USURY LAWS. (Hansard, 12 April 1821)

§ Mr. Serjeant Onslow
rose, in pursuance of notice, to call the attention of the House to the subject of the laws for regulating or restraining the interest of money. He alluded to those laws which had been passed for the avowed purpose of preventing usury. When he, in the year 1816, brought them under consideration, it was admitted by the chancellor of the exchequer, that they were in principle indefensible, but that the state of the public mind was at that time such as to render the agitation of the question dangerous. The right hon. gentleman added, that a time would no doubt arrive when the discussion might be safely entered on. He had afterwards consented to a second postponement of the subject, in consequence of representations made to him by the solicitors of the Bank. The committee to whom the question had been referred, had gone with the greatest attention into every branch of the inquiry, and had received very important evidence both from persons favourable and persons hostile to an alteration of the existing law. Amongst other witnesses, the hon. member for Portarlington (Mr. Ricardo) had been examined, Mr. Kaye the solicitor to the Bank, some of the first representatives of the monied interest in the city, and a name never to be mentioned without veneration, the late sir S. Romilly. The concurrent opinion of these last mentioned individuals was, that the usury laws answered no good purpose whatever. He would now state the substance of the resolutions to which the committee, on a full review of the evidence, had finally agreed. The first was, that the laws in question were continually evaded with success: that of late years they had been converted into a means of greatly increasing the expense to borrowers; and that 176 they led to the injurious practice of raising money by annuities upon lives. They not only subjected the borrower to enormous charges, but frequently to the necessity of a disadvantageous sale of his estate. The effect of the second resolution was, that as applicable to commerce these laws produced a great uncertainty of interest, and engendered perpetual doubts and litigation. The third resolution imported, that whenever the market rate of interest should be below the legal rate, that would be a proper time for entering into a full consideration of this subject, without any injury to public credit. Many hon. gentlemen must be aware that 10, 12, and 13 per cent had been given for money by annuities for life; and not only for one life, but sometimes for two, three, and he had even known a case where the annuity was granted and secured for five lives. The evidence of the different secretaries to the insurance offices all agreed in representing this to be a common practice. The testimony of Mr. Wakefield, and of various respectable solicitors, concurred in the statement that the uniform effect of the present laws on landed proprietors was, to subject them to enormous charges in raising money. He had himself met with instances of landed property sold most disadvantageous, and in one case a loss of 70,000l. incurred, by annuities running over the whole estate. It was an error to suppose that any application to the court of Chancery was necessary, in order to enable a mortgagee to foreclose. With regard to the second resolution, and the extent to which these laws affected our commercial interests, he could appeal to the solicitor general, whether they were not productive of continual difficulty and doubt. Here the hon. and learned gentleman took a brief and rapid review of the history of the laws for regulating the rate of interest. Every writer of eminence or authority had, he said, disapproved of them, and an hon. and learned friend of his now filling a high judicial office in Scotland (sir S. Shepherd) had confessed, that his opinions on the subject had been entirely changed, by the perusal of Mr. Bentham's celebrated work. Under these impressions, he should now move, "That leave be given to bring in a bill to repeal the Laws which prohibit the taking of interest for money, or limit the rate thereof."

§ Mr. Davenport
said, that the measure 177 would be dangerous to the yeomanry of the country, who could scarcely go on paying only five per cent. He feared it would drive many persons to the sale of their estates, and he trusted the learned serjeant would on consideration withdraw his motion.

Sir Robert Heron
did not mean to oppose the motion for leave to bring in the bill, but was at the same time desirous of expressing his decided opinion that it was the most mischievous ever proposed for the adoption of that House. It would if it should pass, have the effect of introducing uncertainty into all mortgages; nor would any parties be disposed to lend until they conceived that they had obtained the highest possible interest. At present all money borrowed upon annuity must by law be registered, and this was a very operative check on that ruinous mode of raising money. By the proposed measure, this necessity would be removed. If unhappily it should receive the sanction of the House, he should move for an alteration of its title, and that it be called "a bill for more speedily ruining the young nobility and gentry of the country."

§ Lord Althorp
could not conceive how a bill of this nature was likely to operate injuriously towards the landed interest. On other points of legislation, the House was called upon to consider principles, but in the present case it was enabled to decide from practice. It was known that when the legal interest upon money was so much as eight per cent, money was at that rate invested in mortgage, and although eleven per cent could be obtained upon annuities with liberty to insure the life of the borrower, money was not transferred from mortgages to annuities. Why thon should the apprehension of such transfer be entertained in the present case, or that enabling men to sell the use of money at the market price would operate against the landed interest?

Mr. Philips
thought that those who calculated upon any disadvantage to the landed interest from the measure, had never read the evidence taken before the committee upon this subject. From that evidence it appeared, that a measure of this nature was peculiarly calculated to serve the landed as well as the commercial interests. He could not see why money should not be an article as free in the market as land or goods. From the state of the laws referred to in the motion, many men in trade were often obliged, 178 for the relief of temporary necessities, to have secret recourse to extortioners and unprincipled brokers; whereas, if the legal restraints of interest were removed, they would be at liberty to deal upon the best terms with open traders in money.

Mr. R. Gordon
deprecated the theory which this proposition had in view, cautioning the House to beware of theories from the sad experience of the measure for the resumption of cash payments. This, however, was the age of theories, and nothing was heard of but a recourse to first principles. He must, notwithstanding this cry, sanctioned as it was by authority, deprecate the proposed change in the laws against usury, as well as other changes, which he deemed wild and visionary speculations.

§ Mr. J. P. Grant
said, that his hon. friend who spoke last seemed to him to have mistaken both the disease and the remedy. The distress which existed arose from theory, and from the preposterous theory of a legislative interference with money dealings, which was not applied to any other branch of commerce. Some persons had been of opinion, that the same principle ought to be introduced into the manufacture and sale of bread; but in practice it would always be found most advantageous to leave the seller and purchaser, the lender and borrower, to make their own contracts according to their several necessities. It was by this course that they would ensure the best supply at the cheapest rate.

Mr. Calcraft
confessed, that his prejudices were strong against the proposed alteration, and were founded in reflection upon what the country had suffered at former periods from an unlimited rate of interest. With regard to the sale of bread, there had been a maximum fixed by assize; and when that was repealed, great advantages, none of which had been realized, were anticipated to the consumer. The country, it should not be forgotten, had risen under the existing laws to an unrivalled degree of commercial prosperity, and trade had flowed into every channel where capital was found. He greatly feared that the measure was calculated to unsettle mortgages, and to persuade lenders that they ought to have obtained better terms.

§ Mr. Ricardo
thought the House and the public were very much indebted to the learned gentleman, for the measure which he had proposed; and expressed 179 his astonishment at the apprehensions of members, that its adoption would operate to the prejudice of the landed gentry, by raising the rate of interest; for the fact was, that the lenders of money would not have more power to raise the rate of interest than the lenders would have to keep it down; and the competition between both would serve to bring it to a reasonable standard. As to the allusion of his hon. friend to the assize of bread, that case had no analogy to the present question, because the maximum upon bread was merely meant to keep the price of that article in due relation to the price of corn. An hon. friend had taken occasion, in referring to the resumption of cash payments, to reprobate what he called that theory. But his hon. friend should consider that the restriction upon cash payments was a departure from the old and established theory of the country, to the sound currency and wholesome practice of which it was now proposed to return. His hon. friend had deprecated change in such a strain, as would really form an argument against any improvement. He had had great experience in the money market, and could state the usury laws to have always been felt as a dead weight on those wishing to raise money. With respect to those concerned in the money market itself, the laws had always been inoperative; and during the war indirect means had been found of obtaining seven, eight, ten, and fifteen per cent interest. The laws therefore occasioned inconvenience, but did no good.

Mr. Baring
said, that the measure would be of the greatest benefit to the country, and came before the House at the most safe and seasonable period. When introduced about six years ago, it might perhaps have created that alarm and derangement which some hon. members supposed it calculated to produce; because the war rate of interest was at that time above five per cent; but at present, when the rate of interest in the money market was below 5 per cent, there was no reason to apprehend such an inconvenience. He conceived that the measure would not be attended with so much benefit to the mercantile interests and moneyed men as to the landed interest.

§ Mr. Monck
spoke strongly in support of the measure under discussion, which proposed to remove one of the remnants of the old and irrational system of assize, the servants of the Ordnance department We had had, in ancient times, an assize 180 upon cloth, leather, beer, and bread. We had got rid of these, and he hoped this fragment was about to be removed. The repeal be removed. The repeal of the assize upon bread was known to have produced the best effect, by procuring better bread, and upon cheaper terms than were ever known under the existence of the excise. He anticipated a good result also from the repeal of the usury laws, and especially to the landed interest, who could not hope to obtain any loan of money while government, which was not restrained by the usury laws, would give more than 5 per cent interest. But, when dealing in money became a free trade, those who wanted to borrow might openly treat with those disposed to lend, and the money lenders would be considered as respectable as any other class of people in trade.