Consultation on Proposed Changes to Canada’s Criminal Interest Rate

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On August 9, 2022, the Department of Finance Canada launched its early consultation, Consultation on the fight against predatory lending, which examines proposed changes to the criminal interest rate and the supply of high-cost installment loans in Canada. We previously reported on the impending consultation in our article, “Lowering the Criminal Interest Rate – Upcoming Consultation.”

Any change in the criminal interest rate will affect the current lending practices of lenders operating in Canada. Responses to the consultation paper must be received by October 7, 2022.

Current criminal interest rate

Usury law is federally regulated in Canada (other than payday loan law) under the criminal code (the code). It is a criminal offense to receive payment or partial payment of interest at a criminal rate, or to enter into an agreement or arrangement to receive interest at a criminal rate.

The current criminal interest rate in Canada, which applies to most loan products in Canada, is an effective annual rate of over 60% per annum. “Interest” is broadly defined in the Code and includes all costs and expenses in any form, including fees, fines, penalties and commissions.

Payday lenders are not subject to the criminal rate under the Code if (1) such lender is licensed or otherwise authorized in the respective province as a payday lender, (2) the loan amount is of C$1,500 or less and the term is 62 days or less, and 3° the provincial legislation applicable to the payday lender includes measures that protect borrowers and limit the total cost of borrowing.

High interest rate installment loans (other than payday loans) are subject to the criminal rate of interest. In recent years, some provinces have regulated high-cost lenders offering installment loans. With the exception of Quebec, where the trigger rate is the Bank of Canada discount rate plus 22%, in common law jurisdictions that regulate high-cost credit, credit arrangements whose annual rate is 32% or more are considered high cost credit. High-cost lenders must be licensed and are subject to prescribed disclosure and other requirements.

Changes contemplated in the consultation

The consultation focuses on proposals that the federal government could pass into law regarding criminal interest rates and high-cost installment loans in Canada. Comments are invited from the public on the following questions:

  • Should the criminal interest rate be set at a fixed level or tied to market conditions?
  • What are the reasons why financial consumers are accessing high cost installment loans?
  • What impact would lowering the criminal interest rate have on the availability of credit for financial consumers who use high-cost installment loans?
  • How could the Government of Canada, including the Financial Consumer Agency of Canada, improve financial education and awareness about high-cost installment loans to further empower and protect Canadians as that they make informed financial decisions?
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