June 5, 1958 (24th Parliament, 1st Session)

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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