The Hill Times: ‘No brainer’: consultations should not delay federal crack down on high-interest loans, say NDP MP, ISG Senator

Independent Senator Pierrette Ringuette says she worries Finance Canada’s consultations won’t be accessible to the vulnerable people most affected by predatory lending and the results will be biased towards the industry.

A New Democrat MP and Independent Senator say the government should look at their respective bills to tackle predatory lending, but worry consultations launched on the subject will produce results biased toward a “huge lobbyist network” pushing off a problem that has saddled low-income people with harmfully high interest rates.

“I hope this issue will be resolved within the next six months. It has been neglected for far too long to the detriment of our most vulnerable,” said Independent Senator Pierrette Ringuette (New Brunswick), who has tabled versions of her bill four times, with three stopped in their tracks by an election.

It’s against the law to charge interest at a rate of more than 60 per cent annually—known as the criminal interest rate—on most lending products in Canada, like instalment loans or lines of credit. That’s still far too high, said Ringuette, and it’s frustrating to see the “dire situation” persist and her bills die on the Order Paper as some Canadians struggle under the weight of debt from extreme rates and fees they cannot hope to pay back.

“What does it take? An earthquake?” she asked.

Ringuette’s Bill S-239 would set the interest rate limit at 20 per cent above the Bank of Canada rate, which is currently 2.5 per cent. The approach would leave most normal transactions alone, and is still above the vast majority of credit cards, mortgage rates, and standard loans, Ringuette explained in a March speech in the Red Chamber, and instead targets the “excessive outliers” like late charges from phone and cable companies.

“The financial situation of the vulnerable has gotten worse and worse and worse with the pandemic, plus inflation,” she told The Hill Times.” And listen, we don’t know what lies ahead, so this issue needs to be tackled. It requires no financial contribution from the Government of Canada. It’s a win-win for everyone.”

On Aug. 9, Finance Canada launched a consultation, which closes Oct. 7, on “fighting predatory lending,” asking for comments on a number of areas: whether the criminal interest rate should be fixed or linked to market conditions; the reasons people turn to high-cost instalment loans; the impact of lowering the rate; and how the government can improve Canadians’ financial knowledge so they to “empower and protect” them to make informed decisions.

NDP MP Peter Julian (New Westminster–Burnaby, B.C.), too, has also long been fighting against what he calls “legalized loan sharking,” and in December 2021 introduced a private member’s bill, C-213, to amend the Criminal Code to lower the maximum legal interest rate from 60 per cent to 30 per cent. He said the government should take over his bill and avoid further delays.

His bill also aims to “close the loophole” on short-term payday loan agreements, which are governed differently by provinces but are not mentioned in Finance Canada consultations. These loans can escalate up to 600 per cent, said Julian, as was the case for a constituent who he said paid $13,000 in interest charges on a $700 emergency loan that she still owes.

“She struggled to put food on the table and keep a roof over her head,” he said, and government action on this issue is a “no-brainer” when families are being “ripped apart” by the loans.

“It’s a crisis when people are losing their homes because they can’t afford the thousands of dollars of interest that come from a small loan of a few hundred dollars. We’re seeing across the country food bank lineups getting longer and longer. The government has a responsibility to act and for them to delay is reprehensible, given the impacts on low-income Canadians.”

Budget 2021 promised the consultations on the criminal interest rate, and after the 2021 election, Finance Minister Chrystia Freeland’s (University-Rosedale, Ont.) mandate letter tasked her with cracking down on predatory lenders by lowering the criminal rate of interest. Ringuette said she saw the inclusion for the first time as a good sign, “meaning that they really want to move forward on this issue,” and she’s been trying since May to get an audience with Freeland. She said she hopes they meet in September, and that Finance Canada will pay attention to testimony before the Senate Banking, Commerce, and the Economy Committee in the fall, when she expects the group to study her bill.

The Canadian Consumer Finance Association (CCFA) said in an emailed statement it plans to participate in the consultation, noting it’s important “no outcomes result in loss of access to credit for Canadians.” The association, which represents businesses that provide retail consumer financial services including payday loans, instalment loans, and lines of credit to Canadians, said it will inform the government about the industry and who uses their services

Instalment loans are expensive to provide and often high risk, CCFA said.

“Instalment loans are longer-term loans that provide an important source of credit for many Canadians who cannot access either short-term or long-term credit from banks, credit unions, and trust companies,” CCFA said. “The credit score of the borrower is an important factor in determining the interest rate charged on an instalment loan and in fact many applicants do not qualify for a loan because of their credit profile.”

Finance Canada spokesperson Caroline Thériault said the department is encouraging interested Canadians to give feedback and details about the next steps will be available in due course.

“Too many lower- and modest-income Canadians are forced to rely on high-interest, short-term loans to make ends meet, leaving them in a cycle of debt. The government is committed to cracking down on predatory lenders by lowering the criminal rate of interest,” Thériault said by email.

Ringuette, Julian fear consultation results ‘will be biased’

Ringuette said she was concerned the consultations won’t be accessible to the most vulnerable who are affected by the high-interest loan sector, given they may have limited access to the internet, computers, or may be unaware these consultations are ongoing.

“I know that predatory lenders have a huge lobbyist network and they will be strongly voicing against any kind of measure to curtail their predatory loans,” she said, adding she worries the combination of the two factors will not give “a clear indication of what is going on in the field.”

“My concern is the results of consultation in regards to numbers, and so forth, it will be biased for the predatory lenders.”

Julian said he, too, shared this concern.

“The lobbyists have the wherewithal and the resources and this government has a very poor track record when it comes to consultation,” said Julian, who noted he thinks the high rate remains in place because “the government listens to lobbyists” and the message from the industry is that they are providing an opportunity for people who are cash-strapped and in need.

“That’s rubbish. What they’re doing is they are taking advantage of low-income Canadians.”

High-interest loans on the rise amid COVID: study

The pandemic exacerbated the problem, with payday and instalment loans on the rise, according to a March 2022 study by ACORN (Association of Community Organizations for Reform Now) Canada.

About one-quarter of ACORN members who responded to the online survey said they had to take high-cost loans 10 or more times since the pandemic started, and 113 of the 440 respondents said they took out a loan due to COVID-19, said Bader Abu-Zahra, chair of the Vanier chapter of the national advocacy organization in Ottawa.

They found 83 per cent of the respondents said they had taken out predatory loans to cover basic expenses, and more than half said they first tried a bank or credit union but were denied.

“So many of our members are forced to rely on predatory lenders, because banks are denying them access to fair credit and other services,” he said.

Abu-Zahra called Finance Canada’s consultation a start, and perhaps necessary for the government to be able to point to that outreach if it does introduce any changes. But, he said, people cannot afford more government delay.

Right away, Abu-Zahra said ACORN would like to see the criminal interest rate lowered to 30 per cent on instalment loans, including fees, fines, and penalties. And, the government should provide an affordable loan option for low- and moderate-income people so they can avoid predatory lenders in times of crisis.

“We believe this is a first step. But we need the government to address this issue urgently. Because the costs are rising, rents are skyrocketing, and people don’t have a choice,” he said. “We [would] like to see the government go ahead very fast with consultation.”

***

Article by Samantha Wright Allen for the Hill Times