BILLS OF EXCHANGE. (Hansard, 17 July 1845)

§ Mr. M. Gibson
moved to add the following proviso to the 1st Clause:— That the Proviso in the recited Act, that nothing therein contained shall extend to the loan or forbearance of any Money upon security of any lands, tenements, or hereditaments, or any estate therein, shall not be continued by this Act. The House would observe that this Bill was for the continuance of an Act which passed in 1839, abolishing the usury laws, as to Bills of Exchange, and loans above the value of 10l. The former and present Bills contained each a proviso exempting from their operation "lands, tenements, and hereditament." Money could not be raised on these, except at 5 per cent. Now, his proviso was for the purpose of abolishing this exemption. His object was to give a more free scope to the system of legislation which had now continued for several years. He believed they were indebted to the hon. Member for Kendal, for the first inroad on the usury laws. A period of twenty-two years had elapsed since that attempt was made, and he thought the most timid and apprehensive person could not object to see the principle carried further. Indeed, it was most difficult to understand why one portion of the community should be at liberty to make their own money bargains, and another deprived of any such power. He could perfectly understand that one rate of interest should be fixed by law for the whole community; but could not understand that some should be allowed to raise money on personal security, at any rate of interest they thought fit, and that others should not be able to do so on their title-deeds or other landed security. He believed this restriction was extremely injurious to the landed interest; and that was not his opinion solely, but that of the Committee, composed of most able men, who sat on the subject of our usury 646 laws, in 1818. Their First Resolution was:— That it is the opinion of this Committee, that the laws regulating or restraining the rate of interest have been extensively evaded, and have failed of the effect of imposing a maximum upon such rate; and that of late years, from the constant excess of the market rate of interest above the rate limited by law, they have added to the expense incurred by the borrowers on real security, and that such borrowers have been compelled to resort to the mode of granting annuities on lives, a mode which has been made a cover for obtaining higher interest than the rate limited by law, and has further subjected the borrowers to enormous charges, or forced them to make very disadvantageous sales of their estates. The Third Resolution was:— That it is the opinion of this Committee that the present period, when the market rate of interest is below the legal rate, affords an opportunity peculiarly proper for the repeal of the said laws. Now, the present moment was just such as the Committee referred to, when there were advertisements every day offering money at 3½ and 4 per cent. on good landed security, their law was inoperative. But it might happen that the market rate would rise above the legal; and should that be the case, the landholder could not raise money at 5 per cent., but must have recourse to annuities, or to the sale of his estate at a great sacrifice. It was well known that in building transactions, men were now greatly jeopardized by the uncertainty attending the usury laws. Amongst the witnesses examined before the Committee to which he referred, were Sir S. Romilly, and Sir E. Sugden. The testimony of the former was— Has your experience enabled you to form an opinion as to the operation of the usury laws upon the landed interest?"—As far as my experience goes, I should say, that the laws against usury are very injurious to the landed interest. The effect of them, I think, is, that when the proprietors of estates are under the necessity of raising money at times when money is extremely scarce, they are obliged to raise it by the granting of annuities or in other modes extremely disadvantageous to themselves. Sir E. Sugden, the ablest real property lawyer of this country, was also examined. He was asked— Have the usury laws been beneficial, or otherwise, to the landed proprietor?—They have been decidedly inimical to the interest 647 of the landed proprietor. Every landed proprietor will have money when he wants it, and there are always two rates of interest; one the market rate, the other the legal rate. If the market rate rises above the legal rate, the landed proprietor must necessarily resort to some shift to evade the usury laws; this is done under the colour of granting life annuities. In all such dealings, the transaction is, in truth, a loan; the party advancing the money always fixes upon a rate per cent. at which he is willing to lend the money, to which he adds the costs of the insurance. The higher the terms are, the more the transaction assumes the shape of a loan, because the very exorbitancy of the terms renders it an act of duty on the part of the borrower towards himself to repurchase the annuity as soon as he possibly can; for in all these cases, without any exception, a power to repurchase is inserted in the grant of the annuity. And, in speaking of such transactions, I have invariably observed, that the parties treat them as loans, and not as a purchase out and out of an annuity. Are you aware of any inconvenience that would result from the repeal of those laws?—I have latterly turned that over frequently in my mind, and I entertain a confident opinion that the repeal of those laws would not in any manner prejudice the landed interest. The fact was, these laws were the last remnant of a barbarous system of legislation, and should not in any way be countenanced by the Legislature, after the experience we had had of the working of a contrary principle.

§ Mr. W. Williams
said, that if the Bill were allowed to pass, he should support the hon. Member for Manchester (Mr. M. Gibson). He (Mr. Williams) could see no reason why land should be excepted from the general rule in the transactions to which this measure referred. He considered, however, that the Bill ought not to pass for the period proposed. He considered five years far too long for its duration. He considered that its tendency would be to inflict a great evil upon the smaller class of shopkeepers and persons of the same rank in life. He did not say that the rate of interest should be restricted to five per cent., but he thought that some limits should be fixed. Wherever usury had prevailed, the most injurious consequences had ensued. In a great number of bankruptcies it would be found that the parties had failed in consequence 648 of the exorbitant rates at which they borrowed capital. He knew himself one instance where a man, formerly in affluent circumstances, had become reduced to deep indigence. The cause of this was discovered to be the usurious terms at which he had borrowed money. He obtained a loan at as high a rate of interest as 60 per cent. He (Mr. Williams) could remember that at the period from 1839 to the beginning of 1841, as much as 15, 20, and 25 per cent. was paid upon advances of money for investment in trade. He could not assent to the argument that had been used by the hon. Member for Manchester, that money should be had as freely as possible. He (Mr. Williams) thought that while the precious metals did not form the only circulating medium, but forty-five to fifty millions in bank notes were in existence, it was highly inexpedient to leave the rate of interest without defined limits. He might refer to the whole current of ancient and modern history for confirmation of his assertion, that the sanction of usury had constantly injured nations. Besides, there were the denunciations of Scripture against the crime. ["Hear."] Hon. Members might disregard that as an authority; but if it were to have its proper weight, then the denunciations against the vice of usury should be attended to as dissuasives from the policy the hon. Gentleman recommended. The class of persons most liable to be injured by the abolition of the usury laws would be the most weak and needy class of the community; and those who would prey upon their necessities would be the most grasping and rapacious. It was to protect the former that he should consider it his duty, if the Bill were proposed to be passed for more than one year, to move that it pass that day three months.

§ The Chancellor of the Exchequer
felt himself relieved from going deeply into the question by the great discrepancy between the position of the hon. Member for Manchester, and that of the hon. Member for Coventry (Mr. Williams). Seeing the lateness of the Session, he had abstained from raising a discussion upon a topic which he knew, if entered upon, would have had the effect of postponing the passing a measure which he believed had proved useful to the community. The Bill, in fact, was only a renewal of the Acts which had passed in 1837, 1839, 1840, 1841, 1843, and 1845. The hon. 649 Member for Manchester had complained that the effect of the clause he proposed to exclude, had been to prevent the extension of building speculations. He would refer to the rapid progress of building in the metropolis and its vicinity, to show how little this effect had followed. There was a good reason why they should not suddenly abrogate the provision. If they were to start de novo, no doubt the freedom of money would be beneficial to the landed interest; but circumstances had occurred which prevented the landed proprietors from acting upon the same terms with the lender as others who had borrowed money. The lender had frequently the power of compelling the landed borrower to pay money at a rate above the average value in the market. No doubt the landed proprietor might originally have made arrangements for his own protection; but it would be unfair to alter the existing system without giving time to the landed interest to make such arrangements as would relieve them from the chance of exaction. Without then deciding the question whether the distinction ought for ever to continue between money borrowed upon land and upon other security, he thought that the House would do well to continue the existing law for the limited period proposed by the present Bill. He did not think it necessary to enter into a discussion with the hon. Member for Coventry as to the benefit of the usury laws. That question had been already decided. He would only say that he believed many traders in this city had been saved from ruin by being able to borrow, at short periods, the sum necessary for preserving their credit.

§ Mr. Francis T. Baring
collected, from what had fallen from the right hon. Gentleman the Chancellor of the Exchequer, that he was not unfavourable to the principle of the clause. He would suggest that if the Government, in a future Session, would consent to the appointment of a Committee to examine into the effect of the usury laws on the landed interest, and have an inquiry into their operation, it would be better to pass the Bill in its present shape without this clause. Such an inquiry, he had no doubt, would have the effect of convincing every man (he only wondered that a sensible man could have any difficulty as to the point) that they were, in point of fact, by being exempted under this Bill, suffering great inconve- 650 nience. With respect to the limitation of the period, the late Government, he must remind the right hon. Gentleman, had always proposed that the Bill should be permanent; it was the House of Lords which limited the term to one or two years. Not only were former Bills, as they had been introduced, permanent, but they were also general, not exempting the landed interest. In the present state of our legislation, the usury laws did not apply to Bills running for three months. What sense there was in freeing Bills for three months, and not also Bills for twelve months, he could not see. Nothing was more apparent, from the evidence before the Committee, than that a repeal of the usury laws would be beneficial. He regretted that the Chancellor of the Exchequer had thought it necessary to make his measure a mere continuation of the former Bill, for there had been trial enough of the principle, and the Bill might have been made a permanent one, without exhibiting that appearance of insecurity which a temporary measure presented. He hoped, at all events, that the right hon. Baronet would allow a Committee next year.

§ Sir R. Peel
said, that when it had first been proposed to relax the usury laws, great opposition had been made by many parties connected with commerce. They had argued that the relaxation would subject them to the greatest inconvenience, and the greatest danger, inasmuch as it would enable persons to exact an interest of more than five per cent upon money. But experience had proved that the relaxation was of the greatest possible advantage to commerce, and that the prohibition to advance money upon good security for what that money was worth, really operated most injuriously on commerce. He did not believe that the present restriction respecting the advancement of money upon land, was for the benefit of the landed interest. But he was aware that great apprehension was entertained upon that subject; and he did not think it would be advisable, by any immediate and violent change, to create great and unnecessary alarm. He could, under these circumstances, see no objection to the appointment, during the next Session, of a Select Committee, which might by its labours throw new light upon the subject.

§ Mr. Warburton
thought his hon. Friend might be perfectly satisfied with the result of the discussion, as he had obtained the 651 admission that the trade in money ought to be as free as the trade in any other commodity. There had been ample experience of the good working of the Bill, both when there was a great pressure upon the money market, and when there was an abundance of money. He recommended his hon. Friend to take the Five Years' Bill, which was a further extension of the principle than had yet been obtained, and to bring in a Bill next year to do away with the usury laws as applicable to the landed interest.

Mr. Vernon Smith
recommended his hon. Friend not to press his Motion to a division.