Proceedings of the Standing Senate Committee on
National Finance
Issue 26 - Evidence - February 9, 2011
OTTAWA, Wednesday, February 9, 2011
The Standing Senate Committee on National Finance met this day at 6:46 p.m. to examine the estimates laid before Parliament for the fiscal year ending March 31, 2011, (topic: trustees in bankruptcy).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: I call the meeting to order and welcome honourable senators and guests this evening.
[Translation]
This evening we are resuming consideration of the estimates for 2010-11 which have been referred to our committee.
[English]
I have some preliminary points to draw to your attention. As we discussed at the last meeting, there will be the usual consultation between the parties to create our third member of the steering committee. I am pleased to announce that Senator Gerstein and I will be joined by Senator Neufeld as the third member of the steering committee. I thank Senator Marshall for having served in that position over the past several months.
Senator Marshall: Thank you.
The Chair: It was a pleasure having you on the steering committee, and I look forward to your continued participation in this committee.
Honourable senators, by now you should have received copies of Supplementary Estimates (C). The steering committee will look at which witnesses we should call with respect to Supplementary Estimates (C) in the near future, perhaps tomorrow. We will send out a notice for next week. We will concentrate primarily on this government business, which is our priority objective.
I call on Senator Gerstein at this time to tell us about a new publication.
Senator Gerstein: Members of the committee may recall yesterday at our meeting substantial discussion took place with the superintendent of bankruptcy and the deputy superintendent of bankruptcy about the importance of financial literacy. As if on command of this committee, not more than 24 hours after we discussed the issue, a report was issued this morning that was created by the task force established by the Minister of Finance.
I have brought 12 copies with me in both official languages. I ask that they be tabled and distributed to the committee for information.
The Chair: It shows how topical we are to items or how quickly the government reacts.
Senator Gerstein: Absolutely.
Senator Neufeld: It is a bit of both, correct?
The Chair: Very good.
At yesterday's meeting, as Senator Gerstein indicated, we heard from the Superintendent of Bankruptcy. Over the course of those discussions, we heard of some of the different professional groups and individuals who are involved in insolvency matters, and in particular bankruptcy trustees and credit counsellors. This evening we will continue some of those discussions with the Canadian Association of Insolvency and Restructuring Professionals, CAIRP, who represent the bankruptcy trustees. We hope to have, and had hoped to have, appear representation from the Credit Counselling Services of Atlantic Canada Inc. That was the other association to which the superintendent referred last evening. That may well be possible next week, but they were not available for tonight's meeting.
Representing the Canadian Association of Insolvency and Restructuring Professionals this evening, we are pleased to welcome Norman Kondo, President; and Guylaine Houle, Vice-Chair.
Colleagues, we have one hour for this session. Your usual cooperation with respect to questions, comments and answers would be appreciated.
I understand Mr. Kondo has some introductory remarks, and I am also advised that Ms. Houle is a professional working in the business. She will be able to tell us what happens on a day-to-day basis. Mr. Kondo, you have the floor, sir.
Norman Kondo, President, Canadian Association of Insolvency and Restructuring Professionals: Honourable senators, we are pleased to assist you by appearing here today. I am the president of the association and Ms. Houle is a double threat as both a lawyer and a trustee in bankruptcy.
I will outline the history of the association and its activities, to give you an understanding of who we are. If we cannot provide answers to all of your questions today, we would undertake to provide those to you at the earliest opportunity.
I will start by reading our mission statement, which is short, because it will set the framework for the information I am about to give you.
The first leg of our mission statement is to educate and support the association's members in providing insolvency, restructuring and related advisory services in a manner that instills the highest degree of public trust. The second leg is to advocate for a fair, transparent and effective system of insolvency and restructuring administration throughout Canada.
Our presentation will explain how we fulfill this mission. Our vision statement looks at CAIRP members as being recognized as the leaders in providing solutions to financially challenged individuals and businesses. Our activities and programs are intended to achieve this vision through the education and regulation of our members.
We have three strategic goals: advocacy for the system; education of insolvency and restructuring professionals; and professional recognition of our members as chartered insolvency and restructuring professionals, or CIRPs. CIRP is a registered certification mark for our general members.
Next, I will give some history about the association. We are relatively young. We were incorporated in 1979 as a not- for-profit organization. The then superintendent of bankruptcy, Jacques Brazeau, was supportive and encouraged the formation of the association. His idea was that, ultimately, we would be a self-regulating body.
In addition to our national association, we have nine provincial associations. Prince Edward Island has one trustee, one member, and he is a member of the Nova Scotia association.
In the articling and life member categories, we have roughly 500 additional members. We are self-funding through our membership fees and any surpluses we might achieve from our many continuing education programs. We are financially independent; we are not insolvent, and we do not receive funding from government or any third parties.
I mentioned that Jacques Brazeau had a vision of us eventually becoming self-regulating. We have not assumed control of the regulatory protocols for trustees; that is still with the Office of the Superintendent of Bankruptcy, OSB, and you interviewed the superintendent yesterday. However, we have assumed a high degree of accountability as if we were a self-regulating body. Using self-regulation as our model, we are conscious of one of the major underlying principles of self-regulation, namely, that it is in the public interest to have the professionals who do this work, who have been trained and are experienced in the work to set and enforce the standards of practice and the rules of professional conduct. Our members know best what is expected, and we expect our members to meet our standards.
CAIRP enacts standards of professional practice. We have rules of professional conduct, which were enacted only two years after the formation of the association in 1981 and by many years preceded the actual code of ethics for trustees that are part of the Bankruptcy and Insolvency Act, the BIA, now. We enforce our rules of professional conduct through our professional conduct and discipline committees.
CAIRP has developed and maintained the CIRP Qualification Program, CQP. This program educates members on insolvency legislation, principles of common and civil law, the practical application of such legislation and principles, and the code of ethics and professional standards expected of someone who is aspiring to become a professional and a member of the association. This will be done through a competency-based learning program.
This program also includes the Insolvency Counsellor's Qualification Course, ICQC, which is a program designed to educate those who will counsel consumer debtors. This course is mandatory for a licence as a trustee in bankruptcy. The course is completely open; it is not restricted to CAIRP members. In fact, just as many non-members might be enrolled in the program, and these are people in the counselling field.
Our members have also been generous with their time in lending the benefit of their practical experience to the regulator, policy-makers and civil servants running programs such as the Wage Earner Protection Program, WEPP, which is one of the new government programs.
We present continuing education seminars in May in six cities across the country, plus other seminars, and these are attended by our members and other interested parties such as lawyers and government employees.
When the amendments to the BIA and the Companies' Creditors Arrangement Act, the CCAA, were enacted, CAIRP provided all of our members with three web-based modules so that they could educate themselves on the amendments in the area of personal insolvency law, commercial insolvency law and the new WEPP.
I think you can see how this fulfills our mission to educate members and to instill public trust in those members.
Turning to advocacy, as advocates for the system, we work closely with OSB to provide the superintendent and his staff with the perspective and the experience of the professionals in the trenches. They are the ones who have to take this law and use it to relieve the distress of individuals and companies in financial trouble.
We have been active in providing comment on insolvency bills and in participating in review bodies such as the Personal Insolvency Task Force, PITF. Ms. Houle was a member of that task force. This was helpful in helping develop the amendments in the last round. With respect to those amendments in 2008 and 2009, our association was the only public witness to be heard prior to third reading by the Senate.
We continue to meet regularly with Human Resources and Skills Development Canada, HRSD, and Service Canada to assist them with the implementation of WEPP, and we have a number of initiatives with them to make the program more effective.
Finally, CAIRP created the Canadian Insolvency Foundation, CIF. I am also president of the foundation, and I refer to the membership of the foundation as ``non-denominational.'' The board of directors reflects the broad range of people who belong to the foundation. We have insolvency lawyers, a judge, a registrar of the court and a university professor. Each year, through the Lloyd Houlden Research Fellowship, the foundation annually funds scholarly papers intended to improve the bankruptcy and insolvency system. The funding for that comes primarily from law firms, accounting firms and provincial insolvency associations.
That is a brief overview of who we are and from where we came. I will open it up for questions now.
The Chair: Just as a point of clarification, is the licensing of trustees and the overseeing of their activities all done by the superintendent, or do you participate in that in any way?
Mr. Kondo: The superintendent licences trustees; that is his mandate under the BIA. It specifically says that the superintendent issues the licences.
We have also set our own standards for our members. If we receive a complaint against a member, we can actually find ourselves very often in a situation where the complainant will lodge a complaint with us, the superintendent and sometimes, if they are a member of an accounting body, with that body as well. Each body has its own rules and standards and its own investigative and evaluation procedures. Therefore, sometimes you can have three procedures happening independently, and not always to the same conclusion.
I go back to the basic principles of self-regulation. We have volunteers who will investigate and write a report to our professional conduct committee. When that comes before our committee, every member on that committee is licensed as a trustee, is a CIRP and is experienced in practice. We really do have peers making a judgment on the person's actions and conduct.
The Chair: The courses that you offer, are these continuing education courses or are they also courses to help someone become licensed?
Mr. Kondo: The CQP, the new CIRP Qualification Program, is mandatory for anyone who desires to have a licence as a trustee in bankruptcy. Previously, we offered the course together with the superintendent, jointly administering the course and the examinations. Now it has been brought back in within the association, as it was when we first began. It was our student education program.
The superintendent will accept people who successfully complete that program as candidates before an oral board of examiners, which is the final test to receive a licence as a trustee. The oral board will have a trustee who is a member of the association; they will have an insolvency lawyer, a member of the superintendent's office, and then usually one member who goes across the country. There will be several boards across the country, and a member representing OSB who will provide the consistency. Did I get that right? Ms. Houle has participated as an examiner on those boards. It is one of the few professions where you still have an oral board of examiners to acquire your licence.
Over the years, that has evolved, too, because when it was our program back in the early 1980s, the admission requirement was an accounting designation or equivalent. After it became a jointly administered program, the requirement became a university degree, basically.
The Chair: You even let lawyers in now.
Mr. Kondo: We even let lawyers in. Some of them do very well. We even let some of them become vice-chairs.
Guylaine Houle, Vice-Chair, Canadian Association of Insolvency and Restructuring Professionals: Just to clarify, our association has the education program, which is the CQP. Because it is being brought back in-house following the signing of a memorandum of agreement with OSB in October 2009, we are presently revamping the entire course and making it much more attractive to, hopefully, the most talented Canadians to come and join our association.
This new program will start in September, 2011. Once the individual has completed that program, they will proceed to the National Insolvency Exam, NIE, which is the culmination of approximately a year and a half to two years of self-taught courses. Upon passing the NIE, they will obtain the certification mark from the association, which is the CIRP. From there, they are invited to proceed to the oral board with OSB. OSB will issue the licence, provided that the individual has passed the oral boards.
Mr. Kondo: I should mention that the superintendent has an ex officio representative on all of our education committees and exam boards. The superintendent is well aware of the qualification standards, examinations and testing. It is as though we are the law school, and he would be the law society; or we are the medical school, and he is the college of physicians and surgeons, which ultimately licenses the graduates.
The Chair: That is good background from which to start with senators' questions and comments.
Senator Murray: I just have one or two questions about the organization. You say that you have a combined membership of over 500 in what you call the articling member and life member categories. What is an articling member?
Mr. Kondo: An articling member would be a candidate in the qualification program.
Senator Murray: For what, a trustee?
Mr. Kondo: For both membership in the association to receive the certification as a CIRP and to become a licensed trustee.
Senator Murray: Of the 500 members, how many are trustees in bankruptcy?
Ms. Houle: I think there is a little confusion. The 500 are the articling members, students within the program; and life members are those who are no longer practising but are life members because they have been members for a number of years. I think it is 20 or 25 years.
Senator Murray: The articling members are articling to become trustees in bankruptcy.
Ms. Houle: They are articling to obtain the certification mark; we cannot, as an association, issue a licence. Only OSB can do that.
Senator Murray: The reason I ask is we were told yesterday, when the superintendent was here, that there are approximately 740 trustees in bankruptcy across the country — active, I take it. I wonder how many of those are in the 500 who are your members.
Ms. Houle: Some of them are counted, but not all of them because in the 500 there is a large majority that are articling students, so they do not have their licence yet.
Mr. Kondo: The life members are no longer active.
Senator Murray: I understand that.
Mr. Kondo: I think, in the superintendent's numbers, he would be referring to people who are actively practicing as trustees, and they would be part of our 879 general members.
Senator Murray: I do not see it here. I did not see that in your statement. There it is: 879 general members.
Mr. Kondo: Those are the ones who are active and practising.
Senator Murray: Would you say that most of the trustees in bankruptcy in the country are members?
Ms. Houle: Approximately 95 per cent of the trustees in the country are members of the association.
Mr. Kondo: We can probably name most of them who are not.
Senator Murray: It is voluntary?
Mr. Kondo: It is voluntary.
Senator Murray: Is one obliged to belong to the bar society if one is a member of a provincial bar?
Senator Dickson: That is the way you qualify.
Mr. Kondo: You do not have to belong to the Canadian Bar Association. In some provinces it is mandatory.
Senator Murray: You do not have to belong to CAIRP if you are a trustee in bankruptcy, but at least 95 per cent do.
Just one more question. You said that you had testified here or before a Senate committee about the amendments in 2008-09. Are there federal laws that the association would like to see changed, or are you satisfied with the existing legislative framework?
Mr. Kondo: I do not think we are ever satisfied. I believe there is a five-year review timetable. We understand that the process for review will begin this year. Certainly we will be active participants in that review, but we have not turned our minds to an active review yet. There were many changes, in particular to the consumer area, but it is still pretty early to find out just what effect they will have.
Senator Murray: Have those changes been made?
Ms. Houle: We had small changes in 2008 when part of the bill came into force. Most of the changes came into force in September 2009. It has not been even a year and a half since most of the major changes came into play. We might need some tweaking here and there, but it is a little early for us to say that definitely we want changes.
As the economies evolve and as life evolves, laws have to change accordingly. Unfortunately for us, laws do not change as quickly as life evolves, so it is difficult to stay on time. Before major changes are made, we have to see what the new changes have done, how they compare to everything and how we can administer the act, because that is our role. Insolvent individuals or corporations come to see us, and we administer the act and inform them of the consequences. It is difficult at this time to say exactly what we would like to change.
Senator Murray: In the 2008-09 exercise, you went before the committee, and you made your representations even before that, I presume, to government departments and so on. Were there significant disappointments on your part with the law that was eventually passed? Are there significant gaps between what you advocated and what was eventually passed? Is there anything that you would like to mention?
Ms. Houle: The area of student loans was a disappointment.
Senator Murray: What about it was a disappointment?
Ms. Houle: In personal insolvency, if you file a personal bankruptcy or even a consumer proposal, section 178 of the Bankruptcy and Insolvency Act stipulates that certain debts will not be debts erased pursuant to the end of the bankruptcy or the end of the consumer proposal.
Senator Murray: Did this pass in 2008-09?
Ms. Houle: No, this section has always been in the act.
Senator Murray: What did you want to do about it?
Ms. Houle: In 1997 and 1998, when we had initial changes to the BIA, a student loan became a debt that was non- dischargeable from a bankruptcy or a consumer proposal, unless you had terminated your studies at least 10 years prior to the date of your bankruptcy. In July 2008, this was reduced but not enough as far as we were concerned. The time was reduced to seven years. We felt that it should have been reduced substantially more. We did not think that a student loan should have a special time or special status within the act.
Senator Murray: What should they be?
Ms. Houle: They should be fully discharged.
Senator Murray: That is your view.
Ms. Houle: We were willing to compromise, not for zero, but obviously we did not get what we wanted.
Mr. Kondo: Correct me on the timing, but initially student loans were dischargeable like any other debt. The concern was that students were piling up all the debt, declaring bankruptcy and then starting very lucrative professional careers. That was certainly unjust and not something that we supported. An initial amendment proposed that up to two years after graduation, you could not discharge your student loan through bankruptcy. That did not seem unreasonable and gave people time to get established, use their education to their benefit to earn income and establish a career to pay off the loan.
However, six months after that change was made, an amendment was introduced suddenly to make it 10 years that the loan was not dischargeable. To make it worse, you could not even make an application before a judge on hardship reasons to have that 10-year period abbreviated or totally ignored.
To me, even as a non-practising lawyer, that seemed totally unjust. Someone can be in prison as a serial killer and would have the right to go before a panel or a tribunal at some point to ask to be released. However, our students, who we say are our intellectual capital and the future of the country, were not even allowed access to plead their case for 10 years. We had members reporting cases of people. In one extreme case, someone who had just graduated from medical school was in a car accident and became a paraplegic. She could not practice but still had the debt hanging over her head. That is what we objected to, as I think anyone would object.
Ms. Houle: It was not part of the last round of amendments. Certainly CAIRP will ask for the definition of administrators in consumer proposals, which is found in section 66.11 of the Bankruptcy and Insolvency Act, to be changed. Presently, it says that two people can administer a consumer proposal pursuant to the act. It says that trustees in bankruptcy can be administrators of consumer proposals and that the superintendent of bankruptcy can designate other individuals to be administrators of consumer proposals. We will advocate for the removal of that section from the BIA.
Senator Murray: Why?
Ms. Houle: We believe that trustees in bankruptcy have set the bar very high for their standards of practice. We have a very good education program, and we make sure that our candidates understand all the complexities of the BIA. Our members must understand all the various options offered to consumers or corporate insolvencies. We believe that if someone wants to be a professional within the Bankruptcy and Insolvency Act, they should take a course and become the professional that can act under the BIA in a bankruptcy.
Senator Murray: You do not think that the superintendent would be capable of selecting a non-trustee in bankruptcy who is nevertheless competent to do the job in question.
Ms. Houle: No; only our course provides all the knowledge and information required to administer the BIA and do what we do on a daily basis. Whether it be a consumer or corporate debtor, many complexities are involved, and time and experience provide us with that knowledge.
Senator Murray: I can see why they are somewhat reluctant to make your association a completely self-governing and self-licensing profession. You are talking about your profession as a lawyer or a medical doctor might talk about their professions. Perhaps you are right; I do not know.
What about provincial laws?
Ms. Houle: The BIA is federal. Insolvency is a matter for the federal government; it is not a provincial matter. Most provinces are part of the orderly payment of debts, which is Part X of the Bankruptcy and Insolvency Act. Quebec has a voluntary deposit, which is administered provincially. The orderly payment of debt and the voluntary deposit require the debtor to pay in full.
Senator Murray: I was getting at whether you are advocating for changes to provincial laws.
Ms. Houle: We do not administer those things. They are administered by government officials.
The Chair: As a point of clarification, Mr. Kondo referred to a course. I believe the acronym was ICQC.
Mr. Kondo: It is the Insolvency Counsellor's Qualification Course.
The Chair: You indicated that half the people who took that course were not trustees in bankruptcy. Would they be the people that Ms. Houle referred to as non-trustees authorized by the superintendent of bankruptcy to administer consumer proposals?
Ms. Houle: Thus far, they are not authorized. They could be authorized, but thus far they are not. The individuals who take the ICQC course can be credit councillors. They can also be many of the employees that we have. It is mandatory in my office for my employees to take that course. It does not necessarily have to be someone who does not work in the insolvency field.
The Chair: I think honourable senators would be interested in knowing who are the non-qualified or not as well qualified individuals who the superintendent might authorize and who you were just discussing with Senator Murray.
Ms. Houle: Through the consultation process on the trustee licensing directive, which was started in June, 2010, by OSB, to which we responded by August 31, OSB indicated that it was considering designating other people, and those other people would be credit counsellors. Currently, credit counsellors advise debtors, but they do not necessarily advise debtors who are insolvent. We advise debtors or deal with individuals who are insolvent. That is what we do. OSB sees them prior to that process and might see them after the process. They are credit counsellors. They counsel on financial difficulties or other issues that these individuals might have. It could be drug abuse; it could be alcoholism. Many issues enter into counselling.
Mr. Kondo: One of the issues here is that, if you have a consumer who is overextended on their credit card or has perhaps lost their job, or you have two people working, which is the norm these days, and one of the people in the household lost their job, what do they do? They might go to a credit counsellor because the advertising is everywhere — we all see that on the sides of buses, on television — or they might go to a trustee in bankruptcy first. However, I think that that individual would not necessarily know that they need a consumer proposal. All they know is that they want some help with their financial difficulties. If they go to a counsellor, they may get some good counselling and they may have their budgeting problems identified. Maybe it is just a cash flow problem; they just do not have enough cash for their needs. If they do need a formal proceeding, either a consumer proposal or bankruptcy under the act, then it has to be a trustee. That is what the statute says.
Ms. Houle can explain what happens when someone such as that comes into her office. She cannot just say, ``You need a consumer proposal,'' or ``You need a bankruptcy.'' She has to go through an assessment to determine what the best course of action for that person is so that they can make an informed choice with someone who can offer them all of the alternatives.
The Chair: You just indicated that the superintendent is contemplating authorizing individuals other than trustees to deal with proposals, but that has not been done yet, has it?
Mr. Kondo: No, that is part of the licensing framework review. He is looking at all aspects, as I think he should. He is a good regulator, and he is always looking at every aspect and at what assistance is available for financially distressed individuals.
He has received many submissions from our association and from individuals, and his staff members have been working on it, as I understand. I have no idea what his intentions are, what his decision is, other than that we will know sometime this year. Our point is that anyone can enrol in the qualification program to meet the same standard as the people who are administering consumer proposals right now. It is definitely open to anyone with a university degree. In fact, some people with many years' experience who do not even have the university degree are eligible to enrol in the program, although a vast majority of our members do hold university degrees, advanced degrees such as MBAs. Most of them will have some sort of business background. Probably somewhere in the neighbourhood of 70 per cent of our members hold some type of professional accounting designation or even a law degree.
Senator Gerstein: Thank you, Mr. Kondo and Ms. Houle, for appearing before us today. We heard yesterday from Mr. Callon, the current superintendent of bankruptcy, that the Office of the Superintendent of Bankruptcy was established in the 1930s, explicitly to deal with fraud. Mr. Kondo, I would be interested in knowing your views today: To what extent the issue of fraud before you, with respect to both bankruptcy trustees and debtors?
Mr. Kondo: As far as debtors, I am not qualified to comment on that. I know the superintendent would be looking at that. He also has special investigation units in Montreal, one opening in Toronto and another one out West in cooperation with the Royal Canadian Mounted Police, RCMP, but I am far removed from that.
In terms of trustee fraud, there have been a few defaults from the trust accounts over the years — very few, but there have been some. You can probably read about them through the proceedings on the superintendent's website where he will list the disciplinary matters, removal of licences or conservatory measures.
Senator Gerstein: Is there anything your group has to do in a proactive way to monitor this situation or deal with it with your students?
Mr. Kondo: With our new program, we want to instill in our students that they are professionals and that they have to uphold the highest standards of ethical behaviour, and that includes not taking the money, of course. We are rather limited in our ability to police the trust accounts, which is the big issue, because there are substantial sums there, and the superintendent has auditors. He has the powers to make those investigations. As I say, we are a voluntary organization. We do not have the power to go into an office and ask members to show us their banking records and their balances and reconciliations.
Ms. Houle: There is a very explicit directive on banking and controls, which is Directive 5R, issued by OSB. By virtue of that banking directive, we have many obligations on a yearly and monthly basis that are supervised by OSB. Therefore, since the coming into force of that directive, which dates back a number of years, the fraud cases are rarer as time goes on. With the avenue of computerized everything, it will be more and more difficult, so I do not think that that is really an issue.
To address the issue of debtor fraud, yes, it happens. OSB began a special pilot project in Montreal approximately three or four years ago that specifically looked at debtor fraud. This unit has had enormous success. As trustees, obviously, we are the first ones to see the debtors who have potentially committed fraud. We work with OSB to say that we think there is potential fraud. There are cases with individuals coming in with $200,000 or $300,000 in credit card debt that they have accumulated over six to twelve months, which obviously is not the normal course of the business. We would then tell OSB, who would take a deeper look.
We also have the creditors who join in, the credit card owners who will contact us to say, ``This particular debtor spent X amount of dollars in a very short amount of time. We think there is something wrong.''
Creditors speak among themselves, so together we are able to take these cases and deal with them at a judicial level. Criminal complaints may or may not be filed, but certainly civil complaints would be filed and there would be opposition to their discharges; they would probably remain in bankruptcy for a longer period of time. They would probably be ordered to pay a certain amount of money or a percentage of their debt.
Senator Marshall: Would you investigate complaints made against your members? Is that something you would do as an organization?
Ms. Houle: Yes, we do.
Senator Marshall: Do you receive many complaints?
Mr. Kondo: No. At the moment, out of almost 900 members — and I work closely with the Professional Conduct Committee, PCC — we have a maximum of about 25 open cases.
Senator Marshall: What disciplinary procedures do you have? Membership is not mandatory in your association, it is voluntary. Is that correct?
Mr. Kondo: Yes.
Senator Marshall: Would you talk about that? What avenues are open for discipline?
Mr. Kondo: We have a wide range of disciplinary measures set out in our bylaws. The superintendent is envious. He does not have the same options that we do. At the initial level, the PCC can make a decision and, with the consent of the member, can administer a fine of up to $5,000; issue a reprimand; and require that they take additional courses. A couple of members had to take one of the education courses.
Senator Marshall: What about your professional development? I understood from what you said earlier that you have mandatory professional development requirements of your members?
Mr. Kondo: We have 20 hours per year.
Ms. Houle: Yes, and for seven hours of those, you must be physically present at a conference.
Senator Marshall: Members are required to provide you with that information. Do disciplinary procedures apply to those who do not meet their mandatory professional development?
Mr. Kondo: They could be suspended for not meeting those requirements. When we started up the program initially, we created a website where all of the members had to log on. A lot of administration was involved and, ultimately, many staff chasing people — not because they had not done it but because they did not enter it. Some of them were a little deficient. This year, we decided we will not require that. We told all our members that we would do some spot checks and, if requested, some random sampling. They have to provide us with a list of the professional development hours that they did in any one year. We did that this year, and everyone was in compliance.
Senator Marshall: Even though you are not self-regulating and your membership is voluntary, you do process complaints?
Mr. Kondo: We do that.
Senator Marshall: You have that?
Mr. Kondo: Yes. If a member disagrees with the determination of the Professional Conduct Committee, then they are entitled to a full hearing with a discipline committee. We have an administrative lawyer who advises our PCC. If we hold a hearing, then we must appoint a panel of members to sit. Usually four members will sit as a disciplinary panel. We also have to go out and appoint an independent counsel for that panel as well. I think it is similar to any self- licensing body. That is the process that we follow.
Senator Marshall: Is it your objective at some point in the near future to look at self-regulation?
Mr. Kondo: I would not say in the near future. Initially, particularly since the superintendent was pushing us to become self-regulating, we thought this was great. However, we do not have great numbers, and we are spread across the entire country. A few years ago, we decided to put that idea aside for a while. I am not saying that we would not come back to it, but it is not one of our top priorities at the moment. We are just trying to ensure that we get our new education program, which is a big initiative.
I do not know how many of you are familiar with the chartered accountants, CAs, but they have 80,000 members. Several years ago, they moved to a competency-based course. We are affiliated with the Canadian Institute of Chartered Accountants since the majority of our members were chartered accountants. They have been helpful in assisting us to develop our competency-based program and examinations. The CA profession actually recognizes specialists in certain areas. As a member of our association, a CA can become a CA-CIRP, a specialist in insolvency restructuring; and a business valuator could become a CA-CBV — chartered business valuator — a specialist in business valuation or a specialist in investigative and forensic accounting. The CA affiliation is a great model for our members as well.
Senator Marshall: I agree.
The Chair: Senator Marshall agrees; she is a CA. Thank you, Senator Marshall. I thought we better declare that interest there.
Senator Peterson: Do you have any initiatives to try to prevent bankruptcies?
Ms. Houle: When the new amendments were introduced, we were promoting some of the changes because it would promote consumer proposals, which would avoid bankruptcy. For us to have an initiative to prevent bankruptcies is difficult because by the time the individuals come to us, they are insolvent. We were looking at making consumer proposals more attractive to individuals, and the changes in the act in September, 2009, and in July, 2008, have done that. Consumer proposals are now more attractive, easier and allow for more flexibility. That has been a good change.
An individual who comes to see a trustee does not necessarily have to go bankrupt; there are other options. If none of the options from the BIA are available, or if we feel that this individual is not someone who can use them, then we will refer them either to someone who could provide them with a loan consolidation or something else. There are other options beside bankruptcy or consumer proposals.
Senator Peterson: I was thinking more on the broader picture, that you would see the hot spots and trends that you could pass on.
Ms. Houle: Whatever information we have, we pass it on usually to OSB. If there is a need for education, we will provide our expertise; we always have.
Senator Peterson: Do they ever ask for it?
Ms. Houle: Yes they do. In fact, we cooperate with them. They certainly enjoy having our practical experience with, as you say, trends. Trends are very important. For example, we started seeing that older individuals were going bankrupt, specifically older females. Why was that? With time and with seeing more, we realized that one of the issues was that many older women had never taken care of any of the finances and were unaware of how to deal with matters. These trends are important because they allow the government and other associations to act upon them.
Mr. Kondo: Also, as I mentioned before, through the Canadian Insolvency Foundation, we fund research. One of the papers was by Dr. Janis Sarra, a real scholar in the area of insolvency. She did a paper on the causes of business failures. She studied data from OSB. However, as far as any wide spread education programs, it is beyond the scope of an association our size. That is for the educators and provincial governments as well.
Senator Callbeck: You said that you are self-funding with the dues and money from continuing education programs. How much are your dues?
Mr. Kondo: General member is $950 a year.
Senator Callbeck: How much do you take in a year from the education programs?
Mr. Kondo: Our total budget, which we just approved, is about $2 million.
Senator Callbeck: You mentioned the Personal Insolvency Task Force. Is that in existence now?
Ms. Houle: No. That was in existence. It started in the fall of 2001. It was a task force that lasted for approximately 18 to 24 months. It was headed by the Honourable Senator Yoine Goldstein at the time.
Senator Callbeck: Have the recommendations — I assume they are recommendations — of the task force been carried out?
Ms. Houle: Not all, but a substantial amount of them have been carried out with the changes in the act, either fully or partially.
Senator Callbeck: Are there any that have not been carried out that concern you?
Mr. Kondo: We could go back to student loans.
Ms. Houle: Yes, the student loan is probably the major one. When the initial amendments to the act came in in September, 1997, and gave the period of two years before you could have a dischargeable debt, a student loan, we were all aware of that. Studies had been done; they had data by which they decided that two years was the right amount of time.
However, within approximately nine months, in June, 1998, they changed it to 10 years, and 10 years is a long time. As a practitioner, because my specialty is consumer insolvency, as someone who will see someone with a student loan at least once a week, I can say that not everyone is dishonest. Not everyone does this on purpose and not everyone wants to not pay the student loan. Very often it happens that they cannot because of illness, loss of job or family difficulties.
Senator Callbeck: There is no other recommendation there that was not in the report?
Ms. Houle: No.
The Chair: Senator Callbeck is from Prince Edward Island, the only province that does not have an association — just one trustee.
Senator Ringuette: I just received this report on recommendations on financial literacy a few minutes ago. I imagine that you would be a key resource on financial literacy and in providing some recommendations. Were you consulted by the task force?
Ms. Houle: We were not initially invited.
Mr. Kondo: We were not part of it. We did not have membership or representation on the task force. This is probably more my personal view; again, this is getting into the broader issue of educating a vast number of unknown people out there, which is quite a scope. To a certain extent, with some of the difficulties that people get themselves into, is it easier to educate them or perhaps not to allow them to be exposed to some of the things that get them into trouble?
Maybe it is easier to legislate the person who is offering a contract that is impossible to understand that people just go ahead and sign, for example, rather than trying to educate all these people who are not lawyers to understand all the ramifications and pitfalls in the contract, which will obligate them to payments that might really strain their personal budgets. Even as a lawyer, I cannot read and understand them all and figure it out.
Ms. Houle: I think a task force such as the one that wrote the report is important. It is something that needs to be done; there is no question about that.
I do not know what the right method is. Obviously I have not read it, so I do not know what it says. However, my personal opinion is that we have to start at two ends. We have to educate our young people in the schools. They need to start young. Credit cards and credit are offered to young children, so it has to start there. It also has to start through the parents. Children model their lives after their parents. For Canada to be able to say that its citizens are financially literate, parents will have to be involved. It will be a hard job. It is not impossible, but we definitely must start in the school and definitely ensure that parents understand.
Senator Ringuette: How do we provide financial literacy for businesses that go bankrupt?
Ms. Houle: It is a question of the individual wanting to know and not being led in the wrong direction. The individual who is borrowing will have to be more aware. We have to ensure that everyone is more aware. The solution to that is that there will have to be many forces out there to ensure that adults are well aware of the different types of credit and the different ways that credit is granted.
Senator Ringuette: What fees do you charge for the courses that you provide that you indicated were equivalent to a two-year program?
Ms. Houle: It is approximately $8,000 in total to get the certification mark.
Senator Ringuette: Is that over a two-year period?
Ms. Houle: Approximately two years, yes.
Senator Ringuette: That is a self-taught program?
Ms. Houle: Yes. There are three courses with exams, and then a final exam. There are a total of four exams and three basic courses.
Senator Ringuette: I want to understand this and ensure that I do. An individual who wants to make consumer proposals would directly hire one of your members, is that correct?
Ms. Houle: ``Hire'' is not the right term — consult, yes.
Senator Ringuette: How are you paid?
Ms. Houle: We are paid through the money being given through the consumer proposal. It is a tariff-based fee. It is legislated by the act.
Senator Ringuette: For instance, an individual goes to see you; they have a proposal to make, which is the least amount of the mandate that you can fulfill, from my perspective. On a typical individual bankruptcy proposal, let us use an amount of $200,000.
Ms. Houle: That is not a typical consumer proposal. A typical consumer proposal will be much less than that. The amounts owed would be under $100,000 easily.
Senator Ringuette: Okay; let us use the amount of $100,000. What would be the fee for that amount?
Ms. Houle: I would have to calculate it, but approximately 20 per cent, so $20,000.
Senator Ringuette: It is 20 per cent?
Ms. Houle: It is 20 per cent of what is distributed to the creditors. If the total amount of debt is $100,000, and the individual is offering 50 per cent, then it is 20 per cent of $50,000. In addition, they have costs, taxes, filing fees with OSB, so it would be a little less; maybe, $8,000.
Senator Ringuette: Do you have the same fee structure for business bankruptcy?
Ms. Houle: No; business bankruptcy is on an hourly basis usually. It is paid by the corporation, or the trustee gets paid by the director of the company, for example, who wants to put his company into bankruptcy.
Senator Ringuette: With respect to a business bankruptcy, the insolvency professional would be paid on an hourly basis, would be hired by the business or the director and would be paid by that person. I thought it was either the court or the superintendent who appointed someone among the certified professionals.
Ms. Houle: No. It can be a court. If we look at business bankruptcies — it still applies to individuals, but it is rare — a business administrator or director will consult the trustee and will choose his trustee. Creditors can substitute the trustee if they do not want this particular trustee. That happens rarely, but it can happen. In addition, a creditor can petition a corporation into bankruptcy. If the creditor petitions the company into bankruptcy, he or she will suggest a name, which the courts will approve. However, that is a rare occasion.
Senator Ringuette: Do you supply liability insurance to your members?
Ms. Houle: No, we do not. All trustees have their own liability insurance.
Mr. Kondo: A few firms specialize in providing it for the profession.
Ms. Houle: Yes, maybe only two or three in the country provide liability insurance for us.
Senator Ringuette: Yesterday, the superintendent told us that the Receiver General of Canada, to sustain that office, was collecting fees in the vicinity of $43 million annually. You are saying that you have 479 officially recognized bankruptcy members.
Ms. Houle: No, it is 879.
Senator Ringuette: That 879 includes the 500 apprentices.
Mr. Kondo: No.
Senator Ringuette: No, so it is above that figure. Therefore, 879 general members across the country generate revenues and pay $43 million in fees to the office.
Ms. Houle: No. We do pay a fee for our licence to OSB. However, the bulk of that money includes filing fees and other fees. Every time we file an assignment or proposal, whether it is consumer or corporate, we must pay a filing fee to OSB. It is either $75 or $150. In addition, every time we distribute monies, we pay a levy of 5 per cent to the government. That is dictated by the act. If you distribute more than $1 million, I believe, the levy diminishes accordingly. In general, however, the levy is 5 per cent, so for every dollar that is distributed to a creditor, 5 cents is paid to the Receiver General of Canada.
The Chair: All of this information is in the regulations.
Ms. Houle: It is in the regulations and the acts. The levy in question is in section 147 of the BIA, and the rules will give you the percentages.
The Chair: Thank you; we will look that up.
We thank the Canadian Association of Insolvency and Restructuring Professionals, trustees in bankruptcy, for being here and helping us to understand a little more. You can tell from many of our questions that we are new in this area. However, it is important to have a clear understanding of what is happening. You have helped us substantially. Again, thank you for being here.
I am now pleased to welcome Ursula Menke, Commissioner of the Financial Consumer Agency of Canada, FCAC, for our next session.
One of the issues that arose yesterday morning during our discussions with the superintendent was financial literacy. We have just circulated a report that came out that is also quite topical in that regard. It seemed appropriate, therefore, to ask you to come along, Ms. Menke. We thank you for coming here on short notice to help us understand your role and your office's role. I understand that due to our late request, you do not have a prepared session.
Can you begin the session by outlining your mandate as the Commissioner of the Financial Consumer Agency of Canada, how your agency receives funding and your relationship with the Office of the Superintendent of Financial Institutions, OSFI? Round that out for us, and then questions will flow from that.
Ursula Menke, Commissioner, Financial Consumer Agency of Canada: Thank you for asking me to come here. I will gladly do that.
The mandate of the Financial Consumer Agency of Canada is essentially two-fold. We are a regulatory agency, on the one hand. We ensure compliance by federally regulated financial institutions of specified provisions of their constituent legislation. They are called consumer provisions, which is fundamentally the consumer protection regime in financial matters that the federal government has set up. Those provisions deal largely, though not exclusively, with disclosure to consumers, that is, the disclosure requirements financial institutions have to consumers. Some provisions deal with rights, for example, the right to open a bank accounts or the right to cash a federal government cheque, but they are largely disclosure provisions. That is one half of my mandate.
The other half deals with consumer education in the broadest sense. That fits nicely. It dovetails into the mandate for disclosure because on the one hand you have financial institutions that are informing consumers of the provisions of their arrangements, whatever their product or service. On the other hand, I am trying to ensure consumers understand that disclosure.
In brief, those are the two mandates. I will gladly give you more details.
As far as the funding is concerned, most of my funding comes from the financial institutions through an assessment process. A small portion — $2 million — comes from the fisc, although it is not reflected in the estimates under our name. It comes from Parliament. I do not quite know what the technicalities are. I know we do not appear in the estimates.
Our relationship with OSFI is complementary. OSFI is a prudential regulator and focuses on the safety and soundness of financial institutions. As I said, our mandate is in relation to the consumer provisions, so we sit on the same committees. I am a member of the Financial Institutions Supervisory Committee, FISC, chaired by the superintendent. I am a member of the senior advisory committee, chaired by the Deputy Minister of Finance, and I am a member of the board of directors of the Canada Deposit Insurance Corporation, CDIC. We are all in those in our respective roles. We are all reflected in there. That is where we exchange information.
The Chair: Did you indicate that you thought that the $2 million came through the Financial Institutions Supervisory Committee?
Ms. Menke: No, I meant the fisc as in tax money, from Parliament, allocation of taxes. We have a budget of roughly $12 million, $2 million of which comes from Parliament, and the remainder is from assessments directly.
The Chair: It is not shown.
Ms. Menke: It is not shown there.
The Chair: We could not find it when we were looking for it in the estimates. Obviously it flows through some other association with which you have a close relationship.
Ms. Menke: Yes. I think that association is the Department of Finance Canada, but you are asking me a technical question. I am not quite sure, to tell you the truth. I will get that information for you.
The Chair: Let the clerk know, and he will circulate that information.
Senator Murray: We like to know where the bodies are buried, including yours.
Ms. Menke: I hope I am not buried yet.
Senator Murray: I mean in the estimates.
The Chair: In several different pieces of legislation there is consumer protection in relation to financial institutions. Financial institutions that are subject to that legislation must follow those rules.
Ms. Menke: That is right.
The Chair: There are quite a few different pieces of legislation. You have to draw all that information together. How many people work with you in your office?
Ms. Menke: All told, roughly 60 people.
The Chair: Do you designate certain people to look into the consumer protection contained within the Bank Act and the Insurance Act and ensure compliance? How do you organize that?
Ms. Menke: We have a compliance and enforcement branch that ensures the compliance side. Approximately 10 of the 60 people are directly dedicated to that function. We have various policies and procedures to deal with the issue of compliance and how we ensure that compliance.
I am not counting some ancillary people in that number who also provide input into that group, of course. However, the primary job of those 10 people is to do the compliance work on behalf of the agency.
The Chair: Are they part of the 60?
Ms. Menke: Yes. The people doing that directly are one sixth roughly.
The Chair: If they find something that is not up to the standard that you expect in your interpretation of the particular legislation that applies to that financial institution, what sanctions do you have? Do we have to look in that legislation to see what sanctions you have for that?
Ms. Menke: Yes. There are a variety of potential sanctions. Depending on the nature of the issue, it could be something as simple as a letter of compliance telling them not to do it a certain way, but do it another way; or we could step it up a bit, all the way to an enforcement action that would involve a report that goes through several iterations of a compliance issue and eventually reaches me.
By the time it arrives on my desk, there has been an initial report, the institution has had a chance to respond to that report and make representations, and then I take a look at it and make a decision based upon the file in its entirety as to whether or not I agree that there is a compliance issue. If there is one, and I agree there has been a violation of a provision, the next step is to determine whether there should be a sanction for that. That sanction can be to fix the problem, which can be a variety of things. It is always to fix the problem; that goes without saying. In addition, penalties might apply. I can assess penalties up to $200,000 for an individual occurrence.
The Chair: I will just finish this line of questioning that sets the basis for questions from other senators. Do you do an annual report and, if you do, to whom is that report given?
Ms. Menke: I do several reports. I make an annual public report to Parliament, and then I do an additional two reports to the minister that do not get tabled in Parliament.
The Chair: Do you file your parliamentary report directly in Parliament, or is that through the minister?
Ms. Menke: That is through the minister.
The Chair: Did you say that it was $8 million a year or $10 million?
Ms. Menke: It is $10 million plus $2 million, more or less.
The Chair: I understand the $2 million we talked about earlier. Have you had the Auditor General in to look at your office and, if so, how long ago?
Ms. Menke: The Auditor General is our auditor, and every year they come and verify the books.
The Chair: How often do they come in and do what she is pleased to call a value-for-money audit?
Ms. Menke: She has not done a value-for-money audit of our office, at least not since I have been around. I do not believe there has ever been one.
The Chair: Sometimes it is referred to as a performance audit.
Ms. Menke: No, she has not done one of those on our office.
Senator Callbeck: We just received this report from the Task Force on Financial Literacy this evening. No doubt your organization contributed to this or came in with recommendations.
Ms. Menke: We made several presentations to the task force. We contributed by telling them what we did, for example, and how we did it, and what our approach is to financial literacy.
Senator Callbeck: Have you read this?
Ms. Menke: I have not read the report yet. I have read the recommendations.
Senator Callbeck: Do you agree with all the recommendations?
Ms. Menke: I have no objection to any of those recommendations.
Senator Callbeck: Are there any recommendations you would have liked to have seen here that are not here?
Ms. Menke: No, not really. They have done a pretty good job of canvassing the whole issue and a pretty complete job of setting out a national strategy.
Senator Callbeck: I was reading here that five provinces are not currently using your financial literacy curriculum. Why is that?
Ms. Menke: It is not really not using it. We are making a distinction, and perhaps we are being a little too fine about it. Some provinces use it on a compulsory basis. Some provinces are using it on a non-compulsory basis, but every province in Canada is taking advantage of The City, which I believe is the program you are referring to right now. The City is a program that we developed in conjunction with the British Columbia Securities Commission, BCSC. It is targeted at 15- to 18-year-olds — that is, people going into high school and at that transition between high school and adulthood, where they will be faced with all sorts of contracts for cellphones and for credit cards for the first time in their lives. We felt that that was a priority group, with the money we had. We worked with BCSC to develop a product that could be used nationally — and it is used nationally. There is not one place where it is not used. It is a question of the degree to which it is used; that is, whether it is a compulsory component of their curriculum or just an optional component.
Senator Callbeck: All the provinces are using it to a degree, correct?
Ms. Menke: To different extents, yes.
Senator Murray: As you describe the organization, it all appears to be sensible and logical. There you are with OSFI, and you are meeting with CDIC and so on. It would seem that you and the others have all the bases covered. I am sure various senators, and others, would have many recommendations for tightening up or toughening up the legislation and regulations and all the rest of it, but it is hard to see how anything could get by you and these other agencies working together.
Are there gaps on the federal side? Do you think you are missing anything?
Ms. Menke: There is always more that can be done, senator. I think that is the issue. I do not believe there are gaps, but definitely we could do more.
Senator Murray: Like what?
Ms. Menke: More promotion, for example, of financial literacy, with more funding. We are an organization of 60 people with a total budget of about $12 million. That defines how much we can do. Therefore, I do not think there are any particular gaps. However, we could do more with more money.
Senator Murray: Why do you not tithe the people who are now financing you? You could tithe them and run a better program if you wanted to do so.
Ms. Menke: I am hoping that the recommendations of the task force end up going in that direction.
Senator Murray: I just read about it here. They say, ``Alarmingly, the ratio of Canadian household debt to disposable income reached 148 per cent in 2010.'' I presume this is behind some of the measures that Mr. Flaherty has been taking recently with respect to housing and mortgages, and so on.
If there are not gaps as such, I am prepared to believe that you have the bases covered. What about your relationship and overlap, if any, with provincial legislation and provincial agencies?
Ms. Menke: There really is no overlap. The federal legislation defines the institutions that I regulate. That is what I am limited to. I do not get involved with institutions that I do not regulate and that are not subject to the mandate of the organization. There is no overlap in that sense. We do meet from time to time in certain fora, however, and discuss mutual issues.
Senator Murray: You do have counterparts in the provinces?
Ms. Menke: Absolutely.
Senator Murray: What are they called?
Ms. Menke: They vary. In Ontario it is the Financial Services Commission of Ontario, FSCO, I believe. They have various names throughout the country, but they tend to be a combination of both a prudential and a market conduct regulator because they are quite a bit smaller.
Senator Murray: Without identifying that particular province, in general, do the provinces have effective bodies within their own jurisdictions?
Ms. Menke: I have not assessed them. However, I have no reason to believe that that is not the case.
Senator Murray: You present one report that the minister tables in Parliament. You said that there is another report that you send to the minister that is not tabled in Parliament. I am not asking you to discuss the details of that report, but, typically, what subject matters are you dealing with in this report to the minister? Are you recommending possible changes to legislation, or are you flashing an orange light about something that may be happening in the system, in the private sector? Give us a general idea.
Ms. Menke: Generally, it is a report on our activities, both in relation to compliance and our education activities. The report is not necessarily written as recommendations per se. However, to the extent that we feel issues are not covered, we would certainly raise those issues.
Senator Murray: What would the danger be in tabling it or making it public?
Ms. Menke: The public report is the annual report. It is just a more detailed report that basically has the same content; it is just a little more detailed.
Senator Murray: Which is?
Ms. Menke: The reports to the minister are more detailed.
Senator Marshall: I looked at your most recent annual report that was on your website. On the compliance cases that you talk about, you reference 820 cases there. What would they be? Would they be complaints that you are receiving from consumers, or is this as a result of your own regulatory workload?
Ms. Menke: They are a variety of things. In some cases, we receive direct complaints from consumers and deal with them as compliance matters. The bulk of those complaints referred to would be reporting by the banks themselves, and then there are also a number of compliance issues. We do not call them complaints, though. We generate our own compliance issues.
Senator Marshall: How many of those would be serious? That figure, 800, sounds like a big number, but I would think that many of those would not be what you would consider to be serious matters; they might be concerns. How many would you consider to be serious or very serious issues?
Ms. Menke: I cannot give you a specific number right now. A small proportion would be serious, where we would end up with the panoply of enforcement activities. Most of them would result in compliance letters, if anything. We receive complaints; sometimes there is no compliance issue. It is a small number. I cannot give you a precise number.
Senator Marshall: You were speaking earlier about your staff. Would most of your staff resources be put into that compliance? Is that the result of the work of the majority of your staff?
Ms. Menke: No, that would not be the majority of my staff. The staff members who are strictly dedicated to compliance and education are evenly divided, roughly 10 people each. The rest of that is support function. We have a newly established research function, for example. We have a fairly significant marketing and communications function. Those are very much support functions. Marketing and communications is very much a support to the education function, for example. It depends on what aspect of the work they are doing. They are divided up organizationally.
Senator Marshall: If you are looking at 800 compliance issues per year, is that usual, or is that number increasing, decreasing or consistent from year to year?
Ms. Menke: Actually, it has probably been decreasing a little. We receive many more inquiries than we do complaints, and the number does not seem to be increasing.
Senator Marshall: Talking about your budget for a minute, most of your money comes from assessments; is that correct?
Ms. Menke: That is correct.
Senator Marshall: Is there any difficulty in collecting your assessments?
Ms. Menke: Not so far.
Senator Marshall: The balance, I understand, looking at your statements, is the difference coming from the Department of Finance?
Ms. Menke: It goes through Parliament, via the Department of Finance, yes. That is my understanding of how the process works.
Senator Marshall: What happens toward the end of the year? Do you inform the Department of Finance of how much money you need to balance your budget?
Ms. Menke: No. The $2 million is a set number. We work to a budget that we share with the Department of Finance at the beginning of the year. We also share with our stakeholders, all of the financial institutions, so that they know what to expect. We treat our budget just as anyone else does — we do not exceed it.
Senator Marshall: You know the numbers, and you make it fit?
Ms. Menke: Yes.
Senator Ringuette: Through this committee and the Senate Banking Committee that did its study and report on credit cards and pensions, we made the recommendation that more financial literacy and oversight should be provided through your office.
We have a government task force, however, that has made 30 recommendations on financial literacy, none of which mentions your office at all. In fact, they want to create a new position called ``Financial Literacy Leader.'' On page 29, they even put a scenario of advisers to that new position at the expense of taxpayers, and you are not even there.
I am somewhat shocked because when you were before the Banking Committee on the issue of credit cards, pensions and the cost of pensions, you said that you could do all that because actually you are doing that with financial literacy, and the financial institutions are paying you money, and that you were working in partnership with them to promote financial literacy.
However, this government task force has 30 recommendations, none of which is related to your organization. It is actually suggesting that the number one recommendation is the creation of a new entity to deal with financial literacy. That is a task force created by the Minister of Finance, to whom you report. How can this be accepted?
Ms. Menke: You will have to ask them what their recommendations mean. I cannot answer for them. You are interpreting the recommendations, and I cannot comment on your interpretation.
Senator Ringuette: I am not interpreting, I am reading them. Recommendation 1 of the task force's report reads as follows:
The Task Force recommends that the Government of Canada appoint an individual, directly accountable to the Minister of Finance, to serve as dedicated national leader. This Financial Literacy Leader should have the mandate to work collaboratively with stakeholders to oversee the National Strategy, implement the recommendations and champion financial literacy on behalf of all Canadians.
Senator Gerstein: I have a point of clarification.
The Chair: We have a point of order.
Senator Gerstein: I tabled this report at the beginning of this meeting as a matter of courtesy. Surely no one has read this report yet. I do not know if you have, certainly I do not believe anyone has. We are having it recited to us by someone here. It is totally inappropriate. It was provided as a courtesy to the committee.
Senator Ringuette: I would like to say to my honourable colleague that this morning I went to the website of the task force and printed and read the document. Senator, if you like, when this meeting is adjourned you can come with me to my office, and I will show you the printed version.
I take objection to what was said.
Senator Murray: Senator Ringuette, the task force did put out a summary of their public consultations last September, and privately I drew your attention to a paragraph in that document that directly concerns the Financial Consumer Agency of Canada. I will put it on the record and ask Ms. Menke to comment on it, if you like.
Despite widespread support for the idea, there was some debate over which federal or national body should take the lead in fostering collaboration and coordination among financial literacy stakeholders. Of those who addressed this question, most were of the view that the federal government should assume leadership, and about half lauded the work of the Financial Consumer Agency of Canada, suggesting that it might be the right government agency to take this role. Other participants, however, perceived the agency as having a low or misunderstood public profile, and some suggested that its mandates (i.e., financial institution regulation coupled with responsibilities on financial education) are potentially conflicting or confusing.
Senator Ringuette: That is what I have been saying for years.
Senator Murray: You may want to ask Ms. Menke if she would like to comment on that.
The Chair: Perhaps you would let me comment first, if you do not mind. There was an intervention by the deputy chair, and I agreed. The deputy chair has made the point of the document, however this document, and what Senator Murray has just referred to, is something that was out in September.
Our witness indicated that she had not seen the document, so it is unfair for her to be asked questions on a document she has not seen. You could ask her if she has seen the summary that was out in September, and you might want to deal with that.
Senator Ringuette: I did not understand that you had not seen the document.
Ms. Menke: I have not had a chance to read it. I have seen it and have it in my possession. However, I have not read it.
The Chair: She has seen the recommendations but not the report.
Senator Ringuette: You have seen the recommendations that I was reading?
Ms. Menke: I have read the recommendations, yes.
Senator Ringuette: You have read them, so you are knowledgeable about them?
Ms. Menke: About the recommendations, yes.
The Chair: Let us pick it up again. Please do not cross-examine her on a document she has not seen.
Senator Ringuette: She has read the recommendations of the task force. She just confirmed it.
The Chair: Please carry on.
Senator Ringuette: I will go through the report from September.
The Chair: Have you seen that report?
Ms. Menke: I have seen that report.
The Chair: She has seen that report.
Senator Ringuette: Let us go to where it says:
Other participants, however, perceived the agency as having a low or misunderstood public profile, and some suggested that its mandates (i.e., financial institution regulation coupled with responsibilities on financial education) are potentially conflicting or confusing.
I asked a question about that to your office before the Banking Committee two years ago. It seems that people on the special task force are also questioning that conflict situation. The number one recommendation that you have read, and that I have just read, confirms — and we all agree — that you may be in a conflict situation, and that is why they are looking at creating another position.
Ms. Menke: With the greatest of respect, I do not see the conflict of interest. I know there can be differences in the points of view on many issues, and there is one here: I do not understand what the conflict of interest is.
The Chair: That seems pretty clear.
Senator Neufeld: Yes.
Senator Ringuette: I disagree.
The Chair: That is fine, but there is no sense staying here for two or three hours to find out that you disagree with her.
Senator Ringuette: I disagree because you have the oversight responsibility for the codes of conduct for financial institutions and credit card companies. On the other side, 80 per cent of your funding is provided by them. Maybe it is a general perception; for me, it is a little more than that. However, we will agree to disagree.
Senator Runciman: I have some questions surrounding the quote that Senator Murray put on the record.
You mentioned having a communications and marketing team that was focused on the education component. When you talk about education, what do you mean by that? Is this dealing with the provincial ministries of education?
Ms. Menke: I do not deal at the ministerial level; I deal at the departmental level.
We do two things fundamentally in our education mandates. On the one hand, we provide discrete units of information; you can see everything that we have on our website. On the other hand, we provide educational programs.
For example, I made reference earlier to The City, which is a program geared to 15- to 18-year-olds. We launched another program this past September that is geared to the post-secondary students. It is a seminar program, and it has had amazing pick up. We have distributed, since September, 11,000 participant booklets to various universities and colleges to provide courses for primarily first-year students to learn a bit more about financial literacy.
There are those two aspects. I work with the provincial departments of education, and I work also at the school level to try to get appropriate programs into the schools.
Senator Runciman: I looked at your website; it is impressive. My question ties into the quote that Senator Murray referenced. How many people are aware of you, and how are you getting that message out there?
I do not know whether there is outreach to the mass media, if you make those kinds of efforts as well to make people more aware of your existence and of the kinds of services you can provide.
Ms. Menke: We do what we can with the budgets that we have. That is why I talked earlier, in response to Senator Murray, about more money.
Senator Runciman: I heard you say that. I think there are options other than more money.
Ms. Menke: Absolutely. We engage with all sorts of partners all across the country, for example. That is a huge part of our trying to build awareness. At the end of the day, however, a certain amount of publicity is required.
We work with the media a lot. We have had tremendous success recently in getting our name out there more, and we clearly have increased awareness. However, it is a direct function of how much one advertises, in the broadest sense of the word.
Senator Callbeck: I am looking at the list of responsibilities here, and I want to ask you about a couple of them and how you carry them out.
One is informing consumers about their rights and responsibilities when dealing with financial institutions. How do you do that?
Ms. Menke: We do that primarily through our website and our educational materials. We remind students, as part of our educational programs, about their rights and responsibilities. However, we use the website and any outreach that we do; we do a great deal of outreach. That is when we bring out our materials as well and refer people to them to acquaint themselves with their own rights and responsibilities.
Senator Callbeck: When you say ``outreach,'' what do you mean? I know what you mean about students.
Ms. Menke: It is a variety of things. We go to trade shows, for example. We participate in Canada pavilions. We have been doing a lot of work.
Recently, we have been focusing a great deal on mortgages. Because we are a small organization, we have to husband our resources. We have been focusing a great deal on mortgages because that is a key source of debt for many consumers.
We have been dealing with all manner of organizations, for example, the Canadian Real Estate Association, CREA, and with their mortgage professionals — I cannot remember the exact title. We have been dealing with provincial real estate bodies to get the message out about the package of information we have on mortgages and debt that is mortgage related, including secured lines of credit, for example.
We do a lot of this through outreach. When we do that, we try to ensure that these real estate professionals know about us so that they can pass on the message. We are using these real estate brokers and real estate dealers and people as intermediaries to pass on the message. We have had good success with that. They are very appreciative.
For example, one of our success stories on our website is a real estate broker who uses our material and talks to it on our website. You can take a look; he thinks it is wonderful material. He says that it is credible because it is from an independent third party.
Senator Callbeck: Let me ask you about providing timely and objective information and tools to help consumers understand and shop around for a variety of financial products and services.
Ms. Menke: Most of those tools will be found on our website. We have a variety of interactive tools and information on our website. Among the interactive tools are a mortgage calculator, a credit card interest rate calculator, a credit card selector, two account selectors, and we are about to come out with an interactive budgeting tool within the next week or so. We provide useful information to consumers so that they can use these tools and put in their own facts.
We tell consumers about them by using the media as an intermediary. We have press releases; we get the information out that way. We also get information out to our partners. We have many not-for-profit partners, for example, through community organizations. We have four email newsletters that go out to all of our partners on a regular basis to inform them. Again, we are using our partners as an intermediary to get information to Canadians in general.
Senator Callbeck: Obviously, we are not reaching a large number of people.
Ms. Menke: I agree.
Senator Callbeck: If you had more resources, what would you do?
Ms. Menke: I would do more.
Senator Callbeck: More of the same?
Ms. Menke: We do most of the recommendations on that list to some extent. Some things we cannot undertake because we do not have the resources.
Yes, we probably would be doing what is in that list of recommendations. Clearly awareness is an issue. It would be really nice if more Canadians knew about us.
Senator Murray: I want to try you out on a couple of other recommendations from the Standing Senate Committee on Banking, Trade and Commerce, the first from their June 2009 report, which states the following:
While we know that the Agency is ``pushing a little harder'' to enforce better disclosure on credit card issuers, we believe that this undertaking is insufficient. Given the number of witness who complained about the complexity of credit card contracts, we would have liked a firmer commitment on the part of the Agency to exercise its existing regulatory power over credit card disclosure.
In light of this concern, the Committee believes that the federal government should direct the Financial Consumer Agency of Canada, and provide it with the resources necessary, to take a more vigorous approach to enforcing existing and future disclosure requirements. Moreover, the Agency should also be required to monitor and report on card issuer practices, including a study of how credit card companies assess creditworthiness.
Without going into the resources problem — we hear what you are saying there — and without necessarily commenting on the editorial comment in there, do you think it would be necessary in your view that you be required to monitor and report on card issuer practices and do a study of how credit card companies assess creditworthiness?
Ms. Menke: I have not done one. It would be an interesting undertaking. There are lots of interesting things that I would really like to do, and we are in the process of building up a research capacity to do these things.
I am not quite certain, at this point in time, what I would do with that particular recommendation, quite frankly, because having acquired the information, I am not sure that I would have the tools to act upon the findings.
Senator Murray: That is an interpretation of what your regulatory power is because the committee asked for a firmer commitment on your part to exercise your existing regulatory authority.
Ms. Menke: We are in the process of doing that. Our current regulatory authority is in relation to disclosure.
Senator Murray: This was from the report of the Standing Senate Committee on Banking, Trade and Commerce of October 2010:
. . . the government should expand the mandate of, and provide appropriate resources to, the Financial Consumer Agency of Canada in order to enable it to monitor and undertake an oversight and public education role in respect of: a) the conduct of investment advisers and managers; b) any real or perceived conflicts of interest by investment advisers and managers; c) the fees charged by those in the investment industry; and d) the relationship between fees and investment performance.
What do you think they mean by ``oversight''? Of those four items in which they want you to undertake an oversight and public education role, the two that jump off the page in light of fairly recent and widely publicized events — not so much here but in other countries during the big financial banking crisis — are ``the conduct of investment advisers and managers,'' and ``any real or perceived conflicts of interest by investment advisers and managers.''
Are they asking you to do something that really is a job for someone else, perhaps the police?
Ms. Menke: At this stage, given what my mandate is today, there is nothing I can do about investment advice.
Senator Murray: Who can?
Ms. Menke: That would be at the provincial level from the securities commissions on down through the self- regulating bodies, but that is not done at the federal level. That is not under my mandate. Investment advisers do not fit in under my mandate.
Senator Murray: It is, I suppose, one interpretation of the Constitution, is it not?
Ms. Menke: Yes.
Senator Murray: Maybe we should have referred that one to the Supreme Court of Canada.
Senator Peterson: Recent events would indicate you will get busier in the next while with mortgage rates that have just gone up 25 basis points. That is probably just the beginning, and it will be the deck of cards. The Minister of Finance has recognized this. Do you think it would be timely for you to go to him and suggest that he either give you some money to advertise your website or tag you onto his to say when they are doing this?
Ms. Menke: I think he is well aware of my position on these matters.
Senator Murray: Now we all are.
Senator Gerstein: I want to thank the witness, but the comment I wanted to make to the committee was that we have spent a lot of time today and yesterday talking about financial literacy. We had the report tabled today. I want to suggest that, perhaps, the steering committee should consider seriously inviting members of the Task Force on Financial Literacy to appear before us so that they can explain their findings and recommendations. That might be helpful to us all on this most important subject.
The Chair: I have not had a chance to read that report.
Senator Gerstein: Neither have I.
The Chair: The steering committee will meet in the next couple of days, having in mind our number one mandate, namely, to ensure that the government has enough money to keep Ms. Menke going next year.
Senator Ringuette: Or create a new position.
The Chair: That would have to be in the new budget.
Thank you very much for being here and helping us to understand a bit more about this whole area of financial consumer advice and financial literacy.
Ms. Menke: It was a pleasure.
The Chair: We understand more now than we did before you were here. You came here on short notice, and we thank you for that as well.
(The committee adjourned.)