I appreciated Mr. Fraser and Ms. Dzerowicz's comments. As always, they put it very eloquently, but I respectfully disagree.
In terms of access to information, as Mr. Fraser mentioned, providing the parliamentary counsel with that determination is something that is relatively commonplace with committees.
As to Ms. Dzerowicz's comments, the reality is that we were given the stewardship of the financial outlay through this pandemic. That's our responsibility. Parliament gave this finance committee the charge or the stewardship over all government expenditures related to COVID-19, so this is just doing our job.
I think the Ethics Commissioner may be looking into whether or not there is an ethical violation. This is a question of financial procedure, financial control, and these questions deserve answers, in the same way that we may find there are other issues that come up in the coming months that, as stewards of the financial outlay of the federal government, the finance committee is called upon to look into. The House of Commons directed us that way; that's our responsibility.
Hopefully we'll get answers in the coming weeks. I don't think a one-month timeline is, by any means, too onerous, but we'll have the answers and that will be responding to the stewardship that was given to us by the House of Commons back in March, at the beginning of the pandemic.
We don't know how long this pandemic is going to continue. We don't know what other programs may need to be brought forward to deal with the pandemic. We have the responsibility, any time there are unanswered questions, to delve a little bit deeper and get the information. That's what this motion is endeavouring to do.
Thank you very much, Mr. Chair.
I am the leadoff hitter today and I am very happy to be here. Thank you very much for the invitation to update the committee on how FCAC is responding to the COVID-19 pandemic.
As suggested to me, I will be speaking only in English to avoid any technical difficulties.
As suggested to me, I will be speaking in English today to avoid technical difficulties with the back-and-forth.
I am joined by three colleagues: Frank Lofranco, deputy commissioner of supervision and enforcement; Teresa Frick, director of supervision; and Ruth Stephen, director of strategic policy, research and education. They are here to provide additional detail on specific program areas if desired by the committee.
I will first give a short background on the agency and then focus my comments on our response to the pandemic.
FCAC is a federal agency that operates independently and is primarily funded by the financial institutions we regulate. Our mandate is to protect Canadian financial consumers. We do that in two principal ways.
First, we supervise federally regulated financial entities, primarily banks, for compliance with consumer protection measures as set out in legislation, public commitments and codes of conduct. Second, we promote financial literacy through education and raise awareness of consumer issues and rights. Knowledgeable consumers are better-protected consumers.
I was appointed commissioner last August, so this is my first appearance before this committee, and since that time we have been focused on preparing the agency for our next stage of evolution.
Even prior to the unique challenges of COVID-19, we had a lot on our plate. Our role was recently strengthened, as you know, by legislative changes to the FCAC Act and the Bank Act that received royal assent in December 2018. They provide new powers for the commissioner, embed financial literacy as core to our mandate, and modernize Canada’s financial consumer protection framework. Some of these provisions came into force on April 30 of this year. The other elements will come into force over time, as they require the regulations that are currently being drafted and time for both industry and FCAC to prepare for implementation.
We have made remarkable progress over the past year. We refreshed our vision and mission statements, introduced a new organization structure, recruited a new senior management team—including Frank Lofranco, who has been with us two months—published our strategic priorities and improved the transparency of our adjudication process. Of course, there is still much to do.
FCAC has a team of about 160 people who have been working remotely since the middle of March. Like many organizations, this is a difficult new reality for our employees and has required us all to adapt and adjust. I am happy to report that thanks to the dedicated efforts of our team, we have adapted and have maintained our progress even during these unprecedented times.
Turning to our COVID-related actions, in our supervisory work we have maintained close contact with the financial institutions we regulate and have proactively communicated our expectations, including that they prioritize providing safe access to financial services, particularly for vulnerable consumers. We adjusted our priorities so that financial institutions could reassign internal resources to adapt their operations and to accommodate the demand for financial relief. For example, we paused our industry consultations on the new framework for the past few months. That work is now back on track; however, we recognize that we need to remain flexible and may need to adjust again as the situation evolves.
Despite considerable disruption and pressure on their operations and employees, banks have demonstrated a commitment to ensuring that financial services remain available. They have shown a willingness to work with impacted consumers who request financial relief. We have provided some data on that in our background information.
We consider these relief measures to be public commitments and are therefore monitoring that they are implemented in a fair and appropriate manner. To that end, we have been receiving weekly reports on payment deferrals for mortgages and other credit products since April. Based on our data, while the implementation has not been perfect, most consumer requests have been approved and in a timely manner.
On the consumer education side, FCAC is supporting consumers with unbiased, fact-based information through our call centre and online resources. Our call centre volume has increased by 28% compared with the same period last year, and our online resources have seen increased traffic, as we quickly created and promoted new pandemic-specific information that is responsive to the current situation. We are committed to providing updates as the situation evolves.
Finally, through our ongoing research programs, FCAC monitors financial consumer trends and behaviours. For example, we are building on the baseline established by the Canadian financial capability survey, which we published last fall. Starting this month, we will be launching two new monthly surveys to update that information and assess the changes resulting from the impact of the pandemic. These survey findings will help inform our supervision efforts and enable us to refine and update our educational information for consumers.
From the outset of the pandemic, we have worked closely with our stakeholders to gain insights into the issues consumers are facing. This includes the 18 financial literacy networks, representing over 600 community organizations across the country. We have also initiated communication with provincial regulators on matters of mutual interest and have been coordinating closely with the other members of the Financial Institutions Supervisory Committee, or FISC, which, as you know, includes the Department of Finance, the Bank of Canada, CDIC, OSFI and us. In addition, FCAC actively participates internationally in organizations such as the OECD, where we share information and ideas and learn about best practices elsewhere.
Through all these efforts and initiatives, we aim to live up to our vision, which is to be a leader and innovator in financial consumer protection. Consumers must have confidence in the financial system, especially in times of crisis. The actions we and our FISC partners have been taking in response to the pandemic are designed to contribute to that confidence, and FCAC is committed to working together with others to uphold the protection measures that consumers have come to rely on.
This completes my opening statement, and I am happy to answer any questions that you may have.
I will try. It's a hard habit to break, apparently.
The OSB is part of Innovation, Science and Economic Development Canada, and the is responsible for insolvency policy via legislation and regulations. As superintendent, I work closely with my ISED colleagues and also have directive-making power that enables me to provide additional guidance on the legal requirements of the BIA.
As mentioned in the materials, the OSB is predominantly a vote-net organization. OSB revenues cover all direct costs of the operation, as well as indirect costs for various centrally managed expenditures.
In addition to the OSB, the key players in the insolvency system include licensed insolvency trustees, debtors, creditors and the courts. Licensed insolvency trustees, which I call LITs, are private sector individuals and corporations that are the only professionals authorized to administer insolvency proceedings that allow debtors to be discharged from their debt. LITs go through a thorough training and certification process before being licensed by my office. They must adhere to standards of practice set out in the BIA, in the CCAA and in regulations, including the code of ethics for trustees and the superintendent's directives.
Debtors have rights and responsibilities in the insolvency system, including complete and honest disclosure of their assets and liabilities and co-operation throughout the process. In the case of consumer debtors, they must participate in two insolvency counselling sessions. Debtors can be subject to consequences if they fail to fulfill their duties, such as a refused discharge, an order to pay additional amounts to creditors, and even, in the most serious cases, criminal charges. Most debtors, however, are honest and co-operate fully, and upon their discharge can benefit from a fresh financial start.
Creditors also have rights and responsibilities in the insolvency system. They are entitled to receive a portion of the amounts collected from the debtor. They have a role to play in the insolvency proceeding. They must respect a stay of proceedings and cannot attempt to collect debts that have been discharged.
Courts play an important role, which varies depending on the type of insolvency proceeding. Legislative changes in 2009 provided additional automatic discharges for certain bankruptcy types, which reduced the need for court involvement in the majority of bankruptcy proceedings.
I'll turn now to some of the OSB's programs and the steps we've taken to address the COVID-19 pandemic.
Since my appointment as superintendent in October 2018, I have established three strategic objectives for the OSB: engagement with stakeholders, compliance and organizational excellence.
In large part thanks to the OSB's increased engagement with stakeholders, including the Canadian Association of Insolvency and Restructuring Professionals, also known as CAIRP, and LITs across Canada, the OSB was able to act quickly in response to the COVID-19 pandemic by issuing our first guidance note on March 13, 2020. We immediately enabled LITs to carry out certain duties remotely that they would typically have had to carry out in person, including the initial debtor assessment and insolvency counselling. We have since extended this flexibility to March 31, 2021, to support social distancing, help debtors receive services in their preferred way, leverage technology and provide important efficiencies to the system.
Since March 13, 2020, the OSB has issued at least 10 guidance notes, as well as several on behalf of the CRA and Revenu Québec, all of which help to ensure that the system can operate effectively and efficiently. We have sought to lighten compliance requirements where appropriate and have embraced technology and other efficiencies.
Perhaps most significantly, using my authority pursuant to the BIA, I applied for an order on behalf of the more than 451,000 open insolvency estates and those filed by June 30 in all 13 provinces and territories, effective April 27, 2020. This allowed consumer proposal debtors to miss an additional three payments between March 13, 2020 and December 31, 2020 without having their proposal deemed annulled, in recognition of the fact that many consumer proposal debtors found themselves out of work and unable to maintain the promised levels of payments. Note that missed payments would need to be made up at some point prior to the completion of the consumer proposal. The order also allowed for the extension of timelines where necessary for things such as meetings of creditors, applying to court and mediation.
OSB officers across the country reached out to LITs in the early weeks of the pandemic to check in and ensure that they could operate effectively. The OSB also created a dedicated email box and COVID response team to reply accurately, consistently and in a timely manner to all COVID-related questions from LITs and Canadian stakeholders.
We're continuing to explore ways to leverage technology to effectively carry out our compliance duties at a distance, including inspections of LIT practices, debtor examinations, chairing meetings of creditors, opposing discharges and conducting criminal investigations, as well as using electronic signatures and enabling electronic fund transfers.
We've also put an emphasis on ensuring that debtors have accurate and reliable information on the options available to them to address their financial difficulties. Last year, we launched a debt solutions portal on our website, which we promoted with the help of partners, including the FCAC. We issued a guidance note directed at debtors in the context of COVID-19, and developed a series of COVID-19-related social media posts to be published throughout the summer. This year, the OSB launched a map-enabled feature to help debtors find a LIT in their area. In the coming year, we hope to develop new and interactive tools to help Canadians find the best debt solutions for their debt challenges.
In terms of readiness for a possible increase in insolvency filings, we start by looking back at prior years and the past weeks. We are keeping a very close eye on insolvency rates, compared with the last significant Canadian recession, in 2008-09, which impacted insolvency rates with a record high of over 158,000 filings, or 5.83 filings per 1,000 adults, in 2009.
In 2019, the raw numbers of insolvency filings reached more than 140,000, but note that Canada's population has also grown over time. This was the equivalent of 4.64 filings per 1,000 adults, a rate that has been relatively stable since 2011, where it has remained under five following the effects of the recession.
In the weeks following the onset of COVID-19 in Canada, BIA insolvency rates dropped below both 2009 and 2019 rates. For business insolvencies, this drop appeared in the week of March 8, and on the consumer side, it appeared in the week of March 15. The rates have remained well below 2009 and 2019 levels on the BIA side since then. We can surmise, with a fair amount of confidence, the reason insolvency rates have remained low. I think we attribute it to financial and liquidity supports from government, reduced levels of enforcement by creditors, and uncertainty regarding the future for businesses and employees.
On the CCAA side, I would note that we have received 27 CCAA filings, the largest insolvency filings in Canada, in Q2. This is more than double the 10-year quarterly average. The next-highest quarterly filing rate was 17 in Q1 of 2012. l would note, however, that in some years we see a spike in one quarter followed by a significant drop in others, so it's too soon to tell whether this is a sign of a record year. I would also note that the numbers are very small across the board.
It is important to emphasize that insolvency is a lagging indicator. In the materials I provided, slide 8 shows the correlation between insolvency rates and drops in the gross domestic product, with an increase in insolvency filings occurring when the GDP goes down or in the quarter following a drop in the GDP. Decisions to make a formal insolvency filing are complex. We know that individuals and businesses that may technically be insolvent will not always file a formal proceeding.
Future insolvency rates will be impacted by a multitude of factors. The OSB has not historically been in the business of forecasting insolvency rates. We have a model to forecast revenues, which is very reliable. The majority of fees are paid at the end of an insolvency proceeding, so we base our forecast on current filing data rather than forecasted filing data. We've been in discussions with colleagues, both in Canada and internationally, to determine whether there is a reliable forecasting model and how well it could be applied in the context of the current uncertainties. Work is continuing on that.
In the meantime, the OSB is preparing to ensure that the insolvency system can handle a significant increase in insolvency filings. Based on experience from 2009 and additional efficiencies that have been adopted in the insolvency system, I am confident that the system can handle it.
Specifically, I would point to the fact that insolvencies are filed electronically with the OSB, and we verified that the system could handle significant spikes in 2009. We're also testing it to ensure that it can handle even more. We have extended remote service delivery options by LITs, and the OSB will provide additional efficiencies. LITs have also found efficiencies over the years in how they deliver services. We can make some strategic adjustments to compliance requirements. As well, as I mentioned, we have reduced court time, given the increase in the number of files that can obtain an automatic discharge and due to the increased number of consumer proposals that are filed. We continue to explore other system efficiencies, such as the use of artificial intelligence for detection of potential debtor non-compliance, which we will be piloting this fall.
That concludes my remarks. I'd be happy to answer any questions you may have.
Ms. Lang, thank you for joining us. Thank you, as well, for your presentation at the beginning of the meeting. I must say hats off to the interpreters, who did an outstanding job keeping up with you.
I'd like to talk about the statistics you shared. My goodness, are they ever surprising. I am referring to the report entitled "Insolvency Statistics in Canada". The latest data cover the month of May. Because of the pandemic, I would have expected the number of insolvencies and bankruptcies to rise. You say, however, that the total number of insolvencies, bankruptcies and consumer proposals in Canada fell by 8.2% in May 2020, as compared with the previous month. We saw 3.9% fewer bankruptcies, and consumer proposals were down 10.3%. The total number of insolvencies filed in May decreased by 50.3%, compared with May 2019. From what I understand, that is half as many, even though we are in an economic crisis. In Quebec, according to your data, it is 64% fewer. That's incredible. In your report, the numbers follow the same trend.
I have some theories that might explain it, but I'd like you to tell us the reasons that might explain the decrease. I'm not sure whether you can answer me off-the-cuff. The Library of Parliament analysts indicate that it could be due to a slowdown in court activity. Are you in a position to comment on that? If not, how have the programs implemented by the government also made a difference?
Other theories are more worrisome. You mentioned the permission to miss the first three payments, but also the fact that financial institutions have entered into deferred payment agreements. However, if financial institutions have agreed to temporary deferrals, we can expect a huge number of insolvencies and bankruptcies in the fall. That is cause for concern.
What say you about these theories?
Thanks very much, Mr. Chair.
I'd just like to reiterate, Ms. Lang, following Elizabeth May's question, that it would be very helpful for us to have the international solutions that other countries have brought to bear, due to what is becoming chronic in Canada. I mean, the level of family debt is unbelievably high. The profits in the banking sector are unbelievably high. I think people make the correlation that it's government policy that is putting this concentration of wealth into a few people's hands. The one per cent, the wealthiest Canadians, have as much of the wealth of the country as the bottom 80%. There's a problem there. Certainly the bottom 20% have barely one per cent of the nation's wealth. That, in a nutshell, is why so many people come to you.
I'm interested in the factors you cited earlier, which were mentioned more anecdotally, it seemed, in terms of the reasons for filing. As I recall, 23% were because of medical reasons, which could be long-term illness or disability, and 15% because of the breakup of a relationship. We all know what a tremendous financial cost that can be for families. Putting those together, 38% or almost 40% of bankruptcies are caused by circumstances beyond control. That is a very interesting fact. We'd appreciate having more information.
The other fact that I think we would love to probe into is the number of consumers who are in high interest rate relationships with their bank, with payday loans or with credit card companies. We really haven't seen the banks adjust their levels at all. In fact, they've reaped $5 billion in profit so far in this pandemic, which many people consider to be despicable. It's supposed to be all hands on deck, rather than profiteering from the immense largesse they've received from the federal government.
Do you have numbers around the percentage of consumers and small businesses that are victims of this high interest rate charge that's based on your credit rating, which really is a way of skimming the public? Certainly, payday loan companies, as you mentioned, with up to 700% interest, are a sad example of that with no government action. Do you have a sense of what consumers and what small businesses are subject to these high interest rates that contribute to their bankruptcy?