CLA Review of the 2024 Fall Economic Statement

Fall Economic Statement (FES)

Over the past several years, the CLA has advocated for open and equitable access to credit, a modernized fintech landscape, and a harmonized cross-provincial system that benefits all Canadians. Yesterday’s Fall Economic Statement (FES), “Reducing Everyday Costs and Raising Wages,” delivered significant wins for CLA members; however, political instability leaves significant questions about the legislative path forward.

Sections:

Government Stability and Legislative Outlook
Maximum Rate of Interest and Non-Prime Lending
Penalizing Predatory Debt Advisors: A Positive Step Forward
Open Banking: A Win for Innovation
Mortgage Stress Test Reforms: Increased Competition
Strengthening Canada’s AML/ATF Regime
SR&ED Tax Incentives: Boosting Innovation
New Finance Minister: Dominic LeBlanc

1. Government Stability and Legislative Outlook

The sudden resignation of the Deputy Prime Minister, coupled with mounting economic turmoil, has thrown the government into disarray. Prime Minister Trudeau faces increasing pressure to resign, casting uncertainty over his leadership. The potential for a leadership change has introduced further instability, with the risk that critical legislation could be delayed or abandoned altogether.

For CLA members, this political uncertainty creates both risks and opportunities:

Risks: Unclear priorities and reduced government focus could derail proposed reforms.
Opportunities: Legislative ambiguity may provide openings for further advocacy and input on regulatory frameworks impacting the non-prime lending sector.

2. Maximum Rate of Interest and Non-Prime Lending

The CLA is pleased that the government has recognized our continued advocacy and understands the critical distinction between payday lending and the non-prime lending sector. The Fall Economic Statement specifically targets amendments to the payday lending exemption in the Criminal Code to prohibit the sale of credit insurance products, while ensuring the broader non-prime lending market remains unaffected. This acknowledgment is a significant step forward and aligns with the CLA’s efforts to promote balanced and targeted regulation. We applaud the government for taking a thoughtful approach that acknowledges the essential role non-prime lenders play in providing Canadians with access to credit.

CLA Advocacy on Insurance and APR The CLA has strongly opposed the inclusion of insurance charges in the APR calculation under the Criminal Code, as proposed during recent consultations with the Department of Finance. Such changes would create significant challenges for non-prime borrowers and responsible lenders:

Reduced Access to Credit: Including insurance charges in APR calculations would artificially inflate the APR, making it operationally unfeasible for lenders to provide credit-insured loans to higher-risk borrowers. This would disproportionately impact 3.5 million non-prime Canadians who rely on these products for financial protection.
Undermining Consumer Protection: Optional insurance products, such as group credit insurance, play a vital role in protecting borrowers against life events like job loss, critical illness, or death. Eliminating access to these safety nets would increase defaults, damage credit scores, and further limit credit options for vulnerable Canadians.
Operational Complexity: Requiring retroactive APR adjustments for post-sale insurance products introduces administrative burdens and confusion. Smaller lenders, in particular, lack the sophisticated systems needed to comply with such changes.

The CLA’s Risk Roundtable Analysis highlights that including insurance in APR calculations does not address illegal lending—the original intent of criminal rate provisions. Instead, it risks driving borrowers toward unregulated, higher-risk markets and eliminating critical safety nets.

Legislative Path: The timeline for reforms depends heavily on the government’s ability to table and advance legislation in January.
CLA Focus: The government’s focus on payday lending continues to carry potential risks for non-prime lenders. The FES mentions payday lending explicitly but offers no clear legislative definitions. We will remain vigilant to ensure the legislative process stays on track and continues to differentiate between payday lending and responsible non-prime lending practices. The CLA will continue meeting with the Department of Finance and relevant government stakeholders to effectively lobby for the best interests of Canadian borrowers and to preserve open access to credit.

3. Penalizing Predatory Debt Advisors: A Positive Step Forward

The CLA welcomes the government’s proactive stance on addressing the growing issue of unlicensed debt advisors, commonly referred to as lead generators. These actors exploit financially vulnerable Canadians by misleading them into insolvency proceedings, such as consumer proposals or bankruptcy, often without fully disclosing the long-term implications of such decisions.

Key Developments Announced in the FES:

Civil Remedies: The government will introduce new civil remedies, including restitution, for non-compliance with the Bankruptcy and Insolvency Act (BIA).
Increased Criminal Penalties: Maximum fines under the BIA will increase significantly:
- From $5,000 to $100,000 for individuals.
- From $5,000 to $1 million for corporations.

Impact for Canadians:
These measures aim to protect at-risk Canadians from deceptive practices, reduce unnecessary insolvency filings, and limit harmful debt cycles. Importantly, they reinforce consumer confidence in seeking financial advice by penalizing predatory actors who exploit borrowers for profit.

CLA’s Advocacy:
The CLA has long recognized the harm caused by unlicensed debt advisors and advocated for stronger protections to safeguard borrowers from irresponsible financial advice. While the proposed measures are a step in the right direction, legislative text will provide further clarity on enforcement mechanisms and implementation timelines.

4. Open Banking: A Win for Innovation

The government reaffirmed its commitment to modernizing Canada’s financial landscape through the Consumer-Driven Banking Framework, often referred to as open banking. Building on foundational legislation introduced in Budget 2024, the 2024 Fall Economic Statement provides additional clarity and timelines on key elements of the framework:

Go-Live Date: Implementation is targeted for early 2026, with $44.3 million allocated to the Financial Consumer Agency of Canada (FCAC) to drive the rollout.
Screen Scraping: Once the framework is fully operational, screen scraping will be prohibited. While this supports data security and drives participation in the framework, clarity is needed on what constitutes “fully operational.”
Governance: The government will amend the Consumer-Driven Banking Act to enable the Minister of Finance to designate provincial regulators to oversee certain provisions of the legislation for entities under their jurisdiction, such as credit unions. Key areas of provincial oversight include security, privacy, liability, complaints, and consumer protection, while the federal government will maintain control over accreditation, suspension, revocation, fines, and national security. A federal, provincial, and territorial advisory committee will also be created to guide implementation and administration.
Accreditation: A uniform accreditation system will apply to all participants. Organizations that outsource functions such as consent management or data movement must use accredited third-party providers approved by the FCAC.

Impact for CLA Members:

The launch date of early 2026 provides a clear timeline for businesses to prepare, with the three-year review window offering opportunities to expand functionalities, such as payment initiation, in future phases.
The prohibition of screen scraping will enhance the framework’s security and contribute to critical network effects by encouraging participation.
Multi-layered governance—with both federal and provincial roles—clarifies oversight responsibilities but requires strong coordination to avoid fragmentation.
Uniform accreditation requirements will ensure a consistent standard but may introduce complexities for smaller entities or new market entrants who rely on third-party providers.

The CLA supports the development of a secure, innovative financial data-sharing ecosystem that expands opportunities for fintech solutions and fosters competition. We look forward to engaging in consultations to ensure the framework remains balanced, inclusive, and aligned with industry needs.

5. Mortgage Stress Test Reforms: Increased Competition

The government’s removal of the mortgage stress test at renewal for uninsured mortgage holders marks an important step toward enhancing competition in the lending market. Effective immediately, uninsured mortgage holders can switch federally regulated lenders or lenders’ purchasing portfolio insurance without requalifying under the Minimum Qualifying Rate (MQR), provided there is no increase in the loan amount or amortization.

However, the Office of the Superintendent of Financial Institutions (OSFI) has clarified that the stress test exemption applies only to transfers between federally regulated financial institutions (FRFIs) and lenders using portfolio insurance. Mortgages originated by, or transferred to, non-federally regulated institutions—such as provincially regulated credit unions and mortgage finance companies—remain subject to the stress test.

This clarification has raised several concerns within the lending industry:

Fairness and Competition: The exclusion of provincially regulated institutions limits competitive options for borrowers, contradicting the government’s goal of fostering mortgage competition.
Jurisdictional Challenges: OSFI’s restriction highlights a jurisdictional gap, as it cannot impose rules on provincially regulated institutions, even if they voluntarily adhere to federal standards.
Practical Impact: While the rule change increases mobility for federally regulated borrowers, its impact is limited by the narrow scope of the exemption.

CLA Perspective: The CLA acknowledges the positive intent of the government’s measures to improve mortgage competition and reduce costs for borrowers. However, excluding provincially regulated institutions creates an uneven playing field that undermines fairness and borrower choice. The CLA will advocate for:

A broader, harmonized approach that includes all lending institutions—federally and provincially regulated.
Clearer, inclusive policies to ensure that all borrowers, regardless of lender type, can access competitive mortgage options without unnecessary barriers.

By addressing these gaps, the government can fulfill its commitment to a truly competitive mortgage market that benefits all Canadians.

6. Strengthening Canada’s AML/ATF Regime

The CLA is pleased that the Department of Finance has taken steps to strengthen Canada’s AML/ATF framework and largely aligned with our proposed approach. Cracking down on money laundering and terrorist financing is critical to maintaining financial integrity, and we support the government’s continued focus on this issue.

The CLA encourages the government to adhere to clear, proportionate definitions of reporting entities under the PCMLTFA to ensure regulations are effective and appropriately targeted. Specifically:

Proposed Definition for Financing Companies: The CLA recommends capturing larger financing entities engaged in loans or credit lines exceeding CAD 100,000 per transaction and whose primary business operations (50% or more) focus on non-consumer clients. This approach ensures regulatory oversight aligns with risk.
Proposed Definition for Leasing Companies: Reporting requirements should focus on businesses engaged in vehicle and/or automotive equipment leasing with annual lease volumes exceeding CAD 5 million. This limits compliance obligations to significant players while excluding incidental and smaller operators.

By adopting these definitions, the government can address AML/ATF risks effectively without overburdening smaller entities that pose minimal risk to the financial system.

The CLA remains committed to working with the Department of Finance to ensure these regulations strike the right balance between strengthening enforcement and minimizing unnecessary compliance costs for small businesses.

7. SR&ED Tax Incentives: Boosting Innovation

Canada’s federal government has unveiled significant updates to the SR&ED tax incentive program, designed to stimulate innovation and reward businesses investing in research and development. These changes include:

Increased Expenditure Limits: Eligible annual expenditures have risen to $4.5 million, enabling Canadian-controlled private corporations (CCPCs) to claim up to $1.575 million in tax credits annually.
Broadened Taxable Capital Thresholds: Businesses with taxable capital up to $75 million can now qualify, making the program accessible to larger enterprises.
Eligibility for Public Corporations: Canadian public companies can now claim the enhanced 35% refundable tax credit, a substantial increase from the previous 15% non-refundable credit.
Capital Expenditure Inclusion: Eligible businesses can claim deductions and credits for capital investments, encouraging modernization and long-term growth.

CLA Insight: For financial industry professionals, these updates create unprecedented opportunities to fund innovation, de-risk R&D projects, and strengthen competitive positioning. Whether developing cutting-edge financial technologies, streamlining processes, or advancing compliance systems, the enhanced SR&ED program provides critical financial support to drive growth and innovation.

8. New Finance Minister: Dominic LeBlanc

Dominic LeBlanc’s appointment introduces some uncertainty for the financial services landscape. Here is what we know about the new Minister of Finance:

Dominic LeBlanc has been a long-standing Liberal MP since 2000, representing the riding of Beauséjour in New Brunswick.
He is a close ally of Prime Minister Justin Trudeau and a veteran in the Liberal government, often serving in key leadership and relational roles.
LeBlanc is widely regarded as a relational and consensus-driven leader, known for his ability to navigate complex political environments and build coalitions across party lines.
However, he is not seen as a detail-oriented policymaker. This may mean policies move swiftly through legislative processes, but there could be a risk of insufficient scrutiny during implementation.

The CLA will prioritize regular engagement with the new Finance Minister and his team to ensure that industry concerns are clearly communicated and reflected in policy decisions. We remain committed to working collaboratively with the government to advance reforms that strengthen Canada’s financial ecosystem while safeguarding the interests of lenders and consumers alike.

The 2024 Fall Economic Statement presents both opportunities and challenges for the CLA’s membership. While reforms in open banking, mortgage competition, and SR&ED tax incentives are promising, political instability creates risks for key legislation. The CLA is encouraged by the government’s recognition of our advocacy efforts and remains focused on ensuring that these reforms are implemented effectively and equitably.

The CLA will continue to engage with policymakers, monitor developments, and advocate for a balanced regulatory environment that supports innovation, competition, and financial integrity for all Canadians.