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4 Pillars urges House of Commons Finance Committee

By Reg Rocha

4 Pillars urges House of Commons Finance Committee to review Canada’s insolvency legislation: Be more debtor-centered.

Reg Rocha

December 4, 2020

I have written on many occasions about the rising levels of household debt in Canada. As a nation, we hold one of the highest consumer debt levels in the G20. Just prior to the pandemic, it had been widely reported that a third of Canadians were about two pay cheques away from being unable to pay their bills. You might think that someone in the business of insolvency would see this as a potential boon for business. I don’t. And I can speak for my 4 Pillars colleagues across the country when I say we see first-hand the devastating consequences of crushing debt. The people who come through our doors every day are overwhelmed, ashamed and without hope. We feel for our clients. We do our very best to help. And based on my more than 20 years’ experience in supporting consumer debtors facing insolvency, we think things need to change. Fast.

Yesterday, we brought that message to parliamentarians who sit as members of the House Finance Committee, or FINA, as it is known.

For a couple of years now we’ve been speaking with the Office of the Superintendent of Bankruptcy and members of FINA about some of the shortcomings in our insolvency system, as governed by the Bankruptcy and Insolvency Act. The foundational principal of this legislation is to provide honest Canadian debtors with the right to a “fresh start” – the right to deal with and move beyond overwhelming debt. What we see, however, is that the legislation and the system that supports it, have some significant problems that make that “fresh start” far from certain.

Given that the recovery of our national economy will require Canadians to achieve sustainable solid financial footing, we have urged FINA to undertake a thorough review of the BIA from the viewpoint of debtors. More to the point, we believe that a review needs to be undertaken by the Committee itself as representatives of their constituents. In our testimony yesterday, we raised these issues as areas Committee members need to examine closely:

● At present, our insolvency system unduly favours creditors. For example, banks have considerable resources to be able to access legal and financial advice on how to pursue claims against debtors. In our credit driven society – debtors are “the little guy”, but unlike Canada’s judicial system, there is presently no entity assigned to be a sole advocate for the debtor.

● Based on our experience, debtors benefit from ethical and informed debt consultants who work exclusively for them, helping them to understand their options in order to make the best decisions for them and their unique circumstances. As it stands now, the average Canadian has very little access to informed advice that is free of conflicts of interest. With no slight intended toward LITs, who are merely administering what is prescribed by insolvency law, the insolvency process treats debtors as though they are to be punished rather than supported. This seems to be holdover from the days when insolvency was literally considered a crime. The two mandatory debt counseling sessions now required by the legislation do not appear to be terribly effective either, based on the growing number of second insolvency filings.

● Lastly, we are advocating for more thoughtful and responsible use of consumer debtor data. On the one hand, we have very little comprehensive data on debtor behavior. What we do have is held by different entities and jurisdictions. As a country, this leaves us unable to design effective policy or insulate Canada against the kinds of economic shocks we are now experiencing. On the other side of the data “coin”, entities like credit rating services use consumer debtor data with little oversight, and the use of these services is pretty much a determinant of how well and how quickly the debtor recovers from insolvency. The debtors themselves have no say in how that data is used, how it is updated, or who to turn to when it is incorrect.

4 Pillars has been following these issues closely. The policy debate thus far has focused on whether bankruptcy law is too stringent or not stringent enough, or whether interest rates are promoting irresponsible use of credit. 4 Pillars believes the debate must shift toward a more debtor-focused approach. Should the sky-high debt loads we are seeing today become tomorrow’s insolvency crisis, putting debtors at the center of the solution is the only way forward.

To access a copy of my remarks, please follow this FINA Speaking Notes for Mr Rocha

If you are fortunate enough not to be in financial difficulty during the COVID-19 crisis, I can guarantee you that someone you care about is in trouble, whether they have told you so or not. We believe that a person deserves to get their fresh start in a system that respects and supports their right recover from their financial troubles. We would therefore appreciate if you could contact your elected representatives to let them know you support changes to the insolvency system that will it more debtor centered.

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