Transcript of Senate Hearing on Bill S-237

The Chair: Thank you all very much. It’s been very helpful. You are very informative. If you wish to provide information to us, we look forward to that as well.

For our second panel, we welcome Mr. Gary Schwartz, President, Canadian Lenders Association by video conference from Toronto; and Ali Pourdad, Chief Executive Officer, Progressa.

I would remind you we have five minutes for your initial presentation because we want to create an opportunity for senators to ask questions so we’re going to be quite religious about the five minutes. So over to you. Who wants to start?

Ali Pourdad, Chief Executive Officer, Progressa: Gary, why don’t you go first? I’m going to go over five minutes. I’m going to admit that up front, so if you want to try to be under five we’ll combine for 10.

The Chair: Just so we know —

Mr. Pourdad: I’ll be about seven; I can’t get it any faster so Gary, if possible —

The Chair: Do your best at three.

Gary Schwartz, President, Canadian Lenders Association:   What I prepared here is a representation of all members in the non-prime space. It is important for me that I’m able to go through it thoroughly, because I think it would benefit the Senate to hear it in totality.

Let’s see how it goes.

The Chair: I think I know how it’s going to go. We’ve reviewed your presentation. A summary would be helpful. Hit the highlights, then we can question you.

Mr. Schwartz: Okay. Fair enough.

The Chair: Do the best you can.

Mr. Schwartz: I will. Thank you.

Thank you very much for having me here as we review Bill S-237.

As introduced, I’m the President of the Canadian Lenders Association. The CLA was established to provide a platform for businesses involved, directly or indirectly, in the provision of financial services, principally the provision and supply of credit to certain segments in the marketplace that are high risk and that can be served through the use of technology and decision making.

The Canadian lending members provide credit to both the SME market and consumer market. Their innovative model services the needs of Canadian businesses and individual borrowers nationally.

We seek a broad membership from all lenders, other than payday lenders, that carry on business in Canada and seek to support the establishment of good governance and strong internal standards to strengthen and support the development of this important activity.

Since you’ve read this, I won’t belabour you with the details on the organization; I’ll skip ahead a little. As I mentioned, the CLA does not represent the payday lending sector. The CLA non-prime lenders provide products with interest rates well below the payday lending interest rates and are an alternative option for consumers who are denied or do not have access to credit from traditional lending institutions.

Our lending members are governed, as you are aware, by section 347 of the Criminal Code, which caps the maximum amount of interest these lenders can charge or collect to 60 per cent. The aggregate interest rate — and this is important — charged by the CLA lending members are risk-adjusted and range from 19.9 per cent to 46.9 per cent per annum.

I’m sure the committee has previously heard stories of Canadians who are caught in onerous lending cycles and how lending members work to provide alternative lending options for these consumers. Based on the structure of their business models, members of the CLA are able to provide loan options to non-prime customers who are considered too high a risk for incumbent lenders to service. Many of these consumers are living paycheque to paycheque, and they have little flexibility to manage unanticipated crises, such as when work hours are unexpectedly reduced, when there’s a family medical issue, or when a furnace or car breaks down.

Our lending members provide solutions to these consumers. These lenders allow them to address their immediate financial needs with financing they can afford to pay back. Equally important, by making loans that consumers can pay back, consumers will be able to rebuild or improve their credit score so that these consumers are more likely to qualify for traditional financing in the future.

The CLA’s non-prime lenders are inextricably part of a larger lending ecosystem servicing the Canadian market.

With the understanding that the Senate Banking Committee is studying Bill S-237, the CLA has reviewed the content of the bill. In consultation with our advocacy and regulatory committee, we would like to provide some advice.

Bill S-237 proposes to change the criminal rate of interest from 60 per cent to a Bank of Canada overnight rate plus 20 per cent. This change would only be applicable to certain loans, which we understand to be personal loans, such as loans entered into primarily for family and household purposes. The current 60 per cent interest rate would continue to apply for loans entered into for business or commercial purposes. That said, we understand that the credit advanced to businesses that exceed $1 million would be exempt from the offence of charging a criminal rate of interest. We understand that the practical effect of this is that the lenders that lend to businesses would be able to charge such businesses an interest rate higher than 60 per cent for loans over the $1 million mark.

Canada’s current laws provide for a full spectrum of lending, from prime loans to non-prime loans to payday loans. My remarks today will focus predominantly on non-prime loans for consumers, as this is an area that will be most impacted by the proposed legislation.

Based on studies —

The Chair: Mr. Schwartz, we’re at five minutes. Can we move to summarize, because we do want the opportunity to question you? I know this is difficult, but we have your material in front of us.

Mr. Schwartz: I will conclude and then hopefully come back to some of these points in the discussion.

It is important for policymakers to understand the risk that non-prime lenders bear when financing non-prime consumers. Some examples are delinquency rates, off-charges, et cetera. In order to extend this lending into the marketplace, non-prime lenders must secure financing. Non-prime lenders themselves are not able to draw from traditional financing institutions for their lending because of the real and sometimes perceived risks of lending to that segment of the Canadian population.

This committee can appreciate that the cost to supply this credit is significantly higher than what traditional lenders pay. This, in conjunction with the higher loss rate on this type of lending, is reflected in the higher level of interest rates charged to non-prime borrowers.

Canadian consumers win when availability to credit is expanded and the barriers to entry in this marketplace are lowered. The consumer loses when innovative lenders cannot compete with cost-of-capital scale and efficiency. Keeping the interest rate as currently provided in the Criminal Code allows for continued availability of credit to Canadian consumers.

It is important to note that the marketplace seeks to provide the best possible rates for Canadians. Companies that operate efficiently and provide innovative lending solutions inherently — and I think this is very important — inherently optimize their interest rates to provide consumers with the best possible options. While new market entrants may differentiate their business by competitive speed, approval rates and loan size, one of the key factors in winning the Canadian consumer is lower cost of capital.

The Chair: Thank you very much, Mr. Schwartz. Mr. Pourdad, please.

Ali Pourdad, Chief Executive Officer, Progressa:   Thank you, honourable members, for inviting me here to speak about Bill S-237, in particular the provisions governing the criminal interest rate.

I co-founded Progressa back in 2013. We’re a company of about 110 employees in Toronto and Vancouver. We all want to make a very positive difference in the lives of Canadians.

The Chair: I apologize for interrupting. I understand you’re under time pressures, and I apologize for that, but the interpreters are just not keeping up with you. Can you slow down and still respect the timeline?

Mr. Pourdad: I’ll give it a fighting shot.

Progressa’s mission is to build a socially responsible consumer finance company that encourages borrowing for the right reasons, a company that Canadians can be proud of. We pride ourselves in offering a solution to the nearly 50 per cent of Canadians who live paycheque to paycheque, several million of whom have challenged credit and therefore no conventional financing options to repay their long-outstanding debts.

We also believe that the traditional credit reporting system fails Canadians who have had prior collections history damage their credit score, leaving them to cope as non-prime borrowers. We are particularly focused on those Canadians who became non-bankable through no fault of their own.

We are part of a new wave of Canadian alternative financial institutions that provide services to borrowers rejected by banks and otherwise forced to resort to very expensive payday loans.

According to Equifax and TransUnion, the two credit reporting agencies in Canada, it is highly recommended that one not lend to consumers with non-prime credit scores. Credit scores under 650 are considered non-prime, and that represents approximately 3 to 4 million Canadians. For the committee’s benefit, the majority of Schedule I banking institutions will not lend to Canadians with scores under 700, which represents approximately 7 million Canadians. In a world where people’s lives were predictable and entirely in their control and no one was ever caught off guard or went through an unexpected life event, this recommendation would probably make sense. Sadly, this is not the way the world works.

Consumer protection has two sides to it. Banks are federally regulated institutions primarily because they are home of large deposit bases, mostly from ordinary Canadians. It is appropriate that those deposits are protected not only through insurance but also through regulation, which ensures and promotes the stability of our banking system. The argument that we need to protect investors and deposits is in fact a reasonable one. In a volatile and uncertain world, the continuous tightening and monitoring of bank lending criteria is, from key perspectives, the means for strengthening and securing the health of our banking system.

What about the 7 million Canadians with credit scores under 700, the lion’s share of whom live paycheque to paycheque and experience illness, unexpected job loss, divorce, separation and other personal and family crises each year? It is these realities that cause millions of cash-strapped Canadians to struggle with their everyday bills, with some of those bills falling behind and with no easy way for that debtor to catch up until the consumer can find a way to get back on their feet. This could take years. And even when they do get back on their feet, how does someone living paycheque to paycheque come up with $2,000 or $3,000 to pay off their line of credit or outstanding credit card or cellphone bill?

Consumers applying for a loan with Progressa are going through this reality every day as their bills get sent to collections, where they are regularly phoned from a collection agency and where can you fully expect that that consumer’s credit score is getting hammered from the 700s down to the 400s or 500s in a very short period of time.

Once bankable Canadians who find themselves in this unfortunate position have very few options for escape. In an age where financial security is governed by credit scores, solutions that enable debter rehabilitation are essential.

Believe it or not, Equifax and TransUnion also recommend that one does not lend to a consumer with one or more prior delinquencies. That seems intuitive. If someone didn’t not pay their bills in the past, why provide them credit again? This is where Progressa differs from other lenders in Canada. We look past the applicant’s messy credit history and instead evaluate their character and capacity using modern technology methods based not on the history of the individual but where they are today and where they are going.

In fact, in Progressa’s case, over 90 per cent of new customers that apply for a credit product with us never see a dollar from us. We pay their past due bills directly to their creditors and alleviate an immense stress in their lives. Imagine applying for a loan with a company, providing them your personal information, going through an interview process — already you’re stressed out — all not to see a dollar from us. Our borrowers do not come to us to increase their debt burden through additional purchase or consumption but to fix a problem that is impairing their credit and their bankability.

Progressa’s tagline is “borrow for the right reasons.” This tagline is part of our mission and one we stand behind. It’s what has led to us help over 15,000 customers, in just five years, to consolidate their bills and begin the path to rebuild their credit profile.

The Chair: Move to your conclusion, please.

Mr. Pourdad: We absolutely can. I have a lot of statistics that I would like to share with the committee in Q&A.

The Chair: It will likely come out in questions; that would be a better way to go.

(French follows – Senator Dagenais: Merci pour votre présentation…)

(après anglais —The Chair: …a better way to go.)

Le sénateur Dagenais: Merci pour votre présentation, Monsieur Pourdad. J’ai deux questions.

Premièrement, je comprends que vous ne prêtez pas de l’argent à votre client, mais que vous payez plutôt ses factures. Si vous payez ma facture de 1000 $, au bout d’un an, combien d’intérêt allez-vous me charger? À quel montant sera rendu mon 1000$?

Deuxièmement, vous allez sûrement me charger des frais; ces frais seront-ils plus élevés que l’intérêt que vous allez me charger?

(anglais suit — M. Pourdad: I’m going to answer in English…)

(Following French – Senator Dagenais — …vous allez me charger?)

Mr. Pourdad: I’m going to answer in English; my apologies.

Thank you for your questions. As Gary alluded to, we’re a member of a wide number of companies in Canada that charge interest rates north of 19 per cent. Our rates start at 29 per cent. They go as high as the 46 per cent rate that Gary mentioned. Many of the other members do as well.

On a $1,000-loan over 12 months, the consumer will pay anywhere between about $150 or $240 and that range of interest over 12 months. That’s basically 29 to 46 per cent APR.

There are no fees for our product. We do have optional products if the consumer wants to take them but we don’t have any mandatory fees associated with our loan.

Senator Tannas: Could you tell me what percentage of your loans would be at the 46 per cent level?

Mr. Pourdad: About 53 per cent of our consumers have sub-prime credit scores. That’s sub-550 credit scores. Most of those customers will have a starting interest rate in excess of 40 per cent to start their loan — 46 would be probably rare; around 40 or 39 per cent would be more typical.

Senator Tannas: If we set the rate — and forget 20 per cent — at prime, plus 45 per cent, we’d fit everybody in?

Mr. Pourdad: My whole speech goes into this. I really don’t think it’s fair to be talking about rates. I actually think the focus is on the wrong thing. At the end of the day, we’re not making money as it is right now. We’re a start-up that borrows at rates that are comparable to the rates you’re proposing in this legislation. We have costs associated with running the business on top of that. So we already are not a profitable business today. Our investors choose to take the risk on these consumers and choose to help them try to get from point A to point B in a quest that we hopefully can build a business over time of scale and brand that we can start to make money over time.

Right now, if you reduced the interest rate to 45 per cent, we’re out of business.

Senator Tannas: I thought you were charging 45 per cent?

Mr. Pourdad: Right. If you have a cost of borrowing of 45 per cent and you’re charging 45 per cent —

Senator Tannas: No. You’re saying your cost of borrowing is 45 per cent?

Mr. Pourdad: I’m saying our cost of borrowing at this point is very close to what is being proposed in this legislation.

Senator Tannas: That’s your cost of funds?

Mr. Pourdad: That’s correct.

Senator Tannas: Or is it your charge that you charge the consumer?

Mr. Pourdad: That is our cost of funds.

Senator Tannas: Before you’ve even made a loan you’re making 45 per cent payments, is that right?

Mr. Pourdad: No; 20 per cent.

Senator Tannas: I’m asking you this question. I’m saying that in order to fit every single one of your customers in, if we move this lending rate to 46 per cent as a maximum, you would fit them all in?

Mr. Pourdad: Credit losses alone in this space — I’m not trying to deflect the answer — can be anywhere between 16 cents on the dollar and 28 cents on the dollar not to come back.

If you’re charging 45 per cent, as in your example, you take off 16 to 20 points from that number and your cost is 20 points, there is nothing left over for the company. It’s simple math.

Senator Tannas: It strikes me that it is a wild coincidence that 60 per cent today is the right number, just as it was in 1980 when the risk-free cost of funds was 18 per cent and we didn’t have any technology, or efficiency, or so on. Isn’t that a huge coincidence that it should be the same?

Mr. Pourdad: It’s very easy for us to say things like that because we’re not experiencing what these consumers are experiencing. Our customers are struggling. They are going through a real tough time. No one will help them. No bank will help them, their parents won’t help them and their friends won’t help them.

Everybody knows somebody who has come to them and asked them for money and you’re not going to lend them money. Our company has chosen to take that chance on people and help them, but when I sit in front of TD or Bank of Montreal they think we’re crazy to lend money even at the rates we charge. They think we’re nuts. They don’t know how we get our money bank. That’s where the technology comes in. We’re turning it on its head and trying to do things more efficiently and effectively for that consumer, but at the end of the day we are taking a very big credit risk.

Senator Tannas: So your position is leave it at 60 per cent? At 59 per cent you’re unhappy; at 45 per cent, you’re out of business.

Mr. Pourdad: My position is that we should leave it at 60 per cent, correct.

Senator Tannas: Okay. Thank you.

Mr. Schwartz: I just wanted to add and underscore that, in a marketplace where Ali and other lenders are trying to service the non-prime sector, given that it’s a very expensive sector to service, ultimately Ali is competing with other companies. It’s not just Ali there. We have a number of companies that are trying to service the sector, and they are competing with each other. As I indicated, one of the key factors in winning the consumer is going to be lower cost of capital. They’re going to compete. Inevitably, if they can create efficiencies with their technology as innovative lenders, they will try to drive what they can offer the customer down to compete and win their business. Artificially pulling down the rate isn’t going to change anything. All it will do is eliminate lenders that can’t afford to borrow at that rate from the marketplace, and it will reduce competition.

Senator Ringuette: I’m assuming that Progressa is a member of Marc’s association.

Mr. Pourdad: We are.

Senator Ringuette: So you all work together, 48 of you. I read your document and it spurred my curiosity with regard to the U.K. I was astonished that the U.K. has a short-term loan cap of 11.2 per cent. That was astonishing.

Notwithstanding my very important question: You’re not a payday loan product. So you’re not regulated by the provinces. So the provinces do not provide oversight. You’re not a banking institution, so the Superintendent of Financial Institutions does not supervise what is going on. Who provides oversight for your industry?

Mr. Pourdad: I’m happy to start, and Gary will have, I’m sure, further comments.

First and foremost, we do fall under the Consumer Protection Act of every province. So our lending guidelines, our disclosure requirements, the transparency of advertising all falls within each individual province’s Consumer Protection Act. We have to abide by that. So there is some regulatory oversight from that perspective.

Second, there are several provinces that have introduced high-cost interest acts, some recently, in Manitoba, just this last year. Saskatchewan already had such oversight. New Brunswick, your province, has the Cost of Credit Disclosure Act, and other provinces as well do provide some level of regulatory oversight over companies that fit between the banks and the payday loan companies.

Senator Ringuette: I went to your website. I clicked and clicked and clicked and clicked. The headline was, “How much would you like to borrow?” From $1,000 to $15,000 and for a period of anything from 6 to 60 months. Then it says, “Apply now.” Of course, I didn’t click on that “Apply now.”

But then I tried to get some information in regard to your cost, and I went to a page from your site. It says, “Open loans with no upfront fees. Obtaining a loan should not cost you money.” What do you mean by that?

Mr. Pourdad: That’s a great question. The majority of consumers that come through Progressa use us as a bridge loan. They’re going through a tough time. They’re being phoned by collection agencies. They’re good people who once had really good credit scores, and now they’re going through a tough time and need a short-term bridge to get from point A to point B. They might only borrow from us for four, five, six months. Our average loan goes out for 30 months at origination. In fact, it’s mostly paid off by about 18 months. That’s the history of our loans; most of our loans are paid off by 18 months. People do make the extra payments. It doesn’t cost them anything. That way they can control the cost of borrowing. It’s flexible, and it allows them to pay down and continue to build their credit at the same time. These customers are building their credit. That’s the other opportunity they’re being given. When they’re down and out and call us, the first thing they say to us is, “There’s no way you can help us.” They’re getting an opportunity to also rebuild their credit and get back to the banks. That’s not an opportunity that you would get at a payday loan company. If this legislation came into effect, that avenue to rebuild their credit would be gone. There would be no avenue left.

I’ll share some statistics with you because this is real stuff from TransUnion. They independently audited our entire history of lending. Over 90 per cent of customers we’ve ever helped have successfully paid back their debts or are currently in active paying status. Of customers that we assisted to consolidate their debts with credit scores between 450 and 499 — that’s considered deep subprime lending — 27 per cent of those customers migrated their score to 500 to 550. Thirty-nine per cent migrated their score to 550 to 599; and 23 per cent migrated their score to over 600 within six months of borrowing with us. Of that entire credit score segment, 99 per cent of customers saw positive or neutral credit score migration. If you put this legislation in place, that opportunity for consumers is gone.

Mr. Schwartz: If I may, more pointedly, to continue that narrative, you have a spectrum of lending in Canada. If you artificially cut off one end of the spectrum, the need for capital for these individuals doesn’t evaporate. So if you’re artificially cutting off one end of the spectrum and companies have to exit the marketplace, then you’re just pushing those individuals into unregulated areas where they will never be repatriated.

Ali is not a unique example. Our members talk about this continually, the idea of repatriating somebody’s credit to move them from one side of the spectrum to the other. It’s a natural ecosystem that needs to be supported. By leaving things the way they are, the market takes care of itself. We, as an organization, are very proactive in self-regulating to make sure that we’re servicing the market. Everything we do is proactive.

So just to add a little bit of embellishment to Ali’s comment.

Senator Wetston: I’d like to, if I could, understand a bit more clearly the line of questioning that Senator Tannas was pursuing with you.

The spread in 1980 looks a lot different than the spread today, but I think what you’re saying is that, obviously, if you didn’t have this 60 per cent requirement or — I’m not sure what to call it.

Mr. Pourdad: It’s the usury law.

Senator Wetston: Thank you. You’ve taken the words right out of my mouth. But I just need to understand this from a commercial and an economic perspective. I think what you’re saying — and Senator Tannas was suggesting it to you both — is that in 1980, somehow or another, the government was so wise and prescient that they picked the right number, regardless of the 37 years since then and all of the development. Did I get the number right? Maybe it’s 47. And all of this has happened over this period of time. I’m not going to ask you how it is that you intend to stay in business when you’re not making any money. I’ll leave that for another, maybe a sidebar, conversation. I would be very interested to know the answer to that.

In this period then, when there have been dramatic changes in the market, including a lot of online lenders, which I think has become less rare today, we understand the issues of technology; we understand what’s gone on for low-for-long in interest rates. Would it be a reasonable suggestion, from my part, that the reason why you say you’re comfortable with that today is because the whole industry has evolved to this level both of lending and fee inclusion and the way that they operate because this is how the market has evolved?

Let’s pick another number. Let’s say it was 40 per cent and not 60 per cent. Would you be at 40 per cent today? Would you be able to serve all those customers that you say would not be served if that was the number today? The entire market, then, would be competing and functioning at that loan level. Would you agree with that?

Mr. Pourdad: I will answer that question. It’s a longer answer, though.

The regulatory environment has changed over the last three or four decades. It’s a different world now than it was back in the 1980s. Back in the 1980s, Canadian banks did lend to non-prime Canadians. In the 1990s they did as well, up to the credit crisis. They were long out of it before the credit crisis, but they used to lend to a wider range of credit scores.

There used to be large international banks in Canada, in consumer finance, prior to 2008, as everybody is probably aware. Wells Fargo, CitiFinancial and HSBC were large banks that had significant consumer finance presence. They were significant consumer finance companies in Canada. The regulatory environment has changed. If I could borrow at the government rate from the bank, then to answer your question, yes, I would pass that savings to the consumer at 45 per cent.

Senator Wetston: You didn’t quite answer my question. Maybe, Gary, would you like to answer it?

Mr. Schwartz: I’m going to answer it in a very similar vein. Post the bank debacle of 2008, things have changed. A bank is required to take large reserves of capital against risk-related lending, and these large reserves and the reputational risk of being a lender in the space have forced, as Ali said accurately, Wells Fargo, HSBC and Citigroup out of the market. Incumbent financial institutions aren’t there for the non-prime anymore.

It’s sort of Hobson’s choice. You either allow these companies that are trying to service this non-prime marketplace to try to innovate around their business models and their efficiencies, to drive that down naturally. As I said, the rates vary from 19.9 per cent to 46.9 per cent, but that’s going to vary based on the credit score of the individual.

The bottom line is that Ali is right; these companies are taking a huge risk and trying to service this under-serviced marketplace. We want them to service them because we want to repatriate them to a good credit score, where they can walk into a bank and —

Senator Wetston: But you continue to say there aren’t many defaults. I’m not seeing all these defaults that you’re worried about. Everybody has the same statistics. The banks have them. They may be high risk, but they’re paying. They’re not paying in your space, so why are you in this business? Is this a social service or are you in a business? You have said you’re not making any money.

Mr. Pourdad: I’m speaking for the industry. So our company, if you take the topline economics of our business, our loans do perform. Our customers do want to rebuild their credit, and we have very good credit performance with very low credit losses. We do.

The industry, some of these companies are public. Their information is publicly available. They have average credit losses. I call these the benchmarks because they’re much larger than us and have much more scale. They have credit losses starting at 15 or 16 per cent, and some of the companies also have credit losses that go up to 25 or 26 per cent. There’s publicly available information out there. I’m speaking for the industry.

I’m in business because we have a social responsibility. Our company has a social mission to try to help these consumers rebuild their credit profile when no one else will. That’s why we’re in business.

Senator Wetston: I appreciate that, and I think it’s positive what you’re doing, but I still don’t understand whatsoever how you can go from 1980 at 60 per cent and 2017 at 60 per cent and say this is the only way this industry can function, and you need to have this in order to be able to ensure that you can serve this high-risk part of the population, of which I’m still looking for information as to defaults, and then you bring in the financial crisis as a basis for suggesting that these firms — just one second, if I may — have left the market. By the way, prior to the financial crisis, they were all here and enjoying this 60 per cent criminal rate of interest, and what then?

I’m still having some trouble here. Maybe I don’t fully understand what you’re saying. I don’t understand the business aspect of this. I don’t understand the economics aspect of this. All I can say is that when I asked you this question at 40 per cent, you said that wouldn’t work in today’s market. Would it have worked in 1980?

Mr. Pourdad: The banks were lending back then, so yes, it would have, because they’re borrowing at zero per cent. When the banks are borrowing at next to nothing and making the conscious decision to lend to these consumers, then it makes sense. But banks are not doing that today. They’re not there for those consumers, and that’s why you need alternative ones.

Senator Tkachuk: I’d like to say, Mr. Chair, how impressed I am that we have a company here that has a social conscience, along with the credit union, which also has a social conscience. Doesn’t anybody want to make money anymore?

(French follows — Senator Dagenais: Ma question s’adresse encore…)

(après anglais — Sen. Tkachuk: …want to make money anymore?)

Le sénateur Dagenais: Ma question s’adresse encore une fois à monsieur Pourdad. Je comprends que votre compagnie va bien, mais sans indiscrétion, d’où est provenu l’argent lorsque vous avez fait vos premiers prêts ?

(anglais suit — M. Pourdad: That’s a great question.)

(Following French — Senator Dagenais — …avez fait vos premiers prêts ?)

Mr. Pourdad: That’s a great question. I raised the money from my friends and family. That’s where I actually got my money. It was me. I put in several thousand dollars — my dad, my dad’s best friend, my co-founder and his brother — and we put in $200,000 among five of us and started lending ourselves. That’s how the business began.

(French follows — Senator Dagenais: Est-ce que je dois comprendre que…)

(après anglais — M. Pourdad: …how the business began.)

Le sénateur Dagenais: Est-ce que je dois comprendre que toutes ces personnes sont maintenant actionnaires de la compagnie?

(anglais suit — M. Pourdad: The original people who put money…)

(Following French — Senator Dagenais — …sont maintenant actionnaires de la compagnie?)

Mr. Pourdad: The original people who put money in? Yes. Today we have 100 shareholders. Shareholders are not lending money to us.

Senator Tannas: I just had a quick look at your website. We appreciate you being here, but I’m trying to make the math work so that I can unstick myself from this question of 60 per cent and why it’s still the same.

Ninety-nine per cent of your borrowers improve their credit rating. Do you ever have a borrower who improves his credit rating and doesn’t pay you back?

Mr. Pourdad: No.

Senator Tannas: That implies that 99 per cent of your people pay you back and 1 per cent don’t.

Mr. Pourdad: No. I said 99 per cent of our customers saw positive or neutral credit score migration.

Senator Tannas: How would they do that and not pay you back?

Mr. Pourdad: Very simple; paying us back does not necessarily mean that you’re going to build your credit score. You have to borrow responsibly in general. You shouldn’t be borrowing irresponsibly or out of your means in general. Otherwise, your credit score could decline, even if you’re paying us, so you need to be responsible.

Senator Tannas: Your bondholders are getting paid 12 per cent, according to your website?

Mr. Pourdad: The current bonds pay 12 per cent. There are costs involved with that as well.

Senator Tannas: Understood. You probably pay a commission, use an investment adviser and so on?

Mr. Pourdad: Correct.

Senator Tannas: So your costs are probably close to 20. Is that fair?

Mr. Pourdad: Correct.

Senator Tannas: Thank you.

The Chair: Mr. Schwartz and Mr. Pourdad, thank you very much. This was a spirited conversation. It’s the kind of conversation we like. We respect very much what you’re both doing, and we are very appreciative that you shared your wisdom with us today. Thank you both very much for being here.

Committee members, you will recall that last week — I think a snowstorm or something intervened, there were bells, we were voting and it was generally a confusing situation — we indicated to Senator Ringuette that we would give her the opportunity today to make herself available for any questions that we might have.