The federal government intends to lower the criminal interest rate from 60% effective annual rate (EAR) to 35% annual percentage rate (APR), which equals about 42% EAR, in order to combat predatory lending. "Interest" includes all charges and expenses, including fees, fines, penalties, or commissions, which are associated with advancing a loan.
In January 2024, the government indicated certain commercial, pawn, and payday loans will be exempt from the new restrictions. Importantly for many private lenders, commercial loans over $500,000 will be entirely exempted from criminal interest rate laws. The reason being that these types of larger, sophisticated transactions should not affect vulnerable Canadians.
Commercial loans under $10,000 will have the new interest rate limitations.
Commercial loans between $10,000 and $500,000 will continue to have the existing criminal rates apply. This is to provide small business owners with some level of protection from loan sharks.
Lenders and brokers should be aware of these changes and take the time to learn their responsibilities under the new laws. Violations can result in fines of up to $25,000 or imprisonment of up to 5 years.
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