The federal government aimed to shield vulnerable Canadians from predatory and illegal lenders. But police leaders say Ottawa may have ended up handing them over to organized crime instead.
On January 1, 2025, Canada made its biggest change to interest rate laws in more than 40 years. Section 347 of the Criminal Code now sets the maximum interest rate at 35% APR, down from 48%. The goal was to protect consumers and stop lenders from taking advantage of people who are already struggling. But a joint warning from the Ontario Association of Chiefs of Police (OACP) and the Canadian Lenders Association (CLA) suggests the outcome may be very different.
Their report estimates that about 4.7 million Canadians with non-prime credit scores, who are already turned away by big banks, could lose access to regulated lenders because of the cap.
Regulated lenders charge higher interest to cover the risk of default. If the cap is too low for them to make a profit, they leave the market. That gap is then filled by others, illegal lenders, who are much less regulated.
“The legislation has the potential to create a vacuum for criminals to fill,” said Barry Horrobin, co-chair of the OACP’s Community Safety and Crime Prevention Committee. He also said that illegal predatory lenders could take advantage of the situation by operating online from outside Canada, where Canadian law cannot easily reach them.
This is not just a theoretical concern. A UK study cited in the OACP report found that when similar rate limits reduced access to regulated credit, reports of illegal moneylending went up. Loan sharks started using social media to pose as legitimate services, then used threats and intimidation to collect debts. It is an old scam with a new look online.
The example from California is even harder to ignore. In 2019, the state passed the Fair Access to Credit Act, which capped interest rates at 36% for personal loans between $2,500 and $10,000. As a result, the regulated installment loan market collapsed, and borrowers who depended on it turned to unlicensed lenders charging rates up to 950%. Ottawa’s policymakers likely knew about this, but it is unclear if they fully considered it.
A Pollara survey commissioned by the CLA, though not independently peer-reviewed, found that nearly three in ten Canadians who borrowed from alternative non-prime lenders last year had thought about going to an illegal loan shark. For payday loan users, that number was almost half.
These are not people seeking out organized crime. They are people who need money for things like car repairs, dental bills, or keeping the lights on. Now, there are fewer legal places willing to help them.
Not everyone agrees with the industry’s view. ACORN Canada, a grassroots group that spent years urging Ottawa to lower the rate cap, has pushed back against the police warnings.
Organizer Donna Borden said that most ordinary Canadians would not even know how to find a loan shark if legal options disappeared. This is a fair point, and it highlights a real gap between what the industry predicts and what borrowers actually do when they are desperate.
There is no debate about what the cap does and does not cover. Payday lenders are exempt, but now face a federal limit of $14 per $100 borrowed. This may sound low, but the effective annual rate on a two-week loan is actually over 300%. Pawn loans under $1,000 can still charge up to 48% APR. Commercial loans over $500,000 have no cap at all. In short, the policy gives the most flexibility to the most sophisticated borrowers, while the most vulnerable Canadians are left with the fewest options and the smallest margin for error.
Police chiefs do not usually ask the federal government to rethink interest rate policy. The fact that they felt the need to speak up, and are still sounding the alarm more than a year after the cap took effect, shows how serious the situation is on the ground.
