Say a merchant issues an invoice to a customer and states the interest rate is 20% per month, or more than 240% per year. This exceeds the maximum 60% interest rate on loans, but does that interest rate maximum apply to an invoice for goods or services? If so, is it illegal for the customer to accept the invoice and for the business to issue it?
Asked
Active
Viewed 104 times
1 Answers
2
Section 347 of the Criminal Code of Canada makes it an offence to enter into any agreement or arrangement to receive interest at a criminal rate (currently, above 60% effective or 47-48% APR) and to receive any interest (even partially) at a criminal rate. The one who is paying the criminal rate interest does not commit an offence.
Interest for the purpose of the provision means
the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, by or on behalf of the person to whom the credit is or is to be advanced, [...]
The credit may be in the form of services or goods
credit advanced means the aggregate of the money and the monetary value of any goods, services or benefits actually advanced or to be advanced under an agreement or arrangement minus the aggregate of any required deposit balance and any fee, fine, penalty, commission and other similar charge or expense directly or indirectly incurred under the original or any collateral agreement or arrangement
See Garland v. Consumers' Gas Co., 1998 CanLII 766 (SCC), [1998] 3 SCR 112, where a gas company's late charge was considered as an interest for advancing credit.
However, some fees may be acceptable if deemed not a charge related to advancing credit.
In your hypothetical, it would be hard to defend if the merchant literally calls it interest and is based on a percentage, which gives to a presumption that the goods in the invoice are delivered on credit. But the court would have to examine the nature of the agreement and if a fee is a genuine recovery of administrative cost or in fact a compensation for credit or an attempt to circumvent the usury law.
See also DeWolf v. Bell ExpressVu Inc, 2009 ONCA 644 (CanLII), where Bell's flat late administration fee was not considered as interest subject to the provision but rather a recovery of cost of collection (instead of a fee paid for advancement of credit).
Excessive late or other fees, even if not covered by s. 347, can also be curtailed by the courts if they are deemed a penalty clause or otherwise unconscionable.
