It’s true! There is a legal limit on the annual rate of interest you can be charged on a loan. So if you think you are being charged too much, maybe you are. But the bar is currently set pretty high. The Criminal Code of Canada defines a Criminal Rate of Interest as exceeding 60% annually. But some changes could be on the horizon.
The Senate has recently crafted Bill S-210, which would see the criminal rate differ between personal loans and business loans. If passed, business loans under one million dollars continue as above, business loans at or above one million dollars would be exempt and consumers would see the limit set at the Bank of Canada overnight rate, plus 20%. So, if the overnight rate was 0.75% (three quarters of one percent), the most you could be charged on a personal loan would be 20.75% per year. Quite a change!
With an election looming, it’s not clear when or if the Bill will be enacted. However, it does look like a like a step in the right direction to help consumers.
At Mondelis, we have assisted clients in determining if a criminal rate of interest has been charged. It’s important to consider all aspects of the loan, including charges and expenses that may be considered part of the interest calculation.