Lowered Criminal Rate of Interest May Leave Vulnerable Canadians Shut Out of Credit Market, Credit Canada CEO Warns

TORONTO, Jan. 2, 2025 /CNW/ - The Government of Canada's recent reduction of the criminal interest rate from approximately 48% APR to 35% APR could have unintended consequences, potentially leaving the most vulnerable Canadians with fewer credit options. While payday loan costs will be capped at $14 per $100 borrowed, Credit Canada is warning that this move may push those in need toward even riskier, unregulated credit options.

Bruce Sellery, CEO of Credit Canada, Canada's first and longest-standing credit counselling agency, cautioned that while the intent behind lowering the criminal interest rate is to protect consumers, it risks inadvertently making things harder for vulnerable Canadians.

"Lowering the criminal rate doesn't solve the problem," says Sellery. "Many people turn to high-interest loans because they have low credit scores and can't qualify for loans from traditional lenders. Without addressing the underlying issues, like financial literacy, mental health struggles, and income instability, we risk pushing Canadians toward unregulated, riskier credit options like pawn shops, illegal lenders, or offshore borrowing."

Sellery explains that the reduction in interest rates will have unintended consequences. "Non-prime lenders are for-profit businesses. If they can't lend profitably at 35% APR, they'll tighten their lending criteria and issue fewer loans. Canadians who would have qualified at 48% may now be shut out of the credit market entirely."

Credit Canada urges Canadians to take proactive steps to protect their financial health. Sellery advises:

• Work on improving your credit score to increase access to traditional, lower-cost credit options.
• Prioritize budgeting and debt repayment strategies to reduce reliance on high-cost credit.
• Seek professional credit counselling from a non-profit agency to address underlying issues and explore safer alternatives before financial challenges escalate.

"Debt isn't the problem; debt is a symptom. The actual problems people face are things like job loss, divorce, addictions, mental health or physical health struggles," says Sellery. "We need a comprehensive approach that includes financial coaching, mental health support, and other resources to create lasting financial stability for Canadians."

Sellery emphasized the importance of the Financial Consumer Agency of Canada (FCAC)'s National Financial Literacy Strategy, which focuses on building financial resilience by creating a more accessible, inclusive, and effective financial ecosystem. "We believe strongly that what really matters is executing this strategy to empower Canadians with the knowledge and tools to make informed financial decisions and achieve greater stability," he says.

Partners across the financial and non-profit sectors have echoed these concerns, raising questions about the changes' unintended consequences. Many predict increased fees for high-risk borrowers and an increase in unregulated lending activity as non-prime lenders adjust their models to offset risk.

Credit Canada, a national non-profit agency, offers budgeting assistance, financial coaching, and debt consolidation programs to help Canadians navigate these changes. "We're here to support Canadians through these reforms," says Sellery. "Our mission is to help people reduce reliance on high-cost credit and achieve lasting financial wellness. When it comes to managing debt, early intervention can make all the difference."

For more information about Credit Canada's free, confidential credit counselling services or to speak to a Credit Counsellor, visit www.creditcanada.com.

To book an interview with Bruce Sellery, contact Tanvi Chitnis at [email protected] or [phone].

About Credit Canada

Credit Canada is Canada's first and longest-standing non-profit credit counselling agency. For more than 50 years, Credit Canada has been helping Canadians get out of debt and back into life through financial education and debt resolution. As a national, non-profit organization, Credit Canada has helped thousands become debt-free and achieve financial wellness.

Press kit includes a Credit Canada logo and Bruce Sellery's bio and headshot.

Website: www.creditcanada.com
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SOURCE Credit Canada Debt Solutions

Tanvi Chitnis, Digital Marketing Manager, Credit Canada, [email protected], [phone]