Debates of Feb. 5th, 2007
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 payday.
- Question Period
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- Business of Supply
Paul Szabo Mississauga South, ON
Mr. Speaker, the government has again seen fit to reintroduce another bill, which was introduced by the previous government, on payday loans. I believe we will find there is some extensive support for this because of the implication it has to ordinary Canadians.
A payday loan is a short term loan for a relatively small amount of money 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 specific percentage of the net pay for a period of up to 14 days, ending on the next pay day.
The borrower provides the lender a cheque, postdated to the borrower's next expected income payment date, for the total amount of principal, plus interest and other fees. Members have indicated that when we take the fees, interest and insurance, the cumulative cost is in effect an interest rate of as much as 60%, which by any criteria is usury and inappropriate.
One might ask who would want to pay these exorbitant rates of interest. This is the crux of the reason why I wanted to speak on the bill. It is again a demonstration that there are people out there who, in the absence of the protection of the laws of Canada, will be taken advantage of by people who see these little pockets of opportunities to take money away them simply because they are torn between needing cash today to buy food or to pay the balance of their rent, and the only opportunity they have is to go to payday lending institutions.
This is a problem because people who are in those situations find themselves without any credit rating. This means they have no line of credit and no opportunity to borrow from a bank. They probably have a bad credit rating for that matter. In addition, they would not have a credit card. Although credit card interest rates are very high, they are not 60%.
One might ask why they would borrow a net paycheque from someone at those rates when they could simply draw on a credit card. That is not even an option. We are talking about vulnerable Canadians who are faced with the only opportunity to get the cash they need to take care of the basic necessities of life such as food, clothing and shelter. The only opportunity for them is to go to the payday loan industry. The bill has to deal with that. It is the reason why the bill was brought forward in the last Parliament. I am pleased that we have had an opportunity to bring it forward in this Parliament and I hope to see it passed very quickly.
Provincial and territorial governments, as well as consumer advocacy groups, have raised concerns. The government should take solace in the fact that this is a matter which has been seen at all levels of government and society. They have raised concerns over incidents of questionable practices within the industry. It calls for the question about why the industry has not been totally regulated. That is another issue totally. The concerns involve the high cost of borrowing, insufficient disclosure of the contractual terms, unfair collection practices and the spiraling debt loads resulting from rolling over loans.
When people are prepared to charge usurious rates of up to 60%, when they want their money, they will go after people in a very draconian fashion. This all of a sudden becomes a risk to the safety and security of the people involved. Sometimes things happen, people start to go downhill and they cannot stop. They have exhausted every opportunity. They may have stumbled across this so-called payday loan opportunity, but they still cannot get out of it. What is the recourse to them? There is none. They go to jail, I suppose, if that is possible. However, in terms of the collection practices, even on ordinary consumer debt, we have seen badgering, threatening and all kinds of terrible things. One can imagine what happens out there.
There is no question that something has to be done. We get this situation where usurious people will tend to say that if they cannot pay now, they will roll it over and double the rate. All of a sudden, people are getting pennies on the dollar from moneys that they acquired through their employment.
The approach of the bill is to deal through the Criminal Code. Section 347 of the Criminal Code of Canada makes it an offence to enter into an agreement or arrangement to receive interest at a criminal rate. It is defined as exceeding 60% per year. When I looked through the speaking notes provided by the research staff of the Library of Parliament, I noted the definition of interest. I thought it was worthwhile mentioning because we are talking about the rate of interest.
Bill C-26 defines interest in the same way it is defined in subsection 347(2) of the Criminal Code. The existing definition of interest is, however, problematic in a sense that payday lenders have tried to avoid the provisions of section 347 by disguising interest as various fees and charges. Not only is there a prescribed interest rate on the loan, there are also fees for processing and other charges for things like insurance. Payday loan associations want to be sure that if they never collect, they will be able to recoup some of the money through the insurance, which is paid by the person who takes the loan in the first place.
In one business model, payday lenders incurred the operating costs associated with providing payday loans and charged customers a fixed fee and insurance type premium on each loan transaction. The premium was designed to cover the cost of providing the loan as well as the risk of loan default as assumed by the insurance company that may be owed by the payday lender.
If the insurance charges argument were to be accepted before a Canadian court, it is unclear whether the exemption proposed under Bill C-26 would apply. This could result in problematic jurisdictional challenges of provincially imposed limits on the cost of borrowing. Regrettably, it appears there still may be some difficulty from a jurisdictional standpoint to address some of the issues here.
As I indicated, the interest rate is covered under section 347 of the Criminal Code. It was not intended to be a consumer protection tool for economic price regulation. Despite its intended purpose, section 347 has been interpreted as applying to most lending arrangements in Canada, including payday lending.
The penalties under section 347 are significant: a maximum penalty of five years imprisonment on indictment, or a maximum penalty of six months imprisonment; and/or a fine not exceeding $25,000 on summary conviction.
With respect to the proposed amendments in Bill C-26, the payday lending industry can continue to operate but with controls. This is not to put them out of business, but there will be some controls should Bill C-26 be passed and given royal assent.
The proposed amendments will exempt payday lenders, which operate in provinces and territories and have measures in place to protect borrowers, from the application of section 347 of the Criminal Code of Canada. Second, they will require the jurisdictions that regulate the industry to place a limit on the cost to consumers of payday borrowing.
Some of the detractors of the legislation will say that the federal government has basically said that it does not want to deal with this and that it will instead pass the problem on to the provinces. That is not exactly the intent of the proposed bill. Making the amendment to the Criminal Code will allow everything else to continue to operate but carves this out. For those provincial jurisdictions that already have laws in place, those laws can stay in place without being affected by the bill. All it will take under the bill is for the government to designate those provinces in which the particular provisions of Bill C-26 will be applicable. Those that do not have the designation will continue to utilize their own laws. It does work.
The amendments would not apply to federally regulated financial institutions such as banks. They are intended to facilitate the provincial regulation of an industry that is not currently regulated.
Banks and other federal financial institutions are already subject to legislation, including the Bank Act, the Trust and Loan Companies Act, the Cooperative Credit Associations Act and the Insurance Companies Act.
As can be seen, there is an attempt here to deal with it and I must admit, in looking at some of the debate which took place in the first session of the 38th Parliament, I did see some argument that there still were some concerns.
We are debating this bill at second reading and we could bring forward some of those concerns in an attempt to promote questions and to raise issues at committee. On the termination of the debate at second reading we will vote on the basic principles of the bill. The committee that deals with the bill is where we will have the opportunity to hear from representatives of the payday loan industry and all the stakeholders. I am sure there will be some case studies. People have found themselves in a situation where usurious rates have been charged.
Very briefly I want to go over a couple of the clauses. Clause 1 updates the wording of section 347 of the Criminal Code with respect to the fine not exceeding $25,000 and changes “notwithstanding” to “despite”.
Clause 2 amends the Criminal Code by adding subsection 347.1(1) which retains the definition of interest found in subsection 347(2) and adds the definition of a payday loan. It is important to have that in there. The definition is:
“payday loan” means 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, a line of credit or a credit card.
Clause 2 of the bill introduces new subsection 347.1(2) which exempts a person who makes a payday loan from criminal prosecution in the following circumstances; first, that the loan is for $1,500 or less and the term of the agreement is for 62 days or less; second, that the person is licensed by the province to enter into the agreement ; and third, that the province has been designated by the governor in council under new subsection 347.1(3). Subsection 347.1(2) does not apply to regulated financial institutions such as banks.
Subsection 347.1(3) states that the provisions outlined will apply to provinces that are designated by the governor in council at the request of the province. This is an opt in by the province.
The only area I would like to comment on has to do with the payday loan industry. The growth of this industry has focused attention on the industry and its practice of charging relatively high rates of interest. The industry really has brought it on itself. The critics have called for prosecution of the payday lenders under the Criminal Code provisions, even if such action reduces the profitability of the industry or results in its abolition.
Proponents of the industry point to the growth of payday loan companies as evidence that the industry is fulfilling an otherwise unmet need for short term credit and/or convenience. I am not sure that the case studies of individuals will show that there is a high demand in the marketplace for this service by people who just need a little short term credit. Anybody who is prepared to pay effectively a 60% interest rate on a cash advance clearly has no credit and no options. This is a serious problem which I believe is already creating great harm in communities across the country.
Proponents have argued that instead of an outright ban on payday loans the federal government should allow the provinces to regulate the industry in the interests of restricting some of the more abusive industry practices, such as insufficient disclosure of contractual terms, aggressive and unfair collection practices, and the rolling over of loans. The payday loan industry itself has proposed self-regulation as a means of addressing some of the concerns associated with the lending practices.
There is obviously room for discussion. Even the industry itself is a proponent of self-regulation, but for this issue, the more the public learns about the usurious practices and the lack of protection for people who are vulnerable and put under duress to pay usurious rates, the more I think Parliament and the Government of Canada must take action.
Some commentators have suggested that the federal government is merely transferring the problem to the provinces, which may or may not adequately regulate this industry, but already there are provinces that do so. Transferring the responsibility to the provinces may also lead to a patchwork of different laws and regulations and a lack of uniformity and enforcement, some suggest. It is true that the provinces are the masters of their own legislation and also in terms of the mode in which they operate.
They also take into account the fact that there are credit organizations that do provide the same or similar products but do not charge usurious rates. This allows the flexibility that may be necessary so that it does not deal with businesses that are operated in a fair manner.
Some commentators have advocated reforms to section 347 of the Criminal Code beyond those provided by Bill C-26. The Supreme Court of Canada stated that section 347 “is a deeply problematic law”. In addition, there is concern that the provisions set out in Bill C-26 could cause legal uncertainty in relation to negotiating larger scale financial transactions such as bridge loans and convertible debentures.
Clearly this is not as straightforward as might first be thought. Members will be aware of that. I think it is going to be important for our members on committee to seek appropriate witnesses to make sure that we have the facts and that we do in fact, as we pray at the start of every day in the House, make good laws and wise decisions.
Finally, a number of other stakeholders have made recommendations that they believe would reduce the need for payday loan companies, including: first, government led education programs designed to promote financial literacy; second, the promotion of competition from traditional banks and other financial institutions in order to better control costs in the alternative consumer credit market; third, reforms to make the process of bank closure in low income and rural neighbourhoods more onerous; and finally, government aid for the establishment of community banking operations in low income neighbourhoods.
It is clear that there is a problem out there in terms of the usurious rates being charged on payday loans. It is also very clear that there are many stakeholders, including community groups and organizations and all levels of government, that have expressed a concern and support for changes to be made. I believe that we will find solid support for Bill C-26 to bring forward some constructive ways in which we can address the problem. In referring this matter to the justice committee, I suspect that we may even have some excellent witnesses there to provide some of the answers to the concerns raised with regard to potential jurisdictional or legal problems as prosecutions may come forward.
In summary, I support Bill C-26. I am pleased that the current government saw fit to bring forward a good Liberal bill from the last Parliament.
The House resumed from February 1 consideration of the motion.
Opposition Motion—The Environment
Business of Supply
Business of Supply
The Speaker Peter Milliken
I declare the motion carried.
A motion to adjourn the House under Standing Order 38 deemed to have been moved.
Paul Zed Saint John, NB
Mr. Speaker, my question today is a follow up to my question in the House of Commons on October 5, 2006 when I had the opportunity to ask the government when it would fulfill its commitment to fund the Saint John Harbour cleanup.
Each and every day in Saint John, 16 million litres of raw sewage is pumped into our harbour, raw sewage that flows through open creeks and travels through school properties. It even includes waste from the Saint John Regional Hospital.
In this day and age, anywhere in Canada, or in the world for that matter, it is unacceptable. This is a public health issue, an environmental issue, a quality of life issue, a tourism issue and an economic development issue. We cannot continue to dump our untreated waste into the harbour.
As the official opposition critic for cities and communities, clean water and waste water treatment are some of the major concerns that we will continue to pursue.
We have been working as part of a team in Saint John to get Saint John Harbour cleaned up and funded. We have made some progress. Our approach began in 2004 as a direct request from the City of Saint John Council which undertook a waste water study and put it forward with the waste water treatment plan.
On March 27, a trilateral agreement for $8.5 million was announced by the City of Saint John, the provincial government and the federal government through the municipal rural infrastructure fund. I do not believe this is the appropriate program to fund this project due to its large dollar size.
More recently, this past fall, within 24 hours of being sworn in as New Brunswick's premier, Shawn Graham delivered a signed memorandum of understanding on harbour cleanup to the City of Saint John outlining the Province of New Brunswick's commitment to one-third of the cost of harbour cleanup.
The memorandum of understanding represents a commitment from the provincial government of $26.6 million. It is my understanding that the funding for this project will come through the Canada strategic infrastructure fund.
Budget 2006 renewed this program. I have met with the Minister of Transport, Infrastructure and Communities and he has assured me that the federal government will live up to its commitment of funds for the Saint John Harbour cleanup. I take the minister at his word.
If the money for this project is coming from the Canada strategic infrastructure fund, could the minister tell us when we can expect the money to start to flow to our city? If the money is not coming from this program, I would like to know from where it will come and when the citizens of Saint John, New Brunswick and Atlantic Canada can expect the money to be reinvested in this critical piece of community infrastructure for Atlantic Canada. We simply cannot afford any further delay.
Tom Lukiwski Parliamentary Secretary to the Leader of the Government in the House of Commons and Minister for Democratic Reform
Mr. Speaker, I want to thank the hon. member for the opportunity to address an issue that is important to the people of his riding and indeed many New Brunswickers. I commend the member for his work on this file over the past several years. I also want to recognize the members for New Brunswick Southwest and Fundy Royal who have made countless representations to the Minister of Transport, Infrastructure and Communities as well as the Prime Minister in support of this project.
I assure the hon. member and his constituents that the government understands that the Saint John harbour cleanup is a priority for the citizens of Saint John. We are committed to taking actions that will provide Canadians with clean water and a clean environment.
My colleague, the member for Saint John, will recall that the Prime Minister was in Saint John in March 2006, shortly after he was sworn in as Prime Minister. He was there to see firsthand the details of the project. The Prime Minister announced that the new Government of Canada was committed to the cleanup of the harbour. On that occasion the Prime Minister announced a commitment of $8.5 million as an important first step.
The first phase of the harbour cleanup is ongoing and we are actively working on phase 2 which represents a contribution of $27 million from all three levels of government.
As we committed to doing so with budget 2006, over the summer we consulted with provinces, territories and the municipal sector to seek views on a long term framework for infrastructure as part of fiscal balance consultations.
The Government of Canada and the Government of New Brunswick discussed the cleanup of the Saint John harbour which we recognize as a priority for the province. Budget 2006 provided an unprecedented level of support for infrastructure in Canada. Leading up to budget 2007 “Advantage Canada” reinforced this commitment. We are working on a comprehensive infrastructure plan that will include long term predictable funding as well as programing to support: first, improvements to the core national highway system; second, large scale provincial, territorial and municipal projects such as public transit; and, third, small scale municipal projects in addition to waste water management projects.
Once policy and program designs have been approved for the infrastructure plan, we look forward to moving forward on specific projects in New Brunswick as well as elsewhere in Canada.
The work we are doing now will ensure that federal infrastructure programs are accountable to Canadians and provide value for money, and meet the top priorities of provinces and cities, such as New Brunswick and Saint John.
I want to reiterate our commitment for the cleanup of the Saint John harbour. The government looks forward to working with the province and the city of Saint John on this project in the months and years to come.
Paul Zed Saint John, NB
Mr. Speaker, I want to thank my hon. colleague for his kind remarks and also publicly acknowledge the members for Fredericton and Miramichi and the other members of the Liberal caucus in the House of Commons. The members for New Brunswick Southwest and Fundy Royal have also expressed an interest in this file.
As the member quite properly pointed out, this is not a partisan issue. We are all working together in the community.
My understanding was that the money was going to come from the Canada strategic infrastructure fund. It was allocated in the 2006 budget and there were no funds available until March 2007 but the new 2007 fiscal year begins in April.
If the monies are not available in that fund, could my hon. colleague let the people of Atlantic Canada, and specifically the people of Saint John and New Brunswick, know where their tax dollars are going to be reinvested? From which fund does the government intend to move forward with this project and how quickly would that happen?
Tom Lukiwski Regina—Lumsden—Lake Centre, SK
Mr. Speaker, as I mentioned in my earlier presentation, details as to the type of infrastructure funding and the criteria surrounding that will be announced shortly. I would suggest to my hon. colleague that coming up in budget 2007 there will be details surrounding infrastructure funding.
I know also, speaking from my experience, that in my home community of Regina, Saskatchewan there is also a great need for many infrastructure projects there. I have been speaking with the finance minister and the Prime Minister on infrastructure projects such as those. The information I have been receiving is very comforting to me, knowing that there will be as promised long term predictable and sustainable funding for municipalities as well as provinces and territories. Those details, I am sure, will be forthcoming in budget 2007.
The Acting Speaker Royal Galipeau
The motion to adjourn the House is now deemed to have been adopted. Accordingly the House stands adjourned until tomorrow at 10 a.m., pursuant to Standing Order 24(1).
(The House adjourned at 7:12 p.m.)