Before advertising a loan, two limits matter: the criminal rate, set by the Criminal Code for all of Canada, and the high-cost credit threshold, set in Quebec by the Consumer Protection Act (CPA) and its regulation. The first prohibits; the second adds obligations. Here is what each says, taken from the official texts.
Key Takeaways
- The criminal rate is an annual percentage rate that exceeds 35%, fees included
- Advertising an offer at a criminal rate is an offence in itself
- The payday loan exception requires, among other things, a designated province; Quebec is not on the FCAC's list of provinces that regulate these loans
- In Quebec, credit whose rate exceeds the Bank of Canada's Bank Rate by more than 22 points is high-cost credit
- High-cost credit requires a permit and a written assessment of the capacity to repay
This article summarizes public rules to help you prepare your pages; it is not legal advice.
1. The Criminal Rate: 35%, Fees Included
The Criminal Code defines the criminal rate as an annual percentage rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds 35 per cent on the credit advanced (s. 347).
For this calculation, "interest" means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge, paid or payable for the advancing of credit. Excluded are, among others, the repayment of credit advanced, insurance charges, official fees, overdraft charges and required deposit balances. Administration or membership fees therefore count in the rate.
2. Advertising Is Covered
Section 347 covers every person who enters or offers to enter into an agreement to receive interest at a criminal rate, and also every person who advertises an offer to enter into such an agreement. On indictment, the offence carries imprisonment for a term not exceeding five years (s. 347).
For a loan page, this means an example, a fee table or a promise whose real rate exceeds the limit is a problem as soon as it is published, before any contract is signed.
3. The Payday Loan Exception
Section 347.1 provides an exception for payday loans when all of these conditions are met (s. 347.1):
- the amount advanced is $1,500 or less and the term is 62 days or less;
- the total cost of borrowing does not exceed the limit fixed by regulation;
- the lender is licensed or otherwise specifically authorized under the laws of the province;
- the province is designated by the federal government, at its request, because it has legislative measures that protect borrowers and limit the total cost of borrowing.
The Financial Consumer Agency of Canada (FCAC) lists the provinces that regulate payday loans, and Quebec is not among them. According to the FCAC, in other provinces and territories the maximum cost of borrowing is equal to the criminal interest rate of 35% (FCAC).
4. In Quebec: High-Cost Credit
A credit contract is a high-cost credit contract when its credit rate, calculated under the CPA at the time the contract is entered into, exceeds the rate obtained by increasing the Bank Rate of the Bank of Canada by 22 percentage points (Regulation respecting the application of the CPA, s. 61.0.3).
This threshold does not prohibit the loan, but it adds obligations:
- a permit: a merchant who enters into a high-cost credit contract must hold a permit (CPA, s. 321);
- an assessment of the capacity to repay, carried out before entering into any credit contract (s. 103.2);
- a written copy for the consumer, before entering into a high-cost credit contract, of the documents containing that assessment and information on the consumer's debt ratio (s. 103.4).
5. Two Different Calculations
The criminal rate is calculated under the actuarial rules set out in the Criminal Code; the credit rate, under the CPA. The two definitions are not worded the same way. Before showing a rate or an example, have the calculation for each product validated by the person who advises your business on these rules.
A Checklist Before Advertising
- No advertised product has an annual rate, fees included, that exceeds 35%.
- The examples and fee tables shown are calculated from the actual contract.
- If a product is high-cost credit under the CPA, the permit, the assessment and the written copy for the consumer are in place.
- The credit rate is shown with equal emphasis next to any other rate (our CPA guide).
- If you advertise on Google, the personal loan rules are met (our Google guide).
How We Work
We prepare loan pages with the CPA, the lender permit, the criminal interest rate and Google's personal loan rules in mind. Your terms, your cost-of-credit disclosures and your legal text remain yours: we integrate them as you or your legal adviser provide them.
See our Financial services page.