October 30 2024 | Publications

Changes to Criminal Rate of Interest in Effect as of January 1, 2025

There are changes coming to the Criminal Rate of Interest in Canada, and businesses need to be vigilant in making sure that future documentation and policies incorporate these new changes.

The maximum rate of interest that can be charged by law is set out in the Criminal Code of Canada. It is a criminal offence to charge in excess of the current maximum rate of 60% Effective Annual Rate (EAR, which equates to approximately 47% annual percentage rate (APR). As of January 1, 2025, the new Criminal Rate of Interest will be 35% APR calculated in accordance with generally accepted actuarial practices.

What is a Criminal Rate of Interest?

Section 347(1) of the Criminal Code makes it an indictable offence to receive or enter an arrangement for payment of interest that is considered a criminal rate. A party found guilty of contravening the Criminal Code may be liable to be sentenced to a term of imprisonment and/or a fine of up to $25,000.00.

The definition of interest is very broad and applies to all fees, costs and charges that are paid or payable for advancing credit even if they are not described as interest. This maximum interest rate applies (with a few exceptions) to all types of credit, including installment loans, lines of credit, credit cards, and default interest charged on overdue invoices.

The change to the Criminal Rate of Interest that comes into effect in January 2025, is the most significant change that has been made since the Criminal Interest Rate was first enacted in 1980.

Calculation of Annual Percentage Rate

For the purposes of Section 347 of the Criminal Code, the Annual Percentage Rate must be calculated in accordance with generally accepted actuarial practices and principles.

This APR calculation is different from the APR calculation under provincial law required for disclosure of cost of borrowing. The Criminal Code APR calculation on interest charged may result in a higher percentage than the percentage using the calculation under provincial law. Therefore anyone charging an interest rate close to 35% APR should confirm with an actuary that the rate does not exceed the Criminal Rate of Interest.

Section 347 of the Criminal Code will not apply in the following cases:

  • A commercial loan being a loan to a borrower who is not a natural person for a business or commercial purpose (“Commercial Loan”) in an amount between $10,000.00 and $500,000.00 may charge an interest rate of up to 48%;
  • A Commercial Loan in excess of $500,000.00 will not be subject to an interest rate cap; and
  • Pawnbroking Loans that are under $1,000.00 may charge interest of up to 48%.

If you have any questions regarding the Criminal Rate of Interest or the changes that are coming into effect as of January 1, 2025, please contact our office.

Authors:

Norman J.K. Bishop, KC, Counsel and Zoe M. Rossier, Student at Law