RECENT DEVELOPMENTS IN CANADIAN CONSUMER CREDIT LAW*
| Author | Jacob S. Ziegel |
| Date | 01 September 1973 |
| Published date | 01 September 1973 |
| DOI | http://doi.org/10.1111/j.1468-2230.1973.tb01380.x |
RECENT DEVELOPMENTS IN CANADIAN
CONSUMER CREDIT LAW
*
CONSUMER
credk in Canada is very big business, one of the biggest
in the Dominion. The volume of outstanding consumer credit has
grown from a modest
$885
million in
1948
to
just under
$11
billion
in
1969.’
At the present time,
if
credit charges are included, the
figure comfortably exceeds twelve billion dollars.2 As a percentage
of disposable income consumer credit has also increased dramatically,
from
7.5
per
cent. in
1948
to
214
per cent. in
1969.
Volumewise
Canadians are apparently among the largest users of consumer
credit in the free world, despite the fact that
our
population
is
only
twenty-two million, and as a percentage of disposable income the
Canadian ratio exceeds the American figure by a very comfortable
margin. At the end of
1969
the
per
ca@ta
consumption of consumer
credit in Canada amounted
to
$514.
It
is true that individual
incomes and Canada’s population have also grown significantly in
the post-war period, but not nearly to the same extent as consumer
credift.
It
is
this contrast, and the ease with which credit can be
obtained by almost any person in gainful employment, that have
laid the foundations for a whole congeries
of
social and legal
problems.
Tohe phenomenal growth of consumer credit has been ac-
companied
by
equally dramatic changes in the structure
of
the
market and in the development of new forms
of
consumer credit.
At the end of
1962
vendor’s credit-that is, credit extended to con-
sumers by merchants and other suppliers and, indirectly, by sales
finance companies-accounted for
41.8
per cent. of the volume of
outstanding consumer credi,t; in
1969
the figure dropped to
27-3
per cent. Sales finance companies have been particularly hard hit
by this pronounced trend in favour of lender’s credit: their share
of the market dropped by about half from just over
20
per cent. in
1960
to a little over
10
per cent.
in
1970.
The companies’
reverses are almost entirely attributable to the aggressiveness with
which the chartered banks expanded their personal loan schemes
during the
1960s.
The banks’ entry in,% this sphere is of compara-
tively recent vintage and only dates from about
1958.
Since then
their share of the market has grown rapidly from
25-2
per cent. in
*
This paper is a slightly revised version of a special lecture delivered in the
*
Bank
of
Canada
Reoiew,
December 1971, Table
44.
2
In
July 1971 the seasonally adjusted balance stood at $11,348m.,
but
this
figure does not include credit charges.
Ibid.
and
cf.
Bank
of
Canada,
Statisticol
Summa~y,
November 1971, pp. 882-883, n.2. It is safe
to
assume
that credit charges would add at least another 10% to the outstanding debt.
Faculty of
Law
of
Queen Mary College, London,
on
April 26, 1972.
479
4
80
THE MODERN LAW REVIEW
VOL.
36
1962
to
88.2
per cent. in
1969
and to over
40
peT cent. at the present
time.3
Equally significant has been the growth of revolving
or
open-
ended lines of credit, almost all of which are evidenced by some type
of credit card. Revolving forms of credit grew from
$868
million in
1968
to
$1,875
million in
1969,4
or
approximately
18
per cent. of the
total volume
of
consumer credit outstanding in thwt year. Two years
ago
it
was estimated that some ten million credit cards weTe in the
hands of Canadians
;
the figure has undoubtedly increased substan-
tially since then. In this area too the banks have made a swift, albeit
more recent, penetration. In
1968
a consortium of four Canadian
banks launched a credit card system known
as
Chargem,
which is
affiliated
to
the
BankAmericard
system in the
U.S.
and the
Barclay-
card
system in Europe.
As
we shall see presently, credit cards,
particularly those of the multi-purpose type, p;esent a host of new
problems which are beginning to attract legdative attention in
Canada and the
U.S.
For
the moment,
I
should like to retrace my
steps and
to
deal with some of the less attractive aspects of consumer
credit.
THE
DEBTOR
IN
TROUBLE
The members of the Crowther Committee thought that consumer
credit is a ,healthy phenomenon and a construotive force and that the
law should not seek
to
impede its natural development.s On the whole,
I
agree with the Committee's verdict though
I
also think they con-
siderably under-estimated the social and economic dangers inherenzt
in a flourishing credit economy, at any rate in a country where the
volume of consumer credit has reached the magnitude it has in
Canada. Even under the most favourable circumstances a consumer
credit orimtated economy
is
bound to produce a number of casual-
ties. These are the debtors who, for one reason
or
another, have
over-committed themselves and are unable to pay their debts. The
available evidence in Canada shows that the number of over-
extended debtors and lthe number
of
bad debts have grown at least
commensurately with the volume
of
consumer credit itself.
I
have
elsewhere argued that
it
is safe
to
assume that payments in arrear
for more than thirty days amount
to
several hundred million dollars.
The delinquency rates on loans made by consumer loan companies-
the companies that specialise
in
lending money
to
low and lower
income consumers-are particularly high. Statistics collected by the
Superintendent of Small Loans in Ottawa show that in
1969
almost
one out of every four small loan accounts was delinquent and that
6.9
per cent. were in arrear for more than six months.
3
The sources
for
the statistics cited
in
this paragraph will be
found
in
Canndian Statistical Review,
Ap,rfI
1970, p. 106, and
Studies
in
Canadiciti
Busiiiess
Law,
p.
103 (1071).
1
here are minor discrepancies between tlie
t.wo
sets
of
tables.
4
Studies,
op.
cit.,
p.
104,
Table
2.
5
Report
of
the
Coittmittee
on
Consumer Credit,
Vol.
1,
Chap.
3.7.
6
See
The
Caiiadian Banker,
May/June 1971,
p.
16.
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