Mr. Speaker, today we are debating Bill . Canada's new government has brought forward this legislation for one basic reason, to protect Canadian consumers. Bill C-26 will provide much needed flexibility to the provinces and territories in the area of consumer protection, flexibility to enable them to address various problems posed by the alternative consumer credit market, specifically the practice known as payday lending.
I would like to compliment my colleague, the hon. , on his excellent work on this important issue. Let me state that the consultations carried out over several years by a group of senior federal, provincial and territorial consumer protection officials, known as the consumer measures committee, which led to the development of this bill were instrumental in its creation.
It is not easy being a consumer in today's exceedingly complex, fast moving marketplace. Canada's marketplace has been transformed in recent years by the staggering proliferation in the number of consumer goods and services that are on the market. New technologies, the growth of services and open markets bring both benefits and potential hazards to consumers. The payday lending industry is a good illustration of just how rapidly things are moving on the consumer scene.
Only a few years ago payday loans were virtually unheard of in Canada, yet now street corner loan offices are open in most provinces, in rural communities and in our downtown cores. This burgeoning alternative credit scene certainly does pose significant consumer issues. This is why many non-governmental consumer watchdogs, from the Public Interest Advocacy Centre to Service d'aide au consommateur, and many others as well have addressed this very important issue.
Last year Industry Canada's Office of Consumer Affairs established an extremely informative and timely document which I highly recommend as reading to my hon. colleagues. The “Consumer Trends Report” highlights the rapid and fundamental changes that have transpired in the consumer marketplace over the last 20 years. While many of these changes have been very beneficial, new challenges have also arisen. In many ways consumers today need more expertise because products and services are changing more rapidly and in more fundamental ways than ever before.
In the opinion of many experts it has become more difficult for consumers to determine value and weigh risk in the marketplace and their marketplace transactions. At the same time consumers themselves have also undergone many important social, economic and demographic transformations that can make certain groups particularly vulnerable in this marketplace.
In fact, the payday lending issue we are considering today is a very good example of the way in which the consumer environment is changing rapidly with the potential to have negative effects on consumers. As the “Consumer Trends Report”, the CTR, notes, the alternative financing services can be some of the most expensive ways for consumers to borrow, ranging from using payday loans and pawnbrokers to shopping at rent to own operations.
According to the CTR, when stated on an annual basis, the rate of interest paid on a typical payday loan ranges between 390% and 650%. On the other hand, there is genuine consumer demand for this product as seen by the increase in the number of outlets. The CTR states, “a prominent provider of the payday loan and cheque cashing services indicated that its number of franchised and corporate branches increased from 100 in 1994 to 200 in 2000, and was approaching 300 in 2003”. This is Money Mart. According to the media, the industry which lends about $2 billion each year services about two million Canadians annually.
What we have with payday lending is a relatively new product of some financial complexity that Canadian consumers are using in considerable numbers. However, it is also a product that can sometimes be sold in ways that can present hidden pitfalls and can have serious consequences for consumers.
In 2002, a report released by the Public Interest Advocacy Centre, PIAC, with funding from Industry Canada entitled, “Fringe Lending and 'Alternative' Banking: the Consumer Experience” stated that a cursory examination of the fee structures and practices of some payday lenders suggests that they expend little effort to assist the financial literacy of payday loan customers and probably contribute to customer confusion.
Many payday lenders offer no explanation for the fees they charge to their customers and often use ambiguous terms such as verification fee or finance charge among others. Without proper disclosure and explanation of fees, customers could be making financial decisions based on misunderstood and unclear information.
Research conducted by the Public Interest Advocacy Centre, the PIAC in 2002 shows that a relatively high number of payday loan customers either did not know the cost of their loan or underestimated the cost.
The timeframe of a payday loan is very short and the cost can be very high. Many borrowers have found that they are unable to pay off the loan in full at the time it comes due. Borrowers could however pay a fee for an extension on the original loan called a rollover. By doing this they could enter into a cycle of renewals including possible increased fees, interest or NSF charges added on without reduction of the principal of their loan. This situation may be financially devastating for a borrower but profitable for the lending company.
The legislation before us today is a very good fit with Canada's consumer protection framework. It is built upon the concept of ensuring that the jurisdiction most able to protect consumers in a particular issue have the legal capacity to do so. It would exempt payday lenders from the current provisions of section 347 of the Criminal Code which sets the criminal rate of interest in Canada, but only if those lenders operate in a province or territory that regulates the payday loan sector and if the province or territory sets limits to the cost of borrowing for consumers.
Each province and territory will have the freedom and flexibility to address its own market conditions and to best respond to the interests of its own customers. Bill typifies an effective and flexible approach to consumer protection. It is based on cooperation with the provinces and territories along with other governmental departments and non-governmental organizations. Bills helps Canada's markets work well for consumers, for growth and for our economy.
The legislation before us will bring payday lending in from the somewhat sometimes shady world of unregulated financial activity, so that consumers can operate with more confidence and assurance. The process of obtaining a payday loan will become more transparent and more straightforward for consumers. The provinces and the territories are best placed to regulate the payday loan industry. Bill will give them the power and flexibility to do so.
The bill's approach is typical of the innovative ways that we must approach consumer issues in the contemporary marketplace. All partners, including the federal government, the provinces and territories, non-governmental organizations and educational institutions, must work together to support consumer efforts and make wise choices in markets in Canada and the world.
Bill is further evidence that Canada's new government fully recognizes the importance of Canadian consumers and is committed to fostering their ability to function in fair and efficient markets.
Mr. Speaker, I am pleased to take part in this debate on Bill , an act to amend the Criminal code (criminal interest rate), proposed by the Minister of Justice. This bill, which may appear minor and generous, is in fact a good illustration—despite the promises made by the Conservative Party during the election—of the fact that they are once again taking a back-door approach to a very important matter, trying to have veto power over decisions that come under provincial jurisdiction, particularly Quebec.
Although the bill appears very generous on the surface, that is, a way to fight a new form of financial exploitation of the most vulnerable employees, it is nonetheless understandable that the Bloc Québécois opposes this bill due to a number of points that are not clear enough and, as I mentioned, that leave the door open to federal government veto powers over how things are done in Quebec, which already monitors similar activities, for instance, under the consumer protection act.
I will remind the House of some of the content of Bill . Its objective, as stated earlier by my colleague, is to meet the demands of certain provincial and territorial governments, and consumer advocacy groups that feel that greater regulation is needed in the payday loan industry. Provisions already exist in the Criminal Code and the Interest Act, however they do not specifically target this new form of loan, which has developed over the past 15 years or so.
Bill is the response to those demands, because the payday loan industry is largely unregulated. Furthermore, some very dubious practices employed by such companies have been identified, for example, very high rates for loans against future salary, contractual terms and conditions that are insufficient, unclear, or often absent or completely set aside in contracts between lenders and borrowers, as well as unfair collection practices.
In a moment, I will return to the definition of a payday loan.
Obviously, as I said, this is something that affects a certain number of low-income working men and women and illustrates some hard facts. I would note in passing that it is interesting to see that the Conservative government, which in fact tends to minimize the problems associated with poverty in many regards, has been obliged to recognize those facts by the back door, once again. The fact is that right now, in Canada, as is the case in a number of western countries, it must be noted, a person can work, earn a wage, have a full-time job, and be living in poverty. People can then find it necessary, before the end of the two-week pay period, to take on this kind of debt in order to be able to make ends meet temporarily and to get the money that is necessary to meet their basic needs.
This bill is therefore recognition of the fact that, right now, the face of poverty is quite different from what it might have been in the 30 years after the Second World War, when a full-time job, for an employee on a payroll, was normally a guarantee that while the person might not live in the lap of luxury, he or she would be able to make ends meet and not have to take on these new kinds of debt. This is something new, in that in Canada the industry mainly began to develop in the 1990s, but we must recognize that its growth was by no means uniform.
What we see is that as a result of existing laws governing local commerce, because we have civil law and rules governing contracts, in particular those in the Consumer Protection Act, even though there may be 1,300 outlets identified by the federal government throughout Canada, there are very few in Quebec. An association has even been created: the Canadian Payday Loan Association. It represents 22 companies that operate 850 financial services outlets all across Canada, but none in Quebec.
This certainly tells us something, because with the tools that the Government of Quebec already has available, we have been able to oversee and regulate this industry to the point that people who wanted to use this niche to get rich quick did not think it wise to set up shop in Quebec and went elsewhere in Canada to do it. Obviously, that does not mean that we do not need to be vigilant and constantly careful to modernize, improve and update consumer protection legislation in Quebec.
What is a payday loan? The Canadian Payday Loan Association defines it as follows:
|| Payday loans are unsecured small-sum short-term loans typically for a few hundred dollars. The average payday loan is around $280 for a period of 10 days.
To date, as I said, the Criminal Code has not provided a definition of payday loan, so one of the primary objectives of Bill is to define what it is.
Here is how the government defines a payday loan:
|| A payday loan is a short-term loan for a relatively small amount, to be repaid at the time of the borrower's next payday. In order to qualify for a payday loan, the borrower must have a steady source of income, usually from employment, but also from pensions or other sources, and a bank account. The lender will typically lend up to a specified percentage of the net pay, for a period of 1 to 14 days, ending on the payday. The borrower provides the lender a cheque, post-dated to the borrower's next expected income payment date, for the total amount of principal, plus interest and other fees.
A payday loan is therefore a loan against future pay. This may give the people who are watching a better understanding of the new reality that is payday loans. Payday loans are also called payday advances. These advances come with all sorts of administrative fees, which are sometimes abusive, and interest rates that, if not usurious, are very high.
Payday loans are therefore an extremely expensive way for consumers to meet their temporary credit needs. The Financial Consumer Agency of Canada, which reports to the Department of Finance, says that the amount of a payday loan is usually limited to 30% of the net amount of the borrower's next pay cheque, that is, the final amount after the various deductions, including income tax.
The agency gives the following example: a person with net pay of $1,000 every two weeks could usually obtain a payday loan of roughly $300.
As mentioned in the definition I gave previously, to ensure that the loan will be repaid, payday lenders ask their clients to provide a post-dated cheque or authorize a direct withdrawal from their bank account for the amount of the loan, plus applicable fees and interest charges. As I said, there are numerous fees. The interest charged on the principal adds considerably to the amount to be repaid.
This is a new situation that corresponds to the reality that I was describing earlier whereby it is now possible to have a job and live in poverty. Bill seems to be a response to a growing and worrisome social problem. At first glance this might seem to be an interesting initiative by the federal government.
I will describe the initiative of Bill . This bill essentially contains two measures. First, it enshrines in the Criminal Code the definition of a payday loan and it also adds section 347.1 to the Criminal Code, establishing a mechanism for exemption at the same time.
I will reread the new definition of a payday loan:
|| An advancement of money in exchange for a post-dated cheque, a preauthorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security on property and not through a margin loan, pawnbroking, a line of credit or a credit card.
The first measure of the bill is to enshrine this definition in the Criminal Code. And the exemption mechanism has two parts.
The first part is to specify that section 347 of the Criminal Code and section 2 of the Interest Act no longer apply to the payday loan industry of a province when the amount of money advanced is $1,500 or less and the term of the loan is 62 days or less and the lending company is licensed or otherwise specifically authorized under the laws of a province to provide such loans.
It is therefore the responsibility of the province to regulate this aspect of the industry. The other aspect is that any loan less than $1,500 with a term of less than 62 days falls under the Criminal Code.
The second part—and this is where we have a problem—involves a political act by the federal government. We could describe it that way since it exempts from the application of section 347 of the Criminal Code and section 2 of the Interest Act provinces designated by the federal government for passing legislation that the federal government considers to be consistent with its objectives for regulating this industry.
The provinces have to apply for such designation, but must also have passed legislative measures that protect payday loan recipients and set a ceiling on the total cost of the loans.
Unfortunately, there are limits to that designation since it can be unilaterally withdrawn when, in the eyes of the federal government, the province concerned no longer meets the conditions, and therein lies the problem; for example, when legislative measures are no longer in force or do not meet the expectations of the federal government.
Clearly, section 347.1 would permit the payday loan industry within a given province, to be exempted from a criminal interest rate if the province in question makes a request to the federal government and if it complies with a number of conditions established by Ottawa.
It is important to make it clear that these amendments will not apply to financial institutions regulated at the federal level, such as banks. That is understandable because we are not talking about the same industry.
As I have said, that creates very real difficulties for us because, in our view, very clearly, the federal government is giving itself the power to be in a position to say yes or no to legislation, to authorize or not authorize an exemption from section 347 of the Criminal Code and section 2 of the Interest Act.
I remind members that in Quebec there is a Consumer Protection Act that already includes nearly all of these aspects and as a result of that, as I mentioned at the beginning of my remarks, this industry is less common, or at least less flourishing, in Quebec than in other parts of Canada.
We know that payday lenders were once more numerous in Quebec and the Office of Consumer Protection decided to step in. The joint action of the police and the Office of Consumer Protection has meant that this industry is nearly non-existent in Quebec because the Consumer Protection Act contains strict obligations governing all types of lending. Whether it is a payday loan, a pawnbroker or others, the annual interest rate must be stated on loan contracts. In addition, all fees must be included in the interest rate. It is not possible to add fees for opening a file, for forms, for closing a file or other fees.
Finally—and I believe it is extremely important—case law has established that an annual interest rate of over 35% is unconscionable, while under the Criminal Code the rate called “criminal” is set at 60%.
It is very evident in regard to Bill C-26 that Quebec has no need for this legislation. The Government of Quebec is concerned, as is the Bloc Québécois, about the effects that the passage of Bill could have.
I remind the House of the Government of Quebec’s position.
|| The Government of Quebec believes that the federal government is imposing on compliance exemptions conditions that infringe on the jurisdictions of the provinces and Quebec.
The proof, as I said, is that Quebec already has rules governing the practices of this industry without being accountable for them to the federal government. Why would we start now being accountable to the federal government when we have managed very well so far to limit the growth of this industry, which often, unfortunately, takes advantage of vulnerable working people who are in temporary financial difficulty?
I repeat: the maximum interest rate in Quebec is set at 35%. This is substantially less than the 60% in the Criminal Code.
The designation feature is another point of considerable concern to the Government of Quebec. Through it, the federal government retains veto rights over measures taken by those provinces that request an exemption. That is true of the other provinces and of Quebec as well. All the successive governments of Quebec have been extremely sensitive about federal infringements on areas of jurisdiction that belong to Quebec and the provinces.
Although the mechanism for designating a province is still rather murky—I suppose we will have a chance to clarify this in committee—it seems that ultimately the will determine whether or not he wants to designate a province depending on what he thinks of its legislation. This kind of veto in an area of jurisdiction that belongs to Quebec and the provinces is totally inappropriate and unacceptable as far as we are concerned.
In short, the Bloc Québécois is opposed in principle to Bill . The Bloc realizes that certain provinces and territories wish to manage the payday loan industry themselves. It feels, however, that the federal government, even if it has the authority to set the maximum lending rate beyond which a loan becomes illegal, does not have the jurisdiction required to regulate the commercial practices of industries. Quebec, for instance, with its consumer protection act, already supervises this industry and prohibits unreasonable practices. This is why the Bloc Québécois is criticizing the conditions imposed by Bill on the provinces—Quebec in particular—that wished to be exempted from section 347 of the Criminal Code.
The government has no business to decide on the implementation of a licensing system or on the merits of supervision of practices in this area of activity by Quebec. This is also true for the other provinces. In the opinion of the Bloc Québécois, the Government of Quebec and all Quebec stakeholders in this file, Quebec is free to supervise the commercial practices of businesses under its jurisdiction. The government has no business using its veto so that the legislation can apply or not through this non-application mechanism, which I have already talked about.
In conclusion, in spite of the open-minded and respectful discourse of the Conservatives during the election campaign, we must conclude that the Conservative government is demonstrating the same determination to encroach on the jurisdictions of the provinces and Quebec as the former government, but packaging things differently.
It is still that same reflex of believing that the federal government knows better what the solutions are to certain real problems and that it must supervise the provinces to make sure they are on the right track. This paternalistic attitude—which characterized the Liberal reign from 1993 to the last election—is the government’s trademark. This is very clear in the example of Bill and in other files.
I will establish a parallel with the Kyoto protocol. The took the liberty of judging the validity of the plan put in place by the Government of Quebec. This plan could perhaps stand to be improved, but it is in stark contrast to the denial of global warming by the Conservative government. We took the liberty of saying, in a play on words, that this plan did not contain any mandatory regulations or conditions, which is true.
When the other provinces, in particular the western provinces, have met the targets that Quebec has already met, then we can have a serious discussion of the whys and wherefores of the Quebec act. Until we have evidence to the contrary, Quebeckers, the National Assembly and even the Liberal government of Quebec are in a better position to know what Quebeckers need in terms of the environment and of payday loan regulations.
Mr. Speaker, it is my pleasure to rise today to speak in support of an important bill, Bill , which was tabled on October 26 by my colleague the hon. .
The bill would make changes to the Criminal Code to enable the regulation of the payday lending industry by provinces and territories. This is an important and welcome change.
For years, the payday lending industry has operated in Canada under the radar. The bill would bring this burgeoning industry within the scope of regulations, and in so doing, provide greater protection to millions of Canadians and their families who have come to rely upon the services of the industry.
Indeed, according to the industry's principal lobbying and advocacy organization, the Canadian Payday Loan Association, the industry provides services to nearly two million Canadians each year. This is a substantial figure and demonstrates the importance of ensuring that Canadians are protected against harmful practices in the industry.
Bill would accomplish the following. It would amend the Criminal Code by adding a new provision, section 347.1, which would provide an exemption scheme for payday lenders from the criminal interest rate where a provincial, territorial consumer protection scheme is in place. It would define payday loans as part of the provincial legislative schemes that are established. It would require the provinces to set a cap on the total cost of borrowing for a payday loan.
Before moving to the discussion of the substance in these amendments, it is important to appreciate two things, first, the history of the payday lending industry in Canada, including the impact it is having on communities across our country; and second, an overview of the questionable practices which have served as a clarion call to action and which forms a basis as to why these specific amendments are proposed.
After learning more about this industry, I believe that all hon. members will agree that the amendments proposed by Bill are pragmatic, measured and necessary.
The payday lending industry in Canada is relatively new. Storefront operations with catchy names and flashy advertising began popping up in communities throughout Canada around 1994. The payday lending industry began its operations in western Canada. Today, however, the industry is truly national without outlets stretching from coast to coast. In fact, there are an estimated 1,350 payday lending outfits currently operating in every province and city in Canada, except Quebec, and the number continues to rise.
The two million Canadians who use the services of a payday loan company are borrowing nearly $1.7 billion each year. This is simply a staggering amount when one considers that all of this has occurred in an essentially unregulated market. These numbers illustrate that the payday lending companies are clearly responding to a demand from Canadians for their services.
It is true that there are some who would argue that the payday lending industry should not exist at all in Canada. On the other hand, it is clear that the industry is playing an important role for many Canadians on a daily basis.
There are many reasons why Canadians may come to use the service of their neighbourhood payday lending outlet. It may be for convenience, as many of the stores keep late hours and are open on the weekends. Others have suggested that the reason is due to the fact that many of the major financial institutions in Canada have closed the smaller branches, thereby leaving a void in many communities for fast, convenient locations to access cash. It may be due to the relatively anonymous nature of the service or unforeseen emergencies which come with immediate financial consequences. Regardless of the reason, the industry appears to be filling a niche in Canadian communities.
Given this fact, it is important to ensure that those Canadians who do use the service of a payday lender are provided with necessary protection from exploitive business practices, particularly so among the most vulnerable members of our community.
The government takes its responsibilities to improve the lives of Canadians and their families very seriously, and we are taking many important steps in this regard.
Whether it is through strengthening the Criminal Code to ensure that our streets and communities are safer or lowering taxes to help everyday Canadians, we have committed to make a difference. We will continue to take measures such as those proposed in Bill to ensure that Canadians can have the very best quality of life.
The proposed amendments contained in Bill are a thoughtful and effective way to provide for enhanced consumer protection. They respond to the needs expressed by many including the provinces and territories for effective regulation.
There are good reasons to ensure that this industry is regulated. Payday lending is a very expensive way to borrow. In some cases, the costs of borrowing money from a payday lender can range in the 1,000% when annualized. Concerns have been expressed in relation to insufficient disclosure on contractual terms by the lender. In addition, there is a concern with the aggressive debt collection practices and the relatively quick way in which these debts can spiral out of control,as a result of rolling over loans. In some cases payday lenders will even charge an early repayment fee to those who would choose to repay their loan ahead of time.
For all of these reasons it would be abundantly clear to all hon. members that there is a significant need for action in this area. The changes proposed in Bill will help ensure that action will indeed be taken to provide for the regulation of this industry.
In exploring the most appropriate response to this pressing public policy issue, we worked closely with our provincial and territorial colleagues. Through this work, it became increasingly clear that section 347 of the Criminal Code was a key factor in establishing a new regulatory regime.
Section 347 of the Criminal Code provides for an offence for entering into an agreement or arrangement to receive interest at an annual rate of more than 60%. Effectively, this creates the offence of charging interest at a criminal rate. Those who are convicted of this offence can face sentences of up to five years imprisonment.
When section 347 of the Criminal Code was first introduced, it was not intended to serve as a consumer protection measure. Instead, it was meant to provide law enforcement with an additional tool in the fight against organized crime and specifically the practice of loan sharking. Regardless of its original intent, it is applicable to lending arrangements in Canada including payday lending.
Let me be clear though, section 347 of the Criminal Code is not in this government's view the most appropriate or effective way to protect consumers from the unethical and unscrupulous practices which have been connected with segments of the payday lending industry. We are not alone in this assessment. We have heard from many jurisdictions as well as members of civil society who have indicated that section 347 is not a suitable mechanism for consumer protection.
Moreover, these same jurisdictions have noted that in their view the application of section 347 to payday lending companies acts as an obstacle to effective provincial regulations. And so, with these proposed changes we are responding to the needs of the provinces and territories who are much better placed to provide for the necessary consumer protection measures.
We are removing the applicability of section 347 in those instances where provinces choose to act. In instances where the provinces do not act, section 347 will continue to apply. We believe that this is an appropriate solution which will enable those provinces and territories that are ready to regulate the industry to do so.
It is important to briefly point out that Bill will not apply to federally regulated financial institutions such as banks. Banks are a matter of federal responsibility under Canada's Constitution and there are numerous federal pieces of legislation which regulate these institutions.
In general terms, the amendments would provide an exemption from section 347 of the Criminal Code for payday lenders under very specific and circumscribed instances. These exemptions would be set out under a proposed new section, section 347.1 of the Criminal Code.
The type of loan provided in a typical payday loan situation is generally a small amount, under $300, according to one study, and the usual terms are short, about 10 days. To qualify, a borrower must establish that he or she has a bank account and provide a post-dated cheque or pre-authorized debit. The borrower must also establish an income source.
Bill appropriately captures this common understanding of payday lending. It would define a payday loan as:
||an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security or property and not through a margin loan, pawnbroking, a line of credit or a credit card.
This definition is important, as it clearly sets out the particular type of lending arrangement that will constitute a payday loan.
Our policy objective behind the proposed amendments is targeted. We want to be able to ensure that provinces and territories are able to regulate the practice of payday lending that occurs in their jurisdictions.
We also want to ensure that only those arrangements which are truly payday loans are captured. This is so because the policy considerations in relationship to other forms of credit are quite different. I believe the definition found in Bill accurately captures the practice of payday lending.
In addition, Bill would specify that only certain types of payday loans would be eligible for exemption from section 347 of the Criminal Code. Notably, the loan would not exceed $1,500 and its term would not exceed 62 days. These limits correspond with the upper limits of payday lending described above.
Bill is not proposing regulation per se, nor is it proposing to set a national limit on the amount of interest that can be charged for payday loans. Rather, in creating an exemption from section 347 of the Criminal Code, Bill is responding to provincial concerns over the need to remove impediments to the regulation of the industry. This is important because the payday lending industry is most appropriately regulated at the provincial and the territorial level.
The ultimate goal of the proposed change is effective regulation. This can best be achieved by providing the provinces and territories with the flexibility they require to be able to set limits on the cost of borrowing. This approach ensures that the regulation is done in a manner which best reflects the local realities of the jurisdiction. At the same time, it recognizes that should a province or territory choose not to legislate for the purpose of regulating the payday lending industry, section 347 will continue to apply.
If a province or territory has made the determination that it will seek an exemption from section 347 of the Criminal Code for payday lenders operating within its jurisdiction, it will need to obtain a designation from the federal government. In order to succeed, it will need to establish that it has legislative measures in place which afford protection to those who seek payday loans. Those consumer protection measures will be left almost entirely up to the province or territory.
This approach is justifiable, as it recognizes the individual realities of each jurisdiction, including, for example, the practices of the industry in that province, as well as already existing consumer protection legislation enacted under the provincial constitutional authority over property and civil rights.
Bill would, however, require that as part of its legislation the province or territory must include a limit on the total cost of borrowing. In my opinion, this addresses three fundamentally important considerations: first, it recognizes that the provinces and territories can control the cost of borrowing in their jurisdiction; second, it guarantees that there will be a clearly defined cap on the cost of borrowing; and finally, as has been noted before, it provides a flexible solution to the individual circumstances of each province and territory.
The assessment of whether to issue a designation to a province or territory will be made by the governor in council. The province would write to the federal detailing the cost control measures set out in the legislative scheme. The would then, on the recommendation of the federal , ask the governor in council to grant the designation.
Upon the governor in council doing so, the province would then be eligible to exempt, via licence or other legislative means, a payday lender in its jurisdiction from the application of section 347.
In short, I believe that Bill is an extremely important bill. It will provide greater protection to Canadians by enabling the provinces and territories to regulate an industry that is in desperate need of regulation.
Bill sets clear limits. It defines payday loans and limits the maximum one can lend under the exemption scheme to $1,500. It requires provinces to legislate measures to govern payday lending agreements, including limits on the cost of borrowing.
Bill demonstrates this government's commitment to working collaboratively with provinces and territories on a matter of common concern. The impact of these proposed changes will make a real and significant difference to those Canadians who have come to rely on this service.
I hope that all hon. members will join with me and support the quick passage of this bill into law.
Mr. Speaker, my colleagues have invited quick passage of this bill in relation to which there seems to be a fair bit of support, and I certainly agree with that. One of the ways we can pass it quickly is not to do too much talking about it, and my remarks are offered today as part of the remarks of the official opposition on this bill.
Colleagues have probably had their attention brought to the recent decision of the Supreme Court of Canada in a case called A OK Payday Loan. That was a circumstance where customers of this particular operation had sued in a class action. At issue was the very high interest rates being charged by this payday loan business. As the court eventually determined, as I understand it, the moneys charged by this operation were at a level that constituted a criminal rate of interest, which is defined in the Criminal Code of Canada. That means an interest rate that exceeds 60%. Most of us will regard that as a pretty exorbitant rate of interest.
The point here is that the two jurisdictional worlds, the criminal on the one hand and commercial law on the other, clashed. As our colleague from the Bloc just mentioned, commercial activities outside of banking are normally regulated and administered jurisdictionally by each of our provinces under the property and civil rights heading in section 92 of the Constitution Act.
How do we draw the line between what is criminal and what is commercial? Our laws attempted to do that many years ago. The big difficulty we faced as a society when section 347 of the Criminal Code was first enacted was that organized crime/loan sharks were showing up in material ways across the country, and it was felt that the type of lending they did, which had no regulation, should be criminalized as being anti-social, so the criminal rate of interest rate was selected in such a way that anyone who lent an amount of money and collected at an interest rate beyond and above 60% was found to be in breach of the Criminal Code.
Doubtless that section of the Criminal Code, section 347, has protected many Canadians over the years, but with the growth now, with the proliferation of financial instruments, lending and access to credit and money, there are many ways that consumers now can access credit. One of those ways is this payday loan mechanism, whereby an individual who is employed can obtain a loan or an advance equivalent to some percentage of his or her paycheque and obtain it very quickly and easily from a payday loan business.
People may regard the payday loan business as kind of a bank loan. It is not a bank. It is simply a lending business that will lend money to the individual on the credit of a forthcoming paycheque a week or two weeks down the road. It looks like many Canadians find this a useful device, because the number of payday loan operations in Canada now has mushroomed in the last dozen years or so to the point where we have 1,300 payday loan operations right across the country. It looks like the consumer likes this mechanism.
I point out that it is generally for small amounts and for a very short period of time. It may be filling a niche that credit card companies, banks and credit unions are not. The issue has become, at what price are Canadians required to pay for their payday loan borrowings? In the case I mentioned earlier, equivalent interest rates are in excess of 60% per annum on the amount loaned. I suppose in our society now a knowledgeable consumer should be allowed to spend over 60% in interest if he or she wishes to have the money quickly. However, we are not removing the Criminal Code provision in what we are doing here.
We are going to keep a Criminal Code provision, but we are going to allow an exemption for a lawful business that lends money using this payday loan mechanism. The exemption will be based on the premise that a province or a territory is regulating the commercial operation. The Criminal Code will say that if a province is regulating interest rates and amounts and providing a supervisory regulation of that type of lending mechanism, then the federal jurisdiction will exempt that lending mechanism from our criminal law. We need to do that because under our Constitution, federal jurisdiction has paramountcy over provincial laws except where there is an exclusive provincial jurisdiction. Where there is an overlap, the federal law will normally govern.
Placing this amendment with section 347, will allow the provinces to assume their proper jurisdiction in the regulation of the commercial affairs of their citizens. However, at the same time we maintain the criminal prohibition with the 60% per annum cap where there is no provincial regulation. We are assuming that a province will provide a form of regulation that will essentially keep the same level of protection the consumers have had up to now.
This does not mean that loan sharks will have a field day. This means that genuine lending businesses, which I described as payday loan operations, can carry on with their legitimate lending services in cities and localities across the country, just as they have up until now, without fear that their practices will offend the criminal law. Their practices might offend the provincial regulatory law that has to be in place, but they will not have to deal with the Criminal Code provisions. Usually it is a lot more difficult for a citizen or a business to deal with a Criminal Code provision than it is for them to deal with a commercial provision. There is no stigma attached to compliance with regulatory requirements as there is to non-compliance with Criminal Code provisions.
The legislation took a number of years to develop. The initial consultations began a few years ago under the previous government and it involved reaching an agreement with the provinces and the territories that would allow them to assume a regulatory role. Those agreements, understandings, consultations and accommodations were all accomplished, and the government now finds itself in the happy position of simply having to introduce the law and getting it passed. I am assuming there will be a fairly high level of support for this. The official opposition will support the bill and we hope it will receive passage soon as well.
Mr. Speaker, I am pleased to have this opportunity today to speak in favour of Bill regarding criminal interest rates.
What is a payday loan, one might ask. The Library of Parliament explains it this way.
|| A payday loan is a short-term loan for a relatively small sum of money, provided by a non-traditional lender. Statistics from the Canadian payday loan industry suggest that the average payday loan is valued at $280 and is extended for a period of 10 days.
|| In order to qualify for a payday loan, the borrower generally must have identification, a personal chequing account, and a pay stub or alternative proof of a regular income. Payday lenders typically extend credit based on a percentage of the borrower’s net pay until his/her next payday (generally within two weeks or less). The borrower provides the payday lender with a post-dated cheque, or authorizes a direct withdrawal, for the value of the loan plus any interest or fees charged.
|| Some payday lenders will cash the borrower’s post-dated cheque or process the direct withdrawal on the due date of the loan. Others will require that the borrower repay the loan in cash on or before the due date, and may charge an additional fee if the loan is not repaid and they must cash the cheque or process the direct withdrawal subsequent to the loan due date. If there are insufficient funds in the borrower’s account, the borrower may also be required to pay a return fee to the payday lender and/or a non-sufficient funds...fee to his/her bank or credit union. In this instance, the borrower may have the option of “rolling over” the loan — that is, taking out another payday loan to pay off the original loan — for an additional fee.
Mr. Speaker, I invite you to read the library's excellent paper on payday loans from which I have just quoted.
With an estimated 1,350 storefront locations and representing annual revenues of approximately $1.7 billion, payday lending is one of the fastest growing industries in Canada. This industry appears to be filling a gap that exists in the availability of credit from the chartered banks and other traditional lending institutions.
There may be different reasons for this gap. Perhaps it is because such institutions are not willing to offer the type of short term unsecured credit that payday lenders do, or simply because local bank branches have been closed in many population centres, thereby making access to credit for many customers very difficult.
The payday lending industry may also be succeeding because of the relative convenience of their operations and the relatively anonymous nature of the commercial transaction.
The payday lending industry has been operating for just over 10 years now without any effective regulation, resulting in some payday lending companies charging outrageous and often crippling fees that trap many an unwary customer. In light of these questionable business practices, which may also include ineffective disclosure of contractual terms and aggressive debt collection practices, many have been right to criticize the current situation, including provincial and territorial governments, consumer groups and the payday lending industry itself.
For example, consumer groups have argued that consumers who would not otherwise have access to this type of short term credit, sometimes feel they have no alternative but to accept the terms and conditions of the payday lender. This can lead to their becoming vulnerable to unfair practices. Consumer groups want to see this issue brought under control.
On the other hand, lenders who have offered loans on reasonable terms and follow a voluntary code of conduct fear that their conduct is being questioned and thus seek regulations in order to give their industry both legitimacy and long term viability in Canada.
The provinces and territories have expressed concern as well. They, too, wish to ensure that Canadians who live in their communities are protected from unscrupulous practices and have noted that section 347 of the Criminal Code, the criminal interest rate provision, stands in the way of them effectively regulating this industry.
The government has heard the criticism and the concerns that have fueled the calls for legislative reform and Bill is a reflection of our resolve to address them. Our government has been working closely with our provincial and territorial colleagues to examine options for the most effective response to this pressing issue. Indeed, the situation has been the subject of discussion and examination by federal, provincial and territorial ministers responsible for justice and consumer affairs.
Bill is the result of that collaboration. I believe it would mean enhanced protection for those Canadians who have come to use the services of the payday lending industry.
Who uses payday loans and why? Again I want to go back to the excellent Library of Parliament paper that I quoted from earlier. The library researchers found:
|| In early 2005, the Financial Consumer Agency of Canada placed questions on the Canadian Ipsos-Reid Express...— a national omnibus poll of Canadian adults—about Canadians’ experiences with, and motivations for, using cheque-cashing and payday loan services. The survey found that approximately 7% of survey respondents had used a cheque-cashing or payday loan company. Cheque cashing was the most frequently used service (57%), followed by payday loans (25%) and tax refund anticipation loans (5%). Certain respondents were more likely to have used these services, including: men; those between the ages of 18 and 34 years; urban residents; residents of British Columbia, Alberta, Saskatchewan and Manitoba; those with household incomes less than $30,000 per year; and those with some post-secondary education
Those are causes for concern. The ongoing and expanding presence of payday loan companies suggest that some Canadians are willing to pay usurious rates of interest in excess of that permitted under the Criminal Code for their payday loans. This situation raises important questions about whether and how issues in the payday loan industry should be addressed, by whom and with what consequences for the industry and its customers.
The drafters of Bill must have also read the library paper because they found that section 347 of the Criminal Code, often seen as a de facto regulatory provision to limit the maximum lending rates for commercial and consumer loans, had to be considered in any discussion of payday lending. Indeed, section 347 is at the heart of the amendments proposed in Bill C-26.
I will come back to the substance of the proposed amendments a bit later but first I will explain the origins of the section and why, in my opinion, it is not an appropriate tool to use in regulating consumer lending.
Section 347 was not enacted to regulate commercial or consumer lending per se. The policy goal of the section was instead to enhance the ability of our police forces to target the harmful activities of organized crime syndicates. More specifically, the goal was to address the loansharking activities of these syndicates and the related practices of threats and violence that are often used when collecting payments. The adoption of a specific interest rate limit in the Criminal Code immediately next to the provision for extortion was to facilitate proof of extorted loans. This was clearly not about regulating legitimate lending activities.
Section 347 provides serious criminal penalties for entering into an agreement or receiving payments where the interest charged exceeds the defined criminal rate of 60%. When charges proceed under indictment, the offender is liable for a term of imprisonment of up to five years and, when they proceed summarily, for a fine of up to $25,000 and a term of imprisonment of up to six months.
This government does not believe that section 347 is the most appropriate way to regulate the payday lending industry and provide consumer protection. Bill would address the concerns noted by the provinces and territories by creating a narrowly defined exemption from section 347 of the Criminal Code to facilitate provincial and territorial regulation of payday loan agreements. In instances where a jurisdiction has chosen not to enact consumer protection legislation directed at payday lending, section 347 would continue to apply.
The exception created by Bill removes the application of section 347 of the Criminal Code, as well as section 2 of the Interest Act where a payday loan agreement is for an amount that does not exceed $1,500 and runs for a maximum term of 62 days and where the province in which the lender operates has been designated as having in place an appropriate regulatory scheme which must include limits on the total cost of borrowing.
It is clear that the exception only applies where the province in which the lender operates has made the appropriate amendments to its legislative scheme that governs consumer protection matters. The province would also have to request the federal cabinet for the necessary designation which allows for the exemption in respect of section 347. The criminal interest rate from section 347 would continue to apply in any province or territory which chooses not to implement qualifying regulations for payday lending agreements.
In Manitoba, bill 25, the consumer protection amendment act regarding payday loans, is now ready for a third reading and provides a good example of the type of complementary consumer protection legislation at the provincial level that would properly leverage the exception.
Manitoba's bill 25 establishes a licensing and inspection scheme for payday lenders, defines limits on certain loan agreement terms and parameters, sets out a lender's information disclosure obligations and defines a borrower's right in terms of cancellation and redress. This cooperative framework of a narrow Criminal Code exception, coupled with suitable provincial regulations specifically addressing the payday lending industry, should meet the goals and objectives of consumers and their advocacy groups, as well as those of legitimate payday lending companies and their industry associations.
In closing, this government believes strongly in protecting consumers from the unscrupulous practices of unregulated payday lenders. Bill is an important and necessary first step in establishing a fair and equitable regime under which to regulate the activities of payday lending institutions, giving consumers the best possible protection in accessing this type of credit.
I urge all hon. members to join me in support of Bill and ensuring its speedy passage.
Mr. Speaker, I am pleased to speak to Bill before the House today and to give the unequivocal support of the New Democratic Party for passage of this legislative proposal. In fact, it would be our wish, given the succinct nature of this legislation, to have it approved on short notice at all stages, dealt with on an expedited basis, and prompt action taken in an area that is long overdue.
I want to begin by thanking the Conservative for actually listening to the concerns of people all across Canada and especially provinces which were ready to act. In particular, I want to highlight the work of the Manitoba NDP government which has long been a champion of action in this area of unregulated payday lending and has led the country with a progressive legislative approach. That legislative approach, however, requires the federal government initiative to set aside the Criminal Code.
As members will now know, the Criminal Code sets an interest rate of 60% as the limit of interest that can be charged on a payday loan. We know from the past decade, that has seen an exponential rise in payday lending all over this country, that this approach does not work. In fact, I would like members to think hard and tell me if they know of any cases where this 60% criminal rate of interest was used in terms of actually charging a payday lender who has taken advantage of an individual in this country.
I can think of one. There was a recent case in Manitoba where charges were laid and a trial is ongoing. There has been one charge, one action after a decade of payday lenders and other fringe financial services flooding our marketplace. That is not a record of which to be proud. It speaks very much to a problem in our whole legislative system. It speaks to an issue that has not been dealt with and it needs a new approach.
The desired approach would be to have a national solution. I would much prefer to have one set of standards for this whole country, so that there is a rule that all payday lenders must abide by wherever they live, whatever province they reside in, and that we avoid any possibility of these outfits closing down a shop in one province and moving to another to take advantage of more lax rules or a more lucrative environment.
I would prefer to have seen the provinces and the federal government get together and come up with one plan, but they tried for years and they could not do it. Numerous discussions were held at the federal-provincial level among consumer affairs ministers and officials. Numerous forums were held, dialogues and discussions took place, but there was no solution and no one united position that came out of that prolonged set of discussions. All the while payday lenders and other fringe financial institutions have been popping up everywhere in this country. In the last decade, we have gone from zero to 1,350 such outfits in our society today.
I speak from direct political experience coming from a constituency like which has, in the space of 10 years, lost all of its banks. The north end of Winnipeg, which covers a significant area from the tracks in the south end to Inkster Boulevard in the north end, from Red River in the east to McPhillips Street on the west, has a huge area of residential neighbourhoods with small, large and medium size businesses. However, there are no bank branches left in that entire area. They have been dropping one by one over the last decade.
What has happened in the interim? What has happened as a result of that kind of negligence on the part of the banks, their decision to abandon an older community like ? I am sure it is not unlike many other communities in this country: inner city, north end, and older neighbourhoods that are not quite as lucrative for banks as suburban outlying areas. They pick up and leave without accountability and consequences, leaving people abandoned, high and dry, and without access to banking services.
In the case of , we are talking about a community that has a very high proportion of senior citizens, numerous high-rises and senior citizens apartments and, as well, on average, an income distribution that is at the low end. We are talking about people more likely living in poverty or eking out an existence on a day-to-day basis more so than in other parts of the country. It is an area that has a significant number of people with disabilities, a high number of people who made the transition from living on reserve to an urban environment. And there are no banks. There is nowhere for people to do banking; nowhere to cash a cheque without being ripped off; nowhere to set up a banking account, a savings account; and nowhere to learn how to budget and how to plan for their families. All the banks have left.
At this point, if it is all right with you, Mr. Speaker, I would like to split my time with the member for .
Mr. Speaker, I thank the member for sharing her time with me.
I rise to support this legislation. If there were some way that my words would make it go faster or expedite it, I would happy to use whatever words those would be. I think it will move quickly because everyone understands what this means to the people in their communities. Even as we stand here today talking about it, there are people who are losing their homes and assets because they have found themselves in this irreversible cycle of interaction with payday loan companies and they cannot get out of it.
We perhaps would not necessarily expect, particularly in these economic times, many people to be in the situation where if they had an emergency before their next paycheque, they would not be able to manage it. This is not about people who fit a model where people understand why those people go to a payday loan company. Many people live from paycheque to paycheque. It could be a dental emergency for a child, or expensive medication, or a repair to a house, which they did not expect, and all of sudden they are stuck.
No one says there should not be payday loan companies. As the member has said, as did other members, I know there are times when those companies can provide assistance to people who otherwise cannot get it. However, if they are already in difficulty, they do not need assistance to become bankrupt. They do not need to lose all those things they were trying to keep because of that one financial outlay and the truly criminal rates that many payday loan companies charge.
We have many payday loan companies in the community in which I live. I am sure some are operating honourably. I have had payday loan companies say to me that they want to have regulations. They know the reputation of other kinds of payday loan companies is spilling over on to everyone.
This legislation shows that we can look at something and find a way, if we wish to, to respond to these issues without a big broad sweeping brush. As the member who spoke before me said, Manitoba is ready to bring in legislation. Quebec already has legislation and other provinces are looking at it, although as I look at these provinces, some may be looking at it more closely than others. I am not sure, but they are certainly working on legislation.
I think it shows that we can find a way, that this is not the heavy hand of the federal government saying to the provinces that it does not care what good things they have done, that those things are gone and that it will now go in and tell them. We recognize the good work the provinces have done. We also recognize that we cannot exploit the most vulnerable people.
The research and polling I have seen says that there certainly is a percentage of people who use a payday loan company once or twice in an emergency and do not go back, so they are fine. However, some people get caught in that cycle because of the interest rate, and they will never, ever be able to get out of it until they have lost all of their assets. We see people across this country who are in that situation.
I would like to believe that voluntary regulation works in anything, but my experience is that voluntary regulation does not work in very much. I know that the payday loan companies have introduced a set of voluntary guidelines, but we still see the abuse going on. No matter what the issue, I have yet to see voluntary guidelines that have been picked up by everybody. We have to provide a better solution for people in Canada, better than having the good people following voluntary regulations while the others do not.
We could recognize Manitoba's regulations or Quebec's, but having this piece of legislation in place across the country means that we would not have hundreds of companies suddenly packing up and moving to the province where they can make the most money because there is no regulation there. That is the last thing we want.
We have seen this with other businesses. They just move to where they can make the most money with the least restrictions. We cannot have that either, because it means that people in one province become even more vulnerable than other people have been across the country. This legislation ensures that companies are not able to do this. We have had court cases brought before the court by individuals or groups of customers, but they still do not provide safety for everyone in Canada.
The other issue this raises for me is that there are several places in Canada that do not have banking services. Some have been mentioned. Some are very small communities where the banks have closed up and moved out of Dodge, but there are also very poor urban areas where banking facilities are not available. In the downtown east side of Vancouver, with one exception brought in by some colleagues, there was no place for people to bank. People cashed their cheques somehow. They carried the money around and were very much at risk. There was no kind of banking service available. While I agree that it is primarily in small communities that banks leave, there are very poor parts of urban areas where banks do not exist and people do not have the services or the resources.
Nor do many people have information about payday loan companies, so the companies do not get caught. I do not know if any of their rates can be called reasonable, but if they know what a reasonable or a more common rate would be, they do not get caught. But when we go to a payday loan company because we have an emergency, we are desperate. Most people do not do this because they choose to. They do it because they are desperate. People do not have time to sit back, research, read some pamphlets or talk to someone about it. They use payday loan companies because they have an emergency situation. They are very vulnerable.
One point raised in a question from a colleague from the Conservative Party was about what would happen if a province chooses not to be involved. I think there are some issues that people can work out at committee, but given the circumstances in which people live in the country, given the incredible exploitation, given that people have lost their homes and do not have a place to live or resources for their children, I would hope that the bill would proceed expediently through committee so that Canadians will be protected as soon as possible.