INTRODUCTION AND BRIEF DESCRIPTION
This section defines insurance charge as the cost of insuring the risk assumed by a person who advances or is to advance credit under an agreement or arrangement, where the insurance amount does not exceed the credit advanced.
SECTION WORDING
347(2) In this section, "insurance charge" means the cost of insuring the risk assumed by the person who advances or is to advance credit under an agreement or arrangement, where the face amount of the insurance does not exceed the credit advanced.
EXPLANATION
Section 347(2) of the Criminal Code of Canada provides a definition for the term "insurance charge". This section is part of the broader section 347, which deals with criminal interest rates charged on loans. This section was designed to protect consumers from predatory lending practices, and provide a legal threshold for acceptable interest rates. The concept of an "insurance charge" arises in situations where a person or organization is advancing credit to another party, but wants to mitigate the risk associated with delinquency or default on that credit. In such situations, the creditor may seek to purchase an insurance policy that covers the face value of the credit in case of default. This insurance charge is the cost associated with the purchase and administration of the insurance policy. However, the Criminal Code of Canada stipulates that such insurance charges cannot exceed the face amount of the credit being advanced. This provision is intended to prevent lenders from inflating insurance charges as a way to circumvent the criminal interest rate threshold set out in section 347(1) of the Code. This provision ensures that any insurance charges are reasonable and reflect the actual risk being assumed by the creditor. Overall, section 347(2) of the Criminal Code of Canada is an important component of the legal framework for protecting Canadian consumers from predatory lending practices and ensuring that credit arrangements are fair and transparent.
COMMENTARY
Section 347(2) of the Criminal Code of Canada was added as part of an amendment to the code introduced in 2007. The purpose of this amendment was to deal with predatory lending practices that were becoming increasingly common in Canada. The amendment introduced new provisions that dealt with high-cost credit agreements, which are agreements or arrangements where fees and charges associated with the credit are very high relative to the amount of credit being advanced. Section 347 of the Criminal Code deals specifically with the criminalization of high-interest rates charged on loans. Under this section, it is an offense to enter into an agreement or an arrangement to receive interest at a criminal rate or to receive a fee or charge that exceeds the maximum rate of interest prescribed by the governing law. However, Section 347(2) provides an exception to this rule for insurance charges. An insurance charge" is defined under the section as referring to the cost of insuring the risk assumed by the person who advances credit or is to advance credit under an agreement. The definition stipulates that the face amount of the insurance should not exceed the credit advanced. This means that a person who is lending money can, in addition to charging interest or a fee, also require that the borrower take out insurance against risks associated with the loan, such as death or disability. The inclusion of this exception is important because it allows lenders to offer credit to high-risk borrowers. If lenders were not allowed to require insurance from high-risk borrowers, they may be less likely to offer them credit due to the higher likelihood of default. This could result in high-risk borrowers being excluded from accessing credit at all, which could create further economic marginalization. It is important to note, however, that this exception to the criminalization of high-interest rates does not offer lenders complete immunity. Insurance charges must be reasonable and proportionate to the amount of credit being advanced. Lenders cannot require borrowers to take out insurance policies that are more expensive than the credit itself. This ensures that borrowers are not being exploited by lenders who may use insurance charges as a means of charging high-interest rates. In conclusion, Section 347(2) of the Criminal Code of Canada offers an important exception to the criminalization of high-interest rates by allowing lenders to require insurance charges from high-risk borrowers. This exception ensures that these borrowers are not excluded from accessing credit, while still ensuring that borrowers are not being exploited through unreasonable insurance charges. It shows that the Canadian government recognizes the importance of access to credit for all Canadians, but also supports responsible lending practices.
STRATEGY
Section 347(2) of the Criminal Code of Canada is a complex legal provision that pertains to the cost of insurance when advancing credit under an agreement or arrangement. Its application requires strategic considerations that ensure compliance with the law while minimizing risk exposure. This article discusses the strategic considerations when dealing with section 347(2) and recommends some strategies that could be employed. Strategic considerations One of the strategic considerations when dealing with section 347(2) is to determine whether the insurance charge is compliant with the law. The section defines an insurance charge as the cost of insuring the risk assumed by the person advancing credit. The insurance charge cannot exceed the face amount of the insurance, and it is illegal to charge a higher rate. Thus, businesses should ensure that the insurance cost is reasonable and does not exceed the face amount of the insurance. Another strategic consideration is the disclosure of the insurance charge to the borrower. Section 347(2) requires that the insurance cost be disclosed to the borrower before the credit agreement or arrangement is executed. The disclosure should be made in writing, and it should state the amount of the insurance charge, the party responsible for paying it, and the circumstances under which it is payable. By disclosing the insurance charge to the borrower, businesses can avoid disputes and litigation. Businesses should also ensure that the insurance charge is not disguised as interest. Section 347(2) prohibits the charging of interest that exceeds the maximum rate allowed under the Criminal Code or other provincial statutes. Thus, businesses should separate the insurance charge from the interest charged on the credit and ensure that it is not used to circumvent the interest rate regulations. Strategies that could be employed One strategy that businesses could employ is to negotiate the insurance cost with the insurer. By doing so, businesses could obtain a lower insurance cost, which would minimize the insurance charge payable by the borrower. Additionally, businesses could offer to pay the insurance cost themselves and not charge it to the borrower. Another strategy is to provide a clear and concise disclosure of the insurance charge to the borrower. The disclosure should be set out in the credit agreement or arrangement and should state the amount of the insurance charge, the party responsible for paying it, and the circumstances under which it is payable. The disclosure should also state that the insurance charge does not constitute interest and should not be included in any calculation of the interest rate. Finally, businesses could train their employees on the requirements of section 347(2) and conduct regular reviews of their compliance with the section. By doing so, businesses could minimize the risk of non-compliance and avoid fines and penalties. Conclusion Section 347(2) of the Criminal Code of Canada is a significant legal provision that requires strategic considerations when dealing with it. By complying with the law and adopting sound strategies, businesses could minimize their risk exposure and maintain their reputation.