This bill proposes to change the definition of "criminal rate" of interest by lowering the threshold from a fixed sixty percent to a variable rate linked to the Bank of Canada’s overnight rate plus twenty percent. This means that as the Bank adjusts its overnight rate, the limit for what is considered illegal lending practices could change accordingly.
Groups affected by this bill include borrowers, particularly those with poor credit histories who may be more vulnerable to higher interest rates. Small businesses seeking loans might find more competitive lending opportunities, while existing borrowers may face increased risks of predatory lending practices if lenders adjust their rates to exploit this change.
The financial impact could be significant as variable interest rates may lead to fluctuating costs for borrowers, especially in a rising interest rate environment. Borrowers could incur higher expenses if lenders justify raising rates close to the new legal limit. The government may experience increased costs related to consumer protection efforts as they address the potential for abuses in lending practices.
Supporters of the amendment argue it provides a modernized and flexible approach to determining criminal interest rates. They believe it reflects real economic conditions and could lead to a more competitive lending landscape, benefiting consumers and small businesses alike by allowing lenders to offer more reasonable rates without fear of crossing legal boundaries.
Critics warn that the amendment could lead to predatory lending practices, as lenders might impose higher interest rates that fall just below the new threshold. This could disproportionately affect vulnerable populations already dealing with financial hardships, as increased borrowing costs may worsen their situations and limit access to credit. Concerns are also raised about the overall financial stability of borrowers and the economy if this change leads to a casual approach to lending regulations.