Criminal Interest Rate Regulations

Summary#

This is a proposed set of rules called the Criminal Interest Rate Regulations that would sit alongside changes in the Criminal Code announced in the Budget Implementation Act, 2023, No. 1. The proposal would create narrow exemptions for some business and pawn loans and set a federal cap on payday loan costs at $14 per $100; this is a proposal open for public comment for 30 days and is not law yet.

What it does#

• Lowers the overall criminal interest-rate ceiling in the Criminal Code to 35% APR (this change comes from the Budget Implementation Act, 2023, No. 1). These Regulations are meant to work with that change.
• Exempts some commercial loans from the criminal-rate rule:
  • Loans to non‑natural persons (business borrowers) where the credit advanced is more than $10,000 and up to $500,000, provided the APR does not exceed 48%.
  • Commercial loans above $500,000 would not be subject to any federal rate cap under the proposed Regulations.
  • Commercial loans of $10,000 or less would remain subject to the criminal-rate limit.
• Exempts certain pawn (small secured) loans:
  • Pawnbroking loans under $1,000 would be exempt if the APR is at or below 48% and the lender’s only recourse on default is keeping the pawned item.
  • Pawn loans of $1,000 or more would remain subject to the criminal-rate limit.
• Sets a federal maximum cost for payday loans that qualify for the Criminal Code’s payday exemption:
  • Caps total payday loan charges at $14 per $100 advanced.
  • Allows a one-time dishonoured cheque (or similar) fee of up to $20 to be excluded from that $14 limit.
  • Does not include interest on outstanding principal in the $14 calculation (provincial rules commonly allow up to 2.5% per month interest on outstanding amounts).
• Timing and scope:
  • The Regulations would apply to loans entered into on or after the date they come into force.
  • The RIAS indicates the final rules would come into force about three months after publication in Canada Gazette, Part II (and the public has 30 days to comment on the proposal now).

Who's affected#

• Borrowers who use payday loans the most: people with low incomes, Indigenous peoples, recent immigrants, and many women. The RIAS notes these groups are over‑represented among payday loan users.
• Payday-lending businesses and storefronts. The model in the analysis suggests lenders would earn less and some may close or consolidate.
• Pawnbrokers and small secured-lending businesses, which would largely be able to continue offering small collateralized loans under the exemption.
• Small and larger commercial lenders and business borrowers, especially those making loans above $10,000 or $500,000.
• Provinces and territories: only provinces that have an approved provincial payday regime are treated the same under the federal payday cap; Quebec and the territories (which are not designated) currently have payday offerings that would still be subject to the criminal rate unless they seek designation.

Why it matters#

• The package aims to curb predatory, high‑cost lending while keeping access to some business and small secured loans.
• For payday-borrowers, the federal cap of $14 per $100 is intended to lower the cost of short-term high‑fee loans and harmonize limits across designated provinces. The RIAS estimates savings to remaining payday borrowers of about $1.25 per $100 and collective savings of roughly $29.3 million in the first year (about $256.8 million over 10 years).
• The changes could reduce payday-lending supply. The Department’s model projects over 44,000 fewer payday borrowers and about 93,000 fewer loans in the first year. That may help some people avoid debt traps but could leave others without a short-term credit option.
• Impact on industry and small businesses: the Department estimates payday-lender profits would fall by about $30.7 million in year one (about $238.5 million over 10 years). Some lenders may exit the market or move online.
• There are trade-offs and uncertainties. The government’s cost‑benefit model shows a modest net present benefit overall (about $18.2 million over the modelling period), but results are sensitive to market reactions. The proposal also notes a small risk that reduced legal access could push some borrowers to illegal lenders.
• This is a proposed regulation. Comments can be submitted during the 30‑day consultation period before any final rules are made.