Consultation on Fighting Predatory Lending by Lowering the Criminal Rate of Interest

In summary, loopholes must be closed, including the invention of new products that attempt to skirt the definition of credit, and the sale of insurance products that drive up the costs for borrowers and that generally benefit the industry and not the borrower. [...] Given the proliferation of high-cost lenders in lower-income neighbourhoods, evidence of lenders ignoring the current criminal rate, the targeting of more vulnerable borrowers, ease of borrowing, dire need of many of the borrowers, and the welcomeness and convenience offered by fringe lenders (and missing from mainstream financial institutions), high-cost credit requires a legal intervention to ad. [...] Additional Opportunities for Reform The 2007 decision to exempt payday lenders from adhering to the Criminal Code’s maximum interest rate, and the transfer of regulatory responsibility for payday and other high-cost lending to the provinces, resulted in patchwork of inadequate regulation and enforcement across the country and enabled payday loan interest rates to soar, topping 600% in some jurisdi. [...] 31 The repeal of section 347.1 and the consequent re-inclusion of payday loans under section 347 of the Criminal Code should be pursued over a transition period in which the federal government prepares a federally backed low-income credit product and supports the creation of safe/affordable alternatives. [...] The evidence provided shows criminal rates of interest, often driven up by add-on fees and insurance, and points to the importance of ensuring the maximum rate is inclusive of all associated costs, including insurance (or prohibiting the sale of insurance), and ensuring there is adequate enforcement of the maximum rate.