Written By Denise Bright, Preet Gill and Kellen Rosenau
The government of Canada is seeking feedback on proposed changes to lower the criminal rate of interest (currently set at 60 percent), with a focus on high-cost installment loans. The criminal interest rate provisions in the Criminal Code were first enacted in 1980 and, other than minor tweaks and the exclusion of certain payday loans in 2007, have remained relatively unchanged.
We have written many times about (thus 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 initiated its consultation on Fighting Predatory Lending by Lowering the Criminal Rate of Interest. The government's intention is to lower the current 60 percent interest rate, an outcome which would have significant and wide-ranging impact on lenders. The consultation encourages feedback from various stakeholders about the impacts of lowering the criminal rate of interest in the Criminal Code. Responses are due by October 7, 2022.
The Current Criminal Rate of Interest
Section 347(1) of the Criminal Code makes it a criminal offence to agree to receive or to receive interest at a criminal rate—being any amount of interest over 60 percent per annum. The definition of interest is wide and inclusive, with the ability to capture many amounts not categorized as "interest", and results in many loans being (potentially unintentionally) caught by the current provision. There is an exception for payday loans meeting specific criteria in some provinces, which generally covers situations when provincial consumer protections apply to short term, low amount, consumer loans.
The Consultation on Fighting Predatory Lending by Lowering the Criminal Rate of Interest
The consultation seeks feedback from the public about changing the criminal interest rate. The government has identified concerns in particular with high-cost installment lenders and their effect on marginalized individuals. Any changes, however, will likely have much broader economic consequences. Ultimately, the government wants to understand the risks and benefits, from both commercial and consumer perspectives, associated with reducing the criminal interest rate.
Unlike previous bills to alter the rate, such as Bill C-274 (May 2021) or Bill S-239 (March 2022), the consultation does not propose a new criminal rate of interest, other than broadly proposing to lower the rate. The consultation also does not propose how the rate should be calculated or any potential exceptions.
The consultation seeks feedback on seven questions:
- Should the criminal rate of interest be set at a fixed level or linked to prevailing market conditions?
- To what extent does the interest rate charged by alternative lenders on high-cost installment loans reflect the borrower's creditworthiness?
- Why do financial consumers access high-cost installment loans?
- How do high-cost installment loans affect Canadians' financial well-being and financial resilience?
- How would lowering the criminal rate of interest affect the availability of credit for financial consumers who use high-cost installment loans? Would lowering this rate cause any detriment to financial consumers, including lost or reduced access to credit?
- How would lowering the criminal rate of interest affect credit products other than high-cost installment loans?
- How could the government improve financial education and awareness regarding high-cost installment loans to help protect Canadians make informed financial decisions?
Although the consultation specifically appears focused on high-cost installment lenders, altering the criminal interest rate may have far-reaching impacts on businesses that advance funds generally. The consultation acknowledges 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.
Submitting Feedback to the Consultation
It is crucial that the government of Canada understand the effects, specifically on corporate entities, of altering the criminal interest rate, as the potential risks and benefits to corporate lenders and borrowers may be material. By submitting concerns and feedback before the October 7, 2022 deadline, corporate stakeholders can highlight how lowering the criminal interest rate may restrict options and flexibility for corporate lending, borrowing and investing. The government has indicated it will consider submissions alongside research before deciding to make changes to the criminal interest rate legislation. At present, there is no timeline for any proposed changes but we will continue to monitor the consultation and any legislation proposed as a result.
The authors or your Bennett Jones contact would be pleased to assist your organization with submitting feedback to the consultation.
1 See Equity Kickers and the Criminal Rate of Interest, May 08, 2017, Equity Kickers and the Criminal Rate of Interest: Part II, February 04, 2019, DIP Loans and the Criminal Rate of Interest, May 26, 2022, An Update on Canada's Efforts to Amend the Criminal Rate of Interest, May 30, 2022 and Significant Changes Proposed to the Criminal Interest Rate, May 18, 2021.