[co-author: Okey Ejibe – Student at Law]
On March 22, 2022, Bill S-239, Law to reform the Criminal Code (Criminal Interest Rate) went to second reading in the Senate. The bill proposes changes to section 347(2) of the criminal code which would reduce the current criminal interest rate.
The Existing Criminal Interest Framework—Section 347
Section 347(1) of the Code states that any person who enters into an agreement or arrangement to receive interest at a criminal rate, or receives full or partial payment of interest at a criminal rate, is guilty of a crime. The current penalty interest rate is an effective annual rate that exceeds 60 percent.
It is important to note that “interest,” in the context of the Code, includes any fee, fine, penalty, commission, or other similar charge or expense paid as part of the credit advance, regardless of who pays or to whom such fees and expenses are owed. be paid. Therefore, an interest rate for the purposes of the Code often exceeds the rate specified on the face of a particular agreement or arrangement.
Section 347.1 of the Code currently provides an interest rate criminal offense exception for payday loans (as defined) if: (a) the loan is for $1,500 or less, for a maximum term of 62 days or less; (b) the lender is a provincially licensed payday lender; and (c) the federal government has designated the province as having legislative measures to protect recipients of payday loans that limit the total cost of the loan.
Proposed Amendments to Section 347
There have been several unsuccessful efforts to amend section 347 of the Code. Several bills have been introduced in both the Senate and the House of Commons, often with the primary goal of lowering the criminal interest rate, but the bills never made it to the point of becoming law. In an effort to lower the current 60 percent threshold, both houses of Parliament have over the years recommended and considered different rates, ranging from 20 percent to 45 percent. Since 2013, there have been three previous Senate bills (S-233 (43dr Parliament), S-237 (42North Dakota Parliament) and S-210 (41St. Parliament)) that have failed in the ordering document. Bill C-274, the immediately preceding bill on this subject, which received first reading in the House of Commons on May 11, 2021, among other things, sought to reduce the criminal rate to a further 30 percent the Bank of Canada overnight rate on the day the contract is entered into or renewed. It also sought to repeal section 347.1 of the Code, which would have had the effect of subjecting payday lenders to the same criminal interest provisions as other lenders. However, the bill never made it to second reading.
Bill S-239, currently in the Senate, proposes to reduce the penalty rate to 20 percent plus the Bank of Canada overnight rate on the day the agreement is entered into or renewed. The Bank of Canada overnight rate is currently one percent and criminal interest, if calculated as of the date of this article, would occur at any rate above 21 percent.
Impact on lenders
The proposed changes in House Bill S-239 will affect a wide range of commercial and consumer lenders, whose interest rates may exceed the revised penalty rate, including commercial lenders, credit card issuers, store cards and section programs. Borrowers may try to use the criminal interest provisions as a shield to try to invalidate the interest provisions when lenders try to enforce their payment rights. Unlike the changes proposed in previous House Bill C-274, this change, as currently drafted, will not affect payday lenders who would remain exempt under Code section 347.1.
In light of the provision, any lender who charges or receives interest in excess of the criminal rate may be guilty of (a) an indictable offense and subject to imprisonment for a term not to exceed five years or (b) an indictable offense. punishable on summary conviction and subject to a fine of not more than $25,000 or to imprisonment for a term of not more than two years less one day, or both. In practical terms, however, the more likely impact is that borrowers will seek to use the provision as a means of overriding or lowering the interest provisions in their loan agreements.
The current bill S-239 has been introduced in the Senate and, if passed by the Senate, will require approval by the House of Commons before it becomes law. On December 16, 2021, the prime minister issued a mandate letter to the finance minister in which he sets out his expectations for the finance ministry in the future. One of the priorities listed was “cracking down on predatory lenders by lowering the criminal interest rate.” Time will tell if 2022 is the year the criminal interest rate changes. We will continue to monitor House Bill S-239 and any other proposed changes to the criminal interest rate.