New Study Highlights Concerns Over Reduced Interest Rate Caps Impacting Vulnerable Canadians
TORONTO – In response to recent legislation by the federal government aimed at adjusting the maximum allowable interest rates, the Ontario Association of Chiefs of Police (OACP) and the Canadian Lenders Association (CLA) have voiced significant concerns.
A collaborative study between the two organizations suggest that the move to lower interest rates could inadvertently pave the way for an increase in illicit financial operations, potentially endangering Canadians struggling financially.
Barry Horrobin, Co-Chair of the OACP’s Community Safety and Crime Prevention Committee, emphasized the risk of creating an operational void for criminals. “The legislation’s potential to exclude legal, responsible lenders from the market raises the specter of illegal predatory lenders exploiting vulnerable Canadians, operating beyond the reach of Canadian law enforcement,” Horbin stated.
The joint study elaborates on several key points:
- The federal proposal to cut the interest rate cap from 47% to 35% APR could limit credit access for an estimated 4.7 million Canadians, pushing them towards unregulated or illegal lenders.
- Similar regulatory changes in Quebec, California, and the UK have led to unintended consequences, including an increase in illegal lending activities and challenges for non-prime borrowers in meeting financial obligations.
- The study warns of a potential exodus of regulated lenders from the market, leaving a gap that could be exploited by unlicensed entities, thus increasing criminal activities like loan sharking.
Gary Schwartz, President and CEO of the CLA, criticized the policy for its lack of foresight, especially during an affordability crisis. “The report clearly shows the policy’s contribution to a potential rise in criminal activities, impacting Canadians who are already vulnerable,” Schwartz remarked.
The findings underscore the necessity for a thorough reassessment of the new interest rate legislation to avert adverse effects on millions of Canadians. It also highlights the importance of ensuring that Canadians have access to credit through regulated and responsible lenders, rather than being forced into the arms of predatory or illegal financial entities.
The study points to the complex and varied outcomes of interest rate caps in other jurisdictions, illustrating the critical need for a balanced approach that considers the entire financial ecosystem. For example, the California Fair Access to Credit Act capped interest rates but did not curb payday lenders, leading to a decline in the state-regulated loan market and pushing borrowers towards high-interest loans.
In conclusion, the OACP and CLA’s collaborative report calls for careful consideration and a balanced strategy that protects Canadians’ access to essential credit services while preventing the proliferation of illegal financial activities.
Sources: The Ontario Association of Chiefs of Police (OACP) and the Canadian Lenders Association (CLA)