There is a limit on the rate of interest that lenders can charge borrowers in Canada. With two notable exceptions, interest rates above 60% annually are not legal.
The Federal Criminal Code, specifically Section 347, establishes a “criminal limit” of 60% interest, and defines the components on which that limit should be calculated.
The first notable exception is in Quebec. Judgments of the Court of Quebec have established that rates above 35% violate Section 8 of its Consumer Protection Act.
The second notable exception is for payday loans. Those products charge significantly higher rates of interest for short borrowing periods, typically less than a month.
When those products grew in popularity, both provincial and federal governments worked to create an exception to the Section 247 provision. Loans that met certain criteria (under $1,500, less than 60 days to repay) would not violate the Criminal Code, provided provinces had passed legislation to limit and enforce those loans.
To date, eight provinces have passed payday loan legislation. Quebec has not, relying on its 35% limit, while Newfoundland and Labrador has announced plans to legislate, but that process is incomplete.
The issue of criminal lending limits is discussed in detail in a 2018 Consumers Council of Canada report Consumer Experiences with Higher Cost Credit.
That report notes another complication with enforcement. If a lender charges a rate of interest above the legal limits, how are consumers protected? Most provincial consumer protection offices indicate they have no ability to enforce in that area. The only potential for pro-active enforcement comes from the federal legislation.
Those looking for criminal enforcement are likely to be disappointed. In response to a query from researchers, the Federal Department of Justice indicated that the criminal interest rate legislation was introduced into Canadian law as a means to target loan sharking and was “not intended to act as a consumer protection tool.” The Criminal Code provision has led to “consumer protection” in instances when class action lawyers have mounted cases against lenders – these cases triggered the development of payday loan legislation – but not in instances when loans with rates higher than 60 per cent are offered in plain sight but without immediate evidence of the kind of threats sometimes associated with loan sharks to enforce repayment.