The Canadian Trucking Alliance (CTA) has learned the Bank of Montreal (BMO) has revised its mortgage policies for borrowers in high-risk sectors impacted by the tariff war. In a memo sent to brokers this week, BMO announced it is tightening some of its lending criteria for self-employed borrowers working in tariff-impacted sectors.
CTA reached out to the Canadian Bankers Association (CBA) to caution and offer guidance on how lending practices affects the trucking sector, namely the risk of lending funds to those who operate in the underground economy and whose business models are based on non-compliance and averting regulations.
CTA wrote CBA to outline the difference between legitimate small businesses in our sector and those who operate in the underground economy, to ensure they are understand where the true risk exists.
In its letter, CTA explained that while Statistics Canada lists the general freight industry as the 10th largest sector utilizing self-employed workers, the rating does not paint the full picture of the risk level for the sector.
CTA emphasized that legitimately self-employed owner-operators, who are the payers of their own equipment and businesses expenses, are in fact credible small businesses and should not be treated any differently or downgraded in any way.
“The real risk in the sector relates to those involved in the underground economy, both companies and workers, who are using the Driver Inc. scheme to improperly file as self-employed; or in many cases, simply not file taxes at all,” says CTA president Stephen Laskowski. “Banks who have loaned to such companies who wrongly and purposefully misclassify true employees as independent face long term risk from this underground scheme – which multiples in the midst of a tariff war.”
Banks, says CTA, should be taking note of the recent moves by the federal government to tackle the well-known and widespread tax and labour abuse taking place in the sector, including, most recently, the establishment of Employment and Social Development’s dedicated misclassification team and the recent information sharing agreement between ESDC and the Canada Revenue Agency (CRA) to crack down on tax and labour violations. This too multiplies the risk for banks that choose to finance customers operating in the underground economy and who utilize illegal employment schemes.
As ESDC and CRA note in their joint release, “both the CRA and the Labour Program recognize the importance of addressing worker misclassification, wage theft, and non-compliance with tax laws respectively. We will fight against unfair labour practices to help workers receive the protections they are entitled to under the Canada Labour Code, and we will enforce compliance with tax obligations under the Income Tax Act.”
Without paying attention to these co-mingled risks, the banks face a shift under the now enforced ESDC policies targeting potential clients that choose illegal labour classifications.
“There is no doubt the current trade war is putting our sector under financial pressure,” says Laskowski. “But lenders should not be worried about legitimate, compliant businesses. More than ever, the real risk and exposure is lending to those companies who have built a house of cards based on illicit business practices. We believe it’s time lenders and others start to get a grasp on just how much risk they may be exposed to by doing business with those operating in the underground economy.”