Under section 2 of the Interest Act, a person may contract for any rate of interest that is agreed upon, that is, “except as otherwise provided by this Act or any other Act of Parliament”.

Section 347 of the Criminal Code of Canada prohibits loan agreements or arrangements which call for interest at a criminal rate and prohibits the receipt of payment or partial payment of interest at a criminal rate.

A “criminal rate” is defined as follows in section 347:

“an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement”.

It is important to note that for the purposes of section 347, interest is not defined solely as the interest on the principal amount of the loan but also includes fees, fines, penalties, commissions, or other similar charges associated with the loan.

Certain payday loans are an exception to section 347. Payday loans are unsecured, small value, and typically have very short terms. The Province of Ontario regulates payday loans with the Payday Loans Act, 2008, which contains restrictions and rules for payday lenders.

Due to section 8 of the Interest Act, certain mortgage default penalties, fees, or fines which have the effect of raising the interest rate of the mortgage upon default may be rendered unenforceable. Mortgage default fees must reflect actual losses incurred by the lender.

The Unconscionable Transactions Relief Act provides the courts with powers to set aside an interest rate where the court finds that “having regard to the risk and to all the circumstances, the cost of the loan is excessive, and that the transaction is harsh and unconscionable”.

Please reach out to us with your queries and we will be more than happy to assist you. 

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