Finance Committee on Feb. 27th, 2024

[Adam Chambers, Conservative, Simcoe North, ON]

Okay. Why not 10%?

[Dr. Bhumika Jhamb]

We know that credit cards charge anywhere between 20% and 22%, so a lower interest rate is definitely better than.... We know that even 35% is huge; it's not still a fair credit.

For us at ACORN, we've been saying 30%. We know that there was a proposal by Senator Pierrette Ringuette, who was asking for 20%-plus the Bank of Canada prime rate. We know that a lower interest rate will help consumers.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

Ms. Mulholland, you mentioned wanting to remove this toxic industry from operating.

Is it your position that any of these lenders provide no valuable service to Canadians anywhere, under any circumstances?

[Elizabeth Mulholland]

I think Canadians have been progressively growing more indebted. More households are struggling with unmanageable debt and debt that is exorbitantly priced with no regard, actually, for people's creditworthiness. It's not a good financial product that builds financial well-being for anybody.

There is probably a small number of people who can effectively use it on a very short-term basis to tide them over in a pinch, but we don't have good data in Canada.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

Are you aware that just by walking into a payday loan facility, you are multiple times more likely to file for bankruptcy? Should we not be trying to avoid those types of situations?

[Elizabeth Mulholland]

I think they're both likely to cause people to go bankrupt. We should absolutely be trying to avoid those situations.

I think the government needs to put real energy into creating more accessible, lower cost, small dollar credit for low- and modest-income households. ACORN has outlined one approach. We've outlined some ideas in our submission to the government. There are lots of interesting models. There are a number of credit unions that offer great alternatives to payday loans that are far more affordable in Canada already.

There's a great model in Australia of free and fair loans for people with low incomes that's administered by the Good Shepherd non-profit, but with funding from the federal government in Australia and the participation of its national bank.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Ms. Mulholland.

I want to make sure the chair continues to put me on his Christmas card list, so we'll come back to you.

[The Chair, Liberal, Peter Fonseca]

Thank you very much to both of you—and yes, we'll get you those Christmas cards.

MP Baker, go ahead, please, for six minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair.

I'd like to ask Ms. Mulholland a question. The Canadian Lenders Association has made claims that reducing allowable interest rates will leave consumers without options when they are short on cash, yet Easy Financial's latest annual report shows, I would point out, that they've reduced the weighted average interest rate from 46% to less than 33%. They are strategically increasing their presence in Quebec, which has a 35% interest rate cap. Goeasy, which is Mr. Mullins' company—Mr. Mullins is with the Canadian Lenders Association—has done the same.

In your view, doesn't this point to the ability of lenders to simply adjust their risk tolerance rather than limit access to credit?

[Elizabeth Mulholland]

Yes. It would seem so.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay. Could I ask the same question of our friends at ACORN?

[Dr. Bhumika Jhamb]

Could you please repeat your last sentence, MP Baker, if you don't mind?

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Given what I just said about the fact that Easy Financial's annual report shows that they've reduced their weighted average interest rate from 46% to less than 33%, they're increasing their presence in Quebec even though they've lowered their interest rate, and Goeasy, Mr. Mullins' company, has done the same, what I'm asking is this: Does this not point to the ability of lenders, like these ones I've just cited, to simply adjust their risk tolerance rather than limit access to credit?

[Dr. Bhumika Jhamb]

Exactly. That's exactly the point. We know that they're making a huge profit out of this business. Lowering from 48% APR to 35% APR will still allow them to make enough profit—a decent profit.

You quoted from Easy Financial's annual report. They're saying that they're already lowering the interest rate for some clients from the highest to 33% or 35%, although we haven't seen that happening among ACORN members who have experience with Easy Financial. But if that's happening, they're still making a profit. They're still expanding in Quebec, which already has a 35% interest cap. Why are they concerned?

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Yes. It's a good question.

I'll just ask this question once. It's for both of you, but I'll start with Ms. Mulholland, if that's okay.

Industry argues that the high rates they charge are necessary to cover the costs of higher-risk lending. In your view, don't these claims fall short when we examine the growth of the more affordable lending alternatives in the marketplace? What I mean by this is that I'm thinking of the small dollar loan programs at credit unions, the Canada Post MyMoney loan and small dollar loans in the fintech sector.

Ms. Mulholland, I'll turn to you first, if I could.

[Elizabeth Mulholland]

I'm not a business analyst and I haven't analyzed this industry, but I would say that if the companies are growing and their profits are growing, then there is certainly room to reduce the interest rate and still make a profit. That would be the bottom line.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Right.

I'll turn now to our friends at ACORN, if I could.

[Dr. Bhumika Jhamb]

We completely agree with Elizabeth. They're making huge profits. Making just a little less profit will not harm this industry at all.

In our survey that we did last year, which actually focused on fair credit alternatives, we saw that a lot of credit unions are providing payday loan alternatives. Obviously, the scale is limited, but at least there is that space available. Desjardins is providing such an alternative nationally, not just in Quebec or Ontario. It's available nationally.

You mentioned Canada Post MyMoney. It was a decent product. Unfortunately, it got discontinued after a while, but it was a good product. We need to focus energy on providing fair credit alternatives rather than maintaining this industry, which is just not the solution for low- and moderate-income people in our country to access fair credit.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I appreciate that. I think I have about a minute left.

Ms. Mulholland, I'll ask you this last question, if I could. We have about 60 seconds. You've spoken to this a little bit, but I think we're all aware of the Canadian Lenders Association's claims that lowering the criminal rate of interest will lead to limited access to credit for lower-income Canadians.

I want to make sure we get you on the record. What is your view about that claim?

[Elizabeth Mulholland]

I think it's false.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I'll turn to our friends at ACORN since we have few seconds left.

[Dr. Bhumika Jhamb]

It's totally false, as we've seen not just in study after study but in the U.S., where it has already been lowered for instalment loans. People are turning to better alternatives. There is an increasing number of better alternatives coming up. People are able to resort to different means and not go to, as the Canadian Lenders Association is claiming, payday loans.

As we also specifically mentioned, a payday loan is a different product altogether from an instalment loan. We are seeing a huge jump in the uptick of instalment loans. This needs to stop. This is predatory. This is only going to push people more into poverty instead of helping them.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

Now we go to MP Ste-Marie.

Welcome.

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

Thank you, Mr. Chair.

Good morning to the three witnesses, and thank you for being with us today. I would also like to thank them for their presentations and the answers they are giving us.

I'm going to start by quoting from the document “Consultation on Fighting Predatory Lending by Lowering the Criminal Rate of Interest”, which has to do with the proposed changes to criminal interest rates. The document was published in 2022 by the Department of Finance.

I'm going to read from that report. I will then put two questions to the representatives of the two organizations and ask them for their reactions.

Here's a quote from that report:

The rate was not established with the intent of being a financial consumer protection measure to combat the growth of high-interest loans; rather, the provision was meant to deter loan-sharking and other predatory practices where lenders offer credit at high interest rates and employ intimidation, violence, or threats of violence to enforce repayment. A fixed interest rate of 60 per cent was included in the offence to provide a level of certainty; an objective standard was expected to be easier to prove, rather than the prosecution having to prove that there was violence or intimidation associated with the loan.

My first question is this.

Has the offence been successful in prosecuting or reducing the occurrence of coercive practices in enforcing repayment of these types of loans?