Federal Government’s Consultation on Leasing

The Federal Minister of Finance, The Honourable Jim Flaherty, has released a consultation paper requesting the views of Canadians on the subject of allowing banks and other federally regulated financial institutions to be a provider of leases for vehicles and other household properties.

Due to the recent market meltdowns and the general economic downturn since 2007, the financing alternatives available for Canadians, from both a personal and professional standpoint, have diminished tremendously. This financing shortage was addressed by the 2009 Budget when the support of the Canadian Secured Credit Facility (CSCF) was announced. The CSCF will support up to $12 billion in asset backed securities which will be backed by loans and leases of both vehicles and equipment. Consideration must also be given to an ongoing supply of stable and diverse financing options for both consumers and businesses.

The Government of Canada advised they would be approaching market participants to get their opinions on the merits of changing the rules regarding leasing by federally regulated institutions. In recent years in Canada, leasing agreements associated with vehicle sales have represented a large part of the market. In some years, vehicle lease sales represented up to half of all annual sales, but in late 2008 the number of leases dropped to around 20%. Lease and loan financing opportunities are increasingly hard for consumers and businesses alike to obtain from conventional sources, due to restrictions in funding in the marketplace.

Federally regulated financial institutions are currently able to offer leases for personal property, with the exception of vehicles weighing less than 21 tonnes and personal household property. The consultations to be held by the Government will look to other sources for providing lease financing of these items.

Some of the questions to be addressed in the consultations are:

• How do you view the role and prospects of lease financing of vehicles in the coming years?
• Are the existing restrictions on regulated financial institutions with regard to lease financing appropriate in the future financing environment? If not, how should these restrictions be amended to support broad access to financing in a stable environment?
• Does financial leasing of vehicles and personal household property pose risks to financial institutions? If so, how can those risks be managed?

To read the entire consultation proposal, link to the Department of Finance news release here.