On April 16, 2024, the Deputy Prime Minister and Finance Minister presented the Canadian Government’s 2024 budget. The government reiterated that it was “reinforcing its efforts to crack down on predatory lending, and moving forward with these reforms to protect Canadians on a priority basis”. The government confirmed that it was planning to move forward in lowering the criminal interest rate to 35 percent APR (currently, the 60 per cent criminal interest rate is equivalent to 45 percent APR) and limiting the costs of payday loans to no more than $14 per $100 borrowed.
In addition, the government announced that it would be proposing legislation to further “protect consumers from predatory interest rates by including new provisions of the criminal code”. Amendments to the Criminal Code were expected to include a prohibition on offering credit at a criminal rate and allowing for the prosecution of “predatory lenders” without the approval of the Attorney General.
The government also announced that it planned to work with the provinces and territories to enhance consumer protection which they indicated may include:
- Capping the costs of optional insurance products for high-cost loans, including payday loans;
- Enhancing transparency and marketing practices for high-cost and payday loans, including limiting advertising of these products;
- Strengthening payday loan regulations, including disclosure requirements to protect Canadians from harmful terms and conditions, including adding a minimum number of days for the loan terms, a requirement for borrowers to repay in installments, and prohibiting loan rollovers;
- Increasing action and harmonization on a proactive approach towards lead generators; and
- Enhancing monitoring and data collection practices in the high-cost loan market, including payday loans.
On May 2, 2024, Bill C-69, the Budget Implementation Act, 2024, No. 1 received first reading and included provisions further amending the Criminal Code’s criminal interest provisions. The legislation amends s. 347(1) as follows (underlining identifies amendments):
“Despite any other Act of Parliament, every person who enters or offers to enter into an agreement or arrangement to receive interest at a criminal rate, who advertises an offer to enter into an agreement or arrangement that provides for the receipt of interest at a criminal rate or who receives a payment or partial payment of interest at a criminal rate is
(a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or
(b) guilty of an offence punishable on summary conviction and liable to a fine of not more than $25,000 or to imprisonment for a term of not more than two years less a day, or to both.”
The Bill also proposes to amend the definition of “credit advanced” and “interest” to conform to the above amendment and to clarify that an offer includes an advertisement.
In addition, subsection 347(7) of the Criminal Code is proposed to be repealed which, if passed, will result in the removal of the consent of the Attorney General to commence proceedings.
Criminal interest is currently calculated at the time an agreement is entered into and also when interest is paid. If the new provisions are adopted, it will also be calculated when there is an offer to finance or an advertisement of an available financing, materially expanding the scope of the existing provision. Clients should be mindful of the proposed changes, in particular, the proposed reduced criminal interest rate, as it is possible that a financing that was compliant at the time it was entered into could, on passage of the amendments, result in the receipt of criminal interest when paid in the normal course, unless the government utilizes regulations to exempt existing agreements from the new provisions or institutes transitional provisions. The government has not yet proposed any regulations or provided comments on any relevant transitional provisions.
