Lowering Maximum Allowable Rate of Interest Will Hurt Millions of Canadians, says CLA
OTTAWA – The Canadian Lenders Association (CLA) is disappointed at today’s announcement to lower the maximum allowable rate of interest to 35 per cent from a 47 per cent Annual Percentage Rate (APR).
The CLA, which represents members across the lending spectrum in Canada, acknowledges making life more affordable for Canadians is a goal worth pursuing. This measure, however, will do precisely the opposite, making life more expensive for some 4.8 million Canadians by eliminating their access to non-prime credit. As a result, many may be forced into payday loans of up to 600 per cent.
The CLA put considerable effort into informing the federal government of these unintended consequences and is disappointed this reality is not acknowledged by today’s announcement. See CLA submission on the adverse effects of lowering the maximum interest rate.
“This will disproportionately affect low-income Canadians – the segment of the population most at risk given their inability to qualify for credit at prime rates – who struggle to make ends meet by limiting or eliminating entirely their access to credit,” said CLA president and CEO, Gary Schwartz.
“In an effort to ease the financial burden on Canadians who need it most, the federal government has achieved the opposite. If you are borrowing at non-prime, you are already facing financial challenges. For potentially millions of Canadians, that burden just got heavier today.”
We were pleased to see, however, that the federal government intends to adjust the Criminal Code’s payday lending exemption to require payday lenders to charge no more than $14 per $100 borrowed.
While we applaud the government for this, we believe that payday lending should have been part of the recent consultation that resulted in today’s announcement. If government seeks to make life more affordable for Canadians, the focus needs to be on the predatory payday lending sector. The time gap between today’s announcement and any eventual action could leave millions of Canadians without access to non prime credit, and reduced competition in the lending market.
The CLA will continue to work with the federal government as it implements this measure and contemplates further action. It is essential that we together ensure any measures taken in the lending sector achieve their intended goal of easing the financial burdens on Canadians who need it most.
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