Debates of Feb. 9th, 1995

Veterans Review And Appeal Board Act

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mr. Kilger)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mr. Kilger)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mr. Kilger)]

In my opinion the yeas have it.

And more than five members having risen:

[The Acting Speaker (Mr. Kilger)]

Call in the members.

And the division bells having rung:

[The Acting Speaker (Mr. Kilger)]

Pursuant to Standing Order 45, the division on the question now before the House stands deferred until Monday at the ordinary hour of daily adjournment, at which time the bells to call in the members will be sounded for not more than 15 minutes.

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Mr. Speaker, I rise on a point of order. I think you would find unanimous consent to further defer the vote from Monday at the time of adjournment until Tuesday at 5.30 p.m.

[The Acting Speaker (Mr. Kilger)]

Is that agreed?

[Some hon. members]

Agreed.

[The Acting Speaker (Mr. Kilger)]

It being 5.30 p.m., the House will now proceed to the consideration of Private Members' Business as listed on today's Order Paper.

Interest Act

[Ghislain Lebel, Bloc, Chambly, QC]

moved that Bill C-273, an act to amend the Interest Act, be read the second time and referred to a committee.

Mr. Speaker, I am both disappointed and appalled as I rise in the House to speak to Bill C-273, an act to amend the Interest Act. You will understand my frustration when I explain how I became aware of the fact that the Interest Act is totally ineffective.

I am a notary by profession. Over the years, I have finalized at least 5,000 real estate transactions involving either sales or financing. In 1981 and 1982, a steep rise in interest rates forced mortgage holders to renew their mortgages at 18, 19 or 20 per cent, and I even saw a second mortgage renegotiated at 24.41 per cent.

When rates settled to more civilized levels, the same taxpayers-of every political stripe, by the way-tried to renegotiate their mortgages to take advantage of the sudden drop in interest rates. Mortgage lenders argued, not unreasonably, that they themselves had borrowed on term deposits at very high rates.

They found a sympathetic ear in the Minister of Finance at the time, a Liberal, and I am referring to Marc Lalonde who was Minister of Finance in 1983 and who told us at the time that the banks had initially borrowed the money at high rates and that changing the rules of the game at this point might put them in a rather difficult situation. I could see that, and I think the members of the House of Commons at the time understood the situation.

Could I perhaps ask the Speaker to urge our Reform Party friends to be silent?

[The Acting Speaker (Mr. Kilger)]

Order. I wonder if we could ask for the co-operation of the House while the member has the floor. If there are discussions that have to take place, they might be held outside the Chamber behind the curtains or in our respective lobbies.

[Ghislain Lebel, Bloc, Chambly, QC]

Soaring interest rates in 1981 and 1982 were very damaging for small owners of rental buildings and owners of apartment buildings.

Some had to borrow, also at high rates, against other assets they had, the money they needed to fill the gap imposed by this sudden hike in the interest rates. I remember a real estate transaction involving two rental properties with 12 apartments in which the vendor, already choked by his mortgage lender, a bank, one of the big six, had to pay out $56,000 in dollars of the time in interest penalty for breaking his mortgage. In the United States, the federal law on housing provides that no penalty may be charged for breaking a mortgage, and yet the American economy seems to be in good shape.

In the face of the outcry against such abuses, the Minister of Finance had asked bankers to take themselves in hand and show a human face to their mortgage borrowers. How pure of the minister. Taxpayers were nevertheless understanding and, as always, reacted calmly to the problem. Because of a lack of political will on the part of the Liberals of the time, they as usual bore the entire cost of the mess.

Since then, interest rates have been civilized, although recently, because of the collapse of the Mexican currency, we are told, they have tended to rise. When interest rates dropped recently to 5.25 and 5.5 per cent per annum, this was the time for the party in power to act. The situation that existed in 1982-83 had evaporated. There was therefore no way the banks could be taken by surprise now. Last summer, the banks paid 2, 2.5 and 3 per cent on term deposits and charged 5, 5.25 5.5 per cent on loans.

You know, Mr. Speaker, 2,500,000 people are having to deal with a mortgage in Canada at the moment. They are held hostage by financial institutions and the market, not just by the financial institutions, but by fluctuations in the market. This is becoming distressing, and it affects our economy, not always predictably, but certainly noticeably.

Outraged, Mr. Speaker? Yes indeed, and here is why. Private members' bills are first drawn at random. The bill before us, Bill C-273, has passed that stage. A private member's bill is next referred to a sub-committee on private members' business, comprising a majority of Liberals and Reform Party members and a single member from my party.

This committee decides whether the bill will receive a simple one hour debate, as in the present case, or whether it is to be voted on. If it is decided that it will only get an hour's debate, the whole matter is dropped at the end of that hour, it is is history, over and done with. If, however, this committee decides that it will be put to a vote, then the parties can express their opinions, debate it and, after three hours of discussion, the member's bill is put to the vote.

There is no doubt that if a majority of members in the committee is afraid that a member's bill may be passed into law, they assess the impact on their constituents, their supporters and, indeed, on their financial backers. In that case, it is either

debated for three hours or referred for an hour's debate like this one.

There is no need to spell it out. If it were passed, the bill before us would cause the banks to lose huge sums which they now collect in penalties.

Last November, these poor banks declared overall profits of $4.3 billion at the end of their fiscal period, no doubt after having made provisions for bad debts and withheld taxes owing; $4.3 billion, imagine that.

Why did the Sub-Committee on Private Members' Business, in which our friends opposite and beside us call the shots, oppose putting the bill before us to a vote? Could it possibly be because the six big chartered banks each contributed an average of $250,000 to the Liberal Party of Canada during the last election campaign? One might think so.

This obscure committee did not include the interests of the Canadian taxpayer in its decision, but only those of its financial backers. There you have the results of politicking, an art the Liberals have mastered.

Reform Party members are learning quickly too now that they are aiming to form the next government. God forbid! For Canadian taxpayers, the lesson to be learned in all of this is that, if a vote is sure to be won, you are the last ones to be considered.

I would like to warn the members who are in the majority in this committee about their attitude in this case. I plan to send to all regional and national newspapers in their ridings a copy of Hansard including this debate, so each and every one of them will have to explain why they refused to put the bill before us to a vote.

Coming back to the bill, I can see right away from the reaction of my colleagues opposite that they will claim such a measure might harm certain investments. I rather doubt that and I shall tell you why.

At present, a loan granted for more than five years can be repaid in advance provided that a sum equal to three months' interest is added to the capital and interest due. For a few years now, however, the Bank of Montreal has given out loans for seven years or even more.

Nor is there any validity to the argument that such a procedure would mean that individuals who invest their savings for the long term in banks would lose money. If people want to get a relatively high return for their investment dollar, a return that is competitive with bank rates, they can always buy Canada, Quebec, Ontario or other savings bonds, or municipal bonds. Municipalities are not known for the bad habit of reimbursing their debts before the end of the term. Therefore, these people will nevertheless be paid the interest that they are entitled to receive.

Section 93 of the consumer protection act that took effect in Quebec in 1976-77, I believe, prohibits any creditor from demanding from a consumer any payment in addition to that which is due on the day of payment-the act makes no mention of mortgages, because the Interest Act falls under the jurisdiction of the federal government.

Therefore, as long as you are not a business person, because the Consumer Protection Act only applies to individuals, no penalty will apply if you pay off your television or car early. This did not prevent finance companies, business people in Quebec from doing business. What may have slowed them down more was the negative impact that a provision of the Interest Act had on Canada's economy in general.

When people who could get other financing elsewhere are compelled to go to the end of their mortgage terms or pay astronomical amounts, that could hurt the province's and the country's economy, in my opinion.

In 1976, the Hon. Anthony Abbott of the Liberal Party, the predecessors of the people on the other side of the House, introduced Bill C-16. This bill was a "providing for" bill. It provided for the protection of borrowers and depositors, for the regulation of interest rates on judgment debts and was to repeal the Interest Act. Since 1867, the Interest Act had not been substantially amended and had only been changed to include the Northwest Territories and the Yukon. The bill, which probably was killed through pressure from lobbyists, big banks or some other source, proposed to cancel or repeal the Interest Act.

Clause 15 of that bill provided that any borrower who pays off early all or part of the principal of a mortgage under the preceding subclause is not obliged to pay, on the early payment, the greater of the penalties stipulated in the loan agreement-i.e. in the contract-the penalty payable being the lesser of the interest payable for a period of three months or the interest which would have been payable if the loan had run to its term.

In other words, the lesser amount of the two; a maximum of three months' interest or less than that amount, if in fact a shorter period was left on the term. And that penalty was to be calculated on the amount of the early payment at the interest rates applicable to the loan.

When I introduced my bill, I was not aware that this bill had been introduced in 1976. I discovered it when I was doing my research. This bill does not come from the Social Credit Party of Canada, the party of infinite love or the transcendental meditation party; it comes from the Liberal Party, from the people sitting opposite us. Why did they renounce their principles?

What has happened to that party since then? Did they get contaminated by the Reform Party? I know that they are against.

If a group in Canada has been penalized by the measures in the Interest Act, it is the western farmers. As we know, western farmers are expecting large payments. Do they get paid when they sell their crops or do they rely on their various insurance policies or on income stabilization plans? I do not know. But the fact is that they sometimes have to wait a while before they receive their money. In the meantime, they have to secure their loans by taking out a mortgage. Since they need money to tide them over for a certain time, they borrow from the banks.

They are perhaps among those hardest-hit in Canada because of the large amounts they borrow on a regular basis, almost annually, while waiting to receive the amounts owed them.

I am disappointed because I sincerely believed that, political games aside, this bill was aimed at protecting for once-it is not much, just once-ordinary people who have trouble paying their mortgage. I thought that all members of this House, whatever their party, would automatically look after the interests of ordinary people, of those who allowed them to sit opposite us. But they were fooled once again by powerful lobbies and monopolies putting pressure on them and saying, "Listen, I do not want to lose my $4.3 billion".

According to press reports, it will probably be worse next year because of the economic recovery. Their net profits may exceed $4.3 billion. Of course, together they can give $1 million, $1.5 million or $2 million to the party that can promise them not to touch the Interest Act, so they do not lose astronomical amounts in penalties like those they lost, I gather, unfairly.

I also wanted to table this bill for my constituents in the riding of Chambly for whom I worked for 15 years as a notary, handling transactions and mortgages. I saw some of them leave my office with tears in their eyes. I saw people who could no longer make their payments put the key on my desk and tell me, "Please give it to the bank manager; I am going to rent an apartment in Montreal because I can no longer make my payments". I saw that in 1982 and 1983. It was heartrending.

When I decided to go into politics, one of the promises I made to the people of Chambly was to try to persuade the government to amend this act, which struck me as inhuman, as Mr. Lalonde, the finance minister at the time said, but then he asked the banks to implement their own controls. It is a bit like asking a fox, who has already made it into the henhouse, to eat only a few. It is like turning the blood bank over to Dracula. It amounts to almost the same thing.

I say to the people of Chambly, at least I have tried. Those of you who are watching can see that I have tried to change things. I am disappointed that it did not pass. And it was because of ignorance, the wish to do nothing of certain of my colleagues, most of them, unfortunately, from the party in power. I say to them that we will not give up, and that we will try again, perhaps at a time when they are less worried about their corporate constituents, the banks, and come back to the charge with a similar bill.

[Stan Keyes, Liberal, Hamilton West, ON]

Mr. Speaker, regrettably the hon. member for Chambly significantly weakens his debate for his private member's bill when he makes the far reaching and one might say ridiculous argument that his bill did not win three hours of a debate in this place because Liberals would be embarrassed by his act to amend the Interest Act.

I remind the hon. member opposite that there have been a number of private member's bills introduced by thinking, backbench government Liberal members which run counter to the suggestions of a minister; but still received three hours of debate and a vote. The most recent that I can recall was the private member's Bill C-226, an act to rescind section 745 of the Criminal Code which received three hours of full debate in this place and carried on a vote by the members of this place.

On the matter at hand, I consider it a privilege to speak to Bill C-273, an act to amend the Interest Act. Let me begin by commending the hon. member for Chambly for his well intentioned effort on behalf of Canadian mortgage borrowers.

The bill before us calls for changes to section 10 of the Interest Act. It only calls for the words "12 months" to be substituted for the words "five years" in two places in that section.

At first sight this appears to be a small change but I am concerned that what may seem like a small change could have far reaching consequences. I am worried that what on the surface appears like a consumer friendly improvement may in practice be quite the reverse. If this legislation were to pass mortgage financing for Canadians could become less available and mortgages could be higher and the range of financial instruments available to Canadian borrowers and savers could be reduced.

I want to demonstrate to my parliamentary colleague opposite why such a simple change would have negative consequences. The difficulty is that this bill could inadvertently hamper the flow of funds into the mortgage market by increasing the risks associated with mortgage lending. Hon. members may recall that section 10 of the Interest Act provides for a penalty equivalent to three months interest in the prepayment of the outstanding principal after five years on conventional mortgages with terms greater than five years.

The bill under consideration, this bill, would extend these same provisions; that is, a penalty of three months interest for

prepayment of outstanding principal after only one year on mortgages with terms greater than one year.

As hon. members and many Canadians are aware, long term mortgages are uncommon in Canada. The vast majority of mortgages in this country are issued with terms of five years or less.

One might ask why this lack of long term financing? Unfortunately the prepayment penalty provision in section 10 of the Interest Act is a real factor. This has been recognized by consumer associations, financial institutions, as well as the construction and real estate industries.

Now we have today's proposed legislation which could compound, not improve problems with timely mortgage financing because by adopting Bill C-273 we would risk similar results in the medium term mortgage market. Prepayment penalties for short and medium term mortgages are usually based on the present value formula which compensates the lender for differences in rates which would apply. This amount may be more or less than the three-month penalty proposed by the bill.

We have to recognize the cascading effects such a problem would create. Nervousness about such losses would effect the availability of not only mortgages but also medium term GICs. In turn, the resulting less efficient, smaller mortgage market would have negative implications for the construction and real estate industries.

Let me reiterate. I understand this bill has been put forward with good intentions, that it was tabled with the welfare of consumers in mind. However, in deciding whether Bill C-273 should go forward to committee, hon. members must bear in mind the unintended but adverse consequences which could flow from this bill.

In summary, these consequences include reductions in the choices that will be available to Canadian consumers in their capacities as mortgage borrowers and as savers, increases in the cost of mortgage financing, reductions in the availability of medium term mortgage funds, and adverse spill over effects on the construction and real estate industries.

The hon. member for Chambly does, however, by introducing this bill, underline the need for further consideration of how best to provide Canadian consumers with the opportunity to prepay mortgages in a fair and equitable way.

I understand that officials are reviewing this issue so that we may very well come back to it in a very short period of time.

[Ghislain Lebel, Bloc, Chambly, QC]

Mr. Speaker, may I reply to his question?

[The Acting Speaker (Mr. Kilger)]

During the hour reserved for private members' business, there is no provision for questions and comments. The member presenting the bill in the House has 20 minutes, and those who follow have 10 minutes, with no questions or comments.

[Ian McClelland, Reform, Edmonton Southwest, AB]

Mr. Speaker, I too wish to compliment the member for Chambly on the intent of the bill. There is no question that his heart is in the right place.

Many people in this House and most Canadians felt the shock of the greatly increasing interest rates about 10 years ago. I certainly did. Unfortunately while the intent of this bill is noble, when we get the past the intent to look at the effects of this bill and what would happen in the marketplace, the results may not be quite as noble.

Before I get into my short comments about this I would like to respond to a couple of comments that the mover of the bill from Chambly brought into the debate. First was the notion of there being some sort of ne'er do well doing in that this bill is not votable.

I think there are 30 bills brought forward. Of that I believe about six or eight are votable. The decision on whether a bill is made votable is based on the content of this private member's bill as tested against all other private members' bills.

Sometimes they are found lacking and sometimes they are not. My private member's bill was not votable. I felt badly about it but that is the way the cookie crumbles. We have to deal with it. Another item was brought into this debate. The banks are hugely profitable and therefore we should change this. The banks make all kinds of money and therefore nobody likes banks. I do not like banks any more than anybody else but banks are a part of our life. They are a necessary evil.

Banks have had an increase in taxes over the last few years of something in the region of 40 per cent. In fact they pay a fairly hefty bite of their profits as taxes.

As we all know banks have been increasing their service fees for everything because they are trying to get out of the cyclical nature of recovering all of their cost by interest as well.

The whole notion of the profitability of banks in this debate is a moot point. It does not have anything to do with what we are talking about. Banks make a contract to lend money to a client, the client makes a contract with the bank to repay the money.

If people wish and are in a position to prepay a loan for whatever reason, then it would be nice if the lender would be in a position to make it easy for them to do so. However for the number of people who would like to renegotiate loans when interest rates go down probably does not match the number of

people who would like to renegotiate a loan when interest rates go up. I do not think I have heard of anyone going into a bank and saying: "I understand that interests rates have gone up. Therefore I want to renegotiate my loan so I can pay more money".

A contract is a contract. When depositors put money on deposit and buy interest bearing certificates at a bank, the bank generally matches those deposits with lending.

Perhaps we should consider letting the marketplace decide. If it is in the best interest of the bank, and some do, to ensure that their customers are able to have more flexibility in their mortgage loans, then they could advertise that they will be prepared after one year to allow the customer to collapse the loan, prepay three months interest and be out of the contract.

Most banks have open mortgages, one-year mortgages, six-month mortgages, five-year mortgages and ten-year mortgages. The Home Builders' Association would like to see much longer term mortgages so that people would be able to lock into a mortgage, perhaps even over its life, until it is totally amortized. This is done in the United States. Then when someone buys a home they know what their payments are going to be from the time they make their first payment until the time they make their last and the vagaries of interest rates will not drive people out of their homes. That again is another debate and another story.

Some lending institutions will lend money for mortgages in this country this very day that consider their mortgages fully open and will allow people to prepay without penalty at any time.

We should allow the natural competitive forces in a healthy marketplace make these decisions. We have many fish to fry in this Parliament. We should let the private sector do what the private sector should do and not further involve the government in more details that should be handled by the private sector. We should be getting out of business, not getting into business.

While the member for Chambly brings to the House a well-intentioned motion perhaps it also contains a bit of quicksand. I would suggest that if people are looking at this and we absolutely must do something about it as a Parliament, we might consider this. When a mortgage institution or a bank lends money on a mortgage expecting to get a spread of 3 per cent between the people who are lending money to the bank and the people who are borrowing money from the bank, their profit is included in that.

Perhaps the banks might consider giving up their portion of profit. Certainly their expenses should be covered.

We are getting very complicated in this debate; at least I am getting very complicated. It is not really our decision and our job to decide what banks should do and how they should do it. That is a job for a free, competitive and open marketplace.

[Nic Leblanc, Bloc, Longueuil, QC]

Mr. Speaker, I am pleased to support my colleague in this respect, and I think the hon. member of the Reform Party should realize this is a bill to protect the individual consumer who borrows money, not companies. If I understood correctly, the bill is not concerned with companies but individuals.

We all know that financial institutions, with their expertise, can easily predict the vagaries of interest rates and are in a better position to take advantage of that expertise than the average citizen who has to make a living and does not have the resources to be able to judge when he should pay up his mortgage or take out a mortgage and for what period of time, and so forth.

That is why I think the flexibility the hon. member for Chambly is seeking, to allow people to pay back their mortgages and renegotiate them at a lower rate, would give the average citizen, for whom a mortgage on his home is the only equity he has, a chance to borrow a certain amount using the mortgage as collateral, in order to save some money for later on when he retires.

As the hon. member for Chambly explained, in the past we have often seen people lose huge sums of money, mainly because here in Canada we have a major problem. If we look at the mid-seventies we had interest rates at fairly reasonable levels of 7, 8 or 9 per cent. In 1981, 1982, 1983, interest rates rose to 20 per cent and then went down to 7, 8 and 9 per cent, and then down to 6 per cent in 1994. Last year, you could get a mortgage at 6 per cent, and now we are up to 11 and 12 per cent.

Imagine what we have to cope with. I did not do a serious analysis of the situation in other countries, but I know that in the United States, you can still get a 30-year mortgage at a much lower rate than we pay here. This kind of stability means that wage earners with fairly stable incomes can budget their money better. In this country, however, with these tremendous variations in interest rates, people never know where they stand.

So if we gave individuals, since we are talking about private mortgages, if we gave individuals a chance to at least budget for their interest payments, it would help them balance their budgets generally, give them greater confidence, and make them more inclined to engage in real estate transactions, and in the process, this would help the economy. I think that this is what the hon. member for Chambly had in mind when he introduced this bill, and I think this is important, but unfortunately, it would seem this bill is being snubbed.

I think we should have had more time to discuss the bill and a chance to improve certain guarantees available to individuals.

Once again, financial institutions are very well organized. They have their own experts who are able to evaluate the trends and the way interest rates are going, but the average Joe who has to learn a living does not have the resources to do this. That is why I support the bill standing in the name of the hon. member for Chambly.

[Marlene Catterall, Liberal, Ottawa West, ON]

Mr. Speaker, you might find unanimous consent to suspend the sitting to the call of the Chair and the Adjournment Proceedings could commence at the normal time of 6.30 p.m.

[The Acting Speaker (Mr. Kilger)]

Since there are no more members who wish to speak and the motion was not designated as a votable motion, the hour provided for the consideration of Private Members' Business has now expired and pursuant to Standing Order 96, this item is dropped from the Order Paper.

I see the member for Louis-Hébert is present and as soon as we have the person who will respond for the government the Chair could reconvene prior to the normal hour, 6.30 p.m.

Is it the wish of the House to suspend the sitting to the call of the Chair?

[Some hon. members]

Agreed.

(The sitting of the House was suspended at 6.12 p.m.)

The House resumed at 6.17 p.m.