The federal cabinet wants to put a cap on borrowing rates for payday loans.. Chrystia Freeland Budget 2023 .In 2007, the federal government transferred payday loan regulations to the provinces, where two-week loans run from 200% to 500%..“Predatory lenders can take advantage of some of the most vulnerable people in our communities, including low-income Canadians, newcomers, and seniors,” cabinet wrote in its 2023 budget, A Made in Canada Plan..The Criminal Code currently outlaws interest charges over 60% a year with an exemption for payday lenders. The Department of Finance would lower the rate to about 35%..“Budget 2023 announces the government’s intention to adjust the Criminal Code payday lending exemption to require payday lenders to charge no more than $14 per $100 borrowed,” the document added..Payday loans are typically two-week notes. A $14 charge on a $100 loan for two weeks is the annualized equivalent of 365% interest. The Department of Finance did not explain its math..READ MORE Federal budget spends $497 billion, focused on clean tech, healthcare, affordability, dental care.Parliament’s usury law was last adjusted in 1978. About 5% of Canadians use payday loans, according to a February 13 report by the Financial Consumer Agency of Canada. .“Many Canadians are facing the biggest financial challenges of their lives,” said the report Consumer Vulnerability: Evidence From The Monthly COVID-19 Financial Well-Being Survey..Since 2006, parliament rejected numerous private bills to cap loan rates. Bankers and credit unions earlier opposed a 21% interest cap, according to Blacklock’s Reporter. .“It is not just a matter of handing over the money,” Charles Docherty, then senior counsel to the Canadian Bankers Association, testified at 2021 hearings of the Senate Banking committee..A cap “has unintended consequences that could negatively impact credit in the financial services marketplace,” said Docherty. .“Some credit cards have higher rates.”.Also, the Canadian Credit Union Association (CCUA) opposed the 21% interest cap. .“If this would go through the way it's proposed, there's a consequence of people going to the unregulated sector,” testified Marc-André Pigeon, then vice-president of policy at CCUA. .“The rate could kneecap some of our efforts to offer a competitive alternative.”.In her 2021 budget, Finance Minister Chrystia Freeland said the government would rewrite the usury laws. .“Many lower and modest-income Canadians rely on high-interest, short-term loans to make ends meet, such as paying for everyday living expenses or for unanticipated emergencies,” Freeland said at the time. .“This leaves some Canadians living in a cycle of debt.”
