Effective January 1, 2025, the federal government will lower the criminal interest rate from 60% effective annual rate (EAR) to 35% annual percentage rate (APR), which equals about 42% EAR, in order to combat predatory lending. "Interest" includes all charges and expenses, including fees, fines, penalties, or commissions, associated with a loan.
Commercial loans under $10,000 will have the new interest rate limitations.
Commercial lenders will be allowed to structure loans with an interest rate of up to 48 per cent APR for loans between $10,000 and $500,000, in order to provide small business owners with some level of protection from loan sharks.
Commercial loans over $500,000 can be structured with no cap on the interest rate, allowing for more flexibility for risky credit borrowers. The reason being that these types of larger, sophisticated transactions should not affect vulnerable Canadians.
Lenders and brokers should be aware of these changes and take the time to learn their responsibilities under the new laws. Violations can result in fines of up to $25,000, or imprisonment of up to 5 years.
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