Finance Committee on June 7th, 2006

[Bill Knight]

Yes, absolutely.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Del Mastro, we'll move to you.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chairman.

I have a couple of questions. I'm sitting here listening to the questions that have been asked, and I'm not satisfied with some of the answers. I can appreciate that they're probably factual, but I guess the end result of what we're accomplishing through the process of the FCAC is disturbing to me.

It would seem to me that your agency is set up to advocate, and I'll tell you, there are a couple of groups that I believe need your service the most, including persons of lower income and limited education, who are often taken advantage of by the financial services industry. Payday loans is very bad. It disturbs me that it's under provincial regulation. That industry is growing, and it's taking advantage of consumers each and every day.

I'm also concerned with loans, non-prime loans, or “sub-prime”, as they refer to them, that have rates at 29.9% and will then charge an acquisition fee, putting the effective rate at 35% or 36%. It doesn't seem to me that these loans are lawful, but nobody is stopping this.

One of the reasons, just to go back to what Mr. McKay brought up about paying a bill on time but then it not being processed on time, which leads to a blemish on a credit bureau...because they go by when the money's actually received. So that will score on the credit bureau as an R2 or R3, if it was already 30 days late, which will lower the beacon score, which then puts people into these positions where they have to take these terrible loans. For people of limited income, it keeps them poor. It keeps them in positions where they can't access fair interest rates.

I don't know if we need to give your organization more teeth. Do you have any teeth? Because it seems to me that these people--with lower income, limited education, and even just when starting out, just trying to establish themselves--are the ones being exploited by financial institutions that make an awful lot of profit, unfortunately, in these areas.

How can we help these Canadians?

[Bill Knight]

There are a couple of things. Very germane to your question is a project that we're driving--we'll get the information and share it with you--where we are targeting lower-income Canadians and people in these distress areas. We have a major report, which I'll get to all members of the committee, on financial capability. We're lining up with non-government organizations to drive that whole area.

The enormity of what we found in the first four years is quite unbelievable. We still have general rates of literacy running at about 42% in Canada. We have to figure out ways to crack that egg in terms of getting them informed around financial literacy and their capability to deal with immediate problems, like the first-time homebuyer on mortgages, etc., to show them, if they gain their confidence, how to make the choices on where they go. That very much is in the materials we are targeting.

Quite frankly, to do that, I don't see growing this agency as an enormous bureaucracy. It's going to take partnerships, and working with organizations and groups that are already out there and established in those communities.

[Dean Del Mastro, Conservative, Peterborough, ON]

I guess what I'm asking is that when we have these companies are putting out loans that, in my opinion, are clearly in violation of the law, why are they being basically permitted to do so?

[Bill Knight]

It's the complexities of Canadian federalism, frankly, in the sense that they are regulated provincially. The Province of Ontario has just passed major legislation to tighten all of that up. We'll see what the differences are.

But yes, I go to meetings of the joint forum, which is the provincial regulators. I push on those issues. I brief the federal minister who is in federal-provincial minister meetings to try to collectively improve all of that.

Is it frustrating? Absolutely.

[Dean Del Mastro, Conservative, Peterborough, ON]

The other thing I'd like to ask about pertains to credit scores. One of the things the financial institutions don't take into account when they're doing credit scores is mortgage payments. People can have a perfect history on mortgage payments, but a couple of times late on their credit card and they'll have a terrible credit score. Then they get taken advantage of by financial institutions.

This isn't fair. It seems to me that as a federal government, as an advocacy commission of the federal government, we should be doing more for these people. They're being exploited by the financial services sector. And these are not the people who complain. They're generally not going to be on the Internet, and they're not going to be coming to your organization, but I still think we should be proactively protecting them.

[Bill Knight]

Yes, and--

[The Chair, Conservative, Brian Pallister]

I'm sorry, we're just out of time.

[Bill Knight]

There it is.

We're going to lead the charge on taking on some of those issues.

[The Chair, Conservative, Brian Pallister]

Actually, Mr. Knight, I was just going to segue off Mr. Del Mastro's question and give you a chance to conclude. One of the areas that a number of our committee members have alluded to is consumer awareness. Some of the work you've been doing, some of the publications you have available--would you like to outline some of those?

My only question other is with respect to the mortgage penalty clause issue. I understand that your organization has done some work with the banks themselves to try to encourage them to be more transparent and consistent in communicating penalties and so on in their mortgage practises. I'd like you to outline whether that work is continuing and to what degree you've had some success in that.

Finally, on the issue of mortgages, a lot of agencies, mortgage brokers and the like, are issuing mortgages now. It's true that those are not under your jurisdiction in any case, I believe. What, if any, proposal would you make to our committee as far as how we might be able to provide a more level playing field in respect of those who issue mortgages as to their transparency practices, their penalty practices, and so on and so forth, in communicating with consumers across Canada? There's an increasing concern from consumers, I think, that they're not getting their full information in terms of the mortgage issue. Whether it's prepayment or changing of terms, they seem to be surprised more often than not about the penalties associated with such changes.

So there you go. Please conclude, and thank you for being here.

[Bill Knight]

First of all, Mr. Chairman, thank you very much for the opportunity. I'm happy to join the committee in their deliberations whenever I can report in or be of assistance.

Let me make several points. You will note that the Senate banking committee has just set out a report. I refer to it in terms of its comments on our awareness and the wide range of materials that are available to you, to your constituency offices and to your constituents, to Canadian consumers. We're driving a very aggressive awareness program around choices, around products such as credit cards. We have materials out on payday loans. I have a working partnership with Veterans Affairs to allow for individuals who will get, through their disabilities, lump sum payments, and how to manage that, how to handle that, going forward. It's just a basic one-pager to get them started. So we're making progress in getting to those consumers.

We have done a major examination of mortgages of the major institutions where we've got them to improve their penalty clauses, to change them to have a far better and clearer acceptance of a plain language approach. This has affected millions of consumers across the country. This is particularly key around their penalty clauses and what was a lack of clarity. This means that about 70% of the market, because of the federal dominance of these institutions, is pretty well covered. To go further on that, it would probably take some joint effort between provincial and federal regulators. I'll be continuing to discuss those with what's called a joint forum, which is the provincial regulators, so we can collaborate on it.

Finally, I'll share with you my briefing materials to the Minister of Finance--the question came up--for everybody to have a look at. In there I refer to the fact that when I find them off base on penalty clauses or on a number of items, our compliance officers and individual consumers over the call centres have pointed out areas where there can be miscalculations on the charges laid against people. When that has been across wide bands of individuals, and it could lead to a compliance issue where I may hold them in violation, they have volunteered to pay out and rebate consumers across the country. We are now, as of today, at $80 million back to individual consumers. In the next 48 hours there will be another institution that will be, again, making restitution, volunteering, that will increase that to about $87 million-plus.

I think it's to the credit of this committee and Parliament that, as cumbersome and as difficult as it is to get the progress, I believe the progress is there in pursuing these two mandates. But we need to collaborate and keep working together on a number of the issues that individual members have raised.

I know that a number of you have been through the wringer many times, and we've seen each other in previous movies, but many of you are new to the committee or to the House. We provide a full brief, and we'd be happy to take you down to the offices, go through it, or come up to your offices. I'm pleased to be meeting with the parliamentary secretary tomorrow morning, I believe, and the minister shortly. I invite any of you or any of your colleagues in your caucuses to join with me or my colleagues to go through exactly what we're doing and what we don't do, and suggestions on what we could be doing.

Thank you very much.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Knight.

Thank you to our other guests for their participation in the presentation today.

We are going to move in camera for committee business, so I will ask those who are not involved in these discussions to make their way out of the room.

Thank you.

[Proceedings continue in camera]