Thank you, Mr. Chairman and members of the committee, for the opportunity to appear before you to speak on C-26, An Act to amend the Criminal Code (criminal interest rate). We refer to it as the payday lending bill. That's what it deals with.
My apologies to the committee; I will be making my remarks in English.
As my colleague from Department of Industry has provided an overview of the payday lending industry and the policy discussions that inform the development of the bill, I will simply make some remarks about the structure of the bill itself and some of the legal framework into which it fits.
The amendments in the bill are really quite straightforward. They simply create an exemption scheme from the applicability of section 347 of the Criminal Code, which otherwise imposes a maximum interest rate on any kind of loan arrangement anywhere in Canada. It's called the criminal interest rate provision. It will allow this exemption to apply in those provinces and territories that choose to regulate the payday lending industry and seek a designation from the federal government in order to do so.
The bill amends the Criminal Code by defining payday loans for the purposes of the exemption schemes. I'll read the definition. It's not a simple definition, because it's not that simple and straightforward to simply say what a payday loan is, although generally we know it when we see it. It reads as follows:
“payday loan” means an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security on property and not through a margin loan, pawnbroking, a line of credit or a credit card.
We define it primarily by a couple of simple indicia--a post-dated cheque or a similar payment--and then by what it's not. The rest of the definition is contained in another section in which we prescribe the limits on the kinds of loans that can be subject to the exemption.
The definition ensures that only this very narrowly defined class of lending arrangements known as payday lending will qualify and therefore be eligible. For example, lending arrangements by way of credit cards or lines of credit would not be included in the definition of payday loans.
The heart of the proposed amendments is in subsections 347.1(2) to 347.1(4), which set out the exemption scheme. These provisions specify which payday loan agreements are eligible to be exempt from the application of section 347.
Subsection 347.1(2) specifies the conditions that must be in place for such an exemption to apply. First we defined the payday loan, and this is really the rest of the definition of a payday loan for the purposes of this exemption provision: “the amount of money advanced under the agreement is $1,500 or less and the term of the agreement is 62 days or less”.
This, of course, is the typical payday loan scenario described by my colleague from the Department of Industry--that is, a short-term loan for a small amount. Indeed, these are really the top-end figures, if you will, and the average amount, as I understand it, is closer to, say, $300 for 10 days. They are quite small amounts for relatively short periods of time, so $1,500 for 62 days would really specify top-end limits to a payday loan that could be subject to an exemption.
Second, the payday lender “is licensed or otherwise specifically authorized under the laws of a province to enter into the agreement”. It's the province that will do the regulating from top to bottom of the payday lenders who will be subject to the exemption. This necessarily implies that the province has in place consumer protection measures that govern payday loans. The nature of such measures, however, is generally left to the province to determine. There are only a very few requirements for there to be legislation in place, and a requirement for a specification of an upper limit for the cost of borrowing, which can actually be charged.
The third requirement for the exemption to apply is that the province must be designated by the Governor in Council. This is simply a process to ensure that the province that has enacted the legislation, or already had legislation in place, if that is the case, has advised the Governor in Council that the legislation is there and that they wish to have their province be availed of that exemption. Then the exemption is put in place.
The obtaining of the designation is fairly straightforward. It is set out in subsection 347.1(3). A designation will be provided once a provincial Lieutenant Governor in Council--the provincial cabinet--requests it and in so doing indicates that the province has consumer protection measures in place to protect recipients of payday loans.
That is simply a general description of the fact that in the province there must be consumer protection measures in place that apply to these payday loans.
The only particular requirement is that the measures must include a limit on the total cost of borrowing for a payday loan. This will then replace the 60% limit that's otherwise specified under section 347. This guarantees a cap on the total cost of borrowing and provides the provinces and territories some flexibility to assess what the cap should be.
The designation process would amount to the province writing to the federal Minister of Justice to indicate that it has the legislation measures and is seeking the designation. If, on the recommendation of the federal Minister of Industry, the Minister of Justice is satisfied the province meets the requirements, the recommendation would be made to the Governor in Council. It should be a fairly simple process.
In addition, in subsection 347.1(4) there is a process for revoking it. I don't really anticipate that this is going to be necessary for provinces once they decide they're going to be in the business of regulating payday loans and probably aren't going to get out, but in case they did, it could be in two instances: either the province simply requests it, or the consumer protection measure is no longer in place--the legislation has been repealed.
As you are aware, the Constitution of Canada provides the provinces and territories with competence over consumer protection through their authority over property and civil rights. They are the level of government with the appropriate mechanisms in place to provide consumer protection of this kind; in fact, consumer protection measures do already exist across the country, and in some cases there are some measures that do apply to some of the elements of payday lending--although not in the comprehensive way that my colleague has spoken of--that have now been enacted in at least two provinces.
Bill C-26 won't either dictate to or fetter the province's ability to enact appropriate consumer protection measures. It deals simply with the applicability of section 347 to these specified payday loan agreements and provides an exemption that otherwise is prohibited by section 347. This is pursuant to the federal government's constitutional competence over criminal law.
That's the basis upon which section 347 was enacted. Should a province or territory wish to exempt their loans, they need only have the legislation in place and seek an exemption in order to do so.
Mr. Chairman, the bill is necessary to provide the flexibility to the provinces to regulate payday loans. Otherwise, section 347 puts in place a prohibition against their operating at anything over 60%, as my colleague has described. It's in the nature of these short-term, small-amount loans. The definition of interest under section 347 is very broad and covers all of the interest and associated charges involved--not just the interest, but all of the associated charges--and specifies it on an effective annual rate of interest, which is a compound rate of interest. None of the payday lending operations can operate or do operate within that 60% limit.
This is simply opening the door to the provinces to be able to regulate them, allow them to exist, and provide appropriate limits on the cost of borrowing, and also to put in place other regulatory rules to ensure that the consumers of these loans are adequately protected.
Thank you, Mr. Chairman.
