EY Report: Millions of Canadians Cut off from Access to Loans
Government Interest Rate Cap to Remove up to $10.7 Billion from the Canadian Economy, Cut Off Millions of Canadians from Access to Loans
OTTAWA, ON, February 12, 2024 – A new report conducted by Ernst & Young LLP, commissioned by the Canadian Lenders Association (CLA), highlights the severe, far-reaching consequences of the federal government’s new interest rate cap. The study reveals that a reduction to the allowable rate of interest will remove $10.7 billion from the Canadian economy each year, and cost borrowers up to $4.4 billion in additional interest payments to payday lenders and illegal lenders, as a result of being turned away from regulated lenders.
“The report demonstrates the broad-based, highly damaging impacts that this change will have on the Canadian economy,” said Gary Schwartz, President and Chief Executive Officer of the Canadian Lenders Association. “It is clear, that the proposed changes to the maximum allowable rate of interest will only exacerbate the existing affordability challenges. We’re looking at billions of dollars of lost GDP and thousands of lost jobs, which is highly concerning. Unfortunately, this is another example of the Federal Government abandoning evidence-based decision making. We continue to request that the Minister of Finance meet with stakeholders to collaborate on a better solution that will truly support the financial health of Canadians.”
Canada’s Criminal Code currently caps the criminal rate of interest at an APR of 47.2%. However, the Liberal government has recently passed legislation to reduce this rate to 35%. As a result of this change, the report found the Canadian economy will suffer:
- $10.7 billion in lost GDP
- 2 million consumers at risk of losing access to regulated loans
- $4.4 Billion in excess interest paid to payday and illegal lenders as a result of Canadians being turned away from regulated lenders.
- 49,148 jobs eliminated
This economic impact analysis underscores the urgent need for a balanced approach to policy-making that protects Canadians’ access to credit while safeguarding the integrity of the financial system. The findings emphasize the necessity for thorough consideration of the broader socio-economic implications of regulatory changes.
The CLA continues to seek out urgent cooperation from government to avoid eliminating credit for millions of Canadians.
For more information, please visit www.butnowwhat.ca and add your voice to help ensure the government does not close the door on your financial future.
About the Canadian Lenders Association
The Canadian Lenders Association (CLA) supports the growth of bank and non-bank companies that are in the business of lending. We also support lending adjacent sectors including BaaS, Core Banking, Open Banking, DE&I and Sustainable Finance Frameworks. We currently represent and advocate for over 300 companies across Canada that participate in SMB, consumer, home, equipment, automotive and mortgage financing. The CLA does not represent the Payday lending sector.
Associated links www.butnowwhat.ca
Media contacts Daniele Medlej dmedlej@navltd.com
Additional facts:
- Devastating impact on the alternative lender industry: The study warns that many lenders focused on serving high-risk customers may struggle to survive, risking 1,000 Canadian jobs in the industry, and 291 small businesses. The report further illustrates that if these lenders exit the market, it could exacerbate credit access issues and push borrowers towards non-traditional, high-interest lenders.