Mr. Chairman, first of all I submit that these bills dealing with small loan companies should not be proceeded with until the general policy of the government has been finally decided. There is upon the order paper the following resolution, standing in the name of the Minister of Finance:
That it is expedient to introduce an act to regulate the cost of small loans, also with respect to the incorporation and powers of small loan companies, and to provide for the annual licensing of money-lenders, for the administration of the said act, and the annual assessment of each licencee for the purpose of meeting the expense incurred by the government in such administration.
Industrial Loan and Finance
As will be seen, this foreshadows a definite outlining of the policy of the government, in the words of the resolution, "with respect to the incorporation and powers of small loan companies." I submit that there is no object in passing a special act giving this company certain added powers when on the order paper there is a general bill which deals with the whole question.
The next point I submit is this: In connection with questions of interest and so on I doubt that special privileges should be given by special acts of parliament. Under the special act, already law, which this bill proposes to amend, the Industrial Loan and Finance Corporation has the following powers:
(i) lend money secured by assignment of choses-in-action, chattel mortgages or such other evidence of indebtedness as the company may require, and may charge interest thereon at the rate of not more than seven per centum per annum, and may on all loans deduct the interest in advance and provide for repayments in weekly, monthly or other uniform repayments: Provided that the borrower shall have the right to repay the loan at any time before the due date, and, on such repayment being made, to receive a refund of such portion of the interest paid in advance as has not been earned, except a sum equal to the interest for three months,
(ii) charge, in addition to interest as aforesaid, for all expenses which have been necessarily and in good faith incurred by the company in making a loan authorized by the next preceding sub-paragraph (i), including all expenses for inquiry and investigation into the character and circumstances of the borrower, his endorsers, co-makers or sureties, for taxes, correspondence and professional advice, and for all necessary documents and papers, two per centum upon the principal sum loaned,
(iii) notwithstanding anything in the next two preceding sub-paragraphs (i) and (ii) the company shall, when a loan authorized by the said sub-paragraph (i) has been made on the security of a chattel mortgage, or of subrogation of taxes, be entitled to charge an additional sum equal to the legal and other actual expenses disbursed by the company in connection with such loan, but not exceeding the sum of ten dollars,
but, no charge for expenses of any kind shall be made or collected unless the loan has been actually made, or unless such a loan has been renewed after one year from the making thereof or after one year from the last renewal thereof;
The explanatory notes to this amending bill state:
The main objects of this bill are:
To change the operation of the company from a discount to an interest plan and to vary and clarify its charges.
I submit that this explanatory note is and must be misleading. The note states that it is desired to change the operation of the company from a discount to an interest plan. In the subsections I have just read it is stated
quite clearly that at present this company is entitled to charge 7 per cent per annum as interest.. The only thing that would justify anyone in claiming that to be a discount plan is that it is provided that interest may be deducted in advance. But the bill goes on to indicate definitely that the intention should be to permit a charge of only 7 per cent per annum; for if the debt is paid ahead of time the act provides that only 7 per cent per annum shall be allowed, plus interest for three months. This indicates that when parliament passed this special act it intended that this company should be allowed to charge only 7 per cent per annum, and as interest. Then it goes on to provide that they may charge two per cent for expenses of inquiry and investigation into the character and circumstances of the borrower, but those must be expenses which have been necessarily and in good faith incurred by the company.
We find that this company have been doing this: They have been charging 7 per cent interest in advance; and. because of that fact, in effect they have been getting 14 per cent per annum. Then, by charging two per cent in advance for investigation and inquiry, whether or not they have actually incurred any expense in that connection in regard to a particular loan, they really get 4 per cent per annum under that heading. They claim they have a right to do this, to charge 14 per cent, though the act says that the rate shall be 7 per cent per annum, and they also claim they have a right to charge 4 per cent whether or not they make any investigations at all. Under those headings they are able to run their charges up to eighteen per cent per annum. We know that this company largely operates in the province of Quebec, where it does not take chattel mortgages and where it cannot make charges under that heading; that is, under subsection 3 above referred to. So to-day in my opinion this company violates the act of parliament and charges 18 per cent per annum when it has no right to do so. But that is certainly the limit of what the company can charge at present.
Now the company comes to parliament, having formerly obtained the charter for which it asked and which, in my opinion, it has been violating, and wants the right to charge two per cent per month, an effective interest rate of 26i per cent per annum. Obviously the effect of this is to raise the rates which it is permitted to charge to-day, but there is more to it than that. This company has been charging 18 per cent, and I take it that it has become rather nervous as to its
Industrial Loan and Finance
position, because there have, been decisions which indicate that it has absolutely no right to make these charges. For instance, there is the case of Kelly v. the Industrial Loan and Finance Corporation, which finds that it has been transgressing the law in connection with these charges. I would refer hon. members to page 90 of the report of the superintendent of insurance, for the year ending December 31, 1936, in regard to small loan companies, where a reference to this case will be found. It is also cited in 1937, 1 Dominion Law Reports, page 57. The case was tried before Judge Stackhouse of the Montreal circuit court, and this is what the head note of the case says:
A loan company operating under special statute (1930 (Can.), c. 68), and limited to a rate of interest not exceeding seven per cent plus charges for "expenses necessarily and in good faith incurred" in making the loan, cannot charge any greater rate of interest or for expenses not so incurred. On a loan of $150 repayable in ten monthly instalments, held illegal to deduct interest for the whole loan in advance and to charge for investigation expenses not incurred and for insurance not issued in accordance with the application, in the total of $16.50, entitling the borrower to Tecover back the excess charges.
That definitely holds that this very company, by charging interest in advance and regarding it as a discount, and by charging for disbursements regardless of whether or not they have been made, has been violating this act. Not content with that, it now comes before this parliament asking the right, under the heading "cost of loans," to charge two per cent per month, which is an effective Tate of 264 per cent per annum.
One of the points I should like to emphasize now, Mr. Chairman, is this: I do not
think at this session of parliament we should sanction such a rate of interest. As far as I am concerned, coming from western Canada where we have been struggling with what we regard as high interest rates of 8 and 9 per cent on mortgages, if we in this parliament sanction a rate of 26i per cent per annum we take away our whole case in demanding that interest rates be reduced to the people out west. How can we say in one breath that it is all right for this company to charge 261 per cent per annum interest on loans up to S500, and in the next breath say to the banks, for example, that they should not charge over 7 per cent and to the mortgage companies that their rates should not be as high as 8 or 9 per cent? As a matter of fact, as is known to members of the house, the Saskatchewan government recently managed to get the loan companies to agree to reduce rates of interest down to six per cent. And a good many of us feel that
the farming population of western Canada cannot afford to pay interest of even six per cent per annum.
Now then, if parliament authorizes one group of people to charge an effective rate of 26J per cent per annum, what chance have we to make an appeal to public opinion which will back us up in getting interest charges cut lower than 6 per cent per annum? If we give those people the right to charge an effective rate of 26J per cent per annum, what is the next thing we are up against? The argument will be raised: Why in the world should those people be permitted to charge that rate, and the banks be limited to 7 per cent per annum and the mortgage companies to 6 per cent? Immediately we are going to be met with a demand all along the line for an increase in rates of interest.
I think at this stage of Canada's development it would be a most retrograde step if parliament were to give sanction to an effective interest rate of 26i per cent per annum. It might be said that this is not what we are authorizing, because the proposed amendment suggests that the "cost" of a loan shall not exceed two per cent per month. Well, the "cost" of a loan is nowhere defined in the proposed amendment, and that is one of the reasons why it is not expedient to pass the bill at. the present time, before the general bill, which does define "cost" of loan, goes through.
What would be the position of affairs if parliament should not see fit to pass the general bill in which the "cost" of a loan is defined, and passed this bill, which refers to cost of loan, but nowhere defines the term. In other words, we would be passing something which has no meaning. But in order to make my argument plain, I suppose I should refer to the meaning of "cost" of loan, as it is defined in the general bill. It is set out at page 427 of the report of the banking and commerce committee:
2. In this act unless the context otherwise requires,
(a) "Cost" of a loan means the whole of the cost of the loan to the borrower including interest or discount and expenses and charges for commission, brokerage, chattel mortgage and recording fees, inquiries, defaults, renewals, fines, penalties, or other similar costs, whether paid to or charged by the lender or paid to or charged by any other persons, 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 loan, contract or the terms of the repayment of the loai are effectively varied.
That, I take it, is what "cost" of loan means in this bill. I draw particular attention to
Industrial Loan and Finance
the fact that cost of loan there includes interest and every other charge. If any company can charge two per cent as cost of loan and is brought into court under the MoneyLenders Act or under any other act, it can say that the whole of that cost was interest. What is the effect of that? The effect of it is this: As the charter now stands, any province can forbid those charges set out in subsections 2 and 3. That is, this parliament has power to legislate in regard to interest; but although we give a company power to charge for expenses of investigating a loan, and to charge for expenses of drawing documents- although we give this company power to do that, any province under its jurisdiction over property and civil rights in the province can step in and forbid those charges on the part of any company operating within any province.
What are we doing here? At the present time no company can come in and charge more than the amount set out in the MoneyLenders Act, namely 12 per cent per annum. We have said further to this company, "We only give you power to charge two per cent for making investigations and to charge up to S10 for drawing the documents, provided you pay the money out; but any province can forbid any charge set out in subsections 2 and 3." In other words, a province could limit the company to 7 per cent per annum. But by passing this amendment we take out of the hands of the province the power to prevent a company from charging more than 7 per cent per annum and give it the right, regardless of provincial law, to charge 26J per cent per annum.
In other words, for example we may say to the province of Quebec, "Although you have control over property and civil rights, and power now to prevent this company from charging more than 7 per cent per annum, once this measure is passed this company whether the province of Quebec likes it or not or whether the people of Quebec like it or not, can come in and snap its fingers in the faces of the government of Quebec, and charge an effective rate of 26J per cent interest." Under present conditions I submit this parliament should not lay itself open to attack by doing that.
In Saskatchewan we passed the Credit Unions Act a year ago. There is a department of government which is charged with the duty of promoting the development of cooperative institutions including credit unions in Saskatchewan, and an officer is paid for that purpose. What would happen if this bill were passed? It would mean that this company can go into Saskatchewan and charge an effective
rate of 26J per cent interest. .There is nothing our legislature can do about it, because we are giving them the power to charge the rates of interest I have indicated.
If we pass this bill, they can go in there and spend a large sum of money on advertising, and prevent the growth of cooperative lending. We had different witnesses appear on the question of cooperative lending before the banking and commerce committee. For example, we were told of the great development in the province of Quebec in regard to the caisse populaire, and how they are actually extending their activities and by cooperative enterprise are providing money to the people at 7 per cent per annum. Mr. Vaillancourt gave us to understand that any person worthy of credit can get credit in the province of Quebec by joining a credit union or caisse populaire and, if he is credit worthy, he can get credit at that low rate of interest, 6 or 7 per cent per annum. Of course that is not low, but it is much lower than 26J per cent per annum.
At this stage of our development should we as a parliament say to a company that whether a province likes it or not we shall give them the right to go into the province, undermine the full development of cooperative credit institutions and charge 26j per cent per annum? I do not think we should do that.
It might be urged that there is a great deal of abuse in regard to small loans, and for a moment or two I should like to deal with that phase of the matter. The suggestion is that money-lenders to-day are charging more than 26i per cent per annum, and that therefore, by permitting this company to operate at that rate, we are doing a good thing for the people.
I suggest to you, Mr. Chairman, that people who are paying, say 100 per cent per annum or 150 per cent per annum are people who are not credit worthy. If we set up this company we shall not be helping these people at all, because these companies are very careful to whom they lend money, and would not lend to doubtful people who to-day borrow from loan sharks. These small loan companies lend money only to people who actually pay it back again, with few exceptions. I should like to give the committee some figures on this very point. I read the following from the evidence:
The record of the dominion licensed small loan companies up to date would indicate that that estimate is correct. Over a period of four years from 1934 to 1937 inclusive the total amount of loans made by the three companies was $28,919,630 and the total amount written
Industrial Loan and Finance
off loans as losses, $97,878, of which $56,005 was later recovered, leaving a net realized loss of $41,873 or -14 per cent of the amount of loans made.
In other words, these three small loan companies have been so careful as to whom they would lend money that over a period of four years they actually lent out almost $29,000,000 with a loss of slightly over one-tenth of one per cent per annum.
Subtopic: INDUSTRIAL LOAN AND FINANCE CORPORATION