Industry Committee on Oct. 31st, 2024

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Good afternoon, everyone.

Happy Halloween.

Welcome to meeting number 143 of the House of Commons Standing Committee on Industry and Technology.

Before we begin, I would like to invite all participants here in Ottawa to review the guidelines for best practices for earpieces and microphones to prevent audio feedback incidents. The purpose of these directives is to protect the health and safety of everyone, but especially of our interpreters, whom we thank for their work.

Pursuant to the motion adopted on Thursday, September 19, 2024, the committee is resuming its study of credit card practises and regulations in Canada.

Today, we are pleased to welcome our witnesses.

From Agri-Food Analytics Lab, we have Sylvain Charlebois, senior director, who is here in person. He's also a professor at Dalhousie University. Mr. Charlebois is accompanied by Samantha Taylor, senior instructor of accountancy and information sciences at Dalhousie University. Thank you for joining us.

From the Office of the Superintendent of Bankruptcy, we have Superintendent Elisabeth Lang joining us by video conference. I would also like to thank her for being with us so early on this Thursday morning.

You each have five minutes for your opening remarks.

Without further ado, I give the floor to Mr. Charlebois.

[Dr. Sylvain Charlebois, Senior Director, Agri-Food Analytics Lab and Professor, Dalhousie University, Agri-Food Analytics Lab]

Thank you very much for inviting us this morning.

I am accompanied by my colleague, Samantha Taylor, who is an expert in accounting, which is not my area of expertise. I haven't done a whole lot of research on credit cards in my career, so I thought that Ms. Taylor's presence would be appropriate for this testimony.

The expansion of buy now, pay later options in Canada, notably through platforms like Apple Pay and providers such as Klarna, has implications for consumers who may already be facing financial strain. Though current regulations don't address BNPL for essential items like food, I would recommend restricting BNPL credit options specifically for grocery and food purchases either directly at the point of sale or indirectly through digital payment intermediaries. Such a measure could help prevent Canadians from incurring additional debt on essential items.

While I have reviewed key government resources, including the code of conduct for the payment card industry in Canada and the Financial Consumer Agency of Canada Act, there appear to be no existing restrictions on using BNPL for groceries or restaurant purchases, underscoring the need for action in this area.

In addition, social media's influence on consumer perceptions cannot be underestimated. generation Z and millennials increasingly rely on social media for news consumption, diverging from older generations who prefer traditional media like print and radio. That really affects their behaviour.

Of concern, we've seen campaigns promoting grocery boycotts and even social encouragement for shoplifting. To address the potential influence of bots and coordinated misinformation, which may disproportionately affect younger Canadians, I recommend considering requiring social media platforms to implement a verification system for users on online platforms to prevent manipulation of Canadian consumers by automated accounts.

Additionally, agencies like the Financial Consumer Agency of Canada can use social media to share credible, engaging content such as short videos, boosting financial literacy where younger Canadians are most active. I do want to underscore the fact that financial literacy is a big issue in Canada right now.

At this point, I'd like to pass it to my colleague, Samantha Taylor, for the remainder of our opening remarks.

[Samantha Taylor, Senior Instructor of Accountancy and Information Science, Dalhousie University, Agri-Food Analytics Lab]

Thank you, Sylvain.

Thank you, Chair and distinguished committee members. I am Samantha Taylor, and I am here to offer insights about financial technology, social influence and food security.

Buy now, pay later, or BNPL, is becoming increasingly popular in Canada, offered through platforms like Apple Pay and Klarna. It appears that current regulations do not prevent consumers from using such mechanisms to purchase food. With these additional credit offerings, Canadians may be inadvertently increasing their consumer debt.

To address this, I recommend introducing regulations to prevent the use of BNPL for food items and, possibly, restaurant purchases either directly or indirectly through third-party platforms.

Next, I'd like to discuss social media influencers and their effect on consumer behaviour and perception of food security.

Campaigns by influencers, even with positive intent, can lead to price volatility or encourage illegal activities like shoplifting.

Further, generation Z and millennials are more likely to consume news online, especially via social media, as compared to older generations. Notably, generation Z is just as likely to trust news from social media and professional journalists versus older generations who prefer professional journalism. To counteract this, I propose exploring user verification measures for social media platforms operating in Canada. This could prevent autonomous accounts, or bots, which can drive misinformation campaigns.

Additionally, I recommend that agencies like the Financial Consumer Agency of Canada consider mobilizing their content via social media to meet younger Canadians where they are.

Lastly, a greater number of Canadian consumers are ordering and paying for groceries online. I recommend considering the introduction of restrictions against online grocers saving consumer credit card information to protect them from data breaches.

By proactively addressing these technological and financial risks, we can better support Canadian consumers in managing their finances and ensuring stable access to food.

I look forward to discussing these recommendations in detail.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

I now give the floor to the superintendent of the Office of the Superintendent of Bankruptcy, Ms. Lang.

Ms. Lang, you have the floor.

[Elisabeth Lang, Superintendent, Office of the Superintendent of Bankruptcy]

Chair and honourable members, thank you for the invitation to appear as a witness today.

I will deliver my remarks in English in order to avoid any technical difficulties.

Today, I will provide a brief overview of the insolvency system in Canada and I'll touch on some information and data that I thought might be of interest to you in relation to the current study. Then I will be happy to answer any questions you have, in the language of your choice.

Before I begin, I'd like to share an important perspective regarding policy challenges and insolvency.

Policy challenges generally don't originate in insolvency laws. They have a light shone on them via an insolvency, but the problems almost always lie elsewhere and should be addressed at their root. Trying to fix problems in insolvency is ineffective for the core problem and can upset the delicate balance that is necessary for an effective insolvency system and/or can negatively impact credit in general. Trying to fix problems in insolvency is like trying to save a plant by addressing the flowers only. If you do that, both the flowers and the plant will die.

Turning briefly to an overview of the insolvency system and my office, for context purposes, a well functioning insolvency system is a key pillar of the economy. It helps promote investment and creditor confidence in the Canadian marketplace and allows honest but unfortunate debtors a fresh financial start.

As superintendent, which is a Governor in Council appointee, I have statutory duties and authorities that I carry out at arm's length to the government, which help to ensure that the Canadian insolvency system continues to operate as intended. My office is responsible for overseeing all aspects of the Bankruptcy and Insolvency Act, as well as certain aspects of the Companies' Creditors Arrangement Act. I license and regulate the insolvency profession, ensure an efficient and effective regulatory framework, supervise stakeholder compliance, and maintain public records and statistics.

I also have directive-making power that enables me to provide additional direction on the legal requirements of the BIA. My office has the lead on regulatory changes, while the Minister of Industry has responsibility for insolvency legislation. We work closely with the department to try ensure that operational realities are considered in any policy changes.

The OSB, as a vote net organization, is almost entirely funded by stakeholders, whereby levies and fees cover almost all of our direct and indirect costs, with only a small appropriation. In addition to the OSB, key players in the insolvency system include licensed insolvency trustees, debtors, creditors and provincial courts. Stakeholders in the insolvency system have rights and responsibilities and can be subject to consequences if they fail to fulfill their duties.

I want to note that there has been a lot of attention paid to insolvency trends and the increased number of filings of late. To put that in context, we have not yet seen consumer insolvency filings reach the number we saw prior to the pandemic. In 2019, there were just over 137,000 consumer insolvency filings. The numbers dropped significantly during the pandemic lockdowns and have only more recently been rising. In 2023, for example, there were just over 123,000 consumer insolvency filings.

It is worth noting that we saw the highest number of filings in 2009 during the recession, when we saw over 151,000 consumer insolvency filings, with a note that Canada's population has grown since then.

It is also worth mentioning that in 2023, almost 79% of those filings were consumer proposals, which is an option that allows debtors to retain their assets and pay an amount agreed upon by their creditors, usually over a period of time. Consumer bankruptcies are only occurring in about 21% of the cases and are more likely to be an option for debtors who have little or no ability to repay the amounts owing.

On the business insolvency side, we have seen filings increase steadily since the lows in 2021 and 2022. In 2023, there were 4,810 business filings, which is the highest number since 2011, but it's still not as high as the filing numbers seen in 2008, 2009 and 2010, following the recession.

My office's role with respect to credit card practices and regulations is limited, as an insolvency occurs at the end of the lending cycle and only a small fraction of credit card holders in Canada file an insolvency each year. However, we do collect insolvency data and I thought I could share a few relevant data points.

Debtors have to report all liabilities on their statement of affairs at the start of any insolvency, including any credit card debt. In 2023, 87% of insolvent consumers reported at least one credit card in their liability, with an average amount owing of just under $18,000. This is pretty comparable to 2019, prior to the pandemic, when we saw 89% with one credit card, with debt averaging close to $20,000.

On the reasons for financial difficulty, this is an open text field, so it's not perfect for providing data, but what we can see is that in 2023, around 0.79% of those filing bankruptcies and proposals self-reported that credit cards were the reason for their financial difficulties, which is about the same as in 2019, when it was 0.95%.

On bankruptcies, we also collect the licensed insolvency trustees' perspective on the cause of bankruptcy at the end of the bankruptcy. In that case, overextension of credit was reported as a cause of bankruptcy in 11.68% of consumer bankruptcies.

On demographics, consumers aged 35 to 49 made up 37.5% of insolvency filings in 2023, which is about the same as in 2019. This is the largest percentage share of all age groups.

I'll conclude by highlighting two last things.

First, consumer debtors in Canada are required to participate in two insolvency counselling sessions in accordance with standards established by my office. These sessions are supported by an online curriculum and are designed to promote debtor rehabilitation in support of a fresh financial start. One of the modules deals with the responsible use of credit and covers topics like borrowing and managing the use of credit and debt.

Finally, my office has been working hard in collaboration with partners to provide helpful information to debtors so that they can make the best choices to deal with their debt. We publish an online “Consumed by debt?” brochure in 13 languages. We have an online debt solutions portal and an AI-empowered debt questionnaire. We have issued consumer alerts and we have been undertaking multiple social media campaigns to get the word out to consumers.

This concludes my opening remarks. Thank you once again for the invitation to be here today.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madame Lang, for this very interesting and thorough presentation. We appreciate it.

Now, to start the discussion, we'll turn the mic over to Mr. Perkins for six minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Thank you, witnesses.

In particular, it's always great to see a fellow Nova Scotian here before a parliamentary committee. Professor Charlebois, thank you for coming and for coming in person.

Maybe I can start with you. Professor, we know we have record food bank usage in Canada. Over 2 million people a month are using food banks, which is a level we haven't seen in decades. We also know that credit card debt in Canada has increased about $30 billion since 2015, which is a per capita increase of credit card debt of about 20% since then. In any given month, we know that roughly half of Canadians don't pay off their credit card debt. That's according to the Bank of Canada.

A recent poll by Harris done this year, in 2024, found that the reason people have changed their credit card habits as debt has increased is that the prices of goods and services have gone higher. In essence, people are using credit cards to pay for everyday purchases, according to this, like food and things you would normally not use credit for.

I know we've talked about the cost of living as having an impact on the issue of rising credit card debt, with food being a part of that as people are using credit cards to buy food. The basket of food that Canadians purchased for $100 in April 2021 now costs about $121. That is why people are feeling the pinch.

I'd like you to comment, if you could, a bit about about how much the carbon tax is impacting that increasing food pricing, which is increasing the use of credit cards to purchase food and, therefore, credit card debt.

[Dr. Sylvain Charlebois]

I've actually addressed this issue several times during my visits to Ottawa. Fully measuring the impact of the carbon tax on retail prices is extremely difficult to do, which is why our lab has focused more on wholesale prices and up the food chain. We have always believed that the carbon tax may impact our agri-food sector's competitiveness, because retail prices can be affected by several factors, including promotions, consumer behaviour and the weather. A lot of things can impact prices, especially with dynamic pricing coming in with AI. We're seeing more prices fluctuate on an hourly basis now, so it's hard to correlate a policy affecting the entire supply chain with retail prices.

However, one of the policies pushing prices higher is taxes at the retail level, and I have advocated for the elimination of all taxes on many food products. Because of shrinkflation, there's an increasing number of products that are being taxed at retail, and many of them are healthy options. In the Food Banks Canada report this week, entitled “Hunger Count 2024”, it was suggested that retail sales be eliminated, and I support that.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

As a person who, before entering elected office, spent 20 years in retail, I know a bit about what does push up the price, both at a retailer pace and then at how it's priced in. One of the things I know from that business is that when you actually put a tax on the production of that food product, which happens when it requires energy and other things to produce that product, the carbon tax increases that production cost. Then everything has to be shipped. One of the most expensive parts of selling things at retail is actually the transportation of the goods. When you increase the tax on fuel with a plan of up to 61 cents—to quadruple the carbon tax—that increases, obviously, food costs. All those things increase the price that the retailer has to pay, and then the retailer has to pay tax—obviously, the carbon tax—on the energy and other aspects of running their retail store network.

Doesn't that all compound and create higher food costs for people, which then cause financial stress?

[Dr. Sylvain Charlebois]

If you look at wholesale prices and retail prices in Canada versus, say, the U.S., you will see that the gap is incredibly narrow. There's just no room. Wholesale prices have increased almost 40% more than American wholesale prices in the last five years. I'm talking about food here. In the United States, when you look at Kroger, Albertsons or even Walmart—its food division—you see that this gap is significantly higher, so when wholesale prices go up, they do have some room. In Canada, most grocers.... I know that a lot of people like to blame grocers for exaggerating and profiteering, but we just don't see the evidence. When wholesale prices go up, for a variety of reasons—perhaps the carbon tax may be part of that equation—grocers have no other choice but to push prices higher to protect margins.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you.

I'd like to ask our online witness a question on bankruptcy.

In your opening, you mentioned, Ms. Lang, that the extension of credit is the number one reason cited in a lot of insolvency. One of the things that we've questioned the banking and other witnesses here for the credit card study about is that they provide other options if people get overextended on their credit card debt. Usually that means transferring them to a line of credit. When some of us have pushed and asked what they do with the credit card, obviously they don't eliminate the credit card. When you see these bankruptcies, do you see a combination of growing personal line-of-credit debt combined with growing credit card debt?

[Elisabeth Lang]

To clarify, I think what my opening suggested is that the cause of bankruptcy being connected to credit cards is actually a very low percentage; it's under 1% of cases. Note at the same time that this is not perfect data. It's an open text field that's answered by the debtor and completed by the licensed insolvency trustee. The number one cause that we've seen is loss of income. The number two cause is medical reasons.

To answer your question about credit cards, lines of credit and the various types of credit, we would have to go back to our data to see if we can help answer that question. It's a bit complex because these are not closed text fields. However, I could see what I could provide, if you'd like.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Professor Charlebois, we're seeing some very disturbing things around millennials.

Actually, maybe this is more appropriate for Ms. Lang.

In the credit card debt issues that we're seeing, according to a poll of Harris, millennials and generation X are the ones who are seeing the highest increase in stress—financial stress—and credit card debt. These are rising faster for them than for others, presumably because of mortgages and the increasing cost of mortgages and rent.

Have you yourself seen any particular trends around those issues that are reflected in the Harris poll about the connection with regard to age, demographics, mortgages and credit card debt?

[Elisabeth Lang]

The last data I saw suggested that under 20% of people who file for insolvency actually own a home. We'll keep a close eye to see if that changes. That may, with the current interest rates. In 2023, the age 18 to 34 demographic was 26.5% of the filings, and it actually decreased from 2022. I haven't looked at the 2024 trend yet, but it's usually in that 26% range.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Perkins.

Mr. Arya, you have the floor.

[Chandra Arya, Liberal, Nepean, ON]

Thanks, Chair.

Ms. Lang, your testimony is actually an eye-opener for me. I was not aware of a lot of things that you mentioned in your opening remarks. Please do send us the trend in insolvencies and bankruptcies for the period of the last five to 10 years if you can, so that we can appreciate.... You brought up a lot of numbers. Reading it will be much easier to comprehend than listening to it.

One think I should say is that I really like the funding model of your agency. Usually, whenever witnesses come from various agencies, the first thing they say is that they need more funds, so I'm glad to see that you are meeting your requirements through your own sources, which is a good thing. I have a couple of questions for you, if time permits, but I will come back to you later.

Professor Charlebois and Ms. Taylor, on this buy now, pay later, you mentioned that it incurs additional debt for consumers. How many consumers, and what percentage of consumers do you think are incurring unreasonable amounts of additional debt due to this BNPL?

[Samantha Taylor]

It's really too early to tell.

First off, I just want to ask, on buy now, pay later, are we all somewhat—

[Chandra Arya, Liberal, Nepean, ON]

One minute, don't you have evidence? Professor Charlebois, while answering previous questions from a colleague, mentioned several times what he saw and did not see in evidence, etc. Do you have any evidence that consumers...and, if so, how many consumers are getting into problems due to this particular scheme?

[Samantha Taylor]

The latest evidence here is that 20% of U.K. cards have one BNPL data on it. Disproportionately, 84% of the overall transactions are...ages 18 to 49. Now, I state U.K. data because that is the only data that's available right now. It's emerging from a 2023 study.

[Chandra Arya, Liberal, Nepean, ON]

However, that data doesn't say that...18 to 49 are incurring debt more than what they require. My problem is that, when people come and propose that we need to pass new legislation or regulations—just to safeguard the interest of, say, 5% or 10% who are incurring—we are creating red tape that affects 90% of consumers.

While the regulations for us sound good and it looks great that we are trying to regulate, we are trying to manage the affairs of individual Canadians: That is a nanny state. My thing is that, please, when you propose new regulations, you have to come out with a study that shows how regulation helps the people, the number of people it helps and how it does not create red tape for the other people.

[Samantha Taylor]

I appreciate that, and I really wish we had the data. This—

[Chandra Arya, Liberal, Nepean, ON]

Then, without data, you are recommending that we bring in regulation. That is the problem I have here.

[Samantha Taylor]

Sir, I'm suggesting that we look at leading indicators that suggest this is an emerging field that can cause compounding debt later down the line.

[Chandra Arya, Liberal, Nepean, ON]

In emerging fields we don't know whether the effects are a good, bad or a clean technology. Like AI, if you listen to one portion of the people, they say, “Oh, my God, AI is going to destroy everything.” There's another set of people who say that AI is going to improve the lives of Canadians and other people around the world. However, just because something is emerging, we are not sure.

Certainly I respect you because of the organization you come from. You're educated people. When you speak, we policy-makers have to listen, but my thing is that you started with a proposal to bring in regulation. That is the issue I have here.

[Dr. Sylvain Charlebois]

I appreciate the question. We came here today to propose ideas. Now, these ideas are likely deserving of more exploration and research. We don't have the data, and I think we should have the data. These new technologies are making money invisible and, when money is invisible, the younger generations in particular—and the research is suggesting that—don't necessarily understand how they're spending their money and how much trouble they're getting into very quickly.