
Mr. Klotz: There are no specific bankruptcy cases dealing with this issue. Students have been treated differently only recently -- it is a month now -- so there is nothing remotely connected to this issue of students and the Charter of Rights.
Senator Beaudoin: What about in the United States?
Mr. Klotz: If it is possible to challenge a law in the United States, I am sure it has been challenged, from my sense of their litigation system. Nothing I have reviewed, including a published article from one of the learned authors on their student loan provisions, has suggested that it has been challenged constitutionally. However, it is considered de rigueur to indicate if there might be a Bill of Rights challenge, and I did not see it noted in the article.
If I do come across something pertaining to this issue, I will endeavour to provide it to you because of your interest.
Senator Forest: I have some concern about changing a law which has only been in place for such a short period of time, unless there is some statistical evidence that it needs to be changed.
What was the date on the report from the Banking Committee?
Mr. Klotz: Ms Thomson tells me it was early in 1997, and that rings true to me.
Senator Forest: The concern, then, was that there was not a lot of statistical data on which to base the case. The present law has been in force for such a short time, and there has been no opportunity to review how that is going.
Mr. Klotz: We can say two things. Clearly we have no court decisions under this new provision, and we will not have any court decisions until two years from the date that the law came into force. If someone quit school on that day, and went into bankruptcy the next day, the first court proceeding would be two years from April 30, 1998.
At this point, all we have is anecdotal information about knowledge of this new provision, and whether it has the effect of discouraging bankruptcies. After all, one of the purposes of legislation is to change attitudes, and perhaps change students' attitudes. One of the learned senators commented that some students will irresponsibly say, "I will file for bankruptcy." This legislation of two years is intended to change those attitudes.
I think the attitude is changing, in the sense that trustees are aware of this issue, they discuss it with students when they file, and they are frankly very aware of this pending amendment. They also know that many students are now considering filing for bankruptcy before this comes into force, because otherwise they will have to wait the rest of the ten-year period.
There is greater awareness. In that sense, we do have some anecdotal information that there has been some effectiveness there, but nothing upon which to base any kind of educated decision, in my view.
Senator Forest: During the hearings of the committee on post-secondary education, on which Senator Lavoie-Roux also served, we certainly heard significant anecdotal evidence from students with respect to the issue and to their financial difficulties right across Canada. Many of the provisions in this bill have been geared toward alleviating those circumstances. As Senator Joyal mentioned, there are provisions to assist the students.
Nevertheless, I am concerned about this. A change from two to ten years is a significant one, and I think we would want to be sure that it was needed on the basis of some statistical evidence.
You say that the Banking Committee's report was tabled in 1997.
Mr. Klotz: To the best of my recollection, yes.
Senator Bolduc: I have 1998 statistics here from Industry Canada about the small business loans program. The default rate is 6.38 per cent. I understand that the students who have loans in the province of Quebec, at least, have statistics of 3.1 per cent bankruptcy. There is half as much bankruptcy in the student loans in our province than in the business loans. How is it that the general law applies, and they put in ten years?
Mr. Klotz: There is no real answer to that. However, just to give some qualifications to that, it is difficult to balance apples and oranges, and business bankruptcies are a different kettle of fish, to some extent, than consumer bankruptcies. That being said, some business bankruptcies -- for example, the bankruptcy of a professional -- are in fact considered to be a consumer bankruptcy because it is an individual who is filing. While there may be some slight correlation, they are two different animals.
The question is what you do with that figure; what you make of it. Is it the result of an intentional policy to grant loans to people who are poor credit risks in order to make education available to Canadian students? Perhaps that would justify a higher loss ratio, an intentional one. Is it the intention to lend on a normal commercial risk basis, in which case you can bring the 3 per cent down? I do not think so.
The statistics are important, but they are specific to the student loan issue that must be examined. Perhaps you agree that the statistics might not be so bad as to warrant such a serious remedy. We just do not know.
Senator Bolduc: I understand also that the mode of reimbursement by the students is not based on the income of the various professions. We know that doctors and lawyers and some dentists can repay fairly quickly, while that may not be the case for philosophers or some others. That aspect is not covered here. However, I mention that because I think it is important.
Mr. Chairman, I have also a point of order. Since we heard the students yesterday, I have received documentation from rectors, from the principals of various universities in the province of Quebec, including Mr. Shapiro, who was the chairman of the coalition in that situation.
Senator Lavoie-Roux: He is also the Chairman of the University Rectors of Quebec.
Senator Bolduc: I would like those documents to be tabled so that my colleagues can review them. I think they give an idea of the amplitude of the coalition.
Senator Lavoie-Roux: And of their objections to that bill.
The Chairman: We will ensure that they are distributed to the committee members.
Your recommendation is that we no proceed with this part of the bill until there is further study, and until statistical data are available?
Mr. Klotz: Yes.
The Chairman: Our next witness is Doug Maracle, Grand Chief of the Association of Iroquois and Allied Indians. Please proceed with your opening statement, if you have one, and following that we will go to questions from the committee members.
Mr. Doug Maracle, Grand Chief, Association of Iroquois and Allied Indians: We thank you on behalf of the Association of Iroquois and Allied Indians for giving us an opportunity to raise our concerns over Bill C-36, in particular over Part 4. We are not here to interfere with the business of the chief and members of the Kamloops Indian band, but to protect our rights for the people in our communities.
We are a sovereign and self-determining people. Our aboriginal rights predate the creation of Canada, and are at the core of the unique aboriginal-Crown ownership. Our treaties were on a nation-to-nation basis between First Nations and representatives of the British Crown. We entered into the treaties as free and independent nations, with our own well-defined territories, laws, governments, languages, spiritual beliefs and traditions. All the ingredients necessary for identifying fully functioning, independent nations were present, and we were recognized as such by various European states.
At the international level, Canada is a signatory to three international documents which expressly support the right of all peoples' self-determination, namely the Universal Declaration of Human Rights, the International Covenant of Civil and Political Rights, and the International Covenant of Economic, Social and Cultural Rights.
Our association feels that this clause contravenes the concept of sovereignty and self-determination, because it agrees to follow laws and regulations that have been enacted by a federal government -- for example, the Excise Tax Act -- rather than being based on any form of our traditional concepts. Bill C-36 will open the door to undermining our aboriginal and treaty rights to tax immunity. It will also remove the limited protection we have to tax exemption under section 87 of the Indian Act.
We have concerns about proposed section 59(1), which reads in part:
Notwithstanding section 87 of the Indian Act, the council may make a by-law imposing a direct tax in respect of the sale of alcoholic beverages, fuel or tobacco products on a reserve to be collected pursuant to an administration agreement entered into under subsection 60(1).
(2) For greater certainty, except with respect to tax imposed by a by-law made under subsection (1), nothing in that subsection affects the application of section 87 of the Indian Act.
(3) Moneys raised pursuant to a tax referred to in subsection (1) are not Indian moneys within the meaning of section 2(1) of the Indian Act.
Our concern is that section 87 of the Indian Act, which reads:
Notwithstanding any other Act of Parliament of Canada or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely;
(a) The interest of an Indian or a band in reserve or surrendered lands; and
(b) The personal property of an Indian or band situated on a reserve;
(2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph 1(a) or (b) or is otherwise subject to taxation in respect of any such property;
(3) No succession duty, inheritance tax or estate duty is payable on the death of any Indian in respect of any property or the succession thereto if the property passes to an Indian, nor shall any such property be taken into account in determining the duty payable under the Dominion Succession Duty Act, chapter 89 of the Revised Statutes of Canada, 1952, or the tax payable under the Estate Tax Act., on or in respect of other property passing to an Indian. R.S., c. 1-6, s. 87, 1980-81-82-83, c. 47, s. 25.
Section 87 provides for the tax exemption for a band, and also for each individual member of the band. Therefore, as an Indian within the membership of my band, the band cannot legally move unilaterally to negotiate my statutory rights away without my consent.
What proof do the honourable members have that the individual members of the Kamloops First Nation have consented to the extinguishment of their statutory right to a tax exemption on a reserve?
Section 87 of the Indian Act also makes provisions for making by-laws for raising money under section 83, which reads as follows:
83(1) Without prejudice to the powers conferred by section 81, where the Governor in Council declares that a band has reached an advanced stage of development, the council of the band may, subject to the approval of the Minister, make by-laws for any or all of the following purposes, namely;
(a) the raising of money by;
(i) the assessment and taxation of interests in land in the reserve of person lawfully in possession thereof, and
(ii) the licensing of business, calling trades and occupations;
(b) the appropriation and expenditure of moneys of the band to defray band expenses;
(c) the appointment of officials to conduct the business of the council, prescribing their duties and providing for their remuneration out of any moneys raised pursuant to paragraph (a);
(d) the payment of remuneration, in such amounts as may be approved by the Minister, to chiefs and councillor, or out of the moneys raised pursuant to paragraph (a);
(e) the imposition of a penalty for non-payment of taxes imposed pursuant to this section, recoverable on summary conviction, not exceeding the amount of the tax or the amount remaining unpaid;
(f) the raising of money from band members to support band projects; and
(g) with respect to any matter arising out of or ancillary to the exercise of powers under this section.
In our reading of this section, there exists no provision to apply a direct tax to the sale of tobacco, gas or alcohol.
Further to clause 59, the "Publication of by-laws" section raises questions as it states that "no by-law shall be invalid by reason of a failure to make such publication." Why is the legal procedure that is mandatory for municipalities to publicize by-laws being waived for the First Nations under the proposed legislation?
Proposed section 60(1) of the legislation contains the terms of the agreement between the Kamloops First Nation and the federal government. It states:
60(1) Where the council has made a by-law imposing a tax under this Division, the council may enter into an administration agreement within the meaning of subsection 2(1) of the Federal-Provincial Fiscal Arrangements Act with respect to the by-law.
(2) Where an administration agreement has been entered into.
(a) Part IX of the Excise Tax Act (except paragraph 240(1)(a) of that Act) applies for the purposes of a by-law made under subsection 59(1) as if the tax were imposed under section 165(1) of that Act;
(b)where a person does anything to satisfy a requirement of the by-law that would satisfy a corresponding requirement of Part IX of the Excise Tax Act if the tax imposed under the by-law were under subsection 165(1) of that Act, the requirement of the by-law is deemed to have been satisfied;
(c) for greater certainty, every person who is a registrant for the purposes of Part IX of the Excise Tax Act is a registrant for the purposes of the by-law; and
(d) any proceeding that could be taken under any other Act of Parliament in respect or the tax imposed under subsection 165(1) of the Excise Tax Act may be taken in respect of the tax imposed under the by-law.
61. No tax is payable under 165(1) of the Excise Tax Act with respect to a supply in respect of which a tax referred to in subsection 59(1) is payable.
It seems the above provision is adequate to recognize the Kamloops First Nation by-law.
We would like to refer you to division two, section 66, which are the proposed amendments to the Excise Tax Act. Could we get clarification as to why it is necessary to amend the national Excise Tax Act to accommodate one First Nation, when provisions have already been made in the agreement?
Based on the above information, we feel that the individual First Nation person's right to tax exemption is being compromised by the proposed legislation. We formally request that this committee not give its approval to Bill C-36 if it includes Part 4.
Thank you very much for the opportunity to present our brief to you this morning. We wish to apologize for not having it translated into the French language, but it was translated into neither Mohawk nor Ojibwa.
Senator Lavoie-Roux: Thank you for coming to meet with us this morning. I am not too familiar with this part of the bill, but I should like to ask you one thing. To your knowledge, was there any consultation with some of the First Nations before this bill was drafted?
Mr. Maracle: Not to my knowledge. That is precisely the point we make in our presentation. Under the Indian Act, it is an individual right to have tax exemption, not a collective right.
Mr. Chris McCormick, Association of Iroquois and Allied Indians: Our association only found out about this bill on June 9. We were called by the Union of British Columbia Indian Chiefs, and told about it.
In watching the Speech from the Throne, and in reviewing the publications that were sent out at the time of the budget, nothing contained in that information pertains to this particular piece of legislation, namely, Part 4. Further, it is my understanding that only one First Nations person made a presentation to the standing committee through its three readings. That is the extent of the consultation, to our knowledge. I do not know if any other First Nation people have been before this committee.
Senator Lavoie-Roux: Thank you for that information. I am glad you brought our attention to this matter.
We are meeting with the Minister of Finance next Monday, so I will have an opportunity to question him about this. In the meantime, I will try to better understand all the ins and outs of this part of the bill, which obviously contravenes the arrangement you have with the government in terms of taxation, income, and so on.
Mr. Maracle: I have been an elected official in my own Ontario community for the past 19 years, and a number of by-laws have been passed -- a dog by-law, a dumping by-law, et cetera -- and the only process is to draft the by-law, and it is the Minister of Indian Affairs who yeas or nays it. Why does this particular by-law end up at this level of the Canadian government? It is totally inconsistent that one such as this receives all this attention, when one that is equally important to a community that I was personally involved in -- a truancy by-law for students -- was disallowed by the Minister of Indian Affairs.
You cannot pass a by-law when it affects your own people. One that has an assimilationist attitude of bringing these Indians in line with the rest of Canada is treated differently, however. Something is wrong with this system that we are being pulled into.
Senator Lavoie-Roux: That gives me insight into this part of the bill.
The Chairman: Has the government or anyone explained to you the reasons why they are doing this?
Mr. Maracle: No. As Mr. McCormick stated, we simply found out about this on Tuesday morning when the Union of British Columbia Indian Chiefs phoned our office in London.
The Chairman: Perhaps someone on the government side could explain why the government is doing this. Is that something we should ask the minister?
Senator Cools: What the witnesses are saying has taken me a little bit by surprise. I submit to the committee that this could be one of the first or second issues that we raise directly with the minister. I am certain that some of us will bring your concerns to the minister forthwith. We could even ask the minister to respond directly, so that we give the minister some notice that your matters have been raised. I am sure that you would wish the minister to deal with what you said.
The Chairman: It would be appropriate to request that the minister respond to the three very topical issues that they are discussing.
Senator Cools: Absolutely.
The Chairman: We agree with that?
Some Hon. Senators: Agreed.
The Chairman: We can then start off on the right foot, be very specific, and not go off on tangents.
Senator Cools: I support that, but I was also trying to assure the witnesses that those of us on the government side would make sure that the minister heard their concerns.
Mr. Maracle: It would be further appreciated if in fact you could encourage that minister to meet with us, rather than just correspond with us.
Senator Cools: That goes a bit beyond committee business here.
Senator Lavoie-Roux: We can make the suggestion.
Senator Cools: The point I was trying to get at is that you are being heard.
The Chairman: We will pass the message on.
Senator Joyal: As my other colleagues have stated, the overall intricacies of the legislation are quite complex, and what struck me first is what I heard regarding alcoholic beverages, fuel and tobacco products. You, of course, are aware that there have been many discussions about the trade on the reserves in those products, especially tobacco and alcoholic beverages. I am sure you are aware of that, as are any of us who read the papers.
Could you explain to us why those three products would have been singled out? In your mind, what it the problem that this provision is aimed at addressing? It is not sales of cars, furniture, or timber. It is essentially alcoholic beverages, fuel and tobacco products. According to your own experience, what do you think this bill tried to address?
Mr. Maracle: I cannot speak against the Kamloops band wishing to implement a tax in their community, but I feel as though I can speak on behalf of the members who, it appears to us, are having their personal and individual rights jeopardized by a few people in making this decision. As for those three areas, yes, there has been a great deal of media coverage on the issue of smuggling from time to time. In many of those situations, if you pay as close attention to it as we do, it is not the First Nations people who are involved.In fact, it is more likely to be other ethnic groups who are using the location of the reserve as access.
Senator Joyal: You mentioned that tax exemption was based on individual rights instead of being stated as a collective right. Could you explain what you mean by that, or the implications that you have in mind in that regard?
Mr. Maracle: As the Indian Act -- which creates that exemption -- is written, if I were the only First Nations person in Canada, I would still have that exemption. It would not matter if I was the only one, or if there were 10,000 of us; we would all have that same exemption. It would not matter. It is an individual right, as opposed to a collective right.
Senator Beaudoin: That is a very interesting question. Speaking personally, I feel that it is a collective right, although each person may claim that right individually.
Mr. Maracle: Yes.
Senator Beaudoin: If there is one example of collective rights in our Constitution, it is the aboriginal people.Those rights are in the Constitution, and the courts have so stated. It is true that they may claim that right individually as a member of the aboriginal people, but what they are claiming is a collective right. Only the aboriginals may do that.
It is like the question of taxation. We have a case in our law which says that if an Indian is working on the reserve, the Indian will not pay taxes. That is a ruling of the Supreme Court. I understand this is what you referred to a moment ago at the beginning of your presentation.
Mr. Maracle: I made no reference to the income tax situation, no.
Senator Beaudoin: No?
Mr. Maracle: No. This is, as we interpret it, the implication of an outside tax that is coming into the First Nations.
Senator Beaudoin: That is applied.
Mr. Maracle: That will be applied.
Senator Beaudoin: In your opinion it cannot be done in a federal statute?
Mr. Maracle: There are two sets of rules. It is being done by a by-law.
If a community wishes to introduce a dog by-law or a dumping by-law, it goes to the Department of Indian Affairs and Northern Development to seek approval for the by-law. Why then does a by-law that affects taxation all of a sudden end up in this place, after three readings in the House?
Senator Beaudoin: Is it your suggestion that these by-laws cannot be enforced without the assent of the minister?
Mr. Maracle: Yes. My concern is the inconsistency.
Mr. McCormick: The reason we included section 87(1) of the Indian Act is because the statement at the front of that section says:
Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely,
Proceeding to section 87(1)(b):
(b) The personal property of an Indian or band situated on a reserve.
What proof is there that each individual member of the Kamloops band has agreed to extend his or her personal right to the statutory protection?
The Indian Act also states that it will not be superseded by any other legislation. Bill C-36 indirectly supersedes the Indian Act, because a tax will be levied regardless of section 87.
Senator Beaudoin: Is the section of the Indian Act to which you refer section 87?
Mr. McCormick: Section 87.
Senator Beaudoin: Could you read that section again?
Mr. McCormick: Certainly:
Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely,
(a) the interest of an Indian or a band in reserve lands or surrendered lands; and
(b) the personal property of an Indian or band situated on a reserve.
Senator Beaudoin: I see. Is that the basis of your argument?
Mr. McCormick: What we are trying to do is put forth a defence for the individual members of the Kamloops band.
Senator Bryden: Where the concern arises, Senator Beaudoin, is that clause 59(1) in this bill says, "Notwithstanding section 87 of the Indian Act..." We have two notwithstandings, one here and one there. It is perfectly legitimate for us to ask the minister to address these concerns.
Senator Beaudoin: There are two conflicting notwithstandings, so you must reconcile them as to which has precedent.
Senator Bryden: This is more to try to deal with the government's situation under its general law; trying to allow this administrative agreement to take affect without in some way violating the Excise Tax Act. Now this may violate something else. We should look at that.
Mr. Maracle: Going this route to create the opportunity within the Kamloops band is a point that we feel is unnecessary. Under section 4 of the Indian Act, there is the opportunity for any first nation in the country to make application to the Governor in Council to exempt itself from any section of the Indian Act. It does not require a by-law. They can exempt themselves from section 87 of the Indian Act, and then they are free on the issue of taxation. They can then proceed with whatever taxation they like, and collect it.
Senator Forest: When you were approached by the members of the Kamloops band, did you have any indication as to why they decided to go this route? Were they not aware that they could do this without this type of by-law? Did they give you any indication why?
Mr. McCormick: Representatives from the Union of British Columbia Indian Chiefs contacted us. The reason they did so is that they have said that close to 100 members of the Kamloops band are opposed to the implementation of this clause of the bill.
Senator Forest: Is there conflict within the band?
Mr. McCormick: That is what we were told.
I would like to make one other point about this bill. We alluded to our traditional way of doing things. In our communities, the people are the bosses of the community. We do not manage from the top down. We manage from the bottom up. This bill proposes to give a majority of the council members the right to dictate to the community what provisions will govern it. That goes against our tradition.
Honourable senators, our next witness is from the National Association of Career Colleges.
Mr. Paul Kitchin, Executive Director, National Association of Career Colleges: Honourable senators, thank you for the opportunity to address the committee today on Bill C-36.
My name is Paul Kitchin, and I am the Executive Director of the National Association of Career Colleges. NACC is a non-profit association which represents private post-secondary training institutions across the country. NACC celebrated its 100th anniversary two years ago, and it represents a sector of the education and training community in Canada that has roots going back to 1868, one year after confederation. We represent a sector that has a long and rich tradition of providing training in to men and women of all ages across the country.
In my brief, I have tried to provide some background of the association, its members, and the students who are attending the institutions. I have provided some comments around the creation of the Canada Millennium Scholarship Foundation. I conclude with four proposed amendments to the bill.
Many of you may not be that familiar with the sector about which I am speaking, even though it has a 130-year tradition. These tend to be smaller institutions, located in small, medium and large communities across the country. They tend to focus on very specific skill areas of training. Many of the institutions I represent would offer one, two, or three courses. Some institutions offer as many as 15 or 20 courses. The average enrollment at one of our institutions is about 150 students annually. On the small size, we would be looking at institutions with 30 or 40 students. The bigger institutions may have as many as 700 or 800 students at any given time.
As I said, they tend to be focused. They are all privately operated. There is no government subsidy to the operating funds of these institutions. They operate year-round. In other words, the doors are open 12 months a year. They offer continuous intake so that students, for example, who are looking for a course in February do not have to wait until next September to enroll in a program. That gives you a quick, thumb-nail sketch of the kinds of institutions about which I am speaking.
Who are the students who attend these institutions? From those early beginnings in the 1800s, we are at position now where there are about 1,200 private post-secondary institutions in the country, serving approximately 180,000 students per year.
To get a sense of who is attending these schools, I conducted a survey recently of about 13,000 students from across the country. I will highlight three or four of the findings that came out of this study. Two-thirds of the students are female. Roughly 50 per cent of the students have dependents. About one-third of them are over the age of 35. A full 20 per cent are sole-support parents.
The most surprising fact we came across is that 47 per cent of the students had previously attended university or community colleges, with a full 15 per cent being community college graduates, and 5 per cent being university graduates. What that tells us is that we are looking at a different population from, perhaps, those who are attending the public institutions in Canada. As such, I think it is clear, if you look at the profile, that these are the students who would benefit from being able to access scholarships through the proposed Canada Millennium Scholarship Foundation.
That leads me into some comments concerning the provisions of Bill C-36. The first area upon which I wish to comment is the eligibility of institutions as outlined in the definition section of the bill. As it stands now, the definition of an eligible institution has two components to it. The first component is that students would be eligible to access the scholarship funds if the institution is publicly funded. The second part talks about privately funded institutions, but leaves it at the discretion of the foundation to determine whether students attending such an institution would be eligible, and whether the programs have a proven track record before they can be eligible.
We seem to be setting a double standard in terms of institutions. The programs offered by many of these institutions are already designated for Canada Student Loan purposes. Those same programs, through Human Resources Development Canada, have been approved to access the education deduction on personal income taxes for Revenue Canada.
Why would you single private institutions our for extra scrutiny under the provisions of the Canada Millennium Scholarship Foundation? As I have said, many of the students have chosen that particular institution. We firmly believe in the right to be able to choose the most appropriate source of education and training.
The students of whom I am speaking, unlike the students at public institutions, have no formal voice. They have no group to represent them. Often, when I am addressing groups, I find myself in the position of not only representing the institutions, but also representing the views of the students who are attending those institutions.
The right to choice is important. When we surveyed the students, we found that the part of the delivery mechanism they particularly enjoy is the duration of the programs. That is because many of them are in a position where, for whatever reason, they are out of the labour market, and need to get back into the labour market as quickly as possible to meet some needs. In particular, I am talking about students with dependents or sole-support parents.
The delivery system within the private sector is a very intensive kind of training. The numbers of contact hours and instruction hours compare quite favourably with the public community college system; however, it is condensed so that a program that would often take two years at a community college can be completed in an average of 10 months to 12 months at a private institution. This is a good alternative for many people who need to get back into the labour market and become productive again.
We have talked about the double standard. In that regard, there appears to be an assumption that, if a program is offered at a public institution, it is automatically of high quality, and has a proven track record. Do not mistake me, we have a good, strong community college system in the country, just as we have a good, strong university system in the country. I am a product of the University of Waterloo. Those were good days for me, and it was a good experience. Perhaps once or twice I ran into a course where the quality was not there, and the professor was not quite what he should have been. What I am saying is that we should not make the assumption that just because an institution is public it is necessarily of the highest quality. Nor should we make the assumption that the quality of a private institution needs to be questioned.
The truth of the matter is that no two universities perform at the same level, no two community colleges perform at the same level, and no two private institutions perform at the same level. We need some kind of a measuring stick.
We have already gone through a process with the Canada Student Loans Program to designate institutions. We have given that process to the provinces to determine, in their jurisdiction, which of their institutions qualify for Canada Student Loans. In setting up this organization, why would we have the foundation do the work all over again -- reinventing the wheel, as it were -- trying to determine which institutions should or should not qualify? That does not seem to make an awful lot of sense.
We therefore recommend that we use the CSL designation. In conjunction with that, if there is a sense that we are not comfortable with the existing designation process, then NACC is strongly in favour of looking at how to strengthen the designation process. We publicly strive for quality and standards. We would be most supportive of a process that looked at the accountability of education and training institutions in the country. We would certainly take a look at the retention of students, namely, that the appropriate students are being enrolled in the appropriate programs, and they have a good opportunity to complete and master the skills that are involved in those programs.
Therefore, you would look at retention rates or, conversely, dropout rates. Once you have graduates, you would look at placement rates. You would look at the institutions based on their track record in that regard, but that should be across the board. If we are going to go that route, we should be doing it for every institution, be it public or private.
The nature of the funding of the institution does not speak to the quality it provides. In this bill, that kind of line seems to be being drawn. Therefore, we should look at strengthening the designations, if required.
Once criteria have been developed by the foundation by which students can qualify to get a scholarship -- be that financial need or merit, or a combination of the two -- every student in this country who chooses to pursue a post-secondary education should have equal access to those scholarships.
The second point is the area of the criteria for eligibility of students. The bill talks about a combination of financial need and scholastic merit, although it is not spelled out how that would be determined. Representing NACC, I sit on a national advisory group for student financial aid that works with Human Resources Development Canada. The latest statistics I have received from HRDC indicate that in the 1995-96 year, 70,000 students who were approved for Canada student loans were assessed on loan limits and fell short of their need. When taking into account their tuition, living costs, et cetera, the assessment to which they were entitled left them short.
There clearly is a need to address that. There are other measures in the budget bill which begin to address some of those issues. However, until there are no students whose needs are not met, a good use of the scholarship funds would be to help people who have the desire to get the training, upgrading and skill levels they need, and we would put the priority on need rather than on merit.
Certainly a number of people who are in financial need also have merit, and they would be picked up that way. However, it is our sense that the more pressing need is financial. There is a recommendation in our brief to strike the concept of merit out of the eligibility criteria for the fund.
The final area with regard to the Canada Millennium Scholarship Foundation deals with the selection of the members and directors of the foundation. The bill refers to consultation with provincial governments and the education community on the selection of those people. However, it is again left to the discretion of those people to choose the educational institutions or organizations that they will contact.
There are three sectors in education in Canada; the university sector, the community college sector, and the private post-secondary sector. We firmly believe that if there is any consultation relating to education, all three sectors should be involved, particularly in the case of the millennium fund. We would like to see the wording strengthened so that it becomes mandatory for those three sectors to be consulted. They should have a say on who becomes a member of the foundation or sits as a director of it, although we should not necessarily have a seat ourselves. If the opportunity arose, that would be wonderful, but the more important principle is that there be an equal chance to have input into it.
The bill talks about ensuring that we get people who have a vast knowledge of the total educational resource in Canada. To do that, we would have to insist that all three sectors be consulted on the selection of those members and directors.
Once again, our brief contains two amendments dealing with clause 8 and clause 12 in terms of the selection of members and directors. We have included in that an amendment that it be mandatory to consult with the three sectors.
To sum up, our membership includes a number of institutions which have a long and rich tradition of providing skill training to men and women of all ages. We believe that students should be able to choose the most appropriate form of training for them at their particular age and stage of life, and that to leave the use of the funds to the discretion of people who may not be well aware of this sector and the contribution it is making would be a mistake.
It may surprise most people to know that there are as many graduates from diploma programs in the private sector as there are from the public community college system. That is a significant contribution.
As I said, 180,000 students go through the system each year, at both the diploma and the certificate level, and they need the same access to financial assistance as students in the public system.
Every other component of the CSL program and financial assistance is there for these individuals. Why would they not automatically qualify for funds through the scholarship fund?
Thank you very much for this opportunity to raise this issue with you. I would be pleased to address any questions you might have.
Senator Lavoie-Roux: Thank you for coming to meet with us today. Do you have a list of private institutions? Are there private institutions at the post-secondary level in every province?
Mr. Kitchin: Yes, there are. We do have a directory of our membership which I can provide to you.
In each province there is an act and regulations under which the institutions fall. For example, in Ontario, it is the Private Vocational Schools Act, and it is through the Ministry of Education and Training in Ontario.
There are a number of requirements for curricula, instructors, facilities and equipment. Schools are even required to put up a consumer protection bond. They are heavily regulated in every province.
Senator Lavoie-Roux: It is true that the private sector has not been included in this bill. However, in my province at least, usually people who can attend private institutions are not people in great financial need. Perhaps that is simply a prejudice that I have, but I believe that the parents of students who attend our private institutions can afford to pay.
There is no private university in Quebec. I do not think there are any in the other provinces either. I believe that they are all publicly supported by governments.
Perhaps they took for granted that parents who send their children to private colleges and universities are parents who can afford it.
Mr. Kitchin: That is a good question. I think the answer is both. There would be students at private institutions as well as at universities and colleges where parents are well able to afford to pay the full shot. Owing to the nature of the schools, the smaller nature of the classes, the continuous intake, the intensity of the instruction and therefore the shorter length of the program, the programs tend to attract people with dependents; people over the age of 35 who perhaps have just lost a job, and are looking for new skill.
Our proportion of sole-support parents tends to be higher. Through the whole Canada Student Loans Program, our institutions are accessing about 15 per cent of the loans. We have in excess of 20 per cent of the sole-support parents.
Both ends are there. You are on the mark when you say that there certainly are people who can afford it, but a number of people cannot. We got the numbers from HRDC on the students with unmet needs. I mentioned there were 70,000 students in Canada who did not get enough financial assistance to meet their needs. Roughly 40 per cent of those were attending private institutions. This is a section of the student population that absolutely does need some financial assistance.
Senator Lavoie-Roux: I think the bursary program has been designed for younger students than the ones you mentioned when you said one-third of the students are older than 35 years of age. I will ask the minister about this, but it seems to me that it is geared to people below 30 years of age, or even below 25 years of age. You think we should increase it because they have a child to support. It is a difficult question, but I am glad you came because I had not thought of this before.
Mr. Kitchin: Thank you for that. I would say, too, that I did not see any reference in the bill to age at all. As I read it, when it talked about public institutions, it said all students at public institutions.
Senator Forest: I appreciate your coming, too, because my involvement has been with public universities and publicly funded colleges. You mentioned that your students are eligible for loans, as are students from publicly funded colleges. You mentioned that, in the provinces, the colleges are highly regulated. I was wondering if you have certain criteria for colleges which want to belong to your association?
Mr. Kitchin: The main requirement is that they be licensed and regulated by a provincial authority. All organizations that belong to our association are licensed and regulated. Our members operate under a fairly strict code of ethics. We continually encourage the quality side of training.
I just came out of a national conference last week, which was attended by representatives of schools from across the country. At these conferences, we try to encourage some professional development for administrative staff, instructional staff, and even recruitment staff. One of the things that has happened in this country is that -- and this is generally across education -- our methodology for recruitment of students has slipped a bit. We need to continually assess whether we are getting the right student into the right program, so that they have a sense of being successful.
Senator Forest: I am from Alberta, where there are a number of colleges in the private sector. I, too, would be interested in seeing the list of the colleges. It would give us a sense of who they are.
Mr. Kitchin: I will make sure that gets to you.
Senator Bryden: Could you give us an idea of the required tuition fee, for want of a better word? I know they vary from program to program.
Mr. Kitchin: Typically, the average tuition would run in the neighbourhood of $7,000 to $8,000. That is with absolutely no subsidy at all. That is full cost.
Again, the training is more intensive, and the course is completed within one year, as opposed to having to pay tuition for three or four years at the public institutions. That is one comparison. There is a subsidy at the public institutions, and our courses run for only one year.
Senator Joyal: One aspect of your presentation puzzles me. You want to amend the legislation to remove the possibility that the foundation will take merit into account in determining the granting of the scholarships. Earlier, we heard witnesses who asked us to get rid of the financial needs, and to base it only on excellence, similar to other scholarships which exist for students. That would foster excellence among students. How would you react to that kind of representation?
Mr. Kitchin: I have two ways to respond. We are trying to encourage our institutions -- as many of the public institutions are doing -- to offer their own scholarship programs for merit. That would certainly be one route. The public institutions have been encouraged to establish foundations, and to look for contributions from the corporate world. For the merit side, our schools could offer their own scholarship programs.
I sit at the table on the national advisory group for student financial aid. I have colleagues there from the universities, the colleges, and the student federations. Most of our discussions hit on the fact that a number of students have unmet need. The kinds of assistance available now do not meet all the needs. I am sitting on a subcommittee which is looking at the needs assessment process. What do we need to examine? Is there a way to improve it?
One of our buzzwords is loan limit, but we have all put on the brakes and said that debt is too high right now. There is too much student debt at this point. We cannot really look at raising the loan limit. We have to find some other way to address these unmet needs.
We are discussing people who are already in the system. I fear that we have no way of knowing the number of people who are not accessing post-secondary education because there is not enough money available. If that were to be topped up through a government scholarship plan, such as the millennium plan, that might be just the impetus they need. Perhaps some people on welfare can decide through that to get some post-secondary training, to get jobs, and to be productive. That is the fear. We know that there are already 70,000 people who do not get enough money in the current assessment process. How many others are there?
Do not get me wrong. We certainly believe in excellence and in merit. I wish I could find some way to spur my own children on towards excellence. They tend to be a little lazy as students. We certainly believe in that, but at this particular time, we see more of a need to help people by providing the finances necessary for post-secondary education.
Senator Joyal: Do you not think the bill makes a fair balance between needs and merit, and opens the door to taking private money to establish scholarships based more on merit than on other criteria? Do you not feel that the foundation has the necessary flexibility to address the specific problems that you describe?
Mr. Kitchin: You raise a good point -- the fact that some of the funds are earmarked specifically for merit. Perhaps we have not picked the right wording for it.
We do not want both financial need and merit to be requirements for students to qualify, because that would eliminate people who have financial need and who may have struggled with their education. Sometimes a student just meets the entrance requirements, and really struggles initially. Somewhere during that post-secondary experience a light comes on, and the student you thought would end up as a 70 per cent student turns out to be a 90 per cent student. We are afraid of eliminating those people.
You have raised a good point. There may be some way to word it so that we get a balance there, so that it need not be both financial need and merit. If we can get a mix of both, then we would be pleased with that.
Senator Joyal: Could you tell us if all of your members are designated institutions in so far as the student loan program is concerned, or are some of your members not designated institutions?
Mr. Kitchin: The majority would be designated, but there would be some institutions that are not designated at this point. Either they are too young, or their programs just do not meet the requirements of the student loan program.
We are not asking that it be accessible to all of our members, but that it be accessible to those that are designated at this point.
Senator Joyal: Would it be fair to say that it is a fraction of your membership, and it does not represent an important number of them? I am trying to understand if we are doing justice to all of the institutions and not leaving two-thirds of your membership out of the programs.
Mr. Kitchin: No, the vast majority would be accessing student loans at this point. I do not have the exact breakdown of the figure for you, but the majority are currently designated for student loan purposes.
Senator Joyal: Would I be right to say there is an implication that, if those institutions are designated institutions, their students would certainly be accessible to the program, because they are already part of the national system -- or the provincial system in Quebec -- of student aid? If most of your institutions are already designated institutions, it is fair to assume that most of the students of your institutions would be admissible to the program on the same basis as the public institutions?
Mr. Kitchin: With reference to the Canada Student Loans Program, yes, but this bill talks about eligible institutions. The first part says all public institutions, and the second part says private institutions at the discretion of the foundation. That leaves it wide open to turn private institutions down, and I am not sure on what criteria. It would seem to us that this creates a duplication of work for the foundation. They would need to come up with a mechanism of how private institutions would qualify when the federal government already sponsors a program where there is a designation process. Students at designated institutions already access student loans and special opportunity grants. To us, it would seem that the best fit would be to have qualification for millennium funds tied to designation.
Senator Joyal: You are aware that the bill directs to the foundation to avoid duplication, and to enter into agreements with provincial ministers of education to ensure that there is some kind of streamlining of criteria on that basis.
Mr. Kitchin: I do not understand why we are creating a division within the post-secondary sector. Why is it "A" and "B"? If the two choices were all institutions -- public or private -- are at the discretion of the foundation, or all designated institutions -- public or private -- are accepted, the latter would make more sense to me.
Senator Grafstein: Would the difference be that some institutions, for instance, are well funded?There is a difference between a loan and a grant, and this fund deals with grants as opposed to with loans.
Mr. Kitchin: Right.
Senator Grafstein: I take it there is a concern about examining each institution on the basis of whether or not a grant should be given as opposed to a loan. A loan is a repayable instrument, whereas a grant is a gift. Are all of your institutions not-for-profit, or are some of them privately owned? If they are privately owned, is there some inconsistency with making a grant through students to a privately-owned institution, as opposed to a not-for-profit institution?
Mr. Kitchin: I am glad you raised that. I just want to be clear, and perhaps in my presentation I did not make that clear. All the institutions I am talking about are privately owned. They either have a single owner, a partnership, or several owners, but they are all privately owned. There is absolutely no public subsidy of these institutions at all. It is all based on tuition fees.
Currently, students who attend these institutions and can access student loans can also access other grant programs. Federally, there is the special opportunities grant. In some of the provinces, there are bursaries and grants that fit into the student loan system. Again, we would like to see consideration given to students who, even after they had been assessed at the given loan limits and explored the grants and bursaries that are available, still did not have enough money to be able to attend a post-secondary institution, pay the rent, and put food on the table. There is no problem with students accessing loans.
We are talking about Student "X" who is at the crossroads of his or her life, whether that be a youth just coming out of high school, or whether that be a young person in his or her late 20s who has been laid off with down-sizing, has two kids at home and is deciding what to do. Hopefully this person has shopped around and looked at different programs, at different institutions, and has come to a decision that Program "X" at Institution "Y" is the best choice. Having decided that, the person needs to determine how to finance it.
It just does not make a lot of sense to me -- and again I put on my taxpayers' hat and my father's hat -- that an individual student can be told, "You can have a grant if you go there, but you cannot have a grant if you go to this other place which you have chosen as being the best alternative for you." That is our conundrum.
The Chairman: The next group to appear is from the Insolvency Practitioners Association. Please proceed.
Mr. Norman Kondo, President, Canadian Insolvency Practitioners Association: On behalf of the Canadian Insolvency Practitioners Association, I thank you for invite for inviting us to appear today. With me today are Ms Donna Collins and Mr. Stan Ruthen, who are both chartered insolvency practitioners and trustees in bankruptcy; I am not a trustee in bankruptcy.
The chairman of CIPA, Mr. Robert Sanderson, conveys his apologies for not being here today, but he had other commitments that he could not break on short notice.
We are here today to achieve only one thing, namely, to have clause 103 removed from Bill C-36. This clause amends section 178 of the BIA, the Bankruptcy and Insolvency Act, so that a student could not use the bankruptcy process to discharge student loan debt until 10 years after ceasing studies.
This concept of singling out student loan debt for special treatment was just introduced in amendments to the BIA, which came into force only last September. In that amendment, student loans could not be discharged for two years. This amendment proposes to extend that to 10 years. I should like the honourable senators to note that the discharge is not automatic after the expiry of that time period. The bankrupt must still apply to the court. The court will review the bankrupt's circumstances, and then make a decision as to whether or not the debt will be discharged.
Is it reasonable to delay that for 10 years? We submit that it is not.
Before commenting further on clause 103, I wish to give you an overview of the CIPA and its activities, because I am sure you are not that familiar with our association. The purpose of this is to explain why the three of us are here before you today.
We are here not as advocates of students, or of educational institutions, or of lenders who participate in student loan programs. We are a national association representing probably in excess of 95 per cent of trustees in bankruptcy. When acting as trustees in bankruptcy, our members act on behalf of all creditors, and are officers of the court. We do not issue licences and membership in CIPA is not a legal requirement to practice. We are self-funding, and we are supported by our members' dues. The majority of our activities and our budget have been spent on improving the standards of qualification for insolvency practitioners, and in maintaining those standards.
At the present time, we have the Continuing Education Committee, a Discipline Committee, a Professional Conduct Committee, and a Professional Standards Committee. We do not have a public relations committee, a membership committee, or a social committee.
One of the core goals of the CIPA is to promote public confidence in the integrity and value of the insolvency process in Canada. In our respectful opinion, clause 103 has the potential to undermine public confidence in both the insolvency system and the legislative process. This is not a student issue. In our view, it is an issue about discriminating against a particular kind of debtor, whomever that may be. In our opinion, tinkering with the BIA to solve other problems with the student loan process is wrong. As Mr. Sanderson, our chair, stated in his letter, as an association we are prepared to take the lead in conducting a study of the effectiveness of the recent two-year limitation period.
This amendment fails the test of transparency. It came as a great surprise to insolvency professionals. This explains why you have only recently been receiving letters from our members and from other insolvency professionals, such as members of the Canadian Bar Association, National Bankruptcy and Insolvency Section. Other provisions of Bill C-36 seem to have received fairly extensive publicity, but clause 103 has not. We submit that this also fails the test of fairness, because it amounts to discrimination against one particular kind of bankrupt -- former students -- for one particular kind of debt; student loans.
I wish to recite for you the other kinds of non-dischargeable debts which are in section 178, and this is to illustrate where clause 103 puts students who cannot pay their debt. If we are judged by the company we keep then I am afraid that students are being relegated to a very low category. We find this is in conflict with expressed public concern for the brain drain of new graduates. A well-educated work force is supposed to be a valuable Canadian resource. What is in section 178? It says:
An order of discharge does not release the bankrupt from
(a) any fine or penalty imposed by a court in respect or any debt arising out of a recognizance or bail bond...
Continuing with (c),
(c) any debt or liability under a maintenance or affiliation order or under an agreement for maintenance and support of a spouse or child living apart from the bankrupt...
These are the deadbeat spouses who are not paying their family support payments.
(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity;
(e) any debt or liability for obtaining property by false pretenses or fraudulent misrepresentation...
That is not the entirety of the section, but it is sufficient to show the characterization that clause 103 gives to student loan debt. As I said before, I am not a trustee.
I will allow Ms Collins to take you through the CIPA's written submission from the practitioners' perspective.
Ms Donna Collins, Secretary-Treasurer, Canadian Insolvency Practitioners Association: I refer to the Canadian Insolvency Practitioners Association's letter of June 8 to this committee. I do not plan to address all the issues in it, as you do have that letter. I will highlight the reasons for which we are asking that clause 103 be deleted. After that, I will try and give a practical perspective as to what the practitioners see in their offices, and why we believe that clause 103 of this bill should be deleted.
We are asking that it be deleted on the grounds that there is an anti-abuse mechanism which was just added to the Bankruptcy and Insolvency Act to which Mr. Kondo just referred. That was added on September 30, 1997, and to date, we have not had enough time go by to gather real evidence as to its success or lack thereof.
We believe that tinkering with the BIA diminishes public confidence in the Canadian bankruptcy and insolvency system. We believe that it will create hardship for individuals and their families, that it will interfere with the rehabilitation of debtors, that it will reduce the filing of consumer proposals without decreasing the number of bankruptcies, and that, in fact, repeat bankruptcies will be encouraged. It may result in bankrupts with student loans not seeking their discharges in order to preserve a stay of proceedings against enforcement, thereby potentially increasing the number of open bankrupt estates. It is contrary to the spirit of section 136 of the Bankrupt Insolvency Act, which was amended in 1992, to put creditors on an equal footing, not to give priority to Crown debts and to reduce special status.
One of the purposes of the Bankruptcy and Insolvency Act is to assist the honest, unfortunate, and overburdened debtor. There are a number of checks and balances in the Bankruptcy and Insolvency Act to address those who abuse the system.
When it comes to individuals with student loans, there are a number of variables; they do not come as one package with the same set of circumstances. Some of the individuals that we see are graduates. There are others who have not graduated. In fact, there are a large number of non-graduates. There are individuals who are employed, and there are individuals who are not employed. There are individuals who do not realize that the cost of education will never be recoverable from the potential employment opportunities at the end of that education. We have individuals who have had changes in circumstance; whether those changes come from illness or from variables such as family size. We have individuals who did not have the skill set required by the program in the first place, and who therefore did not complete it.
There are so many variables, and because of that we believe that the 10-year prohibition on obtaining a discharge from a Canada Student Loan debt will cause great suffering, genuine hardship, and that there needs to be discretion. That discretion exists in the current Bankruptcy and Insolvency Act. Just because an individual files a bankruptcy does not mean that there is a free ride. It does not mean that he or she will walk away unscathed.
Under the current legislation, if an individual files for bankruptcy and has not been out of school for two years, that debt is not discharged when he or she gets a discharge. That person must make an application to the court once the two-year period has expired, and the court can then decide whether or not the debt should be discharged, whether or not the individual should be required to repay the debt, or whether the matter should be adjourned for a further period of time to establish whether or not repayment will become a possibility.
We have not yet had the ability to evaluate that system and, as a practitioner, I can indicate that we have not yet made one application of that nature, because not enough time has gone by. If an individual files for bankruptcy, and has been out of school more than two years, then Canada Student Loans as a creditor, or any other student loan program, has the ability to oppose that individual receiving a discharge. The matter is then before the court. If the court believes that there is abuse of the system, or if the court believes the individual has the ability to repay, or if the court believes that further time should pass before a decision is made, all of those mechanisms are within the court's discretion. The trustees' role is to bring the information to the court.
One of the things that would assist the trustees is if we knew specifically what relief was available to the individuals, so that we could make educated decisions at that particular point in time. The point is that the mechanisms are there to deal with those who are potentially abusing the system, and to allow those who need to do so to access the system in order to remove the hardship.
It does not take much imagination to understand the type of hardship and suffering that may result from this provision. You have collection agents, you have financial problems, and they lead to marriage breakdowns, which leads to people on welfare, and the list goes on. It leads to mental health issues. I can answer questions on that later should there be some, but I believe that we are all aware of what financial stress can do to individuals.
People do abuse the system. It is the role of the courts and the trustees to deal with those individuals. One of the things that is mentioned in our letter is a consumer proposal; that is not a bankruptcy, that is another alternative available under the Bankruptcy and Insolvency Act, which allows an individual to restructure his or her debt in a payment fashion that he or she can handle.
We believe that the introduction of clause 103 will deny the opportunity for individuals to file consumer proposals. We also believe that there will be more repeat bankruptcies, and that there will be more unresolved estates in the system because people will not apply for discharges to try to continue the non-enforceability -- the protection that they have as an undischarged bankrupt.
I stress that the scheme of distribution under section 136 of the Bankruptcy and Insolvency Act was amended after much consultation in 1992. Mr. Ruthen will be able to speak to what is referred to as the BIAC process, and how that consultation took place. This section specifically removed the priorities and the preferences to the Crown. This section provided that one type of creditor should not be discriminated against or have a priority over another type of creditor. It also provided that one type of debtor should not be discriminated against over another type of debtor. Section 136 allowed for the deletion of special cases to reduce discrimination.
Section 136 also reduced what was referred to as the ripple affect. People and small businesses with a number of debts filed bankruptcies. What they wanted to do was ensure that, if there were distributions, the funds would go to creditors. They wanted to make sure that everyone shared those funds, and that they were not taken by one particular group.
Clause 103 will not help us rehabilitate debtors; it will punish debtors. It does not increase fairness. It gives one creditor an advantage over another. Clause 103 will not increase consumer proposals. It will not decrease bankruptcies, but it will have the opposite affect.
A hasty decision may cause unforeseen and unintended damage. At the very least, the effect of the two-year requirement for student loans should be studied before we make further changes. I will now turn the microphone over to Mr. Ruthen.
Mr. Stanley Ruthen, General Manager, Canadian Insolvency Practitioners Association: I share my colleagues gratitude that you have allowed us the opportunity to come and express our views on a very important issue affecting our practice and profession.
On a personal note, may I commend the government for its initiative in introducing provisions which will ensure that funding will be available in the new decade for our young people, through the establishment of a scholarship fund.
I am appearing before the committee in my capacity as a trustee in bankruptcy, and as a member of the Canadian Insolvency Practitioners Association. I wish to express my concern over the proposed amendment to section 178 of the Bankruptcy and Insolvency Act. I believe we are now familiar with clause 103 of Bill C-36, and the issue at hand.
I have been employed in the insolvency administration for 30 years, and have practiced as a trustee in bankruptcy in all except three of our provinces, specializing in personal bankruptcies and consumer proposals. During these many years, I have maintained the greatest respect for the Canadian insolvency system and the process of consultation through which amendments have been made in response to our changing economy.
I wish to express two areas which support my opposition to clause 103, however. Following the 1992 amendments to the Bankruptcy and Insolvency Act, the Bankruptcy and Insolvency Advisory Committee, or BIAC, of which I was a member, was formed to review the changes to our insolvency law and to propose any refinements that would ensure that our Canadian insolvency system was second to none.
Numerous stakeholders volunteered their time to participate in a working group focused entirely on consumer insolvencies. Representatives from the banks, taxation authorities, credit unions, merchants associations and insurance underwriters were among those who joined my colleagues and I in coming forward, and who eventually reached a consensus leading to a number of amendments to the Bankruptcy and Insolvency Act in September of last year.
While the committee was of the view that our legislation should be available to all Canadians who become insolvent, an exception was made to prevent former students from including student loans as a debt to be discharged within two years following their departure as a full-time student in an institution of learning.
The proposed amendment to section 178, in my view, serves to circumvent the very underlining objective of the BIAC process, and the years of consultation and consensus that followed its formation. The unilateral act on the part of the government to amend the bankruptcy act on such an important issue, without consultation, will no doubt impact upon the success of our lawmakers to again solicit the willing support of the many stakeholders who volunteered their time.
A second issue of concern is that, as a trustee who meets daily with consumer debtors, I do not share the view that students seek out the bankruptcy process as a way of defeating their student loan obligations. Rather, I have found that, in the majority of cases, the students have reached an all-time low after having been harassed by student loan collectors day and night with threatening calls to their families and employers. Many have resorted to the use of drugs and alcohol, and seen the breakup of their marriages before consulting with an insolvency specialist. With the proposed amendment to section 178, not even a trustee will be able to offer an option of eventual financial stability to those so hopelessly insolvent.
On April 30, 1998, new directives were issued by the Superintendent of Bankruptcy to trustees, ensuring that bankrupts contribute a fair portion of their monthly income to their creditors after providing for the needs of their families. Students with disposable incomes from employment or any other financial source will be encouraged by the new directives to consummate a proposal to their creditors, thus avoiding bankruptcy. The proposed amendment will deny them even this opportunity.
In conclusion, it is my opinion that the proposed amendment will do little to enable the government to be reimbursed on its outstanding student loans by insolvent students. It is far too early to measure the effect of the September 1997 amendments allowing the two-year moratorium. Other alternatives should be considered, perhaps a special education tax to be paid by students as their incomes grow, similar to what I understand takes place in Australia. Even if it takes many years, student loan funding is an investment in the future of our young people.
Denying students access to creditor protection and the opportunity to either obtain a new start or to reconstruct their financial affairs under our federal insolvency law neither preserves the integrity of our next generation nor the interest of today's taxpayer, who has made an investment in tomorrow's leaders. It is my sincere hope that the government will reconsider clause 103 of Bill C-36.
Senator Beaudoin: You said that clause 103 should be deleted for the eight reasons you have provided in your memorandum.
Ms Collins said that the Bankruptcy Act does not provide for immediate release of students at any rate, because it is possible for the person in charge of the administration of the bankruptcy to decide that a discharge will be granted on a certain condition. I would like to know a little more about that. If there is already a mechanism in the Bankruptcy Act stating that the release is not automatic, why do we need clause 103?
Ms Collins: Under the current legislation, there are two sets of students -- individuals who have been out of school for more than two years, and individuals who have not.
Assume that an individual who has been out of school for more than two years files for bankruptcy. The fact of a trustee filing for bankruptcy does not relieve the debt. If that individual has never been bankrupt before, he or she will get an automatic discharge from that debt nine months after the bankruptcy has been filed, unless there is an opposition to that happening. An opposition can be filed by the trustee, any creditor, or the Office of the Superintendent of Bankruptcy.
Therefore, if an individual has filed for bankruptcy after being out of school for three years and administrators of the student loans program believe that the process has been abused, they can file an opposition to an automatic discharge. In that case, the discharge must be heard by the court.
The trustee arranges for the court hearing, provides the court with information as to the financial affairs of the bankrupt, and the court will hear the application. The court will hear from the creditor, the trustee and the bankrupt, and then make a decision. There is much case law in which the court has held that the student loan is a high moral obligation, and has given very careful consideration to the disposition. At that point, the court may do one of a number of things. It may grant the discharge. It may believe that it is appropriate to give the individual a fresh start, for a variety of reasons.
As an example, an individual who had completed a program and had an outstanding $5,000 student loan could not find employment in his field, and was working at a home for retarded children. He was earning minimum wage. The court's opinion was this person should get a discharge, because he was paying back his debt to society in another way. The court may decide that although an individual is not currently working, there is still potential for earning, and therefore adjourn the matter for one year to review it at that time.
Let us take the example of a $25,000 student loan debt. The court may be of the opinion that there is no way this individual will ever pay back the $25,000, but perhaps he or she should pay $10,000. The court will grant a conditional order of discharge, and tell the individual that he or she must pay $10,000 before the bankruptcy is discharged.
Those are the available options, and it is very easy to initiate the process. It just takes one letter saying, "We oppose the discharge."
For the individual who has not been bankrupt, or who has not been out of school for more than two years, when he or she obtains a discharge from the bankruptcy, her or she does not obtain a discharge from the student loan debt. That debt survives. The person is entitled to apply to the court after the two-year period from leaving school has expired, and ask the court at that time to be discharged from the debt.
Again, the court will go through the same process, and review the circumstances and the information. The court may decide that yes, given all the evidence before it, the debt should be discharged, and the student should be free from it. Alternatively, the court may decide that the student should pay the debt. In that case, the student will not be discharged from that debt, and it will survive. The court may decide that a further period of time may need to pass, and adjourn the matter for a period of time.
Senator Beaudoin: If I follow your reasoning, the mechanisms we already have under the Bankruptcy Act and the powers of the trustee under the Bankruptcy Act are good enough. We do not need more.
Ms Collins: In my opinion, they are good enough. We do not need more. More, in fact, will harm the sector that truly needs the discharge at the earlier point in time. That is up to the court's discretion.
Senator Beaudoin: Is clause 103 the only instance where we select a category of people who should not have a release like other people?
Mr. Kondo: In section 178 of the Bankruptcy and Insolvency Act, there are debts which are not discharged through the bankruptcy process. There is quite a contrast between a student loan and what is in that section. These are debts arising out of fraud, embezzlement, misappropriation or defalcation, obtaining property by false pretenses, or fraudulent misrepresentation. This clause puts student loans into that category of debt.
By extending the period to 10 years, are we denying the debtor an opportunity for 10 years? I will not say "student" because I think it is a broader issue than just students. It is singling out a particular group, and why students? We are saying that a particular category of debtor is denied the opportunity of even going before the court and pleading their case as to why they should be relieved from this debt for a period of 10 years. This seems extremely harsh. It is almost like an absolute liability offence, where there is no defence or no opportunity to ask for the court's review and exercise of discretion.
Senator Beaudoin: How are the courts looking at the students' legal obligation? Do they consider this to be a strong legal obligation, or a strong moral obligation?
Ms Collins: Yes, they do.
Senator Beaudoin: What attitude are the courts taking in an ordinary case?
Mr. Rutgen: Having been in the courts in many provinces, I find that there is generally a consensus of view on the part of our judges that they respect the nature of the debt. As Ms Collins alluded to, an abundance of jurisprudence supports the repayment by conditional orders of discharges.
I had a case in Pictou, Nova Scotia, a number of years ago where the judge, in his wisdom, extended the period of bankruptcy for 15 years at $50 a month. The bankrupt consented to that, and considered it almost a lifetime obligation. However, the integrity of the system was protected. That is an example of orders that have come through the courts.
Senator Moore: Mr. Kondo, you mentioned that your organization represents about 95 per cent of the trustees in bankruptcy in Canada. How many trustees are there?
Mr. Kondo: I believe that there are around 800 or 900 licensed trustees in the entire country. Not all of our members hold a licence as a trustee in bankruptcy, but the majority of them do.
Senator Moore: Mr. Rutgen and Ms Collins both mentioned the BIA committee. Do only members of your organization sit on that committee, or are there regulatory or government members?
Mr. Rutgen: The BIA committee was part of the 1992 amendments to the act. It was ordered by way of legislation. The people who served on the committee with me were representatives of the banks, credit unions and various merchants. The insurance industry was there. Revenue Canada Taxation was there. We referred to them as stakeholders. All the beneficial parties to the bankruptcy process were well represented. There were approximately 30 people on my committee, addressing the issue of student loans for the first time. In fact, representatives from Canada Student Loans made representations to that committee a number of years ago.
Senator Moore: Is the committee still in place?
Mr. Ruthen: No. It was dissolved upon the introduction of the legislation in early 1997.
Senator Moore: You said you were surprised that this change came in unilaterally. When you went through the 1992 process, was there some exchange? There must have been some input from your practitioners and so on.
Mr. Ruthen: Yes.
Senator Moore: You had no notice of this particular measure?
Mr. Ruthen: I was in the room the first time the Canada Student Loans people came forward with their first submission in early 1993. At that time, they had proposed a 10-year moratorium. The stakeholders agreed that it was not appropriate. However, after many months, even years of consultation, an ultimate compromise was reached allowing the two year period.
As practitioners, our concern was that, if you simply open the door and let in people, how far will it go before more and more people want to circumvent the bankruptcy process, and how long will our legislation be effective? That was a rare exception and, in my 30 years of practice, the first time that an exception of that kind was made.
Senator Joyal: I should like to come back to the amendment of the BIA of 1997 to which you have referred and, in particular, to the work that the BIA committee has been doing in that regard.
When the special anti-abuse mechanism was established in the act for a two-year period, was that a suggestion made by your committee to the government? What is the origin of that mechanism?
Mr. Ruthen: If I may test your patience in this regard, there were a number of cases before the court. I had one in particular in Halifax, where the justice ordered from the bench that Canada Student Loans review its act to address the issue of students. Soon after that, the Canada Student Loans representatives presented a presentation to the working group of BIAC requesting consideration of, at that time, a 10-year period of time. We denied that that showed common sense at the time. However, over a period of time, through the consultation and understanding of the growth of write-offs in the student loans system, a compromise was reached. Many, many hours were spent to arrive at the two-year solution.
Senator Joyal: If I understand, the two-year mechanism is something which you put forward yourself as being a fair compromise with the representatives of the Canadian Student Loans Program?
Mr. Ruthen: Yes.
Senator Joyal: You mentioned that originally the people from Canada Student Loans came forward with a 10-year proposal?
Mr. Ruthen: That is correct, yes.
Senator Joyal: When they came along with that proposal, you would have been aware that there was no such mechanism as a five-year waiver of interest, which is part of the government policy with the present budget, nor of a five-year period through which the overall levels of debt could be reviewed by the Canadian Student Loans Program authorities to reduce the burden of debt on the student. Am I correct in saying that?
Mr. Ruthen: Yes, you are correct.
Senator Joyal: It is fair to assume that, with the 10-year period we are considering now, there has been some kind of a proposal to reduce the "hardship" of a 10-year period on the system. Am I right or wrong in that?
Mr. Ruthen: I believe that to be the case. Our group really does not have a lot of material or literature to describe the extent of those provisions. They are foreign to us. However, we are firmly of the view that that is not going far enough.
Senator Joyal: I was reading your principles, especially the eight principles which include the statement that this is contrary to the spirit of section 136 of the BIA, which was amended to put creditors on an equal footing, and not to give debt to the Crown a special status. With regard to student debts for education, is it not true that there is a special balance of hardship because of a possible five-year waiver of interest, and the other possibility for review of the overall amount of debt by the authorities in the student loans program? There are mechanisms for the kind of humanitarian motive which you put forward in your own arguments, especially in paragraphs 3 and 4. Those are humanitarian-type arguments for the sake of the objectives of the BIA. Am I right or wrong on that?
Mr. Kondo: I do not think we dispute that there are many measures in Bill C-36 which are intended to provide humanitarian relief to the students with heavy debt loads. Notwithstanding that intended relief, however, if a student can only find a low-income job after leaving school, there is no opportunity to go to the court or somewhere else to have this matter adjudicated and to plead that, notwithstanding the relief granted, he or she still cannot manage this burden of debt.
In many ways, this amendment penalizes people who may have tried very honestly to improve themselves and to upgrade their education, but that fact is not reflected in their income potential once they have completed those studies. Ms Collins referred to someone as working in a social service agency. There are many valuable jobs in society, but, frankly, they are not high-paying jobs. We are better off having well-educated people doing those jobs but, if they still cannot handle the loan because of the total circumstances, there should be an opportunity to go before the courts to ask for further relief, notwithstanding the relief that has been granted.
Senator Joyal: Perhaps this question should be addressed more to Mr. Ruthen or Ms Collins. There were certain cases whereby the court said to the representatives of the Student Loans Program that there was some need for readjustment to the operation of the program. Do you have any statistics on how many student loan cases would have been released almost automatically by the court? Do you have any kind of statistics that would give us some kind of a breakdown of the general attitude of the courts as far as the student loan releases are concerned?
Mr. Ruthen: Obviously, there are statistics available. I was responding more on a global nature, in the sense that the attitude of the judges was very much in favour of preserving the integrity of the Canada Student Loans system. It is unlikely they would be as considerate to the banking institutions or merchants. Many times they were awarding conditional orders of discharge, albeit it was not 100 cents on the dollar, and it was paid over a number of years.
In my experience in the court in Halifax, the judge faced numerous cases where the people had absolutely no opportunity to repay. Some were single mothers. They were really denied an opportunity to grow income sufficient to address these situations. It was that situation which drove the decision to have the matter reviewed at that time.
Senator Joyal: You did not make a very specific study of the court cases on the basis of the Canada Student Loans Program?
Mr. Ruthen: No. As Mr. Kondo suggested, we are quite willing to create a study and to bring forward a measure of the effects of the 1997 change, and the prior awards given by the court to preserve the student loans.
Clearly, the point is that a new anti-abuse mechanism came into force last September, and then in the February, 1998 budget, that was suddenly being amended. The moratorium period goes from two years to 10 years, and there are no statistics to support the change. There has been no opportunity to study whether or not that is an effective anti-abuse mechanism. That is one of the reasons we are concerned with the process of making amendment upon amendment without any measure of the effectiveness of those amendments. This is not going to build a better bankruptcy and insolvency system.
Ms Collins: We do not have the statistics, however returning to the real life example might assist, though I can only speak for the Manitoba courts.
A discharge at today's date can be opposed by anyone and, as a trustee, I will often oppose a bankrupt's discharge for a variety of reasons. I will be at the court and the only individuals there are the judge, myself, and the bankrupt, because no creditor has opposed the discharge.
Canada Student Loans will be a creditor in the bankruptcy, although they have not filed an opposition. The court will look seriously at the fact that there is a Canada Student Loans debt. I was in court last week where Canada Student Loans did not oppose the discharge, did not appear and there was a conditional order of discharge for $6,000 because there was a Canada Student Loan debt. They are looking at it seriously.
Senator Joyal: In other words, the courts see it as a special kind of moral obligation.
Ms Collins: That is correct.
Senator Joyal: Most of the time they would recognize that this debt should remain part of the individual's responsibility.
Ms Collins: In weighing the factors, the fact that it is a student loan debt carries great weight.
Senator Forest: Much of what you have had to say to day echoes what we heard when we were doing our tour across the country on post-secondary education. Certainly, students were not looking at bankruptcy as an easy way out. They were well aware of the stigma that this might attach to their personal reputations.
I am still concerned about the lack of consultation. Did you have the opportunity to come before someone before this was passed in the other place? Have you made this type of presentation before?
Mr. Kondo: We did not appear before the Commons committee. We did send our letter to them. I am not even sure that it reached them before they had finished their hearings on the bill. It was long after the budget was introduced that we became aware that this amendment providing for an extension to 10 years was in there.
Senator Joyal: Did you not read the budget?
Mr. Kondo: No. However, when we tried to do so, we still had difficulty finding the reference to 10 years. We were not aware that this was going to move so quickly through Parliament.
Senator Forest: Was your correspondence directed to the minister?
Mr. Kondo: At the time, we thought there might still be a chance to get it before the Standing House of Commons Committee on Finance. We did do that, and we copied our letter to the Minister of Finance and the Minister of Industry.
Senator Cools: I had no idea that students were so widely availing themselves of bankruptcy provisions. We shall certainly encourage the minister to respond to everything that you have raised.
Senator Bryden: In the consultation relating to the revision of the Bankruptcy and Insolvency Act, from what you have indicated, one of the government's positions was that there would be a 10-year grace period before filing of bankruptcy on student loans.
Mr. Ruthen: Following the amendments in 1992, at which time the BIAC process was created, a paper was written by Canada Student Loans, and presented to my working group in early 1993. They made representations to the various stakeholders at that time. It was really introduced for discussion purposes. It was prior to any amendments to the act; it was there to be put on the table for all of us to explore.
Many months passed, and many papers were written before arriving at the ultimate change introduced in 1997.
Senator Bryden: Had the 10-year period had been introduced for discussion purposes?
Mr. Ruthen: Yes.
Senator Bryden: I say that because the compromise that was reached may well have been reached because there were no other mechanisms in legislation to deal with the fairness of the situation to the student.
I want to put on record what I said in relation to the Canadian Bar Association presentation. According to the Department of Finance, they are treating a particular situation here dealing with student loans. They believe that the changes that have been made in other parts of this act allow them to do that.
As a result of this budget, and therefore this bill, everyone repaying federal and provincial students loans will receive a tax credit for the interest that they pay each year. Those in financial difficulty will receive extended interest relief, and an extended amortization period. If it is still a real hardship, a reduction in the loan amount after five years will be granted. These measures are an alternative to bankruptcy. Accordingly, it is only fair to exempt the student loans from bankruptcy.
The government's position is that this is an alternative type of relief to the general bankruptcy law. That is what it is directed toward. It is not fair to say we are disrupting the bankruptcy law, and zero in solely on that section without taking into consideration the other factors. Indeed, it addresses a number of the social or human issues that you raise. A person will not be sent to collection if the interest on his or her debt is being paid, and he or she is able to pay an amortization period at a rate that is less than 15 per cent of income.
I wanted to make that point. Do you have a comment?
Ms Collins: As practitioners, we welcome alternatives to bankruptcy. We like to be able to make other solutions and to provide other suggestions. If there is an alternative to bankruptcy, the individual should take it. If they do not go for the other alternative when it is a viable alternative -- such as a consumer proposal -- then the courts should look at the issue, and make the order that they deem appropriate.
The concern is that there are a number of individuals for whom this other alternative will not make a difference. Those people should be able to go through the system, and be dealt with at the discretion of the court.
Senator Bryden: Can you be specific? In this instance of students loans, which individuals would not be assisted by these provisions?
Ms Collins: An example would be someone who has an illness, and must go on disability, or is unable to return to work.
Senator Bryden: How do you mean?
Ms Collins: That individual may never have an income.
Senator Bryden: Under this, he or she could have the principal discharged. Under the proposed legislation it is possible to make what are referred to as "gratuitous payments", which really means that the debt can be cleared in a bad situation.
Ms Collins: At this point, it is fair to say that we are not privy to all of these specific issues. We could look at your question, and come back to you with a response.
Senator Bryden: I believe that in making a judgment on this particular provision, it would be useful to put it in the total context of what is being suggested.
The Chairman: The concern that people have is that the government may be saying that, but where is it in the legislation? That is the concern being expressed.
If you were to delete the clause about which you are concerned, is the balance of that aspect acceptable?
Mr. Kondo: Clause 103 is our only concern. Bankruptcy is always the last recourse.
The Chairman: Thank you very much for coming on such short notice.
The committee adjourned.