Are Loan Apps Legal in Canada? What Borrowers Need to Know Before Taking a Loan

Lending in Canada is regulated at both federal and provincial levels. The federal government sets the criminal interest rate (what interest levels are illegal across Canada), while provinces regulate licensing, disclosure requirements, and specific consumer protections.

Federal Law: The Criminal Code Interest Rate Cap

Effective January 1, 2025, significant amendments to the Criminal Code's interest rate provisions came into force.

The New Criminal Rate of Interest

The criminal rate of interest has been lowered to 35% annual percentage rate (APR) from the previous 60% effective annual rate (EAR).

This means any loan charging more than 35% APR is potentially criminal – with exceptions for certain commercial loans and pawnbroker loans.

Exceptions to the 35% Cap:

• Most consumer loans 35% APR
• Business loans ($10,000 – $500,000): 48% APR
• Business loans ($500,000+): No cap
• Small pawnbroker loans (under $1,000): 48% APR

Important: For payday loans, there is a separate national cap. To qualify for the payday loan exemption from the criminal rate, the total cost of borrowing must not exceed 14% of the amount advanced. This is a national cap that applies regardless of province.

Broader Offence – Now Covers Offers and Advertising

The amendments also broaden the criminal interest rate offence to include offering or advertising credit at a rate above the criminal rate. This allows law enforcement to target lenders based on offers or advertisements alone, without needing evidence of a completed loan.

Provincial Regulation: The BC Example

Provinces have their own laws governing payday loans and consumer lending. Using British Columbia's Business Practices and Consumer Protection Act as an example, here is what provincial regulation looks like:

Definition of a Payday Loan in BC

A payday loan is a loan of money:

• With a principal of $1,500 or less
• For a term of 62 days or less
• Made in exchange for a post-dated cheque, pre-authorized debit, or similar future payment

Required Disclosures

Under BC law, a payday loan agreement must include:

• The total cost of credit and the APR
• The rate of interest (which applies only to principal)
• Each permissible charge and its amount
• The date each payment is due and the amount
• A statement that this is a "high-cost loan"
• The borrower's cancellation rights
• The payday lender's licence number

Cancellation Rights

Borrowers in BC can cancel a payday loan any time before the end of the next day the lender is open for business following the date they receive the first advance.

To cancel, the borrower must:

• Complete the cancellation notice provided by the lender
• Give the notice to the lender
• Repay all advances received

On cancellation, every liability and obligation of the borrower is extinguished.

Prohibited Practices for Payday Lenders

BC law explicitly prohibits:

• Granting rollovers (extensions that impose additional fees)
• Issuing a new payday loan to a borrower who already has one
• Discounting the principal by deducting fees upfront
• Requiring or accepting any undated cheque
• Requiring or accepting an assignment of wages
• Requiring any personal or real property as security
• Selling insurance to the borrower

Are Loan Apps Legal in Canada?

Yes, but with conditions

A loan app operating in Canada must:

1. Comply with the federal criminal interest rate (35% APR for most consumer loans)
2. If offering payday loans, comply with the 14% cost of borrowing cap
3. Be licensed in any province where it lends (if required)
4. Provide all required disclosures under applicable provincial law
5. Comply with data protection laws (PIPEDA at federal level)

Any loan app charging more than 35% APR (or more than 14% of principal for payday loans) is operating illegally.

How to Check if a Loan App is Legal in Canada

Step 1: Check the Interest Rate

Calculate the APR. If it exceeds 35% (or 14% of principal for payday loans), the lender is violating federal law.

Step 2: Verify Provincial Licensing

Contact your province's consumer protection agency or financial services regulator:

• British Columbia: Consumer Protection BC
• Ontario: FSRA (Financial Services Regulatory Authority)
• Alberta: ATB Consumer Credit
• Quebec: AMF (Autorité des marchés financiers)

Step 3: Read the Loan Agreement Carefully

A legal loan agreement must include:

• Clear APR disclosure
• Exact repayment schedule
• Total cost of borrowing
• Cancellation rights
• Lender's licence number

If any of these are missing, be suspicious.

Step 4: Check for Red Flags

Illegal lenders often exhibit these warning signs:

• No written agreement
• Refusal to provide APR information
• Upfront fees deducted from principal ("discounting")
• Pressure to sign quickly
• Requests for your bank card or passport as "security"

What to Do If You Borrowed from an Illegal App

1. Stop paying immediately – You are not legally obligated to repay an illegal lender
2. Document everything – Screenshots, emails, texts, call logs
3. Report to authorities:

• Your provincial consumer protection agency
• The RCMP's Federal Policing fraud unit
• The Canadian Anti-Fraud Centre (1-888-495-8501)

1. Seek legal advice – Some provinces have legal aid for consumer debt issues
2.