This article was prepared with the assistance of summer law student Zoë Goetz.
On January 1, 2025, section 347 of the Criminal Code reduced the criminal interest rate while shifting the calculation from an effective annual interest rate (EAR) to an annual percentage rate (APR). By shifting the calculation from EAR to APR, lenders will now be committing a criminal offence if entering or providing arrangements at an interest rate exceeding 35% APR – a 12% decrease from the previous provision. The amendments are accompanied by the new Criminal Interest Rate Regulations, which exclude three types of lenders from the 35% APR limit.
A brief history of lending rates
Since its enactment in 1980, there were multiple attempts to lower the criminal interest rate in section 347, with many of the bills lapsing or stalling before serious consideration. In 2004, as a response to the successful implementation of a lower interest rate in Quebec, the first amendment proposal was introduced. Until renewed discussions on the matter appeared in 2021, however, there was little progress on lowering the interest rate.
Prior to January 2025, the Criminal Code made it an offence to create and enter into an agreement or arrangement in which a lender would receive an interest rate exceeding 60% EAR (a roughly 48% APR). Furthermore, it was an offence for the lender to collect an interest rate exceeding 60% EAR.
Current legislation
As of 2025, the legislation does not extend far from its roots. In conjunction with lowering the criminal interest rate from approximately 48% APR to 35% APR, the maximum cost of borrowing on payday loans has been lowered to $14 per every $100 borrowed. The repercussions faced by lenders in violation of the new amendments will mirror those of the previous provision. When a lender enters or offers to enter “into an agreement or arrangement to receive interest at a criminal rate” exceeding 35% APR, they may be liable to imprisonment for up to five years or, on summary conviction, a fine up to $25,000, imprisonment for up to two years or to both.
The provisions are practically identical to the prior legislation. However, the new amendments have expanded the scope of prohibited actions. The scope of liability extends to capture lenders who “advertise an offer to enter into an agreement or arrangement that provides for the receipt of interest at a criminal rate or who receives a payment or partial payment of interest at a criminal rate.” Thus, lenders who advertise agreements or arrangements exceeding the set APR are liable to the punishment under section 347.
The Regulations will introduce exemptions for commercial loans and pawn loans. Commercial loans with a value above $10,000 and up to $500,000 are exempt from the new APR rate. However, the APR associated with these types of commercial loans must not exceed 48% APR. Commercial loans surpassing $500,000 will not be subject to any rate cap, but commercial loans that are $10,000 and below are subject to the new criminal interest rate within section 347. Pawn loans that are valued at $1,000 or less and do not exceed a 48% APR are not subject to the new provision. However, if a pawn loan exceeds $1,000, then the loan is subject to the new 35% APR.
Lender considerations
The Regulations are provided to exempt specific lending practices from the criminal interest rate. Lenders providing loans for business or commercial purposes, pawnbroking loans and payday loans fall outside the scope of the Government’s policy objectives of combatting predatory lending. Lenders or lending arrangements that fall within the scope of the exemptions have some flexibility. However, if a lender is in breach of a lending or APR limit, then the lender is subject to the consequences within the new provision.
The amendments consider interest on loans provided. The interest includes the accumulation of all “charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, or that would be paid or payable if such an agreement or arrangement was entered into by” an individual receiving the credit advancement. Interest does not include “any repayment of credit advanced or any insurance charge, official fee, overdraft charge [or] required deposit balance.”
Grandfathered loans under current legislation
Lending arrangements and agreements entered into before the January 2025 amendments will remain subject to the previous Criminal Code provisions. For instance, if on December 31, 2024, a lender entered into an agreement to provide $999, subject to 48% APR, the lender’s actions remain within the limits of the previous provision and are exempt from the consequences. Hence, if the loan was made in compliance with the previous legislation, lenders remain protected from charges and liabilities.
There is no definitive legislation, commentary and/or discussions suggesting that lenders can renew or extend arrangements or agreements and avoid criminal liability. To illustrate, the subsection coming into force amending the limit to 35% APR does not apply to any receipt of payment, partial payment on or after that day or collection of interest arising from an arrangement or agreement entered into before that day that was not exceeding the previous criminal rate.
This provision suggests that lenders are not liable to the new limit when collecting payment, partial payment or interest on loans entered into before January 1, 2025, that do not exceed the previous limit. However, there are no indicators within the provision suggesting that lenders have an opportunity to renew or extend. It is reasonable to speculate that a renewal or extension of an arrangement or agreement at a rate exceeding 35% APR has an element of freshness. Parliament is looking to combat predatory practices, and by permitting the renewal or extension of an arrangement or agreement exceeding the new rate borrowers would continue to be vulnerable. Lenders could also prey on borrowers by relying on renewals or extensions. Thus, it would be highly unlikely that Parliament would permit renewals or extensions of previous arrangements or agreements that exceed the new interest rate because it would compromise Parliament’s intentions regarding the amendment.
Key takeaways
The recent amendments essentially change the way in which criminal lending rates are calculated. Consequently, the amendments decrease the criminal rate to 35% APR. Since January 1, 2025, lenders who have offered, created or entered into agreements or arrangements exceeding the new rate are at risk for criminal repercussions.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that 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.
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