Presentation to The Standing Committee on Social and Economic Development Manitoba
Bill 25 -- Consumer Protection Amendment Act (Payday Loans)
June 8, 2006
Introduction
Good morning. My name is Michael Thompson. I am president of the Canadian Payday Loan Association.
Thank you for the invitation to appear before you today.
This morning I would like to talk about three things.
- The association’s mandate
- Recommendations to strengthen Bill 25
- The requirement that federal government amend s. 347 of the Criminal Code
By way of introduction, I would like to commend the Government of Manitoba for its leadership.
Bill 25 represents the first really meaningful effort by a Canadian government to bring forward industry regulation.
Bill 25 represents the first public request from a province to the federal government to change the Criminal Code so that all provinces can fully regulate the payday loan industry.
The payday loan sector is one of the few segments of the financial services industry in Canada without some form of specific regulation. Both industry and consumers have a right to demand new rules.
The Province of Manitoba has responded to this demand and has clearly set a precedent that other jurisdictions feel comfortable with following.
Notwithstanding any technical shortcomings with Bill 25, the Government of Manitoba should be commended for its leadership in bringing the Bill forward.
The CPLA is generally supportive of this legislation. Although we do have some concerns which I will address momentarily.
The CPLA Mandate
The CPLA represents the majority of payday lenders in Canada – roughly 850 out of the 1,350 retail outlets in the country.
Our mandate is to work with government to achieve balanced regulation that will allow for a viable industry and protect consumers.
Atypically for an association, we are calling for regulation – not fighting it.
And, in the absence of regulation we have also taken meaningful steps to protect consumers.
We have introduced a voluntary and strict Code of Best Business Practices.
As a condition of membership, members agree to abide by the spirit and provisions of this Code.
Further, members also agree to have their activities regularly monitored by an Independent Ethics and Integrity Commissioner. Members have agreed to pay steep penalties should the Commissioner find that they are in non-compliance with the Code.
The Code addresses consumer issues specific to the industry.
For example, it includes a prohibition on rollovers. A rollover is an extension of an existing loan for a fee. Rollovers are highly controversial because they rapidly drive up the overall cost of credit, and they are risky for consumers who are in truly vulnerable financial situations.
The Code’s ban on rollovers is one of the most restrictive industry imposed control measures in place for the industry in the world.
Our Code also includes rules for fair collection practices, default charges, protection of privacy and disclosure of borrowing costs.
There are presently 67 retail payday outlets operating in Manitoba, 26% of which are NOT CPLA members.
I must specify that there is nothing that the CPLA can do to protect consumers who choose to use these non-member outlets.
In many cases non-member companies do grant rollovers and engage in sub-standard business practices.
Clearly government action is required to protect consumers from the bad apples in the industry.
Bill 25 will do a lot to achieve these objectives.
Recommendations on how to strengthen Bill 25
The CPLA has already submitted proposed technical amendments to the government, a copy of which has been provided to committee members. Due to time constraints, I will only make general comments.
Clearly the purpose of any regulation should be to strike an appropriate balance between consumers’ and industry needs.
This balance will be achieved if – after regulation – the industry becomes more competitive, as measured by the entry and exit of operators, product and service enhancements, price fluctuations, and a consistent or growing demand by consumers for the product.
If legislation does not have as a guiding principle the achievement of a competitive industry, the rules will inevitably lead to market distortions which by their very nature run counter to the general interest.
We are pleased to note that the government has recognized the high demand for payday loans and that federal interest rate rules currently in place are inappropriate.
Sadly, just about every government in this country has recognized this to be the case, but only Manitoba has shown the leadership required to achieve changes in the federal law.
By implication, the Manitoba government has indicated that the industry must be permitted to operate viably.
Notwithstanding, we have encouraged the government in some areas of Bill 25 to include language that clearly indicates that the principle objective of the legislation is to establish a viable and competitive industry.
This is of particular importance in respect of the mandate extended to the Public Utilities Board, as the PUB has traditionally been charged with regulating monopolies – not competing financial services companies.
We have also expressed concerns regarding levels of discretion extended to the Director.
In several areas the legislation provides a level of discretion to the Director which in the opinion of the CPLA is too broad.
This broad discretion could open the way for unnecessary interference in the business of payday lenders and, potentially, an unequal treatment by the Director of each lender.
Unevenly applied regulation can lead to market distortions, which is not good for consumers.
The need for federal action to support Bill 25
Since Manitoba introduced Bill 25, four other provinces have called on the federal government to grant them the authority to determine an appropriate rate structure for payday loans.
We are in an era of asymmetrical federalism. And the central government should therefore respond to these requests.
There are some who believe that more study is required before governments can regulate, that somehow more dialogue between the provinces and the federal government will lead to a single solution.
One need only point out, as did the Senate Banking Committee earlier this week that in 40 years the federal government and the provinces have failed to implement a single solution to securities regulation. Agreement is not possible.
We need not have a repeat experience in respect of payday loans. There is a solution ready to go. The federal Minister of Justice need only pull it off the shelf and table it in Parliament.
Study of how best to regulate payday lending has been ongoing for six years.
The time for study is over.
In the fall of 2005 the Minister of Justice rightly concluded that the most practicable means of achieving regulation would be to amend s. 347 of the Criminal Code so that provinces that wanted to regulate could go ahead.
He clearly recognized that a harmonized approach would not be agreed to any time soon.
On the Minister’s instruction, and with the approval of Cabinet, the amendments were drafted, but never tabled in Parliament because of an unexpected election caused by a minority government situation.
The bottom line is that the federal amendments are ready to go. The policy work has been done, consultations are complete.
Introduction of the amendments is now a matter of process rather than one of debate.
The federal government should not allow its minority status to prevent the legislation from coming forward again. Consumers deserve better, as does the industry.
In conclusion, I encourage the Committee -- pending adoption of our technical amendments -- to support Bill 25.
More importantly, I encourage the Province to continue its push for changes to s. 347 of the Criminal Code.
It is clear, that consumers across Canada will benefit from your success in this regard.
Thank you.