Madam Speaker, I was leading into the debate but I wanted to show my disappointment that the Liberal government has used time allocation or closure 44 times since it came to power. We have more speakers. I was sitting here waiting for my turn. More speakers are coming up and they will be disappointed.
Getting back to the bill and the group of amendments, I have read the bill very thoroughly. I attended the auditor general's briefing on Bill C-53 and the Small Business Loans Act.
From the beginning I have been addressing the issues on Bill C-53 and the particular amendments. I addressed this bill at the first stage. I proposed right from the beginning certain amendments or recommendations and I am very delighted to speak on those recommendations.
Group No. 3 contains two motions, Motion No. 6 and Motion No. 11. Motion No. 6 deals with clause 8 and Motion No. 11 deals with clause 15. I will go over these clauses separately. These amendments are put forward by the official opposition. I am very delighted to speak on them and I will support them.
Clause 8 deals with the liability of the minister. We are proposing that the liability should be reduced to 50%, or any prescribed lesser percent. The rationale behind that reduction of the liability of the government is that lowering the percentage of the government's liability for a defaulted loan means that the lender must also assume a larger portion of any loss. By lowering the government's liability from 85% to 50%, the lender also assumes a greater risk in making the loan. In fact the risk would be equally shared.
The default rate under the old Small Business Loans Act was nearly 10 times higher than that in the private sector. This bill does not provide an adequate review of risk analysis. There is no provision for losses. Borrowers are not guaranteed but financial institutions are guaranteed. If bad decisions are made by the financial institutions, they are guaranteed.
Furthermore the bill does not put a mechanism in place to prevent financial institutions charging administrative fees when small businessmen go to them for loans. They should not be charging a fee in the first place but the auditor general has reported that they have been charging a fee in the past.
By lowering the government's liability from 85% to 50%, it will be the lenders who will be given more responsibility to share the risks.
The auditor general has noted various cases where major borrowers were able to obtain numerous loans with totals exceeding certain limits because they were operating the same businesses. In one group, 23 related corporations obtained more than $4 million in loans.
This practice are contrary to the intent of the act. Currently there are no provisions under the Small Business Loans Act to prevent this practice, even though such rules exist under the Income Tax Act. That act has provisions designed to limit access to the corporate tax rate for small business and to prevent abuse by the creation of a number of related corporations. The government needs to address that issue more rigorously in the bill.
I am delighted to support Motion No. 6.
In Motion No. 11 we are making an amendment in clause 15 which deals with the audit or the examination of various files. We are recommending that lines 20 to 22 on page 9 of the bill be replaced with “the minister will routinely conduct an audit or examination of the” files.
Industry Canada does not audit any account until the file becomes a claim file, which is absolutely wrong. It should audit files that need to be audited.
The rationale in putting forward this recommendation is that as presently worded Industry Canada officials must give written notice to a lender before conducting an audit of the lender's records or documents. This change would allow officials to conduct an audit routinely. Moreover, they could do so whenever they desired. It would ensure federal accountability in the process.
The December 1997 auditor general's report highlighted examples where lending institutions have not exercised due care in making a loan. In short, better auditing provisions need to be in place and it becomes very important that we deal with these issues.
Industry Canada introduced a policy of full cost recovery for loans issued after April 1, 1995. The department reduced its loss sharing ratio from 90% to 85% and imposed on lenders a 1.25% annual administration fee. According to Industry Canada projections, these modifications to the program should result in full cost recovery over a 10 year period.
The auditor general has reservations regarding the department's ability to move toward full cost recovery, noting an increased proportion of riskier loans in its guaranteed loan portfolio.
An internal study undertaken in 1997 by the department confirmed a significant increase in risk in the program's loan portfolio, stating higher default rates which are occurring earlier in the life of a loan. As a result, the auditor general urged the department to undertake greater efforts to develop systems and practices to better evaluate program performance in order to assist in monitoring loan portfolio risk so that smaller businesses get the benefit from this whole program.
The auditor general recommended that industry take steps to ensure that lenders have complied with the regulations of this act. It was found that some loan files did not contain the information necessary to perform a total credit risk analysis.
This bill does nothing to address the shortcomings of the audit process outlined above. It is likely that the same criticism levelled by the auditor general in this regard will continue. As a part of its review, Industry Canada does not assess whether the lender has exercised due care when making a loan.
The amendments would make the process more accountable. The auditor general's recommendations would be in place. Small businesses would be getting the advantage, not the large businesses.