Low-income Canadians, newcomers and those with low or limited credit history have been the target of predatory lenders for years in Canada. To help protect these vulnerable Canadians, the Government of Canada has proposed to reduce the Criminal Interest Rate to 35% APR from the previous ~ 48% APR. The Regulations will also limit the amount payday lenders can charge to $14 per every $100 borrowed across the country.
When Do These Rules Come Into Force?
Set by the Minster of Justice, these Regulations came into force on January 1, 2025.
On January 1, 2025, sections 610, 611, and 612 of the Budget Implementation Act, 2023 (under section 616) will come into force and amend the Criminal Code.
Who Is Exempt From The New Regulations?
Three types of loans will be exempt from the new criminal interest rate when it comes into force.
Exemptions For Commercial Loans
- Commercial loans exceeding $10,000 but not exceeding $500,000 are exempt from criminal interest rate restrictions if the annual percentage rate (APR) does not exceed 48%.
- Loans exceeding $500,000 are exempt from the 35% rate cap and any other rate caps under the Regulations.
Exemptions For Pawnbroking Loans
- Pawn loans valued under $1,000 are exempt from criminal interest rate restrictions if the APR does not exceed 48%.
- Loans valued at $1,000 or more are subject to a 35% APR limit.
Payday Loan Regulations
- Payday loans are not subject to the new criminal interest rate, as they have their own specific regulations and limits.
- Under the proposed Regulations, payday loans will be subject to a federal limit on the total cost of borrowing, set at $14 per $100 advanced.
- This limit excludes certain fees payday lenders can charge under provincial law, such as penalties for defaulting or dishonoured payments of $20 or less.
- The limit also excludes interest charges (up to 2.5% per month) for unpaid balances.
- These new regulations would apply to all the provinces in the country with an approved payday loan regime.
- Currently, Quebec and the Territories are exempt from the new regulation.
- Québec has its own set of regulations on criminal interest rate, set at 35% APR.
Bottom Line
These Regulations may disproportionately affect a certain group of Canadians and their access to credit, however, it’s meant to help crack down on predatory lending. The amendments to the criminal code will protect borrowers while balancing the need for lending practices that maintain economic development opportunities and continue providing access to credit to vulnerable borrowers.
