Canada’s Crackdown on High Interest: What the New 35% Cap Means for You

• Jeskiret
  Bains

  Jeskiret
  Bains

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As of January 1, 2025, Canada has implemented significant changes to its criminal interest rate provisions under the Criminal Code (the “Code”). Pursuant to Section 347 of the Code, the maximum allowable interest rate has been reduced from an effective annual rate exceeding 60% to a more stringent annual percentage rate (“APR”) cap of 35% (the “Cap”). This adjustment aims to curb predatory lending practices and protect vulnerable borrowers from exorbitant interest charges.

Key Changes and Exemptions

The Criminal Interest Rate Regulations introduce exemptions to balance consumer protection with economic flexibility:

• Commercial Loans: Loans to non-individual borrowers, for example, corporations, for business purposes are exempt from the Cap. For loans between $10,000 and $500,000, the maximum interest rate is set at 48% APR. Loans exceeding $500,000 are entirely exempt from the criminal interest rate provisions.
• Pawnbroking Loans: Loans under $1,000 secured by tangible personal property (excluding vehicles) are exempt from the Cap, provided the only recourse in case of default is the seizure of the pawned item, and the interest rate does not exceed 48% APR.
• Payday Loans: A federal cap has been introduced, limiting the total cost of borrowing for payday loans to 14% of the loan advanced. This cap applies across all provinces with approved payday loan regimes and excludes certain fees, such as those for dishonoured cheques under $20.

Broader Enforcement and Implications

The amendments also expand the scope of the criminal interest rate offence to include the offering or advertising of credit at rates exceeding the legal limit. This enhancement empowers law enforcement to act against predatory lending practices even before a loan agreement is finalized.

While these changes aim to protect consumers, concerns have been raised about potential unintended consequences for example, the potential to drive high-risk borrowers toward unregulated or illegal lending sources, which could offer even higher interest rates and fewer protections.

As these regulations take effect, it’s crucial for both lenders and borrowers to understand the new legal landscape to ensure compliance and informed decision-making.

For further information or guidance on the changes outlined in this article, please contact our office.

_{This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.}