The Federal Government Intends to Lower the Criminal Interest Rate to 35%

By David Young

The criminal interest rate in Canada is currently set at 60% per year, as outlined in the Criminal Code of Canada Section 347(2). On March 28, 2023 the Federal Government tabled a notice to introduce changes to the Criminal Code lowering the rate to 35%. This is in follow up to a pledge made in the Federal 2023 budget after consultation with the public and stakeholders in 2022.

The criminal interest rate is designed to protect borrowers from predatory lending practices and to ensure that lenders do not take advantage of vulnerable individuals who are seeking alternative financing when rejected by the major banks. It applies to all types of loans except payday loans.

Under Section 347(2) of the Criminal Code, payday loans are defined as:

• An amount under $1,500;
• Maximum term of 62 days or less;
• Offered by a licensed lender in a province with consumer protection laws in place to protect payday loan borrowers.

Ontario does have consumer protection laws whereby the maximum total cost of borrowing for a payday loan is capped at $15 per $100 borrowed, which is equivalent to an annual interest rate of 391%.

Any lender who charges an annual interest rate above 60% (35% if lowered) on any other type of loan may be subject to criminal charges. The lender may be prosecuted, with a maximum imprisonment of 5 years if prosecuted by indictable offence, or a maximum fine of $25,000 and 6 months imprisonment if prosecuted summarily. This is in addition to any civil remedies that may be available to borrowers in court, whereby offending provisions of a loan agreement may be unenforceable, and in some cases allow the borrower to only have to repay the principal.

The Federal Government has also proposed that, with the recommendation of the Minister of Justice and Minister of Finance, they will allow certain types of loans to be exempt from the criminal rate of interest. We will continue to monitor these developments for you!