Standing Senate Committee on National Finance (NFFN) (May 28, 2024)
ISSUE: Criminal rate of interest and predatory lending (Budget 2024)

Key points

• Budget 2024 announced that the government is reinforcing its efforts to crack down on predatory lending and is moving forward with these reforms to protect Canadians.
• The government intends to amend the Criminal Code to enhance enforcement of the criminal rate of interest, including empowering law enforcement by prohibiting offering credit at a criminal rate of interest, and allowing for prosecutions of illegal and predatory lenders without the approval of the Attorney General.
• Budget 2024 also announced the government’s intention to strengthen its crackdown on predatory lending by working with provinces and territories to harmonize and enhance consumer protections across Canada, which could include legislative action on the part of the federal government, if required.
• While FCAC does not regulate payday loans, it conducts research and monitors trends and issues that could impact financial consumers, including on payday loans. The data gathered through this work informs our consumer education efforts, contributes to policy development, and is shared with provincial regulators.
• Past research conducted by FCAC has shown that:
  • payday loan users are often unaware of the high costs of these loans versus alternative sources of credit.
  • many Canadians used these small-value, short-term loans of typically $500 or less to cover unexpected expenses or a loss of income, where a household emergency savings fund could help.
  • though most payday loan users are low- to moderate-income earners, some earn higher-than-average incomes.
• FCAC applauds this announcement as another important step to protect financial consumers, especially more vulnerable groups. The Agency will continue to support the Department of Finance as it advances this important work.
• As part of its mandate, FCAC supports Canadians in making informed financial decisions by providing unbiased and fact-based information, including information about payday loans.
• FCAC encourages Canadians who are considering using a payday loan to inform themselves of the high fees, and risks they may incur if they cannot pay it back on time, such as:
  • the payday lender may charge you a fee if you don’t have enough money in your account
  • the payday lender may charge you interest on the outstanding amount
  • the total amount that you owe, including the fees, will continue to increase

Additional messages

• In Budget 2023, the government of Canada announced that it was lowering the criminal rate of interest from 47 per cent APR to 35 per cent APR. The government also committed to limit the costs of payday loans to no more than $14 per $100 borrowed.
• Payday loans are regulated by the provinces, and each province sets its own rules about payday loans. Territories do not have specific rules. More information is available from provincial or territorial consumer affairs offices.