So-called “alternative lenders” now face new limits on interest rates following changes to the Criminal Code that took effect with the New Year.

The reforms lower the criminal interest rate from 47 percent APR (annual percentage rate) to 35 percent APR. While activists celebrate this as a victory after years of campaigning, they continue to urge Ottawa to take further action against predatory lending.

To explore the implications, the NB Media Co-op spoke with legal scholar Gail Henderson of Queen’s University, who recently wrote about the changes in the Dalhousie Law Journal, and Donna Borden of ACORN Canada, a grassroots organization advocating for low-to-moderate-income individuals. ACORN has long campaigned for a lower criminal interest rate.

The interviews were conducted by NB ACORN co-chair Peter Jongeneelen, who has firsthand experience with high-interest loans. He also helped organize rallies in Moncton against Easyfinancial, which previously charged up to 46.96 percent APR on installment loans.

Cycle of Debt

Borden became involved with ACORN a decade ago after taking out a high-interest installment loan and finding no recourse for complaints. “They were basically just like the Wild West; they could do whatever they wanted,” she said.

Although she welcomes the reforms, Borden argues the legislation should go further by restricting "hidden fees" and loan insurance that alternative lenders bundle with high-cost credit.

The new legislation was driven by concerns that expensive loans trap low-income borrowers in a “cycle of debt,” where they pay more in interest and fees than they originally borrowed, explained Henderson, an associate professor at Osgoode Hall Law School.

Henderson noted shortcomings in the reforms, such as the failure to address high-cost credit insurance. Further amendments may also be delayed following Prime Minister Justin Trudeau’s decision to prorogue Parliament.

For those navigating high-cost credit, Henderson advised borrowers to be aware that credit insurance is legally optional. “You can say no,” she emphasized, encouraging people to read the fine print to understand associated fees, particularly if they may struggle to repay a loan on time.

The NB Media Co-op sought comment from Easyfinancial, whose parent company, goeasy Ltd., referred inquiries to the Canadian Lenders Association. The association did not respond by publication time.

Pawn Shops, Payday Loans Exempt

The 35 percent interest limit does not apply to pawnbrokers, who can charge 48 percent APR on loans up to $1,000. Payday loans, another high-cost form of credit, are also largely exempt. However, federal changes have slightly reduced fees for payday borrowers.

Most provinces already regulate payday loan fees. In New Brunswick, for example, the maximum cost is $15 per $100 borrowed. Under the new federal rules, this will drop to $14 per $100. Despite the reduction, this still amounts to an exorbitant 350 percent APR if repaid within two weeks, according to federal calculations.

Henderson explained that the impact of these changes varies across Canada, depending on existing provincial regulations. “In Quebec and the territories, where there is no payday legislation, the 35 percent criminal rate applies,” she noted. Meanwhile, provinces with higher caps must comply with the new $14 limit to maintain their exemption from the criminal rate.

Non-Sufficient Funds Fees

Activists are also urging Ottawa to follow through on a pledge to cap non-sufficient funds (NSF) fees, which banks currently charge at nearly $50 per transaction when a client lacks sufficient funds.

The federal government plans to limit these fees to $10 and introduce measures such as a three-hour grace period to allow customers to avoid the charge. Banks would also be prohibited from imposing NSF fees on small overdrawn amounts under $10.

Massive Profits for Big Banks

Canada’s “big six” banks—BMO, CIBC, National Bank, RBC, Scotiabank, and TD—controlled 93 percent of banking assets by 2016, according to the Department of Finance. Last year, they reported more than $51 billion in profits, according to Democracy Watch, a non-profit advocating for democratic reform.

The Canadian Bankers Association, representing the big six, participated in consultations on NSF fees. A spokesperson defended the charges, stating that they “encourage responsible banking behaviour and help maintain the integrity of the payment system.”

The federal government estimates that proposed NSF fee regulations would save consumers $5.1 billion over ten years while costing banks $4.8 billion over the same period.

Some activists worry that these regulations may not be implemented before an expected federal election this spring, potentially derailing the changes.

Borden hopes the reforms move forward. “It’s a really good start,” she said. “I hope it doesn’t go under the radar.”

A spokesperson for Moncton-Riverview-Dieppe MP Ginette Petitpas Taylor, now President of the Treasury Board of Canada, referred questions to newly appointed Finance Minister Dominic LeBlanc. The Finance Department stated that the government is reviewing public feedback on the proposed regulations and plans to finalize them “in the coming months.”

David Gordon Koch is a journalist with the NB Media Co-op. Peter Jongeneelen is co-chair of NB ACORN. This reporting was made possible in part by the Government of Canada, administered by the Canadian Association of Community Television Stations and Users (CACTUS).