Finance Committee on Feb. 27th, 2024

[Elizabeth Mulholland]

I can't comment on whether it's been successful as a law enforcement mechanism. Also, I believe Professor Gail Henderson at Queen's University has written a paper on this and suggests that it's only been used on a very small number of occasions by law enforcement. I would say it's probably not succeeding on that front as well as not succeeding as a consumer protection measure.

I would only say in conclusion that I think we need to aim higher. We should be aiming to have financial products and services available to Canadians at all income levels that help them build their financial well-being. If our only bar is that if it's not criminal or it does not actually involve a member of organized crime physically harming you, then it's good enough, that's a pretty low bar and it's not really sufficient for Canadians.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much, Ms. Mulholland.

Ms. Jhamb, do you have any comments to add?

[Dr. Bhumika Jhamb]

Thank you. I'm sorry. I'm not sure if I understood the question correctly, but as far as I understood, I think you were specifically speaking to the enforcement piece, which is the ability of borrowers to prosecute lenders.

We believe that enforcement needs to go hand in hand. We know that with the way it is at this point in the Criminal Code of Canada it's very hard to prosecute these lenders because one needs an actuarial certificate. Our submission has been that the enforcement piece needs to be strengthened at the same time as we are doing this.

Also, there is one more element to this, which is that a lot of these lenders have been adding insurance and other products, so 60% is the maximum rate but then, on top of it, lenders can add insurance and other products that actually take the interest rate much higher than 60%. Donna is here today. She had an installment loan from CitiFinancial at the time and when she went to CitiFinancial, they said do whatever you want; nobody can touch us.

This is really problematic because lenders think that nobody can prosecute them. The problem is that the enforcement needs to be strengthened as we are moving towards the lowering of criminal interest rates, because those go hand in hand.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much. That's very helpful.

I'm going to move on to another topic, again for both organizations.

I'm going to refer to the financial well-being surveys that the Financial Consumer Agency of Canada conducts. It found an upward trend in the percentage of Canadians who used online lenders or payday loans. It apparently went from 1.9% in 2019 to 4.52% in September 2022. Of those who used online lenders or payday loans, 48% reported using a cash advance or a short‑term payday loan, and 30% reported using an instalment loan in September 2022. Indigenous peoples, recent immigrants and low-income Canadians were found to be more likely to have used these types of loans.

Have your organizations noticed any demographic changes in the people using online lenders or payday loans?

Ms. Mulholland, do you want to go first again?

[Elizabeth Mulholland]

I'm afraid that we haven't done any research on that specifically, so I can't provide an answer. I'm hoping ACORN may be able to.

[Dr. Bhumika Jhamb]

Sure. Thank you.

During the pandemic we tried understanding whether there had been an uptake in accessing high-cost credit, and obviously there was an increase. Like we've been saying, it's quite easy. That's their tag line—fast credit, convenient. These lenders were actually deemed essential during the pandemic.

Obviously there's growth in these lenders online, but again, as we are saying, this is not a fair credit alternative. They are equivalent to loan sharks. They are predatory, and we are just very encouraged that the federal government is moving towards lowering the criminal interest rate, because that's really the right way to go.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

That's the time. You can go in the next round.

Now we go over to MP Blaikie.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you, Mr. Chair.

Thank you to our witnesses.

I know that neither of our witnesses is in the business themselves, but there was some reference made to the annual reports of some of the companies that are engaged in instalment loans. I'm just wondering if the witnesses have a sense of what margins those companies are making when we're talking about profit. I know you said that they're making more profit. I wonder if you have a sense of the margin.

If not, that's all right. I know we're going to be trying to talk to those companies as well as per the discussion at the beginning of today's meeting, so we'll be happy to get some of that information from them.

I do have one more question along those lines. If you don't know the answer, that's all right. As I say, we'll be talking to them as well. I'm curious to know what the bad-debt level for instalment loans is, in terms of loans that they make that they don't collect on.

[Elizabeth Mulholland]

I don't think that's publicly available to us, so it's hard to know. It's corporate information.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Okay. That's something we'll be asking the companies as well.

There's another thing that I want to just narrow in on. There was some talk before about the ways that instalment loans are marketed to Canadians, and of course, there are industries where we have regulations around what companies can and can't do in terms of advertising. I take the point on the need to lower the criminal rate of interest. It's something that New Democrats have been advocating for a long time.

I wonder if either of you—or either of your organizations—have done some thinking around the ways that instalment loans are marketed to Canadians and have any suggestions on whether that's a space where you think there should be some intervention to ensure that, when Canadians are receiving messages about the credit options available to them, they're made fully aware of what the consequences are and that misleading advertisement about what may be available to them isn't something they have to contend with.

[Dr. Bhumika Jhamb]

Should I go ahead?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Yes, please.

[Elizabeth Mulholland]

You go ahead, Bhumika, and then I'll jump in.

[Dr. Bhumika Jhamb]

Thank you.

Definitely there's a lot that one can do in the instalment lending space, for sure, particularly because we know there's no complaint mechanism at the federal level in case a person wants to prosecute, ask any questions, take these lenders to court or even file a complaint. There is no mechanism that exists.

In our submission, ACORN said that we need a complaint mechanism at the federal level so people have some sort of space these issues can be taken to.

I'll also let Donna speak about her experience with her instalment loan, but I think one thing we've noticed is that, in the absence of accredited alternatives, these lenders are pushing.... For instance, if a member has a payday loan, they're enticed to take an instalment loan. A lot of our members have been enticed to do that. It's, “Oh, you're paying your payday loan regularly, so why don't you take a $5,000 loan?” In that vulnerable situation when a person needs money, this is exactly what they do.

As Donna mentioned in her remarks, it is very difficult to understand the cost of borrowing. It's not about people who are not financially literate. It's just that the numbers are so hard to understand. On top of it, as I mentioned, there's insurance and there are late fees. There are a lot of things bundled into the loan that make the interest rate much more than 60%.

Donna may wish to add something. Thank you.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Quickly, on the question of complaints—and then we'll go to Donna—one thing that's happening now is that government is going back to a regime where we have one ombudsperson for making complaints about Canada's financial institutions.

If I'm hearing you right, that doesn't apply to or it doesn't cover payday lenders. Do you think that it should?

[Dr. Bhumika Jhamb]

I don't think it would cover payday lenders—

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Do you think there needs to be a different place where people go to make complaints about payday lenders?

[Dr. Bhumika Jhamb]

I do believe it should be a different space for predatory lenders because the way it works is different.

[Elizabeth Mulholland]

On this one, I think there's an issue of jurisdiction. These fall under provincial jurisdiction and their consumer protection regimes, not the federal government's, because they're not federally regulated banking institutions.

I think, though, that there is a role for the Financial Consumer Agency of Canada to do research on effective practice in regulating this type of space as well and to work with its provincial counterparts to try to build some commonality across and greater protection for consumers, including a recourse mechanism that they can access.

I also think that, even if there was a standardized way they could push these lenders to provide simple, clear, transparent information on the true cost of the loan—not just the interest but all of the other charges like insurance, etc., that go with that.... In our submission, we talked about the financial facts labelling that the Mission Asset Fund has used in the United States very successfully. It looks like a food nutrition label, but it's financial information.

Then there's potentially having the Financial Consumer Agency have an instalment loan term selector tool that inputs this information and allows consumers to compare different instalment loans that are on the market and select the one that best meets their needs. When they did that with credit cards, it drove actual fees down because consumers could easily compare them for once. That immediately forced cards that weren't doing so well and weren't getting selected to adjust their rates and their features to be more competitive in that.

If we could create more tools to help consumers see clearly and be able to easily compare the rates, that would go a long way to giving them more power to make good choices for themselves. Right now, it's extremely difficult.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

That ends our first round of questions. We're moving into our second round.

Just for the witnesses' sake, the times are a little bit different in terms of how much time members have to ask questions.

We are starting with MP Morantz for the first five minutes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I want to thank our witnesses for being here today.

We can start with Prosper.

Since 2015—since this current government came to power—housing prices in Canada have doubled and sometimes it's more than that in certain markets. Mortgage payments have doubled and sometimes more than doubled. Inflation got up to 8% at one point. Although it's coming down, the damage is done.

Everything is more expensive and it's really made basic necessities unaffordable. Interest rates went up faster than ever before, from basically almost 0% to 5%. There are homeless encampments all over the country—tent cities. I had the mayor of Guelph here last fall. He said that when he got elected in 2014, there were no homeless tent cities in Guelph. Today there are 20. We know that millions of Canadians are lining up at food banks. By some reports, it's two million Canadians.

The Financial Consumer Agency of Canada has reported that the usage by Canadians of payday loans has gone up by 237%, from 1.9% in 2019 to 4.5% in 2022. Do you think there's any correlation between the difficult times Canadians are going through and the increase in usage of payday loans?

[Elizabeth Mulholland]

Obviously, the cost of living and inflation rates have put additional financial pressures on households. These are global phenomena right now. I'm not sure they're attributable to the actions of any one government. I think there are other dynamics at work that we can all read about in the newspaper.

If you look over the past 30 years, Canadian households have been increasing their debt loads and their savings levels have been dropping. There are broader structural drivers that have been at work in Canada for decades that are causing households to become less and less financially resilient. I don't think Canada has done as good a job, under any government, of unpacking what is actually driving these changes over the past decades and putting in place solutions to help households become more financially stable and resilient.

If we look to the U.S., the U.K., Australia and even New Zealand, they've done a much better job than we have at understanding what is driving these changes and putting in place national solutions, in partnership with the financial sector and their community sector. I would encourage our government—whoever is in government—to be working in the same direction.

Thank you.

I'm afraid I have to leave for a medical appointment. I'm going to have to say goodbye.

Thank you to the committee for having me today.