519-646-2222Regulate the Banks – startling statistics
The case for the government to regulate the banks seems clear – Quebec provided the data and it appears irrefutable. In 2019, the government of Quebec introduced new consumer protection legislation that has had an unequivocal impact on the rate of insolvency filings. Prior to the introduction of the legislation Quebec had a larger share of Canadian insolvency filings than Ontario – and after adjusting for the population differences, it was even worse.
In 2019 legislation was introduced forcing credit card issuers to immediately, on new cards, and through a phased in step-up programme on existing cards, increase the minimum monthly payment requirements on all credit cards to 5% of the outstanding balance. The impact has been astounding, the reliance on credit cards to cover shortfalls n wages has steadily fallen and so have the consumer insolvency filing rates in the Province. In fact since 2016 Quebec’s insolvency filing rate has fallen by a total of 28%.
The Bank of Canada has an interesting analysis on this issue and you can read it here: It is abundantly clear that banking legislation can be used as a tool to reduce Canadian consumers’ reliance on debt, it should also be very intuitively clear that banking rules, created by the industry, to regulate the industry will be designed to benefit the industry and not the consumer. The way that banking rules have evolved is to utilize creative accounting tricks to create the impression of an asset base that can be leveraged in order to create more lending.
To understand how banks are able to lend against outstanding loans one should examine the idea of Fractional Reserve Banking and look at how Modern Monetary Theory works to be able to better understand how classroom economics theories have consistently disappointed ordinary everyday folk.
It may sound strange for an LIT to be advocating for less debt, after all we make a living from helping people negotiate debt issues, but less debt generally results in more prosperity and who would not want to live in a more prosperous society? Interestingly while Quebec’s share of the Canadian insolvency scene has been in decline, Ontario’s portion has been growing. A purview of the Data from the Superintendent of Bankruptcy’s website reveals that Canadian insolvencies remain soft and have still not normalized since the commencement of the lockdowns in 2020.
Insolvency filing plummeted from 137,178 (across Canada) in 2019 to 90,092 in 2021 and only recovered to 123,233 in 2023. During the same time period Canada has had a massive influx of newcomers, who are regularly targeted by (all) the banks for credit cards, lines of credit and other forms of credit. estimates of newcomers, including foreign students on temporary visas, landed immigrants and new citizens, legally and illegally entering the country suggest somewhere between 3-5 million new people. When the country’s population is adjusted for growth it is clear that insolvency filings are much less than expected.
Stagnant wages, increasing levels of debt, and unfettered inflationary numbers (when we include costs that are not usually reported in inflation statistics) all suggest that unless the issue of excessive borrowing is addressed at the source we are building a bottleneck of future insolvents. Instead of chasing the horse after it has bolted, we should be ensuring the barn door is closed.