Canada Reduces Max APR Cap From 47% to 35%

March 28, 2023 | By: Sean Murray

The government of Canada announced that it will be reducing the max allowable loan APR under the Criminal Code from 47% to 35%. The startling news was included in the annual federal budget report released on Tuesday as part of the nation’s initiative to “crack down on predatory lending.” It also said that it plans to consider reducing the max cap by even more in the future.

The budget report supported its decision by sharing an anecdote about a fictional single mother name Hannah. In this story, Hannah’s car breaks down and she is unable to get to work unless she comes up with $5,000 for the repairs. It’s then that a “predatory lender” tries to offer her a loan with a 46.9% interest rate, allowing her to fix her car but leaving her in a “cycle of debt.” Fortunately, due to the new APR cap that will be put in place, Hannah will be spared this fate, the government touts. Ironically, it does not consider the possible consequences of receiving no loan at all.

The proposal to reduce the max APR cap had been opposed by the Canadian Lenders Association. It issued an official statement shortly after the new rule was made public.

“This will disproportionately affect low-income Canadians – the segment of the population most at risk given their inability to qualify for credit at prime rates – who struggle to make ends meet by limiting or eliminating entirely their access to credit,” said CLA president and CEO, Gary Schwartz. “In an effort to ease the financial burden on Canadians who need it most, the federal government has achieved the opposite. If you are borrowing at non-prime, you are already facing financial challenges. For potentially millions of Canadians, that burden just got heavier today.”

Last modified: March 28, 2023