CLA says government’s rate-of-interest plan could negatively impact non-prime consumers

The Canadian Lenders Association wants the federal government to pause any changes they are planning to the maximum allowable rate of interest because millions of Canadians, many of which are non-prime, could lose access to loans from regulated lenders, according to the CLA. 

Based on the federal government’s website, it plans to lower the Criminal Rate of Interest from 47 per cent APR to 35 per cent APR in an attempt to increase access to low-cost, small-value credit, as well as “additional revisions to the payday lending exemption.” The consultation period closed on Jan. 7, 2024.

“Lowering the allowable rate of interest will force lenders to deny millions of borrowers access to a loan,” said Gary Schwartz, President and Chief Executive Office of the Canadian Lenders Association (CLA), in a statement. “Canadians turn to non-prime lenders because they are looking to rebuild their credit — but now they won’t even have that chance.”

According to the CLA, nearly 8.5 million people in Canada are considered non-prime borrowers, while more than one-in-four rely on non-prime sources of credit. The concern is that the change in interest rate will prevent many Canadians from accessing credit from banks, which in turn could also impact dealer non-prime customers.

“These changes will punish Canadians who are not able to get credit from banks,” added Schwartz. “Maybe they’re new to Canada. Maybe they had a tumultuous life event. Maybe they just need a second chance. Whatever the reason, these loans are key to building their credit and securing alternative options.”

More information on the federal government’s plan is available here and here.

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