Consultation on Cracking Down on Predatory Lending Faster by Further Lowering the Criminal Rate of Interest and Increasing Access to Low-Cost Credit

Current status: Open

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As announced in Budget 2023, the government is working to lower the criminal rate of interest to protect Canadian consumers from predatory lenders. The Department of Finance is launching consultations to crack down on predatory lending faster by exploring further lowering the criminal rate of interest, increasing access to low-cost, small-value credit in Canada, and on additional revisions to the payday lending exemption. These consultations also explore steps to protect Canadians from unfair marketing schemes and high credit fees.

Background

Predatory lenders can take advantage of some of the most vulnerable people in our communities, including low-income Canadians, newcomers, and seniors—often by extending very high interest rate loans.

To protect vulnerable Canadian consumers, Budget 2023 announced the federal government’s intention to introduce changes to the Criminal Code of Canada to lower the criminal rate of interest from the equivalent of 47 per cent annual percentage rate (APR) to 35 per cent APR and adjust the Criminal Code’s payday lending exemption to require payday lenders to charge no more than $14 per $100 borrowed. Budget 2023 also announced that the government would consult Canadians on whether the criminal rate of interest should be further reduced and on additional revisions to the Criminal Code’s provincial or territorial-requested payday lending exemption.

The criminal rate of interest in the Criminal Code is applicable to nearly all lending products in Canada (e.g., installment loans, lines of credit, auto loans, auto title loans, credit cards, and more). Payday loans (loans for values of $1,500 or less and for a term of 62 days or less) offered by licensed lenders are currently exempt from the criminal rate of interest.

Lowering the criminal rate of interest is an important first step in safeguarding Canadians from predatory lending. However, some of the most vulnerable Canadians, particularly those who are struggling to pay for basic needs, may continue to face challenges in accessing credit. These struggles may be further exacerbated in the current cost of living environment, particularly through higher prices for necessities such as food and housing.

In previous consultations held from August 9, 2022, to October 7, 2022, stakeholders raised concerns that vulnerable Canadians have few options for low-cost, small-value credit, particularly at banks and credit unions. Canadians facing financial shortfalls therefore often resort to seeking high-interest installment loans or payday loans.

High-cost loans and payday loans are predominantly used by low-income Canadians, including those who are experiencing poverty or are at risk of poverty. The use of high-cost loans and payday loans is also higher among individuals with lower education, single-income households, newcomers to Canada, and Indigenous Canadians. High-cost loans and payday loans are often used as a short-term solution by consumers who face ongoing liquidity issues, perpetuating a cycle of debt.

Key Questions for Consideration

Access to Low-Cost, Small-Value Credit

There are a number of reasons Canadians may seek out credit to address short-term financial shortfalls. While many Canadians turn to banks and credit unions to access credit, financially vulnerable Canadians may face significant barriers to accessing credit from these types of financial institutions. For example, few banks and credit unions currently offer low-cost, small-value credit to Canadians with low- or no-credit histories. Even when available, some Canadians face barriers to accessing these products as they are only offered in certain regions or under certain conditions.

As a result, these Canadians often turn to alternative lenders (e.g., lenders other than a bank or credit union) or payday lenders to access a variety of credit products, including high-cost installment loans, which generally carry significantly higher interest rates compared to products offered by banks and credit unions. Some Canadians may even turn to unlicensed or illegal lenders.

For some Canadians, these high-cost credit products may perpetuate a cycle of debt. In contrast, access to smaller, less expensive credit products with longer terms and more opportunities to repay in small installments could enable some borrowers to move into an improved financial position.

The government is seeking feedback from Canadians on what actions could be taken to improve, promote, and support access to low-cost, small-value credit by banks, and what these credit offerings should look like.

Questions

1. What are the features of credit products that can help Canadians improve their financial positions?
2. What protections from unreasonable fees for credit products, including payday lenders, could help Canadian consumers?
3. What marketing techniques target vulnerable Canadians into taking on high-cost debt, and what measures would protect Canadians from deceptive advertising?
4. How could all types of credit lenders better provide Canadians with information on the costs of credit products, including associated fees and interest?
5. What barriers do Canadian consumers face in accessing low-cost, small-value credit?
6. What barriers do financial institutions, banks, and credit unions in particular, face in increasing their offerings for low-cost, small-value credit to a broader consumer base?
7. What could various levels of government, including provincial governments, do to improve, promote, and support access to low-cost, small-value credit?
8. What could financial institutions, banks, and credit unions in particular, do to improve, promote, and support access to low-cost, small-value credit?
9. Are there practices to improve the availability of low-cost, small-value credit within Canada or abroad that could be learned from?

Further Lowering the Criminal Rate of Interest and Payday Lending Exemption

Following the Budget 2023 announcement, the government is seeking feedback on whether the criminal rate of interest should be further reduced and on additional revisions to the Criminal Code’s provincial or territorial-requested payday lending exemption.

10. How much further beyond 35 percent APR should the criminal rate of interest be lowered?
11. How can the government improve enforcement of the criminal rate of interest to protect Canadian consumers?
12. Should further revisions to the Criminal Code’s provincial or territorial-requested payday lending exemption be considered?

We also invite any additional comments or feedback relevant to the scope of this consultation.

Contact Us

Submissions for this consultation will close on November 30, 2023.

Email us your comments and feedback at consultationconsumeraffairs.consultationconsommation@fin.gc.ca with "Consultation on Cracking Down on Predatory Lending Faster by Further Lowering the Criminal Rate of Interest and Increasing Access to Low-Cost Credit" in the subject line.

Comments and feedback may also be sent by mail to:

Mark Radley
A/Director, Consumer Affairs
Financial Services Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa ON K1G 0G5

What is the focus of this consultation?

Through this consultation, we want to hear from Canadians and the financial sector, including banks and credit unions, and other market participants, including alternative and payday lenders, academics, civil society and consumer groups. 

Privacy

Those providing submissions are asked to indicate clearly the name of the individual or the organization that should be identified as having made the submission.

Information received through this consultation process is subject to the Access to Information Act and the Privacy Act. Should you indicate that your comments, or any portions thereof, be considered confidential, the Department of Finance will make all reasonable efforts to protect this information.

In order to respect privacy and confidentiality, please advise when providing your comments whether you:

• consent to the disclosure of your comments in whole or in part;
• request that your identity and any personal identifiers be removed prior to eventual publication; or
• wish that any portions of your comments be kept confidential (if so, clearly identify the confidential portions). 

The information you provide may be shared with other relevant federal agencies, such as the Office of the Superintendent of Financial Institutions, the Canada Deposit Insurance Corporation, the Financial Consumer Agency of Canada, and the Bank of Canada. 

Get in touch

Contact us at consultationconsumeraffairs.consultationconsommation@fin.gc.ca for more information about the consultation.