48% interest ‘shockingly high’ but not criminal: Alberta judge

An Alberta judge has described the interest charged to an Edmonton woman by a moneylender as “shockingly high,” but said it’s not criminal.

In Settlement Lenders Inc. v. Blicharz, Lucyna Blicharz had filed an application with the Court of Appeal of Alberta to extend time to appeal and extend time to file appeal record.

The legal action related to a default judgment in December 2013 that ordered Blicharz to pay $38,881.50 to Settlement Lenders. The company advertises itself as “Canada’s original settlement lenders for auto accident, personal injury, malpractice, and estate claim,” and lends money to people pursuing legal actions.

Blicharz was advanced $10,625 in 2007 and 2008, after she executed three promissory notes. As part of her legal action against the company, Blicharz said the amount of interest on the loan was greater than 60 per cent, making it illegal under s. 347 of the Criminal Code.

She also said she’d only received $8,000. Blicharz had legal counsel when she executed the notes.

“In general, [Blicharz] alleged that she did not understand the significance of the amount of interest to which she had agreed. She alleged that she interpreted the promissory notes such that nothing would be due until she received all the settlement proceeds from her injury claims. The chambers judge concluded that these were not arguable defences, as she had counsel at the time she executed the promissory notes. Her subjective interpretation of the promissory notes was of no consequence as it was clear they were payable on demand,” said Justice Patricia Rowbotham in the ruling.

Rowbotham ruled against an appeal; stating that while there was “no application to restore the appeal . . . it seems to be me that I can consider her current applications as encompassing an application to restore the appeal.”

But the judge had some pointed words about the amount of interest Blicharz was charged.

“After reviewing this material, the chambers judge found that the monthly interest fee was not a criminal rate. The interest is not compounded. Had it been, it would have been greater than 60 per cent. There is no doubt that the interest of 48 per cent is shockingly high and a marked departure from conventional lending rates but this was the effective interest contemplated in the promissory notes,” said the ruling.

Rowbotham also noted Alberta’s Unconscionable Transactions Act, RSA 2000, c U-2 “was not raised in the proceedings below. It applies when ‘in respect of money lent, the court finds that having regard to the risk and all the circumstances, the cost of the loan is excessive and that the transaction is harsh and unconscionable.’

“The Act was applied in a case involving a lender with a similar business model to that of the respondent; a purported ‘advance’ against personal injury litigation proceeds. The judge held that ‘having regard to the risk and all the circumstances . . . the cost of the 2005 loan is excessive and the transaction is harsh and unconscionable and a marked departure from community standards of commercial morality.’”

Rowbotham said in Blicharz’s case, the fact she obtained legal advice was an important factor. She pointed to the 2005 case Cain v. Clarica Life Insurance Co.

“Given that Ms. Blicharz had legal advice before she proceeded with the loan and its onerous terms, Cain would be a complete answer. That said, these lending practices, which appear to prey on already vulnerable personal injury victims who are unable to use conventional lenders or contingency-based personal injury lawyers, are, in the words of Judge Ingram, ‘a marked departure from community standards of commercial morality,’” said Rowbotham.

Jennifer Babe, a partner at Miller Thomson LLP, says “it is clear that the borrower signed demand promissory notes, with interest at 48 per cent per annum, with the advice of counsel.”

“These were not payday loans, which are regulated in some provinces with capped rates per annum. And with interest at less than the 60 per cent per annum rate specified in the Criminal Code, these loans were not unenforceable by reason of illegality,” says Babe.

“There are many lenders in Canada working in the higher risk loan area, lending to Canadians who do not have good credit scores or have not collateral or like credit risk.”

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