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“If you’re capping interest rates, it might seem on the surface that you’re helping, but the longer-term unintended consequence is that you might severely restrict credit and borrowing capability for a lot of people,” he said. “That would be kind of my worry and concern there.”

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‘Risk’ of increased user fees

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Claire Celerier, an associate professor at the University of Toronto Rotman School of Management and Canada research chair in household finance, said the interest rates that banks charge are “competitive,” so consumers could be hit in areas other than restricted borrowing, including higher fees.

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“My concern would be that if we decide to get this interest rate to a 10 per cent (cap), the risk is that banks are going to just increase user fees that people are much less aware of,” she said, specifically referring to the interchange fee — a charge banks pass on to merchants when consumers make a purchase.

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The interchange fee, which she estimated is 1.5 per cent to two per cent in Canada, ends up getting passed onto customers. Late-payment fees could also rise to make up for the lost revenue from capped interest rates.

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Celerier said the very people Trump said he wants to help could wind up losing access to credit cards and borrowing from other financial services with higher interest rates.

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“In the short run, it might cut the supply of credit card debt to the low-income population,” she said.

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Another risk for lower-income people is that the banks would get into the borrow-now, pay-later business, which also charges 20 per cent interest rates, she said.

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‘Politically motivated’ changes to criminal interest rates

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Canada has already grappled with some unintended consequences after it decided to change the Criminal Code on what constitutes a criminal interest rate, Paul Belanger, a partner in law firm Blake, Cassels & Graydon LLP’s financial services regulatory practice, said.

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As of Jan. 1, 2025, the Criminal Code set the criminal interest rate at an annual percentage rate (APR) of 35 per cent, down from 48 per cent, with three exceptions covering business loans, pawnbroking loans and payday loans.

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The change was “politically motivated rather than coming up through the public service,” Belanger said, adding that “there’s been a bunch of unintended consequences that arose from that. The legislation itself is very badly drafted and they didn’t try to do it in the way you would do it if you were a blank page.”

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Belanger said Ottawa’s change wound up pushing people to payday lenders. Payday loan interest rates can run into the triple digits on an APR basis.

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If the federal government wanted to regulate interest on credit cards, he said it could do it through the Bank Act, but it would only apply to federally regulated operations such as the Big Six banks that operate across the country. Otherwise, Ottawa would have no jurisdiction over provincial entities such as credit unions.

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“You just don’t have the constitutional jurisdiction to do that other than through the criminal law,” Belanger said.

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If, somehow, Trump’s idea on credit cards was to migrate north, he said it “would be as a result of political considerations overriding good economic policy.”

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