June 5, 1958

LIB

Chesley William Carter

Liberal

Mr. C. W. Carter (Burin-Burgeo):

Mr. Speaker, on the second reading of any bill we are mainly concerned with the general principle of it, and the general principle of this bill is that a ceiling should be placed on interest rates levied by small loans companies. Whether that ceiling should be 12 per cent or 3 per cent or 15 per cent does not in any way interfere with or detract from the general principle. Actually, interest rates are supposed to be based upon the amount of risk involved, and apparently they should vary with the amount of such risk. We do know that in many cases the risk is very small in comparison with the interest rates charged, but there may be other cases where the risk would justify a high rate of interest. I do not think it is possible for us to form any clear-cut opinion as to just where the line should be drawn.

While I wish to indicate my personal support for the principle of this bill, I should also like to support the suggestion made by the mover, the hon. member for Assiniboia (Mr. Argue) that this bill be sent to a committee with power to send for persons and papers so that we may have more definite information about the size of the problem to be tackled and how far this measure may go toward the solution.

I think this course should be taken for several reasons. The first is, that it is the duty of this parliament to protect its citizens from people who may wish to take advantage of their temporary misfortunes in order to secure money in the form of interest which

would not otherwise be obtainable. I know from my personal experience that some protection is necessary.

I am familiar with a case in my own riding where a poor fisherman saved up his money and bought a truck. I am not sure what the down payment was, but it amounted to well over $1,000-all he could save. He invested this money be'cause he had an opportunity to use the truck on a road building program in his neighbourhood. The truck arrived, but when he came to use it he found it had some mechanical defect and, since there was no garage in his community able to repair it, he had to send it back to the garage from which he had bought it. All this took several weeks, because, probably he had been trying to find out what the trouble was himself, and then he had to wait for transportation. Finally he shipped the truck out and the next thing he knew, after waiting two or three weeks for this truck to come back, he received a notice that it had been repossessed. Thus this man was deprived unjustly of his savings.

I repeat that in cases such as this there is a need for protection. I should like to see a committee investigate such cases, and some of the other cases which the hon. member for Assiniboia put on record this afternoon. I think we should know exactly what is the extent of this problem.

Another reason why I think it would be worth while to study this matter in committee, is that we might have some idea of the impact of this legislation on the pattern of our economy. We all know that consumer spending has a great deal to do with the state of our economy. At the present time we are suffering from a recession because consumer spending has to a large extent fallen off. To some extent consumer spending has dwindled because of credit and instalment buying; we have reached the point where consumers have mortgaged their earnings up to two or three years into the future. This, I think, is a serious situation and it is one which we must take carefully into consideration in any studies we may make of the actions we should take if we are going to do everything possible to avoid a recurrence of depressions or recessions in the future.

The third and final reason why I believe this subject should be dealt with in committee is because of the effect of such legislation as this on small business houses as compared with large firms who are able to provide extensive instalment and credit buying facilities. We all know that the health of our economy in a free enterprise system such as ours depends on the number of small businesses, and anything we can do to protect

57071-3-55i

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them and reduce the gap between the disadvantages under which they have to work as compared with the larger institutions should be done.

For these reasons, Mr. Speaker, I hope this bill will receive serious consideration and that it will be sent to a committee where we can look into the matter more fully than would ever be possible in this chamber.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Murray Douglas Morton

Progressive Conservative

Mr. M. D. Morton (Davenport):

Mr. Speaker, I rise this afternoon to speak on this bill primarily to put on record certain statistics which may be of assistance to hon. members in dealing with this most important matter.

This is, of course, by no means a new question. Discussion as to whether interest should be charged, or what rates should be charged, has been going on since the early days of the bible. The subject has been discussed in this country at great length both before confederation and since. It appears that in the United States, in 1909, there was an investigation conducted as a result of which that country's present set of regulations was established. In 1936, in this country, after a great deal of study by those interested in government, and as a result of the report from the standing committee on banking and commerce, the present Small Loans Act came into effect in 1938 or 1939. There are now on the statute books, as we all know, the Small Loans Act, which was amended in 1956, the Pawnbrokers Act, and the Interest Act.

The bill now under discussion attempts to deal primarily with the field where loans are in excess of $1,500, and covers such subject matter as loans under contract, mortgages, chattel mortgages and conditional sales agreements which at present are not subject to a limit with regard to the amount of interest which may be charged.

In discussing these questions one should ask oneself: what is the problem involved. Our attention has, naturally, been directed to the plight of those people who have been unfortunate enough to run into debt and get into the clutches of certain unscrupulous loan sharks. But perhaps the matter goes beyond that question. In a well-meaning attempt to limit the amount of interest to be charged we might also interfere with our currency which is the life blood of our economy. I think the problem is how can one limit the interest to be charged without affecting the availability of money to those who legitimately require money, and without unduly interfering with those who legitimately wish to lend money at reasonable rates of interest. Certain comments were made at that time as to the effect of these amendments on the economy by Devon Smith, the financial editor of the Telegram.

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in his column "Its Your Business", and headed "Bootleg Money May be Poison". He said this:

In an economy where people are allowed to use their credit in order to plan and develop a satisfactory way of life this sort of regulation-

He is referring to the amendments that had been made.

-looks like a brotherly protection from the seats of the mighty.

And so it would be if a mandate from the people could reasonably be construed as a mandate from nature, including human nature.

The net result of the change appears to be a marked increase in the number of people who have fallen into the hands of unregulated lenders- loan sharks-and second mortgage lenders.

Then he says this:

The reason is not hard to find. It is simply that many finance companies cannot afford to make loans at these rates.

Then he goes on to say this:

The larger acceptance companies have to pay 52 per cent to the banks for the money they need and \ of one per cent a month adds up to only 6 per cent a year; so that they are expected to lend at a mark-up of only \ of one per cent, hardly enough to cover the cost of service.

Further on down in this article he says this:

Others who need financing in the important range between $1,000 and $1,500 are having to borrow over $1,500 in order to make a deal that is acceptable to the better class of personal lender.

Still others, less sophisticated and afraid of the size of debt rather than the terms of debt, are accepting the offers of kind benefactors who ask nothing but what amounts to 50 per cent or more interest.

It works like this. The kindly rescuer offers to tide you over with a loan against a second mortgage on your home. Of course the interest is a bit high-maybe 12 per cent-but the thing can be paid off over three years and there is ample, friendly assurance that the whole deal can be renewed.

The rub is that there is a discount; you agree to pay back $2,000 but you get only $1,300. So you really pay not 12 per cent or $240 a year on $2,000 but nearly 18j per cent on $1,300.

In addition there is the $700 you pay back but never get; that is more than 50 per cent interest by another name over the three years.

Considering the interest you're paying chances are you'll have to renew at the end of three years. So you renew say $1,500 you didn't get paid off, with a discount of one-third again.

You're then in debt for $2,350 after three years of paying high interest on a $1,300 loan.

I presume that is the type of thing that the present bill is designed to prevent. Yet it is the result of limitations of the prior act.

Of course, the illustration I think is one that points up the question of regulation versus free enterprise. How far can we regulate in a free enterprise society without having to go to the full extent of complete control? It is a conflict between those who believe that by controlling our economic life

by legislation they can legislate away all the evils. But we cannot legislate human conduct, motives or morals. To the extent which the abuses and the injustices arise from human conduct, motives and morals such as greed and need, legislation alone cannot solve the problem. The implications are such that if money is not available then many of the firms that depend on this credit will be unable to sell their present consumer goods and that will also have an effect on the economy. It has a twofold effect of slowing up the economy if the money supply is lessened and it also drives those who are in great need into the hands of the loan sharks. In order to give some idea as to the importance of consumer credit in our economy, Mr. Speaker, if you will bear with me I should like to quote a few figures. The hon. member for Assiniboia (Mr. Argue) has already quoted some figures from the Bank of Canada report, 1957. At page 33 it states as follows:

In 1957 the net increase in credit extended to consumers by finance companies and retail dealers amounted to $66 million compared to $281 million in 1956.

That shows that the rate of increase of consumer credit is decreasing.

Of this increase in credit in 1957, $26 million was supplied by instalment finance companies, $12 million by small loan companies, $19 million by department stores, and $9 million by other retailer dealers. Except for home improvement loans which continued to rise, chartered bank personal loans declined over the year.

In the table on that same page it shows that as at the end of December, 1957, the balance outstanding in millions of dollars of loans as follows:

Instalment finance companies, $782 million; small loans companies, $368 million; department stores, $263 million; other retail dealers, $563 million; Total finance companies and retail dealers, $1,976 million.

In comparison we are given these figures for the chartered banks; loans outstanding for the same period fully secured by marketable bonds, $257 million; home improvement loans, $48 million; others, $421 million; Quebec savings banks, $13 million; life insurance companies, policy loans, $292 million.

At this stage they did not have the figures that were outstanding in respect of credit unions. That gives a fairly comprehensive picture of the consumer credit out at that time. On page 34, under the heading "Instalment Finance Companies", it goes on to say this:

The net amount of credit provided by instalment finance companies for retail financing rose by $24 million in 1957 compared to $244 million in 1956.

There was quite a drop in the rate of increase in that field.

The total amount of retail paper purchased in 1957 was less than the previous year by $73 million or 6 per cent while repayments increased by $147 million or 15 per cent. The net increase in credit outstanding on consumers' goods in 1957 amounted to $26 million compared to an increase of $157 million in 1956 . . .

The hon. member for Winnipeg South (Mr. Chown) has already set out the figures that were shown in the Montreal Gazette which I quoted last year, showing that consumer credit, although in figures there was an increase over the year before, the rate of increase had declined.

Also there are some interesting figures supplied in the report of the superintendent of insurance for Canada with respect to small loans companies and money lenders for the year 1956. As the hon. member for Assini-boia said, the recent edition is not yet ready. This edition shows that in 1956 small loans to the number of 683,898, amounting to $148,829,708, were made, which was a decrease of 51,355 from the year 1955, and a decrease of $13,878,721. The gross profit of the small loans companies in 1956 was $4,761,085, being $1,105,447 less than in 1955.

Again, I should like to quote from the Canadian Statistical Review of April, 1958, at page seven of the introduction, based on returns of 4,700 inquiries made in 1956:

Thirty per cent of all families and individuals reported that they owed instalment debt to stores and sales finance companies and 25 per cent reported charge accounts. Charge account debt was much smaller than instalment debt, the average for those reporting debt being $126 compared with $461 for instalment debt. The largest percentage of families and individuals having instalment debt was found in the income group $3,000 to $4,000. The frequency of bank debt increased with income. For those whose incomes were under $1,000, the proportion indebted to banks was negligible. But at the other end of the income scale, over $10,000, about 22 per cent were so indebted and where bank debt was owed the average debt was about $8,300. Only about 10 per cent of all the families and individuals had a bank debt.

As is to be expected, both the frequency and the size of mortgage diminished with age. Fifty-three per cent of all home owners had no mortgage but only 27 per cent of those under 40 were in this situation, which compares with 86 per cent of those over 65. Those of the younger home owners who were indebted had an average debt of $5,634 while the older home owners had an average debt of $3,182.

The frequency of home-ownership increased as income rose. About 55 per cent of all families and individuals owned their own homes, the proportion rising from 41 per cent for those whose incomes were under $1,000 to 86 per cent of those at the top of the income scale. However, those in the lowest income brackets were more often free of mortgages than those of the minimum and upper income group, presumably because they included more older people who had had time to pay off indebtedness. Only 45 per cent of those

Interest Act

wit.r incomes over $10,000 had no mortgage indebtedness, but 86 per cent of those with incomes of less than $1,000 were in this situation. Mortgage indebtedness was most common in the income group $4,000 to $5,000.

That gives us a fairly comprehensive idea of the effect of lending in our economy. As to the occupation of those obtaining the loans, let me give an idea of how it affects a crosssection of our economy. I am going to quote from the brief presented to the banking and commerce committee of the House of Commons by the Canadian consumer loan association in 1956. On page 12 of that report we find a breakdown of the classification of the various borrowers as of the end of 1954. Under the heading "Loans classified by occupation of borrowers" we find the following: craftsmen, foremen and kindred workers, 30.21 per cent of the loans raised or outstanding at that time; operatives and kindred workers, 21.60 per cent; clerical and kindred workers, 10.57 per cent; labourers, excluding farm, 8.82 per cent; service workers, 5.03 per cent; sales persons, 3.99 per cent; protective service workers, 3.86 per cent; members of armed forces, 3.81 per cent; proprietors, managers, and officials, excluding farm, 3.46 per cent; professional and semiprofessional workers, 2.84 per cent; pensions or independent incomes, 2.62 per cent; farmers and farm managers, 2.22 per cent; school teachers, .64 per cent; farm labourers and foremen, .23 per cent; occupation not reported, .10 per cent.

It is also interesting to see the purpose of those loans, as set out on page 13 of the same report. To consolidate overdue bills tops the list, amounting to 21.79 per cent; medical, dental and hospital bills, 12.90 per cent, and so on down the line.

Then, on page 14 of the same report, table 7, we see that the bulk of the loans are obtained by those who earn $200.01 to $300 a month, consisting of 46.20 per cent of the total loans made. The second largest group consists of those who receive $100.01 to $200 a month, being a percentage of 22.74. The third largest group are those who made $300.01 to $400, consisting of 18.49 per cent of the loans. The average monthly income of borrowers was $270; the average loan was $224; the average required monthy payment, including principal and interest, amounted to $18 55; the average per cent of borrower's income required for monthly payment amounted to 6.9 per cent.

With that background, let us look at the problems that cause those borrowers to get into difficulties. We have noted that the main reason for obtaining a loan is to consolidate overdue bills. That means that over a period

Interest Act

of years many people, as a result of misfortune, sickness, accident, death in the family or perhaps mismanagement of their funds, have found themselves in debt and have had to consolidate their debts by borrowing from these companies. Straight medical and hospital bills have been the reason for borrowing in the case of 12.9 per cent. Taking the various factors involved in maintaining a home, rent or mortgage payments, we find that nearly 30 per cent of the moneys borrowed was for the upkeep of homes. In addition, people out of work naturally get into difficulties and fall behind in their payments. Therefore they go to these companies when they cannot turn to friends for a loan.

Many have mortgages on their homes of such a size that they cannot secure additional mortgage money. Therefore if they do not have the kind of security that would enable them to get a loan from a lending institution such as a bank they must turn to these loan companies. If they cannot get sufficient money from a loan company or cannot obtain a loan they are then in desperate straits and fall into the hands of the loan sharks. Therefore it is important that a legitimate type of institution should be available in order that such people may obtain loans.

Last year I referred to a situation that I know is found in the Toronto area and I imagine in other metropolitan centres. It has to do with second and third mortgages and the situation will have to be faced. Because of the high rents that many young and middle aged couples have to pay they find it more economical at the present time to buy homes. They may not know too much about mortgages and so have bought homes not only with two mortgages but in some cases three. Some of these mortgages come due in two, three or four years. Perhaps these people were misled by the agent concerned or just did not realize that at the end of that period these mortgages could not be renewed without paying a sizeable bonus equal to, if not greater than the amount of principal they have paid since taking over the house. The result is they find themselves deeper and deeper in debt.

Many of these people have had to give up their homes. Many have had to sell and try to get out the best way they could. Some have just handed their homes over to the second or third mortgagee, as the case may be, and have tried to get a release from their covenant, if any. This problem is going to increase within the next two or three years because a great number of people have been enticed to buy homes under such conditions. The principle of the bill now before us would be a protection to these people in such cases.

I should like to put on the record some figures as to the costs and profits of these loan companies. I have here the report of the superintendent of insurance for Canada dealing with small loans companies and money lenders for the year ended December 31, 1956. Perhaps it might be interesting to take the four large loan companies and compare the balances of loans outstanding with the amount of money they have to borrow. As found on page 13 of the report, we see that in the case of Beneficial Finance Company balances of small loans amounted to $17,754,341. Balances of large loans amounted to $61,548,152 and balances of conditional sales agreements and other contracts

amounted to $2,062,339.

On the other hand, they borrowed $57,463,530 and had to pay taxes amounting to $1,715,836. Interest paid on borrowed money for small loans amounted to $712,139 and $1,843,077 for other loans. Their gross profit for the year before taxes was $1,061,238 on small loans and $4,770,997 on other loans. One could give similar figures for the other three companies and show the profit that is made by them.

In a brief prepared by Household Finance Corporation of Canada for study by the council for social service of the Anglican synod of Nova Scotia and Prince Edward Island the corporation put forward its argument as to the rate of interest and the problems they encounter in lending money. On page 6 of the brief I find the following:

An institution which could profitably make loans of say $12,000 at 6 per cent per annum would find that it could not profitably make loans of say $200 at the same rate. This follows because it would require 60 times the amount of time and effort to lend $12,000 in $200 loans as would be required to lend the same amount in one loan. Obviously the small loans must be at a much higher rate.

The banking and commerce committee of the 1938 House of Commons whose report formed the basis for the Small Loans Act, recognized this fact and expressed it in the following words:

"Quite obviously the purchase of a block of 12-year Canadian government bonds requires little expenditure for investigation and none for supervision; investments in 50 farm mortgages for varied periods entail considerable cost both for investigation and supervision; while the investigation of 1,000 applications to effect loans to 500 people for a few months with meticulous supervision becomes expensive business when expressed as a percentage rate of $100 on a monthly basis".

Now, on page 8 and 9 of that brief, there

is the following:

The rates in force in Canada at the present time were stated previously in the section entitled "Small Loans Act". In Order to show what these rates mean as applied to particular loan sizes the following examples are cited;

Interest Act

Amount of Loan Rates (Small Loans Act) Rate per Month Rate per Annum Lenders Gross Revenue per $100 loaned per year$ 300 2% 2% 24 % $13.48$ 500 2% to $300 1%, $301-$500 *1.81% 21.72% $12.15$1,000 2% to $300 1%, $301-$1,000 *1.48% 17.76% $ 9.87$1,500 2% to $300 1%, $301-81,000 i%, $1,000-$1,500 *1.27% 15.24% $ 8.44

* Average rate when loan is paid according to contract.

It would perhaps be interesting also to show the comparison of yields of the finance companies with other industries. On page 9 of the appendix to the brief submitted to the banking and commerce committee by the Canadian consumer loan association, which is an appendix made up by Price Waterhouse & Company, there is a statement showing a comparison of the yield of loan companies at that time, and then an estimate of what they expected they would get after the Small Loans Act was passed. This statement shows profits, before deducting interest on borrowed money and income taxes, expressed as a percentage of total assets, less liabilities other than borrowed money. Page 9 shows net profit, less dividends on preference stock expressed as a percentage of total assets, less liabilities including borrowed money and preference stock, that is net assets attributed to the common shares of small loans companies. It breaks down the subsidiary companies, and there are six of them, and their net profit was 25.3 per cent before the act was passed. It was estimated that their yield would be 16.36 per cent after the act had been passed. There were 59 Canadian independent companies and their profits were 9.87 per cent and it was estimated the profits would be 5.41 per cent after the act had been passed.

These yields are then compared with three banks which had a yield of 6.30 per cent; eight public utility and transportation companies which had a yield of 5.56 per cent; ten steel and construction companies with a yield of 14.32 per cent; six companies dealing in foodstuffs with a yield of 10.09 per cent; three companies dealing in beverages with a yield of 10.06 per cent; five newsprint and forest products companies with a yield of 17.17 per cent; nine petroleum companies with a yield of 11.93 per cent; thirteen base metal companies with a yield of 15.98 per cent; two

gold mines with a yield of 12.19 per cent; and seven miscellaneous companies with a yield of 14.01 per cent.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

I am sorry to interrupt the hon. member, but I must advise him that his time has expired.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Erhart Regier

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

Mr. Erharl Regier (Burnaby-Coquillam):

Mr. Speaker, I wish to congratulate the hon. member for Davenport (Mr. Morton), who has just taken his seat, upon the very sympathetic and analytical approach he has taken to this problem. I wish also to express my entire agreement with the views expressed by the hon. member for Burin-Burgeo (Mr. Carter) when he said the bill should be sent to a committee of this house. We, in our group, feel that the bill is a good one. However, we would be very happy indeed if a government supporter were to move that the bill be referred to a committee because we feel that any investigation the bill might undergo in the community would only help our cause.

Before I leave the hon. member for Davenport, I should like to express my appreciation for the many statistics he has supplied. I noted that he quoted at some length from the report on small loans companies for the year ending December 31, 1956. The hon. member quoted the percentages of net earnings. A great deal depends on how you approach these matters. I noticed he used the example of the Beneficial Finance Company. I remember quite well that that company was once known as the Personal Finance Company. However, perhaps they felt that, in their dealings they were rather impersonal and it would be advisable to have the name changed to the Beneficial Finance Company. I noticed that there is an actual paid-up capital of $1 million. I see that their net earnings after income tax, listed on page 15 of the report- this is on small loans- were $562,376, and on business other than small loans amounted to $2,528,858.

Interest Act

In other words, there was a net return in excess of $3 million on a paid-up investment, that is on all the money the owners of the company actually ever risked, of $1 million. They had a net return, after income taxes, of over $3 million. Now if the hon. member is referring, when he gives percentages, to the volume of capital employed that of course entirely changes the picture and the net earnings in excess of 300 per cent would then be considerably reduced. However, may I remind the house that the company is an incorporated company and therefore those who have invested the million dollars are in no way personally risking any of this extra capital which they employed. I might say that most of the capital which they employed belongs, on the whole, to the common people of Canada who have life insurance savings, and who have deposits in our chartered banks. These two sources provide the main supply of working capital for these finance companies.

Before I begin to speak about my main theme I wish to pay tribute not to you, Mr. Speaker, for I hope the excellence of my argument will in itself pay tribute to you as Speaker of this house, but to our esteemed civil servant, the superintendent of insurance, Mr. K. R. MacGregor, and those officials associated with him.

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Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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?

Some hon. Members:

Hear, hear.

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Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Erhart Regier

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

Mr. Regier:

Here is a civil servant who, indeed, if he were able to do so and if he were not limited in the expression of his personal convictions by his office, could write a book based on his observations which would be of great value to the people of Canada and to this parliament in particular. A great tribute is due to this civil servant who, I believe, has been able, by the careful and conscientious carrying out of his responsibilities, to see to it that many of the excesses about which we are complaining in speaking on this bill have not been much, much worse than they actually are.

In approaching this subject, I mean to present an ethical argument in favour of the bill as well as an economic argument. We accept in this house the principle that one of the functions of government and of this House of Commons is to adopt legislation which will serve in some measure to protect the average Canadian citizen. There are a great number of precedents in support of this theory. We have federal laws limiting the activities of Canadian chartered banks in the interest of the general public; we have in our provincial statutes limitations upon the activities of credit unions; and we have federal legislation designed to protect the public in their dealings with insurance companies and so forth. I am fully aware that

we cannot legislate on human conduct or morals, to use the words of the hon. member for Davenport. However, I have always been convinced that one of the reasons for the very existence of this house is to do what we can to protect the average citizen from those of his fellows who would take advantage of him, were there not legislation in effect to prevent such circumstances.

We have had evidence presented to us on other occasions that over 50 per cent of these people who get into the clutches of professional money lenders-and I now have reference to loan companies in particular-never in their lifetimes are able to get out of those clutches. The member for Davenport has put on the record along with the member for Assiniboia (Mr. Argue) the fantastic amount of the debt owing by individual householders in this country.

Now this world of ours, made up as it is of many types of human beings, includes those people who are engaged in production and I think we all recognize that this group of people supplies the basic needs of the human race. Because of the division of labour which has come about as a result of modern development we now have a large class of people whom we might put in the service category; those who teach in our schools, members of the civil service, the man who shines our shoes and the barber who gives us a haircut, the filling station operator and so on; people whom we excuse today from the process of production because we recognize the advantage of this division of labour and prefer to let them have a share of our goods in order that we might have them render their individual services to us, making it easier for us to carry on our productive enterprises.

Unfortunately, however, since the beginning of time there has been another breed of man, an entirely different breed. There have been people who have never appreciated the ancient biblical edict that man must earn his livelihood by the sweat of his brow, but have always adopted the philosophy that they would earn their bread by the sweat of another man's brow. They have always felt it was perfectly all right that they should claw their way to success over the backs of their fellow men.

In Britain during the war I understand there were regulations in effect whereby the spivs were made to work in some useful enterprise. We ought not to have any use in a modern Christian civilization for the drones, the leeches, the parasites and those who would wax rich by taking advantage of the misfortunes of their fellow men. We have all transgressed in our lifetime but

there are two types of transgression, and I think by far the worst type which can be committed is that which violates the greatest command of the greatest teacher of them all, that we should love our fellow man as we love ourselves.

In the history of the early Christian church the practice of usury was sufficient cause for a member of that church to be expelled. I would ask: where are our modern religious teachers in the western world today? Many there are who regret much of the cynicism towards organized religion which is evolving in the west and I would say that much of that cynicism has its origin in the failure of the Christian world to condemn in no uncertain terms some of the evils which have been allowed to take root in our society.

This whole practice of excessive interest rates used to be regarded with a great deal of suspicion, even in the days when you and I, Mr. Speaker, were younger. I remember the horror expressed in my home community when it was discovered that one mortgage company had been charging 18 per cent interest. Now, however, we have reached the stage, as the member for Vancouver East (Mr. Winch) placed on record the other day, where this racketeering at the expense of our fellow men has become well-organized and has indeed almost gained a degree of respectability in our society.

I believe all of us in this house respect one great Canadian poet of the past, Robert W. Service. He had this to say, and he was referring to an interest rate of only 5 per cent. I wonder what he would have written if he had realized that some of the rates today, as I mean to place on record later, run as high as 235 per cent. But, referring to 5 per cent, he had this to say:

Because I have ten thousand pounds X sit upon my stern,

And leave my living tranquilly for other folks to earn.

And later, he goes on:

So get ten thousand pounds, my friend, in any way you can

And leave your future welfare to the noble Working Man.

. . . And though around you painful signs of industry you view,

Why should you work when you can make your money work for you?

And, Mr, Speaker, when I see the Tory party appealing to labour in this country as the great friend of the working man, I should like to remind them of what Mr. Service had to say on that score when he wrote:

So I'll get down upon my knees and bless the Working Man,

Who offers me a life of ease through all my mortal span;

Whose loins are lean to make me fat, who slaves to keep me free,

Interest Act

Who dies before his prime to let me round the

century;

Whose wife and children toil in turn until their

strength is spent,

That I may live in idleness upon my Fiveper-Cent.

Enough of that.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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?

Some hon. Members:

Hear, hear.

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Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Hazen Robert Argue

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

Mr. Argue:

Listen to the 5 percenters.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Erhart Regier

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

Mr. Regier:

The risks run by these companies are very low indeed. I believe one of the hon. members who spoke before me in this debate placed on record that the losses amounted to only .26 per cent of the amount of money involved. I believe that even at the height of the depression in the hungry thirties department stores in the United States had to report that their losses were no greater than .9 of 1 per cent.

I turn now to the economic reasons why the house should give favourable consideration to the bill introduced by the hon. member for Assiniboia. Every cent, every dollar paid in interest, carrying charges, call them what you will, reduces the purchasing power of the people, and at the present time when we are so worried about how to obtain full employment, how to find markets and how to enable our people to buy some of the goods which Canadians are able to produce, I think anything which reduces the purchasing power of our people should be very carefully examined.

I had occasion last year to run into a case where a man purchased an automobile. He was short by the sum of $1600 which he proposed to repay in monthly payments slightly in excess of $70 over a two-year period. He was a smart man and he went to the bank, and the bank supplied him with the necessary funds at a total charge, including all costs, of $138. Had he not gone to the bank this man would have had to pay a finance company, according to the dealer, a gross sum of $404. In other words, this man, by going to a reputable financial institution, saved himself the sum of $266.

I wish more Canadians would place a little more reliance on the established and respected financial institutions of our country when they need credit facilities. If they did so a lot of their grief might be avoided. Most of them, I know, do not go to their banks; they do not go to the credit unions, and they do not go to their friends and relatives. They sneak off to patronize some of these shady operators instead. In this case, $266 of purchasing power was saved, or enough money to pay grocery bills for that man's family for nine weeks at least.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Egan Chambers

Progressive Conservative

Mr. Chambers:

Would the hon. member permit a question? I am not sure there may not

Interest Act

be some misunderstanding. Is it not true that the banks are forbidden to accept an automobile as collateral for a loan, in which case the hon. member's friend must have had some other security?

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Erhart Regier

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

Mr. Regier:

If the hon. member had been in the house a few years ago he would recall that we amended the Bank Act in order to allow the chartered banks of Canada to accept chattel mortgages, and that includes motor cars, as a security. I know that traditionally, according to banking practice, banks were not allowed to accept such security, and the hon. member is absolutely right there. However, as long ago as 1955 the chartered banks were given this right. Unfortunately, not enough of their customers have appealed to them for loans of this type.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Wallace Bickford (Wally) Nesbitt

Progressive Conservative

Mr. Nesbiit:

I wonder if the hon. member would permit a further question. I have been listening to his speech with considerable interest, as I have to some of the other remarks made by previous speakers this afternoon and the question I am trying to settle in my mind is this: if the interest rate were to be reduced, as the bill provides, to 12 per cent, what would be the consequences? Credit unions, of which there are a great number in my constituency-I believe that more than 50 per cent of the people in my constituency belong to credit unions-have found that 1 per cent per month on the unpaid balance, or 12 per cent per annum, is the minimum on which they can operate, and it must be remembered that most credit unions discharge their functions without employing paid managers; it is largely voluntary work. Since they do not have any overhead charges to meet, how can the loan companies-

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Hazen Robert Argue

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

Mr. Argue:

Couldn't you get on the

Speaker's list?

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Wallace Bickford (Wally) Nesbitt

Progressive Conservative

Mr. Nesbitt:

-who have people to employ and salaries to pay, operate at the same rate as the credit unions?

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Erhart Regier

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

Mr. Regier:

Interest Act

Mr. Egan Chambers (St. Lawrence-Si.

George!: Mr. Speaker, I have a good deal of sympathy for the motives of the hon. member for Assiniboia (Mr. Argue) in presenting his bill, not any political motives he may have but for what he has said and what others have said in the house this afternoon regarding the protection of people, and particularly those in the lower income groups, from execessive charges when they need money. I have not so much sympathy for the bill as it appears. In the first place, I think the wording of the bill, with great respect to those who drew it up, is not in such a form as to accomplish completely the purpose the hon. member has in mind. Secondly, I question whether sufficient consideration had been given before an arbitrary figure such as 12 per cent was chosen as the maximum amount of interest chargeable in those instances.

A great deal has been said about referring this matter to a committee of the house, and I would hope that at some time a proper study of all the relative information being gathered could be undertaken. Whether actually at this session of parliament, with the very heavy schedule that has been placed before us in the speech from the throne, there is the time to undertake this study is certainly questionable and not for me to say.

Let me leave aside for a moment the matter of further consideration and speak on the bill as it appears before us. This bill deals with a very sensitive area of our economy. Some hon. members will recall that tinkering with credit can be very dangerous. The major group that would be affected by this bill is the finance companies which lend money particularly for the purchase of goods. Those loans can be broken down into a number of groups. First of all there are retail loans. Those are loans which are made when an individual wishes to buy an automobile or perhaps some other item of durable goods such as a washing machine or a refrigerator that he feels he needs.

A differentiation should be made between a person who needs to make such a purchase on credit and someone who goes to get a loan under the Small Loans Act. We have some legislation controlling the amount of interest that may be charged for loans. The principal difference between a man going for a loan and a man who wants to finance a purchase is this. Very often the man who wants a loan is in an emergency situation. As someone has pointed out he may have unexpected hospital expenses, an accident or death in the family, or something of that kind and he must have the money. Consequently, if usurious interest is charged he

may be forced by the circumstances to accept the contract and pay that interest rate. Therefore, it is right and proper that parliament has seen fit to limit the interest rate on those small loans. On the other hand, a person making a purchase is seldom in necessitous circumstances. He wants to buy something and as a general rule he has some money to put up.

Mention has been made of the no-down payment, the $1 down payment and so on. These things certainly exist. They do not exist in the majority of loans made under those financing arrangements. In most instances a reasonable down payment is required, therefore you have a man going in with some money in his pocket who is not forced to borrow money. He is not forced to buy an automobile or a refrigerator but he decides that he wants to. That being the case he has the right to shop around.

There is one thing that has not been brought up since I have been in the house, namely the fact that there are a great number of companies in this business. I believe in round numbers the figure is 150. Various retailers who want to extend credit to their customers are approached by numbers of those finance companies and the facilities of those companies are offered to them. Let us remember that today we are in a buyer's market. People are looking at the price tag and they are looking at the price tag whether they are paying cash or undertaking a contract to pay so much a month.

If we have in a town two automobile dealers, for instance, each selling the same type of automobile or a similar type of automobile, whether new or used, and one of those dealers can offer a financing plan with a lower cost than that of his competitor he is going to sell more automobiles. Therefore, the automobile dealers are looking for plans with a lower cost. At the same time the finance companies, competing as they are among themselves, are looking for business and they know that if they can offer loans to the customers or the clients of this automobile dealer at a lower cost they will get that automobile dealer's business. Therefore, it is in their interest to lower their charges to the point where they can make a reasonable return on their money but at the same time get a greater volume of business. I think this way of the operation of a free enterprise system should not be overlooked.

I mention the areas in which those finance companies operate, namely retail and wholesale. Within the retail area a rough division would be automobiles and durable goods. In the Bank of Canada statistical summary for

April, 1958, which has been referred to previously this afternoon, the paper purchased, as they call it, was broken down as between passenger cars and others. We note that the passenger cars-I am talking of the consumer goods field now-represent $730 million and the others, which I assume to mean consumer goods of the durable type, $157 million. Those figures refer to the calendar year 1957.

There has been a great deal of talk in this house about unemployment, which certainly exists, and I think it is generally recognized that on the North American continent the condition of the automobile industry has a tremendous effect on our entire economy. There has been a series of questions and answers back and forth between the hon. member for Essex East (Mr. Martin) and the government about certain statistics on the sale of automobiles. I think every member of the house feels that anything that could be done to relieve the unemployment existing in the automobile industry and put men in Windsor, Oshawa and other centres engaged in automobile manufacturing back to work would be a good thing.

I question very seriously whether we would be wise at this particular time to attack or change without great study a credit facility that in 1957 lent $730 million for the purchase of passenger cars. Bearing in mind, as I said before, that in practically all these sales there is a down payment, sometimes in the form of a used car turn-in, and the value of the automobiles purchased is certainly greater than the total of the loans. Without having any exact statistics in front of me I would imagine that at least $1 billion worth of automobiles were sold through the existence of this type of financial contract.

I think hon. members would be wise to consider very carefully whether at this stage in our economic history and with the unemployment we have any change should be made. As we know, the unemployment in the automobile industry overlaps into all sorts of secondary industries and overlaps otherwise through lack of purchasing power on the part of the workers laid off in the automobile industry or who are working reduced time. The previous speaker, the hon. member for Burnaby-Coquitlam .(Mr. Regier), expressed such great feeling for the working man or, as he described him, the poor man of this country-that is his phrase, not mine-but I was surprised that the hon. member had not thought of the adverse effect that the bill in its present form would have on men working in the automobile industry and, for that matter, in other industries such as major appliances which depend to a great extent at the present time for their retail sales on this type of financing.

Interest Act

It has not been demonstrated to me this afternoon that an alternative supply of credit is available to finance these sales nor has it been demonstrated to me that the finance companies at present in the business could continue if the bill were passed. I want to emphasize again that I think the principle of some control of what interest may be charged in cases of this sort is a good one but I also think that some protection exists under the operation of the free enterprise system in the fact that persons who seek this type of credit are not as a rule in a situation of emergency and also there is bargaining in the market.

There is another point I should like to make with regard to the way the bill is drawn. It seeks to repeal section 2 of the Interest Act and substitute the following therefor:

Except as otherwise provided by this or by any other act of parliament no person may stipulate, allow or exact on any contract or agreement whatsoever, a rate of interest in excess of 12 per cent per annum, whether it is called interest or is claimed ^ as a discount, deduction from advance, commission, brokerage, chattel mortgage fees, or recording fees, or is claimed as fines, penalties or charges for inquiries, defaults or renewals or otherwise, and whether paid to or charged by the: lender or paid to or charged by any other person and whether fixed and determined by the loan contract itself-

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

Order. I interrupt the hon. member to remind him that debate on second reading is a debate on the principle of the bill and it is not in order to discuss the clauses of the bill except in so far as it is necessary to do so to deal with the principle. The hon. member might guide himself by that. There is only one clause in the bill and he may go ahead if it is necessary to read the clause to deal with the principle.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Egan Chambers

Progressive Conservative

Mr. Chambers:

Thank you, Mr. Speaker. It may be that I am getting into too much detail. I am afraid I should have asked your guidance before. I was going to ask how the bill as it is now worded would prevent people from charging less interest and raising their prices. It seems to me that this would be possible in selling automobiles and, as I pointed out, the sale of automobiles would probably be most greatly affected. There is a so-called list price but, as most people who have bought automobiles lately know, dealers are not insisting on the list price. If you go in and make a reasonable offer somewhere below that price you will probably be able to buy the car. If, on the other hand, the interest rate were controlled the dealers could set any price up to and including the list price and in effect include any additional charges in the sale price that the bill would hope to-get away from.

The Royal Assent

For fear I am getting away from the principle of the bill I will leave that particular subject, but I will say that if you apply this principle to the retailing of durable goods I think you would put the small store that as a rule sells its paper to these companies, thus enabling itself to provide credit, at a disadvantage vis-a-vis the large corporation which extends its own credit arrangements with loans from the bank. While the intention of the bill may be clear, we do not have fixed prices under the law. There is no law compelling the retailer to sell at this or that price and it would be difficult to prove in a court that there was an arbitrary price and a lower interest rate. I think in that respect the wording of the bill is weak.

There is another quarrel I have with the idea of setting an arbitrary percentage figure of 12 per cent. Mention has been made of the Small Loans Act.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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CCF

Murdo William Martin

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

Mr. Martin (Timmins):

Would the hon.

member permit a question? I think he has referred three times now to an arbitrary figure of 12 per cent. I should like the hon. member to tell me where he got the impression that it was an arbitrary figure of 12 per cent.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

I wonder whether the hon. member would reserve his question and allow me to interrupt now.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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THE ROYAL ASSENT

June 5, 1958