Canada’s new criminal rate of interest takes effect

By David Wedlake and Noah Archibald

The Federal Government’s changes to the criminal rate of interest under the Criminal Code came into effect on January 1, 2025. These changes reduced the criminal rate of interest under the Criminal Code from an effective annual rate of 60% (equivalent to an approximate annual percentage rate of 48%) to an annual percentage rate (APR) of 35%.

Section 347 of the Criminal Code makes it a criminal offence to enter into an agreement or arrangement to receive interest at a criminal rate, or to receive a payment or partial payment of interest at a criminal rate. Interest under the Criminal Code is broadly defined to include 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.

In addition to this change to the criminal rate of interest, the Federal Government’s new Criminal Interest Rate Regulations also came into effect on January 1, 2025. The Regulations include certain exemptions to the criminal rate of interest for (i) commercial loans, (ii) pawnbroking loans, and (iii) payday loans. We previously discussed these exemptions in Proposed Criminal Interest Rate Regulations: exemptions to the lower criminal interest rate. A brief overview of these exemptions is included below.

Criminal Interest Rate Regulations: Exemptions to the Criminal Interest Rate

Commercial Loans

The Regulations provide exemptions for certain commercial loans depending on their size:

• Commercial loans over $500,000: Provided that the loan is made to a borrower other than a natural person (i.e. to corporate or other entities) and for commercial or business purposes, no criminal interest rate limit will apply.

• Commercial loans over $10,000 but less than or equal to $500,000: Similarly, provided that the loan is made to a borrower other than a natural person and for commercial or business purposes, a criminal rate of interest limit of 48% (APR) will apply.

• Commercial loans of $10,000 or less: The general 35% (APR) criminal rate of interest will apply, regardless of the borrower or whether the loan is made for business or commercial purposes.

Pawnbroking Loans

Pawnbroking loans may charge a higher rate of interest, up to 48% (APR), provided that: (i) the lender carries on business as a pawnbroker, (ii) the loan is advanced in exchange for the pawning tangible personal property (other than a vehicle), (iii) the lender’s recourse upon a default under the loan is limited to the seizure of the pawned property, and (iv) the loan is less than $1,000. Pawnbroking loans over $1,000 are subject to the general 35% (APR) criminal rate of interest.

Payday Loans

Going forward, the Criminal Code will now limit the total cost of borrowing under a payday loan in provinces which have enacted legislation that provide for limits on the total cost of borrowing under the payday loan arrangements. Under the Criminal Code and Regulations, the total cost of borrowing for a payday loan (which meets the criteria under the Criminal Code) is limited to 14% of the amount loaned, and a limit on charges for dishonoured payments is also imposed.

Implications

The Federal Government is also pursuing additional amendments that would further expand the application of the criminal interest rate rules. The Budget Implementation Act, 2024, No 1 includes revisions to section 347(1) of the Criminal Code that would create a new offence of offering or advertising an offer to enter into an agreement or arrangement at a criminal rate of interest. These changes are to take effect on a date to be determined by the Governor in Council.

While these changes offer relief for lenders providing commercial loans in excess of $500,000, lenders providing small to medium sized loans, or loans to individuals, must be aware of the reduced criminal rate of interest, as well as the revised method for calculating a criminal rate of interest under the Criminal Code (which changed from an effective annual rate basis to an annual percentage rate (or APR) basis).

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the authors or a member of our Banking & Finance Group.

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