Mr. BENNETT:

All I can say is that you

cannot get money to lend on farm loans in this country at 24 or 3 per cent. The farm loan act provides that the moneys loaned should be loaned at 14 per cent more than is paid for the money. If the money is borrowed at 3 per cent the farm loan board lends it at 44 per cent. The farm loan board is not the government by any means, nor is the government the farm loan board. The farm loan board exercises an independent jurisdiction and makes its loans without reference to the government or anybody else, but the government has so far bought about ten million dollars of securities issued by the farm loan board to put it in funds to make the loans. The provision here is to enable an increase in the sum to be loaned in order that we may take care of those who have no capital, and we are dealing with that in section 9, making it a little more specific than it now is about supplementary advances.

I can only say that it would be quite impossible to take the money out of the post office savings banks and lend it on farm loans. If we did we would have a situation in this country that other countries have

405S

Farm Loan Act

had, namely, frozen, assets with which to meet the demands of depositors for their money. As it now stands, we have to maintain ten per cent in gold, metallic coverage, for post office savings, and that has been the law in this country for a very long time in order that post office savings may always be available to depositors who desire to get them. Depositors have to give so many days' notice of their intention to withdraw.

Mr. MacLEAN:

In connection with this bill and the bill we have just been considering I am afraid there is not very much relief being afforded to the farmers of Prince Edward Island because the farm loan act has never been made operative in our province. Many of our farmers would like to obtain some new money at a lower rate of interest, but I think in this bill or in the other bill it is provided that a farmer can obtain immediate assistance in the way of an additional loan through this act only if he is paying an interest rate of over seven per cent. Is not that correct?

Mr. BENNETT:

That is not it. Section 17 of the act we have just passed is what the hon. gentleman had in mind.

Mr. MacLEAN:

Down in Prince Edward Island seven per cent is the highest rate of interest that is charged on any mortgages out at the present time, and possibly a lot of mortgages are out at six per cent, so the provision in this act whereby only those who are paying an interest rate of over seven per cent can avail themselves immediately of its provisions would not be of very much help to our farmers even if the act were brought into effect in our province.

There is another point. It is really too bad that this legislation cannot be made effective in all the provinces. I do not suppose parliament can force any province to adopt the legislation, but an effort should be made to ;reat every province alike, and every inducement should be held out to the local governments to embrace this legislation. If anything could be done to induce the province of Prince Edward Island and others who are not under the scheme to come in, it would possibly help out if, as I have said, the rate of interest mentioned in the bill were changed to suit maritime conditions.

Mr. LUCAS:

I think the time is coming when drastic action will have to be taken to bring about a lower rate of interest, because agriculture cannot continue to carry on at the present rate of interest or even at six per cent. I had a letter this morning pro-[Mr. Bennett.1

testing against this legislation if the interest rate is going to be on a six per cent basis. They are now paying six per cent to the farm loan board, and there is an amortization clause whereby they pay an extra two per cent, so that if a farmer is to keep up his contract he has to pay eight per cent. I think everyone is agreed that eight per cent cannot be paid, especially under the conditions that have existed for the last few years. If the farmer gets behind in one of his payments, he is charged eight per cent on the overdue account. Bill No. 92 which we have just passed will no doubt bring a great deal of relief by the composition of debts, but in my opinion, if it is to be a success, the farmer must be in a position to meet the new arrangement, and his ability to do that will depend largely on the rate of interest he has to pay.

I might add that a more sympathetic attitude on the part of the farm loan board, especially provincial boards, is very much needed. I confine my remarks in that respect entirely to the provincial boards because I have always received very courteous treatment from the commissioner and the officials in Ottawa, but I cannot say the same of the provincial boards. There is a great deal of dissatisfaction with their administration.

Twenty years ago the United States sent a commission to Europe to study rural credits. Mr. Harvie Jordan, who was one of the commissioners, after a study of the situation, said:

Every European country for the past half century had given every possible assistance to the development of agriculture.

He found that in Europe farmers secured loans at four per cent while commercial loans ran from five to six per cent. That is just the reverse of the practice in this country and the United States, where commercial loans are made at cheaper rates than agricultural loans. In 1894 France passed the first fundamental law creating machinery for agricultural credits. Two years later, when the charter of the Bank of France expired, it was renewed only on condition that the bank advance to the government forty million francs free of interest to be used in subsidizing rural credit banks. It also stipulated that the bank should pay annually a sum calculated at one-eighth of its circulation, said sum to be not less than two million francs, for the same purpose. We are extending the charters of our banks for another ten years and I was wondering whether a clause of that kind should not be inserted. It was stated also by Mr. Harvie Jordan that loans to agricultural cooperative societies in Europe were made at rates as low as two per cent. As I stated before, the

Farm Loan Act

farmer in Canada cannot continue to pay the high rates of interest which are being charged.

While I am on my feet I Bhould like to refer to the complaints being made with regard to the administration of the Canadian Farm Loan Act. We are amending this act and I think we have some right to say under what regulations or under what conditions the provincial boards shall carry on. Farmers complain that they do not even get copies of their mortgages. As the Prime Minister knows, very often payments in western Canada are made by the delivery of grain. In the last few years when a farmer got behind the board demanded that he should sign a contract to deliver one-third or some other fraction of his crop. There is a great deal of dissatisfaction in connection with this delivery of grain as to wl at authority the board has to hold or sell the grain. I know of one case in Septemiber, 1931, where the board seized three hundred acres of crop for the payment of $294. When the crop was threshed the farmer had 4,300 bushels of wheat and 3,300 bushels of oats besides his green feed, and yet the whole crop was tied up from September to November. Through his solicitor the farmer delivered 1,000 bushels to the sheriff on November 14. At the price of grain prevailing on the day the tickets were delivered, this represented sufficient to cover his payments. Instead of selling this grain, the board held it and acknowledged receipt on December 4, two weeks later, when there had been a further drop in the price of grain. In January they wrote to the farmer to find out what he wished done wtih the grain and he wrote back stating that he expected to get the price prevailing on the day the grain was delivered. The grain was held for eight and one-half months during which time the price continued to drop. It was finally sold by the board at a considerable loss to the farmers. I took up this case and after a great deal of negotiation an adjustment was recently made of approximately $100. I am doubtful whether this man is going to be satisfied as there was a period of two weeks during which a considerable drop occurred in the price of grain.

I have another case where a farmer delivered grain in April of this year on the understanding that if, when it was sold, it did not bring in enough, he would pay the difference. The board wrote back saying that they would not accept any responsibility for the sale of this grain. He wrote back and said that that was quite satisfactory, that he wished to sell it himself. However, when

the rise in prices occurred about two weeks ago the board sold the grain, but it still did not bring sufficient to pay the farmers' debt.

I believe the price to-day is higher than when it was sold, even allowing for the recent drop in prices.

When the board accepts grain I think there should be some definite understanding with the farmer as to how and when it is to be sold. This would eliminate a great deal of controversy and misunderstanding. I understood the Prime Minister to say a while ago that he had no responsibility for the provincial boards, but this act has been created by this parliament. I understand that we are going to guarantee these bonds and surely we should have some right to say how the act shall be administered by the provincial boards.

Mr. BENNETT:

There is nothing that

can be added to what has been said so frequently during the last few weeks regarding interest rates. An earnest effort has been made to reduce interest rates in this country by inducing the banks to pay a lesser rate on deposits, but there has been considerable difficulty because of the fact that trust and loan companies under provincial charters are receiving deposits and paying an interest rate in excess of that paid by the chartered banks. This difficulty has been overcome to some extent, but it still prevails.

The hon. member has pointed out that in the conception of the Canadian Farm Loan Act it was assumed that much of the administrative powers would be left with the provincial bodies. Each province has its own registration laws and particular regulations touching the registration of documents, how mortgages are to be created and concerning the signatures of a man and his wife, and matters of that sort. Some have the old fashioned idea of a mortgage under which the fee or title to the property is transferred to the mortgagee with the right of redemption. Others go under the Torrens system whereby a mortgage constitutes a charge against the property. All these matters were in the mind of this parliament when it enacted the farm loan act, so that cooperation between the provincial and federal authorities is essential to its success. In a broad and general way I think it may be said that they have worked fairly well, although there are exceptions. I know of many cases myself to which objection could be taken, but when the explanations were received they do not appear to be nearly as bad. Acting in my own personal capacity and not in any official capacity, I have complained several times

Farm Loan Act

with respect to what I conceived to be the attitude taken by some of the provincial boards. After the depression some of them apparently became very fearful in connection with their record of the amount of loans and were unduly apprehensive as to collections and perhaps pressed their debtors very hard, in my judgment too hard. I gave the figures the other day which were supplied by the commissioners as to the amount of principal and interest in arrears, and judging from the observations made, most hon. members of the committee thought it was a rather large sum.

In connection with the taking of grain for the purpose of meeting obligations, I need hardly point out that two great cases in this country deal with the obligations of those who take securities. One noted case that went from the Yukon to the privy council against one of our banks dealt with the question of sale of securities at a low market, and there is a much more recent case. The board is no more immune than any other lender from the rule that it must exercise reasonable care and diligence in the marketing of wheat which it receives, and if it failed to do so it would be liable. But that would be in the absence of agreement. There is always difficulty. Of course, whenever it happens that a man's grain is sold on a rising market and it goes higher a few days later, he is perfectly satisfied that his creditor should have held the grain until it had reached the highest price. But if it falls then he is equally censorious of the creditor for not having sold it when it reached the high point from which it departed on the day he complains. These are but manifestations of human nature to which we are all subject, and most of us have been through the unpleasant experience of seeing our securities sometimes sold for less than we thought they were worth to pay our debts. Sometimes we have had to do it ourselves and sometimes others have done it for us. I can Dnly say that the rule is quite as applicable to the board as to any other lender who takes a security to protect himself against loss and under proper circumstances there is no doubt that the appropriate remedy against the board would be in the hands of the debtor.

Mr. LUCAS:

My point was that the board should have some clear understanding with the farmer, when they accept the grain, whether the wheat should be held, whether they should use their judgment, or just exactly what would be done. In one case they held it and in another case they sold it.

Mr. BENNETT:

It is the same principle of law as with respect to the broker who has no stop order and does not sell except on his own judgment. Sometimes, if the market is rising rapidly, there is great complaint because he did not hold long enough. If the market suddenly goes down there is complaint because he should have sold when it was at the top point. I agree that there should be a hard and fast arrangement between the mortgagor and the board, when grain is taken; there should be a direction to sell at a fixed price which is the subject matter of agreement. I shall speak to the commissioner, directing his attention to what has been said to-day in that regard.

Mr. COOTE:

Is the differential of 1J per cent in the rate of interest fixed by law or is it a. rule of the board?

Mr. BENNETT:

I am not sure whether it is a regulation. I think it is in the act.

Mr. NEILL:

It is in the act.

Mr. BENNETT:

The hon. member for Comox-Alberni says it is in the act, and he is an authority on the act.

Mr. COOTE:

I have the act from the library but I have not had time to go through it. I have not found it in the marginal notes. If it is in the act I should like the Prime Minister, before passing the bill out of committee, to consider the advisability of changing that section, because I think that 1J per cent under certain circumstances is too high. The differential which the board must receive depends very largely on the amount of business it is carrying on. If the board were lending a larger amount of money, one per cent ought to be ample. I should like to see this change made in the act, either reducing the rate to one per cent or leaving it in the hands of the governor in council to fix from time to time.

The importance of reducing interest rates on farm mortgages is difficult to exaggerate. The loan value of any land under this act is going to be determined by its productive capacity; in other words, on the prospective net earnings of the farmer. It is going to depend on the value of the commodities which can be produced on the farm, less actual and necessary costs. That is to say, it is the farmer's margin over his costs, and the rate of interest in reality fixes the loan value of the property. Let me make that clear.

Let us say that the margin which the farmer has is estimated at $120, and suppose he has a loan of $2,000 drawing interest at the rate of eight per cent. The interest is $160, so that

Farm Loan Act

no additional loan is possible, under this act, to that fanner. At seven per cent the interest would be $140 and no new loan is possible. If it were six per cent the interest would be $120 and still no new loan would be possible. At a rate of five per cent the annual charge would be $100 and there would be a surplus available to pay interest on a larger loan. In other words, it would increase the loan value of the farmer's property to the extent of $400. So that with a net income of $120, at five per cent, the loan value of the property is $2,400; at six per cent the loan value is reduced to $2,000; at seven per cent the loan value is $1,700, and at eight per cent, $1,500. The rate of interest payable on the farm mortgage might in reality be said to fix the loan value of the property, and I think I am right in saying that a reduction in the rate of interest is the most important factor in working out this whole scheme. For that purpose I am now discussing the two acts together, the farm loan board act and the measure now before us.

I urged in the house before, when this legislation was being considered, that action should be taken by law to reduce the rate of interest on farm mortgages to a certain specified rate. Personally, I should be in favour of five per cent. I believe the Prime Minister said that there was represented in' farm mortgages the sum of $726,000,000. I think we are safe in estimating that of that amount $300,000,000 is at eight per cent and perhaps $300,000,000 at seven per cent. If you reduced the rate of interest to six per cent, that would effect a reduction in interest charges of $9,000,000 annually, and at five per cent the total interest burden would be reduced $15,000,000. If the rate were fixed at five per cent the reduction which would be effected in the annual interest charge on farm mortgages would amount to a total of $15,000,000. I mention this to show that I am not overemphasizing the importance of this matter, and it is involved in section 5 of the bill, which deals with the amount that may be loaned on mortgage.

The value for loaning purposes is going to be fixed very largely by the rate of interest which is payable on farm mortgages. I am not unmindful of what the Prime Minister said before. He intimated that he had given consideration to this suggestion, but one reason why he could not see his way clear to take the action proposed to reduce the rate of interest was that some companies had issued debentures some of which were payable in the old country at a rate of five per cent, and that obviously these companies could not continue 74726-257

to pay five per cent on such debentures if they themselves were allowed to collect only five per cent. I suggest that he could deal with that situation by amending the farm loan board act in such a way that these companies could come to the board with debentures bearing four per cent and get the money neeessary to pay off the debentures which they owe in the old country.

Mr. BENNETT:

Where would they get the

money?

Mr. COOTE:

The Prime Minister is able to get plenty of money when he needs it; he is always able to get any money that is necessary.

I would not urge this if the matter were not so important. I believe a reduction of the rate of interest on farm mortgages effecting $726,000,000 of investments would be one of the best steps we could take to reduce the rate of interest on all obligations. It would be one factor in bringing down the rate of interest payable by the Dominion of Canada and by every province when they go into the market to borrow money, and it would be one factor in bringing down interest rates generally.

As I have said in the house before, it is not the size of the debt that matters so much as the rate of interest which the debt carries. As a farmer I can pay five per cent on a mortgage of $8,000 more easily than I can pay eight per cent on a loan of $5,000. There are in Canada thousands of farmers paying eight per cent on mortgages, and so far as I can see, this legislation is not going to bring them any relief to many of them. For various reasons these farmers aTe unable to go anywhere else to get the money to tender to the persons now holding the eight per cent mortgages; they are not yet in the position where they are absolutely insolvent and can ask for a compromise on their debts, and even if they did we were told in the discussion on the other bill that the board has no power to Teduce interest rates even on obligations where a compromise is arranged.

Mr. BENNETT:

I said that that might be a part of the compromise without being a specific reduction.

Mr. HANBURY:

A question of agreement.

Mr. COOTE:

I understood the Prime Minister to say that the board of review under the other bill had no power to reduce the rate of interest. I hope the creditors will agree to a reduction. I think in passing this legislation we are making a mistake in that we do not say that the board has power to reduce