government seeks comment on criminal interest rate cut | Bennett Jones LLP

[co-author: Kellen Rosenau – Articling Student]

The Government of Canada is seeking comments on proposed changes to reduce the criminal interest rate (currently set at 60%), with a focus on high-cost installment loans. The criminal interest rate provisions in the criminal code were first enacted in 1980 and, with the exception of minor changes and the exclusion of certain payday loans in 2007, have remained relatively unchanged.

We have written many times about (so far unsuccessful) attempts to change the criminal interest rate, including the most recent bill introduced in the Canadian Senate.1 In August 2022, the Government of Canada launched its consultation on Fight predatory lending by lowering the criminal interest rate. The government’s intention is to lower the current interest rate by 60%, an outcome that would have a significant and widespread impact on lenders. The consultation encourages comments from various stakeholders on the impacts of the lower criminal interest rate in the criminal code. Responses are expected by October 7, 2022.

The current criminal interest rate

Section 347(1) of the criminal code makes it a criminal offense to accept or receive interest at a criminal rate, i.e. any amount of interest in excess of 60% per annum. The definition of interest is broad and inclusive, with the ability to capture many amounts not classified as “interest”, and results in many loans being (potentially unintentionally) covered by the current provision. There is an exception for payday loans meeting specific criteria in certain provinces, which generally covers situations where provincial consumer protections apply to short-term, low-value consumer loans.

The consultation on fighting predatory lending by lowering the criminal interest rate

The consultation invites public comments on the change to the criminal interest rate. The government has identified concerns in particular with high cost installment lenders and their effect on marginalized people. However, any changes are likely to have much wider economic consequences. Ultimately, the government wants to understand the risks and benefits, from both a business and consumer perspective, associated with lowering the criminal interest rate.

Unlike previous bills to change the rate, such as Bill C-274 (May 2021) or Bill S-239 (March 2022), the consultation does not propose a new criminal interest rate, except for a general proposal to lower the rate. The consultation also does not suggest how the rate should be calculated or any exceptions.

The consultation invites comments on seven questions:

  1. Should the criminal interest rate be set at a fixed level or tied to market conditions?
  2. To what extent does the interest rate charged by alternative lenders on high-cost installment loans reflect the creditworthiness of the borrower?
  3. Why are financial consumers accessing high-cost installment loans?
  4. How do high-cost installment loans affect the financial well-being and financial resilience of Canadians?
  5. How would the lower criminal interest rate affect the availability of credit for financial consumers who use high-cost installment loans? Would lowering this rate cause harm to financial consumers, including loss or reduced access to credit?
  6. How would the lower criminal interest rate affect credit products other than high-cost installment loans?
  7. How could the government improve financial education and awareness about high-cost installment loans to help protect Canadians who make informed financial decisions?

Although the consultation seems specifically focused on high-cost installment lenders, the change in the criminal interest rate may have a significant impact on businesses that advance funds in general. The consultation recognizes that changing this rate could affect other types of credit products, including, but not limited to, lines of credit, subprime auto loans, and credit cards.

Submit comments to the consultation

It is critical that the Government of Canada understand the effects, particularly on corporations, of changing the criminal interest rate, as the potential risks and rewards for corporate lenders and borrowers can be significant. By submitting concerns and comments before the October 7, 2022 deadline, business stakeholders can highlight how the lower criminal interest rate may restrict options and flexibility for business lending, borrowing and investing. . The government has said it will review submissions alongside research before deciding whether to make changes to criminal interest rate legislation. At this time, there is no timeline for the proposed changes, but we will continue to monitor the consultation and any proposed legislation as a result.

1 See Equity Kickers and the Criminal Interest RateMay 08, 2017, Equity Kickers and the Criminal Interest Rate: Part IIFebruary 04, 2019, DIP loans and criminal interest rateMay 26, 2022, An update on Canada’s efforts to change the criminal interest rateMay 30, 2022 and Proposed Significant Changes to the Criminal Interest RateMay 18, 2021.

Willie R. Golden