The central bank has introduced tighter limits on risky consumer lending with the aim of slowing the rise in household debt. This move comes as policymakers seek a safer borrower profile and a more stable credit cycle for households in Canada and the United States. The regulator explains that keeping debt at sustainable levels helps protect families and financial institutions from sudden economic shocks that could ripple through consumer spending and the broader economy.
For borrowers who dedicate more than 80 percent of their income to debt servicing, the share of new loans in total lending will be reduced from a range of 20-25 percent down to a strict 5 percent. Those who allocate 50 to 80 percent of their income to debt will face a cap of 30 percent on new lending, replacing the previous position of no explicit limit. These measures are designed to prevent overextension among households with already tight budgets and to encourage lenders to scrutinize affordability more carefully before approving new credit commitments.
Microfinance institutions are subject to similar restraints. Analysts anticipate these changes will dampen the overall volume of lending, with a projected decline of around 22 percent in the fourth quarter compared with a scenario without restrictions. The aim is to align micro-lending practices with safer debt levels while ensuring access to essential financing does not vanish for small businesses and individuals who rely on microfinance to start or sustain ventures.
Across the board, the regulator expects slower loan growth for the year, with an overall increase revised downward by about 6 percent. The new forecast places loan growth in the 13-17 percent range, instead of the previously anticipated 19-23 percent. The adjustment is intended to deliver a more balanced loan portfolio and to lower risk exposure for banks and borrowers alike, reducing the likelihood of sharp corrections during economic downturns in North America.
Today, about 64 percent of total consumer loan volume is held by individuals who allocate more than half of their earnings to debt repayment. The regulator notes that such a heavy debt burden can amplify vulnerability during adverse economic conditions, including wage volatility or higher interest rates. To address these dangers, the central bank is accelerating a move toward a more prudent and transparent lending framework that emphasizes repayment capacity, resilience, and long-term financial health for households and lenders in both countries.
In policy discussions and communications, authorities stress the importance of responsible lending practices and ongoing supervision to ensure credit remains a tool for growth rather than a source of financial stress. The focus is on clarity for borrowers, safer lending by lenders, and a system-wide balance that supports steady consumption and investment even when markets face disruptions. The changes reflect a shift toward sustainable credit growth and risk-aware finance that aligns with modern regulatory expectations across Canada and the United States.