USURY LAWS REPEAL BILL.

HC Deb 01 May 1817 vol 36 cc100-6

Mr. Serjeant Onslow,

in moving for leave to bring in a bill for Repealing the Laws that regulate the rate of Interest, did not propose to go into the subject at length, as it had been fully discussed on a former occasion;* but must remind the House, that these laws were not only attended with no good effects, but were productive of the most pernicious consequences; and though they had now existed for a great length of time, and derived some sanction from their antiquity, it was a most mistaken notion as to the views of the first framers, which had supported the sanction they enjoyed, and the prejudices which prolonged their existence. These laws had originated in a wish to open, not to limit, the rate of interest. Before their enactment it had been forbidden to take any interest at all on the loan of money. Every profit, even the smallest, derived from such a loan, was branded with the name of usury; and it was with a view not so much to limit the rate of interest, as to protect ^* See Vol. 34, p. 723. those who took any, that the laws in question were framed. He had last year proposed to press the measure of a repeal of these laws, but it had then been objected that the state of the funds was such, that it was improper to agitate the subject. He had not then felt the force of that argument for delay, but he had yielded to the authority of those by whom it was urged, and he was happy that he had done so; for since that time the public attention had been called to the subject, not only by Mr. Bentham's most able pamphlet, but by a periodical work (the Edinburgh Review) which usually advocated the soundest principles of political economy. By this time he trusted any doubts of the inexpediency of the measure which he had to propose were removed. He should, therefore, be brief in his remarks, and merely refer to what he had before said, namely that in their origin, the laws of which he now prayed the repeal, were founded on mistaken texts of scripture. The first law on this subject was enacted in the reign of Henry 8th, when it was declared that at ten per cent, it was lawful to take interest. In the reign of Edward 6th this law was repealed, and it was again declared by the law unlawful to take any rate of interest whatever on money borrowed. Yet in that reign we are informed by a contemporary historian that the rate of interest was commonly 14 per cent., so impracticable was it to affect the rate of interest by legal enactments. It was perfectly clear, that the more restraints were laid on money transactions, the higher always was the amount of interest actually paid on loans; and the effect of these regulations had only been to oppress and ruin the sinking tradesman; who, but for them, might have saved his credit by obtaining a temporary assistance at the fair market rate of the commodity. He had been told, on a former occasion, that all this might be true, but that the repeal of these laws would have an ill effect on the contracts made for loans on the credit of the public funds, which being regulated by the legal rate of interest, the public at least was a gainer by borrowing money at that rate. The fact, however, was the very reverse of this; and the loans contracted for by the public were, in reality, never affected by the legal rate of interest, but regulated, like all other money transactions, by the relative state of demand and supply, the credit of the borrower, and the opportunities of the lender. It was true that, at the time that argument had been used, some circumstances then affecting the price of stocks gave it the appearance of having weight; but those stocks had now risen 10 per cent.; the rate of interest paid by government had lowered in just the same proportion as in every other quarter, and the argument could no longer have any force.—Other objections that had been urged were, the apprehension of detriment to the landed interest, and loss to those who had borrowed money on mortgage. It was proved, that the fluctuations which the rate of interest might experience, in consequence of the repeal of the usury laws, would induce the lenders of money on mortgage security, frequently and suddenly to call in their principal, and expose the borrower to the danger of a foreclosure, or to the expense and trouble of repeated conveyances and reconveyances: but that inconvenience had been felt, and was daily felt under the existing system to a much greater degree than it possibly could under any other. Nothing was more common than for a lender to call for a repayment of his principle at a time when the market rate of interest, being 6 or 7 per cent, it was impossible for the mortgager to prevent a foreclosure, except on the most ruinous terms: either he was driven to sell his land at a time of sudden depression, when half its value could not be obtained, or (as he was precluded by law from raising money on the usual security at 6 or 7 per cent, if that happened to be the market rate) he was compelled to borrow by granting annuities at the most exorbitant rate. The common mode of late years had been, to grant annuities for a term of ninety-nine years, determinable on three lives, at fifteen per cent.; or determinable on four lives, at fourteen per cent. He knew an instance of an hon. member, a most respectable man, who, being called on to repay money he had borrowed on mortgage for the improvement of his estate, could only meet the demand by borrowing at this ruinous rate. It was owing to this that estates had been sold for almost nothing in the very worst of times; for, though the courts sat their faces as much as possible against foreclosures, yet they could not be altogether prevented. It had farther been objected, that the repeal of these laws would be hurtful to the monied interest, who would be tempted to loss by lending their money at high rates to speculators and projectors. He left it to the good sense of the House to determine, whether so circumspect a body as monied men were in general, would be likely to lose much from a neglect to exact sufficient security on their loans. It was absurd to conceive them incapable of directing their own affairs, and unjust as well as impolitic to intermeddle. Adam Smith had said, with great truth, that they were always more likely to lend to the thrifty than to the improvident. Besides the word "projectors" was an unmeaning and idle word, conveying an indefinite interpretation, on an indefinite class of men. For himself, he deemed it impossible to draw any line, and say who were projectors and speculators; and certain it was, that the most successful schemes, as well as the ordinary progress of improvement, must, in the outset, have been no other than projects, and the production of projectors. He should merely add, for the present, that every part of the empire suffered from these laws; but if any part suffered more than another, it was Ireland. Ireland had a fertile soil, a great population, a favourable climate; it was deficient only in capital: it was the want of that which repressed the national energy, and prevented any increase in the stock of national happiness. He should only add, that in moving for leave to bring in the bill, he should not propose to fill up the blanks under a period of several years. The learned serjeant then moved, "That leave be given to bring in a bill for repealing the laws which prohibit the taking of interest for money, or limit the rate thereof."

Sir F. Flood

gave the motion his hearty concurrence, being convinced that the measure must be of essential advantage to the empire in general, but particularly to Ireland, which possessed such natural advantages, as, if properly cultivated by means of capital, would enable her to vie with any country in the world. He observed, that money ought to be permitted to regulate its own price, and in this opinion he was supported by the experience of time, as it would appear developed in the acts of the legislature. The first of these acts restrained the interest of money to 10 per cent; the next reduced it to 8, observing in its preamble, "that the high interest of money was injurious to agriculture;" the next statute lowered the interest of money to 7 per cent.; and that which followed brought it down to 6 per cent. The last statute on this subject was the 12th of Anne, chap. 15. This statute showed the necessity of abolishing a settled rate of interest. By that act the interest of money in this country was reduced to 5 per cent. Any person who read this statute would see, that it proclaimed the great benefits which had arisen from the repeated reduction of the rate of interest; and must admit, that a long and expensive war was alleged as a reason for still farther lowering it. If the usury laws were done away, the moneylender, instead of getting 14 or 15 per cent, by the annuity system, would be content with five or six. The repeal of those laws would be beneficial to this country, but still more so to Ireland, into which it would be the means of pouring money, and, consequently, of encouraging commerce, agriculture, and manufactures.

The Chancellor of the Exchequer

said, that in the general principle of the measure proposed, he perfectly coincided. It was, however, to be recollected, that when, a system of laws existed to which the community had been long accustomed, and on which private arrangements and legal transactions were founded, to repeal them, even if they should be erroneous in principle, was a matter of some difficulty and delicacy. He doubted whether as yet the public mind was prepared for the measure; but he acknowledged the state of public credit was such that the question might be agitated without inconvenience, and he had hopes it might lead to a successful issue. The difficulty in raising money on landed securities was now less than it had been, and the state of the money market was such, that great accommodation to the agricultural interest might be hoped for from the diffusion of capital through the country. He should reserve his judgment on the measure proposed till he saw the particular enactments of it, to which he should give his utmost attention.

Mr. Lockhart

said, the learned serjeant seemed to be perfectly aware of the inconvenience to which persons would be exposed, to whom land had been mortgaged, if a lower rate of interest were introduced; but, to obviate this difficulty, he had very properly stated, that he would postpone the operation of the bill to a very distant period, that parties might be enabled to make every necessary arrangement. He thought the operation of the bill would fall heavily on the landed interest. The money market would be in a constant state of fluctuation. Per- haps not in a very great degree, but from five to six, or perhaps to seven per cent. Would not, therefore, those who had lent money on mortgage, be constantly changing their securities, in order to get a higher rate of interest; and could the landed interest of this country suffer this fluctuation? Could persons, whose property was subject to such enormous expenses, for conveyances, &c. bear still greater burthens?

Sir J. Newport

said, that the fluctuations in the money-market, to which the learned gentleman alluded, were experienced at present, and the bill, he believed, would tend to lower them. What was the state of the law now? The legislature had enacted a statute, preventing a larger rate of interest than five per cent., from being taken by the lender of money. The effect of that law, in its operation, had been so ruinous, that the legislature itself had been obliged to depart from its provisions, by having recourse to the annuity system, which, in some degree, relieved the country from its effects. The legislature should certainly do one of two things—either have no fixed rate of interest, or, if they sanctioned one, they ought to enforce it. They had not done either. They had established a fixed rate of interest, and they had then departed from their own principle, by giving persons an opportunity of borrowing on annuity, by which, in effect, a very large interest was realised, and a great degree of obloquy was cast on the lender upon annuities. He begged the House to recollect that in those countries where no fixed rate of interest existed, money was borrowed at a lower rate than in those where a contrary system prevailed. He could instance, as a proof of this, Holland, Flanders, and, indeed, all countries where the principle of a fixed rate of interest was not sanctioned; and, if they travelled from Holland and Flanders to Russia and Great Britain, the effect of the system, in both cases, would bring the subject fairly under their view. In the two latter countries provisions restricting the rate of interest within a certain boundary, had been introduced, and in both they had been evaded. In Great Britain, the principle of leaving money to find its own level, was sanctioned by the annuity act; and he was convinced, that not only the borrower on mortgage, but borrowers of every class in society, would procure money at a much cheaper rate if the interest were left unfettered by law. There should be but two parties in transactions of that description—those who borrowed, and those who lent. The legislature ought not to interfere.

Mr. H. Martin

expressed his approbation of the bill, which, he doubted not, would enable the public to borrow money at a lower, rather than at a higher rate of interest, than that now sanctioned by law.

Leave was given to bring in the bill.