Government plans to cut cap to 35%
Thousands of jobs and billions of dollars in GDP could be at stake if Canada’s maximum interest rate is lowered, according to a new report commissioned by the Canadian Lenders Association (CLA).
The federal government plans to lower the Criminal Code’s interest rate cap to 35% from its current level of 47.2% – but that could prevent around two million consumers from qualifying for a loan and cut off nearly 820,000 borrowers, according to the Ernst & Young report.
CLA chief Gary Schwartz said the report showed “broad-based, highly damaging impacts” that would arise as a result of the proposed change, with around 32,000 employees also potentially at risk of being displaced.
Lost GDP could climb to $10.7 billion if the government pushes ahead with the lower cap, according to Ernst & Young’s report, with borrowers potentially facing $4.4 billion in higher interest costs and greater exposure to unregulated lenders and riskier loan types.
Still, the lower cap has won support from anti-poverty advocacy groups – and Katherine Cuplinskas, finance minister Chrystia Freeland’s press secretary, said in a statement that many lenders had profit margins that were sizeable enough to mean they shouldn’t have to cut borrowers off entirely.
“Suggestions that lenders might deny credit to some of the most vulnerable people in our communities is entirely irresponsible,” Cuplinskas said.
The proposal was originally unveiled in the federal Liberals’ 2023 spending plan, tabled at the end of last March, and included a plan to adjust the Criminal Code exemption for payday lenders to no more than $14 per $100 borrowed.
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