Criminal Interest Cap Tied to Bank Rate

Summary#

This bill amends the Criminal Code to lower the “criminal interest rate” and to count more charges in that rate. It pegs the cap to the Bank of Canada overnight rate plus 30 percentage points and adds insurance charges to the costs that must be counted. It also repeals the payday‑loan exemption in section 347.1.

• Lowers the cap from a fixed 60% effective annual rate to Bank of Canada overnight rate + 30 percentage points (assessed on the day the agreement is entered into or renewed) (s.347(2)).
• Counts all charges and fees as “interest,” including insurance charges paid to get the loan (s.347(2)).
• Repeals the federal exemption that let designated provinces regulate payday loans at higher cost (s.347.1 repealed).
• Keeps some exclusions from “interest,” such as official fees, overdraft charges, required deposit balances, and property taxes on a mortgage (s.347(2)).
• Applies to any credit agreement or arrangement, not only consumer loans (s.347(2)).

What it means for you#

• Households

  • High‑cost loans that exceed the new cap would be illegal to offer after the law takes effect. This includes loans where most of the cost is in fees or insurance, since those charges must be counted (s.347(2)).
  • The cap moves with the Bank of Canada overnight rate. Example: if the overnight rate is 5%, the cap would be 35% effective annual rate; if it is 1%, the cap would be 31% (s.347(2)).
  • Payday loans would no longer have a federal exemption. Provincial rules could not authorize costs above the federal criminal cap (s.347.1 repealed).
  • The rate test is set on the day you enter into or renew the agreement. Existing loans are assessed based on the date they were made or last renewed (s.347(2)).

• Workers

  • Employees at firms that offer very high‑cost credit may see products change or end if those products exceed the new cap. Data unavailable on job impacts.

• Businesses

  • Any high‑cost credit to small businesses would be subject to the same cap, because the definition applies to “any agreement or arrangement” for credit (s.347(2)).
  • Lenders must include all charges paid to obtain the credit—including insurance premiums tied to the loan—when calculating the effective annual rate (s.347(2)). “Effective annual rate” means the yearly rate including compounding.
  • Overdraft charges remain excluded from “interest” (s.347(2)).

• Provinces and territories

  • The repeal of s.347.1 ends the federal designation system for payday loans. Provincial payday‑loan frameworks would continue to exist, but could not permit costs above the federal criminal cap (s.347.1 repealed).
  • No transition or implementation dates are specified in the bill text. By default, changes take effect on coming into force after Royal Assent. Data unavailable on transition guidance.

Expenses#

Estimated net cost: Data unavailable.

• No fiscal note or appropriation is included in the bill text. Data unavailable.
• Potential enforcement, investigation, and court costs for the federal government are not stated. Data unavailable.
• Potential compliance costs for lenders are not stated. Data unavailable.

Proponents' View#

• Lowers high‑cost credit: Replacing the fixed 60% cap with “overnight rate + 30 percentage points” materially reduces the maximum legal cost of credit (s.347(2); current s.347(2)).
• Aligns with market conditions: Pegging the cap to the Bank of Canada rate keeps the ceiling responsive to interest‑rate cycles while allowing a wide margin for risk (s.347(2)).
• Closes fee loopholes: Counting “all charges,” including insurance to obtain the loan, prevents lenders from shifting costs into add‑ons to evade the cap (s.347(2)).
• Uniform national protection: Repealing the payday‑loan exemption ends uneven provincial carve‑outs and applies one federal criminal‑rate standard across Canada (s.347.1 repealed).
• Clear timing rule: The cap is tested “on the day” the agreement is made or renewed, which gives borrowers and lenders a clear reference point (s.347(2)).

Opponents' View#

• Credit access risk: High‑risk borrowers may lose access to small‑dollar or short‑term credit if providers cannot operate within the new cap. Data unavailable on how many loans would be affected.
• Moving cap adds uncertainty: Because the cap depends on the overnight rate, allowable pricing can change over time; products renewed in different rate environments may pass or fail the cap (s.347(2)). Assumes frequent renewals for some products.
• Provincial framework disruption: Repealing s.347.1 could unsettle existing provincial payday‑loan systems that relied on a federal designation. The bill has no transition clause (s.347.1 repealed).
• Compliance and dispute risk: Lenders must calculate an effective annual rate including all charges and insurance. Disagreements over what counts or how to annualize fees could lead to litigation (s.347(2)).
• Enforcement burden: Investigating and prosecuting criminal‑rate cases may increase workloads for regulators and courts. No cost estimate is provided. Data unavailable.