A report commissioned by the Canadian Lenders Association estimates that a plan to lower the maximum interest rate could lead to the loss of tens of thousands of jobs and billions of dollars in GDP. Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during a weekly news conference, Tuesday, February 27, 2024 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
TORONTO – A report commissioned by the Canadian Lenders Association (CLA) estimates that lowering the maximum interest rate could lead to the loss of tens of thousands of jobs and billions of dollars in GDP.
The Ernst & Young LLP report comes as the CLA industry group has been pushing aggressively against the federal government’s plan to lower the interest rate cap in the Criminal Code from 47.2 per cent to 35 per cent to reduce the strain on borrowers.
The CLA has argued that industry members won’t be able to lend to some higher-risk consumers and businesses if the government goes ahead with the lower rate, because the potential profits don’t outweigh the chances of default.
The report from Ernst & Young estimates that if the lower cap is set, about two million consumers would be at risk of not qualifying and about 818,000 would actually be cut off, while close to 18,000 businesses and 32,000 employees would be displaced.
Looking at both direct and indirect losses, the report estimates that the shift could lead to some $10.7 billion in lost GDP and almost 50,000 jobs.
A spokesperson for Finance Minister Chrystia Freeland said suggestions that lenders might deny credit to vulnerable Canadians are ‘irresponsible’ given the notable profit margins of many of the lenders.
This report by The Canadian Press was first published March 12, 2024.
