Dear cardholder, Our rates are not abusive or excessive. Kind regards.
SHUTTERSTOCK PHOTO Copyright A. and I. Kruk
Q: I pay 23.99 % interest for cash advances with my credit card. Is this still legal?
A: Let’s look at the general rules and see where you fit in.
When there is no agreed upon interest rate in a contract, the legal rate is 5 % according to the Federal Interest Act.
It’s different for governments and entities they create such as Hydro-Québec. They have rates governed by legislation. Mr. Hyde at Hydro-Québec rakes in 14.4 % for late payments. Dr. Jekyll at Revenue Quebec finds 6 % (plus extra interest and penalties in certain cases) reasonable. Since this is all money we pay ourselves as owners of the government so to speak, it is a relatively easier situation to live with.
Moving up the ladder to the higher credit card rates you can start debating their legality based on S.1437 of the Civil Code which permits courts to reduce or nullify the obligations resulting from abusive clauses that are ‘excessively and unreasonably detrimental to the consumer.‘ This is further bolstered by S. 2332 ‘having regard to the risk and to all the circumstances.’
Section 8 of the Consumer Protection Act chimes in with ‘exploitation of the consumer or where the obligation to the consumer is excessive, harsh or unconscionable.’
Case law is mostly on rates between 15 % to 35 %, the latter being generally prohibited. The rate of 15 % has been accepted by the courts in the past. In between those rates there is a twilight zone of opinions and cases that vary according to the overall circumstances. There is no black or white answer.
If you pursue legal recourse do not become enthused about winning quickly. There may be land mines called ‘constitutional questions’ avoidable by successfully arguing provinces do have jurisdiction to legislate on interest rates, that its not exclusively a federal matter.
Once this hurdle is presumably overcome, serve yourself to a generous buffet of arguments such as case law supporting high rates in 1981 when deposits were happily above 15 % and creative accounting. In this grey zone you can argue that adding fees for administration, opening a file, late penalties, etc. results in an even higher ‘interest rate.’ Some creditors (i.e. cheque cashing and quick loan companies) like to argue notably that you don’t add up the miscellaneous costs to a one figure total. They may arrange for the fees to be paid to different companies to pump more fog onto the scene. There are also debatable disclaimer clauses raising questions about Stockholm Syndrome affliction at the time of signing.
Further up the ladder there is a red-light district where interest rates are criminal. Don’t fantasize just yet about company executives parading in orange jumpsuits. It takes a rate in excess of 60 % to be liable under section 347 of the Criminal Code which rate was adopted in 1980, a year when the prime rate soared above 15 %. Predictably, prosecutions are rare – loan sharks keep informal records and collection may be outside regular channels.
There are many lawyers who could today build another reasonable legal case to attack the validity of a 23.99 % interest rate (more if you add extra fees) in the civil courts in a 2.7 % prime rate background. A class action suit may be one way to justify financing such an epic fight. Just don’t use your credit card to pay the lawyer(s).
You can send in your questions to your firstname.lastname@example.org
Vincent Maranda, lawyer