Feds impose new limits on ‘predatory lenders’ following grassroots campaign [video]

So-called “alternative lenders” face new limits on how much interest they can charge borrowers following changes to the Criminal Code that came into effect with the New Year.

The changes reduce the criminal rate of interest from 47 per cent APR (annual percentage rate) to 35 per cent APR. It’s a victory for activists following years of campaigning, but they’re calling on Ottawa to do more to fight predatory lending.

For more on this story, the NB Media Co-op interviewed legal scholar Gail Henderson of Queen’s University — who wrote about the changes in a recent article for the Dalhousie Law Journal — and Donna Borden of ACORN Canada, a grassroots association of low-to-moderate income people, which campaigned for years for a lower criminal rate of interest.

These interviews were conducted by NB ACORN co-chair Peter Jongeneelen, who has personal experience dealing with high-interest loans. He also helped to organize rallies in Moncton at a local branch of Easyfinancial, which previously charged up to 46.96 per cent APR on instalment loans.

Cycle of debt

Borden got involved with ACORN a decade ago after taking out a high-interest instalment loan, and finding that there was no recourse when she wanted to make a complaint. “They were basically just like the wild west, they could do whatever they wanted,” she said.

Borden was glad to see the reforms but she said the legislation should go further. For example, she renewed calls for restrictions on “hidden fees” and loan insurance that lenders sell along with high-cost credit.

Legislation lowering the criminal rate of interest was motivated by concerns that costly loans put low-income borrowers into a “cycle of debt where you end up paying more interest and fees than the amount that you initially borrowed,” said Henderson, an associate professor at Osgoode Hall Law School.

Henderson said the legislation has shortcomings. For example, she noted that the reforms don’t deal with high-cost credit insurance, and amendments appear to be on hold following Prime Minister Justin Trudeau’s move to prorogue Parliament.

Asked for tips about how to navigate the high-cost credit market, she noted that credit insurance, by law, “has to be optional and you can say no.”

She encouraged borrowers to read the fine print so they understand the fees involved, especially if there’s a chance that they won’t be able to repay a loan in time.

Henderson also noted in her article that the reforms “leave untouched the increasing reliance on credit to supplement incomes which are too low to cover the rising cost of daily living” and noted that access to credit isn’t a “substitute for increasing social assistance and government benefits for low-income workers.”

The NB Media Co-op reached out to Easyfinancial for comment for this story. A spokesperson for the parent company, Goeasy Ltd., referred the inquiry to the Canadian Lenders Association, which said in a statement that the changes would reduce access to “non-prime” credit.

“More than one-in-four Canadians rely on non-prime sources of credit and 92 per cent of those who use them do so primarily to pay for essential expenses,” the statement said, in part, adding that “millions of people” won’t have a chance to rebuild credit because of the new regulations.

The industry group also referenced the Ontario Association of Chiefs of Police, which has warned that more lenders will leave the market due to the changes, leading more people to resort to illegal loan sharks.

Borden, the ACORN Canada organizer, rejected that claim. “Everyday people like us, you and I wouldn’t know where to find the loan shark,” she said.

Pawn shops, payday loans exempt

The 35 per cent limit doesn’t apply to loans from pawnbrokers who seize personal property in the event of non-payment. Those pawn shops can charge 48 per cent APR on loans up to $1,000.

Payday loans, another notoriously high-cost form of credit, are generally exempt from the new 35 per cent limit. However, the feds have also introduced rules that result in a slight reduction in fees for payday borrowers.

Regulations already limit fees for payday loans in most provinces – in New Brunswick, provincial regulations state that “the maximum total cost of credit allowed is $15 per $100 advanced.”

Henderson explained that under the new federal legislation, those fees will drop to $14 per $100 borrowed. That’s still very high, working out to 350 per cent APR if it’s repaid in two weeks, according to calculations by the feds.

Henderson said the changes aren’t uniform across the country, but vary according to whether the province already had regulations on payday lenders.

“In Quebec and the territories, where there is no payday legislation, then there is no exemption and the 35 per cent criminal rate applies,” she said in an email.

“In N.B. and other provinces which previously had caps higher than $14 per $100 borrowed, the cost will drop, because complying with the new $14 cap is a condition to being exempt from the criminal rate.”

The feds stated in their 2024 fall economic statement that they intended to “prohibit the sale of credit insurance products in connection with a payday loan” and other changes but the amendments haven’t materialized, according to ACORN Canada. 

Non-sufficient funds

Activists are also calling on Ottawa to fulfill a pledge that would force Canada’s banks to limit non-sufficient funds (NSF) fees. Banks currently impose fees reaching nearly $50 when a client’s balance is too low to cover a cheque or pre-authorized debit.

The federal government plans to cap those fees at $10.

Under the proposed changes, banks would also be required to alert customers about an impending NSF fee, with a grace period of three hours, allowing customers to deposit enough money to avoid the fee.

Banks would also be prohibited from charging NSF fees for small overdrawn amounts less than $10, among other changes.

Massive profits for big banks

Canada’s “big six” banks — BMO, CIBC, National Bank, RBC, Scotiabank and TD — controlled 93 per cent of banking assets in Canada by 2016, according to the Department of Finance.

Those banks reported more than $51 billion in profits last year, according to Democracy Watch, a non-profit that advocates for democratic reform.

The Canadian Bankers Association, an industry group whose members include the big six, took part in consultations over the question of NSF fees.

A spokesperson for the group stated in an email that “NSF fees encourage responsible banking behaviour and help maintain the integrity of the payment system.”

The feds estimate that the proposed regulations on NSF fees would result in $5.1 billion in benefits for consumers over a 10-year period, while costing the banks $4.8 billion over that period.

Some activists have expressed concern that the new regulations won’t come into effect before a federal election expected this spring, throwing into question whether the changes will ever materialize.

Borden, the ACORN Canada activist, said she hopes the regulations will come into force soon. “It’s a really good start,” she said. “I hope it doesn’t go under the radar.”

A spokesperson for Moncton-Riverview-Dieppe MP Ginette Petitpas Taylor — who became President of the Treasury Board of Canada following the latest cabinet shuffle — referred questions to newly-appointed Finance Minister Dominic LeBlanc, MP for Beauséjour.

A spokesperson for the Finance Department said the government is currently reviewing feedback received after publishing the proposed regulations in November. The feds plan on publishing the final regulations “in the coming months,” the spokesperson said.

This report was last updated on Wednesday, Jan. 22, 2025, to include a response from the Canadian Lenders Association.

David Gordon Koch is a journalist with the NB Media Co-op. Peter Jongeneelen is co-chair of NB ACORN. This reporting has been made possible in part by the Government of Canada, administered by the Canadian Association of Community Television Stations and Users (CACTUS).