Criminal Code

Bill to Amend--Second Reading--Debate Adjourned

June 22, 2021


Hon. Pierrette Ringuette

Moved second reading of Bill S-233, An Act to amend the Criminal Code (criminal interest rate).

She said: Honourable senators, I’m happy to introduce Bill S-233, which would lower the criminal interest rate. I think it’s the right time for this bill. It was before, too, when I tabled similar versions of the bill, but it is even more urgent now in light of the debt burden on Canadians because of the pandemic and efforts to restart the economy.

I had previously tabled a bill to lower the criminal interest rate twice. The first time, the bill made it to committee but died on the Order Paper when the election was called. The second time, the bill made it through committee with an amendment. I disagreed with the amendment, but the bill did not move forward before another election.

Here we are again, and I believe this bill is more crucial than ever. It will amend section 347 of the Criminal Code, which currently sets the criminal interest rate at 60%. This bill will set it to 20% above the Bank of Canada rate, which is currently 0.25%. Why set the rate at 20% above the Bank of Canada rate? By setting it to move with the Bank of Canada rate, the limit will move with general interest rates so that it will always be reasonably reflective of the market.

When the criminal interest rate was first put into place 40 years ago in 1981, the Bank of Canada rate was around 21%. Now the rate is 0.25%. The Bank of Canada rate has fallen by 99%, but the criminal interest rate remains the same. It’s time to change the criminal interest rate.

Given the current Bank of Canada rate, an interest rate of 20% is above the majority of credit cards and well above any mortgage rate or most standard bank loans. This measure won’t affect the vast majority of standard financial transactions, and it’s very unlikely that the Bank of Canada rate will go lower than it is, so there’s no danger of the rate falling below most standard transaction rates. While those rates might increase in the future, it would be moving along with the bank rate and thus handling those increases are built into the system. However, it would affect outliers, excessive rates on late charges from phone and cable companies, installment loans, high interest credit cards, and others.

Currently the government is using its ability to borrow at rock bottom rates to cover their expenses, and I don’t begrudge them doing so, but why should Canadians have to put up with interest rates verging on 60%? To elaborate, major bank car loans, lines of credit, and mortgages fall well below this threshold of 60%. Almost every major bank credit card is 19.99% or less. Other credit cards, however, like Scotiabank’s, have a rate of 20.99%, which is a small adjustment.

This bill would affect some other credit cards. The Home Depot card, for example, has a rate of 28.8%, similar to other store cards. It would also affect late fees charged by many companies, such as Rogers and Bell, which charge 42.58% interest.

After 31 days, Alberta Utilities Commission charges an interest rate of 30% plus the prime business interest rate taken from the Bank of Canada website.

It will affect many of the instalment loans and lines of credit that are being offered by many companies, some of which are branching out from traditional payday loans.

Fairstone advertises instalment loans at 26.99% to 39.99%. Easy Financial advertises unsecured instalment loan rates starting at 29.99%. Money Mart advertises at 29.9% to 46.9%. Loans Canada’s rates range from 2.99% to 46.96%. Capital Cash’s loans are priced at 59%.

As you can see, there are a lot of places that charge what many would consider to be excessive interest rates.

Many of these companies will say they are not predatory and not seeking out the most financially vulnerable in our society, but look at where the storefronts are located. They are also proliferating online, and look at the advertising: no credit checks, bad credit okay, easy money.

If you Google “payday loans,” you will find 24 pages of them on the internet. They specifically target the financially vulnerable and advertise themselves not as a last-resort lender but as easy cash, while downplaying the costs.

Which brings me to payday loans. This bill, nor the criminal interest rate in general, affects payday loans. In 2006, a carve-out was added to section 347 of the Criminal Code, “Criminal Interest Rate,” that placed the regulation of small, short-term loans, that is, loans under $1,500 for no more than 62 days, into the hands of the provinces. That’s another story for another day. So they do not have to offer loans under this limit, recognizing that short-term loans require a higher fee in relation to annualized interest rate.

The provinces vary in how they regulate, generally around $15 per $100 borrowed. In Quebec, they just won’t license any lender who charges more than 35%, effectively banning payday loans.

Now, when I say this won’t affect payday loans, this applies only to the specific caveat in section 347(1), loans under $1,500 for less than 62 days. However, many of these payday lenders have expanded their services to larger loans and longer periods. These should currently be covered under the criminal interest rate, but there is a lack of enforcement. By lowering the rate, we send a message to lenders of all stripes as to what we as a society consider acceptable.

Some will worry about limiting access to credit. Do we want our most financially vulnerable to be piling up loans with excessively high interest rates, those most likely to get caught in the debt cycle?

Is it true that companies cannot afford to offer these Canadians loans with reasonable interest rates? There are companies operating now that are offering low-interest loans. For instance, Borrowell, a for-profit company, offers loans at an average APR around 11% to 12%.

Let me take a moment to talk about why 20%. I chose 20% because it covers the vast majority of existing options from mortgages, credit cards, lines of credit, governmental rates and so on. The fact that the vast majority of these financial instruments can operate at these rates, and in many cases significantly below it, shows that, fundamentally, it is a reasonable rate. It should also be noted that most of these rates were also in play when the Bank of Canada rates were much higher.

The purpose of this bill is not to criminalize legitimate financial activity, but section 347 of the Criminal Code is where the law created a limit on interest and is therefore the most productive place to lower interest rates. The existing law has only been used in civil contract disputes; it has not been used as a criminal matter. We would expect the lowered rate to have a suppressing effect on interest rates without needing it to be criminalized.

Despite a slowdown this year due to the pandemic, Canadian household debt is again on the rise. As a percentage of disposable income, 170.7% at the end of 2020, up from 162.8% in the second quarter according to Statistics Canada. Household debt service ratio grew from 12.36% to 13.22% over that same period. Overall, Canadians hold $2.041 trillion in household debt, up 3.8% from a year ago. Personal bankruptcies hit a 10-year high at the end of 2019.

The MNP Consumer Debt Index, a measure of Canadians’ attitude toward debt and ability to meet obligations, has reached its lowest point ever recorded. MNP also notes that 3 in 10 Canadians have taken on more debt as a direct result of the pandemic.

Household debt was a concern before the pandemic, and it has pushed some Canadians even further. This is a looming crisis and one that will affect our economic recovery.

COVID pressured the federal government to program spending at a historic high while arguing that the deficit was “controllable” since borrowing is at historic lows.

Given the above rationale and section 347 of the Criminal Code, where the criminal interest rate is set at 60%, why are many Canadians paying up to 59% interest rates? Why are Canadians financially penalized at a time of historically low interest rates? Why accept two standards of interest, one for the government and one for citizens, particularly low-income households?

The Canadian government is currently borrowing at historically low interest rates. The high cost of the pandemic response is being mitigated by these low rates, but do Canadians, who support this government through their taxes, have to pay extreme rates?

This measure would be a perfect way to help Canadians during this crisis. Correcting section 347 by lowering the criminal interest rate does not increase government spending. It costs nothing to the government. This will help Canadians who are feeling the pressure of mounting debt, particularly during this time. It is an issue of fairness and provides adequate repayment of loans for the most marginalized.

Honourable senators, Victorian treasurer Tim Pallas has called this April for a review into credit card interest rates, calling them unconscionable at 20%. Australia caps the interest rate at 48%.

Colleagues, you will see more and more countries reviewing their interest rates over the next few years. We have created a system that runs on credit, on debt. Very few of us can live without it, particularly those on the margins. This is not about giving them a handout. It’s about a hand up to get out of debt.

How can we let someone’s life fall apart because they have to take out a loan to fix a car they need to go to work, to cover child care while they look for a job or get training?

We say we want these things for our citizens, for them to have the opportunity to achieve things for the betterment of themselves and for our country, but we allow these roadblocks to be put up. How do we sit back and expect those with the most financial vulnerability to be faced with the highest interest rates while the rich not only get low rates but get rewards with those rates?

I was recently on an episode of CBC’s “Marketplace” where they describe a number of excessive interest rates. I recommend you watch it to see for yourself how this is affecting people. It’s not an abstract financial concept. These are not just numbers on a ledger. These are real people with real impacts, and these impacts reverberate across their families and communities.

Honourable senators, it’s time we act. This is my third attempt at this. Please, when we come back in the fall, let’s move forward and give Canadian citizens an interest rate that they deserve. Thank you.

Hon. Kim Pate [ + ]

Honourable senators, I speak today in support of Senator Ringuette’s Bill S-233. Canadians in need have been taken advantage of by exploitative lenders for far too long.

Lowering the criminal interest rate is a critical step toward supporting those who end up inextricably ensnared in debt traps advertised as the antithesis of what they are. As most recent television advertisements reveal, these corporations exploit and capitalize on the desperation of those sinking in the quicksand of poverty and economic marginalization.

I am reminded today of my first-ever work for the government in what was then known as the Department of Consumer and Corporate Affairs. Over the course of the months I worked there, I watched the team responsible for “alternative lenders” expand from two people who at one desk to an entire floor. In short order, the extent of predatory lending practices had stretched well beyond the capacity of the bureaucracy to monitor, much less control.

I want to thank Senator Ringuette for her work on this bill and her leadership in reminding us that economies in Canada can function and thrive without having to impose 60% interest rates on the poor.

Budget 2021’s commitment to begin consultations regarding the reduction of the criminal interest rate has underscored the need for urgent action to prevent this exploitation. Bill S-233 could deliver this vital action now.

As with so many areas of pre-existing marginalization and discrimination, the COVID-19 pandemic has exacerbated the detrimental impacts of predatory interest rates. Senator Ringuette just referenced the January 2021 CBC “Marketplace” investigation that found that fringe lenders were charging almost 50% annual interest on some multi-year loans.

The current criminal interest rate was hard to justify when it was set in the 1980s, at a time when the Bank of Canada’s interest rate was 21% as Senator Ringuette has also underscored. This year, that rate started at below 1%. How can we excuse such a discrepancy? Lenders, who present themselves as a critical service for Canadians turned away by traditional financial institutions use this niche to exploit.

People like Patricia Edwards, a Toronto mother, have been forced to borrow from a fringe lender. She told CBC that she’d love to get a bank loan, but without a car or a home she didn’t have any assets and did not qualify. Instead, she is being charged 47% interest by a fringe lender and still owes $5,000 as the remaining debt on a $1,500 loan.

While the wealthy have access to low interest rates, approximately 9 million Canadians with low credit ratings or in poverty experience “financial exclusion” as they are refused loans from mainstream financial institutions.

I have personally lost track of how often I have paid off such debts, co-signed or otherwise guaranteed leases and loans for people in order to prevent, sometimes unsuccessfully, homelessness, criminalization and the plunging of too many into deep wells of abject poverty.

For people on social assistance, these debts are counted as income at the point the money is borrowed but are never credited based upon the actual costs or even the base amount borrowed, much less the interest rates that accrue.

Imagine for a moment the hue and cry if, every time you or I borrowed money to buy a home, a car, furniture or to care for a loved one — whatever — that debt was calculated by Revenue Canada as income and was clawed back, dollar for dollar. And what if failure to repay was characterized as criminal?

As we know, people’s attempts to escape poverty can all too easily result in criminalization, incarceration, separation from the families they struggle to support and then the stigma and additional challenges that come with being criminalized.

The majority of usurious instalment loans are taken out for family support. Studies reveal that most use the loans to cover costs of rent, electricity and food and only seek such loans after traditional banks turn them away due to low credit scores. Many more people were plunged into these realities after being deemed ineligible for CERB which they thought they had received legitimately during this pandemic.

Bill S-233 is a necessary step toward preventing economic oppression of those most marginalized. As important as this bill is, however, much more is needed to fully counter financial exclusion in this country.

As the Parliamentary Budget Officer and a chorus of others have reminded us, Canada could halve the number of people living in poverty within a matter of months by implementing a guaranteed liveable income, which would ensure that Canadians in need would have enough to live on to afford food, housing and other basic necessities. It would also prevent people from having to turn to fringe financial institutions and ensure that everyone has the economic ability to access credit at a legal, reasonable and affordable rate.

The CERB demonstrated that it is possible to effectively roll out direct economic supports to individuals in need, and it is possible to do so in very little time when the political and public will exists. All of us stand to benefit from living in communities where everyone can be safe, healthy and well.

With the ability and the public support to do so, with the recent prioritization of guaranteed liveable income in the 2021 Missing and Murdered Indigenous Women, Girls, and 2SLGBTQQIA+ People National Action Plan, and with provinces and territories like P.E.I. and the Yukon and Newfoundland and Labrador interested in these conversations, the planning and execution are all that stand between us and making significant steps toward the eradication of poverty in Canada.

Honourable colleagues, the current criminal interest rate permits exploitation of the poorest and most vulnerable Canadians. To what end? To augment the wealth of fringe lenders?

Senator Ringuette’s Bill S-233 will lower the criminal interest rate and lessen the injustices of abusive lending for Canadians with the least. This bill is a pressing and important measure to reduce income inequality. Let us work together to support this bill as well as future anti-poverty and equitable measures.

Meegwetch. Thank you.

Hon. Frances Lankin [ + ]

Honourable senators, I want to thank Senator Ringuette for her many years of championing this issue and her attempts to bring forward a solution. We have an opportunity that we will now have to pursue in the fall. I think it is incredibly important that we take this step, and I thank her. I appreciate and fully support the bill.

I thank Senator Pate for her contribution to the debate tonight, too. Both have spoken from an evidence-based place to talk about the real-life impacts. I had a number of years, when I was at the United Way, when I was able to work side by side with people who had lived this experience. A piece of research that we carried out became quite a groundbreaking report for us in Toronto. It helped us organize our investments in community and our capacity-building work. The report was entitled, Poverty by Postal Code. We mapped the demographics of all neighbourhoods in Toronto — racial, income and education demographics — and we found a very clear pattern of a concentration of poverty in a very large part of the city of Toronto.

Of course, it won’t surprise you to know that the majority of people living in these neighbourhoods are racialized individuals. Many of them are new immigrants. Many of them, though, I have to say, are in long-standing families from the Caribbean and other places that have experienced both the oppression of structural racism but also the lack of opportunity and the challenges of having been brought up in communities of poverty.

When we worked side by side with people, we started a project called Action for Neighbourhood Change, which was about capacity building for residents to bring their own issues forward and be able to approach corporations or governments with policy solutions to the challenges they were having to bring those issues forward.

We heard a number of things. For example, if you take a look at where grocery stores are located in our city, they are not located in these neighbourhoods. It is called a “food desert” in the lingo of the social services sector. Those food deserts mean that people there, without access to transportation or by taking a number of buses with their kids and strollers in tow, would have to go to get their food. Where does the food come from? In many cases, it is from convenience stores and the products sold there are higher in price and lower in nutrition.

We found that while there was a food desert, there was a proliferation of stores that rent to own: furniture, appliances and other sorts of things. It makes sense. That’s where their market is because people who have the ability to purchase may use credit or layaway plans, but rarely use rent to own. There was one time in my life when I did that too, with my economic situation in terms of my family at that time.

It was interesting. We talked to people about economic literacy, putting forward programs and supporting the Canadian Foundation for Economic Education in their approach to the provincial government to bring economic literacy into our elementary schools and secondary schools to help prepare people for the world they face and all of these things that many of us don’t know about in terms of taxation, tax rates, interest rates and financial matters.

In talking with people we obviously knew about economic insecurity, but we quickly found a large number of people were relying on, for example, alternative lenders, fringe lenders and predatory interest lenders. In many cases, it was that lifeline. We started to look where they were located. We went out and mapped every single one in the City of Toronto. Again, they were co-located with these neighbourhoods that were living in deep poverty. Again, not a surprise. That’s where the market is.

I won’t go through the details of the rates that are being charged. You heard it from both previous speakers who did an excellent job in reviewing the evidence. The rates were perhaps understandable given the lack of specificity in the Criminal Code to tie it to any other economic markers, but they were usurious: If not by Criminal Code definition, they were usurious in the practice, the effect and impact.

I believe that this is long overdue. There have been many attempts at provincial levels. There has been some success where the province can regulate. There have been some successes, but it’s a very significant patchwork. As people have pointed out, in these unprecedented times of low rates — unprecedented at least in my lifetime and history — we still see these rates that have not adjusted at all.

This is just theft. It’s robbery. It is placing more hardship on people living in poverty and families who are struggling. This very simple move is a step towards correcting that. I can’t tell you how seriously I support this legislation. From all of the experience I have had working at the community level and working with people in poor neighbourhoods, this is a huge opportunity to rebalance the scales a little bit. We still have much more work to do, as Senator Pate pointed out, on economic and job security. Thus I look forward to when the Senate undertakes the review of the future of workers in the gig economy, because we know a lot of these things and a lot of the challenges we saw around essential workers during the pandemic fall upon the shoulders of people living with low income.

I add my voice in support. I ask all of you to consider supporting this bill and getting it to a point where we can study it and bring it back at a very important intervention in the Canadian economy and in the lives of low-income Canadians. Thank you very much.

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