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I call this meeting to order.
Welcome to meeting 129 of the House of Commons Standing Committee on Finance. Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, January 30, 2024, the committee is commencing its study on non-prime lending and the criminal interest rate.
Today's meeting is taking place in a hybrid format, pursuant to the Standing Orders. Members are attending in person in the room and remotely using the Zoom application.
I would like to make a few comments for the benefit of witnesses and members.
Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mic. Please mute yourself when you are not speaking. For interpretation, for those on Zoom, you have the choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece and select the desired channel.
Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of the interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged and to avoid manipulating the earbuds by placing them on the table, away from the microphone, when they are not in use.
Just as a reminder, all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.
In accordance with the committee's routine motion concerning connection tests for witnesses, I am informing the committee that all witnesses have completed the required connection tests in advance of the meeting.
I would now like to welcome our witnesses. From ACORN Canada, we have Donna Borden, the national representative—welcome—and Bhumika Jhamb, the research and communications coordinator. From Prosper Canada, we have Elizabeth Mulholland, the chief executive officer.
Go ahead, Mr. Baker.
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Thanks very much, Mr. Chair.
I always enjoy the opportunity to speak to the experts. As my colleague mentioned, certain people were invited. I think we also have to recognize, notwithstanding that this winter is a little bit different from others, that it's vacation time. When we are very rigid on a date as in, you need to appear or we want you to appear on X date, and someone isn't in the country, I would submit that it would be reasonable for you as chair and the clerk to use some discretion to say that, if this is a witness we'd like to hear from, maybe we would move the date.
We programmed out the motion to be very specific that today was the day when we were having this hearing. That was set before we had any discussion with any witnesses. I can't speak to the particular details of the current situation, but if we want to have very specific requests on individuals, we may need to be a bit more flexible. I would give more flexibility to you as chair and to the clerk, to say, “This individual we really want is not available on the 27th, but they are available on this date, so can we change the motion or just have unanimous consent to move this meeting to the next meeting?”
I worry now that I don't know what the plan is for future studies on this.
Anyway let's get to the witnesses here today. I think because we were fairly rigid on the date, that prevented us from potentially hearing from witnesses we wanted to hear from. You have, at least from me, the ability to make recommendations on changing dates in the future, depending on the availability of witnesses.
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Thank you. I'm sorry about that.
ACORN is very encouraged by the federal government's decision to lower the interest rate for instalment loans from 48% to 35% APR. The evidence, through a series of surveys and testimonies of low- and moderate-income people, refutes the claims of lenders that it helps people in any way or improves their credit scores.
The latest survey by ACORN of low- and moderate-income people highlights the impact of high-cost loans to 623 community contacts. This research was funded by the federal office of consumer affairs, and the report was reviewed by distinguished professor in economics and public policy Brenda Spotton Visano.
The study shows that 80% of respondents reported stress, anxiety and depression; 72% said it resulted in even more debt; and 67% reported adverse effects on their credit score. One-third said their loans got refinanced multiple times; and the majority were highly unsatisfied with the high-cost loan.
As far as claims made by lenders that this move will impact their profit margins and the industry will cease to exist are concerned, there is enough evidence that points to the contrary. Many states in the U.S. have lowered the interest rate for a two-year, $2,000 instalment loan to 32.5% APR and to 25% APR for a five-year, $10,000 instalment loan, yet lenders continue to thrive.
Quebec is the only province in Canada that already has an interest rate cap of 35%. Goeasy, in fact, in its annual report said it will be expanding in Quebec. It also said in its annual report that the new federal interest rate will benefit Goeasy and those with scale in the long term, and it is well prepared to adapt if this federal interest rate is lowered.
Research in Alberta by El Hazzouri et al. on payday lending shows that a lower allowable interest rate did not result in decreased access to credit, nor did it result in more, riskier borrowing. Payday loans in most provinces had a fee of $21 per $100, which now stands at $15 per $100, but payday lending continues to thrive. Decreased access to high-cost credit results in much better alternatives, not riskier alternatives as the industry suggests.
The U.S.A.'s National Consumer Law Center's extensive survey of research found that once a state limits rates, in state after state, consumers are better off and find better ways to cope with financial challenges. Credit union DUCA's 2020 report on the “State of Fair Banking in Canada” notes the significant negative economic and well-being impacts of high-interest predatory lending. The report helped inspire the launch of DUCA's escalator loan, which provides access to fair credit for borrowers.
These are the kinds of models we want to support, not high-interest fringe lending.
The amount of money someone would save by taking out a $5,000 instalment loan over five years, with the rate lowered from 48% to 35%, is $2,000 and more. This is a substantial amount of money saved for those who need it most.
I'll now hand it over to Donna Borden to share her experience.
Thank you.
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These lenders charge a maximum interest rate, which is never lowered, even after making payments for years. The real cost of borrowing is extremely difficult to understand, as all kinds of fees, insurance, etc., are bundled into the loan.
Most often, people end up filing bankruptcy or consumer proposals because it's impossible to pay off the debt. The Canadian Lenders Association is saying that people will have to go to payday lenders and illegal loan sharks.
For one, instalment loans and payday loans are two different credit products. The average amount of payday loans borrowed is $500, and they are payable on the next payday. This is not to say that payday loans are better, but given the huge increase in instalment loans, this move is critical. Also, fringe lenders often resort to the same tactics as loan sharks.
The bottom line is that lowering the criminal interest rate will reduce the harm caused by predatory loans. It's good for people and it's good for society.
As the federal government moves forward to lower the criminal interest rate, we'd like to see a fair credit alternative so that people don't have to rely on these loans.
Thank you.
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Thank you very much, Mr. Chairman.
Thank you to the committee for the invitation to speak with you today on the issue of predatory lending and the government's proposal to lower the criminal rate of interest. In my remarks, I'll speak primarily to the impact of this proposal on Canadians with low incomes, as this is our domain of expertise.
Prosper Canada firmly supports the government's proposal to lower the criminal rate of interest as a means to reduce the burden of debt on low-income households and the risk that the loans they take out will rapidly balloon into runaway debt.
Members of the high-cost lending industry claim that the proposed change will deny low-income and subprime consumers critically needed credit and valuable opportunities to improve their credit scores. Nothing could be further from the truth. A high-cost loan is never the best solution for someone who is low-income, credit-impaired and/or struggling to make ends meet. There are also very few occasions in which this is the only solution open to people in these circumstances.
Allow me to explain. Prior to the pandemic, in 2019, 51% of low-income households carried no consumer debt at all, knowing that even small loans can quickly become problematic when you are already struggling to make ends meet. In fact, low-income Canadians at that time were already spending an average of 31% of their annual income just to service their debts. High debt repayment costs compromise the ability of people with low incomes to meet their basic needs, as the incomes of many are well below the poverty line. This can in turn drive them to borrow more to cover their necessary expenses.
To the point, as of June 2023, 33% of households with low incomes in Canada reported that their household debt level felt somewhat or very unmanageable, and 42.6% of households with low incomes somewhat or completely agreed that they had increased their borrowing to help pay for everyday expenses.
When a low-income consumer has a temporary income expense gap and no savings or interest-free source of credit—for example, a family member, a friend or employer from whom they can borrow—then short-term commercial credit can be a good solution if the rate is reasonable and the consumer has the means to repay the loan.
Loans at effective interest rates over 35%, however, are not reasonable for low-income consumers, for whom even modest additional expenses can quickly cut into their food budget or their ability to pay their rent or their utility bills. Nor can many low-income consumers afford to repay such loans, as evidenced by the ACORN Canada survey cited earlier, which found that 72% of low- and moderate-income respondents reported that their loans, and their efforts to repay them at these high interest rates, caused them to go further into debt. Eleven per cent reported having to file a consumer proposal or file for bankruptcy.
For consumers with chronically insufficient income to meet their basic needs, the problem is not inadequate credit. It is inadequate income. Borrowing money is not the solution. Taking on debt when you are chronically short of income is like punching a larger hole in a boat that is already leaking rather than fixing the leak. It does not save you. It only sinks you faster.
The solution to an inadequate income is to find more income and/or reduce one's expenses. Consequently, the best immediate option for these households is financial counselling that can help struggling consumers to review their budgets for potential savings; identify and access in-kind services and supports that reduce their expenses, such as public drug plans, subsidized housing, food banks and other supports variously available in different communities; and identify and help people access income benefits and tax credits that they may be eligible for but are not receiving.
One in five people with low incomes across Canada currently do not tax-file. As a consequence, they miss out on an average of $3,500 a year in income, and potentially much more than that if they have children under 18, are a senior or live with a disability. For people who have not filed in a number of years, the simple act of filing their back taxes can result in tax refunds in the tens of thousands of dollars, eliminating their need to borrow. Tax filing also helps people with low incomes establish their eligibility for a broad range of in-kind supports and services that can make their lives far more affordable.
With respect to establishing a credit score or repairing damaged credit, high-cost loans are also never the best option. Newcomers and young people who are credit invisible are far better off obtaining and responsibly using a secured or low-limit credit card to build a credit history. A secured card is an equally good option for anyone seeking to repair their credit, in contrast with a high-cost loan, which is far more expensive and, according to ACORN’s 2023 survey, actually lowered the credit scores of 67% of low- and moderate-income borrowers.
Finally, high-cost lenders would have us all believe that, without them, low-income people would fall prey to loan sharks or worse. Consequently, lawmakers should give them free rein to charge their current rate. This is also nonsense.
The proverbial baseball bat aside, there is actually very little to distinguish a high-cost lender today from a loan shark. Both charge exorbitant interest with no regard for the consumer's ability to repay, and then hound and pressure them and their families relentlessly when they fall behind in their payments. Both are hurting people. ACORN reported that 80% of their survey respondents reported stress, anxiety and depression as a result of not making all or most of their high-interest loan payments.
Fortunately, people with low incomes do have alternatives to high-cost lenders. For non-emergencies, they can opt not to borrow at all and, instead, to wait and save for the expenditure in question. Consumers can also sometimes find ways to free up needed resources—for example, by selling something, by using a rent bank or food bank, or by accessing relief programs offered by utility providers—or they can access other less costly forms of credit.
In ACORN’s survey, only 22% of respondents, who had borrowed over the past year, had resorted to a payday or instalment lender, and 71% had used a credit card or borrowed from a family member, friend or a bank.
Low-income consumers are too often seduced into taking out high-cost loans by their ubiquity, the ease and speed with which money can be accessed and clever marketing that emphasizes low monthly payments at the expense of the actual true cost of the loan. However, high-cost loans are never the best or even an acceptable solution for people with low incomes, and they are very rarely the only solution open to them, despite slick and specious claims to the contrary.
Reducing the maximum criminal rate of interest as proposed is a much needed and welcomed reform. With more and more struggling households taking on debt that they cannot afford, this measure cannot come soon enough.
I would also invite the committee, however, to explore additional ways that the federal government can help to put this terrible sector and its toxic financial products out of business once and for all.
These include investing in community financial help services to close the current financial help gap for 1.5 million Canadians with low incomes and to connect them to the $2 billion in additional income benefits for which they are eligible but not yet receiving. For more information I refer you to Prosper Canada's 2024 federal budget proposal. There's a link in my statement.
Definitely there's a lot that one can do in the instalment lending space, for sure, particularly because we know there's no complaint mechanism at the federal level in case a person wants to prosecute, ask any questions, take these lenders to court or even file a complaint. There is no mechanism that exists.
In our submission, ACORN said that we need a complaint mechanism at the federal level so people have some sort of space these issues can be taken to.
I'll also let Donna speak about her experience with her instalment loan, but I think one thing we've noticed is that, in the absence of accredited alternatives, these lenders are pushing.... For instance, if a member has a payday loan, they're enticed to take an instalment loan. A lot of our members have been enticed to do that. It's, “Oh, you're paying your payday loan regularly, so why don't you take a $5,000 loan?” In that vulnerable situation when a person needs money, this is exactly what they do.
As Donna mentioned in her remarks, it is very difficult to understand the cost of borrowing. It's not about people who are not financially literate. It's just that the numbers are so hard to understand. On top of it, as I mentioned, there's insurance and there are late fees. There are a lot of things bundled into the loan that make the interest rate much more than 60%.
Donna may wish to add something. Thank you.
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On this one, I think there's an issue of jurisdiction. These fall under provincial jurisdiction and their consumer protection regimes, not the federal government's, because they're not federally regulated banking institutions.
I think, though, that there is a role for the Financial Consumer Agency of Canada to do research on effective practice in regulating this type of space as well and to work with its provincial counterparts to try to build some commonality across and greater protection for consumers, including a recourse mechanism that they can access.
I also think that, even if there was a standardized way they could push these lenders to provide simple, clear, transparent information on the true cost of the loan—not just the interest but all of the other charges like insurance, etc., that go with that.... In our submission, we talked about the financial facts labelling that the Mission Asset Fund has used in the United States very successfully. It looks like a food nutrition label, but it's financial information.
Then there's potentially having the Financial Consumer Agency have an instalment loan term selector tool that inputs this information and allows consumers to compare different instalment loans that are on the market and select the one that best meets their needs. When they did that with credit cards, it drove actual fees down because consumers could easily compare them for once. That immediately forced cards that weren't doing so well and weren't getting selected to adjust their rates and their features to be more competitive in that.
If we could create more tools to help consumers see clearly and be able to easily compare the rates, that would go a long way to giving them more power to make good choices for themselves. Right now, it's extremely difficult.
I want to thank our witnesses for being here today.
We can start with Prosper.
Since 2015—since this current government came to power—housing prices in Canada have doubled and sometimes it's more than that in certain markets. Mortgage payments have doubled and sometimes more than doubled. Inflation got up to 8% at one point. Although it's coming down, the damage is done.
Everything is more expensive and it's really made basic necessities unaffordable. Interest rates went up faster than ever before, from basically almost 0% to 5%. There are homeless encampments all over the country—tent cities. I had the mayor of Guelph here last fall. He said that when he got elected in 2014, there were no homeless tent cities in Guelph. Today there are 20. We know that millions of Canadians are lining up at food banks. By some reports, it's two million Canadians.
The Financial Consumer Agency of Canada has reported that the usage by Canadians of payday loans has gone up by 237%, from 1.9% in 2019 to 4.5% in 2022. Do you think there's any correlation between the difficult times Canadians are going through and the increase in usage of payday loans?
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If I didn't, I probably would have just tried to go to family to borrow money from family, or I would have just stuck it out and paid all the separate payments, but I did go there.
I'd also like to point out that near the end when I tried to file a complaint against this company, I was told that they were bulletproof and that they could do what they wanted and nobody would do anything to them. I went to several complaint agencies, and there was no process.
I did go to the police to file a complaint because they threatened me. They threatened to come and smack the money out of me, and they threatened to come to my home. When I did go to the police, the police officer said to me, “If you were going to take out a loan, you would have been better to have taken out a loan with a loan shark because we would have gone after them and already arrested them.” He said, “We don't know where these people stand, and we don't have any regulations. We have nothing to go by.” He said, “If you go to court with them and it says they did something wrong, then we'll charge them.”
However, other than that, they couldn't do anything.
First of all, I want to inform you, Mr. Chair, that I'll be giving my next turn to my fellow member Mr. Morrice from the Green Party.
I'm going to start with a comment.
Ms. Borden, your story touches me a great deal. I find it appalling, and I sincerely hope that we, as legislators, and the government will manage to put rules and laws in place so that this type of situation never happens again.
I would like to ask a slightly more technical question. I'm referring again to the “Consultation on Fighting Predatory Lending by Lowering the Criminal Rate of Interest”, published by the Department of Finance in 2022. It says, “Since the criminal rate of interest is applicable to all credit products in Canada, except for payday loans made in accordance with section 347.1 of the Criminal Code, it is a very broad measure.”
Here are two quick questions.
First, should there be additional exceptions?
Second, should payday loans be subject to the criminal rate of interest?
We've been pushing for a fair credit benefit. That's something that the federal government could do. That could be administered by the banks or by a non-profit agency.
As Ms. Mulholland stated in her remarks, Good Shepherd in Australia has provided a good alternative in that country. It was supported by the federal government and administered by a non-profit agency. Alternatives such as these could provide fair credit to people who need it most.
We are seeing more credit unions offering credit products. We saw DUCA credit union start a DUCA escalator loan recently. There are these products that are becoming more and more available, offering a payday loan alternative. We want to see more of such alternatives. As I said, the Canada Post and TD loan product was a decent product. Unfortunately, it was discontinued.
We've also been pushing postal banking as an alternative because we believe that's something that could offer people a fair credit alternative. There are such alternatives that can be made available, rather than giving fringe lenders a free market to exploit vulnerable people.
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I am tempted to give my time to Mr. Morrice as well. I'll refrain from that, even though I do quite enjoy Mr. Morrice. I'm sure his questions will be excellent.
I want to have a serious discussion with our friends today. They are great witnesses. It would be great if we had some more, as per Mr. Baker's comments.
When we look at these issues, I get in mind where we would like to be—I don't think anyone here would disagree—which is in a situation where no one needed to get a payday loan or comparables.
I look at the fact that we have record food bank usage, and we have had high inflation. The Governor of the Bank of Canada came before this very committee and said that the carbon tax alone was represented in 20% of inflation, including 20% of food inflation. If we saw a dramatic decrease in inflation, one would only think that it would be logical that the reliance on high-interest loans would be dramatically decreased. Do you think that has any solvency? I know that hasn't been...certainly in the responses I've been hearing.
I have to think that the underlying poverty issue.... You can't legislate prosperity. That is 100% clear. What we really need is for the economy to start rolling. We need higher levels of productivity so that more people are helped by not needing the help of government.
The floor is yours, my friends.
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Yes, but also with these particular companies, the instalment loans, all of us could go in there and we're all going to be charged the same amount. They don't have any, “Oh, we'll review your financial situation, and you're going to pay 11%, and you're going to pay 20%.”
These other alternatives, like the banks, the other loan companies and the different types of financial loan...they were willing to review your financial situation and say what they can charge you. Then, after you pay for so long, you develop your credit, and then you can pay lower interest.
These companies don't do that. They go right to the top, and they charge you all these fees. They charge you interest. They charge you insurance without your permission. They renew it without your permission.
You're right that what we want is alternatives. We want people to have a choice and to be able to go and find a loan where they want to without being turned away, unfortunately, like me. Even though I had the money and was at a bank for 30 years, I was told to go to the instalment loan company.
Ms. Jhamb, I'll start with you, please.
In 2007, the Harper government decided to exempt payday lenders from adhering to the Criminal Code's maximum interest rate and transferred the regulatory enforcement to the provinces. Some argue that this resulted in a patchwork of inadequate regulation and enforcement and enabled payday-loan interest rates to soar, topping 600% in some areas.
Since then, there are stronger payday-loan regulations across the country, and that's really thanks to your work at ACORN and your advocacy. However, instalment lenders still fall through the regulatory cracks.
I wonder if we're seeing lenders turn towards instalment loans instead, following provincial policy changes. If so, where is this most prevalent? Can you speak to that, please?
Thank you, colleagues.
I appreciate the chance to be a part of this conversation; it's a very important one.
I want to start by thanking ACORN and Prosper Canada for your advocacy this afternoon. This particularly applies to ACORN, not only for your advocacy here in Ottawa but in my community also. The chapter in the Waterloo region has been a wonderful ally for folks who are facing renovictions. Thank you again to the good folks at ACORN for how you're bringing your lived experience to some really important advocacy, both in the Waterloo region and of course here this afternoon.
Ms. Borden, thanks for sharing some of your lived experience. It reflects what many in my community have shared with me in terms of the debt trap. I appreciate the story you shared in terms of borrowing $10,000. I think you shared that you paid back $24,000 and still owed $7,000 by the end. It speaks to the real injustice of the issue that is meant to be addressed by this change. To reduce these predatory interest rates down to 35% is certainly a step in the right direction.
My question is for Ms. Jhamb. Specifically with respect to the association representing lenders who started this letter-writing campaign, my office has received two of these letters. I know that ACORN and Momentum have put out a statement that refutes the myths shared in these emails, including by pointing out that in Quebec this 35% maximum interest rate has already been in place for years, yet the industry seems to still expand in that province. I know that ACORN is pushing to reduce the maximum rate even further.
Ms. Jhamb, can you summarize in a minute or so the myths that ACORN has dispelled to help folks make sense of some of the emails we're receiving?
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Thanks very much, Chair.
I expressed earlier my disappointment that the Canadian Lenders Association didn't appear. I want to reiterate some of the reasons I'm disappointed.
I'm disappointed because they were a feature witness for this study. They've been putting significant resources out there to communicate their point of view, which I think is misinformation, in my personal view. They had confirmed attendance as of Friday, and then suddenly they cancelled. One would think they'd want to make themselves available to share with MPs their point of view. This was also an opportunity for us to learn more about the subject and learn about the allegations—the misinformed allegations, in my view—that they're putting out into the public.
I think it's really important that we send a message as a committee that we're disappointed with the fact that they haven't appeared, especially with the fact that it was a last-minute refusal to appear, given that they had initially confirmed. I also think it's important that we get answers to the questions and get the information that I think we would have sought from them—which we have been seeking from our wonderful witnesses who are here today, whose presence we appreciate—and obtain the information that a representative from the Canadian Lenders Association could have provided but who chose not to appear to provide.
I would like to move a motion, Chair, on the subject. I am willing to pause to make sure we distribute copies in both official languages. I can pass them to the clerk so that the interpreters have a moment to look at them as well.
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Sure. Ms. Thompson correctly identified that hybrid is an option, but in order to participate in a hybrid meeting, someone needs an approved headset, which I understand was not possible in this circumstance. I don't know how we get headsets to remote locations in the world, but in my understanding that was not possible. When that person was not allowed or could not appear, the CLA was told that because the one individual could not appear it could not appear.
It seems to me that the government really wanted one individual to appear, and that person was unavailable. Instead of being flexible, government members refused to be flexible and said that we had to have the date for the meeting at this time—and here we are.
I don't understand. Number one, there is a thing called Google and reading financial statements. I'll reserve judgment on the rest of the motion, but I think we may be able to solve this in a relatively more reasonable way if we have a bit more information or a bit of flexibility on what happens in timing.
To be honest, I'm not sure I personally want to extend this study. We have a bunch of other things on the docket. We should have swapped something else in for today until we had the witnesses that the government absolutely wanted to have. I don't know why we proceeded in the way we did. I would be willing to give the chair and the clerk much more flexibility in the future to make sure that, if there is a witness we absolutely want to have, they're available.
I don't know why we pushed through today, and now we're using that as an example, knowing that it was not possible. We're using that to kind of create the grocery experience here for the government. That is totally fine. It's the government's prerogative, but we probably could have had a moment in the sun if we had just let them come a different day. I don't quite understand why we're here, but we'll take it under advisement.
Of course, when it comes to the Canada disability benefit, what we have seen is that a piece of legislation got passed, but the regulations have been very slow and we're very unclear on the outcome of that regulatory process. The has now said that the benefit might not be rolled out until June 2025. There's all of this slowdown while Canadians with disabilities continue to live in legislated poverty.
We know that this Parliament can move with urgency when it sees a crisis. There is clearly a crisis here for folks in my community and across the country who continue to live in poverty, and there is a very clear intervention that could make progress to reduce that. Ideally, it could have gone further if we would have been able to expand the legislation to include people over the age of 65. Unfortunately, that wasn't the case.
Is there anything you'd like to add, Ms. Borden or Ms. Jhamb, in terms of what you want to see from MPs in the lead-up to budget 2024 when it comes to addressing this inadequate income issue that is really the bigger overlying issue in this study the committee is in the midst of?
In looking at the chair, I think I have a minute or so left.