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No More High Interest – Bill S-239

July 18, 2022

Bill S-239 is at second reading and has not yet passed.  The Bill, once passed, will change legal interest interest rates from 60% to 20% (plus a provision for the overnight rate).

If you did not already know, it is currently a criminal offence, in Canada, to charge more than 60% interest per annum.  Bill S-239 seeks to lower the criminal rate to 20% plus the Bank of Canada’s overnight rate (currently 2.5%).  Some companies are quite open about the higher rates they charge for various types of loans, which can be quite higher than bank rates.  Other companies are less forthcoming and very few, including banks, speak to total cost of borrowing.

Interest rates are typically associated with risk, the higher the risk of lending the higher the interest rate charged by the lender to mitigate their risk of the borrower defaulting.  Banks are what we generally consider tier one lenders and finance companies are second tier lenders, targeting higher risk borrowers, hence the higher rates.

Having said that bank rates on credit cards will reach significantly above 20%, and are advertised by Scotiabank at 22.99%.  If Bill S 239 passes, it will impact a lot of lenders across the country from banks through finance companies on down to a whole bunch of private lenders.  The hardest hit will be the second and third tier lenders who will need to be more cautious about who to lend to.

Overall, this Bill will make it more difficult for desperate consumers to obtain credit, which is not a bad thing in a country overburdened with debt.  In fact, credit card rates have hardly dropped since the 1980s and remained unchanged through the past 1.5 decades of quantitative easing. 

Ideally, credit cards should be not more than the overnight rate plus not more than 5%.  That would curtail the banks pushing out ridiculous numbers of credit cards (currently estimated to be 80 million amongst an ‘adult’ population of about 26 million).

Half of Canadians are reporting serious financial problems, for which we can blame the overuse of credit tying back to bank deregulation and high interest rates. 

If you are worried about how you are going to manage your debts, call us for a free consultation at 519-646-2222