Canada Lowers Criminal Interest Rate Cap

Summary#

This bill lowers the federal “criminal interest rate” in the Criminal Code. It replaces the fixed 60% cap with a floating cap set at the Bank of Canada’s overnight rate plus 20 percentage points, measured as an effective annual rate (includes compounding). The overnight rate is taken on the day the credit agreement is signed or renewed. The change takes effect 60 days after royal assent (Clause 1; Coming-into-Force).

• Lowers the cap from 60% effective annually to “overnight rate + 20%” (Clause 1).
• Sets the reference overnight rate at the agreement or renewal date (Clause 1(2)).
• Applies to all credit covered by Criminal Code s.347; payday loan exemptions in s.347.1 are unchanged (Clause 1).
• Takes effect 60 days after royal assent, so lenders must adjust quickly (Coming-into-Force).
• Example: if the overnight rate is 5.00%, the cap would be 25.00% effective annually (Clause 1).

What it means for you#

• Households and individual borrowers

  • High-cost installment loans, retail financing, pawn, and subprime credit that exceed “overnight rate + 20%” effective annually would no longer be legal after the change for new or renewed agreements (Clause 1).
  • Standard credit cards charging nominal rates near 20% could be affected if their effective annual rate (with compounding) exceeds the cap that applies on the agreement date (Clause 1).
  • Existing agreements are assessed against the cap using the overnight rate on the day the agreement was entered or renewed; the cap does not reset daily as rates change (Clause 1(2)).

• Small businesses and retailers that offer financing

  • Store cards, buy-now-pay-later, rent-to-own, and in-house financing must ensure the effective annual cost (including compounding) stays at or below “overnight rate + 20%” for new or renewed agreements (Clause 1).
  • Contracts that exceed the cap could be unenforceable and expose the business and its officers to Criminal Code risk under s.347 (Clause 1 by reference to s.347).

• Lenders (banks, credit unions, fintech, finance companies)

  • Must review all products priced above the new threshold and reprice, redesign, or withdraw them for new or renewed agreements after the effective date (Clause 1).
  • Need to calculate the effective annual rate using accepted actuarial methods and confirm compliance on the agreement/renewal date (Clause 1).
  • Variable-rate products are tested against the cap using the overnight rate on the agreement/renewal date, not future rates (Clause 1(2)).

• Provinces and payday lending

  • The bill does not change the Criminal Code payday loan exemption framework in s.347.1; provincial regimes designated under s.347.1 remain in place (Clause 1).
  • In provinces without a designated payday regime, the new federal cap would apply to payday loans through s.347 (Clause 1).

• Timing

  • The law would start 60 days after royal assent. Agreements entered into or renewed on or after that date must meet the new cap (Coming-into-Force).

Expenses#

Estimated net cost: Data unavailable.

• No appropriations, taxes, or fees are included in the bill text (Clause 1; Coming-into-Force).
• Possible federal enforcement and court workload changes: Data unavailable.

Proponents' View#

• The 60% cap is outdated; pegging the cap to the overnight rate plus 20 points better reflects market conditions and reduces extreme rates (Clause 1).
• A floating cap provides a clear formula that adjusts over time, improving predictability for borrowers and lenders (Clause 1).
• Using the “effective annual rate” and defining the overnight rate at the agreement date closes room for confusion about compounding and timing (Clause 1).
• The change can lower costs for borrowers on high-cost credit that currently prices far above mainstream products (Clause 1). Magnitude depends on the overnight rate on contract dates (assumption noted).

Opponents' View#

• The cap could make some subprime products uneconomic, reducing access to credit for higher-risk borrowers who cannot qualify at lower rates (risk of credit rationing; assumption noted).
• Common products with high nominal or penalty rates could breach the cap when the overnight rate is low, forcing rapid repricing within 60 days (Clause 1; Coming-into-Force).
• Borrowers turned away may shift to exempt payday loans in designated provinces or to informal/illegal lenders, increasing other risks (s.347.1 unchanged; assumption noted).
• Compliance is complex: lenders must compute effective annual rates and track the applicable overnight rate on each agreement/renewal date, raising operational and legal risk (Clause 1).