September 11, 1950

CCF

Major James William Coldwell

Co-operative Commonwealth Federation (C.C.F.)

Mr. M. J. Coldwell (Roselown-Biggar):

Mr. Speaker, I believe this is a bill which is quite important, and quite useful, so far as it goes. I noticed the Minister of Finance said that, while he did not wish to bring in a bill, he would rather have had one designating certain articles. May I take this opportunity of saying that, for a long period of time, I have felt we should have a comprehensive bill before this house to regulate instalment buying. I say that not only because at the present time it may be an anti-inflationary

Consumer Credit Act

measure, and such it is, although perhaps it is somewhat discriminatory in that the person who still has a bank account will be able to buy whatever he likes.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

There is a provision that will prevent that if the individual makes a loan.

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CCF

Major James William Coldwell

Co-operative Commonwealth Federation (C.C.F.)

Mr. Coldwell:

Yes, but if he has the cash he does not need to borrow and you will have to appeal to the good will of such an individual to restrict his buying. What I have in mind is that we need a bill which will prevent the kind of instalment buying we have in this country by means of which persons make a payment of ten per cent or less of the cost of various goods, and after further instalments sometimes lose what they are attempting to buy. I do not believe we have the same protective legislation as some other countries. I think in Great Britain it requires an order of a court to repossess the goods after a certain amount has been paid.

I have been told that a number of these companies that are selling various products today, for example furniture, radios and so on, and some of the larger chain store organizations across the country, are not so much interested in selling furniture and similar commodities as they are in making loans. A person signs a pledge to pay over a long period of time at a relatively high rate of interest. After all the rate of legal interest on small loans is eighteen per cent, and that is a high enough rate. Then we see advertising of the type seen in some jewelry stores, in which people are invited to pay a ridiculously small amount down and the balance over a period of eighteen months or two years. Perhaps the person wants a certain article, and there seems to be no reason why he should not have it when payments seems so enticingly easy. The thing is that very often many people do not realize they are paying such a high rate of interest. In some instances because of that they are unable to buy more food or other necessaries of life which the family may need. Many people buy various household commodities, also at a high rate of interest.

I am seizing this opportunity-I do not want to delay the house-to draw this to the attention of the government. I believe the time has come when we should review this instalment buying, and do what we did in connection with small loans a few years ago. We did enact legislation which was of a protective type to an extent-not a sufficient extent I thought, and not a low enough rate of interest-but still better than we had before. I have been told by small merchants that they find it difficult to carry the load that they must carry because some of these

Consumer Credit Act

large organizations, more interested in the interest on the unpaid balance, are able to finance the undertaking. I believe that this is a matter which the government should consider.

So far as this bill is concerned I believe that it should get the support of the house for the purpose intended, although it will not completely fulfil that purpose, because apart from those who buy on the instalment plan there are the people who will be buying these goods out of their personal savings or resources. The same objection I have made to the instalment buying will not apply to the people who buy with their savings. The people who do have money will be able to buy a couple of cars or a couple of refrigerators if they wish, and they will be using materials that are in short supply. The only thing to do in a situation of this description is to publicize the matter, and ask for support in preventing the inflationary result. I am, as I said, drawing the attention of the government to the fact that we need some kind of permanent legislation that will protect the public from the high rate of interest and loss of the article if they cannot meet their payments. It may be argued, of course, that the loss of the article can be construed as belonging to property and civil rights, and the provinces might have an obligation in this connection. Still if we can control the interest rates we may be able to do indirectly what we would like to achieve. I am drawing this to the attention of the government.

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PC

Agar Rodney Adamson

Progressive Conservative

Mr. Adamson:

I do not want to delay the bill; in fact, I am inclined to support it. Will the minister say whether the figures he has just quoted are from a general release by the dominion bureau of statistics or are they the subject of a special release for the information of the minister?

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

Subject to correction again, I think the information is contained in a general release, Mr. Speaker. It is contained in a memorandum which I had prepared for my own information, but I saw the figures in the press a day or two before I got this memorandum, so I think it has been the subject of a general release. It may be that some of the figures I have here are not in that release, but when we are in the committee stage I hope to have further data here with which to answer these questions.

At six o'clock the house took recess.

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AFTER RECESS The house resumed at eight o'clock.


SC

Victor Quelch

Social Credit

Mr. Vicior Quelch (Acadia):

I think, Mr. Speaker, that the need for legislation of this type is obvious, because the expansion in defence expenditures will no doubt be greater than the slack in our economy; that is, if we are going to continue to expand our defence expenditures even after the war in Korea may be over. Mind you, I am not for one minute suggesting that we should not do that. As a matter of fact, I think it will be absolutely essential to do it. No doubt it will therefore be necessary to control the expenditures by civilians on consumer goods.

It is, however, interesting to recall that it is only a few months ago that the Minister of Resources and Development (Mr. Winters) warned the people of this country that they would have to let up some on their practice of saving and would have to expand their purchases if we were to avoid a depression at this time. I mention that fact because it shows that it must have been quite obvious then that quite a considerable lag was developing in this country as between demand and supply.

Now apparently there is a complete change in the situation owing to the fact that we are having to increase our war expenditures. Nevertheless, I think we must be careful to see that we do not reduce expenditures that are absolutely essential for the maintenance of a high level of production of food in this country. If we do that, we shall not only weaken our economy generally but we shall also weaken the war effort.

I have never liked the general practice of buying on time or on the instalment plan because, after all, I have always looked upon the job of industry as being that of producing and selling. It should not be the responsibility of industry to finance their sales. That, of course, is actually what industry is doing when it sells on time on the instalment plan. However, owing to the fact that in normal times there is a lack of effective purchasing power with which to buy the total production of the country, the result is that goods pile up and surpluses develop. Hence industry, in an endeavour to get rid of their goods, sell them on time or on the instalment plan. After all, the only solution for the problem, of course, is to take steps to expand the purchasing power of the people to a level that will make it possible for them to buy the total production of the country. Selling on time is not and cannot be regarded as a solution; because unless steps are taken to increase the purchasing power of the people, the situation will of course become even more

aggravated because selling on time is bound to increase costs and to increase prices.

I hope that the regulations that are to be drawn up under section 3 will be sufficiently elastic to take care of cases of real need. I have in mind especially the cases of young couples just starting out. It is all very well for the majority of us who, during the past five years, have had the opportunity to buy those things we needed; that is things which cannot be considered as being absolutely essential but are things which everybody wants today. There will be many young couples starting up from now on who have not been able to accumulate the things they need and who will be desirous of buying certain things like refrigerators, washing machines, et cetera, although they may not have the full purchase price. When these regulations are drafted I therefore hope they will be sufficiently elastic to make provision for that class of people and also to take care of cases of sickness where people run into heavy medical expenditures and are therefore not able to pay cash for everything they have to buy.

There is also the danger that unless these regulations are made sufficiently elastic, those people may be driven into the clutches of the loan sharks. Some years ago we amended the Small Loans Act and I think we improved it. But there are many companies which are not operating under the dominion charter; and as we all know, when people get into their clutches they have an extremely tough time indeed, and the costs of the things they buy in that manner are greatly increased. It certainly will not be to the advantage of the country if, by tightening up on these regulations, we make it impossible for the younger people to buy the things they need and hence force them to use the small loan companies. I suppose section 3 will provide for regulating the small loan companies. On the other hand, I can envision a great deal of difficulty in regulating loans by that class of people generally referred to as loan sharks, because they are operating anyway in an underground manner and are therefore not easily subjected to the general regulations which are imposed by the government.

Then of course there is the problem of the farmer who may be obliged to borrow in order to meet operating expenses. There again I suppose some people will argue that, with the fairly good prices we have been having in the past, farmers should not need to borrow. On the other hand, anybody who knows anything about farming, and especially about grain farming, will realize the tremendous hazards that are faced by farmers, and will know that it is quite possible to have two or three years of crop failure due to drought,

Consumer Credit Act

frost or hail, something which makes it impossible for the farmer to finance his current operations. Hence he is obliged to borrow or to charge up at the local store his bills for oil, gas, et cetera. If he is not allowed to do so and if he is not able to get money with which to buy gas to run his tractor, it means that the summerfallowing will not be done and actually we shall be interfering with the efficiency of the operation of the farm.

From the press I understand that it is the intention of the government to restrict the operation of the Farm Improvement Loans Act. I understand that there will not be any actual amendments to the act, but that the banks will be advised to restrict their loans under it. I can quite see that it may be necessary to tighten up the conditions controlling the entitlement to a loan. On the other hand, I think the government would make a great mistake if they tried to tighten the act in such a way that the period of time is shortened for which a loan is granted.

As we all know, in farming the time for which a loan is granted must fit in with farming operations. In the old days it used to be common practice for banks to lend money for only three months. But a three-months' loan is absolutely useless for the purpose of farming operations because you have a longer cycle there. The crop is sown in the spring and is not harvested until the fall. Therefore, if money is borrowed in the spring, it is essential that the loan be made for a long enough period of time so that the crop can be sold and the loan be paid back. Otherwise what happens? It just means that you force that farmer to sell his crop at a time when maybe it is not opportune to sell it and orderly marketing in the country is destroyed. In that way you not only hinder efficient operations but you also interfere with orderly marketing. I am not going to say any more at this time, but I am hoping that the minister, either before we pass the bill or when we are in the committee stage, will go into some detail regarding the operations of section 3.

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CCF

Hazen Robert Argue

Co-operative Commonwealth Federation (C.C.F.)

Mr. H. R. Argue (Assiniboia):

I can agree at this time that steps must be taken by the government in various ways to prevent inflation and the rising cost of living. The government has already announced to us various steps by which it hopes it may cope with the ever-increasing level of prices. We know that the Minister of Trade and Commerce (Mr. Howe) is being given certain powers; we know that the government is proposing certain tax increases; we know that along with this measure the government, as announced by the Minister of Finance (Mr. Abbott) the other night, is proposing other somewhat

Consumer Credit Act

similar anti-inflation measures. Therefore I think, that we should look not at this bill alone, and not judge the bill solely on the basis of whether or not what is proposed is in fact anti-inflationary, but whether this bill, taken together with the other steps the government has implemented and proposes to implement, will hold down the price level, and hold it down in an equitable manner.

I wish to agree with the remarks presented just before six o'clock by the leader of this group, when he pointed out that there is great need in this country at the present time *for something more than a bill which will merely increase the down payments and shorten the terms of instalment buying. Something should be done as he said to prevent high pressure salesmanship by firms which are attempting to unload on the market the articles which all of us will agree are not necessary. Something should be done, as he said, and done in this bill, to reduce the very high interest rate which is now charged on small-term loans. We know the maximum rate is 18 per cent a year. That is certainly very high. If one looks over the various firms which sell articles on the instalment plan such as Eaton's and Simpson's, and calculates the interest rate on that type of buying, one will find that the interest rate approaches the maximum of 18 per cent per annum.

In introducing the bill this afternoon the minister made a number of comments. At one place he pointed out that in 1945 instalment buying was down 41 per cent from 1941 resulting, I presume, from the curtailment of that type of buying. That is no doubt true. But people could well afford to accept a lesser amount of instalment buying when the government implemented over-all price ceilings. I could go over some of the figures that I was able to jot down that the minister gave in his remarks. For instance he said-and he can correct me if I took them down wrongly-that in the first quarter of 1950, as compared with the first quarter of 1949, cash purchasers were up by 4 per cent; but in the same quarter of 1950, as compared with that quarter in 1949, instalment sales were up 27 per cent.

The minister said that this bill was aimed at the system of charge accounts and at instalment buying, but I notice he failed to tell us the position of charge accounts in the country at the present time. I have before me a publication of the dominion bureau of statistics entitled "Retail Consumer Credit". If one looks over these statistics and compares the first quarter of 1950 with the first quarter of 1949-and these statistics show what percentage of the total retail volume is

covered by cash, instalment buying and charge accounts-one will see that while the amount of instalment buying increased in the first quarter of 1950 as compared with the first quarter of 1949, the amount of charge accounts decreased by almost the same proportion. These figures are taken on the basis of one hundred. For every $100 spent in the retail trade in the first quarter of 1948, $63 was spent in the way of cash. In the first quarter of 1949 the amount of cash was $62.90 for every $100 spent. In other words, the proportion of cash had dropped by only 10 cents on $100. In 1950 the amount of cash out of each $100 of retail trade amounted to $60.70, a drop of only 20 cents in $100 as compared to one year ago, a drop of only 30 cents on $100 as compared to two years ago. In other words, the proportion of cash that is used by the public in making retail purchases was almost as high in the first part of 1950 as it was in the first of 1948 or the first part of 1949.

I know that statistics may be brought forward to show that the instalment sales are up. Of course they are up, and so are cash sales. The main reason instalment and cash sales are up is that prices are up and volume is up. Thus even if the same proportion of $100 is spent in cash, total cash sales will be up because total dollar value of sales has gone up.

If you compare the amount of instalment buying in the early part of 1950 with 1949 you will see that of each $100 spent in the retail field $9.10 was on instalment purchases. That is not very high. That is less than 10 per cent, and that is only $1 higher than the year before.

If you look at the charge accounts you will find that out of each $100, $28.20 was charged early in 1950, but for the same period in 1949, $29 was charged. In other words, in the early part of 1950 of each $100 spent in the retail trade, instalment sales were up by $1 and charge sales were down by 80 cents. Therefore anyone who says that there is a runaway in instalment buying and that is the reason there is this huge pressure on prices cannot in my opinion substantiate his claim.

If one compares the indices in the early part of 1950 with the base, which is taken as 1941, one finds that instalment sales in 1950 increased over 1941 by 41 per cent. Cash sales in 1950 increased by 77 per cent over 1941. In other words, the cash available in the pockets of the Canadian consumers at the present time is exerting a far greater pressure on prices, in proportion to 1941, than has the increase in instalment buying.

Therefore I come to this, that if the government were really anxious to reduce the pressure on prices, the best way to reduce that pressure would not be to prevent instalment buying in a general way, nor even to reduce it to a large extent, but rather to cut down the amount of cash the Canadian public has to pay for the goods.

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?

An hon. Member:

Do you want compulsory savings?

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CCF

Hazen Robert Argue

Co-operative Commonwealth Federation (C.C.F.)

Mr. Argue:

I am coming to that point right now. The minister has given us his financial proposals for the coming few months. There have been some increases in taxes. Almost all of them I would say are regressive, but no Canadian will have any less income two months from now by reason of a change in income tax. If a Canadian is earning $50,000 a year he will pay no more when this session ends than he was paying when the session began. But the little people, the people who must purchase goods on the instalment basis if they are going to have certain kinds of goods at all, are going to have part of those goods taken away, because the government is introducing a measure to reduce the amount of instalment buying. I say it would have been just as anti-inflationary and much more fair if the government had increased the income tax on people in the high income brackets, and left alone the little fellow who has to purchase goods on the instalment basis.

I know a great many people in my constituency who must resort to instalment buying. I know a number of housewives who have kept a few turkeys in the summer months, who milk a couple of cows, who keep fifty chickens or so and then buy a washing machine costing $150 or $200. They buy the washing machine on an instalment basis. These people have not a great deal of money. They are not going to have any more because of the financial policy of the government adopted at this session.

But the wealthy farmer who has three sections of land, and a big crop, is also not going to have any less money because of any change in the income tax. Whereas this housewife may be denied the washing machine or proper clothes for her children in the winter, which she must buy on the instalment basis, the wives of husbands whose incomes are high will find that the take-home pay of those husbands after income tax has been deducted has not been touched, and that they and their husbands will be able to buy two washing machines, two refrigerators and two new cars every year, if they feel that is the best way to spend their money.

Consumer Credit Act

I do not oppose in any way a bill of this kind if with it are coupled measures to protect the living standards of the Canadian people. In 1941 steps were taken to reduce instalment buying. But in that very year price controls were implemented in this country, the announcement being made by the prime minister of that day in October of that year. No doubt one of the reasons he announced price controls was that the cost of living index had been rising rapidly during 1941- so rapidly, in fact, that in the first eight months of 1941 the cost of living index increased by 5-4 points.

We are now attending a special session of parliament. The cost of living index in 1950 for the same eight months has increased, not 5-4 points but 7 -5 points. There has been a far greater increase in the cost of living index in 1950 than there was in 1941. In that earlier year the government restricted instalment buying and charge accounts and in the same year implemented price controls to protect the wages and living standards of the farmers and industrial workers. ,

In this session however the government does not propose to ask the highest income earner in Canada to pay another dollar into the treasury by way of income tax, but is taking steps that may result in people on low incomes not being able to purchase some of the necessities and amenities of life.

The Minister of Finance, in forecasting this piece of legislation, announced that similar steps would be taken to reduce the credit made available through the Farm Improvement Loans Act. Let me tell the minister that that act has been of real advantage to prairie farmers, and I would also tell him that it has not done the banks any harm in the meantime. Until the end of 1949 banks had lent over $62 million on farm improvements; and while they are guaranteed by the government against 10 per cent of the aggregate loss, or guaranteed in that length of time against a loss up to $600,000, nevertheless the operations under , that act until the end of last year had been so successful that the government had to recoup losses to the banks to the extent of only a little more than $10,000.

It has been a good piece of legislation for the banking institutions. It has been of advantage to western agriculture; but I should like at this time to bring to the attention of the Minister of Finance a practice that has been developing in Saskatchewan in relation to the Farm Improvement Loans Act and of which the minister himself may not be aware. I have heard this report from a great many farmers in my locality this fall, and from other people in whom I

Consumer Credit Act

have confidence living in districts of Saskatchewan hundreds of miles removed from my own locality.

The experience of many farmers in connection with this legislation has been this: a farmer will go into a bank asking for a farm improvement loan. If the sum involved is $3,000, say to buy a tractor, the banker will ask the farmer to pay $1,000, and the farmer will receive a loan for the balance of $2,000. As security under the act the bank is allowed to take, and in fact does take, a lien on the farm tractor. In addition to that security by way of a lien against the machine in which, when he takes it home to the farm, the farmer has a third equity, the banks are guaranteed by the government against 10 per cent of the aggregate loss-an amount which in actual experience up until the end of 1949 was sixty times larger than the amount of losses experienced by the banks under that act. In addition to all the protection the banks have through the 10 per cent guarantee, in addition to the security of the farmer's implements in the different areas, the bankers are now asking the farmer to come in and deposit the title to his farm before he gets a loan. I think that is a shame.

I know of one young man, 30 years of age, married with no children, who has a clear title to his land. His wife is a schoolteacher with an independent income. He has a full line of machinery. In addition to the farm he owns he rents a number of other farms. This year in July he had 700 acres of wheat that looked like the biggest crop he had ever produced. It looked as though it would yield 30 bushels or perhaps even 40 bushels to the acre. He went into the local bank to get a loan under the Farm Improvement Loans Act in order to buy a new combine. He had the cash to make the down payment. The banker said, "I will lend you the money if you bring in your clear title and deposit it in the bank."' The farmer said that he did not want to be put in a strait-jacket like that because he might want to expand his operations a little later or there might be sickness and he would not be able to raise money after having handed to the banker the clear title to his property.

That is not just an isolated case; it has been the general practice followed in my district and in many others. The result is that almost all the new combines sold this fall in that locality were sold on the basis of the dealers' credit and risk. The dealers have been providing the farmers with combines and have been financing the purchases because the farmers have been unable to get loans under the Farm Improvement Loans Act.

The minister has said that he may consider increasing the amount of cash the farmer must put up in order to get a loan from the bank with which to buy an implement, and shortening the time in which he has to pay. If he does that I hope he will look into this practice and, if he finds that it is as I have outlined, that he will take steps to see that banks do not ask this unnecessary and unwarranted security. The Farm Improvement Loans Act has been a good act, but the practices that are being followed reduce the value of the act.

Coming back to this bill to restrict consumer credit, I was glad to hear the minister say that he may use it on a selective basis. I take it that he means that if refrigerators are in short supply and electric stoves are in long supply, the down payments on refrigerators may be greater than the down payments on electric stoves. I hope that is what he means because that is a fair policy to follow. But unless something is done to prevent the terrific increase in the cost of living, coupled with the fact that no adequate steps have been taken to prevent inflation and reduce the income in the pockets of the well-to-do, if this bill, represents all that is to be done, the government may succeed in stopping to some extent a rise in prices but it will mean that the low income groups in the country will have to reduce their standard of living even lower, and in my opinion that would be most unfair.

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CCF

Herbert Wilfred Herridge

Co-operative Commonwealth Federation (C.C.F.)

Mr. H. W. Herridge (Kootenay West):

Mr. Speaker, I should like to take advantage of this opportunity to make a few remarks in connection with the second reading of this bill to make temporary provision for the regulation of consumer credit. I have always been particularly interested in instalment buying because I consider it to be one of the diseases of modern capitalism which today is running rampant. Before proceeding to deal with my subject may I say that I support the bill in principle although I offer the same criticism as was offered this afternoon by the hon. member for Rosetown-Biggar (Mr. Coldwell).

In my opinion much instalment buying is a method by which persons of limited means can purchase today the luxuries of yesterday by pledging tomorrow's earnings. While there has been a great increase in instalment buying in recent years this is not a recent development. I was interested some time ago to read that there are quite clear records of instalment buying in the early days of the Mesopotamian empire. It was very prevalent in France in the days prior to the revolution and developed in England to a limited extent in the 18th century. At that time it was used

mainly for the purchase of furniture and household goods. It developed in the United States in a limited way in the 19th century, but the first large-scale instalment selling appears to have been practised by the Singer company after they had perfected some of their early inventions. From then on the practice covered other lines such as books, pianos, organs and things of that kind.

Up to the time of the development of the automobile industry instalment buying was confined largely to household articles, and to small useful articles. The great increase in instalment buying as we have it today through the finance companies began as early as 1912. We have the Commercial Credit Company of 1912; the General Motors Acceptance Corporation of 1919; Commercial Investment Trust of 1915; Universal Credit Corporation of 1928; and so on until today in Canada and the United States there are thousands of finance corporations operating in every city, and town and almost every village. I know in British Columbia you will find local companies that have been formed by small groups of local people who want to take advantage of human needs by reaping the profits derived from operating a finance company.

I understand that the great boom in instalment buying came after the first war when the automobile industry went into the field. According to my reading it was at that time that the practice became thoroughly respectable. Up to that point apparently it had not been quite respectable to buy goods on time; you were usually considered to be, shall I say, in the lower classes, if you purchased on the instalment plan.

Instalment purchasing represents a process of going into debt, probably a sound policy under certain conditions. It is a sound policy if you are buying farm or other machinery for productive purposes where you are going to earn something with the article purchased. It is a sound policy so far as certain necessary household equipment is concerned. It is a sound policy for any person who buys on proper terms, signs a proper contract, and has an assured income to meet payments planned on a conservative basis.

As instalment buying has been practised in Canada in recent years it has occasioned a great deal of misery to a good many Canadians who were preyed upon by people who knew human weaknesses. I remember being in a home when one of those travelling persons known as book salesmen arrived. Incidentally it was a French-Canadian home, and this man persuaded the wife to buy an expensive set of books on the basis of educating the children in English. The cost of the books was nearly $200. She signed the contract, and 69262-37

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when her husband came home he began to wonder where the money would come from. At that point they would have liked to cancel the contract.

I believe that the whole question of instalment buying, Mr. Speaker, requires the very serious consideration of the federal and provincial governments because a lot of good people, who apparently cannot do arithmetic, are getting into serious difficulties on account of it. There are certain reasons put forward in support of instalment buying by those who advocate it. I am going to give those reasons and then the reasons against it. The reasons set forth in favour of instalment buying by big corporations who, as I said before, feather their nest from human weakness are:

1. That it encourages thrift. But I say it only encourages thrift if people are already thrifty.

2. It enables a person who lacks ready cash to buy those things which make for enjoyment, ease and time-saving a few months before he or she would otherwise take possession.

3. For better or worse, it is claimed that instalment selling has made possible a new source of credit. I believe under proper legislation and restrictions this new source of credit can be of some advantage, but it is a dangerous source of credit as used today in this country.

4. Industry has found the instalment plan of selling one means of quickening distribution in emergencies. I think that is quite right for a short period.

5. A large proportion of cars are bought and paid for through finance companies. Sales mount and production is on a mass basis. The companies' contention is that increased sales make for lower prices for all. However, in my opinion the increase in sales is only temporary, and so can only occur but once. Furthermore, any abnormal increase is followed by an abnormal decrease when, for some reason or other, general business and employment suffer.

6. The general standard of living is raised a few months before it otherwise would be for people who purchase on the instalment basis.

7. Instalment purchasing temporarily has a part in the employment picture. As it grew it increased the number of workers tremendously, but only for a short period.

8. It appeals to the sense of budgeting, which has become a byword in many households, and people are urged to budget to meet payments.

9. So far as the businessman is concerned, it is claimed that if he does not use instalment

Consumer Credit Act

selling and carries on his business on an open account basis he risks having his accounts run indefinitely or having them never paid.

10. This method of financing purchases affords a very easy method of handling payments. There is no chasing around trying to arrange suitable credit and security in order to make the purchase. All that is taken care of by the seller of the goods in the contract that the purchaser signs.

These reasons sound very good on the surface, but there are substantial reasons for being opposed to certain types of instalment buying because of the abuses existing today. They are several:

1. Without question instalment buying encourages many consumers to run into unnecessary debt.

2. Instalment buying tends to make some people spendthrifts.

3. Instalment buying leads to extravagance, particularly when you see people purchasing furs, jewelry and unnecessary articles which in my opinion people should not purchase until they have the cash to pay for them. Many are purchasing such things on credit and it definitely develops extravagance.

4. The quality of merchandise purchased on the instalment plan is not always the highest. I think that is generally recognized by people who have given some study to the question.

5. Only a small down payment is required of the customer, who looks upon his investment as a small item. When the down payment amounts to one-third of the total cost, which is what I presume is intended by the bill, then the customer thinks twice before risking loss of both the money and the goods because of default.

6. Instalment purchases have lessened the volume of savings.

7. There are some stores whose methods of conducting instalment selling are very questionable. I believe that is one reason why we should have legislation.

8. Buying some goods on the instalment plan tends to slow up payments due on other accounts. We all know people who buy jewelry, furs and other articles on instalments and let the grocer and hardware merchant wait.

9. Instalment selling increases very heavily the cost of distribution to the public.

10. Without doubt some of our industries suffer at the expense of others. It is a strange thing, Mr. Speaker, that people, because of competition for markets, efforts to sell, and the desire of finance corporations to obtain immoral interest, will be induced to

buy jewelry, furs and other unnecessary things on credit as I said before. Again, some people buy these things on the instalment plan, and the very same people complain that they cannot pay the present price for butter, a food required in every household.

As I said before, I believe that the question of instalment buying requires the attention of the federal and provincial governments. I am sure it is a much more serious social disease at the present time than many members of the house realize. Therefore I heartily support the remarks made by the hon. member for Rosetown-Biggar (Mr. Coldwell) this afternoon. I believe that the present type of instalment buying, which is stimulated by. advertising of all types, on the radio and in the press, is evidence to a certain extent of a moral break-down of character on the part of some operating in that field.

I want to make a few suggestions. I have just given some of my opinions regarding this financial disease, and I consider it a disease in its present abnormal form. First of all I suggest that we require a federal act to deal thoroughly with the whole question of instalment buying from the point of view of contracts, rates of interest, repossession, and so on. Possibly it should be modelled on the act passed in Great Britain in 1937. At that time the whole question received considerable attention by the parliament of that country as a result of the tempo of abuses at that time. I think that the first requirement is federal legislation. Then I think that the provincial governments and the people themselves can do something. We all know that the cost of' education is rising in all provinces. There is a great deal of good work being done in the providing of new and better equipment, and in the improving of curricula. However I still maintain, as I have maintained on many other occasions, that in many respects our schools fail to train our children for life and the realities of life. I believe, Mr. Speaker, that our children in all grades at school, and the students in the universities, should be trained to understand arithmetic, because I find many people who buy on the instalment plan do not understand simple arithmetic. They do not know what obligations they have undertaken. They do not know what some firms are taking from them unfairly. I believe we have classes who are trained to write advertising, but I think children should first of all be trained to adequately read advertising.

In addition to that I think there is an opportunity in this connection for the people, through various organizations such as the

labour organizations, the co-operative organizations, farmers' organizations and consumers' organizations, to bring to the attention of their members the real situation with respect to the purchase of consumer goods by the instalment plan. The people should bring their views to the attention of this government and the provincial governments. The pioneers of the co-operative movement were not searching for the easy way. Their method was the most sound and lasting way of increasing consumer purchasing power. The early pioneers of the co-operative movement, and all those who have believed in it since, built their foundation on the enduring rock of pay as you go. I believe, because of that, the co-operative movement is established on a firm foundation. I believe that the more co-operative societies we have in this country, the more credit unions we have in which people are taught to save and establish credit as a result of saving, the less need we shall have for the instalment plan. I believe that is a process of education through people's organizations, and I think if we work towards the growth of the co-operative movement and the credit union movement, we shall effectively overcome in time the present unreasonable development of the instalment buying system in Canada. The more co-operatives we have, the more credit unions we have, the less unsound instalment buying we shall have.

Now, Mr. Speaker, I believe when we come to a subject like this we could very well take the advice of St. Paul, when he said that we should owe no man anything. I believe there are many people who have failed to take heed of that good advice. Before concluding, I should like to make a few comments on the bill and I may have a few questions to ask in the committee stage. I intend to support the bill because I believe the principle is good. I do not think it goes far enough, however. In the first place, I believe it should deal with the question of interest rates. I agree with the member who spoke previously that, under this bill, the man with the cash can buy all the articles he requires. The man without the cash who is required to buy on the instalment plan, particularly those in the low income brackets, is in some cases being unfairly denied the things he requires. I maintain that if this bill is to be effective and fair, Mr. Speaker, rationing of any commodity that is in short supply should go with it.

That is all I have to say at this time, Mr. Speaker. But again I want to emphasize the fact that, while this bill is necessary under present circumstances, we are only touching the fringe of the question. I would 69262-37J

Consumer Credit Act

urge members of the house to give some attention to the injury the present abnormal instalment buying has done to many homes in this country, as well as the abuses of the present law by some of the finance companies and those who are promoting the sale of articles on the instalment plan. Then I hope in the near future we will be ready to give consideration to a question which is of serious concern to Canadians in the lower income groups.

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CCF

Clarence Gillis

Co-operative Commonwealth Federation (C.C.F.)

Mr. Clarence Gillis (Cape Breton South);

Mr. Speaker, I am not going to detain the house very long. My main reason for rising at this time is to ensure that there will be nomisunderstanding as to where this group stands on this particular matter. The member for Rosetown-Biggar (Mr. Coldwell) told the house before six o'clock that we were supporting this legislation, but that it did not go far enough. The member for Assiniboia (Mr. Argue) said he agreed with the member for Rosetown-Biggar, and then spent twenty-five minutes in a long academic argument to prove that everything the member for Rosetown-Biggar said was not true, and that in effect this legislation was not necessary at alL

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Where do you stand?

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CCF

Clarence Gillis

Co-operative Commonwealth Federation (C.C.F.)

Mr. Gillis:

I listened to the member for Kootenay West (Mr. Herridge). I admire his clarity and his descriptive language. There was no doubt as to where he stood on the matter. While we are dealing with the principle of the bill, I thought I might take a moment or two to let the house know that I not only agree with the policy announced by the member for Rosetown-Biggar in connection with this legislation, but also to state my reasons for agreeing with him.

So far as this bill is concerned, it is good peacetime legislation and should be worked out carefully. It should be continued whether or not we have a war. I think that the thing that makes a man a slave under our present scheme is to be working on the average income of salary and wage earners in this country, that is around the $2,000 mark, and to have himself in debt to the extent that he has to pay $2 a month here or $2 a week there; that continuous load of debt piled on him keeps him subservient to the job he has. He loses his independence and feels as if he has nothing to live for. It has always been my policy to pay for what I got when I got it. If I could not afford it, I did not get it. I believe in retaining my independence, and not putting a yoke of debt around my neck.

As the member for Kootenay West pointed out, that has been the basis of the co-operative movement, not only in Britain but in Canada and everywhere else that the system has its roots. It is aimed at giving the purchaser the

Consumer Credit Act

greatest amount of goods and services for the dollar he spends. Over the years this instalment buying system has grown up. The member for Assiniboia says that the interest rate is around eighteen per cent. It is not a matter of interest at all. In the contracts you sign there is a service charge, and it runs as high as twenty-eight per cent, not eighteen per cent. The people of Canada who are living in industrial sections, particularly since the end of the war, find that firms like Eaton's and Simpson's move into a community and the press carries a notice to the housewife every day that they have a budget plan under which she can buy washing machines, chesterfields or anything else she cannot afford to buy outright. You make a certain down payment and the firm delivers it to you; then you pay $5 a month or $2 a month. The result is that the small merchant, the backbone of the community, who has built up a business on the basis of reasonable service is backed out of the picture. He cannot compete with that sort of financing. He stands on the sidelines and watches Eaton's, Simpson's or the other chain stores take over, while he pays the taxes and keeps up the community. It is not only injurious to the worker himself, in that he wastes perhaps twenty-five per cent of his earnings per year in buying on the instalment plan, but it is injurious to the whole community in the way I have just described because it affects the small merchants. The interest charges as such are not so great, but the interest charge is not an interest charge as we understand it. They call it a service charge on the contract or a carrying charge or something else.

Another angle to it is this. These large concerns, in addition to making their money in that particular way, set up finance companies of their own. You can go to the same people. You borrow money from them. You pay them a rate of interest of 6 per cent or 7 per cent. Then you do the budget plan business with the same people and you pay the other 18 per cent to 20 per cent of service charge on those contracts. The time has gone by long since when a look at the whole thing should have been taken and some measures adopted to protect the public who apparently are not wise at the present time.

The hon. member for Kootenay West (Mr. Herridge) stressed this credit union movement. I have always been interested in it. I helped to organize it in Nova Scotia. The kind of thing about which we are talking here tonight is what drove us into the formation of credit unions and co-operatives. In communities in which you have a credit union this kind of thing is not necessary. The money of the community stays in that community for the purpose of building up the people's credit amongst themselves.

I can go to a credit union when I am at home if I want to borrow $100, $200 or $300. I am borrowing it from myself and from the people of that community. On getting that money I can make a cash purchase, and by making that cash purchase I can save that 18 per cent or whatever that service charge may be. That is in my pocket. Then that loan that I take through my credit union is insured, and if anything happens to me during the time that loan is outstanding, the insurance that we carry on it, at no cost to ourselves except that it is paid out of the earnings of the credit union, wipes out the loan debt and it doubles the share to your beneficiary. The incentive is there for the worker to save. The more he saves, the greater insurance protection his beneficiary has. If he has a loan, he is not taking any chance. You are not leaving a debt to someone else if you die; it is also insured.

That is the type of organization that should be sponsored and promoted. When you get a group of people working like that in a community, establishing their own credit, the money stays in the community. It is spent to better the community. There is a feeling of independence when you make yourself financially independent of the loan sharks and of institutions such as those we are talking about here tonight.

I do not want to go any further. I could talk for a long time on this kind of thing because I feel strongly about it. I agree with the hon. member for Kootenay West (Mr. Herridge) when he says that instalment plan buying as we know it today, promoted by the larger organizations of this country, is one of the greatest evils of the system under which we live and one of the most injurious to the income group around $2,000 and under; and we have many in that group. Advantage is taken of them right and left.

As I see it, this legislation does not stand by itself. In my opinion this legislation before us cannot be divorced from all of the other steps we have taken for defence. But it does not go far enough. It is merely stand-by legislation. Before this legislation has to be used I believe that we shall be back here again and shall be able to take another look at the thing, because I do not anticipate any further inflationary spread. It is bad enough as it is, but I think the steps taken now will level off that inflationary tendency. I do not see anything within the next few months that is going to disturb the economy greatly.

I hope that the Minister of Finance (Mr. Abbott), during the process of administering this legislation, will this time have some of his experts take a look at this whole thing,

not as an anti-inflationary measure because of the war but because it is a measure which is necessary for the stability of this country, in order to protect the low-income groups and to safeguard the interests of the small merchant and the small businessman who are hurt perhaps more than is the average wage earner when these large organizations move in and set up this kind of thing with which they cannot compete. They pay the taxes, help keep up the community, and stand on the sidelines and watch the money siphoned off from community after community, centralized somewhere, and banked in a trust or something else. The part of the country in which they are operating is that much poorer. I think this should be peacetime legislation. If it is not a federal matter, when there is no emergency, then I think the provinces should work on it and draw the line somewhere.

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PC

Arthur Leroy Smith

Progressive Conservative

Mr. A. L. Smith (Calgary West):

I shall detain you for only a moment or so, Mr. Speaker. I stand as exhibit "A" greatly in favour of buying things on credit. I speak from personal experience. If it were not for the fact that, when I first was married, I was able to get credit, my wife and I would still be sleeping on an iron bedstead and cooking on a smudge in the backyard. There is no doubt about that. The people who gave me credit, at their risk, took that chance; and I have been grateful to them ever since. Every little thing we have in our home was bought on credit; and it took us an extremely long time to pay for what we bought in that way.

I will frankly admit this. I do not care what you go into, abuses will arise. It is a fact that they arise. These chaps about whom the hon. member for Cape Breton South (Mr. Gillis) has been talking, and who are making 12 per cent or 24 per cent a year, are people that I have not any doubt need to be taken care of. This abuse is one of these excrescences which grow on a proper business, just as a barnacle will grow on the bottom of a decent ship. No matter how good your ship is, you are going to have these evil things about. It seems to be our way of living.

I was reading the home paper today, and I read about a gambling place in my city. Those who ran it were called leeches by an alderman. He said they should have been ridden out of the city on a rail. I know the alderman. I will not say that that should have happened to him some time ago, but now he is a great public-spirited citizen. Some of these fellows who run the gambling club are friends of mine. There is one thing that I can assure you of about gamblers. When they hire lawyers, they pay them. There is no credit there. Frankly, I may say that I have done extremely well. I mention this fact

Consumer Credit Act

particularly to my friend the Minister of Justice (Mr. Garson), so that he will know that my practice is many-sided. I am not just a constitutional lawyer as he is, although he learned the definition of the word only since he came down here to Ottawa.

May I say that I am in agreement with putting restrictions on crooks in any walk of life. My gambler friends are respectable now. They made plenty of money at what they were doing and now-I was going to say they are aldermen but they are not- they are respectable people in the community. But do not let us run away with ourselves and damn everybody who lends money to people who need to borrow. There are many decent organizations in the lending business. Then I heard the hon. member crying over the small merchant who was in trouble because bigger people came along. I want to tell him something about the small merchant. It is true in western Canada, and I am sure it is true all over Canada. What has the small merchant done? They all have votes; they all have families; but I am going to say it anyway.

There are a number of elements that enter into the high cost of living. There is your raw product; there is your farm product, if you like; there are your wages, because in spite of the argument of the hon. member for York South (Mr. Noseworthy) the other evening that raising wages does not raise the cost of living, it does. He can go on smoking that kind of tobacco; it may last him a long time, but at least he has the smoke in his eyes with respect to that part of it. Of course all these things enter into the cost of living.

It seems to me our chief trouble today is this. One group, one interest, is pulling for protection for that interest-the labour people, if you like. Remember, if you are talking about strikes, I am not one of those who thought that the striking railway men were overpaid. But you can go back to the producer and the farmer. I saw by the paper in the place in which I live that when the railway strike was on the president of the farmers' union of Alberta said: "It must be stopped because the farmer will get a cent or two less for his beef". The farmer is getting too much for his beef now. Let us have no doubt about it. When beef becomes a dollar a pound look out for trouble; and when beef is selling on the hoof at 28J cents a pound you have beef at one dollar a pound.

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LIB

Gladstone Mansfield Ferrie

Liberal

Mr. Ferrie:

What about when it sold for

a cent a pound?

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S82 HOUSE OF COMMONS


Consumer Credit Act


PC

Arthur Leroy Smith

Progressive Conservative

Mr. Smith (Calgary West):

I ate more of

it, and if you were tough enough to grow it for one cent a pound then God help you; that is all.

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LIB

September 11, 1950