Predatory lending refers to lending practices that exploit borrowers — particularly those in financial distress — through deceptive terms, excessive costs, misleading marketing, or loan structures designed to trap rather than help. It exists across a spectrum, from clearly illegal advance-fee loan scams to legal-but-exploitative practices by licensed lenders targeting vulnerable Canadians.
Understanding how predatory lending operates in Canada helps you protect yourself and your family from products and practitioners that profit from financial desperation.
Predatory lending exists on a spectrum. At the extreme end are outright fraudsters running advance-fee scams. But predatory practices also include legal activities by licensed lenders who structure products to maximize borrower costs while obscuring the true expense:
The most prevalent loan fraud in Canada. A fake lender contacts you (often by email, text, or social media ad) offering a loan with guaranteed approval. Before funds are released, you're asked to pay "insurance," "taxes," "processing fees," or "security deposits" — typically $100–$500. Once you pay, the "lender" disappears and no loan is ever provided.
Red flags specific to this scam:
A lender encourages you to refinance an existing loan before it's paid off — often by pointing out that you could get a lower payment. The refinancing extends the term, adds new fees, and resets the amortization. Over multiple refinancings, you pay enormous fees while your principal barely moves. Some alternative lenders do this routinely with borrowers who are struggling.
A predatory lender secures a loan against your home equity, knowing you cannot repay it. When you default, they seize the equity you've built over years. This is particularly common in mortgage fraud schemes targeting seniors with significant home equity but limited income.
A loan with artificially low payments during the term and a large "balloon" payment at the end that the borrower can never realistically afford. When the balloon comes due, the lender offers to refinance — at a new set of fees. The borrower is trapped in perpetual refinancing.
Advertising a very low rate in headlines while burying the true APR — which includes fees — in fine print. A loan advertised at "starting from 9.9%" may only be available to top-tier borrowers; the majority of applicants receive rates of 30–47%. This is legal in Canada as long as the APR is disclosed in the loan agreement, but it's deliberately misleading in marketing.
Including optional credit insurance, loan protection, or other add-on products in the loan by default — requiring borrowers to actively opt out rather than opt in. The insurance premiums are often rolled into the loan balance and accrue interest. The coverage is usually poor value compared to independently purchased insurance products.
Canada's Criminal Code makes it illegal to charge or receive interest at an effective annual rate exceeding 60% APR. This is the country's most powerful anti-predatory lending law. However, payday loans under $1,500 with terms under 62 days have a provincial exemption — which is why payday lending at 365%+ APR is technically legal under provincial regulation.
Every province has consumer protection legislation governing lending practices:
These laws require disclosure of APR, cooling-off periods for certain loans, prohibitions on rollovers, and licensing requirements for lenders.
The federal regulator for federally regulated financial institutions. Handles complaints about banks, federally regulated credit unions, and credit card issuers. If you've been treated unfairly by a federally regulated institution, FCAC is where to report it.
Predatory lenders specifically target populations who are less likely to recognize exploitative terms or have fewer alternatives:
If you've paid fees to a fraudulent lender or believe you've been subjected to predatory lending practices:
The line between "expensive but legal" and "predatory" is sometimes blurry in Canada. A licensed lender charging 46.99% APR to a vulnerable borrower who could have found better options elsewhere is operating legally but exploitatively. Consumer education — knowing your rights, checking your alternatives, and understanding what a loan actually costs — is the most powerful protection available.
If you're managing loans or debt, the last thing you need is bank fees on top. KOHO offers a free account with no monthly fees and no minimum balance. Use code 45ET55JSYA for a bonus when you sign up.
Open KOHO Free — No Fees — Code 45ET55JSYA