Mr. Speaker, it is my pleasure to rise today to speak in support of an important bill, Bill C-26, An Act to amend the Criminal Code , which was tabled on October 26 by my colleague the hon. Minister of Justice .
The bill would make changes to the Criminal Code to enable the regulation of the payday lending industry by provinces and territories. This is an important and welcome change.
For years, the payday lending industry has operated in Canada under the radar. The bill would bring this burgeoning industry within the scope of regulations, and in so doing, provide greater protection to millions of Canadians and their families who have come to rely upon the services of the industry.
Indeed, according to the industry's principal lobbying and advocacy organization, the Canadian Payday Loan Association, the industry provides services to nearly two million Canadians each year. This is a substantial figure and demonstrates the importance of ensuring that Canadians are protected against harmful practices in the industry.
Bill C-26 would accomplish the following. It would amend the Criminal Code by adding a new provision, section 347.1, which would provide an exemption scheme for payday lenders from the criminal interest rate where a provincial, territorial consumer protection scheme is in place. It would define payday loans as part of the provincial legislative schemes that are established. It would require the provinces to set a cap on the total cost of borrowing for a payday loan.
Before moving to the discussion of the substance in these amendments, it is important to appreciate two things, first, the history of the payday lending industry in Canada, including the impact it is having on communities across our country; and second, an overview of the questionable practices which have served as a clarion call to action and which forms a basis as to why these specific amendments are proposed.
After learning more about this industry, I believe that all hon. members will agree that the amendments proposed by Bill C-26 are pragmatic, measured and necessary.
The payday lending industry in Canada is relatively new. Storefront operations with catchy names and flashy advertising began popping up in communities throughout Canada around 1994. The payday lending industry began its operations in western Canada. Today, however, the industry is truly national without outlets stretching from coast to coast. In fact, there are an estimated 1,350 payday lending outfits currently operating in every province and city in Canada, except Quebec, and the number continues to rise.
The two million Canadians who use the services of a payday loan company are borrowing nearly $1.7 billion each year. This is simply a staggering amount when one considers that all of this has occurred in an essentially unregulated market. These numbers illustrate that the payday lending companies are clearly responding to a demand from Canadians for their services.
It is true that there are some who would argue that the payday lending industry should not exist at all in Canada. On the other hand, it is clear that the industry is playing an important role for many Canadians on a daily basis.
There are many reasons why Canadians may come to use the service of their neighbourhood payday lending outlet. It may be for convenience, as many of the stores keep late hours and are open on the weekends. Others have suggested that the reason is due to the fact that many of the major financial institutions in Canada have closed the smaller branches, thereby leaving a void in many communities for fast, convenient locations to access cash. It may be due to the relatively anonymous nature of the service or unforeseen emergencies which come with immediate financial consequences. Regardless of the reason, the industry appears to be filling a niche in Canadian communities.
Given this fact, it is important to ensure that those Canadians who do use the service of a payday lender are provided with necessary protection from exploitive business practices, particularly so among the most vulnerable members of our community.
The government takes its responsibilities to improve the lives of Canadians and their families very seriously, and we are taking many important steps in this regard.
Whether it is through strengthening the Criminal Code to ensure that our streets and communities are safer or lowering taxes to help everyday Canadians, we have committed to make a difference. We will continue to take measures such as those proposed in Bill C-26 to ensure that Canadians can have the very best quality of life.
The proposed amendments contained in Bill C-26 are a thoughtful and effective way to provide for enhanced consumer protection. They respond to the needs expressed by many including the provinces and territories for effective regulation.
There are good reasons to ensure that this industry is regulated. Payday lending is a very expensive way to borrow. In some cases, the costs of borrowing money from a payday lender can range in the 1,000% when annualized. Concerns have been expressed in relation to insufficient disclosure on contractual terms by the lender. In addition, there is a concern with the aggressive debt collection practices and the relatively quick way in which these debts can spiral out of control,as a result of rolling over loans. In some cases payday lenders will even charge an early repayment fee to those who would choose to repay their loan ahead of time.
For all of these reasons it would be abundantly clear to all hon. members that there is a significant need for action in this area. The changes proposed in Bill C-26 will help ensure that action will indeed be taken to provide for the regulation of this industry.
In exploring the most appropriate response to this pressing public policy issue, we worked closely with our provincial and territorial colleagues. Through this work, it became increasingly clear that section 347 of the Criminal Code was a key factor in establishing a new regulatory regime.
Section 347 of the Criminal Code provides for an offence for entering into an agreement or arrangement to receive interest at an annual rate of more than 60%. Effectively, this creates the offence of charging interest at a criminal rate. Those who are convicted of this offence can face sentences of up to five years imprisonment.
When section 347 of the Criminal Code was first introduced, it was not intended to serve as a consumer protection measure. Instead, it was meant to provide law enforcement with an additional tool in the fight against organized crime and specifically the practice of loan sharking. Regardless of its original intent, it is applicable to lending arrangements in Canada including payday lending.
Let me be clear though, section 347 of the Criminal Code is not in this government's view the most appropriate or effective way to protect consumers from the unethical and unscrupulous practices which have been connected with segments of the payday lending industry. We are not alone in this assessment. We have heard from many jurisdictions as well as members of civil society who have indicated that section 347 is not a suitable mechanism for consumer protection.
Moreover, these same jurisdictions have noted that in their view the application of section 347 to payday lending companies acts as an obstacle to effective provincial regulations. And so, with these proposed changes we are responding to the needs of the provinces and territories who are much better placed to provide for the necessary consumer protection measures.
We are removing the applicability of section 347 in those instances where provinces choose to act. In instances where the provinces do not act, section 347 will continue to apply. We believe that this is an appropriate solution which will enable those provinces and territories that are ready to regulate the industry to do so.
It is important to briefly point out that Bill C-26 will not apply to federally regulated financial institutions such as banks. Banks are a matter of federal responsibility under Canada's Constitution and there are numerous federal pieces of legislation which regulate these institutions.
In general terms, the amendments would provide an exemption from section 347 of the Criminal Code for payday lenders under very specific and circumscribed instances. These exemptions would be set out under a proposed new section, section 347.1 of the Criminal Code.
The type of loan provided in a typical payday loan situation is generally a small amount, under $300, according to one study, and the usual terms are short, about 10 days. To qualify, a borrower must establish that he or she has a bank account and provide a post-dated cheque or pre-authorized debit. The borrower must also establish an income source.
Bill C-26 appropriately captures this common understanding of payday lending. It would define a payday loan as:
an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security or property and not through a margin loan, pawnbroking, a line of credit or a credit card.
This definition is important, as it clearly sets out the particular type of lending arrangement that will constitute a payday loan.
Our policy objective behind the proposed amendments is targeted. We want to be able to ensure that provinces and territories are able to regulate the practice of payday lending that occurs in their jurisdictions.
We also want to ensure that only those arrangements which are truly payday loans are captured. This is so because the policy considerations in relationship to other forms of credit are quite different. I believe the definition found in Bill C-26 accurately captures the practice of payday lending.
In addition, Bill C-26 would specify that only certain types of payday loans would be eligible for exemption from section 347 of the Criminal Code. Notably, the loan would not exceed $1,500 and its term would not exceed 62 days. These limits correspond with the upper limits of payday lending described above.
Bill C-26 is not proposing regulation per se, nor is it proposing to set a national limit on the amount of interest that can be charged for payday loans. Rather, in creating an exemption from section 347 of the Criminal Code, Bill C-26 is responding to provincial concerns over the need to remove impediments to the regulation of the industry. This is important because the payday lending industry is most appropriately regulated at the provincial and the territorial level.
The ultimate goal of the proposed change is effective regulation. This can best be achieved by providing the provinces and territories with the flexibility they require to be able to set limits on the cost of borrowing. This approach ensures that the regulation is done in a manner which best reflects the local realities of the jurisdiction. At the same time, it recognizes that should a province or territory choose not to legislate for the purpose of regulating the payday lending industry, section 347 will continue to apply.
If a province or territory has made the determination that it will seek an exemption from section 347 of the Criminal Code for payday lenders operating within its jurisdiction, it will need to obtain a designation from the federal government. In order to succeed, it will need to establish that it has legislative measures in place which afford protection to those who seek payday loans. Those consumer protection measures will be left almost entirely up to the province or territory.
This approach is justifiable, as it recognizes the individual realities of each jurisdiction, including, for example, the practices of the industry in that province, as well as already existing consumer protection legislation enacted under the provincial constitutional authority over property and civil rights.
Bill C-26 would, however, require that as part of its legislation the province or territory must include a limit on the total cost of borrowing. In my opinion, this addresses three fundamentally important considerations: first, it recognizes that the provinces and territories can control the cost of borrowing in their jurisdiction; second, it guarantees that there will be a clearly defined cap on the cost of borrowing; and finally, as has been noted before, it provides a flexible solution to the individual circumstances of each province and territory.
The assessment of whether to issue a designation to a province or territory will be made by the governor in council. The province would write to the federal Minister of Justice detailing the cost control measures set out in the legislative scheme. The Minister of Justice would then, on the recommendation of the federal Minister of Industry, ask the governor in council to grant the designation.
Upon the governor in council doing so, the province would then be eligible to exempt, via licence or other legislative means, a payday lender in its jurisdiction from the application of section 347.
In short, I believe that Bill C-26 is an extremely important bill. It will provide greater protection to Canadians by enabling the provinces and territories to regulate an industry that is in desperate need of regulation.
Bill C-26 sets clear limits. It defines payday loans and limits the maximum one can lend under the exemption scheme to $1,500. It requires provinces to legislate measures to govern payday lending agreements, including limits on the cost of borrowing.
Bill C-26 demonstrates this government's commitment to working collaboratively with provinces and territories on a matter of common concern. The impact of these proposed changes will make a real and significant difference to those Canadians who have come to rely on this service.
I hope that all hon. members will join with me and support the quick passage of this bill into law.