It is now settled law that application fees and similar charges are considered when calculating interest for purposes of offences under Canada’s criminal code but a recent Québec case provides some interesting guidance as to the civil consequences of such a finding.
In Pépin v. B2B Alliance Inc. (2016 QCCS 852), the Québec Superior Court examined the actual or real interest rate applicable to a loan without it being actually forming part of the pleadings.
Having found that the application fee when calculated into the total charges violated the usury rate of 60 per cent, the court then refused to read down the provision or sever the offensive fee (as might have been possible in other jurisdictions) and declared the entire contract null. It is not clear if the contract itself included a waterfal provision giving the court a “blue pencil” to read down.
The nullify of the contract also entailed the invalidity of the guarantees given.
The remedy of the lender in such circumstances would be restitution of the capital borrowed by the named borrower.
This decision further highlights the debtor protection proclivities of courts in high risk loans or those entailing high fees.