Finance Committee on July 7th, 2020

[The Chair, Liberal, Wayne Easter]

One more, Peter.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I have one last question, and it picks up from our previous session today. The consumer agency brought up the point about payday loans, and members raised concerns about payday loans. In any of your data, do you have numbers indicating, for example, the number of Canadians who have gone bankrupt and how many of those particular individuals have experience with payday loans? I won't say “correlation”, but is there some kind of tie you can bring to light there, if at all?

[Elisabeth Lang]

First, again, I have to apologize for our data on this. It's not perfect. The way we would look at payday loans is based on the name of the creditor as entered by the licensed insolvency trustee. Of course, a multitude of organizations would fall into that large basket of sort of subprime lending.

I did ask a while back for some information on payday loans. It is an area of concern for me with regard to the lowest-income debtors who may have no choice but to access subprime lending. In terms of what we found, I can't compare it to the rest of Canada, but it appears that the use of this facility is on the rise. In fact, it's about 8% more prevalent with a second-time-or-more filer. It's actually a more worrisome trend in that somebody is less creditworthy and has even fewer options in terms of how to access money that they may need. Often it's to pay for things like rent, groceries for the week and things like that.

[The Chair, Liberal, Wayne Easter]

Thanks, both.

We'll turn now to Mr. Cumming, followed by Ms. Koutrakis.

James.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you, Ms. Lang, for your presentation today.

I wasn't as puzzled about the numbers, that there hasn't been a significant increase in bankruptcies, because I think you covered it. It's a laggard. Given the extent of this financial crisis, from the evidence that I've heard, most of the financial institutes or debtors are doing everything they can to avoid putting people into that situation as they try to work their way through it.

Do you think that's a fair analysis? I don't think these numbers indicate that we're in a financially healthy place because they're lower; I actually think we're not in a financially healthy place, but that's a reaction of the marketplace to not push people into bankruptcy, at least now. Would that be fair?

[Elisabeth Lang]

I think that's a fair assumption. I wouldn't say I have empirical data to support that.

[James Cumming, Conservative, Edmonton Centre, AB]

Yes. Okay.

If we see a run going out six months, when most of the government programs will likely come to a stop or start to phase out, and we have these deferrals, we're going to have significant issues for both consumers and businesses. If we see a bit of a run, do you think the office of the superintendent will have to modify some of the standards that are put in place related to creditors, repayment plans and some of the things they have to do in bankruptcy, given the extent of the financial issue we're seeing?

[Elisabeth Lang]

Most of the requirements in insolvency are set out in the legislation or regulations. As I mentioned, I do have directive-making power. We can provide some flexibilities on some requirements. We would do that fairly carefully. We are sort of leaning toward areas where we can actually embrace technology and efficiencies. I often say to my team that we're being catapulted into the 21st century by having to go online and use all of this technology, but I'd rather see whether we can embrace it rather than try to fight it and assume that we're going to go back to normal.

We're exploring all those options that will provide significant efficiencies to the system. For us, it's always about balancing the efficiencies and the gains with the risk of non-compliance. That's the delicate balance we walk. Right now we have a bit of a pilot project, which was not chosen by us; by extending the remote delivery of services for LITs to March 31, 2021, we can look at how that goes. How are debtors being served? Are they getting the service and advice that they need, and in the way that they need it? If we can mitigate any risks, then that's an example of something we could continue.

[James Cumming, Conservative, Edmonton Centre, AB]

On corporate bankruptcies or people going into CCAA prior to bankruptcy—and for sure, creditor protection in front of bankruptcy is always the desired approach—some of the experiences I've seen, particularly when you hit a really difficult period like we're seeing right now, are that the banks won't act. If a business has zero revenue and it's struggling and it's on the bottom, you might see an uptick in action after it comes off the bottom. There's some potential to reorganize or potentially put the company up for sale or do something with it.

Do you see trends like that, from what you've seen before? Have you seen that it's not necessarily the bottom of a drop where we start to see bankruptcies, but in a rebound shortly after that period?

[Elisabeth Lang]

I don't know if I could speak to seeing a trend in that regard.

From talking to the LIT community, I think one trend that I would note in the past few years is an increase in informal workouts, in creditors working with debtors and finding a solution. They don't necessarily need to file with my office. In that case, we don't have the data. For me, any time a company can resolve its financial issues and remain a viable going concern is great news, no matter how they do it.

[James Cumming, Conservative, Edmonton Centre, AB]

I'll go back to my original question. We shouldn't think that a reduction in the numbers on bankruptcies is any indication of financial health of both consumers and businesses at this time.

[Elisabeth Lang]

No.

[James Cumming, Conservative, Edmonton Centre, AB]

Okay. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We're turning to Ms. Koutrakis, followed by Elizabeth May.

Go ahead, Annie.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you, Ms. Lang, for your testimony today.

The OSB's review of LIT business practices notes:

Interviews with debtors served by LITs who had ongoing working relationships with debt consultants indicated that debtors had a very limited understanding of the role and obligations of the LIT in the insolvency process. Debtors were also usually not aware of the amount of payments they made towards debt consultant fees versus creditors' fees versus the fees of the LIT.

Since the release of this report in 2017, does a lack of debtor understanding of the insolvency process continue to be an issue? Will you be able to comment on the steps that have been taken by the OSB to improve debtor understanding of this process?

[Elisabeth Lang]

That was a report that was done after my departure from the OSB. I left for about three years.

Since my return, we've taken a close look at what we're calling the debt advisory marketplace. As I've mentioned, there are credit counsellors in Canada who are excellent. They are well trained and are really looking out for the best interests of debtors and helping them to find solutions, and they are often regulated by the provinces.

However, there's a subset that really falls into a no man's land. They're not regulated by my office and they're not regulated by the provinces. That's because they don't fit the definition of provincial legislation. What we have found is that in some cases, those players are playing an intermediary role between the debtor and the licensed insolvency trustee. They talk about being an advocate for the debtor, but their real business model is basically to bring the debtor to the licensed insolvency trustee to file a consumer proposal.

What we've observed is that this isn't always positive for any of the parties. As you've mentioned, the debtor doesn't always get the full information, and creditors sometimes get a lower return compared to other files.

It's something we're continuing to look at. It's a multipronged project. We're going to look closely at the LITs and make sure that they know their duties are set out in the act, that they need to abide by them, and that if they do not, there are consequences.

We also want to work with the provinces. That's a tough job, but we want to start that project to see if we can close the gaps in these legislative provisions.

[Annie Koutrakis, Liberal, Vimy, QC]

Great.

In your opinion, can there be other measures that can be put in place, either by the OSB or any other federal government organization, to protect debtors during the insolvency process? I mean measures that have not yet been put in place.

[Elisabeth Lang]

One measure we're undertaking is an awareness campaign. We are partnering closely with the FCAC on that. We have added a debt solutions portal to our website that is intended to give debtors a full picture of all of their options, whether they have budgeting challenges, whether they have somewhat serious financial issues or whether they're in dire straits. Really, we want to be an objective source of information for them. I think that's one of the challenges: Where are people getting their information?

We're continuing to work on that. We want to develop some tools in the coming year, such as a calculator that can give a bit more of an answer, a fact sheet—different tools that different debtors will respond to. Hopefully, they will get those answers and then go straight to the kind of help they really need.

[Annie Koutrakis, Liberal, Vimy, QC]

Great.

In your opinion, Ms. Lang, is there any sign that people or businesses are actually taking advantage of the crisis to file for bankruptcy to improperly gain from the situation?

[Elisabeth Lang]

No, there isn't at this stage. The numbers are very low, as I said.

However, we do have compliance programs that look at the debtor side as well. If necessary, we will bring debtors in for an examination. If we think they've behaved improperly, we can oppose their discharge. We can seek additional compensation for their creditors. Of course, creditors and licensed insolvency trustees play a significant role in that as well.

[Annie Koutrakis, Liberal, Vimy, QC]

Great.

Do I have time for one last question?

[The Chair, Liberal, Wayne Easter]

You do. Go ahead.

[Annie Koutrakis, Liberal, Vimy, QC]

How are CERB and other COVID-19-related government support payments treated in insolvency proceedings?

[Elisabeth Lang]

The CERB and the CESB for students both had specific wording added in their legislation that they would not be subject to the Bankruptcy and Insolvency Act. This means they will not be treated as income.

If you go bankrupt, there's a surplus income provision that looks at your income and at all of your expenses. If you cross a certain threshold, based on your family's size, you are required to pay additional amounts to your bankruptcy estate, which will be distributed to your creditors. You're also required to stay in bankruptcy for a longer period, for 12 months longer. CERB and CESB would not be part of that calculation in those cases.

I think I can say that consistently, across the board, with the other benefits, the legislation is silent on their treatment in insolvency.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you very much for your very interesting and thorough testimony today.