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

Issue 20 - Fifteenth Report of the Committee

Thursday, April 19, 2007

The Standing Senate Committee on Banking, Trade and Commerce has the honour to present its

FIFTEENTH REPORT

Your Committee, to which was referred Bill C-26 An Act to amend the Criminal Code (criminal interest rate), has, in obedience to the Order of Reference of Wednesday February 28, 2007, examined the said Bill and now reports the same without amendment. Your Committee appends to this report certain observations relating to the Bill.

Respectfully submitted,

JERAHMIEL S. GRAFSTEIN

Chair

OBSERVATIONS TO THE FIFTEENTH REPORT
OF THE STANDING SENATE COMMITTEE
ON BANKING, TRADE AND COMMERCE
(BILL C-26)

The Standing Senate Committee on Banking, Trade and Commerce has the honour to report Bill C-26, An Act to amend the Criminal Code (criminal interest rate), without amendment, but with the following observations.

The Committee has decided to report Bill C-26 without amendment, even though we have reservations about the Bill as drafted, because of the following factors.

First, the Committee unanimously supports measures designed to facilitate the protection of consumers in respect of payday loan services and does not wish to delay access to legislated protection for these borrowers, some of whom we believe to be vulnerable. We have some familiarity with the section of the Criminal Code that would be amended by the Bill as well as with issues related to payday lending. In particular, in 2005, we examined a bill proposed by our former colleague, Senator Plamondon, which also sought to amend section 347 of the Criminal Code, and — in the context of our study of consumer protection in the financial services sector — heard from witnesses on the subject of alternative financial service providers, particularly payday lenders.

We continue to be somewhat puzzled by the reasons underlying the rapid growth of the payday lending sector. This growth suggests that the services provided by such lenders are needed by consumers. Important considerations for us are the reasons for the emergence and growth of this sector as well as what appears to us to be a lack of involvement by chartered banks in short-term, low-value lending.

During its recent presentation to us on Bill C-37, the Canadian Bankers Association indicated that it, too, is perplexed. It also indicated that the chartered banks provide a range of credit options on a short-term basis. Nevertheless, the Committee believes that the payday lending sector's growth may be related, in part, to a relative unwillingness by Canada's chartered banks to lend to certain borrowers, who then become customers of payday lenders. Consequently, we urge Canada's chartered banks — which are federally regulated, belong to an independent complaint resolution mechanism, and are involved in some aspects of financial education — to begin making short- term, low-value loans.

Moreover, we believe that implementation of the proposed legislation could result in the federal government granting exemptions to designated provinces with insufficient assurances that provincial actions would provide the level and nature of consumer protection in this sector that this Committee seeks. As well, there is no assurance that all provinces will enact protection measures following enactment of this legislation. Finally, we are concerned that a patchwork of non-uniform protection measures could develop across the country.

Thus, we urge provinces, in adopting consumer protection measures pursuant to this Bill regarding the payday lending sector, to include minimum requirements in at least the following areas: limitations on rollovers and back-to- back loans; mandatory participation by payday lenders in an independent complaint resolution mechanism; mechanisms ensuring full and accurate disclosure of contract terms; acceptable debt collection practices; and a right for the borrower to rescind the loan and obtain full reimbursement no later than the end of the day following the making of the loan. Efforts made by payday lenders in the area of consumer financial education would also be welcome.

Consistent with the Committee's mandate, we will continue to monitor developments in the payday lending sector, and hope that the enactment of Bill C-26 will allow effective protection to consumers. In our view, if the provinces fail to meet minimum standards in the areas indicated above, the federal government should take appropriate legislative action.