On December 23, 2023, the federal government issued proposed Criminal Interest Rate Regulations (the “Regulations”) for consultation. Comments are due January 22, 2024. These regulations follow recent changes in the Budget Implementation Act, 2023, No. 1, which amended section 347 of the Criminal Code to lower the criminal interest rate to 35% annual percentage rate (APR) from the current 60% effective annual rate, as well as the criminal interest rate consultations launched in October 2023. These amendments are not yet in force.

1. Commercial Loans

The Regulations propose the following limits for loans that meet the following criteria: (1) the borrower is not a natural person, and (2) the borrower has entered into the agreement or arrangement for business or commercial purposes:

• Commercial loans under $10,000: Where the amount of the credit advanced under the agreement or arrangement is less than $10,000, no exemption would apply and the interest rate would be limited to 35% APR
• Commercial loans over $10,000 but less than $500,000: Where the amount of the credit advanced under the agreement or arrangement is more than $10,000 but less than or equal to $500,000, the interest rate would be limited to 48% APR.
• Commercial loans over $500,000: Where the amount of the credit advanced under the agreement or arrangement is more than $500,000, no criminal interest rate limit would apply.

The federal government states that “[t]his is to avoid contractual frictions and ensure healthy and productive investments in areas of venture capital and private equity (…) Commercial lending transactions above $500,000 represent a level of sophistication that does not require protection through the criminal interest rate provisions (…) Exempting commercial loans above $500,000 from the criminal rate will present benefits to some limited forms of sophisticated transactions, such as venture capital financing and automotive floor financing. These types of transactions do not affect low income and economically vulnerable Canadians.”

2. Payday Loans

National Interest Limit

Payday loans are currently exempt from the criminal interest rate limit, with provinces setting out certain limits on interest rates and other fees applicable to payday loans. The Regulations propose a national cap limit on the total cost of borrowing under a payday loan agreement of 14% of the amount of money advanced to the borrower under the agreement.

Limit on Non-Sufficient Funds (NSF) Fees

In addition, the Regulations propose excluding fees permitted under provincial payday loan legislation for providing a dishonoured cheque or other dishonoured instrument (i.e. fees for non-sufficient funds (NSF)) from the calculation of the $14 interest rate limit so long as they are $20 or less, which would effectively set a cap of $20 on the one-time dishonoured cheque fee that a payday lender could charge.

3. Pawnbroking Loans

The Regulations propose a 48% APR limit for small dollar (under $1,000), non-recourse, collateralized loans (pawnbroking loans), where (a) the lender is a person who carries on a business related to pawnbroking; (b) the borrower has pawned tangible personal property or corporeal movable property, other than a vehicle, in exchange for the advancement of credit; (c) in the event of the borrower’s default under the terms of the agreement, the only recourse of the person referred to in paragraph (a) is the seizure of the pawned property.