Criminal Interest Rate Regulations

Summary#

The Criminal Interest Rate Regulations (SOR/2024-114) set out which loans are exempt from the lower criminal interest rate that Parliament approved in the Budget Implementation Act, 2023, No. 1. They also set a federal limit on payday loan costs at $14 per $100 borrowed. The regulations were registered on May 31, 2024 and will come into force when related sections of the Budget Act are in force (the regulatory document says this is planned for January 1, 2025).

What it does#

• Creates a business/commercial loan exemption so section 347 of the Criminal Code does not apply when:
  • the borrower is not a natural person (i.e., a company or other non‑individual) and the loan is for business use, and
  • the loan amount is more than $10,000 but less than or equal to $500,000, provided the annual percentage rate (APR) does not exceed 48%, or
  • the loan amount is more than $500,000 (no APR cap under the regulations for those loans).
• Creates a pawnbroking exemption so section 347 of the Criminal Code does not apply when:
  • the lender is in the pawnbroking business, the loan is secured by tangible personal property (not a vehicle), the lender’s only recourse on default is to keep the pawned item, and
  • the loan is less than $1,000 and the APR does not exceed 48%.
• Fixes a federal cap for payday loans in provinces with an approved payday‑loan regime:
  • the limit is $14 per $100 borrowed.
  • one‑time dishonoured cheque fees of $20 or less are excluded from that cap (effectively capping such fees at $20).
  • the regulation clarifies that this payday cap applies alongside applicable provincial rules and does not include interest on outstanding balances that provinces already allow (commonly up to 2.5% per month).
• Clarifies that APR calculations follow generally accepted actuarial practices.
• States the regulations come into force when the listed sections of the Budget Implementation Act, 2023, No. 1 are in force (the government’s implementation note indicates January 1, 2025 as the planned date).

Who's affected#

• Payday lenders and their customers. The payday cap directly affects how much cost can be charged in provinces with an approved payday regime.
• People who use payday loans. The government expects lower direct costs for many borrowers but also predicts some borrowers may lose access to payday credit.
• Pawnshop lenders (most are small businesses). They can continue offering small, collateralized loans under the exemption if conditions are met.
• Businesses borrowing or lending commercially. Loans between $10,000 and $500,000 to non‑individual borrowers may be exempt from the criminal rate if APR ≤ 48%; loans > $500,000 are also exempt.
• Provinces with existing payday‑loan regimes. The federal cap will harmonize the maximum allowable cost across those provinces.
• Groups more likely to use payday loans, including low‑income people, recent immigrants, and Indigenous peoples — these groups are identified in the government analysis as likely to be especially affected.

Why it matters#

• It implements part of the federal plan to reduce predatory lending: Parliament lowered the criminal interest rate framework and these regulations decide where that lower criminal cap will not apply and how payday loans will be limited.
• For payday borrowers, the federal limit of $14 per $100 should reduce the cost of many short payday loans and is estimated in the government analysis to save payday borrowers $226 million (present value) over 2024–2034, with a projected net societal benefit of about $18 million after accounting for lender losses.
• For some borrowers, lower allowable payday charges may mean lenders stop offering loans or close outlets. That could leave some people without this fast but costly source of credit and may push a few toward other risky options.
• For small pawn lenders and certain business lenders, the exemptions preserve current access to their products so they can continue to operate much as before.
• The rules try to balance protecting vulnerable borrowers from very high rates while preserving certain types of commercial and collateralized lending. The real effects will depend on how lenders and provinces respond when the rules come into force.