February 3, 2005.
Opening Remarks
Senate Standing Committee on Banking, Trade and Commerce
Bill S-19, An Act to amend the Criminal Code (criminal interest rate)
By
The Canadian Association of Community Financial Services Providers
R.A. (Bob) Whitelaw, President and CEO Norman J.K. Bishop, Board Secretary
Honourable Chairman, Honourable Senators, ladies and gentlemen, thank you very much for providing the Canadian Association of Community Financial Service Providers, or CACFS, with an opportunity to comment on Bill S-19 in the context of the work of our association.
My name is Bob Whitelaw and I am the President and CEO of the Association. With me at the table is Norm Bishop, the Board Secretary.
We have also invited Peter Tzanetakis, who is associated with Ernst & Young LLP and contributed to a just completed study of the costs of payday loans, and Dr. Patricia Cirillo from Cypress Research Group. Dr. Cirillo has extensive experience with conducting surveys of customers of payday loans in the U.S. and is currently advising our Association on a survey that will shortly be done in Canada. They are available to answer questions as well.
The CACFS is a newly founded Association representing almost 50 companies in approximately 750 locations that provide small-sum unsecured short-term credit to Canadians. Our membership represents approximately 75% of all payday retail stores operating in Canada. We do not represent internet payday lenders.
We serve approximately one million Canadians per year. Contrary to the general perception, our customers are ordinary Canadians. Our customers have an average household income of $51,400 per year, and only a small percentage of our customers would be classified as “low-income”. Almost all our customers have a high-school education, and many have completed college or have a university degree.
In fact, the demographic of our customers is very similar to that of typical Canadians as a whole.
We provide these Canadians with small-sum, short-term credit. The loans are unsecured – we do not require the title to cars, TV’s, or homes to provide credit.
You can see our members’ stores at Bank and Laurier, Yonge at Bloor, at the entrance to the MacDonald Bridge leading from Dartmouth to Halifax; Blanchard Street in Victoria, opposite the Ministry of Revenue offices, as well as new suburbs in our communities from coast to coast. This is where our customers, ordinary Canadians, work and live.
The average loan requested by our customers is $279 and the average term for that loan is 10 days. Our customers also use other services provided by our members, including money transfers to friends and relatives, cheque cashing, and foreign money exchange.
We are in this payday loan business because there is an established need for such loans. Larger financial institutions do not offer these loans.
Without our industry, the only alternatives for some Canadians needing such loans would be pawnshops, internet lenders and title loans. All these options cost more and subject Canadians to lending practices that most of us would rather avoid.
Like any industry, we have seen a few bad apples. I can assure you that this minority does not reflect the best business practices that all of our members represent.
That is why our members joined together to form the Canadian Association of Community Financial Service Providers. The formation of our Association was supported by the Federal, Provincial, and Territorial governments.
Even as a very young industry association, we are actively engaged with governments, particularly the Consumer Measures Committee (CMC), in a broad process to review practices in the industry, and to make recommendations to provinces and territories about setting up a regulatory arrangement that will improve customer protection.
One of the CACFS’s first initiatives was to establish a Code of Best Business Practices with which our members must comply. And, we are actively engaged in reviewing other actions to improve customer protection. The most significant component of the Code is the prohibition of “rollovers”, which is the practice of allowing customers to extend their loans for additional fees and additional interests. This ban on rollovers came into effect on January 1 of this year, and will go a long way towards encouraging responsible borrowing. I should also point out that some of the largest companies in our association have never allowed rollovers.
Like any industry, there are critics who feed misconceptions about what we do, why we do it and who our customers are. We have been the subject of sometimes-misleading comments by critics who have not researched the facts.
The law needs to address the reality of the cost to providing small short-term loans. This is very different from banks that grant loans of much larger amounts for a year or more.
A recent study by the respected firm of Ernst & Young LLP found that it costs us approximately $44 just to provide the average loan of $279 for 10 days. Our customers are made aware of our fees when they apply for their loan and receive a copy of every document they sign. Surveys of customers have indicated that not only did they believe our fees were reasonable, but upwards of 90% said they were satisfied with their experience in getting the loan.
I thought it was important to dispel the many myths concerning the payday loan industry before offering the Association’s specific comments on Bill S-19, which I will do in my final comments.
In short, we agree with Senator Plamondon that section 347 must be amended. When that particular section was first put in place, our industry did not exist. The need for small, short-term unsecured loans is, however, clearly here today.
Section 347 must be amended to reflect the reality of our industry and the millions of Canadians who have used our services since we first arrived on the scene. There is a variety of ways to both recognize the realities of this industry and ensure consumer protection at the same time. This has been accomplished in other jurisdictions around the world.
For example, more than 35 U.S. States have put in place legislative and regulatory regimes that permit companies to offer payday loans and charge the fees needed to recover their costs. Several European countries do the same.
Again, I thank you for the invitation to appear, and we would be pleased to respond to any questions that you may have.