2024 Regulatory Updates for the Private Lending Industry
Proposed Criminal Interest Rate Regulations providing exemptions now published:
On December 23, 2023, the federal government published proposed Criminal Interest Regulations which specify certain exemptions to the new criminal interest rate ceiling contained in the Criminal Code.
If you recall from previous discussions, the government introduced sweeping changes to the criminal interest provisions, which currently prohibit lenders from charging and/or receiving payments from loans with effective interest rates of 60% (which translates to an approximate annualized percentage rate (APR) of 48%) or more. The new prohibited rate will now be 35% APR once brought into force. Note that there is a current consultation to reduce this rate even further.
The rationale for the proposed exemptions to the criminal interest rate is based on the view that the proposed exempted loans will not trap consumers in a debt cycle. They include:
1. Commercial loans
Loans which are for commercial or business purposes to borrowers who are not natural persons are exempt from the 35% criminal interest rate prohibition, as follows:
a) Commercial loans over $10,000 and up to $500,000 are exempt from the criminal rate of interest, so long as the APR does not exceed 48%; and;
b) Commercial loans above $500,000 are not subject to any criminal rate cap
The regulations, therefore:
- Loosen the criminal interest rate prohibitions for commercial loans by removing previous caps for loans over $500,000;
- Make no changes to commercial loans over $10,000 up to $500,000; and
- Create greater restrictions for commercial loans under $10,000 by creating a ceiling of 35% APR.
2. Pawn Loans
Pawn loans under $1,000 are exempt from the 35% APR ceiling provided that the APR does not exceed 48% and certain other conditions are met.
3. Payday Loans
There will be new federal limits on the total cost of borrowing under payday loan agreements of 14%. This limit of $14 for every $100 borrowed will apply in all provinces with a payday loan regime and is intended to create uniformity in borrowing costs from province to province.
Under the proposed regulations, all other loans, including residential mortgages, installment loans and personal loans will be subject to the new criminal rate ceiling.
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