Mr. Chair, I am pleased to have the opportunity to address this important issue.
Every credit card user has probably already felt the negative impact of this form of financing when one is late in his payments. Just imagine the consequences of excessive rates like those mentioned here for people who live constantly with such a threat over their heads.
It is well known that the indebtedness of Canadians, and that includes all forms of loans, is at a less than enviable high. Indeed, in 2003, the indebtedness ratio of Canadians represented 115% of the total annual income. This means that a large proportion of users are getting poorer by using credit that, in fact, they do not have.
Moreover, again in 2003, there were 74.3 million credit cards in circulation. It is easy to conclude that the vulnerability of users is, unfortunately, too great. Since about 35% of credit card holders cannot make regular monthly payments, they become the victims of excessive rates on the part lending institutions.
If interest rates for credit cards were somewhat similar to the central bank rate, the damage would be more limited. However, since these rates have evolved at a rate that is diametrically opposed to this basic rate, the consequences are catastrophic.
Indeed, since 1995, interest rates for credit cards have reached unprecedented levels. Over the past 20 years, that is from 1984 to 2004, the spread between the rates increased by 11%, from 15% in 1984 to 26% in 2004.
Such a spread is totally unjustified. Again, it is the same people who are the victims of these excessive rates. Regardless of the reasons that may be invoked to justify these rates, these reasons are based on strictly economic criteria, and it is well known that these criteria are far removed from the social values advocated in North America.
Consequently, since interest rates come under federal jurisdiction through the Interest Act, the situation should be corrected. It is in this perspective that Bill S-19, an act to amend the Criminal Code, was proposed to change the criminal interest rate in effect. Since the effective annual interest rate applied on the credit advanced is currently considered excessive if it exceeds 60% of the target rate of financing, Bill S-19 would have the effect of criminalizing any rate that exceeds by 35% or more the target used.
In actual fact, if Bill S-19 were in force, interest rates higher than 37% would be considered criminal, which would have the effect of keeping the annual interest rate in step with the Bank of Canada rate, while putting downward pressure on the financing structure as a whole.
With net profits of $13.3 billion, a 20.5% increase this year over last, there is no cause for panic for the six leading Canadian banks.
Since half of all revenues of banks come from the difference between the interest earned on loans and the interest paid on savings , there is certainly a way to minimize the damage. To suggest otherwise would be in bad faith.
I did say minimize, because we have to recognize that the $9.5 billion paid in taxes by the banks is not to be sniffed at, especially since some people are bound to benefit, because most Canadians are shareholders of banks directly or indirectly, through their pension plan or the Canada Pension Plan.
In this context, given how sizeable the debt is in Canada, what attitude should be promoted? On this issue as on many others, it is possible that awareness and information on credit are deficient. As a result, when the federal government cut transfers to the provinces, Quebec had to constrain spending on home economics organizations, which were masters in the art of raising awareness of debt.
First, the federal government has to give back to these social organizations the means to finance such initiatives to raise awareness of unchecked credit. At the same time, the government could require credit card rates to be in line with that of the Bank of Canada.
Finally, the federal government has to take steps to ensure that any future reform of the banking sector will be done with respect for consumers, and not on their backs.