Borrowing money, or purchasing goods or services on credit, involves costs. Usually, the longer the term to reimburse the merchant, the higher the costs.

Credit charges

Credit charges include all of the fees you will have to pay, in addition to the amount borrowed or the amount that is financed. Credit charges include interest, administration fees, brokerage fees, insurance (other than automobile or home insurance), etc.

Check how much these credit charges add up to. They are also expressed as an annual percentage: the credit rate.

The real cost of credit

Think about checking how much your contract will really cost you. For example, is it worth borrowing $2,000 but have to reimburse $2,700 in total?

Evaluating your ability to pay

The merchant is required to evaluate your ability to reimburse the credit applied for.

Any merchant who enters into a credit contract with you must follow certain rules. If the contract has a high credit rate, the merchant has additional obligations.

What is high-cost credit?

Whether a credit contract is “high-cost” can be determined by taking the Bank of Canada’s Bank Rate and adding 22 percentage points.

A credit contract is high-cost if its credit rate, calculated in accordance with the Consumer Protection Act, is higher than the result obtained.

The Bank Rate to be used in this calculation is the one in effect 2 days after it is announced by the Bank of Canada. This rate is indicated on the Statistics Canada website.

Types of contracts that can be high-cost

Any type of credit contract can be “high-cost” including the following:

• contracts for the loan of money;
• open credit contracts (e.g. credit cards);
• instalment sale contracts;
• contracts with credit other than for instalment sales.

Example of a high-cost credit contract

A used car dealer offers you an instalment sale contract with a credit rate of 25%. The official Bank Rate in effect at this time is 2%. You are therefore offered a high-cost credit contract, as the credit rate is higher than 24% (2 + 22).

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Any merchant who enters into a high-cost credit contract with you is required to hold a permit from the Office de la protection du consommateur.

This permit is mandatory, regardless of the manner in which the merchant does business with you (in person, over the telephone, online, etc.).

If the high-cost credit contract entered into is a contract for the loan of money, the merchant must also hold a money lender’s permit.

Exemptions: permit not required

Banks and financial services cooperatives, such as credit unions, trust companies or savings companies, are not required to hold these permits.

Moreover, permits are not required if the loan is for a mortgage or if it is contracted to pay an insurance premium.

How to find out whether a lender holds a permit

You can use the Get information about a merchant tool to find out whether a merchant holds the required permit(s).

If a merchant does not hold a permit you believe is required, avoid doing business with that merchant and contact the Office to file a complaint.

When financing a purchase, taking out insurance may help protect you or your loved ones in case of disability or death.

If you already have insurance, check whether it is sufficient, or take out additional insurance if need be.

Mandatory insurance

What if the merchant requires that you take out insurance before entering into the contract? This must be clearly indicated in the contract, with this mandatory clause.

You are under no obligation to take this insurance with the merchant in question. You always have the option of fulfilling this condition with an insurance contract you already hold, or shop for one elsewhere.