Order Fixing January 1, 2025 as the Day on Which Sections 610 to 612 of the Budget Implementation Act, 2023, No. 1 Come into Force: SI/2024-25

Canada Gazette, Part II, Volume 158, Number 13

Registration
SI/2024-25 June 19, 2024

BUDGET IMPLEMENTATION ACT, 2023, NO. 1

Order Fixing January 1, 2025 as the Day on Which Sections 610 to 612 of the Budget Implementation Act, 2023, No. 1 Come into Force

P.C. 2024-631 May 31, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Justice, under section 616 of the Budget Implementation Act, 2023, No. 1, chapter 26 of the Statutes of Canada, 2023, fixes January 1, 2025 as the day on which sections 610 to 612 of that Act come into force.

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

This Order in Council, pursuant to section 616 of the Budget Implementation Act, 2023, No. 1 (the Act), fixes January 1, 2025, as the day on which sections 610, 611, and 612 of the Act come into force, amending the Criminal Code.

Objective

The purpose of this Order is to bring into force amendments to the Criminal Code that lower the criminal interest rate, and to authorize the Governor in Council to make regulations exempting certain types of loans from the criminal interest rate and fixing the cost of borrowing for payday loans. The objective of the legislative amendments is to protect and empower consumers against predatory lending practices, which include charging high interest rates on loan products.

Background

The Criminal Code makes it an offence to (1) enter into an agreement or arrangement to receive interest at a rate exceeding 60% effective annual rate (EAR); and (2) receive payment, or partial payment, of interest at a rate exceeding 60% EAR. The criminal rate is applicable to nearly all credit agreements and arrangements in Canada, including instalment loans, lines of credit, auto loans, auto title loans, credit cards, and more. The criminal interest rate provisions do not apply to transactions under the Tax Rebate Discounting Act, and certain payday loan agreements.

In 2007, section 347 of the Criminal Code was amended to provide an exemption from the application of the criminal rate provisions for payday loans, provided certain conditions are met (i.e. the loan is $1,500 or less for a term of 62 days or less, issued by a licensed lender or someone who is specifically authorized by the laws of a province, and the province is designated by the Governor in Council in accordance with subsection 347.1(3)). In order to receive this designation, a province must have in place legislative measures that protect payday loan users and must provide for limits on the total cost of borrowing for payday loan agreements.

Budget 2023 announced the Government’s intention to lower the criminal interest rate to 35% annual percentage rate (APR), from 60% EAR, which is equivalent to an APR of approximately 48%, and set the maximum cost of borrowing for payday loans at $14 per $100 borrowed. As a result, the Budget Implementation Act, 2023, No. 1, introduced legislative amendments to lower the criminal interest rate to 35% APR. The amendments also included two regulation-making authorities to (1) provide exemptions for certain types of loans from the criminal rate; and (2) fix a limit on the total cost of borrowing for a payday loan agreement. These provisions received royal assent with the passage of the Budget Implementation Act, 2023, No. 1, but are not yet in force.

On December 23, 2023, the proposed Criminal Interest Rate Regulations (the proposed Regulations) under section 347 of the Criminal Code were prepublished in the Canada Gazette, Part I, through which they were available for public comment.

Implications

These amendments will strengthen outcomes for consumers by creating better lending environments and will disallow certain predatory behaviours from lenders of high-interest loans. The changes include:

Consultations

In fall 2022, the Department of Finance (the Department) conducted a 60-day public consultation on lowering the criminal interest rate to curb predatory lending. The Department received more than 100 submissions through this consultation from industry associations, consumer groups, academics, and individual Canadians. While many stakeholders opposed lowering the criminal interest rate, many also supported lowering it. Of those that supported lowering the rate, the consensus suggestion was 35% APR.

Following the Budget 2023 announcement to lower the criminal interest rate and introduce a cap on the cost of borrowing for payday lending, the Department held targeted consultations with select stakeholders to inform regulatory drafting on the exemptions to the criminal interest rate and the payday lending cap. The Department received over 50 submissions and initiated follow-up meetings with stakeholders to further discuss their submissions.

The comments were summarized in the Regulatory Impact Analysis Statement published in the Canada Gazette, Part I, in December 2023 alongside the proposed Regulations. In response to the proposed Regulations, the Department received over 80 submissions from stakeholders.

Stakeholder comments on the proposed Regulations are summarized in the Regulatory Impact Analysis Statement. In terms of the legislative amendments, stakeholder comments were largely on the timing and coming into force of the proposed amendments.

Lenders, as well as provinces requested more time before the coming into force of the legislation and regulations. They flagged that a three-month transition period, as stated in the Regulatory Impact Analysis Statement, is not sufficient lead time. Industry particularly noted that they require time to adjust their IT systems and operations to comply with the lower rate, as well as update their marketing, signage, disclosure documentation.

Additionally, several provinces have flagged their concern that there is insufficient time to adjust their provincial legislation for payday loans, ensure compliance for licensees, and educate borrowers on the new maximum cost of borrowing. All provinces, with the exception of Newfoundland and Labrador, currently allow for higher maximum costs of borrowing on payday loans than the regulations propose (which is $14 per every $100).

Given the stakeholder feedback on the amount of time needed to implement the amendments to the Criminal Code and associated Regulations, the coming into force date has been fixed as January 1, 2025. This provides industry and provincial regulators with additional time to adjust to the changes.

Contacts

Judith Hamel
Director General
Financial Services Division
Financial Sector Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑406‑4409
Email: Judith.hamel@fin.gc.ca

Matthew Taylor
Director and General Counsel
Policy Sector
Criminal Law Policy Section
Department of Justice
284 Wellington Street
Ottawa, Ontario
K1A 0H8
Telephone: 343‑551‑9620
Email: matthew.taylor@justice.gc.ca