The federal government intends to lower the criminal interest rate from 60% effective annual rate (EAR) to 35% annual percentage rate (APR), which equals about 42% EAR, in order to combat predatory lending. “Interest” includes all charges and expenses, including fees, fines, penalties, or commissions, which are associated with advancing a loan.

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In January 2024, the government indicated certain commercial, pawn, and payday loans will be exempt from the new restrictions. Importantly for many private lenders, commercial loans over $500,000 will be entirely exempted from criminal interest rate laws. The reason being that these types of larger, sophisticated transactions should not affect vulnerable Canadians.

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Commercial loans under $10,000 will have the new interest rate limitations.

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Commercial loans between $10,000 and $500,000 will continue to have the existing criminal rates apply. This is to provide small business owners with some level of protection from loan sharks.

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Lenders and brokers should be aware of these changes and take the time to learn their responsibilities under the new laws. Violations can result in fines of up to $25,000 or imprisonment of up to 5 years.

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If you are a private lender or mortgage broker with any questions related to the new laws or require help in navigating these pending changes, reach out to Aman Bindra at abindra@kswlawyers.ca or 604-591-7321 today.

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