British Columbia court of appeal finds principal sum of loan still repayable where interest rate double the criminal rate, Autumn 2007

What is criminal with interest rates?
Under section 347 of the Criminal Code everyone who charges an interest rate that exceeds 60% per year is guilty of an offence.

In interpreting this section of the Criminal Code previous courts have held that loans in which a criminal rate of interest was charged were absolutely void and could not be enforced by the lender. Not only would the lender lose the right to collect any interest but the borrower would be released from any obligation to repay any principal. This section of the Code was recently revisited by the British Columbia Court of Appeal in the case of Eha and Genge, [2007] B.C.J. No. 1021.

Mr. Eha lent money to Mr. Genge. The rate of interest charged was 120% per year. However, Mr. Eha and Mr. Genge had both an ongoing relationship as business joint venturers and personal friends. In addition to this Mr. Eha did not believe that there was anything criminal about charging the rate and at no time did Mr. Genge make any suggestions to Mr. Eha that he saw the rate as objectionable.

At trial the judge ruled in favour of Mr. Genge. However, a three judge panel of the British Columbia Court of Appeal overturned the trial judge’s decision.

The Court of Appeal found that where parties were not involved in an illegal scheme or did not intend to charge a criminal rate of interest the court will strongly favour ordering the borrower to repay the principal amount of the debt rather than give the borrower a windfall by declaring that the debt is absolutely void and does not have to be repaid at all. However, the Court went on to hold that interest must be calculated not at 120% but at the rate provided for in the Rules of Court. The Court of Appeal also refused to give the lender his costs of the successful appeal because the rate charged by him was twice the amount allowed by the Criminal Code.