The Government of Canada has recently introduced the Criminal Interest Rate Regulations, to reduce the threshold of what is considered a ‘criminal’ rate of interest. As of January 1, 2025, it is now a criminal offence to offer loans at an interest rate higher than 35% annual percentage rate (APR). It used to be 60%. There are some exceptions to this law, but they only apply to (1) commercial loans; (2) pawnbrokering loans; and (3) payday loans.
The change is important not only because of the reduced rate, but also the difference between EAR and APR for the purpose of calculating interest. EAR takes into account ‘compounding interest’. APR is used to calculate the annualized rate, without considering compounding interest.
If you are selling a vehicle to a customer, particularly with in- house financing, make sure that you do not charge your customers a criminal rate of interest. Failure to follow this rule could mean severe consequences. For less serious offences, you may be fined up to
$25,000.00 and be imprisoned for almost 2 years. For more serious offences, you may be imprisoned for almost 5 years.
At the end of the day, dealers should be looking to sell their customers a vehicle—not a problem. While it’s true that customers are free to choose to enter into ‘bad’, but not illegal, contracts, don’t make a habit of trying to sell your customers vehicles that are outside of their budget. Selling vehicles that meet your customers’ needs, and budget, is just good business practice.
Word of mouth gets around, especially in today’s digital age. A customer that can afford their vehicle is a happy customer. Customers who find themselves lagging behind on payments, may not end up being so happy. Create a reputation for yourself as a dealership that doesn’t try to push their customers beyond their budget. The positive word of mouth will get around, and you may find yourself with more customers in the long run.
Members interested in reviewing the Criminal Interest Rate Regulations can do so by following this link: https://tinyurl.com/mrxjysrz