Our Policy Team celebrated an exciting win as changes to the Criminal Rate of Interest came into effect January 1st:

After more than a decade of advocacy, the allowable interest rate in Canada is now officially lowered from 60% EAR to 35% APR, saving high-cost credit borrowers an estimated $27.46 million in the first year of implementation. The updates to the Criminal Code also include improved enforcement mechanisms and a lowering of allowable payday lending costs across the country. More than 9.9 million people in Canada do not qualify for credit at a mainstream financial institution, including many program participants at Momentum, whom we see struggle with high-cost credit.

Momentum has advocated for changes to high-cost credit since 2012, to better protect vulnerable borrowers and make lending safer and fairer for people living on precarious and low-incomes. This advocacy included a recommendation to update the Criminal Rate of Interest and to lower the allowable interest rate. See one of our oldest publications on this topic here and our specific advocacy with a national coalition here and our specific policy recommendations here.

What does this mean for our programs and participants?

These changes will help our program participants who struggle with high cost credit by reducing their borrowing costs - but it will not eliminate the burden of high cost credit entirely (35% is still very costly for someone living on a low income). Our staff will continue to caution participants on the risks of high interest rates and on engaging with alternative credit sources like payday loans and pawn loans.

Nitty Gritty Details: Updates legislation and the introduction of regulations came in to force on January 1, 2025. The Criminal Interest Rate Regulations include exemptions for commercial loans valued above $10,000 and up to $500,000 from the criminal interest rate, so long as the APR on these loans does not exceed 48% APR. Commercial loans above $500,000 will not be subject to any rate cap and commercial loans $10,000 and below will be subject to the new criminal interest rate.

Additionally, the regulations introduce exemptions for pawn loans, provided that the APR on these loans does not exceed 48% and the loan is valued at less than $1,000. Pawn loans valued at $1,000 and above will remain subject to the new criminal interest rate of 35% APR.

The Regulations also impose a new limit on the cost of borrowing for payday loans of $14 per $100 borrowed in all provinces that have an approved payday loan regime. The Regulations excluded dishonoured cheque fees of $20 or less from the calculation of the $14 rate limit, and do not include interest of up to 2.5% per month on outstanding loan amounts in the cap.

Between 2024 and 2034, the Regulations are expected to result in present value benefits to payday borrowers totaling $226 million and present value costs to payday lenders of $208 million, resulting in a net benefit to society of $18 million.

Note: Annual percentage rate (APR) is the rate that determines how much it will cost to borrow money over a year, including interest rate and potential fees.

Equivalent annual rate (EAR) is the equivalent annual rate. EAR is the interest you would be charge over a year if your account remained overdrawn and does not include any additional fees.

If you have any questions about these changes, please reach out to our Policy Team!