Yes. If it states a rate for a period shorter than a year without also stating the yearly equivalent, the recoverable rate falls to 5% a year by force of federal law, however much both sides intended.
Short answer
Section 4 of the Interest Act provides that “except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract…made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.”
The only carve-out is for mortgages on real property and hypothecs on immovables — a promissory note secured on business assets is squarely inside the section however sophisticated both parties are, and however clearly they both understood the intended rate. The cure is a disclosure, not a lower rate: stating the yearly equivalent at whatever rate the parties actually agreed satisfies s.4 completely. Section 5 is what makes a missing sentence expensive after the fact: “if any sum is paid on account of any interest not chargeable, payable or recoverable under section 4, the sum may be recovered back or deducted from any principal or interest payable under the contract.” A debtor does not need to sue — interest already paid above 5% simply comes off the principal balance outstanding, however many months or years have already passed.
a note priced at one and a half per cent a month is the direct example: a two-page vendor note stated 1.5% a month, said nothing about the yearly equivalent, and a $126,750 excess came off the principal on a refinancing twenty-six months later. The same instrument type has a separate ceiling worth checking on a short-term facility — see fees that pushed the bridge past thirty-five per cent.
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