High cost credit, poverty, and the Criminal Rate of Interest

Momentum’s Courtney Mo discusses predatory lending

20 September 2023

You have all seen the neon lights of an insta-loan or quick-cash store. Perhaps you have even had to borrow from one and learned how staggeringly high the cost is. For a payday loan in Alberta, you pay about 400% annual interest. For an installment loan, you might pay around 60%, plus other additional fees and costs.

When someone is drowning, you do not throw them an anchor. Yet, Canada’s current allowable interest rate is a crushing weight to those experiencing financial hardship and in need of credit.

The current allowable rate harms the financial wellness of families and communities as scarce financial resources go to servicing debt instead of being spent at small businesses and on goods and services that improve people’s well-being. Most people accessing a fringe loan are simply trying to cover the cost of basic needs.  

Where individuals spend money borrowed through high cost alternative financial services

Provincial governments across Canada have started to act on payday loans by lowering the allowable interest rate and other conditions of lending. All other fringe lending (installment loans, pawn loans, title loans, etc.) falls under the federal Criminal Code. For instance, the Criminal Rate of Interest or the maximum allowable interest rate is currently set at 59.9%. After many years of advocacy, coalition building, research and publication by advocates and elected officials across Canada, the Federal Budget 2023 included an announcement of the federal government’s intention to introduce changes to the Criminal Code to lower the criminal rate of interest to 35% (APR), and to launch consultations on whether the criminal rate of interest should be further reduced. Additionally, it announced plans to adjust the Criminal Code’s payday lending exemption to require payday lenders to charge no more than $14 per $100 borrowed. The government also announced it will engage in consultations on additional revisions to the Criminal Code’s provincial/territorial-requested payday lending exemption.

Community advocates rejoiced at this signal that we have been heard – that borrowers have been heard. There is still much more advocacy to do, especially around enforcement of a new and updated Criminal Rate of Interest, but we are grateful for the joint advocacy of others and for the intentions laid out by the Federal Government.

Help us get this policy change over the finish line by writing your Member of Parliament in support of our recommendations and by letting people know about this issue. Access to fair and affordable credit is a basic financial need and no one should ever have to pay an almost 60% interest rate to cover essentials such as rent, food, or heating.

Financial Empowerment

Families and individuals need income to get by and assets to get ahead. Calgarians should have the support they need to optimize their incomes, increase their financial assets and reduce their debt while preserving their integrity and dignity.