Criminal interest: A lowering bar

Following the passing of the Budget Implementation Act, 2023, No. 1 (the “Act”) on June 22, 2023, the criminal interest regime in Canada is poised to shift at a moment’s notice.

In a bid to protect vulnerable borrowers from being trapped in a cycle of debt, and from predatory lending practices more generally, the federal government has spearheaded significant changes to its lending policy regarding criminal interest rates.

More details

The criminal rate represents the maximum rate of interest that can legally be charged in Canada without attracting sanction under section 347 of the Criminal Code. Pursuant to the Act, the criminal interest rate will be reduced from 48% to 35% on an annualized percentage rate (“APR”) basis for the vast majority of Canadian credit arrangements. The exceptions are detailed below.

Details of the planned changes to the criminal interest rate regime are being released. On December 23, 2023, the federal government published its proposed Criminal Interest Rate Regulations (the “Regulations”) in the Canada Gazette, providing a first look at the potential scope of changes to come. While the Regulations remain subject to change, the publication provides essential guidance on the anticipated modifications.


First, the Regulations propose that commercial loans – loans paid to corporate borrowers to be used for business purposes – will be exempt from the criminal interest rate to varying degrees depending on the loan’s value. The federal government suggests that applying a static criminal interest rate to commercial loans indiscriminately harms business by constraining the lending activities of sophisticated entities. Further, Ottawa implies that commercial loans (as opposed to personal loans) do not have the potential to trap individual Canadians in a cycle of debt.

Accordingly, the Regulations set out the following exceptions to the new criminal interest regime for commercial loans:

  1. Commercial loans below $10,000 will be subject to the new 35% APR criminal limit. In large part, this is to prevent lenders from attempting to avoid the criminal interest rate by characterizing consumer loans as commercial loans.
  2. Commercial loans between $10,000 and $500,000 will remain at the current 48% APR criminal limit. This allows for (relatively) more contractual freedom as compared to consumer loans, while still offering some upper limit protection to small business owners borrowing money in this range.
  3. Commercial loans over $500,000 will have no restriction on interest rates going forwards. The federal government hopes that this will allow sophisticated Canadian entities to participate more easily in private equity and venture capital activities, while generally reducing contractual frictions.

Second, some “payday loans” – described as an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature – are exempted from the 35% criminal interest rate. To qualify as exempt, payday loans must be less than $1,500 and for a period of 62 days or less. Additionally, the Regulations propose that the cost of borrowing must not exceed $14 per every $100 borrowed (this limit is currently set at $15 per $100 borrowed in British Columbia). This represents an APR of more than 350% on a two-week loan period. Existing provincial payday loan rules will not change as a result of the Regulations, unless there is conflicting information.

Finally, some “pawn loans” – described as non-recourse, collateralized loans – will also be exempt from the new 35% APR criminal limit, so long as the APR on these loans does not exceed 48% and the loan is valued at less than $1,000. The federal government justifies this exemption because pawn loans do not depend on borrowers’ income or credit and must be secured by collateral. The worst case scenario for borrowers is simply losing their collateral (valued at less than $1,000), which is an acceptably low degree of risk in the federal government’s view.

Looking forward

While there is no set date for the criminal interest regime changes to come into force, the Governor in Council could fix a date at any point. Once the Regulations are finalized, the federal government has indicated that a three-month notice period will be given between publishing the finalized Regulations in the Canada Gazette, Part II and changes coming into force. As such, lenders should take proactive steps to ensure they are prepared for the new changes and can come into full compliance within three months’ notice. Such preparation should include review of interest terms in existing loans, as well as potential changes to lending policy going forward.

Lenders should also be aware of further potential changes to the criminal interest regime. While some groups, such as the Canadian Lenders Association, have urged the federal government to proceed with caution to avoid worsening non-prime borrowers’ ability to access credit, the federal government has indicated that it is already considering further lowering the criminal interest rate in the future. The Department of Finance invites comments at any time.

If you are engaged in lending money in Canada and require further guidance to prepare for these changes, utilize the new commercial lending terms or ensure that your lending agreements will remain legal, please reach out to MLT Aikins banking & commercial lending team.

Note: This article is of a general nature only and is not exhaustive of all possible regulatory requirements, legal rights, or remedies. Laws may change over time and should be interpreted only in the context of particular circumstances. These materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.