House of Commons Hansard #103 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was loan.

Topics

Criminal Code
Government Orders

1 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, Bill C-26 is a blatant example of the Conservatives saying one thing, but doing something else. They claim to want to use a different approach with the provinces and to respect their jurisdictions, but in this case Quebec has had its own Consumer Protection Act for years, to deal with payday loans.

In fact, this industry barely exists in Quebec, because we have eliminated excessive rates. The annual interest rate must be indicated on loan contracts, and the courts have established that an annual interest rate above 35% is excessive. In other words, we already have the tools to legislate this area.

I realize that the other provinces want some legislation, but this is a matter of regulating commercial practices and comes under provincial jurisdiction.

Why did the federal government not simply say that, where relevant legislation exists, such legislation will apply?

The Consumer Protection Act has been in effect for over two decades and it is working very well in Quebec. In committee, we suggested that this be indicated in the legislation, but that proposal was rejected by the other three parties, which completely ignored the fact that Quebec's experience in this regard is conclusive.

Why does the federal government not accept that we simply indicate this in the act, instead of having the Prime Minister give his blessing and the governor in council decide whether or not the Quebec legislation is acceptable?

The government could simply have said that, if a province already has an act, that legislation will continue to apply, and where new legislation is passed, such legislation will have been determined by the provinces.

How do we explain this discrepancy between the Conservatives' rhetoric and the respect for provincial jurisdictions? In the case of payday loans, Quebec has long had in place a tool that is recognized as adequate and acceptable.

The Conservative government has decided to adopt the same attitude as its predecessor and as federal governments in general. This means that the federal government will impose the same measure across the country, without taking into consideration the initiatives implemented by various provinces.

Why does the Conservative government not show good faith for once and accept such an amendment, so that we have an act that will adequately serve Canada, while respecting the practice that has been in use for decades in Quebec?

Criminal Code
Government Orders

1:05 p.m.

Conservative

Rob Moore Fundy Royal, NB

Mr. Speaker, I listened with interest to the hon. member's question. My speech basically refutes everything the hon. member just said. I said very clearly that not all provinces would wish to or need to do this. For example, in Quebec lending at more than 35% is prohibited, so there is no need for an exemption in that province. In other cases the designation will be required.

As the hon. member correctly pointed out, this means that Quebec has essentially banned the practice of payday lending and payday lending institutions by implementing a 35% cap on the maximum amount of interest that can be meted out in a loan agreement. The other provinces are calling for us to pave the way by amending the Criminal Code, which prohibits an amount that would equal over 60% and makes it a criminal offence to charge interest at a rate over that amount. I mentioned that in my speech. The provinces do not feel comfortable bringing in their own legislative frameworks to accommodate their consumers until we at the federal level pull away from that area of jurisdiction.

Quite to the contrary, we are actually recognizing the competence and the jurisdiction of each province to put in place its own framework. Quebec has done so. Manitoba and Nova Scotia have also done so. The approach that Manitoba and Nova Scotia wish to take requires Bill C-26 to pass. This would allow provinces to legislate in this area to protect their own consumers.

Criminal Code
Government Orders

1:05 p.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, coming from the province of Manitoba, we are anxiously awaiting Bill C-26 to pass. We see it as the enabling legislation so we can start to rein in this burgeoning industry, the payday lenders that are sprouting up like mushrooms in the inner city riding that I represent. They are an absolute scourge on the poor.

It is not any wonder that they are burgeoning and popping up in virtually every vacancy and every strip mall one can imagine. They are not just charging 60%, or 100%, or 1000% interest, some are charging 10,000% interest, according to independent studies done by the University of Winnipeg. Even the old leg-breaking loan sharks could not make money like that. There is no single thing one could do in the country to make 10,000% interest. I am told that selling cocaine does not get one 10,000% interest.

We are anxiously awaiting the implementation of the bill.

However, why were they not prosecuting these people all along? Why did successive governments ignore the fact that these guys were charging usurious rates, clearly against the Criminal Code of Canada and clearly undermining the financial stability of the inner city of Winnipeg and other cities. What possible reason could they have for not busting these guys? Why were these underworld figures, who run these payday lending outfits, not locked up before we had to even take this measure to provide a regulatory framework?

Criminal Code
Government Orders

1:10 p.m.

Conservative

Rob Moore Fundy Royal, NB

Mr. Speaker, section 347 of the Criminal Code, which prohibits interest of over 60%, was originally brought forward to address the type of loansharking the hon. member has referenced, the serious cases that we perhaps have seen in the movies. People do not imagine, in many cases, the thousands and, indeed, millions of transactions that take place in Canada with some of the payday lending institutions.

As I mentioned, the payday lending branch is a relatively new phenomenon in Canada. It has developed since those provisions in the Criminal Code were made to combat loansharking.

We feel that section 347, while appropriate to deal with loansharking, those type of serious underworld activities, as the member references, is not the best tool to regulate the payday lending industry as it has developed. We feel the group in the best position to regulate this industry is the provinces. We have talked a bit about Manitoba. I mentioned Nova Scotia. We talked about Quebec.

It could be that each province will take a somewhat different approach to regulate payday lending within its jurisdiction. We recognize the different approaches that provinces wish to take. By passing Bill C-26, at their request, we are enabling them to take that approach. It should be mentioned that if a province chooses not to move in this direction and regulate that area of law, then section 347 of the Criminal Code continues to apply to all transactions.

Criminal Code
Government Orders

1:10 p.m.

Liberal

Ken Boshcoff Thunder Bay—Rainy River, ON

Mr. Speaker, I believe if you would seek it, you would find unanimous consent for me to split my time with the member for Malpeque.

Criminal Code
Government Orders

1:10 p.m.

NDP

The Deputy Speaker Bill Blaikie

Is there unanimous consent?

Criminal Code
Government Orders

1:10 p.m.

Some hon. members

Agreed.

Criminal Code
Government Orders

1:10 p.m.

Liberal

Ken Boshcoff Thunder Bay—Rainy River, ON

Mr. Speaker, I rise today to speak in favour of the legislation before us, Bill C-26, An Act to amend the Criminal Code (criminal interest rate).

The legislation seeks to amend section 347 of the Criminal Code of Canada, which criminalized the charging of usurious interest rates. Section 347 limits interest charges on loans to 60% per annum.

When it was enacted, section 347 contemplated larger long term loans. As such, this section of the Criminal Code requires the interest on a loan to be calculated annually, even if the loan is for a short term, such as only five days. Therefore, the interest is calculated by compounding daily over 365 days, even if the loan is only held for a few days. One hundred dollars lent for five days at a cost of $1 therefore amounts to 107% annual interest. This would be the equivalent of requiring hotels to post their annual room rates at $55,000 per year, rather than $150 per night. Similarly, this would be the same as requiring a car rental agency to post its rates at $13,000 a year rather than $35 per day. We use many such short terms devices in our daily lives and we calculate the services using short term pricing, not annual rate, a meal in a restaurant or a tax trip across town.

Payday loans are also a short term product, so annualized rates are the wrong measure of the products cost.

What is a payday loan? This is defined 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 on property and not through a margin loan, pawnbroking, line of credit or a credit card.

In order to qualify for a payday loan, the borrower generally must have identification, a personal chequing account and a pay stub or other proof of a regular income. Payday lenders typically extend credit based on a percentage of the borrowers net pay until his or her next payday. The borrower provides the lender with a post-dated cheque or authorized direct withdrawal for the value of the loan, plus any interest or fees charged.

Who uses payday loans? In early 2005 the 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 at 57%, followed by payday loans at 25% and tax refund anticipation loans at 5%.

Certain respondents were more likely to have used these services, including men, those between the ages of 18 and 34, urban residents, residents of British Columbia, Alberta, Saskatchewan and Manitoba, those with household incomes less than $30,000 and those with some post-secondary education. Some of the reasons cited included that it was faster, it was more efficient and they needed the money more immediately, that the hours were more convenient, that they were open later than other financial institutions and that they had previous credit card problems, no credit card or no chequing account.

Although I personally never needed to use a payday loan, I can imagine how the service could be very helpful. There are so many scenarios that would require such instantaneous access to cash such as car repairs on a long distance trip, provision of a rental deposit to secure that just right apartment, a sudden illness or death of a family member that requires an unexpected trip to another province.

For those who are living through the challenge of a previous bankruptcy, life is a cash only society, with no access to credit cards to help bridge the wait between paydays. Clearly, payday loans are a required services for many Canadians, but they need to be regulated to ensure that consumers are protected.

The Canadian Payday Loan Association indicates that the payday loan industry first emerged in Canada in the mid-1990s. As of 2004 there were nearly 1,200 outlets, and as the parliamentary secretary advised, there are more than 1,300 right now. In my riding of Thunder Bay--Rainy River, I have recently witnessed the opening of nearly half a dozen payday loan businesses where just 10 years ago there were virtually none.

Why are amendments needed?

As stated earlier, section 347 makes it a criminal offence to charge more than 60% per annum. Section 347 was initially introduced to combat the practice of loan sharking and its links to organized crime. It was not intended to be a consumer protection tool for economic price regulations.

If the rate of interest on a payday loan transaction is calculated according to the definitions and methods specified in the Criminal Code, some payday loan companies appear to be charging in excess of 1,200% per annum. However, it is clear that interest rates on such short term loans should not be calculated the same as those on long term loans. It is also clear at the same time that there is increased demand for payday loan services.

The problem arises because of shared federal-provincial jurisdiction. Financial institutions are regulated either federally or provincially and territorially, depending upon which order of government incorporated them. The federal government has jurisdiction over interest rates, but the day to day regulation and licensing of payday lenders most likely falls under provincial jurisdiction as part of the provinces' power over property and civil rights.

Because of this confusion in jurisdiction, payday lenders have been left essentially unregulated. Provinces are unable to regulate the price of a loan, since any attempt to do so would conflict with section 347 and could therefore be challenged. However, section 347 has not been used in a criminal context to curtail the activities of payday lenders because the consent of a provincial attorney general is required to prosecute an offence.

Provincial governments are wary to prosecute a payday lender for fear that the lack of a payday loan company alternative would result in consumers using illegal alternatives such as loan sharks. The payday lending sector is one of the only segments of Canada's financial services sector that remains unregulated.

All other countries that have experienced rapid growth in the industry, including the United Kingdom, Australia and the United States, have rules in place to protect consumers. The United States, for example, has 22,000 retail store outlets. Forty states have put in place consumer protection rules. To date, no fewer than five provinces have openly called upon the federal government to change section 347 so that they can move ahead with provincial regulation of the industry.

If the payday loan industry is not regulated, its future may ultimately be determined by a number of class action lawsuits that are currently proceeding through Canadian courts. These lawsuits claim that consumers were charged fees in excess of the Criminal Code rate and seek to recover hundreds of millions of dollars worth of interest. Should these class action lawsuits succeed, they could potentially bankrupt the payday loan industry.

There have been significant federal-provincial-territorial consultations regarding regulation of the payday loan industry. Through this consultative process, they have all agreed that section 347 is an inappropriate control for payday loans and that it should be amended to enable provincial regulation of the industry.

In October 2005 the Liberal federal minister of justice acknowledged that section 347 does not make sense and should not apply to payday loan companies. The minister sought and obtained cabinet approval to amend section 347 accordingly.

I am very pleased to see that that Conservative government has chosen to follow through with the introduction of this legislation, which was developed through the hard work of the former Liberal ministers of justice and industry. The dropping of the writ and subsequent election are its own story.

What has been changed with Bill C-26?

The bill adds a definition of payday loan. This is an important addition because it provides a clear definition of a second kind of loan where previously there was no differentiation and all loans were treated equally.

Clause 2 introduces new subsection 347.1(2) which exempts a person who makes a payday loan from criminal prosecution, if the loan is for $1,500 or less and the term of the agreement--

Criminal Code
Government Orders

1:20 p.m.

NDP

The Deputy Speaker Bill Blaikie

Order. Questions and comments, the hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup.

Criminal Code
Government Orders

1:20 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, my riding is another one with a very long name that describes the whole of the area where the people I represent in this House make their homes.

I listened with interest to the remarks of my colleague. I know that the work has been done by the Standing Committee on Industry and not the Standing Committee on Justice. Perhaps he is not aware of how these things were done, but I would still like to ask him a question.

In Quebec, as opposed to what has happened in the rest of Canada, the matter of payday loans was dealt with in the 1990s—if not, indeed, the 1980s—with the creation of the Office de la protection du consommateur. In Quebec, the maximum rate of interest that can be charged is 35%. When this bill was tabled, we expected, therefore, that the federal government would say that any provinces that already has similar legislation, with adequate protection, has only to declare that and it will be automatically designated. That would have made it possible to adopt the bill very quickly in one day of parliamentary debate. However, in committee we encountered fierce opposition—not just mild opposition—from representatives of the other three parties because they absolutely insist that the federal government must have the right to give its blessing to the provincial legislation.

I would like to ask my colleague, instead of demanding that there be a designation made by the governor in council, and in the final analysis, the Prime Minister, would it not have been more reasonable to decide whether Quebec's act is acceptable on the basis of the provisions in Bill C-26?

Would it not have been possible to accept an amendment that was suggested not only by the separatists in Bloc Québécois but also by the Government of Quebec, which represents all Quebeckers and which has administered the current act for 25 years?

Could the Conservatives not have shown that much flexibility when they are so fond of proclaiming that they respect provincial jurisdiction? In this case, they show no sign of that respect.

Criminal Code
Government Orders

1:25 p.m.

Liberal

Ken Boshcoff Thunder Bay—Rainy River, ON

Mr. Speaker, there has been widespread media attention to this. Some of the provinces, such as New Brunswick, state that they welcome the news about the introduction of legislation at the federal level. Others say handing the regulation of payday loans over to the provinces is the best thing the federal government could do to fix the situation that has allowed financially troubled consumers to be victimized by predatory lenders.

When the hon. member makes his case, he does it very logically and fairly. I hope that hon. members of the House would consider that.

Criminal Code
Government Orders

1:25 p.m.

Liberal

Wayne Easter Malpeque, PE

Mr. Speaker, I am pleased to speak to Bill C-26, an act to amend the Criminal Code (criminal interest rate).

The bill was reported back to the House from committee on December 13. It very seldom happens that a bill is reported back without amendments. That shows what can happen when there is strong cooperation between the parties. Actually this is one of six bills the official opposition has called upon the government to work with all parties to pass as soon as possible.

We believe with just a little more cooperation, especially from the government, that in addition to Bill C-26, the following bills could be reported back to the House: Bill C-9, which would restrict the use of conditional sentences; Bill C-18, which would strengthen the DNA data bank; Bill C-19, which would amend the Criminal Code on street racing; Bill C-23, which would amend the Criminal Code and criminal procedure in languages of the accused and sentencing, in other words, update Canada's Criminal Code; and Bill C-22, which would amend the Criminal Code with respect to age of protection, with the importance of protecting children. We believe with a little more cooperation from the government, we could in fact be getting those six bills approved in the House.

In summary, Bill C-26 amends the Criminal Code of Canada to exempt payday lenders who operate in provinces and territories having measures in place to protect borrowers from the application of section 347 of the Criminal Code of Canada, and require jurisdictions that regulate the industry to place limits on the cost to consumers of payday borrowing.

To a great extent a lot of work was done on this bill by previous ministers of industry and justice. A lot of work has gone on with the provinces and territories to get the kind of collaboration needed to put forward this bill in the House of Commons. I congratulate all the folks, including members of the government, who were involved in those discussions to get us where we are at today.

There is certainly a need to ensure consumers that usury interest rates are not allowed in this country. There is no question that there is a lot of authority in the Criminal Code of Canada under section 347 to lay criminal charges for usurious interest rates. Section 347 makes it a criminal offence to charge more than 60% per annum.

As we all know, some payday loan companies have charged far in excess of that rate. In fact, we have heard of outrageous interest charges, when compounded and fees are added, in excess of 1,200% per annum, yet no charges under section 347 to payday loan companies have been made.

Yes, the concern is there, but the payday loan business is a little more complicated jurisdictionally, and I would say on an individual need basis, more than meets the eye. Jurisdictionally payday loan operations are considered to be commercial businesses. They are not banks, although I think many people believe they are. As commercial businesses, to a great extent they fall under provincial jurisdiction.

My colleague, the MP for Scarborough—Rouge River, explained it. I want to quote from his remarks in the House because he gave best explanation on this point:

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.

He went on to say:

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.

It is important to mention that because it explains the jurisdictional problem and the difference between the commercialization as a business.

Therefore, the bill does cover off the jurisdictional question under clause 2 by the person being licensed by the province to enter into the agreement, and second, the province has been designated by the governor in council or cabinet under the proposed new section 347.1.3.

On an individual need basis, it is obvious from the demand for transactions, estimated to be $1.3 billion or more, and in fact the parliamentary secretary said it is as high as $2 billion now, and also the increase of payday loan companies that are estimated to be over 1,300. It is obvious from these shocking figures that individual Canadians have an urgent need for short term cash for whatever reason.

Yes, I recognize the amounts are in the low hundreds of dollars, but the cost, as others have said before me, are very high.

Mr. Jenkin with the Department of Industry, who was a witness before committee, indicated:

It's a form of short-term lending through which the consumer typically borrows several hundred dollars for 10 days to two weeks. The borrowing costs are very high, as you probably know. They are usually in the range of, for example, $40 to $75 for a $300 loan for two weeks or less.

I must emphasize that while I support the bill as a way to improve the situation for people who are in need of immediate cash, I still am worried about the impact of the financial strain on individuals. There is no question in my mind that the individuals who are basically forced to use these services are the ones who can least afford to pay these high fees. Maybe they need the dollars to provide food, buy groceries for the family. Maybe they need the dollars for a medical bill or maybe they even need the dollars to pay the minimum payment on a high interest bearing credit card.

Whatever the reason, there is clearly a problem out there that needs to be addressed beyond this bill. I certainly would advise the government and others that we really need to be doing as a country, both at the provincial and federal level, some research into the social or economic reason why people think they are forced to go to these services for those kinds of money. They are the people who can least afford it and I believe that needs to be looks into and addressed.

The bottom line is that we are in favour of this bill. We do believe it is a step in the right direction However, there are other underlying causes that we need to recognize are out there in a social and economic sense and issues that really affect people in their daily lives that forces them to use these services. That is the worrisome point.

The bill is good but I believe the House and the government need to look at the underlying causes of the need to use these services more so.

Criminal Code
Government Orders

1:35 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I was very interested in what my colleague said in his speech, particularly in the fact that he said there will have to be further complementary studies not only to address the disciplinary aspect of this issue, but also to identify the causes and implement the most appropriate measures.

That is why I would invite him—as well as provincial government representatives—to learn more from the Government of Quebec about the current practice that the Office de la protection du consommateur has overseen for almost 20 years, a practice that limits payday loan interest rates to about 35% in Quebec and that has helped curb development in the payday loan sector. This may also be due in part to the fact that the Desjardins group has a particular interest as a lender, as a cooperative lending institution, in ensuring that its members receive the best possible service. In any case, these measures have worked together to prevent the problem from emerging in Quebec as it has done in the rest of Canada.

In light of this visit, this experience, this exchange, the federal government should recognize that Quebec has developed this approach within its jurisdiction. Furthermore, it should simply make note of the results and accept that there is already legislation in place in Quebec. A letter from Quebec's minister of Justice to the federal Minister of Justice explaining that Quebec has a law that meets this goal and that, as such, he considers the requirement fulfilled should suffice. There should be no need to subject a province to an assessment in an area that is already under its jurisdiction.

Criminal Code
Government Orders

1:35 p.m.

Liberal

Wayne Easter Malpeque, PE

Mr. Speaker, I do not think there is any concrete evidence to prove the point that the job is being handled well in Quebec. We know they are not being used as much in Quebec but we do not know the underlying reasons for that. It would require a lot more research than the typical Bloc Québécois approach, which is that it is basically due to the issues as they exist in that province. Some national research needs to be done in that area and that can be done with this bill in place. With some provincial jurisdictions operating a little differently than others, there would be the foundation to do that research in the future to get concrete results.

Criminal Code
Government Orders

1:40 p.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, I wonder if my colleague from Malpeque would agree that the reason these payday loan outfits have popped up like mushrooms in virtually every town and community in the country is that the banks have abandoned many places. We have had 15 branch closures just in my riding of Winnipeg Centre in the last five years. In their place, these payday loan ripoff outfits, and I do not hesitate to call them that, have popped up to provide for the basic needs of people who might need financial services.

Would he not agree that while we are trying to regulate and rein in these payday loan outfits, we should also be reminding the banks of their obligations under their charters to provide basic services for Canadians? For instance, under the Bank Act the banks must allow somebody to open a bank account even if that person has no money. Maybe these people would not need to go to a payday loan outfit if the bank had a branch somewhere within miles of where these people live and allow people to open a bank account so they can cash their cheques without paying 3% or 5%. Would he not agree that we need to get after the big banks to live up to their obligations at the same time as we are trying to rein in these ripoff payday loan outfits?