Mr. Argue:

May I ask the hon. member a question? Is he aware that credit unions ordinarily pay a substantial rate of interest on money on deposit, much more than is paid by banks and similar depositaries? Does he not realize that credit unions are faced with the same kind of expenses as any other organization in the field of lending money, and that they also pay federal taxes?

Mr. Chown:

The hon. member's point may be well taken, but the fact of the matter is that in order to make ends meet they have found it necessary to charge at times as much as 12 per cent per annum. Did the hon. member not make that statement in his remarks?

Mr. Argue:

Yes, some of them do. I think it is probably more prevalent in Ontario and Quebec and in the larger urban centres. The very large credit unions on the prairies charge rates equal to the normal bank rates. At those rates they make a substantial saving, or you might wish to call it a profit, the difference being that they return their profit to their customers.

Mr. Chown:

Well, I can only suggest that in selecting 12 per cent the hon. member arrived at that figure because it is the maximum charged by an organization that he would support very strongly and, indeed, I would too. I welcome the news that they return a profit, and also return some revenue to the federal government.

But the fact of the matter is that credit is here to stay. Young people, unlike the older generation, have found that through the use of credit they can have immediate possession of things for which they pay over a period of time. It is often the case that these young people do not have sufficient assets or financial backing to make them a good risk for other lending institutions. This indicates that in order for the financial corporations involved in the bill to make provision for loss reserves, general overhead and advertising, which is admittedly very extensive, they must charge the interest rates they do on small loans where there is not good security and the loss ratio is reasonably substantial.

Mr. Argue:

May I ask the hon. member another question? Is he aware that according to the evidence given before the banking

and commerce committee the history of losses of small loans companies in this country is in the neighbourhood of .26 per cent, approximately one-quarter of one per cent?

Mr. Chown:

I think that statement simply is a very good reason for the existence of these corporations-

Mr. Argue:

There is no risk.

Mr. Chown:

-because people are willing to sign contracts and agreements of that nature.

There is another feature of this situation upon which I believe we were slightly misled by the hon. gentleman. I refer to the fact that the public, through any number of media, have been warned of the pitfalls of burdening themselves with too many of these contracts. The industry itself has put out a memorandum in which it outlines its endeavours to educate the public along lines which I shall outline from this document. The companies have tried to teach instalment buyers to first select a reliable place to make their purchases and select a reliable time-payment plan sponsor. Second, they advise the public to make sure they buy a good product that will give complete satisfaction. Next, they should compare the prices of the merchandise and compare credit prices to find out how much the service charges are going to be in addition to the price of the article. Then, they say, never sign a blank contract; read the contract before signing and make sure you get a copy. Fifth, put as large a down payment as you can possibly put on the article, and pay up the balance as quickly as you can.

Mr. Peters:

May I ask the hon. member from what he is quoting?

Mr. Chown:

This is a memorandum prepared by the federated council of sales finance companies.

Mr. Martin (Timmins):

I wonder if the hon. member could tell us what circulation that memorandum has?

Mr. Chown:

I am not able to answer that question. I merely picked this up from one of the other members in the house. Probably these reports were made at the time of the committee sittings which the hon. member attended in 1956.

The next bit of advice they give is not to have too much of their monthly income tied up in instalment obligations. Then they advise the public not to have too many instalment purchases going on at one time. Finally they say, if you are buying an automobile be sure to have proper insurance protection.

This is an outline of the educational program which these companies have undertaken and which, despite all the seductive advertising you read in the newspapers and hear through other media, the companies do bring to the customers. In the normal course of events these companies make an assessment of the customer's ability to repay the loan. They have at their disposal extensive services which will provide the information they require concerning the loan applicant, and if they find that any of these principles I have outlined have been contravened they will not grant the loan.

There is a situation where a borrower defaults. This again is in the area of public relations, because the alternatives open to the lending institution consist of a mortgage foreclosure; a lawsuit on a promissory note either against the principal or the endorser or both; foreclosure under a chattel mortgage or a real property mortgage; foreclosure under a conditional sales agreement, or seizure under a lien note or a chattel mortgage. In instances when any of these devices is used there is a resale of the article seized and as a rule, in the interests of public relations, these companies do not follow up with a lawsuit on the covenant of any contract if they have sustained a loss. They do this, as I said, in the interests of public relations, and because they do not want to be involved in expensive legal and court costs.

In many instances those people who have made purchases in excess of their financial ability automatically surrender the chattel concerned to these lending companies. They simply lose their equity. These are cases in which you can extend a great deal of sympathy, because usually there has been some sort of financial tragedy which has brought on the situation, and in their effort to play ball the person returns the chattel concerned.

There is another feature of this that I think bears consideration, and that is the availability of money. I should like to quote from the debate that took place on this bill last session. The hon. member for Davenport (Mr. Morton) said at page 3167 of Hansard for January 10:

In the annual commercial review of the Montreal Gazette, issued under date of January 11, 1958, there is an article containing the information that as of June 30, 1956, there was $2,315 million outstanding with respect to loans, which was a 19.6 per cent increase over the previous year and that by the following September there had been an increase of 17.3 per cent over the previous year. Then it goes on to show that in June 1957 the amount was $2,472 million which was a drop in the rate of increase in the amount of money borrowed.

It would appear from the table that the amount that is being borrowed is decreasing. That may be as a result of the present pause in the economy.

Interest Act

I think that as of the end of this year, in the Financial Post of January 11, at page 25 it was estimated that the consumers will owe about $2.5 billion which is roughly the same amount as at the end of 1956. There is there shown almost the same amount being owed at this time of year as there was last year, instead of the usual increase there has been in the borrowing of our people.

The availability of money for small loans obviously does not interest our banking institutions, and for this reason these finance companies came into existence. They are providing employment for a great number of people across the land. We have heard endless comments from across the way since the opening of this session about unemployment. I believe the hon. member should have proven, by statistics, that the 12 per cent figure he recommends is capable of supporting those finance companies and keeping them on a profitable basis.

According to my figures the amount of money outstanding by way of consumer credit as of December, 1957, was $1,060 million. This would be the figure on which those companies realized the profit of $5.5 million referred to by the hon. member for Assiniboia.

Mr. Argue:

Not at all.

Mr. Chown:

Well, I am not certain whether the figure is greater or smaller, but if the hon. member has the figure I think the house would be interested in hearing it. The information I have on this subject is that that was the amount of consumer credit outstanding as of December, 1957.

Mr. Argue:

I am not disputing the hon. member's figure. The total loan figure that he wants will be in the report of the superintendent of insurance in this field when it is made available. I made inquiries before coming down to the chamber but the report showing the total amount of loans has not yet been made public-the profits are available.

Is that figure available for previous years?

Mr. Argue:

Yes.

Mr. Chown:

I do not think that any action on the part of this government should be taken without careful consideration by the private members in caucus or the Minister of Finance (Mr. Fleming), who is the minister responsible. I do not believe any measure should be brought into our legislative records without very careful study, and that is where I believe the whole argument of my hon. friend opposite falls down. He has not been able to show to this house the necessary detailed information to indicate that these

Interest Act

financial corporations could be supported at an interest rate of 12 per cent and still realize a profit.

Mr. Argue:

The Bank of Commerce makes a profit on 10.43.

Mr. Chown:

In the United States, for example, where automobiles are financed through banks, the banking institutions haye to charge an interest rate of 12 per cent in order to protect that type of investment. The indications in my community of Winnipeg South at least are that consumer buying is on the increase and may I mention as an example a wire received from the Winnipeg chamber of commerce stating that Manitoba retail sales for the week ending December 28 last were 28.1 per cent over the same week in 1956 and the week ending January 4 last showed an increase of 22.6 per cent over the same week in the previous year. My reason for reading these figures into the record is to indicate that in this time of recession every encouragement should be given to retail buying, whether on a credit or a cash basis. In my community, as indicated by the figures I have quoted, buying is on the increase and I feel no matter what one did in this particular field in connection with restrictions on interest rates, even if they were removed entirely as they exist at the present time, nothing would change in so far as credit and cash buying is concerned.

Every customer must stand on his own feet so far as his financial situation is concerned and he is only taken on as a risk if his general financial status will support that risk. I would suggest that this curtailing and this controlling of the economy by federal legislation is one of the worst things we could possibly do at this particular time and in our particular economic state.

As I said before, no one has more sympathy or compassion than I have for an individual who gets over-involved in these financial contracts at high rates of interest and then finds himself in trouble and unable to meet his obligations. But, as my hon. friend has pointed out, that is not the case in this particular instance. In many instances people go into this kind of situation with eyes open, fully cognizant of their responsibilities and the contents of the contracts they sign. There would be no sense in staying in this business enterprise if there was not a very high level of public relations, and I feel that in their own interests the finance corporations concerned have established such a high level of public relations by way of advertising and an educational program.

Another point mentioned by my friend concerns the problem of loan sharks and the

fact that if you curtail the operations of any enterprise or, in this case, curtail even further the operations of this particular enterprise, the loan shark, as we know him, will come out from under the rocks and people who are determined to raise money by means of a loan will go ahead and get one on an even more incautious basis. I am perfectly satisfied, as is my hon. friend, that there are many people-not corporations but private persons,-who are operating this kind of business on the side right across the country. It is that type of person against whom I would want to legislate if it were possible to ferret them out and in some fashion prosecute them for taking the life-blood out of people by way of shockingly high rates of interest and terribly stringent terms for borrowing.

Finally, I would recommend most strongly that this premature effort, if it is an effort at all in terms of what has been given to us by way of support for giving this bill passage through this house, should not be given that support this afternoon and, indeed, would record my stand as a vote against the bill in its present form.