Okay.
Evidence of meeting #129 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was witnesses.
A video is available from Parliament.
Evidence of meeting #129 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was witnesses.
A video is available from Parliament.
11:15 a.m.
Liberal
The Chair Liberal Peter Fonseca
We are having some trouble with the sound from your mic. Hang on for one second.
11:15 a.m.
Liberal
The Chair Liberal Peter Fonseca
We're going to suspend, so that we can see whether we can fix your sound and make sure the interpreters are able to get a clear sound from you.
Thanks.
11:20 a.m.
Liberal
The Chair Liberal Peter Fonseca
We're back and we're going to get started.
Ms. Borden, you don't have to be rushed. Try to keep your head steady, so that you don't move a lot when you're speaking.
Thank you. Go ahead.
11:20 a.m.
National Representative, ACORN Canada
These lenders charge a maximum interest rate, which is never lowered, even after making payments for years. The real cost of borrowing is extremely difficult to understand, as all kinds of fees, insurance, etc., are bundled into the loan.
Most often, people end up filing bankruptcy or consumer proposals because it's impossible to pay off the debt. The Canadian Lenders Association is saying that people will have to go to payday lenders and illegal loan sharks.
For one, instalment loans and payday loans are two different credit products. The average amount of payday loans borrowed is $500, and they are payable on the next payday. This is not to say that payday loans are better, but given the huge increase in instalment loans, this move is critical. Also, fringe lenders often resort to the same tactics as loan sharks.
The bottom line is that lowering the criminal interest rate will reduce the harm caused by predatory loans. It's good for people and it's good for society.
As the federal government moves forward to lower the criminal interest rate, we'd like to see a fair credit alternative so that people don't have to rely on these loans.
Thank you.
11:25 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Ms. Borden. Thanks for your patience as we worked through some of our technological challenges.
Now we're going to hear from Prosper Canada and Elizabeth Mulholland, please.
11:25 a.m.
Elizabeth Mulholland Chief Executive Officer, Prosper Canada
Thank you very much, Mr. Chairman.
Thank you to the committee for the invitation to speak with you today on the issue of predatory lending and the government's proposal to lower the criminal rate of interest. In my remarks, I'll speak primarily to the impact of this proposal on Canadians with low incomes, as this is our domain of expertise.
Prosper Canada firmly supports the government's proposal to lower the criminal rate of interest as a means to reduce the burden of debt on low-income households and the risk that the loans they take out will rapidly balloon into runaway debt.
Members of the high-cost lending industry claim that the proposed change will deny low-income and subprime consumers critically needed credit and valuable opportunities to improve their credit scores. Nothing could be further from the truth. A high-cost loan is never the best solution for someone who is low-income, credit-impaired and/or struggling to make ends meet. There are also very few occasions in which this is the only solution open to people in these circumstances.
Allow me to explain. Prior to the pandemic, in 2019, 51% of low-income households carried no consumer debt at all, knowing that even small loans can quickly become problematic when you are already struggling to make ends meet. In fact, low-income Canadians at that time were already spending an average of 31% of their annual income just to service their debts. High debt repayment costs compromise the ability of people with low incomes to meet their basic needs, as the incomes of many are well below the poverty line. This can in turn drive them to borrow more to cover their necessary expenses.
To the point, as of June 2023, 33% of households with low incomes in Canada reported that their household debt level felt somewhat or very unmanageable, and 42.6% of households with low incomes somewhat or completely agreed that they had increased their borrowing to help pay for everyday expenses.
When a low-income consumer has a temporary income expense gap and no savings or interest-free source of credit—for example, a family member, a friend or employer from whom they can borrow—then short-term commercial credit can be a good solution if the rate is reasonable and the consumer has the means to repay the loan.
Loans at effective interest rates over 35%, however, are not reasonable for low-income consumers, for whom even modest additional expenses can quickly cut into their food budget or their ability to pay their rent or their utility bills. Nor can many low-income consumers afford to repay such loans, as evidenced by the ACORN Canada survey cited earlier, which found that 72% of low- and moderate-income respondents reported that their loans, and their efforts to repay them at these high interest rates, caused them to go further into debt. Eleven per cent reported having to file a consumer proposal or file for bankruptcy.
For consumers with chronically insufficient income to meet their basic needs, the problem is not inadequate credit. It is inadequate income. Borrowing money is not the solution. Taking on debt when you are chronically short of income is like punching a larger hole in a boat that is already leaking rather than fixing the leak. It does not save you. It only sinks you faster.
The solution to an inadequate income is to find more income and/or reduce one's expenses. Consequently, the best immediate option for these households is financial counselling that can help struggling consumers to review their budgets for potential savings; identify and access in-kind services and supports that reduce their expenses, such as public drug plans, subsidized housing, food banks and other supports variously available in different communities; and identify and help people access income benefits and tax credits that they may be eligible for but are not receiving.
One in five people with low incomes across Canada currently do not tax-file. As a consequence, they miss out on an average of $3,500 a year in income, and potentially much more than that if they have children under 18, are a senior or live with a disability. For people who have not filed in a number of years, the simple act of filing their back taxes can result in tax refunds in the tens of thousands of dollars, eliminating their need to borrow. Tax filing also helps people with low incomes establish their eligibility for a broad range of in-kind supports and services that can make their lives far more affordable.
With respect to establishing a credit score or repairing damaged credit, high-cost loans are also never the best option. Newcomers and young people who are credit invisible are far better off obtaining and responsibly using a secured or low-limit credit card to build a credit history. A secured card is an equally good option for anyone seeking to repair their credit, in contrast with a high-cost loan, which is far more expensive and, according to ACORN’s 2023 survey, actually lowered the credit scores of 67% of low- and moderate-income borrowers.
Finally, high-cost lenders would have us all believe that, without them, low-income people would fall prey to loan sharks or worse. Consequently, lawmakers should give them free rein to charge their current rate. This is also nonsense.
The proverbial baseball bat aside, there is actually very little to distinguish a high-cost lender today from a loan shark. Both charge exorbitant interest with no regard for the consumer's ability to repay, and then hound and pressure them and their families relentlessly when they fall behind in their payments. Both are hurting people. ACORN reported that 80% of their survey respondents reported stress, anxiety and depression as a result of not making all or most of their high-interest loan payments.
Fortunately, people with low incomes do have alternatives to high-cost lenders. For non-emergencies, they can opt not to borrow at all and, instead, to wait and save for the expenditure in question. Consumers can also sometimes find ways to free up needed resources—for example, by selling something, by using a rent bank or food bank, or by accessing relief programs offered by utility providers—or they can access other less costly forms of credit.
In ACORN’s survey, only 22% of respondents, who had borrowed over the past year, had resorted to a payday or instalment lender, and 71% had used a credit card or borrowed from a family member, friend or a bank.
Low-income consumers are too often seduced into taking out high-cost loans by their ubiquity, the ease and speed with which money can be accessed and clever marketing that emphasizes low monthly payments at the expense of the actual true cost of the loan. However, high-cost loans are never the best or even an acceptable solution for people with low incomes, and they are very rarely the only solution open to them, despite slick and specious claims to the contrary.
Reducing the maximum criminal rate of interest as proposed is a much needed and welcomed reform. With more and more struggling households taking on debt that they cannot afford, this measure cannot come soon enough.
I would also invite the committee, however, to explore additional ways that the federal government can help to put this terrible sector and its toxic financial products out of business once and for all.
These include investing in community financial help services to close the current financial help gap for 1.5 million Canadians with low incomes and to connect them to the $2 billion in additional income benefits for which they are eligible but not yet receiving. For more information I refer you to Prosper Canada's 2024 federal budget proposal. There's a link in my statement.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Ms. Mulholland. We're well over time in the remarks by witnesses.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
You will have a lot of opportunity during the members' questions to add to what you've had to say. That's where we're going right now.
In our first round, each party will have six minutes to ask questions of our witnesses.
We are starting with MP Chambers for the first six minutes, please.
11:30 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much, Mr. Chair. I appreciate the presentations by our witnesses. Thank you for coming today.
Perhaps I'll just start with ACORN. In your submission to the finance department I think you made reference to wanting to encourage—I don't know if “force” is the right language—banks to lend to what I guess we call the “non-prime” space. Is that fair?
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
Can I go ahead and answer the question?
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
Thank you.
Basically ACORN's proposal was that the federal government backstop some of what we call the “fair credit benefit” for low- and moderate-income people, which could be administered by the banks. We know the banks will not themselves do this because they don't see any profit in doing so, and they're probably also evaluated on insolvency and stuff.
I think what we were hoping the federal government could do is something like a fair credit benefit, which could be administered by the banks, or even by a non-profit agency. It doesn't need to be a bank.
11:35 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
That's fair enough.
On one level you do recognize that access to credit is an issue and you want to make sure that people have access to credit. Is that correct?
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
Yes, that's correct—but to fair credit.
11:35 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Sure. It's a subjective term, but yes, I agree.
If there is evidence or suggestion that policy actions will potentially reduce people's access to credit, is that not a concern to you?
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
We don't believe that this particular move will reduce access to credit. We've seen the payday loans case as well, when we had this campaign where we were pushing the provincial governments to lower the fee when it was around $21 for $100. Even then, the payday lending industry said that the access to credit is going to be reduced because there was a push to lower the fee from $21 to.... Now it's $15 on average for a payday loan. We don't see that payday lending has been eliminated. In fact, we see payday lending stores everywhere in our neighbourhoods.
We think that this is not going to happen. This industry is going to survive. In fact, as I said, Goeasy, in its annual report—and Goeasy is counted as one the biggest instalment lenders—said very clearly that it sees its growth further expanding and that it is very well suited to adapt if this change were to happen.
We have evidence and we also believe that access to fair credit will improve if this measure were to be adopted.
11:35 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you.
Were you able to make these recommendations to the government? Were you able to make representations to the minister's office or the government about fair credit and your submission?
11:35 a.m.
Conservative
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
That's right, yes.
11:35 a.m.
Conservative
11:35 a.m.
Research and Communications Coordinator, ACORN Canada
ACORN has been pushing for 30% and lower—