John Turley-Ewart: Police chiefs are right to worry about Ottawa's proposed cap on lending rates
Lesson one when regulating Canada’s financial system is ensuring the cure isn’t worse than the disease.
In modern times, the Canadian financial sector has benefited from the pragmatic vetting of Ottawa’s policy proposals in discussions between industry participants, the Office of the Superintendent of Financial Institutions (Canada’s bank regulator), the Financial Consumer Agency of Canada (FCAC) and policymakers in Canada’s Finance Department, including the finance minister.
When this process is followed, policymakers, regulators and financial institutions typically identify unforeseen and unwanted outcomes and the end policy is reworked to mitigate the unseen risks embedded in the original policy proposal. In some instances, proposals are quietly dropped.
If this process isn’t followed, you get outcomes like the Feb. 5 announcement by The Ontario Association of Chiefs of Police, which took the extraordinary step of publicly calling out Ottawa’s proposal to reduce the maximum amount of interest alternative lenders can charge for loans, a move the chiefs warned could reduce the safe supply of credit and lead to a “dangerous rise in criminal activity.”
Certified alternative lenders are legitimate businesses subject to interest rate rules under Section 347 of the Criminal Code. The federal Liberal government has introduced legislation that will reduce the maximum amount of interest alternative lenders can charge from 47 per cent to 35 per cent.
These lenders play an important role within Canada’s financial ecosystem, taking on consumers who are “de-banked” due to their credit history, or business borrowers whose risk profile is outside what a Schedule 1 bank would serve. The size of this market may be surprising to many,
Read more on financialpost.com
