February 28, 1901

?

The MINISTER OF MARINE AND FISHERIES.

While I do not challenge the statement which the hon. gentleman (Mr. Lemieux) makes

Topic:   MONEY-LENDERS.
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LIB
?

The MINISTER OF MARINE AND FISHERIES.

So far as I can gather from statements of gentlemen on the other side of the House, there is no evil in the province of Ontario calling for this legislation. I know the evil does not exist in the maritime provinces, but on the statement of the hon. member for Proveneher (Mr. LaRivi6re) and the statement of the hon. gentleman from

Gaspg (Mr. Lemieux), the evil may exist in the provinces of Manitoba and Quebec. If it does exist to any great extent, I have no doubt the House will be prepared to grapple with it.

Let us just see what the Bill is which my hon. friend proposes. He does not propose as a rule to remedy the extortion, which he states sometimes exists, of undue interest. His Bill is intended to apply only to a particular class of cases, that is, in the first place, to loans below $500. Under his Bill you could charge 40, 60 or 70 per cent on a loan of $501 or above that. There is no attempt to limit the rate of interest on such loans. Therefore, he has to show a special condition of circumstances existing which justifies us in adopting the arbitrary limit of $500, and making illegal a rate of interest on sums below $500 which we are willing should be legal on sums above that amount. But the hon. gentleman says also, and says properly, that we must confine the legislation also to a particular class, that is, money-lenders. In defining this class he has tried to give definiteness to that which otherwise would be entirely vague. He proposes that the Bill shall apply only to one who makes a practice of lending money at a higher rate than 10 per cent per annum. That in itself is not very definite. It would be diffi-cut to prove, before the benefits of the law could be invoked, that any particular money-lender came within that category. The English law, of which this purports to be more or less a copy, provides that the money-lender shall be registered, both by name and by place of business, and that he shall only do business under the registered name, and at the registered place. He is thus made a special class set apart, and is registered under one of the departments of the state and receives a license. If he attempts to do business at any other place or under any other name than that registered, he is liable to a criminal prosecution and punishment.

My hon. friend will see further that it would lie absolutely essential to do in this Act what is done in the English Act-exempt from its operation all friendly societies. The hon. gentleman in his definition exempts pawnbrokers, and very properly. But that would not be sufficient. There are companies, such as building societies, loan companies and friendly societies, authorized by parliament to carry on business, and they might very well under some circumstances come within the operation of this Act. I take it that they would have to be exempted, as also all banking and insurance companies, who also might come under the operation of this Act, if left as it is now.

But assuming that we got on that far and agreed as to the class of people who should come within the purview of the Act, and those who should be exempted,

what would be the next step ? My hon. friend undertakes in the third section to make the contract illegal, and then he goes on to give power, in case a suit is brought under the contract, to the judges to intervene in certain cases. I venture to suggest to him that if his Bill goes to a committee, it would be better to follow the English Act, and not declare that the transaction in itself shall be illegal at all, but confine our legislation to two things-to refusing to permit the machinery of the courts to be used to give effect to an improper transaction when we define what an improper transaction is, and, if necessary, giving power to the borrower to have the transaction opened up in court.

The hon. gentleman proposes to make, as a criterion of what would be a rascally and unconscionable transaction, a fixed rate of interest. Now, I agree thoroughly with what the hon. member for Laval (Mr. Fortin) said. The mere mention of a rate of interest is no test of the bona fides or mala fides of a transaction. I can well conceive that under certain circumstances 20 per cent would be a most rascally rate of interest, while under other circumstances it would be nothing but fair. Every hon. gentleman knows that if a man were borrowing $1,000 or $2,000 on the security of a good farm, 20 per cent would be rascally extortion ; but if a man wanted to borrow $1,000 when his credit would not enable him to get it at a bank at the bank rate, when he had no security to deposit, nothing except his own name, it may well be that his credit would be so bad and the circumstances surrounding the transaction such that 20 per cent would be charged, and would be no evidence of mala fides at all. He might perhaps want the loan only for a day or for a week. My hon. friend from Laval cited the case of the celebrated Black Friday in New York, when as much as this prohibited rate of interest was charged for a week, let alone for a year ; and there are circumstances that occur from time to time in the lives of commercial men, particularly in large cities, when it is absolutely essential that they must have large sums of money ; and they must pay large rates of interest for it, because they do not happen to have, at the moment, the necessary security.

Therefore, I would venture to suggest to my hon. friend that he should follow the principle adopted in the English Act. What is that principle ? It is one which may not commend itself to every member of the House. It does not accept the rate of interest as the test, but the whole transaction as it will appear to the court, and it is left entirely to the court to be determined on the evidence, whether the transaction is an unconscionable one which ought to be set aside, or whether it is not. Many men will say, that is a very poo:' test, because some judges would take an ethical view of the

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LIB

Louis Henry Davies (Minister of Marine and Fisheries)

Liberal

Sir LOUIS DAVIES.

facts, and others a very different view. I agree to that. I know judges who would look upon more than 10 per cent as outrageous under any conceivable circumstances, while others would look on 20 per cent as quite reasonable and fair. Therefore, to leave the matter absolutely to the courts to determine the character of each transaction, is very much like the test of the length of a judge's foot, or how far he will stretch his conscience ; but I know of no other, and that was the one adopted in the English Act eventually. As the Act was introduced, it contained a schedule with a fixed rate of interest beyond which it was illegal for the lender to charge ; but before the Bill passed through parliament that was eliminated, and it simply provided :

1.-(1.) Where proceedings are taken in any court by a money-lender for the recovery of any money lent after this Act comes into operation, or the enforcement of any agreement or security made or taken after the commencement of this Act in respect of money lent either before or after the commencement of this Act, and there is evidence which satisfies the court that the interest charged in respect of the sum actually lent is excessive, or that the amounts charged for expenses, inquiries, fines, bonus premium, renewals, or any other charges, are excessive, and that, in either case, the transaction is harsh and unconscionable, the court may re-open the transaction, and take an account between the money-lender and the person sued, and may, notwithstanding any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken between them, and relieve the person sued from payment of any sum in excess of the sum adjudged by the court to be fairly due in respect of such principal, interest and charges as the court, having regard to the risk and all the circumstances, may adjudge to be reasonable ; and if any such excess has been paid, or allowed in account, by i Ike debtor, may order the creditor to repay it and may set aside, either wholly or in part, or revise, or alter, any security given or agreement made in respect of money lent by the moneylender, and if the money-lender has parted with the security may order him to indemnify the borrower or other person sued.

In the evidence taken before the House of Commons in England, it was shown that cases were brought before the courts of such an excessively cruel and harsh nature that the county court judges had either to evade the law or else be a party to a gross injustice. In England the courts have the power to make judgments payable by instalments, and in some cases they made the instalments so ridiculously low that the amount could never be recovered by the lender. In that way the courts evaded the law and protected the borrower against gross injustice. To put an end to this condition of affairs, the English Act provided that the judges dealing with such cases could inquire into all the circumstances, and give a judgment decreeing what they thought reasonable and fair. If a judge came to the conclusion that the transaction

was a harsh and unconscionable transaction, he had power to open it up again, but not otherwise. That provision I suggest to the hon. member for consideration, as one which he might incorporate in his Bill, but he has taken an entirely different line by establishing an arbitrary rate of Interest, without taking into consideration the circumstances under which the loan may have been made or the person to whom it was given.

I would draw my hon. friend's attention to what may have been unintentional on his part, and that is, that he has made the section retroactive. The provisions of his Bill extend to transactions which are legal under the law as it stands. I do not suppose he intended to make his measure retroactive and apply it to transactions which were perfectly legal under the present law.

There is another feature of the English law which commends itself to my mind, and that is, that not only can the court reopen the whole case when the suit is brought by the lender, but the borrower himself has the right to initiate proceedings to have the transaction declared harsh and unconscionable. Suppose a money-lender chooses to lay upon his oars and say : This young man has prospects in the future, I will not sue him now, my note is bearing 2 per cent a month, and I can afford to put it by in the safe and let it lie there until I can collect it. Well, under the English law, the borrower would have the right to initiate proceedings himself in order to have the transaction set aside and a fair agreement come to.

Therefore, I submit to my hon. friend that the principle adopted in England is entirely different from that he asks us to adopt, and that instead of fixing the rate of interest he should leave that entirely to the judgment of the courts.

Then, provisions should be made to protect the bona fide assignee of a note.

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LIB

Joseph Alexandre Camille Madore

Liberal

Mr. MADORE.

Section 5 does this.

The MINISTER OF MARINE AND

FISHERIES. I do not think it goes far enough. This section provides :

The bona fide holder, before maturity of a negotiable instrument discounted by a preceding holder at a rate of interest exceeding that authorized by this Act, may nevertheless recover the amount thereof?

From whom ?

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LIB
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The MINISTER OF MARINE AND FISHERIES.

The English legislature very properly protected the bona fide holder for value without notice. It provides that nothing In the Act shall affect the rights of any bona fide assignee or holder for value without notice.

Then, there is a very objectionable principle in the Bill referred to by the hon. member for Laval (Mr. Fortin), and that is, you are, in a partial way at least, giving

legislative sanction to an exorbitant rate of interest. One part of the Bill provides for an interest of 20 per cent, and that rate would be accepted by the whole community as the legal rate of interest up to $500. I do not think we should give legislative sanction to a 20 per cent rate of interest, because we would be thereby re-enacting the usury law to that extent. We have hitherto let the lending and borrowing of money depend upon the contract the parties might make between them, and if you determine to interfere with that policy, you should only do so to a very limited extent, and only where you have evidence of very serious evils which call for interference.

Section 9, in my opinion, would have to be remodelled, because it is certainly retroactive and unfair. My hon. friend from Yarmouth (Mr. Flint) seemed to doubt whether we had the power to pass legislation of this kind, but no doubt we have the power, whatever may be our view of the policy, of incorporating criminal and civil legislation in the one Bill. Our power to make the practice a criminal one is unquestionable.

In my opinion the frame of the Bill will have to be largely recast before it can be accepted by this House. We should drop the fixing of any special rate in the Bill as evidence that the transaction is bona fide or mala fide; and, if we attempt to proceed at all, we must proceed on the lines of only prohibiting the forms and the powers of the court from being used to enforce an unrighteous contract ; let the judge determine on all the facts of the case, whether the transaction brought before him comes within that definition or not; and, if it is a harsh, and unconscionable, and unjust contract, give the judge the power to open it up, and let him determine on the facts of the case. I think, also, we shall have to agree upon defining what a money-lender is. We must exempt the societies and corporations to which I referred, otherwise they would be brought within the purview of the Act, and we would have to decide whether the money-lenders we are striking at ought not to be registered, and have their business governed by the law as under the English Act.

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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. E. B. OSLER (West Toronto).

Speaking for Toronto, and from what I know of Ontario, I do not think there is any need for this Bill. I have heard very little complaint, certainly of late years, of any great hardship in connection with usury. When times are hard, it is quite natural that cases will happen of very high rates of interest being charged. But, I do not think many such cases prevail, at any rate, in the older communities. I dare say that in Manitoba things may be different, and that there, money being scarce, very high rates will be charged. I think it would be a mistake to enact such a law as this, for it is not required now, and it would have a very

bad effect as interfering with freedom of trade in this regard. If a man is desparate-ly hard up, he will borrow money from a money-lender if he can, no matter what laws you make to prevent him doing so; and, often the more difficult you make the borrowing of money under these circumstances, the higher the rate the borrower has to pay, because of the greater risk the lender runs; and yet the lending and borrowing will go on where men are bound to have money, and other men will lend it at a very high rate taking risks. I fail to see how any good can come of this Bill, even if it is passed by the House.

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Motion agreed to, Bill read the second time, and House went into Committee thereon. (In Committee.)


LIB

Byron Moffatt Britton

Liberal

Mr. BRITTON.

There is a great deal of opposition to this Bill in the country. I express now no opinion on the merits of the measure; but those who are opposing it and making representations to this House with reference to it, expect that the Bill will go to the Committee on Banking and Commerce, and that they can state their wishes there. It seems to me that putting the Bill through the different stages now, would only invite the opposition to it which, perhaps, will not tend to such calm and fair discussion of it as would result if the Bill were referred, and further time taken for the discussion of its provision.

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CON
LIB

Thomas Barnard Flint

Liberal

Mr. FLINT.

I think there is a great deal of force in the recommendation of my hon. friend from Norfolk (Mr. Tisdale), if he desires further consideration. But the effect of that motion would be that the Bill would be practically destroyed.

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CON
LIB

Thomas Barnard Flint

Liberal

Mr. FLINT.

If the motion were that the Committee rise, report progress, and ask leave to sit again-

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CON
LIB

Thomas Barnard Flint

Liberal

Mr. FLINT.

The effect of the motion 1 speak of would be to continue the Bill on the Order paper. As one favourable to the principle, but objecting to some of the details, I would not object to the Committee reporting, that we might have further time for discussion. The contention of my hon. friend from Kingston (Mr. Britton) that this Bill should go before the Banking and Commerce Committee has much force in. Though this is a public Bill, and does not necessarily go to the Banking and Commerce Committee, the House has always recognized that in the case of any Bills of an exceptional character it is well to have them discussed either before a standing committee of the House or before a special committee. The

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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. OSLER.

Banking and Commerce Committee would have the advantage not only of the opinions of very able members representing the legal and commercial classes, but there would be a full hearing from gentlemen outside who could give valuable evidence as to some of the questions of fact that have come up in this discussion. The questions of fact raised are as to the necessity for the Bill in, say, the maritime provinces or the province of Ontario, or whether certain provinces might not well be exempt from its operations. My hon. friend from Annapolis (Mr. Wade) has raised the question whether, if this Bill should be adopted, there would not be a necessity for amending some of the laws relating to usury in the province of Nova Scotia. I have not looked into that question, but it is well worthy of consideration. If it is in accordance with the rules of the House, I would move in amendment that this Bill be referred to the Committee on Banking and Commerce.

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LIB

Lawrence Geoffrey Power (Speaker of the Senate)

Liberal

Mr. SPEAKER.

That would be irregular; it could not be done.

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?

The MINISTER OF MARINE AND FISHERIES.

I want the gentleman who introduced the Bill, which certainly received some support from both sides of the House, to have something, like fair-play in the matter. I stated my objections to the Bill very frankly and fully, and suggested lines on which I thought he might redraft it. For one, I am not prepared to kill the Bill right off without giving some time, at any rate, for him to consider the suggestions made on both sides of the House. I recognize that this Bill is not an ordinary Bill, it is a matter of grave importance, affecting the commercial transactions of our people from one end of Canada to the other, and, therefore, it is not to be treated hastily. I do not think it is a fair way to treat the Bill to move that the Committee rise, at any rate, until after my hon. friend tells me that he will not consider the suggestions. If he says he will not consider the suggestions made on the second reading at all, or consider the propriety of redrafting his Bill, why, that would be another thing. But I understand that he is prepared to consider the suggestions made, and, therefore, I thought that we ought not to rise, but that we ought to report progress.

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CON

David Tisdale

Conservative (1867-1942)

Hon. Mr. TISDALE.

I have no such desire, but I gathered from the expressions of opinion that were made that we were simply wasting the time of the House, because the feeling is against the Bill. I have no desire whatever to interfere with the Bill or be unfair to the Bill. If there is any such suggestion as that, I beg to withdraw my motion. I thought the members had sufficiently expressed themselves, and I wanted to go on with the Bill.

Motion withdrawn.

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February 28, 1901