Predatory lending practices by private lenders in Ontario, Canada: a lawyer’s perspective

Afshin Yazdani, Barrister and Solicitor in Ontario, August 2025

Predatory lending, particularly by private lenders, is a concerning issue in Ontario, Canada, as these lenders often operate with less regulatory scrutiny than traditional financial institutions like banks.  Private mortgage lenders are not subject to the same federal regulations that Canada’s chartered banks must follow, potentially exposing borrowers to greater risk. This disparity in regulation can create a breeding ground for practices that exploit vulnerable borrowers.

Here’s how predatory lending manifests in the private lending sector in Ontario, and what legal considerations are relevant:

Key characteristics of predatory private lending:

• Targeting vulnerable borrowers: Private lenders may specifically target individuals who have been rejected by traditional banks due to poor credit scores, unemployment, or other financial difficulties. This often includes seniors, low-income individuals, and newcomers to Canada.
• High-interest rates and fees: Private loans often come with significantly higher interest rates than those offered by traditional lenders, reflecting the higher risk associated with the borrowers. Interest rates can range from 8% to 15% or more. Predatory lenders may also charge excessive fees, which can include inflated closing costs, application fees, or prepayment penalties that can trap borrowers in a cycle of debt.
• Deceptive marketing and lack of transparency: Borrowers may be lured with promises of quick and easy approvals or pressured into agreements without a clear understanding of the full terms and conditions. There might be a lack of clarity regarding the total cost of the loan, including hidden fees or charges for unnecessary products or services bundled with the loan.
• Ignoring ability to repay: Predatory lenders may not adequately assess a borrower’s ability to repay the loan, knowing that the borrower is likely to default. This can put the borrower’s assets, like their home, at risk.
• Loan flipping: This occurs when lenders encourage borrowers to repeatedly refinance their loans without providing a clear financial benefit, solely to generate additional fees.
• Mandatory arbitration clauses: These clauses might be buried within loan contracts, limiting a borrower’s ability to seek legal action in court if they discover predatory practices.

Legal framework and recourse in Ontario

• Criminal Code of Canada: As of January 1, 2025, it is a criminal offense for lenders (including private lenders) to charge an annual percentage rate (APR) of more than 35% on loans, according to CBC News. This rate was previously 60% EAR (approximately 48% APR). Penalties for violating this include fines up to $25,000 or up to two years imprisonment for summary conviction, or up to five years imprisonment on indictment.
• Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA): This Ontario legislation governs mortgage brokerages, lenders, and administrators, setting licensing requirements and promoting transparency and disclosure in mortgage transactions.  While private lenders themselves may not require licensing, they must operate through licensed mortgage brokers or agents.
• Payday Loans Act, 2008 (Ontario): This provincial legislation specifically addresses payday loans, which are considered a type of high-cost, short-term loan often associated with predatory practices. This act sets maximum loan amounts, repayment periods, and fees for payday loans, and includes a two-day cooling-off period.
• Consumer Protection Act: This act provides protection for consumers in various transactions, including private loans, and prohibits unfair business practices.
• Role of FSRA (Financial Services Regulatory Authority of Ontario): The FSRA regulates mortgage brokers and administrators in Ontario. They are responsible for promoting high standards of business conduct and protecting consumers.  Individuals can use the FSRA’s public registry to verify a broker or agent’s license status and review any violations.

What to do if you suspect predatory lending

• Seek legal advice: Consult with Afshin Yazdani to discuss your options and determine the best course of action. According to the Law Society of Ontario, lawyers have an obligation to protect the public from fraudulent and predatory practices.
• Gather documentation: Collect all relevant documents, including loan agreements, correspondence, and evidence of payments or fees.
• Report the lender: Consider filing a complaint with the FSRA, the Better Business Bureau, or other relevant consumer protection agencies. You can also report violations of the Criminal Code to the police.
• Negotiate or sue: We can help you negotiate with the lender for more favorable terms or explore legal action, potentially to rescind the loan or seek damages for losses incurred.  Victims of predatory lending may have legal options available to them.

While regulations exist to combat predatory lending, borrowers in Ontario should exercise caution when dealing with private lenders and always seek legal advice when considering loans that seem too good to be true. Transparency, due diligence, and legal representation are essential to avoid becoming a victim of predatory lending practices.