Blue Line

Government of Canada’s interest cap risks criminal surge

February 5, 2024  By Ontario Association of Chiefs of Police

Feb. 5, 2024, Toronto, Ont. – The Ontario Association of Chiefs of Police (OACP), the voice of police leadership in Ontario, and the Canadian Lenders Association (CLA) are raising concerns regarding legislation introduced by the federal government which could lead to a dangerous rise in criminal activity.

A new study by the OACP and the CLA indicates the government’s recent decision to decrease the maximum allowable rate of interest may lead to a rise in illicit financial activities, endangering Canadians who are already at risk of not making ends meet.

“The legislation has the potential to create a vacuum for criminals to fill,” said Barry Horrobin, Co-Chair of the OACP’s Community Safety and Crime Prevention Committee. “Under the legislation, illegal predatory lenders could take advantage of Canadians by operating online from outside the bounds of Canadian jurisdiction. By forcing legal, responsible lenders out of the marketplace, we worry Canadians will be targeted by this type of criminal activity.”

The comprehensive study further highlights:

  • The government’s proposed interest rate reduction from 47 per cent to 35 per cent APR will restrict access to essential credit for approximately 4.7 million Canadians.
  • These Canadians will be forced to payday or illegal lending to meet their credit needs, as was the case in three other markets that imposed rate caps.
  • A range of consequences which will limit the ability of non-prime borrowers to meet essential financial requirements.
  • Case studies, including Quebec, California, and the UK demonstrate the various unintended, negative consequences of interest rate caps, underscoring the potentially disastrous repercussions this policy will have for the broader financial ecosystem, including illegal activity and organized crime.

“The facts say this is a bad policy that is going to leave millions of Canadians without access to loans during an affordability crisis,” said Gary Schwartz, president and CEO of the Canadian Lenders Association. “The report’s finding that this change might contribute to an upsurge in criminal activities and disproportionately impact already at-risk Canadians is yet another clear demonstration the government has failed to think this through.”

Ultimately, the paper’s findings show a comprehensive review of the government’s new interest rate law is needed to prevent potentially adverse outcomes for millions of Canadians. It also highlights the critical need for a balanced approach that protects Canadians’ access to credit while safeguarding the integrity of the financial system.

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