Canada's 35% Criminal Interest Rate: What It Means If You Are Sued
Since January 1, 2025, it has been a criminal offence in Canada to receive interest at an annual percentage rate above 35% on the credit advanced, down from a 60% effective annual rate. But a rate over the line does not automatically wipe out your loan. Section 347 of the Criminal Code targets lenders, and in a civil suit an Ontario judge has a range of responses — most often reducing the interest rather than cancelling the debt. Here is what it covers, what it exempts, and how it comes up if a lender sues you.
What counts as a criminal rate, and what counts as interest
Section 347(1) makes it an offence to enter into — or offer, or advertise — an agreement to receive interest at a criminal rate, or to receive such a payment. It carries up to five years on indictment.
A “criminal rate” means “an annual percentage rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds 35 per cent on the credit advanced.” The old 60% effective annual rate worked out to roughly 48% APR.
“Interest” captures all charges paid for the advancing of credit — fees, commissions, penalties, “or in any other form,” and “irrespective of the person to whom” they are paid. “Credit advanced” is the money advanced minus those same fees. A fee withheld from the advance therefore counts twice: added to the interest at the top of the fraction, subtracted from the credit advanced at the bottom. A loan with a stated rate under 35% can still land over the line.
The exemptions: business loans, pawnbroking and payday lending
Section 347.01 lets the federal government exempt categories of agreement by regulation. The Criminal Interest Rate Regulations (SOR/2024-114) do three things.
- Commercial loans. Exempt where the borrower is not a natural person and borrows for a business purpose: up to 48% APR for credit over $10,000 and up to $500,000, and no cap above $500,000. A loan to you personally, even for your business, does not fit.
- Pawnbroking. Pawn loans under $1,000 secured by tangible property other than a vehicle, where seizure is the lender’s only recourse, are exempt up to 48%.
- Payday loans. A separate track under s. 347.1: a licensed non-bank lender advancing $1,500 or less for 62 days or less, in a designated province, within the federal cost limit of 14% of the amount advanced, falls outside s. 347 entirely.
Ontario matches. Under the Payday Loans Act, 2008 and its general regulation, the limit is $14 per $100 advanced, lowered from $15 effective January 1, 2025 — roughly 365% as a simple annual rate over two weeks, and lawful because payday loans sit outside s. 347.
What an Ontario court can do if the rate is too high
A loan at a criminal rate is not automatically void. In Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7, the Supreme Court rejected the idea that such contracts are void from the outset, describing instead a spectrum. At one end are contracts “so objectionable that their illegality will taint the entire contract.” At the other are agreements that break the rule but are “otherwise unobjectionable,” which often attract severance.
Blue-pencil severance strikes the offending clause out. Notional severance reads the rate down to the legal maximum. The majority preferred whichever technique “would most appropriately cure the illegality while remaining otherwise as close as possible to the intentions of the parties.”
Four considerations guide the outcome: whether severance would subvert the purpose of s. 347; whether the parties contracted for an illegal purpose or with an evil intention; their relative bargaining positions and conduct; and the potential for an unjustified windfall to the debtor. The Court read the rate down there because the borrower was commercially experienced and independently advised; a consumer on a standard-form contract sits differently. That is a reason the analysis may differ, not an assurance it will. The case also predates the 2025 amendments: the framework survived, the threshold did not.
How this comes up when a lender sues you
Section 347 is a criminal prohibition; a borrower does not enforce it personally. It surfaces in civil litigation three ways.
As a defence. The amount on a statement of claim is the lender’s arithmetic, not a finding of fact, and pleading that the agreement exceeds the criminal rate puts it in issue. It does not stop the clock — you still have to respond within the deadline or risk default judgment. Our overview of being sued for debt in Ontario covers those timelines.
As a counterclaim. Where interest above the line has already been paid, the claim is for money back. On payday loans the Payday Loans Act adds a statutory route: a refund demand within one year of the payment, and an action in the Superior Court of Justice.
Alongside other defences. A rate argument is often not the strongest point in the file. Ontario’s two-year limitation period frequently matters more on an older account — see the limitation period defence and when a debt is too old to sue on.
Why “purchase of receivables” contracts raise the question
Merchant cash advances and “purchase of future receivables” agreements are usually drafted so they are not loans at all: the funder buys a fixed amount of your future revenue for less today, taking a daily or weekly percentage until satisfied. On paper there is no interest rate, so the argument runs that there is nothing for s. 347 to measure.
The counter-argument starts with the statute. Section 347 applies to an “agreement or arrangement,” not only to something labelled a loan, and “interest” expressly captures charges “in any other form.” Ontario’s Payday Loans Act goes further for the products it covers, directing a court to “consider the real substance” of a transaction and to “disregard the outward form.” The arrangement in Transport North American included an accounts receivable factoring agreement, and the Court still totalled the payments against s. 347. Whether a contract is in substance a loan is fact-specific, and better raised early than after judgment.
Frequently asked questions
Is a loan over 35% automatically void in Ontario? No. Reading the interest down to the legal maximum is the more common response; cancelling the agreement outright is reserved for the most serious cases.
Does the 35% limit apply to my business loan? The regulations exempt commercial borrowing only where the borrower is not a natural person — a corporation, say — at up to 48% APR between $10,000 and $500,000, and without a cap above that. If you signed personally, the exemption does not fit.
My payday loan works out to more than 300% a year. Is that legal? Generally yes: payday loans meeting the conditions in s. 347.1 sit outside s. 347. In Ontario the lender must be licensed and cannot charge more than $14 per $100 advanced. If it is unlicensed or over the cap, the Act says you are not liable for the cost of borrowing.
Does raising the criminal rate mean I do not have to file a defence? No. A rate argument does not change the deadlines. If you do not respond in time, default judgment can be signed against you and the interest question will never be decided.
Check the arithmetic before you concede the amount
The number on a statement of claim is a calculation, and calculations can be wrong — sometimes by enough to matter. If you are facing a lawsuit over a high-cost loan, a merchant cash advance or a revenue-based financing agreement, the rate is one question among several. Send us the agreement and the claim, and we will tell you what we see.
Sources: Criminal Code, R.S.C. 1985, c. C-46, s. 347 · Criminal Code, s. 347.01 · Criminal Code, s. 347.1 · Criminal Interest Rate Regulations, SOR/2024-114 · Regulatory Impact Analysis Statement, Canada Gazette Part II (June 19, 2024) · Payday Loans Act, 2008, S.O. 2008, c. 9 · O. Reg. 98/09 (General) under the Payday Loans Act, 2008 · Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7. General information for Ontario, not legal advice.
General information for Ontario, not legal advice. Reviewed by Angelos Spingos. Last reviewed September 21, 2026.