Mr. Speaker, today we are debating Bill C-26, An Act to amend the Criminal Code (criminal interest rate). Canada's new government has brought forward this legislation for one basic reason, to protect Canadian consumers. Bill C-26 will provide much needed flexibility to the provinces and territories in the area of consumer protection, flexibility to enable them to address various problems posed by the alternative consumer credit market, specifically the practice known as payday lending.
I would like to compliment my colleague, the hon. Minister of Justice, on his excellent work on this important issue. Let me state that the consultations carried out over several years by a group of senior federal, provincial and territorial consumer protection officials, known as the consumer measures committee, which led to the development of this bill were instrumental in its creation.
It is not easy being a consumer in today's exceedingly complex, fast moving marketplace. Canada's marketplace has been transformed in recent years by the staggering proliferation in the number of consumer goods and services that are on the market. New technologies, the growth of services and open markets bring both benefits and potential hazards to consumers. The payday lending industry is a good illustration of just how rapidly things are moving on the consumer scene.
Only a few years ago payday loans were virtually unheard of in Canada, yet now street corner loan offices are open in most provinces, in rural communities and in our downtown cores. This burgeoning alternative credit scene certainly does pose significant consumer issues. This is why many non-governmental consumer watchdogs, from the Public Interest Advocacy Centre to Service d'aide au consommateur, and many others as well have addressed this very important issue.
Last year Industry Canada's Office of Consumer Affairs established an extremely informative and timely document which I highly recommend as reading to my hon. colleagues. The “Consumer Trends Report” highlights the rapid and fundamental changes that have transpired in the consumer marketplace over the last 20 years. While many of these changes have been very beneficial, new challenges have also arisen. In many ways consumers today need more expertise because products and services are changing more rapidly and in more fundamental ways than ever before.
In the opinion of many experts it has become more difficult for consumers to determine value and weigh risk in the marketplace and their marketplace transactions. At the same time consumers themselves have also undergone many important social, economic and demographic transformations that can make certain groups particularly vulnerable in this marketplace.
In fact, the payday lending issue we are considering today is a very good example of the way in which the consumer environment is changing rapidly with the potential to have negative effects on consumers. As the “Consumer Trends Report”, the CTR, notes, the alternative financing services can be some of the most expensive ways for consumers to borrow, ranging from using payday loans and pawnbrokers to shopping at rent to own operations.
According to the CTR, when stated on an annual basis, the rate of interest paid on a typical payday loan ranges between 390% and 650%. On the other hand, there is genuine consumer demand for this product as seen by the increase in the number of outlets. The CTR states, “a prominent provider of the payday loan and cheque cashing services indicated that its number of franchised and corporate branches increased from 100 in 1994 to 200 in 2000, and was approaching 300 in 2003”. This is Money Mart. According to the media, the industry which lends about $2 billion each year services about two million Canadians annually.
What we have with payday lending is a relatively new product of some financial complexity that Canadian consumers are using in considerable numbers. However, it is also a product that can sometimes be sold in ways that can present hidden pitfalls and can have serious consequences for consumers.
In 2002, a report released by the Public Interest Advocacy Centre, PIAC, with funding from Industry Canada entitled, “Fringe Lending and 'Alternative' Banking: the Consumer Experience” stated that a cursory examination of the fee structures and practices of some payday lenders suggests that they expend little effort to assist the financial literacy of payday loan customers and probably contribute to customer confusion.
Many payday lenders offer no explanation for the fees they charge to their customers and often use ambiguous terms such as verification fee or finance charge among others. Without proper disclosure and explanation of fees, customers could be making financial decisions based on misunderstood and unclear information.
Research conducted by the Public Interest Advocacy Centre, the PIAC in 2002 shows that a relatively high number of payday loan customers either did not know the cost of their loan or underestimated the cost.
The timeframe of a payday loan is very short and the cost can be very high. Many borrowers have found that they are unable to pay off the loan in full at the time it comes due. Borrowers could however pay a fee for an extension on the original loan called a rollover. By doing this they could enter into a cycle of renewals including possible increased fees, interest or NSF charges added on without reduction of the principal of their loan. This situation may be financially devastating for a borrower but profitable for the lending company.
The legislation before us today is a very good fit with Canada's consumer protection framework. It is built upon the concept of ensuring that the jurisdiction most able to protect consumers in a particular issue have the legal capacity to do so. It would exempt payday lenders from the current provisions of section 347 of the Criminal Code which sets the criminal rate of interest in Canada, but only if those lenders operate in a province or territory that regulates the payday loan sector and if the province or territory sets limits to the cost of borrowing for consumers.
Each province and territory will have the freedom and flexibility to address its own market conditions and to best respond to the interests of its own customers. Bill C-26 typifies an effective and flexible approach to consumer protection. It is based on cooperation with the provinces and territories along with other governmental departments and non-governmental organizations. Bills C-26 helps Canada's markets work well for consumers, for growth and for our economy.
The legislation before us will bring payday lending in from the somewhat sometimes shady world of unregulated financial activity, so that consumers can operate with more confidence and assurance. The process of obtaining a payday loan will become more transparent and more straightforward for consumers. The provinces and the territories are best placed to regulate the payday loan industry. Bill C-26 will give them the power and flexibility to do so.
The bill's approach is typical of the innovative ways that we must approach consumer issues in the contemporary marketplace. All partners, including the federal government, the provinces and territories, non-governmental organizations and educational institutions, must work together to support consumer efforts and make wise choices in markets in Canada and the world.
Bill C-26 is further evidence that Canada's new government fully recognizes the importance of Canadian consumers and is committed to fostering their ability to function in fair and efficient markets.