On July 7, the House of Commons FINA Committee called the Superintendent of Bankruptcy and Commissioner of the Financial Consumer Agency of Canada as witnesses to discuss their responses to the COVID-19 pandemic. Their testimonies revealed the extent to which key Federal regulators know (and don’t know) about what’s to come for Canadians during this public health and economic crisis. Following their testimonies, I sent the Chair of the Committee, Wayne Easter, the following letter sharing my perspectives and what 4 Pillars is hearing on the ground in communities right across the country.
August 21, 2020
The Honourable Wayne Easter, P.C., M.P.
Chair, Standing Committee on Finance
House of Commons
Dear Mr. Easter:
My name is Reg Rocha and I am writing to you on behalf of 4 Pillars Debt Consultants. 4 Pillars has been in the business of supporting Canadians facing insolvency for nearly 20 years and we have offices throughout Canada. Over our long history, we have assisted more than 51,000 Canadians to overcome their crushing debt loads and recover their financial health.
4 Pillars Consultants hold a deep concern for the unprecedented and difficult moment that Canadians currently find themselves in and what the financial future holds for them as a result of COVID-19. We keenly follow the government response in all aspects to the pandemic.
We observed the testimony of the Commissioner of Financial Consumer Agency of Canada (FCAC), Ms. Judith Robertson and the Superintendent of Bankruptcy (OSB), Ms. Elisabeth Lang on July 7, 2020. As these witnesses described our national preparedness to meet and recover from the economic crisis created by the pandemic, we became disconcerted that our country is not well prepared to address a potentially vast insolvency crisis that, we believe, may come in the months ahead. Specifically, our concerns fall into the following four areas:
1. LACK OF NATIONAL DEBTOR BEHAVIOUR DATA
There is little comprehensive data on Canadian debtor behaviour. The data that is collected is compiled and held by different entities and jurisdictions and not shared. The necessary capacity to accurately model potential insolvency and insolvency outcomes does not exist. This is highly problematic because it prevents developing an understanding of the various root causes of how Canadians come to carry excessive debt and how this debt becomes overwhelming. In addition, it precludes our country from designing effective interventions while also severely limiting the ability to forecast and or insulate Canada against future potential economic shocks.
2. STRUCTURAL INSUFFICIENCIES IN THE OSB AND FCAC ROLES
Currently, the OSB’s role commences when an insolvency claim is filed. Overwhelming debt is, however, an evolving circumstance, not just a point in time that begins and ends when an insolvency claim takes place.
Although the FCAC’s mandate is to promote financial literacy and a general understanding of financial products, incorporating the basic fundamentals of financial literacy into daily life alludes many Canadians.
Long before reaching the state of insolvency, Canadians have an urgent need for credible and impartial financial information and advice that is tailored to their own unique circumstance.
3. SORELY LACKING POST-INSOLVENCY SUPPORT FOR DEBTORS
After insolvency, helping debtors to acquire sustainable financial stability is critical and this is also important to our national economy. With credit being a normal part of everyday life for Canadians, access to and the responsible use of credit is vital.
Within the current debt and insolvency system, there is no defined responsibility for a comprehensive level of post-insolvency support for debtors.
Although an insolvent debtor is required to partake in two standardized counselling sessions, as mandated by the OSB to be delivered under the license of an Insolvency Trustee (LIT), a 2013 Industry Canada report titled, “Evaluation of Mandatory Counselling” stated that over 20% of all insolvency filers become insolvent again within 10.2 years. This poor result significantly reflects a systemic lack of adequate post-insolvency support that would equip debtors to implement the kinds of behaviour that underpin strong financial health.
In contrast, debtors who receive “Aftercare” services from 4 Pillars, which are individually customized post-insolvency services, are far more successful in managing their finances over the longer term and rarely experience insolvency for a second time.
4. NO LEVEL PLAYING FIELD FOR DEBTORS
The debtor marketplace is very confusing with no single entity responsible to uphold the interests of the debtor. Below are a few examples to illustrate this:
- Financial products are typically designed and operated with profit-making motivation.
- The OSB is charged with upholding the tenets of the Bankruptcy and Insolvency Act that includes a duty to maximize recoveries for the benefit of creditors.
- The LITs have an inherent conflict of interest because they are compensated by the size of the debt settlement that debtors pay to creditors.
- Independent debt consultants are not included in government regulation.
- The FCAC oversees financial institutions’ transparency but not more debt-relative issues like the credit reporting system or credit card interest rates.
- Payday credit fulfills an existing need, like no other, and is contributing to a national problem, but it is the provinces that regulate these entities.
Within this complex and challenging debt system, and despite the fact that crushing debt and insolvency are some of the most difficult circumstances a person can face in their lifetime, debtors are not on a level playing field. From a regulatory viewpoint, there is no one that stands exclusively to represent the Canadian debtor’s interests. To help overcome this issue, I have been involved in the creation of the Canadian Debtors Association (CDA); please see www.debtorsvoice.org for more information.
We appreciate that our federal government is focused on delivering the measures and supports required to help Canadians weather the emergency needs created by COVID-19. On many fronts, this pandemic has revealed serious inequities and systemic issues. Full attention to resolving these issues can help us to build back a better, more resilient Canada.
Throughout the July 7th testimony, Committee members asked for advice as to what kinds of policy or legislative changes might be considered relative to Canada’s consumer debt and insolvency challenges.
Our recommendation to the Finance Committee is that you establish a formal review of the full debtor experience – one that takes into account what happens before, during and following an insolvency filing, with an intention of addressing the systemic inequities and issues as outlined in this letter.
4 Pillars Consultants are confident in our knowledge and ability to contribute constructively to the development of concrete policy recommendations. We would welcome the opportunity to discuss our fit and willingness to participate in this formal review and we look forward to hearing from you at your earliest convenience.
Vice-Chair Hon. Pierre Poilievre
Vice-Chair M. Gabriel Ste-Marie
Mr. Michael Cooper
Mr. James Cumming
Ms. Julie Dzerowicz
Mr. Peter Fragiskatos
Mr. Sean Fraser
Mr. Peter Julian
Ms. Annie Koutrakis
Mr. Michael V. McLeod
Mr. Marty Morantz
Ms. Elisabeth Lang, Superintendent of Bankruptcy
Ms. Judith Robertson, Commissioner, Financial Consumer Agency of Canada
Ms. Henrietta Ross, President & CEO, Canadian Debtors Association
Hon. Herb Breau, Board of Directors, Canadian Debtors Association
Mr. Frank O’Dea, Board of Directors, Canadian Debtors Association
Mr. Adam Smith, Board of Directors, Canadian Debtors Association