Mr. Speaker, it is my pleasure to rise today to speak in support of a significant piece of legislation, Bill C-26, An Act to amend the Criminal Code (criminal interest rate), introduced on October 6 by my colleague, the Minister of Justice.
This bill amends the Criminal Code to allow for the regulation of the payday lending industry by the provinces and territories. This is a major change which is well received. For years, the payday lending industry was able to operate unnoticed in Canada.
This bill will subject this prosperous sector to regulation and offer greater protection to millions of Canadians and their families who have come to depend on this kind of service. According to the leading industry lobby, namely the Canadian Payday Loan Association, this sector services nearly two million Canadians a year. This is a pretty large number, hence the importance of ensuring that Canadians are well protected against harmful practices in that industry.
The passing of Bill C-26 would first amend the Criminal Code by adding a new provision, namely subsection 347.1, which would exempt payday lenders from the provisions on criminal interest rates where provincial and territorial legislative measures protect consumers in this regard. It would then add a definition of “payday loan”. Finally it would require the provinces to set a limit on the total cost of this type of loan in their legislative measures.
Before examining the content of these amendments, I shall provide a few clarifications on two points. First some background on the payday loan industry in Canada, including its effects on communities across the country, and, second, its debatable practices, which motivated us to take action and propose the amendments before us today.
When they know more about this industry, I am convinced that all the members will agree that the measures put forward in Bill C-26 are pragmatic, balanced and necessary.
The payday loan industry is relatively new in Canada. These convenient establishments with catchy names began to appear here about 1994. The industry began in the West, but today it has spread throughout Canada. In fact there are about 1,350 of these establishments in all Canadian provinces and cities, except in Quebec, and they continue to increase in number. Some 2 million Canadians use these services, borrowing close to $1.7 billion a year. This is an astounding amount when we know that all this activity takes place in an market that is basically unregulated.
These figures show that the payday loan industry meets a real demand by Canadians. According to some, this industry has no place in Canada. On the other hand, it obviously plays an important role in the lives of many Canadians. There are several reasons to explain why our fellow citizens turn to the services of a payday lender. Convenience is one of them, since many of these businesses stay open late and on weekends. Also, some people think that the popularity of this sector may be attributed to the fact that the country’s large financial institutions have closed their smaller branches, leaving a void among services providing quick and easy withdrawal of funds in many communities. There is also the fact that this service is relatively anonymous and emergencies can occur, with immediate financial consequences.
In any case, this industry seems to have its place in our communities. So it is important that we provide adequate protection from certain abusive commercial practices to the Canadians who use payday loan services, especially the most vulnerable people in our society.
The government takes its responsibility for improving the lives of Canadians and their families very seriously and is taking a number of important measures to do just that. Whether it be by strengthening the Criminal Code to make our streets and communities safer or by reducing taxes for our fellow citizens, we are committed to taking effective action such as what we are proposing in Bill C-26.
We will continue to do this to ensure that Canadians have the best possible quality of life.
The measures proposed in Bill C-26 are a careful and effective way of improving consumer protection and meeting the need that has been expressed by various people, including the provinces and territories, for effective regulation of this industry. There are three good reasons for doing this.
Payday loans are very expensive. In some cases, the annual cost of a loan from a payday lender can be very high, because of the interest, which is charged at a rate that is sometimes several thousand or more. It also seems that the contract clauses are not clearly disclosed by these lenders.
Aggressive collection methods also create problems, as does the speed with which the amount of these debts can grow out of control when they are renewed. In some cases, payday lenders even penalize a borrower who pays the loan before the due date, by charging fees.
For all these reasons, it should be very clear to all members that there is strong justification for taking action. The changes proposed in Bill C-26 will ensure that the practices of this industry are effectively regulated.
When we looked for the most appropriate way of dealing with this pressing public policy issue, we also worked very closely with our colleagues in the provinces and territories. We gradually realized that section 347 of the Criminal Code was going to be the linchpin of the new rules.
Under section 347, everyone who enters into an agreement or arrangement to receive interest at an annual rate that exceeds 60%, which is a criminal rate of interest, is guilty of an offence.
People who are convicted of that offence are liable to imprisonment for up to five years.
When section 347 of the Criminal Code was first enacted, its purpose was not to protect consumers. Rather, its aim was to give the police another weapon for fighting organized crime, and more specifically loan-sharking. Whatever the intent of Parliament was at that time, this section applies to loan agreements entered into in Canada, including payday loans.
I would note, however, that the government does not believe that section 347 of the Criminal Code is the most appropriate and effective instrument for protecting consumers from the unethical and unscrupulous practices that have been observed in some segments of the payday loan industry.
We are not the only ones who think that way. Many administrations and several groups in civil society have told us that section 347 is not suited to consumer protection. What is more, these same administrations have told us that the application of section 347 to payday loans presented an obstacle to the adoption of effective provincial regulations. As a consequence, the proposed amendments respond to the needs of the provinces and territories, who are the best placed to provide the required protection to consumers by exempting cases where provinces choose to intervene from the application of section 347.
However, section 347 continues to apply in those cases where the provinces do not intervene. We consider this to be an appropriate solution that enables the provinces and territories that are prepared to regulate the industry to do so.
I would also like to point out that Bill C-26 will not apply to financial institutions that are regulated by the federal government, such as banks. Under the Constitution of Canada, banks fall under federal jurisdiction and their operation is subject to a number of federal laws.
By and large, the proposed amendments would exempt payday lenders from the application of section 347 of the Criminal Code in very specific and well defined cases. That exemption would be provided under a new section, section 347.1 of the Criminal Code.
According to a study, the amount generally loaned in the case of a payday loan is never very high—less than $300—and the duration of the loan is generally short—about 10 days. To be eligible, the borrower must prove that he or she has a bank account and provide a post-dated cheque or pre-authorized debit. The borrower must also provide proof of a source of income.
Bill C-26 describes a payday loan as follows:
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 on property and not through a margin loan, pawnbroking, a line of credit or a credit card
This definition is important because it clearly describes the kind of agreement behind payday loans. The proposed changes have a very specific purpose. We want to ensure that provinces and territories are able to regulate payday loans in their jurisdictions. We also want to ensure that only payday loan agreements are covered. We are doing this because the public policy issues raised by other kinds of credit are very different. I think that the definition provided in Bill C-26 describes payday loans very well.
Bill C-26 also specifies that only certain types of payday loans will be exempted from the application of section 347 of the Criminal Code. The loan cannot be for more than $1,500 and for any longer than 62 days. These limits reflect the maximum limits on payday loans described earlier.
The bill does not propose any regulations per se, not does it set a national limit on payday loan interest rates. What it does instead, in creating an exemption to the application of section 347, is to meet the needs of the provinces, who want to see the obstacles to the regulation of this industry removed. This is important because it is the provinces and territories that are best placed to regulate the payday loan industry.
The ultimate purpose of the proposed changes is the effective regulation of the industry. The best way to achieve this goal is to give the provinces and territories the flexibility they need to set limits on the cost of loans. Thanks to this approach, the regulations that are adopted will be well suited to the specific situations facing the different provinces and territories.
This bill also provides that section 347 will continue to apply in those provinces and territories that elect not to pass legislation governing the payday loan industry.
If a province or territory has made the decision that payday lenders operating within that province or territory are to be exempt from the application of section 347 of the Criminal Code, it will have to apply to be designated for that purpose by the federal government. In order to be exempted, it will have to show that it has adopted legislative measures that protect anyone who wants to take out a payday loan. What those consumer protection measures are will be left virtually entirely to the discretion of the provinces and territories.
This is a valid approach in that it recognizes the nature of the situation in each jurisdiction, including, specifically, the way that the industry operates there, and also the existing provincial consumer protection legislation adopted under the powers assigned to the provinces by the Constitution in relation to property and civil rights.
Bill C-26 requires, however, that the province provide for limits on the total cost of payday loans in its legislative measures. I believe that this approach reflects three fundamental factors.
First, the provinces and territories are capable of controlling the cost of loans within their jurisdictions. Second, this guarantees that there will be a limit on the cost of borrowing. And third, as we saw earlier, it offers a flexible solution that can be adapted to the characteristics of each province and territory.
The Governor in Council will make the necessary assessment before granting a province or territory the designation applied for. The province will apply to the federal Minister of Justice, stating the legislative measures it has taken to control the cost of loans. Then, on the recommendation of the federal Minister of Industry, the Minister of Justice will ask the Governor in Council to grant the designation applied for. The province will then be given the power to exempt a payday lender, by licence or otherwise, from the application of section 347.
All in all, I believe that Bill C-26 is very important. It offers Canadians greater protection by allowing the provinces and territories to regulate an industry that is in great need of oversight. It sets very clear limits. It defines payday loans and sets a limit of $1,500 for loans that may be made under these rules. It invites the provinces to adopt legislative measures to regulate payday loan agreements, and in particular the total cost of the loans.
Bill C-26 is further proof of the government’s commitment to working with the provinces and territories on matters of common interest. The amendments proposed will have an important and real effect on the Canadians who have come to depend on this service. I hope that all members will join me in ensuring the speedy passage of this bill.
