HIRE-PURCHASE BILL. (Hansard, 2 June 1938)

§ LORD AMULREE
My Lords, the object of this Bill is to remove what has become a growing social evil. The Bill does not restrict hire-purchase on terms of fair dealing. A large proportion of 842 traders deal fairly and equitably with their customers and they welcome the Bill. At the same time there are others who deal harshly and by sharp practices bring misery to many a home and discredit on the whole hire-purchase system. It is the activity of these people that this Bill seeks to check. The Bill also protects the trader against the unscrupulous and dishonest hirer. The Bill is therefore not directed against the normal and reputable use of the hire-purchase system, but against those who abuse it.
Hire-purchase is a device deeply characteristic of our modern way of life. The temptations it may offer to the thriftless are counterbalanced by the facilities it affords to early marriage and home building. It is conducted in the main with integrity and with the consideration that fair dealing is good policy. But many of the customers are persons whose ignorance and social timidity make them n easy prey to sharp practices, and abuses of this nature have been proved by abundant evidence. This has resulted in many tragedies, some of a serious type. County Court Judges, more particularly in industrial areas, as they see most of this type of litigation, have complained bitterly against many of these transactions and have expressed the need for a reform of the law. One learned Judge said on one occasion: My bitter experience over the past four years has driven me to desire that all hire-purchase could be made illegal to-morrow … Week after week, month after month, I sit and listen to accounts of minor tragedies affecting the welfare of working people of this district. In the vast majority of these cases I am wholly powerless to avert those minor disasters to these people. The primary object of the Bill is to protect the small householder, but in a general measure of this nature it was necessary to include ordinary commercial transactions on a small scale as well.
Since the War the system of hire-purchase has grown enormously. It has been estimated—it necessarily is a rough estimate—that something like 5,000,000 families have hire-purchase agreements for furniture alone. About 60 per cent. of the furniture in Great Britain is sold under hire-purchase. The transactions carried out under the system are estimated to amount to about £100,000,000 a year. These are large figures and this large business makes it important that it should be conducted on a level of the 843 highest integrity. That standard in many cases is not observed, and I venture to submit that it is the duty of Parliament to come to the aid of those who need protection. I do not propose to enter into the merits or demerits of hire-purchase. I only wish to say that hire-purchase does enable people to obtain goods on credit who otherwise would not be able to obtain them; but what is a useful practice in the hands of reputable firms has become a source of great scandal in what is recognised as the worst end of the trade.
One of the evils dealt with by the Bill is what is known as the "snatch-back." Decent firms do not want the goods back. They want to be paid; they are content with a reasonable profit and they want the ordinary instalments to go on. But there are firms who want the goods back in order to re-sell them, particularly when a considerable portion of the price has been paid. A hire-purchase agreement grants the option to buy only when all the stipulated conditions are fulfilled. The theory is, under certain agreements, that all the time the hirer is paying only for the hire and that at the end of the stipulated time one pays a nominal sum, say 1s., as the purchase price. That means that it is open to the owner to repossess himself of the goods at any time prior to the stipulated time if the conditions have not been fulfilled. That is where the centre of the trouble lies.
I have had an opportunity of investigating a large number of these cases and I confess they make very painful reading. I do not propose to trouble your Lordships with extreme cases, but I will quote one or two cases to show how the system is carried out. A poor woman got furniture on hire-purchase and the price she was to pay was £27 1s. 9d. She paid all save 25s. and then got behind with her payments. She was a charwoman, and one day when she was out charing a van called and took away all the goods. A miner had some kitchen furniture for which he was paying on the hire-purchase system £9 15s. After he had paid all save 17s. 6d. he fell out of employment. The furniture was seized, touched up and sold again at the original price. A commercial traveller got married and obtained on hire-purchase furniture at the price of £100. He lost his job when he had paid £60 on the 844 furniture. Within six weeks his home was cleared out and he lost the £60 and the furniture as well. A farmer had fourteen cows under hire-purchase, for which he was to pay £431 13s. He paid £332 and then, as farmers do at times, he ran short of money and was not able to continue the instalments. The hire-purchase company thereupon seized the cows. They thus got the cows and the £332; in other words they got £763 13s. out of this transaction, because the cows were of the same value as when the agreement was made, or, may be, of greater value.
Another abuse is the linked-on contract. Perhaps it is best explained by giving an example. A young married couple got furniture on hire-purchase at a price of £30. They paid the instalments regularly to the last four instalments. Then a canvasser called and complimented them on the fine way in which they had carried on their payments and had given no trouble. He praised them up to the skies; then he said: "Would you like some more furniture on the instalment system?" They demurred at first, but afterwards were induced to take another £25 worth. This new transaction was not the subject of a separate agreement, but they were given what is known as a "linked-on" agreement, that is, the new purchase was added to the old agreement. The young people did not know the pit that had been prepared for them. They got the old document with the particulars added and they paid off £30 under the original agreement. They went on paying for the new purchase until they had paid about one-third. Unfortunately, the man lost his employment and in consequence was unable to continue his instalments. Thereupon the hire-purchase company came down and claimed the lot, including what had been already paid for in full.
There is no guarantee or warranty that the goods are of an implied quality. A woman bought a divan bedstead for her daughter, a schoolgirl. The daughter developed what the mother thought was a cold in the throat but she could not cure it. She called in a doctor who diagnosed that the child was suffering from an irritant of some kind. He could not tell what it was until the mother happened to say that every time she tidied the room she found sawdust under the bed. On the advice of the doctor the divan was 845 opened, when it was found to be stuffed with wood shavings such as are used for packing eggs. The poor woman complained to the company but she was told that they gave no warranty and refused to admit any liability. The mother was without a remedy and had to pay. Another hardship is that if proceedings are taken in the County Court, they are frequently taken in the Court where the company have their headquarters. People living, for example, in the north of England may be summoned to appear at a Court in London, and accordingly the hire-purchase company get judgment by default. I could give other instances, but I have already cited enough to show your Lordships the evils with which the Bill proposes to deal. The Bill also provides against wrongdoing on the part of the hirer. It makes him liable for any damage to the goods while under the agreement, and inflicts a penalty for removing the goods and refusing to disclose where they are. It also protects the owner in the case of the bankruptcy of the hirer or in case of distress.
So far I have been dealing with the question of hire-purchase. There is another part of the Bill which deals with credit-sale agreements. Under hire-purchase, as I have pointed out, the goods comprised in the agreement remain the property of the owner and do not pass to the hirer until after the instalments have been paid and other conditions fulfilled. In the case of credit sales the property in the goods at once passes to the buyer. It is an agreement to sell, not for ready cash, but on credit. A credit-sale agreement is defined in Clause 16 as a sale when the purchase price is payable by five or more instalments. A hire-purchase Act was passed for Scotland in 1933. A great deal was expected of that Act, but it has not had the success it deserved. It has proved most beneficial in cases where it was not wanted—namely, in the case of good traders. Unscrupulous traders have transferred their transactions to credit-sale agreements, and the abuses under credit sales are said to be almost as rampant in Scotland as those under hire-purchase in England. This Bill, as I have said, includes transactions under credit-sale agreements.
The Bill seeks to check the various abuses I have mentioned and others. The majority of cases coming under the Bill 846 will be those where the purchase price does not exceed £100. In Clause 1 there are three limits set up. There is a general limit of £100, and there is also a limit of £50 in the case of motor vehicles. The reason for that limit of £50 is this. As your Lordships know, a practice has grown up in the motor trade where the person making the purchase arranges for the value of his old car to be taken into account. It is felt that if a higher figure than £50 was specified it might seriously affect the sale of new cars and thereby seriously affect the manufacture of cars. Accordingly it is agreed that the limit as regards motor vehicles should be £50. Your Lordships will observe that this limit of £50 also applies in the case of railway wagons. A curious feature about this is that it was with railway wagons that hire-purchase was first started. The wagons now dealt with in this connection are second-hand wagons, and it is agreed by everyone concerned that £50 should be the limit.
Another case is that of livestock. Livestock stand on a different footing from most articles covered by hire-purchase. Livestock under a hire-purchase agreement generally improve instead of depreciating, and consequently the existing law with regard to hire-purchase operates more harshly on farmers than on other people who buy goods that wear out. The owner under the existing law is able to take possession of an improving asset as well as take the instalments, and under the harsh exercise of this power many farmers have been brought to bankruptcy. A special provision is necessary in this case because these agreements usually include not one animal but a number of animals. Cattle as a rule are not bought singly either in market or from dealers, but generally in groups of ten and upwards. It would practically ruin the beneficial effect of the Bill in respect to cattle if the limit was fixed at £100, so that in this case the limit has been fixed at £500 for livestock;
I do not know that I need go into Clause 2 very fully. It relates to the two prices—the purchase price and the cash price which must be mentioned in the agreement; certain particulars must he specified. Clause 3 relates to credit-sale agreements and is substantially the same as Clause 2. I call your Lordships' attention to subsection 1 (a) where certain 847 words are left out. It should read substantially the same as Clause 2 (1) (a). Then there is a new right to the hirer under Clause 4, where he has paid half the purchase price, and there is a provision in the event of his not having taken reasonable care. The next clause makes provision against contracting out—I need not go into that. Clause 6 makes provision for the owners and sellers to supply proper information. It often happens that these unfortunate people have no record of what they have paid and what they owe, and the obligation is put on the trading company to supply particulars. Then there is a provision dealing with the duty of the hirer to give information as to where the goods are, and if he neglects to do so he is liable on conviction to a penalty.
Clause 10 restricts the owner's right to recover possession of goods otherwise than by action. Where one-third of the hire-purchase price has been paid the owner cannot enforce any right to recover possession of the goods otherwise than by action. The next clause says that an action by an owner against a hirer to recover possession when one-third of the hire-purchase money has been paid has to be commenced in the County Court for the district in which the hirer resides. Clause 12 deals with the question I have already mentioned about successive hire-purchase agreements between the same parties. The other clauses are all fairly simple and I need not go into them. I might, however, call attention to the Schedule which sets out the notice which has to be appended to the memorandum of the hire-purchase agreement and states what the obligations of the hirer are and also the obligations of the hire-purchase company. The Bill provides a balanced system of safeguards on both sides. It will protect the sensible and honest hirer on the one hind while permitting a legitimate and useful trade to operate on a reasonable and fair basis on the other hand.
The Bill breaks new ground and accordingly requires careful examination. It has had a prolonged and considered examination in another place, and probably a further examination will reveal that other Amendments, mostly of a drafting nature, would improve it. The Bill was preceded by a long and careful preparation. An investigation was carried 848 out by Dr. Mallon, the Warden of Toynbee Hall, and his colleagues and the honourable member for Thirsk, Mr. Tufton, a former resident there. Mr. Watkins, a busy solicitor in the City of London, did valuable work in getting agreement between the hire-purchase trade and social workers. The investigation extended over a period of two years. The honourable member for Jarrow, Miss Ellen Wilkinson, has been keenly interested in the subject and she conducted the Bill in another place with great skill and judgment. The Attorney-General was most helpful and it is largely due to him that the Bill appears in its present shape. It has the approval of some twenty-seven trade associations, including the Hire-Purchase Trade Association, the Federation of British Industries, the Association of British Chambers of Commerce, the National Chamber of Trade and the National Association of Trade Protection Societies. I think I am right in saying that the trade welcomes this legislation to stop the anti-social acts of both bad owners and had hirers. I beg to move.

LORD STRABOLGI
My Lords, I only rise to say that my noble friends desire to support this Bill and to help its passage into law as soon as possible.

§ VISCOUNT BRIDGEMAN
My Lords, I imagine that your Lordships' House will agree that a Bill of this kind is long overdue, more especially as the hire-purchase trade has increased very rapidly during the time of prosperity since 1931. Therefore it is all the more important to provide against cases of distress such as the noble Lord has described, which will undoubtedly occur if employment gets worse and wages get scarcer. But I do not wish to trouble your Lordships by gilding a lily of this kind. I only wanted to refer in rather greater detail to one aspect of the Bill which, with all due respect to the noble Lord who moved the Second Reading, has not I think received as full discussion in another place as it might be thought to deserve. I refer to the credit-sale arrangements in respect of livestock.
It will be seen in Clause 1 of the Bill that all credit-sale transactions in respect of livestock up to a maximum of £100 are included in the Bill, whereas the normal 849 limit is £100 and the limit for motor cars and wagons is £50. I do not think that any convincing reason was given in another place why the limit should be five times as high in respect of livestock as in respect of, for instance, farm machinery. To judge from the debates one important reason was put forward, and that was that the Bill would be of no use to the livestock industry unless it included transactions up to £500 because the average of the transactions was somewhere in that neighbourhood. I have been able to obtain some figures which, I think, can be taken as representative, because they cover such a big proportion of the total hire-purchase transactions in this country, and these figures show that the average transaction in respect of machinery is something between £107 and £117, whereas the average transaction in respect of store cattle is £138. The average for dairy cattle is lower, but I think one can take the same actual figure of £138. Now £138 is certainly not five times the size of £107, and it seems rather hard to agree at first sight that there is any reason why the limit should be five times as high in respect of livestock as in respect of other goods. There were also other objections raised in the House of Commons. One of them was that difficulties constantly arose when livestock were produced for sale in the auction market and sold and it was subsequently disclosed that these animals were the subject of a hire-purchase agreement. There is nothing provided for in this Bill making it an offence to produce livestock for sale and not to disclose the hire-purchase agreement in respect of them, and I think the Bill might be improved by an Amendment in that respect.
My noble friend who moved the Bill produced some harrowing cases, notably the case where the farmer paid £700 odd in respect of some cows which ought to have been valued at £431 15s. That case was mentioned in another place, but there are always two sides to every story, and it so happens that I have had the other side of this story, for what it is worth. Unfortunately it is not always true that the livestock improves through keeping. If it were, the farmer's life would be an easier one than it is. In fact, in this case the farmer was not only a bad financier but also a bad farmer, with the result that the stock had deteriorated so much 850 that, instead of the hire-purchase people getting the difference between £400 and £700— £300—they got £140 by selling the cattle to a dealer. That is the other side of the story. As one side has been quoted I think it is only right to quote the other figures here.
At the present time we are told that Government measures will increase the fertility of the soil. If the fertility of the soil is increased there will be more demand for livestock on the land and a demand for increasing credit facilities. There is no doubt that the £500 limit in the Bill will restrict the credit facilities available to farmers. Further, the livestock clauses in the Bill will be difficult of application because there is always risk of County Court actions and, if so, there is risk of trouble occurring over subsisting animals while an action is pending. Therefore in practice this Bill will have the effect of making the farmer rely more on the auctioneers and less on outside credit organisations. That may be right or it may be wrong, but I submit that the matter has not been sufficiently discussed in another place, and that before this provision in the Bill becomes law it should be perfectly clear that it is approved by your Lordships' House and that we should not merely take silence to mean consent.

§ THE LORD CHANCELLOR (LORD MAUGHAM)
My Lords, this is a Bill of a very important nature and there is no doubt that its provisions should be scrutinised with care. At the Committee stage the provisions with regard to hire purchase and credit in regard to livestock can be scrutinised and no doubt the noble Lord will bring forward an Amendment to enable that to be done. All I desire to do now is to tell your Lordships that, according to the information which the Government have seen and according to the various documents which I have had the duty of reading, the noble Lord, Lord Amulree, has in no respect exaggerated the great grievance that many unfortunate people have suffered in connection with agreements of this kind. The hire-purchase business is in essence a perfectly honest one. If it were always in the hands of respectable firms or people there would have been no occasion for this Bill. Unfortunately, as the noble Lord pointed out, there has sprung up during the last ten years a race of 851 people engaged in this business who have been guilty of conduct which I am sure must shock your Lordships and is well exemplified in the cases which the noble Lord has mentioned.
When the Bill was introduced into another place its form was rather different from that which it has now assumed. There was naturally a great deal of anxiety on the part of respectable people engaged in the trade to see that nothing in the Bill was going to interfere with legitimate business. At first there was in some quarters—by no means in all—some considerable doubt and some opposition. As a result of the proceedings in Committee the associations representing those engaged in this business, or at any rate those who represent the respectable people engaged in it, were practically unanimous in supporting the Bill as it now stands. So far as the organised trade is concerned your Lordships may be assured that the Bill comes to this House practically with the unanimous approval of all these people. Accordingly the Government are anxious to give every facility in their power for this Bill, which I think—subject to Amendments in Committee, which are always possible—will tend to remove what is really in the nature of a social menace in this country, which, as the noble Lord has rightly said, requires some legislation. On behalf of the Government I would say that this Bill is one which certainly should receive a Second Reading.