June 24, 1938

INDUSTRIAL LOAN AND FINANCE CORPORATION


The house in committee on Bill No. 7, respecting Industrial Loan and Finance Corporation-Mr. Vien-Mr. Sanderson in the chair. On section 1-Rate of charge on loans not exceeding $500.


LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

Mr. Chairman, first of all I submit that these bills dealing with small loan companies should not be proceeded with until the general policy of the government has been finally decided. There is upon the order paper the following resolution, standing in the name of the Minister of Finance:

That it is expedient to introduce an act to regulate the cost of small loans, also with respect to the incorporation and powers of small loan companies, and to provide for the annual licensing of money-lenders, for the administration of the said act, and the annual assessment of each licencee for the purpose of meeting the expense incurred by the government in such administration.

Industrial Loan and Finance

As will be seen, this foreshadows a definite outlining of the policy of the government, in the words of the resolution, "with respect to the incorporation and powers of small loan companies." I submit that there is no object in passing a special act giving this company certain added powers when on the order paper there is a general bill which deals with the whole question.

The next point I submit is this: In connection with questions of interest and so on I doubt that special privileges should be given by special acts of parliament. Under the special act, already law, which this bill proposes to amend, the Industrial Loan and Finance Corporation has the following powers:

(i) lend money secured by assignment of choses-in-action, chattel mortgages or such other evidence of indebtedness as the company may require, and may charge interest thereon at the rate of not more than seven per centum per annum, and may on all loans deduct the interest in advance and provide for repayments in weekly, monthly or other uniform repayments: Provided that the borrower shall have the right to repay the loan at any time before the due date, and, on such repayment being made, to receive a refund of such portion of the interest paid in advance as has not been earned, except a sum equal to the interest for three months,

(ii) charge, in addition to interest as aforesaid, for all expenses which have been necessarily and in good faith incurred by the company in making a loan authorized by the next preceding sub-paragraph (i), including all expenses for inquiry and investigation into the character and circumstances of the borrower, his endorsers, co-makers or sureties, for taxes, correspondence and professional advice, and for all necessary documents and papers, two per centum upon the principal sum loaned,

(iii) notwithstanding anything in the next two preceding sub-paragraphs (i) and (ii) the company shall, when a loan authorized by the said sub-paragraph (i) has been made on the security of a chattel mortgage, or of subrogation of taxes, be entitled to charge an additional sum equal to the legal and other actual expenses disbursed by the company in connection with such loan, but not exceeding the sum of ten dollars,

but, no charge for expenses of any kind shall be made or collected unless the loan has been actually made, or unless such a loan has been renewed after one year from the making thereof or after one year from the last renewal thereof;

The explanatory notes to this amending bill state:

The main objects of this bill are:

To change the operation of the company from a discount to an interest plan and to vary and clarify its charges.

I submit that this explanatory note is and must be misleading. The note states that it is desired to change the operation of the company from a discount to an interest plan. In the subsections I have just read it is stated

quite clearly that at present this company is entitled to charge 7 per cent per annum as interest.. The only thing that would justify anyone in claiming that to be a discount plan is that it is provided that interest may be deducted in advance. But the bill goes on to indicate definitely that the intention should be to permit a charge of only 7 per cent per annum; for if the debt is paid ahead of time the act provides that only 7 per cent per annum shall be allowed, plus interest for three months. This indicates that when parliament passed this special act it intended that this company should be allowed to charge only 7 per cent per annum, and as interest. Then it goes on to provide that they may charge two per cent for expenses of inquiry and investigation into the character and circumstances of the borrower, but those must be expenses which have been necessarily and in good faith incurred by the company.

We find that this company have been doing this: They have been charging 7 per cent interest in advance; and. because of that fact, in effect they have been getting 14 per cent per annum. Then, by charging two per cent in advance for investigation and inquiry, whether or not they have actually incurred any expense in that connection in regard to a particular loan, they really get 4 per cent per annum under that heading. They claim they have a right to do this, to charge 14 per cent, though the act says that the rate shall be 7 per cent per annum, and they also claim they have a right to charge 4 per cent whether or not they make any investigations at all. Under those headings they are able to run their charges up to eighteen per cent per annum. We know that this company largely operates in the province of Quebec, where it does not take chattel mortgages and where it cannot make charges under that heading; that is, under subsection 3 above referred to. So to-day in my opinion this company violates the act of parliament and charges 18 per cent per annum when it has no right to do so. But that is certainly the limit of what the company can charge at present.

Now the company comes to parliament, having formerly obtained the charter for which it asked and which, in my opinion, it has been violating, and wants the right to charge two per cent per month, an effective interest rate of 26i per cent per annum. Obviously the effect of this is to raise the rates which it is permitted to charge to-day, but there is more to it than that. This company has been charging 18 per cent, and I take it that it has become rather nervous as to its

Industrial Loan and Finance

position, because there have, been decisions which indicate that it has absolutely no right to make these charges. For instance, there is the case of Kelly v. the Industrial Loan and Finance Corporation, which finds that it has been transgressing the law in connection with these charges. I would refer hon. members to page 90 of the report of the superintendent of insurance, for the year ending December 31, 1936, in regard to small loan companies, where a reference to this case will be found. It is also cited in 1937, 1 Dominion Law Reports, page 57. The case was tried before Judge Stackhouse of the Montreal circuit court, and this is what the head note of the case says:

A loan company operating under special statute (1930 (Can.), c. 68), and limited to a rate of interest not exceeding seven per cent plus charges for "expenses necessarily and in good faith incurred" in making the loan, cannot charge any greater rate of interest or for expenses not so incurred. On a loan of $150 repayable in ten monthly instalments, held illegal to deduct interest for the whole loan in advance and to charge for investigation expenses not incurred and for insurance not issued in accordance with the application, in the total of $16.50, entitling the borrower to Tecover back the excess charges.

That definitely holds that this very company, by charging interest in advance and regarding it as a discount, and by charging for disbursements regardless of whether or not they have been made, has been violating this act. Not content with that, it now comes before this parliament asking the right, under the heading "cost of loans," to charge two per cent per month, which is an effective Tate of 264 per cent per annum.

One of the points I should like to emphasize now, Mr. Chairman, is this: I do not

think at this session of parliament we should sanction such a rate of interest. As far as I am concerned, coming from western Canada where we have been struggling with what we regard as high interest rates of 8 and 9 per cent on mortgages, if we in this parliament sanction a rate of 26i per cent per annum we take away our whole case in demanding that interest rates be reduced to the people out west. How can we say in one breath that it is all right for this company to charge 261 per cent per annum interest on loans up to S500, and in the next breath say to the banks, for example, that they should not charge over 7 per cent and to the mortgage companies that their rates should not be as high as 8 or 9 per cent? As a matter of fact, as is known to members of the house, the Saskatchewan government recently managed to get the loan companies to agree to reduce rates of interest down to six per cent. And a good many of us feel that

the farming population of western Canada cannot afford to pay interest of even six per cent per annum.

Now then, if parliament authorizes one group of people to charge an effective rate of 26J per cent per annum, what chance have we to make an appeal to public opinion which will back us up in getting interest charges cut lower than 6 per cent per annum? If we give those people the right to charge an effective rate of 26J per cent per annum, what is the next thing we are up against? The argument will be raised: Why in the world should those people be permitted to charge that rate, and the banks be limited to 7 per cent per annum and the mortgage companies to 6 per cent? Immediately we are going to be met with a demand all along the line for an increase in rates of interest.

I think at this stage of Canada's development it would be a most retrograde step if parliament were to give sanction to an effective interest rate of 26i per cent per annum. It might be said that this is not what we are authorizing, because the proposed amendment suggests that the "cost" of a loan shall not exceed two per cent per month. Well, the "cost" of a loan is nowhere defined in the proposed amendment, and that is one of the reasons why it is not expedient to pass the bill at. the present time, before the general bill, which does define "cost" of loan, goes through.

What would be the position of affairs if parliament should not see fit to pass the general bill in which the "cost" of a loan is defined, and passed this bill, which refers to cost of loan, but nowhere defines the term. In other words, we would be passing something which has no meaning. But in order to make my argument plain, I suppose I should refer to the meaning of "cost" of loan, as it is defined in the general bill. It is set out at page 427 of the report of the banking and commerce committee:

2. In this act unless the context otherwise requires,

(a) "Cost" of a loan means the whole of the cost of the loan to the borrower including interest or discount and expenses and charges for commission, brokerage, chattel mortgage and recording fees, inquiries, defaults, renewals, fines, penalties, or other similar costs, whether paid to or charged by the lender or paid to or charged by any other persons, and whether fixed and determined by the loan contract itself or in whole or in part by any other collateral contract or document by which the charges if any, imposed under the loan, contract or the terms of the repayment of the loai are effectively varied.

That, I take it, is what "cost" of loan means in this bill. I draw particular attention to

Industrial Loan and Finance

the fact that cost of loan there includes interest and every other charge. If any company can charge two per cent as cost of loan and is brought into court under the MoneyLenders Act or under any other act, it can say that the whole of that cost was interest. What is the effect of that? The effect of it is this: As the charter now stands, any province can forbid those charges set out in subsections 2 and 3. That is, this parliament has power to legislate in regard to interest; but although we give a company power to charge for expenses of investigating a loan, and to charge for expenses of drawing documents- although we give this company power to do that, any province under its jurisdiction over property and civil rights in the province can step in and forbid those charges on the part of any company operating within any province.

What are we doing here? At the present time no company can come in and charge more than the amount set out in the MoneyLenders Act, namely 12 per cent per annum. We have said further to this company, "We only give you power to charge two per cent for making investigations and to charge up to S10 for drawing the documents, provided you pay the money out; but any province can forbid any charge set out in subsections 2 and 3." In other words, a province could limit the company to 7 per cent per annum. But by passing this amendment we take out of the hands of the province the power to prevent a company from charging more than 7 per cent per annum and give it the right, regardless of provincial law, to charge 26J per cent per annum.

In other words, for example we may say to the province of Quebec, "Although you have control over property and civil rights, and power now to prevent this company from charging more than 7 per cent per annum, once this measure is passed this company whether the province of Quebec likes it or not or whether the people of Quebec like it or not, can come in and snap its fingers in the faces of the government of Quebec, and charge an effective rate of 26J per cent interest." Under present conditions I submit this parliament should not lay itself open to attack by doing that.

In Saskatchewan we passed the Credit Unions Act a year ago. There is a department of government which is charged with the duty of promoting the development of cooperative institutions including credit unions in Saskatchewan, and an officer is paid for that purpose. What would happen if this bill were passed? It would mean that this company can go into Saskatchewan and charge an effective

rate of 26J per cent interest. .There is nothing our legislature can do about it, because we are giving them the power to charge the rates of interest I have indicated.

If we pass this bill, they can go in there and spend a large sum of money on advertising, and prevent the growth of cooperative lending. We had different witnesses appear on the question of cooperative lending before the banking and commerce committee. For example, we were told of the great development in the province of Quebec in regard to the caisse populaire, and how they are actually extending their activities and by cooperative enterprise are providing money to the people at 7 per cent per annum. Mr. Vaillancourt gave us to understand that any person worthy of credit can get credit in the province of Quebec by joining a credit union or caisse populaire and, if he is credit worthy, he can get credit at that low rate of interest, 6 or 7 per cent per annum. Of course that is not low, but it is much lower than 26J per cent per annum.

At this stage of our development should we as a parliament say to a company that whether a province likes it or not we shall give them the right to go into the province, undermine the full development of cooperative credit institutions and charge 26j per cent per annum? I do not think we should do that.

It might be urged that there is a great deal of abuse in regard to small loans, and for a moment or two I should like to deal with that phase of the matter. The suggestion is that money-lenders to-day are charging more than 26i per cent per annum, and that therefore, by permitting this company to operate at that rate, we are doing a good thing for the people.

I suggest to you, Mr. Chairman, that people who are paying, say 100 per cent per annum or 150 per cent per annum are people who are not credit worthy. If we set up this company we shall not be helping these people at all, because these companies are very careful to whom they lend money, and would not lend to doubtful people who to-day borrow from loan sharks. These small loan companies lend money only to people who actually pay it back again, with few exceptions. I should like to give the committee some figures on this very point. I read the following from the evidence:

The record of the dominion licensed small loan companies up to date would indicate that that estimate is correct. Over a period of four years from 1934 to 1937 inclusive the total amount of loans made by the three companies was $28,919,630 and the total amount written

Industrial Loan and Finance

off loans as losses, $97,878, of which $56,005 was later recovered, leaving a net realized loss of $41,873 or -14 per cent of the amount of loans made.

In other words, these three small loan companies have been so careful as to whom they would lend money that over a period of four years they actually lent out almost $29,000,000 with a loss of slightly over one-tenth of one per cent per annum.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Donald MacLennan

Liberal

Mr. MacLENNAN:

What were their

profits?

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

I shall come to that in a moment, but their losses were slightly over one-tenth of one per cent per annum. Does anyone seriously suggest that if these companies were so careful as to whom they would lend money as to keep their losses down so low, we are going to stop the loan shark evil by setting up such companies? Obviously these companies are lending money only to credit-worthy people. Even though you set up these companies you will still have people who are not good risks going to the loan sharks to borrow money. I was asked how much these companies made. I did not intend to give these figures at this stage, but I might as well. Mr. Finlayson had this to say in his evidence:

The experience of the dominion companies shows that for the four years 1934 to 1937 inclusive the companies earned after interest 11T per cent on their mean net assets. The rate for the largest company was 16'66 per cent.

Treating the "supervising" fee as equivalent to a return on capital and assuming a reduction of fifty per cent in advertising costs an addition of six per cent is made to the return of 11 1 above mentioned.

That would give them a profit of 17-1 per cent on their capital. I might be asked what I would suggest to eliminate the loan shark evil. I think this matter could be properly considered at this time. We are being asked to approve this bill as an alternative to a general policy of controlling the loan shark evil. This is an alleged attempt to minimize that evil.

I should like to suggest what I think is the proper way to deal with this problem. I am sorry the Minister of Finance (Mr. Dunning) is not in his seat. I hope he will soon be able to be back. First of all let me say that usury is one of the oldest crimes known to civilization. We should make exorbitant charges a crime. Those private individuals who take advantage of the need of people to obtain credit would not be the ones to register under the Money-Lenders Act. They make individual deals here and individual deals there. How in the world are

you going to stop that sort of thing unless you make it a crime? The man who thinks he is pressed for credit goes and gets it from one of these individuals and pays a rate of probably 200 per cent per annum. These individuals take advantage of the needs of people, and once a transaction is completed the latter are worse off than they were before. I suggest that you write into the criminal code a provision that anyone who charges more than a certain set rate-it has been suggested that two per cent per month would be proper; personally I think that is too high -shall be deemed to have committed a criminal offence. It seems to me that this is the way to deal most effectively with these loan sharks.

Shortly after the attorney general of Ontario came into office he found the loan sharks were giving considerable trouble in the city of Toronto. He laid several charges under the Money-Lenders Act, but what happened? The judge found that he could not definitely distinguish between what was charged as interest and what was charged to cover investigation fees and so on. So he could not convict. Here is what His Honour Judge O'Connell, who presided at the county court judges' criminal court of the county of York had to say:

These harsh and inequitable transactions might be effectively dealt with, if not actually stopped, by legislation making it a criminal offence, witli appropriate penalties, to charge, impose or collect in respect to a loan for less than $500, interest, and for services of any kind, nature or description whatsoever in connection therewith, a sum of money amounting in the aggregate, in respect to both interest and charges, to more than two and one-half per centum per month on the monthly balance owing by the borrower. This, of course, is merely a suggestion prompted by the evidence coming before me during the present trial.

There we have a judge having to find that he could not convict because of the loose manner in which our laws have been drawn. His honour suggested that some provision should be made in the criminal code to deal with those people who take advantage of the needs of their neighbours. That is the first thing I would suggest. A definite limit should be placed upon the cost of a loan, and it should be made a criminal offence to charge more than that limit.

There is a further useful step that can be taken. Giving evidence before the banking and commerce committee, the attorney general of Ontario had this to say:

I understand that this proposal has been made on the ground that prima facie these matters of service charges are matters of

Industrial Loan and Finance

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

Let me explain what I mean by that. Property and civil rights are primarily within the jurisdiction of the province; but if the federal parliament can only deal effectively with legislation in its field by passing ancillary legislation in the field of property and civil rights, it can do so even though it does invade that field. If you do so invade the field of provincial jurisdiction, the provincial law in the matter falls to the ground as against the dominion law.

We have legislation to-day in Nova Scotia, Manitoba, Quebec and some of the other provinces dealing with the question of these charges, and the moment we enter the field under the heading of interest or any questions ancillary to interest we invade a field which the provinces have already covered. This would mean that their law would be of no effect. If we did that in order to cut down the high interest rates, I would not mind so much, 'but here we are proposing as a parliament to enter that field in order to enable these small loan people to raise their interest rates to the exorbitant rate of 26i per cent per annum, and I submit we should not do that.

There is another matter I would draw to the attention of the committee. If we reserve this field entirely to ourselves, it means that we do so against the wishes of the province of Ontario. The representative of the government of Quebec also took a similar stand, that the province wanted to reserve that field to themselves. The Minister of Justice will know that this question is dealt with in the civil code of Qudbec, and that if we enter that field we interfere with that provision of their civil code. The province of Quebec objected to our doing that; nevertheless we are here asked to do it. I submit that it is not wise for us to do so; that it is wise at this present stage of our development to restrict ourselves to controlling the top limit of cost of loan and also interest rates and leave the province to say whether these small loan companies shall be able to charge anything at all by way

Industrial Loan and Finance

of service charges and the like, always, of course, below the limit of cost of loan fixed in the criminal code.

Furthermore, the provinces have the means of administering the law, and if we enter that field against their wishes, are they going to show the same desire to enforce the law? In other words, if we put something in the criminal code, they can, by administering the criminal law, absolutely wipe out the loan shark people. They have their attorney general's department, their police courts, and their crown prosecutors to prosecute these people in the courts. But if we enter the field and undertake to look after the whole thing, are we going to set up a parallel system of administration of justice to make sure that these small loan people do not break our small loan legislation and loan sharks do not operate? That is something I would ask the Minister of Justice to consider.

I have suggested already that I think cooperative lending is one of the solutions of our present difficulties. I think it is the solution of many of our difficulties to-day and it should be encouraged, in every way. We have to-day a very valuable institution, the Canadian Association for Adult Education, started, I believe, under the aegis of the extension department of St. Francis Xavier university, and that association would be pleased to extend its activities in the field of educating the people in regard to the benefits of cooperative lending institutions. In the United States they have a federal credit union law, and the federal government actively promotes these institutions. Their growth in the United States has been very fast and the people are encouraged to save and provide for their future. By so doing they are also able to provide for the. credit needs of their friends, who get credit cheaply, and the depositors get a good return on their money. I further suggest that this government should appoint some person actively to promote the spread of credit unions throughout Canada. I go further and suggest that the government should legislate, to set up a federal credit union law. If it does not see fit to do that, I submit it should make a grant of at least

810,000 to enable the Canadian Association for Adult Education to preach this doctrine of cooperative credit throughout Canada. I am glad, that the Minister of Justice applauds that. It would be something in the way of really constructive legislation-much better than this business of giving special privileges to a few companies, with their exorbitant demands.

There is another angle with which I want to deal before I conclude, and that is the question of the extent to which the chartered banks of Canada should fill the needs proposed to be filled by these companies. We know that the Canadian Bank of Commerce has entered the small loan field and that it is lending money at a lower rate of interest than is charged by the small loan companies. Mr. Stewart gave evidence before our committee indicating that their effective rate of interest was 10-5 per cent. I quote this from the evidence of Mr. Stewart, of the Canadian Bank of Commerce:

Well, Mr. Chairman, the Canadian Bank of Commerce entered the personal loan field in Toronto in June of 1936. Before the end of July of that year personal loan departments were opened at Halifax, Montreal, Winnipeg, Calgary and Vancouver. It is true, as Mr. Dobson says-as all banks have I should imagine -that up to that time we made small loans; but it seemed to us that there was a wider field. There was a considerable amount of criticism against the banks because of the fact that credit facilities were not available to wage earners; and to some extent with a view to dissipating any such criticism we entered the personal loan field. There was also probably a selfish motive too in that it built up a substantial amount of good will for the bank. The system, as I say, is in vogue throughout Canada. The loan departments are at Halifax, Montreal, Winnipeg, Calgary and Vancouver, but each and every branch bank is equipped to handle such small loans although the department is the last word in the confirmation or the refusal of the loan. The branches, however, work up the application, send it into the central department and there it is accepted or declined. In so far as volume is concerned, since the department was started we have made 60,423 loans, for a total amount of $8,800,000. The average amount of loan made is $146.

Then he said that "off-setting the savings balances on which interest is allowed the effective rate is 10-5 per cent."

He goes on to show what these small loans are made for:

Per cent

Medical, dental and hospital bills 15-73

Consolidation of debts 28-0

Outside loan liquidation 6^

Taxes, real estate, mortgages and interest,

insurance premiums 8-6

Travel and education 3-4

House improvement expenses 1,1-7

Clothing 2-3

Motor cars 7-03

Miscellaneous 16-0

He goes on to say:

I think we can make a little money from now on provided we keep to the present figures.

On the question of whether the other banks could be encouraged to enter this field, I suggested in the committee that if they were encouraged to enter the field they would meet the need for credit now being met by these

Industrial Loan and Finance

companies. In this connection Mr. Dobson, president of the Canadian Bankers' Association said:

Now, if your committee should recommend and the government should decide to ask us to cooperate in the small loans field and provide an increased rate for monthly payment loans, I believe it is quite possible and probable that some other banks might then decide to take up that extended loan field. I do not mean to say they are going to take the business away from the small loan companies and go right through with that type of business. I do not believe for a moment that the small loan companies are not going to stay in business. I believe they are required there, but the banks might extend their field further, that is all.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Frederick George Sanderson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The CHAIRMAN:

I regret to have to

interrupt the hon. member, but he has exhausted his time.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

As sponsor of Bill No. 7, at present under study, a good purpose might be served if I summarily gave the committee the genesis of these bills.

The Industrial Loan and Finance, the Discount and Loan and the Central Finance corporations are small loan companies incorporated under the laws of the dominion. Their charters are on our statute books. The hon. member who has just resumed his seat (Mr. Tucker) addressed himself to the subject under study as if we were introducing here a new principle; as if we were raising the rate of interest which, if this bill passes, these small loan companies could charge their borrowers. Nothing is further from the truth. In the first place we are not granting these small loan companies or any money-lender the power to charge an interest of two per cent per month. There is nothing to that effect either in this 'bill or in the general legislation recommended by the standing committee on banking and commerce.

Last year, contradictory decisions were rendered with respect to certain lawsuits, originating in Quebec and Ontario, regarding loans made by small loan companies. My learned and hon. friend quoted a judgment in the Kelly case, in the circuit court, Montreal. I am sorry he did not proceed a little further and quote judgments of superior tribunals. I have the greatest possible respect for the circuit court of the district of Montreal, but that court is limited in its jurisdiction to matters not exceeding $100. It is a tribunal of inferior civil jurisdiction. There is no appeal from its decisions. This shows that, generally speaking, in the province of Quebec, we do not consider matters coming before that court to be of more than trifling importance, not important enough, at least,

to warrant the right of appeal. In a subsequent case, in the Jackson case, which my hon. friend has quoted, and in which the Industrial Loan was interested, in the superior court. Hon. Mr. Justice Casgrain rendered a decision very different from that of the circuit court, in the Kelly case.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Ernest Lapointe (Minister of Justice and Attorney General of Canada)

Liberal

Mr. LAPOINTE (Quebec East):

Who was the judge sitting in the circuit court?

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

His Honour Judge Stackhouse, for whom I have great respect. But a judge whose judgment is not subject to appeal may, sometimes, take into account other considerations than the law.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB-PRO

Joseph Thorarinn Thorson

Liberal Progressive

Mr. THORSON:

Does the hon. member suggest that Judge Stackhouse did that in this case?

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

I am not suggesting anything. I am only saying it so happens, sometimes. I think my learned friend knows it better than anyone else. Therefore, a reference to Judge Stackhouse's judgment, without reference to the reverse judgment rendered by a higher tribunal, does not convey complete information to the committee.

A certain propaganda, carried out in committee and outside thereof, and the tone of my hon. friend's speech of to-night, tend to create the impression that the sponsors of these bills and the standing committee in recommending general legislation are attempting to raise the rate of interest which small loan companies may charge to their borrowers. The contrary is true. For a number of years the superintendent of insurance has had complaints about the exorbitant rates of interest and other charges which are being collected from borrowers by certain money-lenders who have been properly styled "loan sharks." In the committee Mr. Finlayson has spread on the record a few examples of exorbitant charges: Three, four, five, six per cent per month are not uncommon. Instances of charges of 600, 700 and 800 per cent per annum were revealed. Indeed, there was a case of

11,000 per cent per annum. These were not isolated cases.

This condition, which to-day obtains in Canada, is not unprecedented elsewhere. In the United States, some years ago, a similar situation was revealed. Russell Sage died and left a large fortune to his wife. She was snowed under by applications for loans. She began to investigate some of these cases. She discovered that thousands of people were being mulcted of large sums of money by loan sharks. For a purely philantropic purpose and a desire to help the small borrower, Mrs. Sage created what is now known as the Russell

Industrial Loan and Finance

Sage Foundation. A thorough study was made in every state of the union; experts were sent to Europe to investigate conditions there, and the effect of the remedial legislation which had been passed in various European countries. In the United States, this question comes within the jurisdiction of the various states. Legislation had to be introduced in state legislatures. We have a statement of the rates of interest which now prevail in the United States. They were arrived at as a result of exhaustive investigation. After long years of study and effort, legislation was passed, and, now, the rates in the United States vary from one, two and three per cent per month, in graduated rates, based on the amount borrowed, or, in other states, on a flat basis ranging from 2^ per cent to 3i per cent per month, in most cases.

In Great Britain, the same condition had obtained. The same study was made; remedial legislation was enacted. What is the situation in Great Britain? In Great Britain there is no maximum rate of interest fixed. The question resolves itself into a question of procedure: On whom shall the burden of

proof rest? The rate must be reasonable. If it does not exceed 4 per cent per month, the complaining borrower must prove that the rate is unreasonable. If the rate exceeds 4 per cent per month, upon a complaint being filed, the money-lender must prove that the rate is not exorbitant, In Great Britain, therefore, the law assumes a rate of 4 per cent per month to be fair and reasonable, subject to the courts reducing it or increasing it as the circumstances may warrant.

In the United States, where a flat rate has been fixed, it varies from 2 to 31 per cent per month, with very few exceptions higher or lower.

In Canada, the superintendent of insurance thought it advisable to compel these companies to come to parliament to have their charter powers clarified. These companies did not come here of their own motion. They were urged by the superintendent of insurance.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

Is it not a fact that the

superintendent of insurance told these companies that if they wished to continue making the charges they were making they should get an amendment to their charter authorizing them to do so?

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

My hon. friend should not

interrupt. He is wrong in his facts.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

And I sav that you are

wrong.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

Please; I have only forty

minutes at my disposal. I say that my hon. friend is wrong in his facts. One of these companies, as I mentioned in opening my remarks, had had an adverse judgment of the circuit court at Montreal. Since, then, however, a favourable judgment of the superior court has been rendered and it is to the effect that they had not charged exorbitant rates.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

May I ask the hon. gentleman a question?

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

No; I cannot afford the time

of my hon. friend's interruptions.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Walter Adam Tucker

Liberal

Mr. TUCKER:

I just wish to ask the

hon. gentleman-

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink
LIB

Thomas Vien

Liberal

Mr. VIEN:

Please do not. My hon.

friend cannot challenge my facts. He has had an opportunity to speak. I did not interrupt him, although I felt that he was wrong, inaccurate. I say that in view of the conflicting decisions of the courts, the superintendent urged these companies to come to parliament. He wanted to have the charter powers of these companies clarified. These small loan companies lending money in amounts below $500. could not carry these judgments to the Supreme Court of Canada. You cannot come to that court unless a sum of $2,000 or more is involved. The superintendent was not satisfied with the decision of the circuit court; he was not satisfied with the decision of the superior court.

Topic:   WAYS AND MEANS
Subtopic:   INDUSTRIAL LOAN AND FINANCE CORPORATION
Permalink

June 24, 1938