MONEY LENDING. (Hansard, 20 February 1899)

§ LORD JAMES OF HEREFORD

My Lords, it may be in your recollection that in the year 1897 the House of Commons appointed a Committee to inquire into the alleged evils attendant on the systems of money lending by professional money lenders at high rates of interest or under oppressive conditions as to repayment. That Committee was re-appointed in 1898. It held many sittings, it examined a large number of representative witnesses, including many distinguished Judges of the High Court 1409 and the County Courts, it examined a large number of officers of the Bankruptcy Court and men who, from their associations, have practical knowledge of the question of money lending, and it certainly most assiduously discharged the duties which were cast upon it. The Report of the Committee was a very full and comprehensive Report. It disclosed that great evils affecting the community existed, and those evils were particularised, and remedies were suggested. The principal finding—if I may so term it—of the Committee was as follows:— Your Committee have unhesitatingly come to the conclusion that the system of money lending by professional money lenders at high rates of interest is productive of crime, bankruptcy, unfair advantage over the other creditors of the borrower, extortion from the borrower's family and friends, and other serious injuries to the community. My Lords, after reading the evidence that was given during the two Sessions of Parliament before the Committee, Her Majesty's Government came to the conclusion that the Report was well founded, and the question then arose: Was this grave and serious matter to be allowed to rest where it had fallen, or was it the duty of the Legislature to attempt to deal with this evil by practical legislation? The latter view prevailed in the opinion of the Government, and it is in accordance with that opinion, which in its results casts, not upon a private Member, but upon the authorised Government, the duty of meeting the great evil, that the Bill which will be introduced into your Lordships' House to-night is placed before you. The matter is a little complicated, and has to be very carefully dealt with, not only in justice to the money lenders themselves, not only to protect the interests of those who suffer from money lenders, but also in order that good care may be taken that important branches of the community should not suffer from the legislation which is not intended to affect them. And therefore it is that I am asking your Lordships' permission to make a brief statement about the objects that are in view when this legislation is proposed to you and the effect of the proposed legislation. If I do not make this statement, I fear some misunderstanding might exist as to the in- 1410 tention of both of the promoters of this Bill, and also the effect the Bill would have on the public. I do not, of course, intend to refer in any detail—perhaps not at all—to the evidence that was given before the Committee, but if any of you would take, I won't say the trouble, but would occupy a certain amount of time in reading this evidence, or some portion of it, I am certain it would repay you. It discloses a state of facts which, I believe, few persons are aware of. There may be some—those who have had judicial experience, or those who have practised in our Courts of Law—who from time to time have learned of cases representing great hardships and great injury. But the systematic proceedings of these money lenders—a well-known trade now, I believe—never were brought to the knowledge of the public until this Committee sat and examined the different witnesses who, from different points of view, placed the real facts of the case before them. My Lords, the result of the evidence shows that there are certain specific evils that have to be dealt with. The first is that these money lenders do not trade in their own names. You never know who they are. They trade under false names, and they trade under different names. One witness admitted that he traded under seven different aliases, and there was one case in which a man traded under 34 aliases. They also trade in different towns under different and alluring designations, such as the Clerical and Medical Mutual Help Association, and other names of a benevolent character, so as to induce those who wish to borrow to believe that they are dealing with persons who have almost an uninterested object in view in affording assistance. That is an evil that displays itself in a practical way. The borrower owes money to A. A insists upon his bond, and the borrower goes to B. B lends him money to pay A, and then the borrower goes to C to borrow money to pay B, until his resources are known to someone to be exhausted, and then it is found that the seven or eight persons he has been borrowing money successively from represent only one person trading in different names. The second great evil is that specious incentives, almost entirely false sometimes, are held out to induce persons to borrow, believing they 1411 are borrowing' on terms that will be by no means onerous. The third evil is that when the borrower has agreed to borrow bargains, as the law terms them, of a hard and unconscionable nature are made with the borrower. Advantage is taken of his absolute necessity, of his impossibility to continue without some financial assistance. Then when these unconscionable bargains are made they are sometimes made without any explanation of them being given to the borrrower. He is often kept in ignorance of the terms of the contract until the fatal day for repayment arrives, and, lastly, when this hard and unconscionable bargain, deceptive and ambiguous in its terms, has to be fulfilled, then without mercy, perhaps, too, without even justice, to the uttermost farthing and the uttermost extent, the obligation is carried out against the borrower. Now, my Lords, these are evils that are growing. The law at present throws no obstacle—at least no direct obstacle—in the way of this trade being carried on, and the question now arises, if it should meet the approval of the Legislature that the system should be dealt with, how ought we to deal with these evils so as to either destroy them or mitigate them without injury to the community that take no part in them? Of course, the first objection—a general one—is to our dealing with the subject at all. The principle of legislation of comparatively recent times has been to abolish all restraint upon lending and borrowing. We abolished in the year 1854 the old Usury Laws, and I have heard many who have said, when the suggestion was made that you should deal with these money-lenders, that you would be returning to the old system of restriction upon the rate of interest, and that you would be virtually reimposing the Usury Laws. That is not so. There is no intention in any way, either actual or in principle, to re-enact the Usury Laws, which were repealed because they put restraint upon our commerce and trade. You will recollect that the Statute of Anne prevented anyone from lending at a higher rate than 5 per cent. That was found to be so unnatural to the ordinary course of trade that you were bound to give special exemption to the Directors of the Bank of England, because they 1412 could not act as bankers in these great commercial centres if they could only obtain money at the rate of 5 per cent. You will find that those who argued for the abolition of the Usury Laws—men like Adam Smith and Jeremy Bentham—always put their case in favour of abolition upon the view that commerce could not proceed, because money was often worth more than 5 per cent. In his celebrated lecture in 1763, Adam Smith argued, as it were, in favour of free trade in money. He put the real value of money at what it was worth, and said that what the borrower could afford to give and what the lender was entitled to receive should depend principally on the amount of money in the market, the same as any other commodity. Jeremy Bentham and the Committee of the House of Commons took the same view, and asked, in the interests of the fair man of commerce, that he should be allowed to obtain his money at a fair rate of interest, according to what it was worth. These men were arguing on behalf of a great economic principle. Not one of those who sat on the Committee of 1818, not one who took part in the Debates in the Houses of Parliament on the abolition of the Usury Laws, ever contemplated that the abolition of those laws would call into existence a set of men who lived and thrived upon the necessities, of their neighbours, and who took advantage of the weakness of a portion of the community to act in a cruel and exacting manner. Apart from any question of the revival of the Usury Laws, it is now sought to provide a direct and particular remedy against a great wrong which has grown up of late years and who never in the contemplation of those who instituted free trade in money. I will now, my Lords, with your permission, state the remedy which this Bill, it is hoped, will supply. I will deal with the evils step by step, and I hope I shall be able to show that this Bill will be sufficient to meet them, and yet not go beyond the necessities of the case. The first evil I stated was that you were, and the borrower was, always unable to know who the lender is. My Lords, we propose that every person carrying on the business of a money-lender shall be registered. I do not suggest there should be a licence. That is a useless addition to a register, but we ask that 1413 he should be registered. This is not a thing unknown to our Statute Book. There are many persons who are registered, such as pawnbrokers and marinestore dealers. Indirectly all the professions are registered, and do not think there can be any objection to a man who is an honest man being registered. In order then that a money-lender shall not carry on his trade under an absolutely false and deceptive name, we purpose making a proposition that he shall be registered. Having used the word "money-lender," I would wish at once to meet a difficulty which has to be dealt with, and is not a slight one. I have said that money-lenders are to be registered. The natural question arises, Who is a money-lender? I am aware that objection has been taken to the possibility of our dealing with the class of persons who are the subject of this Bill lest we should also deal with those who legitimately lend money, and lend it under conditions and terms which render the lending a benefit to the community. This difficulty arose before the Committee, and many distinguished men were asked to define the word "money-lender." Some of them replied that a definition was not necessary. A professional money-lender is, they said, a known term, and the Judges must determine whether a man is a money-lender or not. I am afraid that will not do. We ought to inform the public who are to be regarded as moneylenders. We must define them. Some of the witnesses said they were unable to define a money-lender, but the Government draughtsman would be able to define him without any difficulty whatever. I can inform the House that the Government draughtsman has found the greatest difficulty in defining a moneylender. But we have done our best, and, subject to the revision and consideration which I hope your Lordships will afford to our definition, I hope we have to some extent solved the problem. I cannot define a money-lender affirmatively, but I hope to do so by exclusion. The persons you wish to exclude are the persons who do in fact lend money in the way of commerce and financial dealing, yet who do not come within that class colloquially known as money-lenders. What I propose is, that "money-lender" in this Act shall in- 1414 clude every person who carried on the business of money-lending or advertises or announces himself or holds himself out in any way as carrying on that business, but shall not include any pawnbroker or banker or other person carrying on a commercial or general financial business in the course or conduct of which he may lend money. I cannot say that is a perfect definition, but our object has been to provide a sufficient protection to those who are legitimate lenders of money, and as we shall gladly receive any suggestion for strengthening that definition, I hope and believe it will be found sufficient for the object we have in view. Having registered these gentlemen, we shall insist that they shall trade in one name only; they shall not use aliases for the purpose of lending money. The money-lender shall take security in his own name only, and that security shall bear on the face of it the name of (A. B.) as the moneylender. If the form is not gone through, even a negotiable security shall be void except against the moneylender himself. The Bill also provides that a copy of the contract shall be given to the borrower, so that he shall know positively the nature of the bargain he has entered into. I hope that so far the Bill has no injustice in it. I cannot conceive that any one of these professional money-lenders can object to registration after the absolute proof that has been given of their deceptive conduct and of the harsh bargains they have made with borrowers whom they very often themselves select because they are not persons of business habits who would be likely to make themselves fully acquainted with the terms of the contracts into which they enter. These are matters of procedure. I now come to the more serious question of how these hard and unconscionable bargains are so to be considered and dealt with as to protect the persons who have entered into them from the exacting nature of their bargains. My Lords, let me say that if the provisions of this Bill should startle anyone, it would be well for them to consider what our present power is to review these contracts. It is supposed, my Lords, that the Courts of Law and Equity cannot touch these contracts, and in one sense that is true. But looking back on the history of the power 1415 of the Courts of Equity, in anther sense it is an incorrect view. My Lords, we start with a very old case in our books, which every student of the law has read and delights in reading. I refer to the case of a man who sold his horse and brought an action for the recovery of the price. He said a contract was entered into, and it was not denied, that the buyer of the horse should pay for it by giving first one corn of barley for the first nail in the horse's shoes, two for the second, four for the third, and so on, multiplying successively until the thirty-second nail was reached, when the buyer owed the seller of the horse 510 quarters of barley. But the sturdy old Chief Justice then said, "That will not do. Gentlemen of the jury, you must tell me what is the value of the horse." The jury having said the value of the horse was £8 only, the Judge ordered this sum to be paid, and said he would not have such bargains enforced in his Court. That was a relief from a hard and unconscionable bargain. Again, our rules of equity were set up with great clearness and force by Lord Hardwick as Chancellor in 1750, when he relieved a seller of a reversion from what he thought to be an unconscionable bargain, but for some reason that relief was afforded only to heirs in expectancy and reversionary interest, and directly it was found that the reversion had been sold at an inadequate price, only then was that sale set aside until a Statute was passed in 1867 altering the law in that respect. In 1880, I think it was, that power of relief was extended. A Judge in a case ruled that if a contract was made to lend money at a high rate of interest, knowing the borrower could not pay, and that the payment would be obtained by bringing pressure to bear upon the family and the friends of the borrower, that was a species of blackmail that would not be allowed, and the contract was set aside. See how very nearly we approach to the relief that ought to be given, as we think, to the impecunious and necessitous borrower as against the exacting and deceptive money-lender. The Bill proposes to give power to the Courts to review and go behind any contract with a money-lender, and to relieve the borrower where the burden of the contract he has undertaken is totally dis- 1416 proportionate to the amount of benefit he receives—where, in short, it is a hard, unconscionable, and exacting bargain. Whenever a money-lender endeavours to enforce his contract, the Court where he seeks to enforce it shall have certain powers to review, and if he does not seek to enforce it, but relies on his security, then the debtor shall have power to make the application. I do not think that such an application should be made, or that defence set up, without good reason. It is provided, therefore, that where the interest, charged is less than 10 per cent. per annum, the Court shall not exercise any power. We should not wish that contracts moderate in their character should be reviewed, and therefore the 10 per cent. limit would form the datum line upon which this jurisdiction will be founded. Now, my Lords, having given this power of review, of course the wording of such a power has to be carefully considered, but the substance of what, we propose is that where, as I have said, the interest charged in respect to the loan exceeds the rate of 10 per cent. per annum, or where the amounts charged for expenses, inquiries, fines or any other charges are excessive, the Court may reopen the transaction, and may, notwithstanding any statement of account settled or agreed upon, reopen such settled account and find the amount that, according to the circumstances of the case, shall be regarded by the Court as a fair sum to be paid. The same power is given to the Registrar in Bankruptcy when proof comes for a debt to say at what sum it should be made. I must not, weary you with this explanatory statement, but this is a slight advance upon the powers already existing in the Court of Equity, and I trust It will be the means of proving a great check to those who are now carrying on the business of money-lenders Under existing conditions to know that every contract will be subject to the just and impartial mind of a Judge. Only one other provision—except technical provisions—remains in the Bill. You often see charges made in our Criminal Courts against men who have been borrowing money. The money-lender says to the borrower, "You have made false statements about your reversionary interest being uncharged, and that you had great 1417 expectations; you have deceived me, and I will charge you now with obtaining money under false pretences." I do not object to that law, but I maintain that what is just towards the borrower ought to be just also towards the lender; and if the money-lender makes promises which he never intends to fulfil, and uses deceptive words in his advertisements and interviews to induce a man to give his security and become liable to obligations which result in his goods being taken, what we suggest is that he should be subjected to the same measure of law that he often employs against the borrower. Now, my Lords, it may be said that these are very drastic remedies, and in one sense they are; but I think we ought to contemplate the proposal of this Bill as being drastic, and we ought to determine whether we intend that they should have the effect which they may have. My Lords, in the course of the inquiry before the Committee several moneylenders were asked, "What will be the effect upon you if this review of the Courts takes place?" The answer was, by one and all, "It will bring our business to an end." Well, my Lords, I do not contemplate the result of legislation such as this with any fear. If making a man honest and just brings his business to an end, why should we shrink from adopting the proposals contained in this Bill? You must, of course, look at the result of bringing the business of the money-lenders to an end. The Committee took that into consideration, and their report was to the effect that, although they were satisfied that the system was sometimes honestly conducted, they were of opinion that only in rare cases was the person benefited by a loan obtained from the professional money-lender, and that the evil attendant on the system far outweighed the good. It is true that a few men here and there may be saved from the immediate evil of the necessity of money by recourse to the money-lender, but many more are ruined when once they enter into contracts with these men. Some 200 years ago, I think it was, Mr. Addison, describing the methods of one of these money-lenders, said: He deals with you in the present tense; he lends you money in the conditional mood; he keeps you in the subjunctive; and he ruins you in the future. 1418 It is possible that ho spoke like the noble Earl who seconded the Address a few nights ago in this House—namely, from his heart; but the statement made by Mr. Addison 200 years ago is perfectly true to-day. Tale after tale is to be told of the impossibility of men fulfilling their obligations, and therefore ruin is their certain and complete fate I hope you will not think that I am digressing if I suggest to your Lordships that whilst by legislation we cannot find an equivalent to the professional money-lenders lending small sums to very needy borrowers, yet a great deal can be done in that direction by individual effort. My Lords, in the proceedings before the Committee—I should not mention the subject if the evidence had not been given—a very considerable body of evidence was given, especially by Professor Bottomley, as to the system that exists to an almost universal extent in Germany, and which happily is beginning to find its way into this country. In 2,880 rural parishes in Germany there exists what are termed Loan Banks. The small tradesmen form themselves into a bank. They agree to become lenders to each other and no person can borrow except those who are members of the bank. A man borrows upon his own simple statement that he will repay, backed by two sureties, who are known to be solvent people, and the sums borrowed vary from 5s. to £20. This process was so successful that in 1897 the turnover of these banks amounted to 133,000,000 marks, or £11,000,000 sterling in one year. This was done without one single instance of default, without any security of a bill of sale or any bond being given upon which execution could be issued at the rate of 5 per cent. A few banks of this kind have been started in this country, especially by the honourable Member for Chester, and wherever they have been started they have proved successful. I ask your Lordships to contrast such a system as this with the prevalent system of money-lenders taking sometimes as high a rate of interest as 3,000 per cent. per annum, and never showing the slightest consideration for those who enter into these contracts. I fear, my Lords, I have made a long statement, but I was anxious that the Bill should not go forth to the public as a harsh and unnecessary Measure, 1419 and I trust, when it comes before your Lordships, that this Measure, which ought to be dealt with in no off-hand manner, will receive the fullest consideration at your hands, and that the Government will be enabled to make it a Measure which shall be of benefit to the country generally.