Lenders, police warn about capping the criminal interest rate. Here’s why

A Liberal plan to cap the criminal rate of interest could have 'unintended' consequences that puts more vulnerable Canadians at risk, police and lenders are warning.

A Liberal plan to crackdown on predatory lending could instead lead to a rise in crime and put vulnerable Canadians further at risk, a new warning from police and lenders argues.

A report from the Ontario Association of Chiefs of Police (OACP) and the Canadian Lenders Association (CLA) released Monday studies the potential impact of the Liberal government’s plan to cap the criminal rate of interest. The legislation would see this capped at 35 per cent on an annualized percentage rate basis, down from the current 47 per cent APR.

These measures were passed into law as part of the Budget Implementation Act in 2023, but have not yet come into force, according to the federal government.

The criminal rate of interest applies to all borrowing in Canada, with some exception for certain payday loans in provinces except for Quebec. Some commercial loans and pawn loans would also be exempt from the updated rate cap under new amendments.

Limiting the maximum allowable interest rate in Canada could create a “vacuum for criminals to fill,” said Barry Horrobin, co-chair of the OACP’s Community Safety and Crime Prevention committee, in a statement.

He pointed to “illegal predatory lenders” taking advantage of clients by operating online and outside the bounds of Canadian jurisdiction.

“By forcing legal, responsible lenders out of the marketplace, we worry Canadians will be targeted by this type of criminal activity,” Horrobin said.

The report estimates 4.7 million Canadians will see their access to credit restricted by the cap. It particularly highlights newcomers and individuals with limited lending history as most at-risk, given their barriers qualifying for traditional loans at reasonable rates of interest.