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On February 1st, Credit Counselling Canada (CCC) had the opportunity to act as a witness to the Senate Committee on Banking, Trade and Commerce regarding Bill S-237. Bill S-237 is an act to amend the Criminal Code (criminal interest rate).

This enactment amends the Criminal Code to reduce the criminal rate of interest from sixty per cent to the Bank of Canada’s overnight rate plus twenty per cent on credit advanced for certain purposes, which would include personal, family and household purposes.

A full recording of the panel presentations can be viewed through the ParlVU webcasting service.

Credit Counselling Canada’s Executive Director, Patricia White presented the following:

patricia white criminal rate of interest

Good morning Mr. Black, Ms. Stewart Olsen and Senate Committee members.  Thank you for the opportunity to appear as a witness regarding Bill S-237, An Act to amend the Criminal Code (criminal interest rate).

First here is some information about Credit Counselling Canada.  Credit Counselling Canada is a national member based association of not-for-profit credit counselling agencies which provide Canadians with education and guidance on money management as well as credit and debt management strategies.

Our 17 member agencies manage over 65 offices across the country deliver professional, compassionate, and objective assistance in person, by telephone and via internet to anyone in their communities. Certified counsellors provided counselling and education to over 175,000 individuals and families last year.  In Financial Literacy Month in November 2018 our members carried out 860 events attracting 17,300 participants just in that one month but we are busy year round. Last year over $103 Million was paid through debt repayment programs when enable clients to pay back the balance of their outstanding debt to creditors.

The current Canadian lending landscape has becoming increasingly complex and obscure to the general public. CCC members strive to create clarity for Canadian consumers to enable them to better understand their options for improving their personal financial situation.

As you deliberate Bill S-237 I thought it would be important for you to understand what is actually happening with Canadian consumers with an actual example.

Anna lives in British Columbia.  She is 66 years old, widowed and a pensioner.  She accumulated debts due to lack of budgeting skills.  She was a single mother raising her daughter, worked 2-3 jobs her whole life just to get by and is still working at 66 in order to pay off her debts.  Anna struggled with debt for most of her life and never had the support to improve her financial literacy.  She declared bankruptcy in 2005. After her bankruptcy she was denied affordable lending by chartered banks and had to go to high interest lenders to assist her with unexpected expenses and deficits when her income didn’t cover monthly expenses.  When she came to one of our members she owed money to three installment loan companies (interest rate in excess of 30%) and 2 payday loan companies.  Anna has recently decided to pay her debts though a four year repayment plan with credit counselling.  She plans to retire when she is debt free at 71. She sought help through credit counselling to break the high interest rate cycle and was also provided with regular and ongoing support from her credit counsellor to ensure ongoing success.

What we have seen over time is an increasing demand on what are called ‘high cost alternative financial’ or ‘small dollar credit’ products.  These loans have high interest rates with additional fees that take them over the 60% limit with little or no transparency.

What we see are vulnerable consumers who aren’t able to handle these interest rates.  The majority of these consumers are elderly, recent immigrants, single mothers, indigenous people and those who are unable to borrow from traditional financial institutions due to their ‘high risk’ status as a borrower. You will note that these borrowers are already marginalized in our society on any number of fronts for varied variety of reasons.

We can’t stress enough the importance of good financial health and well-being.  Our society values have changed in recent generations.  People are encouraged to have lines of credit to meet the pressures of modern consumerism rather than saving for emergencies.  There is no buffer when life happens.  ‘Living paycheque to paycheque’ has become the norm for many Canadian families.  This is a problem that is making everyone vulnerable to excessive debt who requires quick access to high interest credit just to make ends meet.

I know that the media has been focused on the record levels of household debt compared to disposable income. But the root cause analysis is missing. There is a fundamental lack of financial literacy among our vulnerable populations. This lack of financial literacy becomes the foundational layer in the inability of many Canadians to save and borrow, two important financial behaviours.  They are limited to a complex borrowing and lending marketplace that can prey on the lack of strong financial literacy among consumers. And so the cycle goes on unless we find a way to protect the vulnerable and stop the cycle.

We have a few recommendations to suggest for your consideration:

1.    We strongly encourage a reduction in the interest rate with consideration of the way the interest is calculated and the additional charges such as late fees that are on top of the current rate. We support that you are consulting the industry before making changes.

2.    Ensure the legislation is enforceable by an appropriate oversight body that is accessible to any Canadian who wishes to report an infraction.

3.    Mandate the collection of data on usage of high cost alternative financial products to provide information for future evaluation.

4.    Make financial education available for high risk borrowers. Vulnerable consumers need more opportunities to learn about personal finances.  It is likely most useful at a time when they can fully appreciate the risks and benefits on whether or not to purchase additional credit.

5.    Restrict the online lending environment by requiring regulation through licensing.

Thank you for your time this morning.

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