June 5, 1958

PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

I have the honour to inform the house that I have received the following communication:

Ottawa, June 5, 1958

Sir:

I have the honour to inform you that the Honourable Patrick Kerwin, Chief Justice of Canada, acting as Deputy of His Excellency the Governor General, will proceed to the Senate chamber today, the 5th June, at 5.45 p.m., for the purpose of giving the royal assent to a certain bill.

1 have the honour to be, sir,

Your obedient servant,

J. F. Delaute

Secretary to the Governor General (Administrative)

A message was delivered by Major C. R. Lamoureux, Gentleman Usher of the Black Rod, as follows:

Mr. Speaker, the Honourable the Deputy Governor General desires the immediate attendance of this honourable house in the chamber of the honourable the Senate.

Accordingly, Mr. Speaker with the house went up to the Senate chamber.

And being returned:

Mr. Speaker informed the house that the Deputy Governor General had been pleased

to give, in Her Majesty's name, the royal assent to the following bill:

An act for granting to Her Majesty certain sums of money for the public service of the financial year ending the 31st March, 1959.

At six o'clock the house took recess.

Topic:   THE ROYAL ASSENT
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AFTER RECESS The house resumed at eight o'clock.


INTEREST ACT

AMENDMENT TO PLACE CEILING ON INTEREST RATES


The house resumed consideration of the motion of Mr. Argue for the second reading of Bill No. C-4, to amend the Interest Act.


PC

Egan Chambers

Progressive Conservative

Mr. Chambers:

Mr. Speaker, when the house was called to the other place I had just been asked a question by the hon. member for Timmins and before I sit down I will answer that question, but I have one or two other points to make, and perhaps I can make those now on the chance that the hon. member may return to the house before I am through.

I am in agreement with the idea of a study being made of the interest rates that should be charged in this type of business, but I do not feel that at this time the bill proposed would be in the best interests of the country.

I see that the hon. member for Timmins is back in his place. Before we rose, he asked me what I meant by referring to the figure of 12 per cent as arbitrary. I find that figure to be arbitrary in two ways. In the first place, why is it 12 per cent and not 11 per cent or 13 per cent? The hon. member who moved the bill has not persuaded me that a great deal of study or investigation went into the setting of this figure. Why does he feel that this particular percentage would allow money to be advanced with an adequate return, without an exorbitant profit, to the people involved, allowing them sufficient profit to keep in business and to keep this credit available for those who need it?

Another, and more important, consideration is that this figure ignores the fact that before the Small Loans Act was passed a good deal of investigation was carried out with regard to a graduated figure. It is obvious that a company which is financing purchases in the fields under discussion has certain charges which are more or less fixed; an investigation has to be made of the applicant's credit, there is the administrative task of setting up the loan, the cost of stationery, stenographers and so on. In addition, some reserve has to

be made for collection if that should become difficult, and these costs, it seems to me, must be more or less fixed, without regard to the size of the loan. I imagine it would cost as much to investigate a credit situation where the amount involved is a $100 as it would when the amount was $500.

When the hon. member for Burnaby-Coquitlam mentioned the very large interest figure he did, it was not, I think, really an interest rate which was involved there. There was a charge in respect of administrative costs in setting up the loan which would normally have been spread over the entire period of the loan, but in this case, where the loan ended in one month, as I understand it did, those charges-administration, credit investment and so on-had to be carried within that period. I admit that the figures quoted by the hon. member seem to be well beyond what is reasonable in the case.

If you are going to include, by definition, as interest all those charges such as credit investigation,-and that, I understand, is what this bill proopses to do-then it must be realized that the percentage of such charges in relation to a small loan must be larger than in relation to a large one. I know from my own experience as an insurance broker that it costs us as much in office administration to set up an insurance policy on which the premium might be $7.60, say, as it does to set up one on which the premium might be $100. I think this principle is recognized in the Small Loans Act, and I think it should be recognized in any bill such as we are now discussing.

I have nothing further to say. I believe I have made my position clear. I should like to congratulate the hon. member for Assini-boia for having once again directed the attention of the house to this very important subject. As I said earlier, I appreciate the motives which moved him, but I regret I am not able to support the bill because I do not feel that it would fulfil what he is trying to accomplish. However, I would support on some future occasion, when those responsible for these things think the time is appropriate, a thorough investigation of this type of credit facility in order to determine whether it is necessary to set limits upon interest rates and, if so, what those limits should be.

I have one further word to say. The hon. member for Burnaby-Coquitlam spoke before me, and I am afraid I cannot pay him the same compliment as I paid the hon. member for Assiniboia. He represents what I call the socialist doctrine of the assumption of the monopoly of virtue, and I should like to assure him that if I oppose this bill it is not,

Interest Act

as he seems to assume, because I am in the interest-earning class. I make my living, and I am interested in the welfare of Canadians who make their living, and that is why I am in this house. If I am obliged to oppose this bill it is because I do not believe it is in the interest of the people of Canada at this time.

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

Jacques Flynn

Progressive Conservative

Mr. Jacques Flynn (Quebec South):

Mr. Speaker, since I took my seat in this house I have been wondering whether, without a prepared text, I could successfully discuss any problem in English. I have decided to make the experiment tonight.

I believe that the aim of this bill is good, inasmuch as it seeks to suppress usurious rates of interest. I think the hon. member for Assiniboia (Mr. Argue) has good intentions and good motives, but I am not sure that the bill as presented would have the results he expects. I doubt that placing a ceiling of 12 per cent or any other arbitrary figure on the permissible rate of interest would achieve the end which he has in mind.

Credit, as we know it today, has not been long in existence. If we were to go back only some 50 years I think we should find that in those days only the wealthier people or the merchants were able to secure credit. Nobody could borrow to buy consumer goods. Nobody could borrow to buy automobiles, a house or ordinary things necessary for the ordinary life. When we think of the Bankruptcy Act, which is the law that was devised because of the progress of credit, we find that that act was applicable only to merchants for the very good reason that the average citizen could not find any credit. However, over the last 25 years credit has become an important business. Whereas, I would say, 50 years ago there were only a few people who could borrow and there were only a few institutions that were lending money, we now have several institutions that offer credit to the people in general.

If I take the figures given by the sponsor of the bill, we now have about $2 billion in circulation in this business of credit. As I think he mentioned in the debate which took place in 1956 on his proposed bill to amend the Small Loans Act, this figure of $2 billion had doubled in four years, something which shows that we are in a new field of economic activity with respect to credit as we know it today. The question which arises is this. Would the bill as drafted correct the situation which he has outlined? As I said before, I am not sure because many of the cases to which hon. members have referred-especially those who are in favour of this bill- are not cases of usurious rates of interest but rather cases of fraud. I was thinking of the

Interest Act

case cited by the hon. member for Burnaby-Coquitlam (Mr. Regier). He mentioned the case of a person who purchased an automobile and who was obliged to pay several hundred dollars interest on a loan of $350. I think this is a case where the law was violated. If I understand the situation rightly, according to the law as it stands now loans under $500 cannot be made at a rate of interest higher than 12 per cent.

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:

Mr. Speaker, I am sure the hon. member would not want to get his statistics wrong. It was not an interest rate of several hundred dollars; it was an interest rate of 235 per cent.

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Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Jacques Flynn

Progressive Conservative

Mr. Flynn:

Yes. The hon. member mentioned 235 per cent.

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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:

Yes. I should also point out that it was a conditional sales agreement.

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Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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PC

Joseph Pierre Albert Sévigny (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Progressive Conservative

Mr. Deputy Speaker:

Order. The hon. member may ask the hon. member who has the floor whether he will permit him to answer his question but he may not enter into a debate with him while the hon. member is speaking.

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

Jacques Flynn

Progressive Conservative

Mr. Flynn:

I understand the remarks of the hon. member. He mentioned the rate of interest of 235 per cent. But as I said, it seems to me that, under the existing laws the highest rate of interest than can be charged on a loan of less than $500 is 12 per cent unless it comes under the Small Loans Act, in which case the rate can be 24 per cent per annum. If I am correct, if the case did not come under the Small Loans Act, it came under the Money-Lenders Act, chapter 181 of the Revised Statutes of Canada, which act provides a ceiling of 12 per cent on loans below $500.

As I say, there are many cases in which the trouble is not the rate of interest but fraud; and the civil laws or the common law applicable in each province would, to my mind, cover those cases and recourse can be had to the ordinary civil remedies for such situations.

As far as the best known institutions of lending are concerned, credit is well regulated, as all hon. members know. For instance, the banks have regulations applying to the interest they can charge. There are also other lending institutions like the companies coming under the Small Loans Act, which companies are regulated by the act pertaining to them and which provides a maximum rate of interest of 24 per cent on very small loans, that is to say loans under $350.

In our statutes there are also other acts which regulate interest. An example is the Farm Improvement Loans Act which provides a ceiling of 5 J per cent interest. Similar

provisions are also to be found in the Fisheries Improvement Loans Act. In the National Housing Act the rate of interest is fixed by order in council and is not to exceed an interest rate of more than a certain percentage above the rate on government long-term bonds. Generally speaking, I would say that the recognized institutions of credit are regulated by the present provisions of the law. I would say that the effect of the bill which is now before the house would be to regulate loans of more than $500 by professional lenders or loans of more than $1,500 by small loan companies. Of course this is a field which is to my mind, extremely restricted, if we look at it from the viewpoint of the average citizen or if we want to look at it from the viewpoint of our friends of the C.C.F. with regard to the low wage earner.

It is difficult to find many cases in which a low wage earner would have to borrow sums greater than $1,500 or $500. If these people who must borrow have not been able to secure a loan from the bank, from any cooperative of the kind which was mentioned this afternoon in the debate; in fact, from the recognized credit institutions, it seems to me that they have a difficult case. If we were to put on a ceiling-I mean as long as the Small Loans Act is not amended-which would provide a lower rate of interest than the one provided in the Small Loans Act, these people would not be able to find a lender. What I mean is this. It seems to me that there would be the chance of creating a black market there. Of course, in our society of free enterprise it seems to me that there are some cases in which what would appear to be a usurious rate would not be a usurious rate because of the special circumstances applying to it.

Possibly the problem which the hon. member for Assiniboia (Mr. Argue) has in mind could be solved in this way. Maybe there could be a rule of equity which could apply to credit in some cases where definitely there has been exaggeration by the lender or where a lender may have taken advantage of a particular situation. I am quite confident that even the sponsor of the bill does not believe that this bill would obtain the result he is seeking to obtain, even if it were adopted. I am quite sure that his intention was to have a debate, and up to this point-excluding the one at present speaking-I think the contributions have been very good and helpful to the situation.

However, it seems to me that you cannot solve that problem simply by saying that there will be a ceiling of 12 per cent on all loans.

I am thinking in particular of business transactions where somebody, for instance,

will make an arrangement with someone who is willing to lend some money but where the lender would want to participate in the profit resulting from the operations of the company or of the organization and would be justified, according to the circumstances, in asking as high as 50 per cent interest. In some cases I think 50 per cent would not be a usurious rate. Of course, I know that in some cases there are abuses. But here again I think the cases which we have to complain about and which everybody-especially those who have had cases like the ones we have in our law offices-wants to correct are really cases of fraud and are really cases in which we must have recourse to the courts.

For the reasons which I have mentioned I do not think that the bill would have the desired result. Much as I sympathize with the purposes of the sponsor of the bill in desiring to correct a situation which we all want to correct, I do not think the present bill would have this result. Therefore I cannot support it.

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. M. W. Martin (Timmins):

First of all, Mr. Speaker, I should like to congratulate the hon. member for Quebec South (Mr. Flynn) for his ability to present his arguments in this debate in a language other than his mother tongue. I envy him his ability. While I cannot agree with his arguments, still I should like to congratulate him on his ability in presenting them.

There is not too much more that I can say in this matter in addition to what has been said by my colleagues the hon. member for Assiniboia (Mr. Argue) and the hon. member for Burnaby-Coquitlam (Mr. Regier). However, there are a few remarks that I should like to make. I can assure you that my remarks on this bill will be extremely brief.

First of all, I should like to deal with some remarks made by the hon. member for Winnipeg South (Mr. Chown). I was interested in the stand he took which was to the effect that this bill could in fact destroy what he termed as a healthy enterprise. In fact, the whole tenor of his remarks was to the effect that it would severely interfere with free enterprise. I could not help being reminded of a poem by Mr. J. D. Ketchum. I should like at this time to place on Hansard a couple of verses of that poem. The poem is entitled "Hymn to the Glory of Free Enterprise". The first verse and the last verse are the two that I should like to read. I think they are extremely appropriate, having regard to the remarks of the hon. member. They are as follows:

Interest Act

Of freedom this and freedom that the drooling leftist chatters,

But freedom for Free Enterprise is all that really matters;

This freedom was ordained by God; upon it rest all others,

For man's divinest impulse is to over-reach his brothers;

And so to this celestial urge we make our offering votive;

Behind all human greatness lies the noble Profit Motive.

Then hail we now Free Enterprise,

Extol and give it praise!

In it the world's salvation lies,

Without it every freedom dies;

O glorious Free Enterprise-

The enterprise that pays! . . .

Free Enterprise does not, of course, mean actual competition,

And cutting prices-God forbid! That's treason and sedition.

A "Gentlemen's Agreement" is the best of all devices

To stabilize our dividends, our markets and our prices.

For taking risks we've little love; we set our whole affection

On something like monopoly, with adequate protection.

Then hail we now Free Enterprise,

Extol and give it praise!

In it the world's salvation lies,

Without it every freedom dies;

O glorious Free Enterprise,

0 Wonderful Free Enterprise,

O marvellous Free Enterprise-

The enterprise that pays!

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

David James Walker

Progressive Conservative

Mr. Walker:

Is my hon, friend the author of those words? Is he reading a quotation or is he quoting his own composition?

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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):

Possibly the hon. gentleman did not hear me, but I said it was a poem by Mr. J. D. Ketchum.

I was also interested in other remarks of the hon. member for Winnipeg South (Mr. Chown) who said that interest rates are high and in some instances they were justified because of the fact that the companies have to build up reserves against losses. He mentioned that those corporations take great risks. Further on in his remarks he quoted from a publication which warned the public about the perils of getting too deeply into debt. He said that these very matters were used by those business companies to warn people who came in for loans. Certainly, if the high standards that he outlined were set in all cases there would not be any risks because of the fact that a great many people could not meet those standards and consequently would not be able to obtain the loans.

1 was also interested in a remark of the hon. member for St. Lawrence-St. George (Mr. Chambers). It appeared to me that his main argument seemed to be that we could

Interest Act

not hope to maintain high sales of automobiles and other products if we interfered in any way with high rates of interest. In my opinion this is a very strange argument indeed. When one realizes that the figures placed on the record today show that there is roughly $2 billion credit in this field at the present time and that at six per cent the interest on $2 billion is $120 million a year, one can see that every one per cent we can shave off the interest rates will save the people of this country $20 million and thus add that amount to their purchasing power. At today's costs this is enough money to build 2,000 houses; enough, in fact, to buy the groceries for 1 million families for the period of one week. It was also pointed out that these companies have over 500 branch offices throughout the country and the point was made that they provide employment. I admit frankly that they may provide employment for some but in the case of a good many other people they provide "destroyment" rather than employment.

Some facts have been put on the record today about credit unions. I had the privilege of serving as treasurer-manager of a credit union from the time it started until it reached its first quarter million dollars in loans. In that length of time the loss to the credit union from uncollected debts was less than $100. I have had discussions with employees of various finance companies and I understand from them that their losses are very little higher in proportion. I have had no opportunity to verify their statements but that is what I was told.

The figure of 12 per cent mentioned in the bill as a maximum is in fact the maximum that credit unions are permited to charge their members under the law. It is not an arbitrary figure or a minimum figure; it is the maximum. They can charge less but they cannot charge more. May I say that even on that basis the credit union I was privileged to serve, in addition to providing life insurance not only on the loans but on the savings, paid in every year of the four years I was with the organization an average dividend of 5 per cent on savings and a 15 per cent rebate on interest. Therefore hon. members can very easily see that the interest rate paid by the members of the union was considerably less than 12 per cent a year.

As I understand it, the bill is intended to try to correct not only high interest charges but various other costs and charges that are made. Two or three years ago I had to do with a case where a man had purchased a car. After making allowance for his trade-in and the cash he had there was a balance of $700. He was told he would be able to finance

[Mr. Martin (Timmins) .1

the balance with monthly payments of approximately $35. Unfortunately, the man did not have too good an education and he was quite a trusting soul. He did not ask for any details. When his contract came back one week later he found that the $700 had increased to approximately $1,035.

His wife came to me with the contract asking for an explanation but I could not give one. I went to the local office of the company and after three hours of very hard work I was able to extract a breakdown of the various costs involved. Strange to say, the interest rate in this particular case was only 8 per cent but insurance charges had been added and such insurance as I had never seen before. I think the best example of all was an insurance policy they had sold him, without, of course, telling him so, which provided that if at any time he was on a trip and ran short of funds he could drop into any branch office of the company and obtain $100 for one month without interest. They sold him this insurance policy under which they would lend him money and charged him interest on the premium for that money in a way that he would not know anything about.

There was also a $10,000 life insurance policy in case he was killed driving the car before it was fully paid for. Again he knew nothing about it and there was not much danger of there being a claim against the policy. There was a happy ending to this case. When I had all the facts and figures gathered together I informed the company that I was going over to the local newspaper to purchase a half-page advertisement in order to inform the public about what was going on. I may say their public relations department took over immediately. We were able to settle the matter through a loan at the bank with no charge whatsoever.

I had another case very recently, just about two months ago, involving a man with four children a Korean veteran who had been out of work for four months. He came to me with a letter from a finance company saying that if payment was not made by four o'clock the next afternoon his furniture would be seized. I got in touch with the manager of the finance company and told him of the letter I had. I also informed him that I was delighted to have it because I was a little short of material for my television broadcast the next night. Again the public relations department took over. The man was told that as soon as he had any money he could come in any time and pay any amount he wanted to and he was assured there would be no further trouble caused by them.

The party with which I am associated has for years made its stand very clear on these

matters. We have been accused of wanting to control this and to control that. I would say that certain controls are not only sensible but very necessary. No one in this country seems to object to speed controls on our highways; why should there be no speed controls on our financial highways? The only reason I can see for imposing speed controls on . the highway is to control those who would endanger the lives and well-being of our citizens. I would say that the same principle applies with regard to finance and this control is needed to preserve the credit of the citizens of this country.

In closing I would like to mention a subject which has been referred to before and that is advertising by these various finance companies. I would say that the aim of advertising by these finance companies and general business combine to entice people to buy what they do not need with money they do not have. I should like to add my voice to those who have advocated that this particular bill be referred to a committee where it could be given the proper study and the necessary action taken.

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

Eldon Mattison Woolliams

Progressive Conservative

Mr. Eldon M. Woolliams (Bow River):

Mr. Speaker, I am very happy to have this opportunity of taking part in this debate, and particularly happy that the sponsor of this bill is the hon. member for Assiniboia (Mr. Argue). In his opening remarks he mentioned that he had no legal training, but I might say that he graduated from the same university that I did in Saskatoon. I should like to pay him the compliment of saying that although he may not have been trained in the law he made a very good job of presenting the facts with reference to this bill. I hope that if I were asked to speak on the subject in which he graduated from university namely agriculture, I might do as well.

There have been a lot of remarks made during this debate about credit and interest. It does seem to me that we have wandered a long way from the point, and if the house will bear with me I should like to read section 2 of the Interest Act. I should like to say at the outset, as I will say at the conclusion that this question of interest is not an easy question because there are a number of federal statutes that govern the matter. Let us take a look at section 2 of the Interest Act which reads:

Except as otherwise provided by this or by any other act of the parliament of Canada, any person may stipulate for, allow and exact, on any contract or agreement whatsoever, any rate of interest or discount that is agreed upon.

Then, there are three other sections of the Interest Act which have some bearing. As the lawyers of this house will know, when

Interest Act

we are discussing any particular statute all the sections must sometimes be read together in order to understand the full impact of the law. We have section 3 which states:

Except as to liabilities existing immediately before the seventh day of July, 1900, whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by such agreement or by law, the rate of interest shall be five per cent per annum.

Then, section 4 must be considered:

Except as to mortgages on real estate, whenever any interest is-

This also includes agreements for sale, and I shall have something to say about that later. The hon. member for Assiniboia had a lot to say about discounting agreements for sale and mortgages, but the rate of interest is generally set by terms in the agreement itself. If there is no term then the interest is set at five per cent. When we look at one of these problems there is a tendency to exaggerate the effects and we fail to look into the heart of the problem.

I should like to say, now that I have covered these particular sections of the Interest Act, that my sympathy lies in the same direction as that of the hon. member for Assiniboia, as well as other members who have- spoken. No one in this house, on whatever side of the house he may be, whether he is on the Conservative side, in the Liberal party or the C.C.F., wants to see outrageous rates of interest charged.

If one reads through the pages of Hansard since the time the first act came into existence to control rates of interest in this country he will see that members of all parties in this coifntry were in favour of controlling interest rates. But in what manner are we going to do it? Can it be done in this fashion as proposed in the amendment? Before dealing with the amendment, may I say that the person who drafted it must have checked very carefully with another act, the Small Loans Act, which covers the situation.

While I am speaking about that, what are the acts of parliament which control interest rates? First of all, there is the Interest Act itself. Secondly, there is the Small Loans Act, and I will have something to say about that later. Then we have the Bankruptcy Act and the Money-Lenders Act which latter act is still in full force and effect according to the index of public statutes. There is no mention of the repeal of that act and unless one checks the Small Loans Act one would think the Money-Lenders Act is still in existence.

These three or four acts must all be considered before any change is made in the rate of interest as suggested in the amendment. When one looks at all these statutes governing the rate of interest, one is reminded of

Interest Act

a visit Robert Browning paid to Elizabeth Barrett. She was ill in bed and asked Mr. Browning if he would mind explaining one of his poems. He said, certainly, and she said it was beautiful language but she could not understand it. After he had read his own poem he said, "When I composed that only God and I knew what it meant, and now only God understands it." I say that without profanity, and that is the situation in considering the control of the rate of interest in Canada.

At the outset I should like to say this problem is a rather serious one. It is involved, and because it is involved I should like to see a parliamentary committee set up to study the whole picture with the end in view of enabling a lawyer or layman to pick up one statute and find the law regarding the control of interest.

Now, let us look at the amendment for a few moments. I think I should repeat it; it reads:

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 twelve per cent per annum-

I should like to digress there for a few moments. If I understood the hon. member for Assiniboia, he had in mind establishing a ceiling of 12 per cent on loans. As I shall endeavour to show in the short time allotted to me, when you consider all the statutes of Canada there could not be a ceiling established at 12 per cent for the interest rate on most loans as other acts govern the situation. In that way the amendment would not solve the problem the hon. member for Assiniboia outlined. Then, the amendment goes on:

-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, or in whole or in part by any other collateral contract or document by which the charges, if any, imposed under the contract or the terms of the repayment of the loan are effectively varied.

First of all, this amendment excludes those acts of parliament like the Small Loans Act, the Bankruptcy Act and the Money-Lenders Act. All those acts are excluded, and if they are excluded whatever those acts say about the rate of interest that governs, even if the amendment were passed in this house tonight.

I repeat, therefore, that the amendment does not solve the problem that the hon. member for Assiniboia hoped it would solve. There is no question about it, when the amendment was drawn up it was drawn up on the basis

of the Small Loans Act. The Small Loans Act came into force in 1939 and I think one of the finest addresses on that subject was made by a man to whom I would like to pay a high tribute in this regard, although his political philosophy differs from mine. He set out the situation fully. That man was Mr. Ilsley, who was speaking at the time this bill was brought in and at that time was minister of national revenue. He set out the very same situation which existed when the Small Loans Act came into being in the Money-Lenders Act, which stated briefly that any loan under $500 should bear no greater rate of interest than 12 per cent. There were those in this country and in the United States, including some companies, who were circumventing the law. How were they doing it? Although the rate of interest was set out at 12 per cent they were making additional charges such as brokerage charges, commission, discount charges and other charges, and as a result the interest rate actually worked up to 30 or 35 per cent as outlined by Mr. Ilsley in Hansard April of 1939.

So therefore the Small Loans Act came into being and very carefully set out that all these charges should be included in the cost of the loan. In other words, they switched from the rate of interest chargeable to the cost of the loan, which included all charges. However, even today the Small Loans Act, as amended in 1956-I think this should be on the record-sets out that the cost of the loan, which may be up to $1,500, shall not exceed an aggregate of 2 per cent per month on the first $300, 1 per cent per month on that part from $300 to $1,000 and 1 per cent per month on any remainder of unpaid principal balance exceeding $1,000. In other words, you are paying a different rate of interest on the first $300, on the next $700 and on the balance, but that rate of interest is defined as the cost of the loan and it includes all costs. There is one exception. In this latter connection I have examples of where this section of the said act has been circumvented, such as where they have insured the loan and where there is some question as to whether the Small Loans Act in fact and in law did cure in every regard the situation it set out to cure.

Coming back to the amendment moved by my hon. friend from Assiniboia (Mr. Argue), the terms and conditions set out in the Small Loans Act were recommended in an amendment to the Interest Act. Let us go back to the Interest Act for a few moments. My hon. friend spoke of agreements for sale, chattel mortgages and second mortgages and there has been a great deal said by my friends from the C.C.F. party with respect to charges

and discounts on second mortgages. I believe when the C.C.F. party first started in the province of Saskatchewan. Even before the Douglas government was elected, there were statutes put on the books of that province, and this is why I asked the question I asked of the member for Assiniboia, namely did he not think the point he raised was a provincial matter. He was speaking at the time of seizure of automobiles and in that province once an automobile is seized, that is the end of the debt. That wipes it out. It is the same with land; if land is foreclosed or an agreement for sale cancelled, once that has been done it wipes out the debt and there is no action on the personal convenant.

I believe the situation is the same in Alberta and in perhaps in some other western provinces, so that when my hon. friend said they chased these people all over the map for the balance owing on a car in that province I maintain this is not the case and it probably is not the case in many other provinces although I do not know because I am not a member of the bar in other provinces. However, in the two western provinces, Saskatchewan and Alberta, that ends the debt. At any rate, even under the amendment the terms and conditions of agreements for sale and mortgages will not be covered. After all, when you consider that second mortgages are taken at high rates of discount and that if the first mortgage is foreclosed the second mortgage is wiped out, you must appreciate that a person taking the responsibility of giving a second mortgage is accepting a tremendous risk. This explains to some extent why the interest and discount rates are so high on second mortgages or assignments of agreements for sale.

I repeat that section 4 as it stands in the Interest Act is the section which covers agreements for sale and mortgages and therefore the amendment would not cure the condition my friend is complaining about with respect to discounts and high rates of interest on second mortgages.

This is an involved subject and we have four statutes which I have outlined and I therefore think it should be studied by a parliamentary committee so that whatever change is made will be properly made in order that the condition which is a concern of my friends in the C.C.F. party may be cured according to the proper terms of the law. I believe I know what my friend from Assiniboia was trying to do. He was not actually trying to change the rate of interest but to put loans on a cost basis as under the Small Loans Act. The gap of which he spoke in relation to the amendment is that amount of money over $1,500. If the amount

Interest Act

of money is $1,501, then it falls under the Interest Act and not under the Small Loans Act, and I want to repeat, in reference to an agreement for sale or a mortgage the situation would not be cured because it is covered by another section of the Interest Act.

My hon. friend from Assiniboia then came to another subject about which I would like to say a few words. He mentioned that companies like Eaton's, and a number of others of which I did not take note were charging high rates of interest because there was no control over them. Most of the things which are purchased from Eaton's by the ordinary man or woman are certainly under the amount of $1,500, and therefore the Small Loans Act controls the amount of interest they must pay for the credit they desire if such is a loan within the definition of the act in question. The situation is the same in many other places of business, and therefore I suggest it was slightly exaggerated. It would only be agreements of sale or mortgages on land and probably large purchases like automobiles and pianos which would be left within the scope of the amendment.

As my hon. friend from Quebec South (Mr. Flynn) said, small loans are covered by the Small Loans Act. There are many, many things we must consider, including the question of whether the cost of the loan is too high but I would like to have before me details as to how many of these loans are made and how much profit is reaped from them. I would like to mention that at one time one of our banks-the Canadian Bank of Commerce-was quite heavily in the field of small loans and then something occurred- the Liberal government brought in the tight money policy. At that time it was impossible for the small businessman or the wage earner to get a loan from the bank; in fact, loans were practically all "on demand" notes, and the banks took the most unusual steps at that time of increasing their rates of interest, and of writing to various people who had already borrowed money, saying, "Your interest rate will now be increased by 1 per cent or 4 of 1 per cent", depending on whether or not the loan was secured. My clients came into my office and said, "How can this happen, when I signed a note for a certain amount of money at a certain rate?" These notes were on demand, and if you did not consent to the increased rate of interest then the bank would simply demand the note be paid, so you renewed your note at the bank in question. I know that this is a fact

Interest Act

from personal knowledge because I had a note at the bank at that time, and it happened to me.

I wish to draw to the attention of the house this fact that at the time the tight money policy was brought in by the Liberal government the banks lending money claimed they had had notice from the Bank of Canada not to make any further loans, even on gilt-edged securities like dominion bonds.

What happened as a result? All wage earners, hundreds of small businessmen, were driven to make their loans through these financial companies about which my good friends in the C.C.F. group have been complaining about this afternoon and this evening. That is the result of the tight money policy. It is interesting to note that one of the western Liberals had this to say in reference to the banks in 1939 when he was speaking on the subject of small loans, and he was in the house at the time when the tight credit policy was developed. He said this in April in 1939:

From my place in the House of Commons I feel impelled to say this: If the banks are not prepared to live up to the obligations resting upon them as a result of the special privileges they have been given by the people of Canada, as set out in the Bank Act and in the Bank of Canada Act, then if it is my privilege to sit in this house when the banks come for a renewal of their charters I will say to those that have not entered this field and supplied credit to poor people who are credit worthy, "You have not discharged your responsibility to the Canadian people and do not deserve a renewal of your charter."

That was said by Mr. Tucker, who was one of those who supported the tight money policy which drove the average man away from the banks where they were unable to get loans and into the hands of the finance companies. Speaking about the banks, I think we should do everything possible to encourage borrowing from the chartered banks of Canada. After all, many of the banks, particularly the Bank of Commerce, are now in the small loans business, and lend at prescribed rates of interest, and I think everything should be done to encourage them. That is why I have referred to this question of the tight money policy.

What do I recommend should be done? I do not want to repeat all that has been said this afternoon about the interest rates charged. We do know that there are loan sharks in the business, as they were at the time the Small Loans Act was brought in. I am one who believes that the people who borrow money should be able to borrow it at a fair rate of interest, and that the people who lend the money should get a fair return on their investment. We must take into consideration that the cost of dealing with small sums of

money cost more than dealing with considerably larger sums. Moreover, when security is taken on automobiles and television sets and things of that kind it is often found that their value is not sufficient to repay the amount owing, with the result that the finance companies lose money. But we must bring about an equitable situation where people can get money at a fair rate and those lending money get a fair return on their investment.

That is why I suggest that a parliamentary committee should study the acts which refer to interest rates; study the Interest Act, the Small Loans Act and the Bankruptcy Act to see whether the legislation cannot be streamlined. It was only by accident that I found today that the Money-Lenders Act had been repealed, and that it had been repealed by amendment made to another act, namely the Small Loans Act. That was not in the index to the statutes, and anyone could make this mistake in checking the law in this regard. If we could have one act setting out the law on all these points with amendments made to simplify the situation, it would make consideration of this question much easier.

As I have indicated, I am in great sympathy with the hon. gentleman who moved this bill, but at the present time I would be reluctant to support the bill until the whole thing had been further studied because, I repeat, in the light of the work I have put in on it, looking up the other sections of the Interest Act, referring to the other acts and so on, the amendment does not solve the situation at all. For that reason I repeat that a parliamentary committee should be set up to study the whole situation with the idea in mind, perhaps, of preparing a consolidated act so we would know where we stand on the subject. That would mean consolidating the law in relation to interest charges.

In the field of agreements for sale and mortgages, another difficulty is immediately raised because the Interest Act itself is not too clear on this matter. Even the decisions of the courts on section 4 and section 5 of the Interest Act do not make clear what is meant by those sections. These sections could possibly be redrafted in order to make the situation less open to doubt.

As to the amendment proposed by the bill, my good friends in the C.C.F. group maintain that they want this sort of thing controlled. If the amendment proposed in the bill went through, then section 5, of the Small Loans Act which provides that certain licences shall be issued-licences which ensure the control of the very thing which the C.C.F. group wants to control-would

become inapplicable. Here is what section 5 of the Small Loans Act says:

5 (1) No person shall transact the business of a money-lender unless such person has first obtained from the minister a licence; but this section does not apply to a money-lender the cost of whose loans does not in any case exceed an amount equivalent to one per cent per month on the unpaid principal balance thereof.

Thus if the amendment went through tonight those people affected by the said section 5 would not have to apply for licences; they would not come under the jurisdiction of the superintendent of insurance and there would be no control over them at all.

Before I close, I should like to answer a few questions which have been raised by members of the C.C.F. party. I should say something about the question of seizure. Too often people who go out electioneering make statements such as we have heard this afternoon. There is a division in the federal law, under our federal system which determines those things which come under federal authority and those things which come under provincial authority. And when it comes to seizure of goods my good friends know as well as I do that this is a provincial matter and not a matter for this parliament to consider. I would remind them, particularly the hon. member for Assiniboia, because he is the only one left of the C.C.F. in Saskatchewan, where I used to live, that those acts which protect people against seizure and against foreclosure were brought in by the Conservative and the Liberal party of Saskatchewan and not by the C.C.F. party of Saskatchewan; they were on the statute books at the time Tommy Douglas took over.

The hon. member for Assiniboia maintains we should have state-owned banks. We have a lot of good examples of state-owned institutions in Saskatchewan; a woollen factory, a box factory, a fish board, a lumber board and so on, and every one of those crown corporations lost money. Finally, the socialists of Saskatchewan, after they had become capitalists themselves, realized that the things did not pay, and wound them up and went back to the old way of doing things. I think the classic example of a state-owned bank is in the province of Alberta, where I now live, namely the treasury branches, which have cost the taxpayers of Alberta a lot of money, while the chartered banks which stand beside them or on opposite corners can show a profit because the incentive is there, and when the incentive is there the people in the business make sure that that business pays.

I think I have now covered most of the field I wished to cover in my argument. I feel, looking back over the record of Hansard

Interest Act

throughout the years that always on both sides of the house there have been hon. members who feel sympathy for a man and his family who get into trouble through sickness or through no fault of their own. No party in this house has any monopoly in the humanities; we all share the sympathy which is felt for such people, and we all try to do the right thing for the average Canadian. The proof of the pudding, as was said previously in this house by the Minister of Finance, is in the eating, because the people of Canada must have believed that on various occasions the national parties work for the average man.

For instance, on this occasion they gave us a good majority, whereas on other occasions they gave the other national party, the Liberal party, a good majority. So they must have felt at times that both national parties have feelings for the humanities as well as members of the C.C.F. party who like to get on the record in so many speeches, making these crocodile tears flow. Sometimes that magic does not work. The Social Credit party had better stories. Of course the tears were bigger and better. You know what happened to them. My good friends in the corner, please take note.

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

Douglas Mason Fisher

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

Mr. Fisher:

May I ask my hon. friend a question? Was the hon. member suggesting earlier, in the factual part of his speech, that agreements for purchase such as one would make with a firm like Eaton's or Simpsons-Sears come under the Small Loans Act? That is the inference I took. I wonder whether he believed that.

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

Eldon Mattison Woolliams

Progressive Conservative

Mr. Woolliams:

What I said was this. I said that loans

and there is a difference-that are less than $1,500 come under the Small Loans Act.

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

Harold Edward Winch

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

Mr. Winch:

You had better go to school.

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

Eldon Mattison Woolliams

Progressive Conservative

Mr. Woolliams:

I am not talking about conditional sales agreements because, again, I would remind hon. members that that is a provincial matter.

Topic:   INTEREST ACT
Subtopic:   AMENDMENT TO PLACE CEILING ON INTEREST RATES
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June 5, 1958