May 7, 1965

LIB

Herman Maxwell Batten (Deputy Chair of Committees of the Whole)

Liberal

The Acting Speaker (Mr. Batten):

I must advise the hon. Member that the time allotted to him has expired. Does the House give unanimous consent for the hon. Member to continue?

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Subtopic:   PROVISION FOR CONTROL OF USE OF COLLATERAL BILLS AND NOTES
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?

Some hon. Members:

Agreed.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

Thank you very much.

The Supreme Court of Canada reversed the finding of the Ontario Court of Appeal and held the Ontario Act to be intra vires of the Province of Ontario in that its main purpose was to effect rescission and reformation of unconscionable transactions whether interest was charged or not.

True the interest jurisdiction of the federal Government was affected in this case, but only incidentally they said. Two out of the five judges dissented, holding that there was direct conflict between the two statutes and that in such circumstances the Interest Act of the Canadian Parliament validly enacted must prevail.

Neither the Appeal Court of Ontario nor the Supreme Court of Canada dealt with the merits of the case, but in effect the judgment of the County Court Judge was upheld. This would seem to indicate that the interest rate in practically every conditional sales contract presently held by finance companies in the Province of Ontario, whether or not collaterally secured by a promissory note, could be revised downwards if application to an Ontario court were made under the

May 7, 1965

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NDP

William Arnold Peters

New Democratic Party

Mr. Arnold Peters (Timiskaming):

Mr. Speaker, I should like to congratulate the hon. Member for Spadina (Mr. Ryan) for introducing this bill, and I should like to make some comments on it. I think the Government has, again, been remiss, because I would point out that we had the promise that most of the Committees would be set up immediately. But this has not been done. This is the seventeenth day of the session, and this bill cannot be referred, again, to the Joint Committee on Consumer Credit, where this matter should before now have resolved itself into Government legislation.

What the hon. Member is doing is twofold. I believe he recognizes some of the major problems that affect those who buy under this type of arrangement, having regard to the explanation he has given with respect to the fact that many of the people who sign a promissory note for goods, and so on, do so not knowing what they are signing and not being fully aware of the fact that the promissory note becomes a negotiable instrument and can be transferred. But I do not think the hon. Member's bill goes nearly far enough in this regard. I had a bill on the Order Paper last year which was referred to the Committee, and I would hope that it would again be referred to the Committee. In my opinion my bill goes further than the bill of the hon. Member for Spadina (Mr. Ryan), and covers something the hon. Member has referred to but which really is not covered in his bill.

It is not of any interest whatsoever to me whether or not the promissory note can be sold. I am not the least bit interested in the sale of that note, and I do not think the Canadian public should be particularly concerned about this, either; because I have found that in almost all these cases it is irreputable companies that are operating in this field. I am well aware of the fact that a promissory note, being a negotiable instrument, is a valuable part of our operations in trade and commerce. The hon. Member for Spadina has said,

May 7, 1965

Consumer Credit Controls in this regard, that if you are dealing with reputable companies and reputable goods, that note does not have to be sold; it can be used at the bank as collateral. If the company from whom you buy the product is prepared to stay in business, the promissory note is collateral in the true sense of the word.

However, the problem I have found is this. Let us take the case of the sale of water softeners, or aluminum siding and all the other shady door-to-door peddlers selling products, those people who plague us in this country. They have no intention of ever honouring the promissory note, even if they made the commitment in the original sale. They discount the promissory note to a company they have set up down the hall; they go out of business, and a man is left with a useless item and a promissory note that is a negotiable instrument which, as the hon. Member said, may go to seven or eight places. My suggestion was to attach to the promissory note the liabilities that went with the original sale. This would mean that if you made the sale with the liabilities attached to it, and someone went to a finance company with this promissory note in regard to a water softener guaranteed for ten years with a supply of salts, the finance company that was stupid enough to buy the note would also have to live up to the guarantee.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

Mr. Speaker, would the hon. Member permit a question?

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NDP

William Arnold Peters

New Democratic Party

Mr. Peters:

Certainly.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

Would the hon. Member look at clause 3 of the bill and the form of caution. Would he not agree that where the caution says "this note has been transferred even though the goods be unsatisfactory," this would be sufficient warning to any subsequent holders of the note so that they would not be holders in due course?

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NDP

William Arnold Peters

New Democratic Party

Mr. Peters:

I would suggest that this is a debatable point, Mr. Speaker. But as I read it, this means that the person who signs the promissory note is made aware, by this caution, that the note can be transferred and he will still be liable for payment no matter how often the note is transferred. What I want to attach to the note is the liability of the person selling the goods. Let us use another example. Supposing I am a door-to-door salesman-and this is actually how it works-and I go to a house and say, "We have selected you from a list". This will be very familiar to people all across Canada. The

guy comes up and says, "We have chosen you out of a number of people on your block" or "on your concession, to provide you with aluminum siding. We hope you will explain to your friends that we have provided this. If you will help us to get your neighbours to buy this siding, and if you can get us ten customers who will buy it, you will get yours for nothing; we will put this siding on your house at no cost to you". Of course, he does not tell them they are going to put it on at the cost of hiring a carpenter to do it, namely $50 or $75 to install the siding. The man or woman involved does not look at the contract, or they do not understand it if they read it. In fact, most Philadelphia lawyers would not understand these contracts if they read them, because the fine print is so fine that you have to use a magnifying glass, and the wording, the legalistic jargon, or whatever you want to call it, does not really say what it means, and confuses the issue.

The person has the siding put on his house and finds that it is worth $3,000. He is told it will be done for nothing, but they only went out and hired a carpenter to instal it for $50. The buyer is told, "This siding is guaranteed for ten years. It never needs painting". Then he finds after two or three years that the promissory note has been transferred to an agency, and the paint is coming off the siding. He goes to the agent to whom he is making payments and finds that it is a finance company down the hall from where this other guy was operating; and because the company is out of business and does not exist any longer, he cannot do anything about it. He is stuck with a promissory note that gives a value of $3,000 for something that is not worth $300, because the goods are of an inferior quality. The whole thing is misrepresentation, and the buyer finds that he does not have any claim against anybody.

I honestly and sincerely believe that there is not a Member in this House who has not had a case of this nature brought to his attention and is not well aware of the problem. Because of this, Mr. Speaker, I say that the House must accept this kind of bill with amendments that will carry the liability with the promissory note. I don't give a damn if they can't sell these promissory notes. They should not be able to sell them. This is a dishonest transaction. No legitimate money lender or agency would buy one of these phony promissory notes without knowing something about the company that supplied

May 7, 1965

the product that resulted in the issuing of the promissory note.

Therefore anybody who gets stuck with this type of promissory note should have the Judge stand up and say, "You are a dishonest company. You are a fake company. You are only a dummy corporation collecting for the original fake company. I am therefore not interested in giving you judgment". I agree with the hon. Member for Spadina that there have been many honest Judges who have said this after listening to some poor family tell the story of the abject poverty to which they have been reduced because of buying something they did not want, could not use, and were high-pressured into buying. I think this House has an obligation to the public in this regard. Without a doubt in this respect we are the most backward country in the western world; we certainly go backward faster than we go ahead.

[DOT] (5:30 p.m.)

Surely we can consider what has been done by other countries in this regard. In my bill I simply applied the copyright principle. One of the few pieces of legislation passed by Canada which has been adopted by almost every other country in the world is the copyright legislation. By the principle of that legislation all the liabilities and assets in relation to the original patent, no matter how many people purchase it, remain with the original patentee. Surely this principle could be carried through in respect of the subject matter of this bill.

I hope this bill will not be referred to a committee. We discussed this subject matter in a committee last year. I am no longer a member of that committee, but I can say that the committee last year did not refer one piece of legislation back to this House. The House would be well advised to pass this legislation at this stage, without further study by a committee.

The hon. Member for Spadina (Mr. Ryan) referred to a four day cooling off period which is included in this proposed legislation.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

That cooling off period is included in the English statute of 1957, as amended recently.

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NDP

William Arnold Peters

New Democratic Party

Mr. Peters:

Perhaps that cooling off period is referred to in the French translation of this bill.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

It is not included in this bill.

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NDP

William Arnold Peters

New Democratic Party

Mr. Peters:

In any event, I am sure the hon. Member for Spadina would agree to

Consumer Credit Controls including such a cooling off period as part of the provisions of this proposed legislation. I am sure that no one here who has considered this matter would object to such a cooling off period.

Mr. Speaker, I do not know why we are so stupid in this House, but we are stupid. We have been unable to adopt machinery to prevent certain things from happening of the kind which I am sure this bill is intended to prevent. A day or two ago a young lady came to me within an hour of the time she had signed a contract under which she would receive a free $600 stereo set by purchasing a number of records at an exorbitant price. She was talked into signing this contract by a high pressure salesman in an office here in the House of Commons. She came to me and suggested that she had been taken. She certainly had been taken. I do not suggest that the company which this high pressure salesman represented is completely dishonest in its advertising, but I can assure you that she did not understand what she was getting into.

This young lady was high pressured into signing this contract. I got in touch with the company in question and suggested that the salesman had better come back to his office and tear up the contract, because if he did not I was going to raise an awful fuss. I do not intend to use any names regarding this case, because in the final analysis that is what took place. I asked the gentleman to whom I spoke what length of cooling off period was allowed following the signing of one of these contracts-whether it was 24 hours, two days, two hours, six hours or what. He did not understand what I was referring to. I said that I wanted the salesman back immediately so that we could dispose of this matter. Apparently this company had just commenced its campaign in Ottawa and, after some discussion with the salesman involved, it was decided that they would go along with my suggestion, because it would be less expensive to them, having set up this sales campaign, than risking a great deal of adverse publicity.

This a rather long and complicated example, but it is typical of the kind of thing that happens every day in Canada. For this reason I suggest there should be a cooling off period of two or four days. The young lady to whom I referred did not want a stereo in Ottawa in the first place, and having signed the contract realized within an hour that she had made a mistake. When the

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Consumer Credit Controls salesman did reappear he was informed that he could not collect the money or enforce the contract because the young lady was under age and did not have her parents' consent to enter into such a contract. The salesman Anally agreed to tearing up the contract, but in the process of explaining its terms to the young lady he almost convinced her that she should sign another contract. I was only listening to the conversation with one ear because I did not wish to become involved, but I was able to ascertain the type of high pressure salesmanship that he used.

What would a fellow in the country do after he had signed a contract to purchase aluminum siding for his house, which had been sold to him under similar circumstances, but which he could not by any stretch of the imagination afford? I am aware of one case of this kind where an individual agreed to the purchase of aluminum siding for his house only to And afterwards that it was going to cost him $3,300. This individual is now applying for welfare because he cannot afford to make the payments.

I suggest that the examples I have given are not unusual cases. On the contrary, they are taking place every day in various parts of Canada. The kind of bill proposed by the hon. Member for Spadina, if passed, would do a lot to protect Canadians from the tactics of salesmen of companies of the kind to which I referred. Surely we do not need more study of this subject. I am sure that if the hon. Members in attendance today were asked to raise their hands if they were not completely aware of this kind of situation there would not be a hand raised. It is high time that we had in Canada legislation of this type, and I am sure that the Minister, who is in the House, would support me in this regard. If we pass this bill I am sure we will do a great deal to eliminate this kind of hoodwinking and dishonesty by shysters who travel throughout this country selling products of no real value, on the basis of no down payment and so much a month. These companies are not bona Ade companies, but Ay by night operations which, after selling an area and completing their campaigns, in turn sell these promissory notes to third parties.

By allowing a cooling off period in respect of these so-called discount transactions we would do a lot to eliminate this type of business. This would allow at least some time for an individual to reconsider the proposition and talk it over with his wife, if not also give him enough time to make an intelligent decision as to the actual value of the product

DEBATES May 7. 1965

involved. In my opinion the hon. Member for Spadina will have done Canada a great service if this bill is passed. I hope there will not be a suggestion that it be referred to a committee for further consideration. The hon. Member for Spadina I am sure will agree to amending the bill to include a cooling off period, and I hope that this can be done this afternoon and the bill passed without further discussion. I am sure that the Cabinet Minister who is here will obtain unanimous consent of the House if he asks for an extension of time this afternoon to complete the consideration and passage of this bill.

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SC

Horace Andrew (Bud) Olson

Social Credit

Mr. H. A. Olson (Medicine Hal):

Mr. Speaker, I should like to express my congratulations to the hon. Member for Spadina (Mr. Ryan) for the introduction of this Bill, which represents an attempt to deal with a very serious problem in respect of consumer Anancing in Canada. At the commencement of the hon. Member's remarks I got the impression that he was concerned more about the purchasers of these promissory notes than about the individuals who signed them in the Arst instance. Perhaps there is some validity to his argument in that regard, that these people also need to be protected, but I am sure that they do not accept any promissory note that is not capable of collection. I am sure that the majority of individuals involved in the purchasing of these promissory notes, or this type of collateral, are experts in this Aeld and do not purchase something that under the law cannot be collected.

As far as I am concerned, I am more interested in protecting the people who sign these promissory notes. This type of activity is widespread in Canada. These organizations campaign in various areas, the salesmen work very hard in selling their products, and then in turn sell these negotiable promissory notes to third parties, and then move out of the area.

In addition to what the hon. Member for Timiskaming (Mr. Peters) has suggested, I think there should be some provision in respect of the sale of this kind of collateral given in exchange for merchandise, and some responsibility attached to the individual who transfers this collateral, after selling the merchandise. In other words, there should be some responsibility on the part of the original company transacting this business. While I realize the truth of the maxim, let the buyer beware, it is very difficult for a buyer to beware under the pressure of these specialized salesmen.

May 7, 1965

I support the suggestion in respect of a cooling off period which would allow the purchaser to reconsider the transaction. Whether that period should be four days in length, longer or shorter, I do not know; but in respect of some of these products, such as water softeners, siding and so on, it is difficult for the purchaser to ascertain within four days whether they are of reasonable value. At least a cooling off period would allow them an opportunity of reconsidering the whole matter, in light of what they will eventually have to pay. There should be some provision whereby purchasers can nullify these contracts without penalty. As a matter of fact, any reputable company in Canada, permanently established, will give this kind of assurance.

The provisions of the bill now before us would not impose any great burden or hardship on a legitimate business enterprise, because a legitimate business enterprise guarantees its product to be as good as advertised, or to perform the service which it is advertised to perform. I think this is a very important consideration.

[DOT] (5:40 p.m.)

It is not in the bill at all. I admire the provision in the bill to give more prominence to a warning to purchasers that their promissory notes can be transferred to third parties and are collectible by them. Many people do not realize that. We know, of course, that one of the old, traditional ways for a purchaser to register a protest against a company or person who has sold him an inferior product is to stop payment. However, if this bill is passed in its present form with no additions to it, I am afraid it will strengthen the position of third parties to the extent that they will be even more willing to buy such paper in the future. For that reason I am a little apprehensive about passing the bill in its present form. As I have said, I think it might even provide an incentive for this practice to become even more widespread among unscrupulous businessmen.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

Would the hon. Member permit a question?

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SC

Horace Andrew (Bud) Olson

Social Credit

Mr. Olson:

Yes.

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LIB

Sylvester Perry Ryan

Liberal

Mr. Ryan:

Has the hon. Member read the clause limiting interest rates? That is the reason for that clause being in the bill. The limit on the first $500 is 12 per cent and on anything over $500 it is 6 per cent.

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SC

Horace Andrew (Bud) Olson

Social Credit

Mr. Olson:

I have read clause 8 carefully, but I am not completely convinced that by

Consumer Credit Controls itself it will be sufficient to stop the trafficking in promissory notes. For example, I know that in Medicine Hat a group of people bought water softeners for which they paid $450 each and they signed promissory notes. The same kind of equipment could have been bought for less than $100 from a reputable company which would have guaranteed that the apparatus would perform reasonably well. But these other water softeners were installed and these people were caught. I do not know how much the original vendor got for the promissory notes, but I suggest it was probably less than 50 per cent. Therefore, even if the interest rate were limited to what the hon. Member for Spadina (Mr. Ryan) suggests, it would not really be a deterrent if at the same time we strengthen the position of the third and fourth parties, and so on, who may own these pieces of paper.

I am not going to take a lot of time, Mr. Speaker. I should like to see the bin passed because I think its intent is very good in seeking to deal with a most serious problem. But I really must add that the bill does not go far enough because it does not provide for an opportunity for the original purchaser to back out of the deal within a specified length of time and it does not provide for the guarantee that the goods are satisfactory to be transferred to and assumed by subsequent purchasers of the paper.

A very serious problem has grown up in Canada in this regard because in my opinion the banks have been reluctant to meet the demand for consumer credit that has been evident in Canada for some years now. I hope the banks will come to realize that the demand for consumer credit constitutes a very large market and that it is a field where they should be much more active. They should not resist applications for consumer credit for the purchase of household appliances and so on. I know there is a lot of paper work involved which is perhaps a nuisance to some extent in the case of these very small loans that have to be collected on a monthly basis. However, at the same time it is the failure of the banks' to provide this kind of credit that has permitted many of these consumer finance corporations to engage to such an extent in what I call an illegitimate business.

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LIB

Donald Stovel Macdonald (Parliamentary Secretary to the Minister of Justice and Attorney General of Canada)

Liberal

Mr. D. S. Macdonald (Parliamentary Secretary to Minister of Justice):

Mr. Speaker, first of all I should like to refer to the remarks of the hon. Member for Timiskaming (Mr. Peters) and the hon. Member for Medicine Hat (Mr. Olson), and particularly their es-

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Consumer Credit Controls pousal of a four day cooling off or waiting period and their criticism, though gently voiced, of the hon. Member for Spadina (Mr. Ryan), for failing to cover this particular aspect in his bill. I think it only fair to point out on behalf of the hon. Member for Spadina, Who is a member of the Bar, while the other two gentlemen are not, that it is not within the constitutional jurisdiction of this Parliament to provide that kind of stipulation, for reform of rescission of the contract.

Essentially a provision to intervene in a contract already made was what was in issue in the case involving the Ontario Unconscionable Transactions Relief Act, and the Supreme Court of Canada found that a matter of that kind, which would prevent the operation of the contract, or at a later date could involve reform of the contract, was something within provincial and not federal jurisdiction.

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CCF

Thomas Speakman Barnett

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

Mr. Barnett:

Would the hon. Member permit a question? Having said that, would the hon. Member be willing to take the appropriate action to allow this bill to come to a vote?

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LIB

Donald Stovel Macdonald (Parliamentary Secretary to the Minister of Justice and Attorney General of Canada)

Liberal

Mr. Macdonald:

I should like to have the same right as other Members of the House have to express my views on the bill. In particular, having been a Member of the joint committee of the Senate and the House of Commons on the question of consumer credit, which other Members who have spoken on the other side were not, I should like to point out something that emerged most clearly from the proceedings of that committee, and which would have been obvious to hon. Members if they had wished to devote any time to examining its proceedings. In the committee the need for complimentary and co-operative action by the federal and provincial Governments for the purpose of securing the protection of consumers was disclosed very clearly.

I should like to give an example of how intricate and how important a task it is to interlock federal and provincial legislation so as to make sure that all aspects of a transaction are protected. Let us take, for example, a particular transaction where a housewife purchases a sewing machine or a washing machine on time. Jurisdiction between the two levels of government will be fragmented in the following way. With respect to the question of warranty, that is, taking action against the store or manufacturer if the machine does not work, this is a matter for Provincial law. If the machine was bought on time and in

DEBATES May 7, 1965

addition to a conditional sales contract a promissory note was taken and discounted by the storekeeper to an acceptance company, the liabilities of the housewife on that note are defined by federal law. The terms of the conditional sale contract itself, the security which it creates and, more important, the rights of repossession of the machine by the vendor, are determined by provincial law. If there is to be a requirement that the amount owing by way of cost of loan or interest is to be stated in the contract, or if there is to be a maximum interest rate imposed, that is a question for this Parliament because it falls under federal law. If the terms of the contract, as I have already observed, are to be reformed at a later date by the court as being harsh and unconscionable in the way that the Ontario Unconscionable Transactions Relief Act provides, that is a matter for provincial law.

As can be seen, different but closely related aspects of the same transaction fall within the separate legislative fields of the two levels of government and they so fall in a pattern which is known, I confess only imperfectly at the moment, to lawyers. Therefore I suggest that the discussions we at the federal level have had in the committee and the discussions that the Ontario and other provincial committees have had have been very valuable in disclosing the legislative methods which can be followed between the two levels of Government in arriving at a comprehensive consumer's code. I hope that the Government will take early steps to reconvene that committee so that those witnesses with whom arrangements had been made prior to prorogation may appear and deal with the matters we had been discussing at that time.

[DOT] (5:50 p.m.)

I suggest that when that committee and the several provincial committees have reported it will be useful then to have the studies made at the two levels of government, so that appropriate interlocking legislation may be adopted by the respective levels of government. I suggest it would be very useful to have this bill available to the committee for study. I regret that the hon. Member for Timiskaming did not see fit to introduce the bill he introduced last session. I am prepared to give him credit for doing so although I suspect it was not an original idea with him. I think it originated with Professor Ziegel of the University of Saskatchewan, but it certainly did provide an

May 7, 1965 COMMONS

excellent method of dealing with the same kind of transaction, although it involved a slightly different approach than that taken by the hon. Member for Spadina. It would have been useful, however, to have that bill and I am sorry that the hon. Member did not see fit to introduce it.

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May 7, 1965