Criminal Interest Rate Letter

Published: May 31, 2023

In Budget 2023, the federal government announced that they will be lowering the criminal interest rate to 35%.

As an organization that serves many clients who experience poverty or who may need to access predatory lenders for a number of reasons, we took this opportunity to respond to the Department of Finance Canada.

FSGV sits on the New Westminster Community Poverty Reduction Committee as part of the Financial Empowerment Working Group. The letter below and its recommendations were drafted by this committee. Prosper Canada also made a submission to the Department of Finance Canada, that, as their BC service delivery partner, FSGV supported.

This advocacy work is directly tied to the work we do with clients, especially in our Financial Empowerment program. We often see people who are the victims of predatory lending and, therefore, its detrimental impact on their wellbeing.

We strongly urge the government to take these recommendations as they draft legislation.

May 30, 2023

The New Westminster Community Poverty Reduction Committee (NWCPRC) is most encouraged by the recent budget announcement for stricter regulation of the predatory lending industry, including caps on fees and interest rates charged by these lenders.

The NWCPRC Financial Empowerment working group, whose membership includes representatives from numerous organizations that work directly with people in poverty, shares the concern that exemptions in legislation may allow some loan products to avoid the new regulations. It is our belief that there should be no exemptions for existing consumer credit products, nor for newly created credit products going forward.

Predatory lenders largely target those who have few or no affordable lending alternatives given factors such as unstable employment, disability, or poor credit history. The negative impact on individuals who access these loans and get drawn into a downward debt spiral are broad. Not only do victims suffer financially, they also struggle with their mental and physical health, as well as family relationships.

In our experience working with clients who access predatory lenders, they are very rarely accessing these loans for frivolous expenses. Rather, in the face of high inflation, they access loans for day-to-day essentials, such as food, utilities, and accommodation – which, in BC, are among the highest in the country.

In addition to the proposed caps and regulation, we strongly urge government to ensure there are no loopholes in legislation and strictly enforce regulations. This is particularly critical given that some online lending entities are based outside of Canada. Among the clients we serve, many have been preyed upon by online operations. These online companies must be tightly regulated.

Another troubling issue that we see among our clients is the prevalence of vulnerable clients with cognitive disabilities or impairment falling prey to predatory lenders. Often these clients don’t have a clear understanding of what they are signing up for or the terms that they have agreed to. Some have been victimized multiple times. It is critical that new regulations protect those who are more vulnerable, including those with cognitive disabilities, as well as seniors, newcomers, and marginalized populations.

Among Canada’s most financially vulnerable, the 35% cap on the criminal rate of interest still presents a significant challenge. In addition to strong regulation to enforce this cap, we ask the federal government to support the provision of alternative small-dollar credit products to vulnerable clients – products that are equitable and focus on financial empowerment and building financial resilience.

The NWCPRC Financial Empowerment working group makes the following recommendations for legislation:

  • Cap the criminal rate of interest at 35%;
  • Ensure the maximum rate or ceiling be inclusive of all associated lending costs such as fines, fees, penalties, insurance, and any other related costs;
  • Eliminate the current criminal rate of interest exemption for payday loans;
  • Vigorously enforce the new maximum rate;
  • Include greater protections for those who, due to a cognitive impairment or disability, do not fully understand what contractual obligations they have agreed to; and
  • Provide support for the establishment of alternative small-dollar credit providers.

On behalf of the NWCPRC Financial Empowerment working group, thank you for the opportunity to provide input on predatory loan regulation. We look forward to future developments to address our concerns and improve outcomes for victims of predatory lending.