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Senator Ringuette urges Senate to stop abusive interest rates

For Immediate Release


November 27th, 2013


Senator Ringuette urges Senate to stop abusive interest rates


Senator Pierrette Ringuette spoke yesterday in support of her bill S-210; An Act to Amend the Criminal Code (Criminal Interest Rate); the official transcript is attached.

For more information:

Tim Rosenburgh

Office of Senator Pierrette Ringuette

(613) 943-2248



Hon. Pierrette Ringuette moved the second reading of Bill S- 210, An Act to amend the Criminal Code (criminal interest rate).

She said: Honourable senators, after more than two years of research, I am pleased to introduce Bill S-210 to amend section 347 of the Criminal Code, a provision that dates back to 1981.

In short, Bill S-210 would change what is known as the criminal interest rate, currently set at 60 per cent for everyone, to the following: 20 per cent above the Bank of Canada rate, which is currently 1 per cent for individuals, families or households; 60 per cent for a loan of less than $1 million for business or commercial purposes; and no limit on loans of more than $1 million for business or commercial purposes.

It is also important to note that the rate of 20 per cent above the Bank of Canada rate also applies to charities and all other not- for-profit organizations. I will go over the details of the proposed changes in a moment, but I would like to briefly explain two other aspects of the change.


For commercial loans under $1 million, the criminal rate remains the same at 60 per cent. In our research, we did not find any reason to change this part of the existing legislation.

However, if, during the committee's study of this bill, we are presented with facts and arguments that show there is abuse of loans to small and medium-sized businesses, I will not hesitate to amend my bill to ensure that our SMEs are also entitled to the same rate: the Bank of Canada rate plus 20 per cent.

Commercial loans of $1 million and over are completely exempt from the 60 per cent limit. Our research on the effects of interest rates and our meetings with stakeholders showed that it was clear that large corporations are fully capable of negotiating appropriate financing conditions. Eliminating the existing rules will give them more freedom to negotiate loans requiring high interest rates, such as bridge loans.

Honourable senators, when researching this bill, we looked as far back as 1906, when the Parliament of Canada passed a law called the Money Lenders Act, which limited interest to 12 per cent on loans of $500 or less.

Thirty-three years later, in 1939, Parliament replaced this statute with the Small Loans Act. Under this legislation, any institution or organization that offered loans of $500 or more — a figure later increased to $1,500 — was required to charge interest at the rate of 1 per cent per month and had to apply for a licence or an exemption from the government in order to charge more than 1 per cent.

Thirty-two years later, in 1981 — this happened over several decades — Parliament abolished the Small Loans Act and enshrined section 347 in the Criminal Code, setting a criminal interest rate of 60 per cent per year. This rate is still in effect after 32 years.

We tried to determine why the rate was set at 60 per cent, but there is no record of the discussions leading up to the decision. It appears that the rate of 60 per cent was seen as a way to address criminal activities surrounding questionable loans.

It should be noted that when Parliament approved the criminal interest rate of 60 per cent, the Bank of Canada rate was about 21 per cent, so 60 per cent was roughly three times the Bank of Canada rate.

If we used the same calculation today, the criminal interest rate in section 347 would be 3 per cent. We obviously do not have enough prisons in Canada to house everyone who charges more than 3 per cent interest. By setting the rate at 20 per cent above the Bank of Canada rate, my bill would inject a measure of flexibility into section 347 that is currently missing.

Based on my bill, the criminal interest rate would be 21 per cent today; however, if the Bank of Canada rate increased from 1 per cent to 4 per cent by 2015, for example, the criminal interest rate would rise to 24 per cent.

I believe that a variable interest rate of 20 per cent above the Bank of Canada rate is a more reasonable legislative approach that is fairer to individuals, households and families.

Section 347, as it currently exists in the Criminal Code, seems to focus specifically on loans made by organized crime. We also have a duty, as legislators, to regulate other forms of abusive practices with regard to the interest rates under our authority.

Given that the Bank of Canada rate has been at 1 per cent for several years, why have credit card interest rates been between 19 per cent and 30 per cent? Those rates have remained the same since the 1980s. Why do some service providers, such as Bell and Bell Alliant, charge interest rates of over 42 per cent on their bills? Why do Telus and Rogers charge 26.82 per cent?

Section 347(2) of the Criminal Code defines "interest" as follows:

"interest" means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, by or on behalf of the person to whom the credit is or is to be advanced, irrespective of the person to whom any such charges and expenses are or are to be paid or payable, but does not include any repayment of credit advanced or any insurance charge, official fee, overdraft charge, required deposit balance or, in the case of a mortgage transaction, any amount required to be paid on account of property taxes.


In the course of my research, I found various court rulings that confirm the direct relationship required for certain charges to be included in the interest rate for a product or a service.

I believe that, over the years, the criminal rate of 60 per cent has led to many injustices against Canadians, particularly people on a fixed income, students and middle-income and low-income families. These people are the most vulnerable to abusive practices.

In a recent article, the senior manager of a major Canadian bank stated that the bank had two objectives for maximizing revenue from credit cards. The first one was to increase the number of card purchases made by high-income clients in order to maximize retailers' fees. That is the issue of my bill, Bill S-202.

The second objective is to increase the number of clients who do not pay off their credit card each month in order to maximize interest charges.

These are the two objectives of our Canadian banks with regard to increasing their profits for credit cards. Mind you, the second one here should be taken into consideration under the current Bill S-210.


Honourable senators, I believe these practices abuse retailers and citizens, and that at the same time that five major Canadian banks continue to earn record profits as seen in the third quarter of 2013: Toronto-Dominion, $1.35 billion; CIBC, $890 million, an all-time best quarter; the Bank of Montreal, $1.14 billion, there again, an all-time best quarter; Scotiabank, $1.77 billion; and the Royal Bank, $2.3 billion. Those are net quarterly profits.

TransUnion has issued the following figures on consumer debt in Canada. The average Canadian has $27,131 in consumer debt in 2013, an increase of 3.47 per cent over 2012. Average line of credit debt increased by 2.73 per cent. Instalment loans, not counting mortgages, increased by 5.52 per cent. Automobile borrower debt increased by 3.38 per cent.

Credit card debt increased by 0.8 per cent. Your average credit card debt was $3,573 in January of 2013. Total Canadian credit card debt is at $73.7 billion. From 2002 to 2012, the number of credit cards in circulation in Canada increased from 49.9 million to 73.9 million. Net credit card purchases by Canadian consumers increased from $154 billion in 2002 to $355.64 billion in 2012. That is an increase of 130 per cent over 10 years.

Honourable senators, as part of my research, I felt it was important to look at the legislation in effect in the U.S. So far, I have found that 18 states have exercised their authority over interest rates by introducing a variable rate with a maximum limit —the same principle, a variable rate. So flexibility is within their legislation, just as Bill S-210 is going to bring to criminal interest rates under the Criminal Code.

Let me give you the pleasure of stating those states and how they base their percentage rate, their basis and the maximum: Kentucky, 4 per cent plus above the Federal Reserve, with a maximum of 19; Alaska, a base of 5 per cent, maximum 5 per cent; Arkansas, 5 per cent plus above the Federal Reserve for a maximum of 17; California, 7 per cent above the Federal Reserve for a maximum of 12 per cent; Delaware, 5 per cent above the Federal Reserve, period — so it is 5 per cent plus Federal Reserve, no max. Well, that's the max. Iowa is at 12 per cent for loans under $25,000, with the maximum still remaining at 12 per cent; Kansas, 15 per cent, maximum 15 per cent; Minnesota, 8 per cent, maximum 8 per cent; Mississippi, 5 per cent plus the Federal Reserve, with a maximum of 10 per cent; Montana, 6 per cent plus above the Wall Street prime, with a maximum of 15; North Carolina, 6 per cent above the six-month U.S. T-bill for a maximum of 16; North Dakota, 5.5 above the six-month U.S. T- bill, so it is 5.5 plus; Ohio, 8 per cent, maximum cap at 8 per cent; Oregon, 5 per cent plus the Federal Reserve, with a maximum of 12; Rhode Island, 9 per cent plus the Wall Street prime, with a maximum of 21; Tennessee, 4 per cent plus the average state bank, with a maximum of 24; Washington, 4 per cent plus the U.S. T- bill, with a maximum of 12. So the maximum interest rate in these 18 states varies between 5 per cent and 24 per cent. As you have noticed, most of these states have a variable component as my bill proposes.

Now, 15 out of these 18 states are well below the maximum rate of 20 per cent that I'm proposing in my bill.

In late 2006, Canada's Parliament passed Bill C-26 to address the rise in the number of payday loan companies offering small, short-term loans. The bill amended section 347 of the Criminal Code by adding section 347.1 concerning small short-term loans. Provinces can regulate this type of financial product by applying to the Governor-in-Council for a licence.

The new section 347.1(2) exempts from criminal prosecution a person who makes a payday loan if the loan is for $1,500 or less and the term of the loan is for 62 days or less. The person must also be licensed by a province designated by the Governor-in- Council. That's not too far away.

I recall that Senator Grafstein, when he was Chair of the Senate Banking Committee, expressed concern over Bill C-26. He thought it was impossible for the provinces to make consistent regulations for the public, and that some Canadians would end up paying more than others for the same financial product just because of where they live.

Looking back over events since Bill C-26 was passed, we must face the fact that Senator Grafstein was right about this devolution and the patchwork quilt of regulations cross the country. While my bill is not intended to address the issue specifically, I would like to briefly review the various interest rates introduced by the provinces since the spring of 2007 when Bill C- 26 came into force to regulate payday lenders.

Newfoundland and Labrador has no regulations in place. Therefore, the 60 per cent criminal interest rate under the Criminal Code applies.

The rate in Nova Scotia is 31 per cent. Now, and when I say 31 per cent, you have to bear in mind the maximum period of 62 days for the loan. If you would take that 31 per cent and put it on an annual basis, it would be quite a lot higher.


British Columbia is at 23 per cent; Alberta, 23 per cent; Saskatchewan, 23 per cent; and Ontario, 21 per cent and they're reviewing that rate right now. Manitoba is at 17 per cent. Last year, it reviewed the 17 per cent and kept the 17 per cent rate. New Brunswick has had legislation in place since 2008. No rate has been put forth so far in the legislation; therefore, the 60 per cent rate of the Criminal Code applies.

For Prince Edward Island, the legislation is in place for 25 per cent. They're waiting for the federal designation and, therefore, the 60 per cent rate applies. Quebec is at 35 per cent maximum annual interest rate, which is a huge difference in comparison to all the other provinces.

Honourable senators, I would like to remind you that my bill does not change section 347.1 of the Criminal Code —

Some Hon. Senators: Oh, oh!

Some Hon. Senators: Order!

Senator Moore: Senator Manning.

The Hon. the Speaker pro tempore: Please, colleagues, let's listen to Senator Ringuette. It's quite interesting. Senator Ringuette.

Senator Ringuette: Thank you, Mr. Speaker. Honourable senators, I would like to remind you that my bill does not change subsection 347.1 of the Criminal Code regarding provincial authority to make regulations specifically regarding small payday loans by businesses commonly known as "payday lenders." However, the bill does offer some protection to citizens when they go to payday lenders for financial products that are not covered by provincial regulations, such as the new line-of-credit products introduced by the payday lenders in Manitoba in 2012 and in Ontario since February 2013.

According to lawyer Byron Williams of the Public Interest Law Centre these new products are modelled on a line of credit and have interest rates of 75 per cent. I'm reading to you from an article that I read two weeks ago. It was about a retired farmer in Manitoba who used this product to take out a $100-loan for 13 days. He had to pay $133.18.

Senator Fraser: Over 15 days?

Senator Ringuette: Thirteen days. This is an annualized interest rate of 925 per cent. If the lender in question, CS Financial, had used the financial product regulated in Manitoba, the retired farmer would have paid $117 instead. That financial product line comes under federal jurisdiction and CS Financial should be investigated with regard to the Criminal Code. I have not heard that they have been. It was 925 per cent to a retired Manitoba farmer. It was in the news, so there's no excuse not to investigate.

These new financial products are not provincially regulated. They are subject to the current maximum interest rate of 59.999 per cent, because at 60 per cent it's a criminal offence, as set out in section 347 of the Criminal Code.

Over the past few years, similar products have become available on Canadian and foreign websites also. Since these sites are not provincially regulated either, the institutions are subject to the Criminal Code. It would be interesting to know how our police monitor their activity, if indeed they do.


Honourable senators, this bill is necessary for reducing the abusive practices that for more than 32 years have slipped into various financial products used by Canadians.

I hope that sooner rather than later you will agree to refer Bill S-210 to the Standing Senate Committee on Banking, Trade and Commerce to be studied and reported on. This is important not just for individuals' bottom lines, but also for Canada's overall economy.

Thank you very much.