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The Borrowers and Depositors Protection Act : a case history in legislative failure Burns, Susan Kathleen 1981

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THE BORROWERS AND DEPOSITORS PROTECTION ACT: A CASE HISTORY IN LEGISLATIVE FAILURE  by SUSAN KATHLEEN BURNS B. Sc., The U n i v e r s i t y of B r i t i s h Columbia, 1968  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER. OF SCIENCE i n Business A d m i n i s t r a t i o n in  THE FACULTY OF GRADUATE STUDIES 1 :  -'Faculty*/r, of C ommerce  and Business A d m i n i s t r a t i o n  We accept t h i s t h e s i s as conforming to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA October  1981  Susan K a t h l e e n Burns  In p r e s e n t i n g requirements  this for  thesis  in partial  an a d v a n c e d  of  B r i t i s h Columbia, I agree  it  freely  agree for  available  that  permission  scholarly or  understood  that  financial  degree at that  reference  for  by h i s  or her  shall  DE-6  (2/79)  the  I  make  further this  thesis  by t h e h e a d o f my of  this  It  is  thesis  a l l o w e d w i t h o u t my w r i t t e n  of  The U n i v e r s i t y o f B r i t i s h C o l u m b i a 2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5 Date  Library shall  representatives.  n o t be  of  University  copying of  copying or p u b l i c a t i o n  gain  the  and s t u d y .  granted  permission.  Department  the  extensive  p u r p o s e s may be  department for  for  fulfilment  ii  ABSTRACT  The into  Borrowers  and  Depositors Protection Act (BDPA) was introduced  the House of Commons on October 27, 1976  by the Honorable  Antony  Abbott, Minister of Consumer and Corporate A f f a i r s . The Liberal Party was i n a majority p o s i t i o n , and had been i n power for f i f t e e n months of their four year term of o f f i c e .  Yet, eight months after i t s introduction, BDPA  died on the order paper.  The question this thesis asks i s , "why?".  Why  was the Borrowers and Depositors Act a l e g i s l a t i v e f a i l u r e ?  Research was conducted using o r i g i n a l documents dating back to 1968, obtained  from  the  Department  of  well, interviews were conducted.  Consumer and  Corporate  Affairs.  As  Those interviewed included: Consumer  Research Branch s t a f f and o f f i c i a l s from other areas of the Department of Consumer and Corporate A f f a i r s ; o f f i c i a l s  from other federal government  departments, -former Ministers of Consumer and Corporate A f f a i r s and their staff;  a Senator; and  industry,  consumer  representatives from  groups,  other  interest  the provinces, the finance groups  and  the  academic  community.  This history of the policy process surrounding BDPA begins i n 1960, when Senator  David  A.  Croll  first  introduced a private member's  bill  respecting disclosure of consumer credit contract terms. It ends i n mid 1981, with developments i n the area of consumer c r e d i t .  To assist i n understanding the variations i n public policy that were developed and recommended during this process of attempted reform i n the  iii  a r e a o f consumer c r e d i t , been  developed.  a model, the Alpha and  Weltanschauung  translated,  means  therefore,  two  ways  perspective  use  ecomonic  criteria ideal,  of  "worldview".  "good"  uniform  of  The  a  the  efficiency  and  word,  Beta  world.  which  They  weltanschauung  Those  policy.  prefer  Alpha's  has  liberally  with  an  are  Alpha  as  omnibus, not  are,  the  ( i n a l l i t s dimensions)  policy.  consistent  German  Alpha  viewing  public  and  is  Beta Weltanschauung,  their  syoptic,  concerned  with  i s o l a t e d market problems. Rather they e v a l u a t e the market from a n a t i o n a l perspective. justice  as  Beta's, their  incremental, policy.  on  the  criteria.  piecemeal  Beta's  are  and  o t h e r hand, have  Those  with  the  deliberately  concerned  with  equity  Beta  ad  hoc  and  perspective approach  redressing  distributive prefer  an  to d e v e l o p i n g  individual  concerns  and  f a v o r a g r e a t e r degree o f government i n t e r v e n t i o n i n the economy, than do Alpha's.  It i s concluded t h a t BDPA f a i l e d met  with h o s t i l i t y  the  questions  raised  the  of  was  legal  united  manner i n which  from  Act.  Their  provisions. technological  governments.  constitutionality  BDPA was  of  the  that  to  was  consumers,  the  Dynamic  factors,  Borrowers  and  governmental  unhappy  that  not  and  finance  with  the many  i s , changing  conditions,  meant  the  industry,  too,  Protection  Bill's of  economic, that  that  i t was  Depositors  Even  Bill  as much  h i n d e r e d BDPA, and  The  substantial. were  I t was  p r o v i n c e s , as much as  being introduced.  opposed  influence  beneficiaries,  the p r o v i n c i a l  opposition  wholeheartedly  f o r many r e a s o n s . The proposed  the  alleged Bill's  political, BDPA  became  a n a c h r o n i s t i c . The B i l l ' s s u b s t a n t i v e i n a d e q u a c i e s o n l y exacerbated these others  problems.  IV  The  most  Ministerial came  to  Corporate  salient  reason  leadership,  rest  with  Affairs.  and the r e s u l t i n g  officials This  o f f i c i a l s who were a b l e , to  initiate  f o r BDPA's  within  influence i n turn,  renewed a c t i v i t y ,  analysts.  Minister  Of g r e a t e r  to the o f f i c i a l s  assumptions  of Cabinet  influence  was (even  the Department manifest  to veto  the  of  through  the M i n i s t e r ' s  lack  of  power)  that  Consumer  and  the a b i l i t y . of policy  request,  and t o change the e x i s t i n g p o l i c y ( t h e one  they r e i n s t i g a t e d ) . The o f f i c i a l s policy  was  failure  d i d not do a good j o b .  concern  i n this  are the q u e s t i o n  They  t r a n s f e r of power,  i t r a i s e s concerning  government. D i d the Government  fail  own l e g i s a t i o n ?  Thesis  Supervisor  f a i l e d as from the the b a s i c  to support i t  TABLE OF CONTENTS  ABSTRACT  i i  LIST OF FIGURES  .. - i x  ACKNOWLEDGEMENTS  x  1. INTRODUCTION 1.2. Why BDPA?  ,  1  1.3. The Story  2  1.4. S t r u c t u r e of the Study  6  Notes t o Chapter 1  7  2. THE ISSUES 2.1. F i n d i n g a Typology appropriate  - choosing the  lenses  9  2.2. The A l p h a and B e t a Weltanschauung  31  2.3. Other Minor Themes  4  2.3.1. J u r i s d i c t i o n 2.3.2. Timing Notes to Chapter 2  2  43 4  5  y  47  3. THE STORY 3.1. P e r i o d  of C o n c e p t i o n  51  vi  3.1.1. P e r i o d o f Study and P r o v i n c i a l  Action  (1960-1968)  53  3.1.2. Department Takes on the Issue (1968-1969)  62  3.1.3. The Fetus Shows Signs of L i f e there i s k i c k i n g  i n the womb (1970-1972)  3.1.4. Years o f I n a c t i v i t y still  66  - maybe i t w i l l be  b o r n (1972-1974)  72  3.1.5. Fast Changes - sharp k i c k i n g , the pregnancy i s obvious  79  3.2. B i r t h (1975- October 1976) 3.2.1. New Leader, New Team - p r e n a t a l p r e p a r a t i o n (1975) 3.2.2. The Race to be Ready  81 (1976)  3.2.3. B i r t h - rush d e l i v e r y  (October 1976)  94 I l l  3.3. S t r u g g l e f o r S u r v i v a l (November 1976 January 1977) 3.3.1. P a r l i a m e n t a r y  Committees and the P r e s s -  s k e p t i c a l r e l a t i o n s (Nov.- Dec.)  122  3.3.2. Departmental C o n s u l t a t i o n s and A n a l y s i s anxious parents  129  3.4. Metamorphosis (February 1977 - June 1977) 3.4.1. Amendment P r o c e s s -  132  3.5. Death without R e s u r r e c t i o n 3.5.1. E u t h a n a s i a recommended  and enacted  (June 1977 - J u l y 1977)....  146  3.5.2. Attempts at R e s u r r e c t i o n ( J u l y 1977March 1978)  150  vii  3.6.  Genetic Mutations 3.6-1. Which way  (1978-1981)  to go?  (March 1978-Sept. 1978)....  3.6.2. P i e c e m e a l Approach (October 3.7  The  Story  i n A l p h a and  1978  - 1981)  Beta Terms  159 167 .175  Notes t o Chapter 3  181  4. POST MORTEM 4.1.  Did  i t Really Fail?  200  4.2.  Why  no B i l l  202  4.3.  B u r e a u c r a t i c C o n t r o l i n 1975  4.4.  Federal-Provincial Relations - legal political  4.5.  i n 1971? to 1978  206 and  problems  215  I n t e r e s t Group P a r t i c i p a t i o n l o b b y i s t s and  strong  s t r e n g t h through d i v i s i v e n e s s  236  4.6.  Dynamic F a c t o r s  253  4.7.  S u b s t a n t i v e Problems  268  Notes to Chapter 4  274  5. CORONER'S VERDICT 5.1.  Can  t h i s Case be G e n e r a l i z e d ?  5.2.  L e g i s l a t i v e F a i l u r e - managerial  293 and  market f a i l u r e s  294  5.2.1. B u r e a u c r a t i c C o n t r o l  295  5.2.2. M i n i s t e r i a l L e a d e r s h i p  298  5.2.3. Constituency  302  Base  5.2.4. Supply Side Summary 5.2.5. I n t e r e s t Group P a r t i c i p a t i o n  .-.305 305  viii  5.3.  5.2.6. P r o v i n c i a l Government P a r t i c i p a t i o n  310  5.2.7. Demand Side Summary  314  Departmental  Notes to Chapter  Role F a i l u r e  315  5  322  APPENDIX I  The "Major P l a y e r s "  APPENDIX I I  Major F e a t u r e s  of B i l l  326 C-16  330 o  APPENDIX I I I Department o f Consumer and Corporate A f f a i r s Organization Chart. APPENDIX IV  APPENDIX V  B i l l s Introduced  .. .337  by the Department  of Consumer and C o r p o r a t e A f f a i r s  338  H i g h l i g h t s of the H i s t o r y of BDPA  339  LIST OF REFERENCES  343  ix  LIST OF FIGURES  Page  Figure 1  Four Models o f I n t e r e s t Group in  Figure 2  Representation  the Development of P u b l i c P o l i c y  Representation Agreement  20  of the S u b s t a n t i v e Areas of  i n the BDPA Debate  .252  X  ACKNOWLEDGEMENTS  This  thesis  could  never  a s s i s t a n c e of many i n d i v i d u a l s Dr.  Geoffrey  Consumer files  Hiscocks,  been  written  and i n s t i t u t i o n s .  Director  and Corporate  related  have  Affairs,  to' the Borrowers  o f Consumer I obtained  without  Through the a u s p i c e s o f Research,  access  and D e p o s i t o r s  the generous  Department  of  t o the Departmental  P r o t e c t i o n A c t . Without  t h i s a c c e s s , the t h e s i s c o u l d never have been w r i t t e n .  Those  interviewed  Many p r o v i d e d freely  with  f o r this  thesis  p e r s o n a l documents r e l a t e d  me  both  their  time  have  asked  t o remain  anonymous.  t o the BDPA debate. A l l shared  and t h e i r  knowledge.  I thank  them f o r  t h e i r candour and f o r t h e i r p a t i e n c e .  In any endeavor o f t h i s magnitude, the support o f f a m i l y and f r i e n d s is essential.  I thank mine f o r t h e i r understanding  and a s s i s t a n c e .  My l a r g e s t debt o f g r a t i t u t e must go to P r o f e s s o r W.T. Stanbury. H i s enthusiasm  and  support,  and  spurred  me on when the task  genuine  interest  the r e s o u r c e s  o f h i s voluminous  appeared overwhelming. P r o f e s s o r  and d e s i r e t o argue every  point contained  library  Stanbury's  within  pages was a p p r e c i a t e d , n o t o n l y f o r the way i n .which i t helped  these  to f o c u s  the i s s u e s , b u t a l s o , f o r the s e n s i t i v e manner i n which i t was done. every  Masters  student  has  the honour  to  have  so  exacting  and  Not so  s u p p o r t i v e an a d v i s o r .  While all  I acknowlege  these people,  the u s e f u l i n s i g h t s  and c o o p e r a t i o n  any e r r o r s a r e , of course, my own.  o f f e r e d by  1  1. INTRODUCTION  1.1 Why  The into  the Borrowers and Depositors Protection Act  Borrowers and  Depositors  Protection Act  the House of Commons on October 27,  Abbott, Minister of Consumer and Corporate at  1976  (BDPA) was  by  introduced  the Honorable Antony  Affairs.  It was  a B i l l aimed  protecting consumers through; more and better information, elimination  of unnecessary complexities i n credit contracts; s t r i c t e r d e f i n i t i o n of terms; and uniform r u l e s . The problems created by loan sharking were also to  be addressed by  BDPA. There were many reasons why  have succeed. It was (1),  and  the  United  were a majority office. order  Yet,  a b i l l for the " l i t t l e guy". Kingdom(2) had  government and  were only  eight months a f t e r  paper.  A  similar  similar  i t was  piece  of  this  Bill  Both the United States  legislation.  The Liberals  15 months into their term of introduced,  omnibus  BDPA died  consumer  thesis asks i s , "Why?". Why  did the Borrowers and  on  credit  l e g i s l a t i o n has not, to date (mid 1981), been reintroduced. this  should  The  the  reform question  Depositors  Act  fail?  Other l e g i s l a t i o n has been introduced and has f a i l e d to reach t h i r d reading.(3) especially  In by  fact,  the  (See  pattern  Department of  what might be considered failures.  the  Appendix  of  legislative  Consumer and  success  Corporate  (failure),  Affairs,  shows  a trend to an increasing number of l e g i s l a t i v e IV.)  A  case  study  on  the  Borrowers  Depositors Protection Act i n the course of addressing i t s primary  and  2  q u e s t i o n (Why of  d i d BDPA f a i l ? ) , may  legislative  This In  a  problem  of  parliamentary  in fact.  means,  legislative government,  once  forgotten.  It  government  MP.,  especially  when  question it  Cabinet  then to  While  The  a  fundamental  the  Cabinet  Did  The  on why  case  and  the the  all  duty  of  the Prime  a number  Government is  in  Was the  a  of  simply  Government  fail  study  differences member a  are  and  bill  each fails,  there  are  i n a p p r o p r i a t e ? ; Was to  support  its  this  answer  these  study  general  but  of the Borrowers  D e p o s i t o r s P r o t e c t i o n A c t , w i l l c o n t r i b u t e to the b e t t e r u n d e r s t a n d i n g these  A. bill  own  important.  cannot  q u e s t i o n s , i t i s hoped, that  solidarity  position  the b i l l  are  cabinet  When  majority  Minister  legislation  Cabinet  bill.  importance  that  internal  each  l a s t q u e s t i o n i s the most  single  considerable  principle  decides,  asked:  or  i s of  a p i e c e of l e g i s l a t i o n ,  Government  to be  drafted?:  legislation?  becomes support  the  that need  poorly  approves  failure  "Government P o l i c y " .  that  some i n s i g h t s  i n i t i a t i v e s - have ended i n f a i l u r e .  supreme. Once Cabinet is  suggest  and of  concerns.  1.2  The  The  seeds  of  credit  Croll.  In  1960,  he  calling  contracts  Story  reform  legislation  introduced  for  better  From  1960  into  disclosure to  1968  the  of  the the idea  were  sown by  Senate,  a  terms  of  of  Senator  private consumer  David  member's credit  "truth-in-lending"  (4)  3  legislation public  was  discussed  hearings.  With  Corporate A f f a i r s 1968,  tried  Minister  Consumer  and  I n t e r e s t A c t , and  After activity  of  the  and  through  Department  of Mr.  Ron  a  of  variety  took  paper  on  In  the  on  the  consumer c r e d i t document  Consumer  August  1974,  Affairs.  majority,  to  immediately consumer  p e r i o d , was  Department issue  He was  of  in  January  consumer  Act  Department)  quite  referred  suddenly  to as the  was  raised  The a  Liberal four  reform. Branch,  Within  (BDPA)  had  a  had  term  of  year  the  set.  By  to  the  1974,  completed  "Green Paper". status  a  This of  a  general e l e c t i o n .  just  been  office.  elected, Ouellet  Department  had  the d i r e c t i o n of the Borrowers been  little  named M i n i s t e r of Consumer and  Party  year  very  The  interesting  with  spoke  a out  i n the a r e a o f a  new  team  of  and D e p o s i t o r s aspect  t h a t the type of l e g i s l a t i o n d e s c r i b e d i n the "Green  radically  Ron  successful only  1972,  credit  of the Consumer Research  - later  and by l a t e 1975  Protection  o f Exchange A c t .  the need f o r i n c r e a s e d consumer p r o t e c t i o n  credit.  officials,  (the  Mr.  amendments to the Small Loans A c t ,  M. Andre O u e l l e t , was  serve  on  and  B a s f o r d as M i n i s t e r i n  Affairs  (Government p o l i c y ) d u r i n g the 1974  Corporate  On  the B i l l s  James, D i r e c t o r  "White Paper"  Corporate  then passed,  left  place  tentative  and  of  (5)  Basford  Dr. Warren  was  creation  the appointment  of  to get d r a f t e d  with the l a t t e r .  very  the  Chambers,  a c t i v i t y switched from the p u b l i c arena to the Department.  Basford,  the  and  i n both  of  this  Paper",  transformed.  October  27,  1976  BDPA  was  introduced  to  Parliament.  Critics  4  immediately industy  attacked the B i l l .  and  the  Opposition came primary from the finance  provinces.  expressed  reservations.  Committee  on  Banking,  Consumers,  while  In December, the B i l l  Trade  and  Commerce, and  generally was  sent to the Senate  to  the  House  Committee on Health, Welfare and Social A f f a i r s . By May, had  submitted  i t s proposed  House  Parliament prorogued.  Committee  had  not  Standing  the Department  amendments to the House Committee.  the Senate Committee recommended that the b i l l introduction.  supportive,  In June  be redrafted for l a t e r  BDPA died on the order paper.  completed  consideration  of  the  The  proposed  amendments.  A new 1977.  proposed  Fair Credit and Savings Act was  drafted by December  It was not introduced.  In  August 1978,  Department  withdraw  legislation.  the Consumer Research it  plans  to  Branch recommended that the  initiate  omnibus  consumer  credit  From that point on, action i n the consumer credit area, was  carried out by other government departments, or by the finance industry. At the provincial l e v e l , the work of the Federal-Provincial Task Force on Consumer Credit begun i n 1977,  continued.  1.3 Methodology  Information was obtained through a search of o r i g i n a l documents and extensive interviewing. The Department of Consumer and Corporate A f f a i r s generously  granted  access  to i t s f i l e s  (with the exception of Cabinet  5  documents,  correspondence  with  ~ the  Department  of  Justice,  and  correspondence and papers r e l a t i n g to Federal-Provincial meetings). information  gathered  information.  from  As well,  these  interviews  participants, many of whom played history.  was  were  the primary  conducted  with  source  40  different  of the "major players".)  Those  included: Consumer Research Branch s t a f f and o f f i c i a l s  areas  of  the Department  of  several roles over the course of BDPA  (See Appendix I f o r a l i s t  interviewed other  files  The  of  Consumer  and  Corporate  from  Affairs;  officials  from other federal government departments, former Ministers of  Consumer  and  Corporate  representatives  from  Affairs  and  the provinces,  their  staff;  the finance  a  industry,  groups, other interest groups and the academic community. were conducted on an "off the record basis". granted no  to use the material obtained  direct  thesis.  attribution  as to source,  and  consumer  A l l interviews  That i s , permission was  through the interview process, but was to be made i n the completed  Those interviewed must, therefore, remain anomymous.  The  interview  technique  allowed  surrounded BDPA to be recaptured concerning  motive  and  interviewing process, the  Senator;  Departmental  interpretation  impact  the  unique  atmosphere  ( i n p a r t ) . It also allowed to  be  raised.  It was  questions  during  that ray own hypotheses, arrived at after  documents,  were  have been subject  v e r i f i c a t i o n where possible.  tested.  Items  of  fact  that  the  reading and of  to cross referencing and to external  6  1.4 Structure of the Study  There are four  sections to this  study.  Chapter  2 describes the  framework adopted  f o r this thesis. Two "worldviews", or perspectives on  consumer  legislation  credit  Weltanschauung. typologies, tells  After  are  a critical  proposed  -  the Alpha and Beta perspectives are detailed.  the story  of the policy  process  "worldview"  are made throughout the narrative.  summarizes the story  Act. Brief  terms.  d i r e c t l y the key question, "Why did BDPA f a i l ? " . Borrowers and Depositors Act debate. Chapter  Beta  on policy Chapter 3  references to the Alpha  i n Alpha and Beta  and  surrounding the Borrowers and  Protection  asserted.  Alpha  review of the l i t e r a t u r e  Depositors  the  the  and  Beta  The end of the chapter Chapter  4 addresses,  It i s a post mortem of  Five reasons f o r f a i l u r e are  5 presents the "Coroner's Verdict".  It offers the  conclusion of this case study.  The appendices are designed to provide  background  to  information  useful  the understanding  of  the  text.  Appendices I and V, the "major players" and a summary of the highlights of the BDPA policy process are p a r t i c u l a r l y important.  7  NOTES TO CHAPTER 1  1.  In the United States, the Consumer Credit Protection Act (known as "Truth-in-Lending") was passed i n 19 68. As w e l l , i n 19 68, the United States National Conference of Commissioners on Uniform State Laws adopted the Uniform Consumer Credit Code.  2.  In the United Kingdom, the Consumer Credit Act was passed i n 1974. See Good, 1974.  3.  These include b i l l s to revise the Bank Act, the National Transportation Act and new l e g i s l a t i o n with respect to access to information, to name only a few.  4.  Many Canadians believe that Canada has federal "Truth-in-Lending" l e g i s l a t i o n . In conversation, "Truth-in Lending" i s immediately recognized, whereas, the Borrowers and Depositors Protection Act i s not.  5.  In March 1970, B i l l C-208, the B i l l s of Exchange Act (amendments) passed Parliament. The amendments to the Small Loans Act and the Interest Act were never drafted during Basford's tenure.  <  8  2.  THE  ISSUES  2.1  F i n d i n g a Typology - choosing  The  original  conceptual  intention  l e n s e s and  use  of the c a s e . ( l ) I t was to  a  case  richer of  these  this  case  study  and  fragmenting  As  than i t was  the i s s u e s and  the r e s e a r c h  "why  d i d the  become law?" opposition,  tactic  proposed Several  interest  problems w i t h farther  there  the  was  group  progressed  "facts"  of  a  single  this  approach  t h a t such an  approach  a s t r u c t u r e more r e s t r i c t i v e  remained and  at  There  two  approaches  legislation. assumptions,  implementation.  For  to  root  of  periods, policy  goal  preferences  Alpha and  their and the Beta.  in  choice  same  fail  to  provincial factors  and  pushed  BDPA  policy  debate  underlying  theme.  debate  credit  the  basic  two  the  q u e s t i o n was  1960-1980) an  in  convenience  exogenous  whole  evident  differed  control,  when the  the  remained  P r o t e c t i o n Act  changing  i s s u e s . Yet,  They  Weltanschauung(3), are c a l l e d  question  emerged: b u r e a u c r a t i c  the  post  key  Depositors  interaction,  substantive  pre  factual  adopted. The  reason  the  reform  imposing  Borrowers and  (including were  was  the  three  useful.(2)  A different -  take  approach would l e a d  understanding  became i n c r e a s i n g l y cumbersome. I t became obvious was  to  l e n s e s , i n t u r n , to a n a l y z e  comprehensive)  failure".  lenses  was  hoped t h a t a m u l t i d i s c i p l i n a r y  (more v a r i e d  "legislative  in  the a p p r o p r i a t e  on  philosophical  of  means  of  perspectives,  and  policy or  9  The  Alpha's  efficiency  have  viewed  as  their  goal  at a macro l e v e l .  efficiency  dynamic  efficiency  allocative  efficiency  and  criteria,  economic  They i n c l u d e the t h r e e dimensions of  (or  (optimal  ultimate  rate  output)  of  and  technological  change)  X-efficiency  (production  distributive  justice  waste).  The  Beta's  questions Beta's  are  of e q u i t y  raise  issues  and  availability  pay  Alpha's  for  the i d e a l ,  the  market  most and  like  concerned  "fairness"  about  on  the r e l a t i v e  a problem  and v a l u e  i s seen  of a g g r e g a t i o n .  and p r i c e  relative  search  and c o n s i s t e n c y i n p o l i c y .  Because  perspective  the whole  Policy hoc  Betai'  system  prescriptions  and designed  (1959)  competitive  market  outcome applies  both  (that  segment  are piecemeal,  does  cases  business  state and  from  Beta's,  an i s o l a t e d  involving  fragmented,  their  serial,  social Beta's  and Beta2's  -  aspect or p a r t own  interest).  deliberately  ad  only - very much along the l i n e of  deliver  intervention  consumer  To  the most  s  i s c l e a r . The f u l l  )  a  socially  Beta,  b  The u  t  profile  t  h  specific e  the  desirable  i s recommended.  Beta's-  between B e t a i ' s and Beta2' >  economic r e g u l a t i o n  perspective.  incrementalism".  not always  direct  or i n d u s t r y  the market  "disjointed  prescription differs direct  view  -  and t h e r e f o r e to  - business  s  for specific  Lindblom's  i n s t a n c e s o f market  The Beta's take a very d i f f e r e n t  consumer Beta's. Beta's of  or " r a r e "  are not o v e r l y  In t h e i r view, the c o m p e t i t i v e market can best determine  into  c o n s i d e r "minor"  Alphas  failure.  divided  to  or s y n o p t i c a l l y  with what  are  access  to a b i l i t y  concerned  and economic needs.  they  a national  level  power among a c t o r s ,  wholistically  uniformity  from  micro  market  of goods and s e r v i c e s  approach  a  or  This policy  preference f o r  of the Alpha's and  10  Beta's w i l l  be developed i n the next  section.  The A l p h a and Beta p r o p o s i t i o n to o r g a n i z e or model the p u b l i c  criteria  have  how an i s s u e people,  been  used  i s not unique. Others have  policy  p r o c e s s . To do t h i s  as the b a s i s  i s approached,  socio-psychological  f o r organization.  differences  in beliefs  characteristics  attempted  a v a r i e t y of  These  include  and assumptions  of the p l a y e r s ,  of p o l i c y d e t e r m i n a t i o n between c o m p e t i t i v e n e s s i n t e r e s t s  about  the process  and p o s i t i o n a l  and process aspects of the d i s t r i b u t i o n of b e n e f i t s .  Lindblom policy  (1959)  making.  method,  limited  a major  systematically  or r a t i o n a l  successive values  He  identified  juxtaposed what  comprehensive  comparison.(4)  are c l a r i f i e d  method With  i n advance  "good" d e c i s i o n policy  referring  with  (identified,  he  called  the " r o o t " method, or  or r a t i o n a l  ranked  The "branch"  method  approach,  and weighted) and  or i t s a l t e r n a t i v e .  i s comprehensive  focuses on m a r g i n a l  That  is,a  and s y n o p t i c - and  i s made once and f o r a l l and i s c o n s i s t e n t w i t h a w e l l  theory.  to  of ends. A "good" d e c i s i o n can be  to the p o l i c y  i s absolute, analysis  i n the approach  the "branch"  the " r o o t "  means are chosen and e v a l u a t e d i n l i g h t d e s c r i b e d without  dichotomy  developed  or i n c r e m e n t a l v a l u e s  o n l y , means and ends are s i m u l t a n e o u s l y chosen, a "good p o l i c y " i s one on which  there  deliberately  i s agreement. incomplete,  c h o i c e s are s e r i a l theory.  This  A  "good  comparison  policy"  i s relative,  i s made  on  marginal  and comparative m a r g i n a l a n a l y s i s  dichotomy  was  later  (1963) i n t o a m a t r i x of f o u r p o l i c y  expanded  differences,  replaces systematic  by Lindblom  approaches.  analysis i s  and  Braybrooke  11  Lindblom  and  (comprehensive, decision  Braybrooke  rational,  making.  (1963)  Utopian)  They  approach  proposed  incremental!sm". Lindblom's was  criticized  a  new  to  the  policy  approach  synoptic  analysis -  and  "disjointed  a normative typology based on l e v e l o f  understanding of the problem (high to low) and on the degree of change (small to large). While acknowledging that the formulation of the problem and the choice of alternative strategies must be adapted to the p o l i t i c a l circumstances  i n which  "incremental p o l i t i c s " strategy.  Most  understanding process agency  the  required  of the issue.  i n most governments a  arose,  Lindblom  that used the disjointed  problems  pursues  "issue"  small  changes  never-ending  any  single  series  of  favored  incrementalism analytic based  on  It i s a c h a r a c t e r i s t i c that  clearly  a  restricted  of the  office,  political  organization,  attacks  on  permanent, though perhaps slowly changing problems that  more  or  or  less  l i e within i t s  f i e l d of interest or authority.  Etzioni  (1967)  decision-making According overly  to  and  critized the  Etzioni  idealistic  Lindblom  the  while  both  the  (1963) alternative  rationalistic  the  rationalistic  approach  descriptive and normative. E t z i o n i  felt  to  - incrementalism.  was  incremental approach  approach  was  unrealistic only  and  generally  that any model of approach to  decision making must do more than describe the usual observed behavior. It must include or account for situations of fundamental change and allow for evaluation of past actions. He proposed a "mixed-scanning approach". It  combines  basic toward  a  "high-order", fundamental  directions  policy-making process to set  with an incremental process which  prepares or moves  "fundamental" decisions and works them out after  they have been  12  reached.  Mixed-scanning,  offers  opportunity  argues E t z i o n i ,  for  i s realistic  s t r a t e g i c ' considerations  and f l e x i b l e , and in  designing  the  factors rather  than  p a r t i c u l a r scan-mix and f o r e v a l u a t i o n .  Power values in  relationship  or substantive  and dynamic  environmental  i s s u e s a r e most d e t e r m i n a t i v e  the mixed-scanning approach. T h i s i s very  Braybrooke's  (1963) v a r i a b l e s - degree  o f the s p e c i f i c mix  different  from Lindblom and  o f understanding  and l e v e l  of  change.  The  t h r e e approaches, r a t i o n a l i s m , i n c r e m e n t a l i s m  have been policy  considered  three  determination.  and mixed  a l t e r n a t i v e s - a typology  scanning  o f approaches t o  Lindblom (1959, 1963, 1979) and E t z i o n i  (1967) a r e  p r i m a r i l y p r e s c r i p t i v e . Lindblom d i s c u s s e s a t l e n g t h only one o f the f o u r policy  approach  options,  and E t z i o n i  clearly  favors  approach. M i n t z b e r g  (1973), however, i s d e s c r i p t i v e .  a  way,  more  systematic  business,  Mintzberg  "entrepreneurial" Each r e p r e s e n t s  mode,  policy  or  identified  strategy what  the " a d a p t i v e "  the mixed-scanning In o r d e r  making  he  by  called  t o view i n  government and "modes"-  mode, and the " p l a n n i n g "  the mode.  t h e c h a r a c t e r i s t i c s o f one approach t o p o l i c y , i n c l u d i n g  m o t i v a t i o n , g o a l s , time h o r i z o n , means, impetus and power.  Briefly,  the " e n t r e p r e n e u r i a l mode" i s c h a r a c t e r i z e d by a p r o a c t i v e  s t a n c e , i n which t h e o v e r r i d i n g g o a l i s growth. The d e c i s i o n maker i s an individual at  long  entrepreneur  term  uncertainty  who bases d e c i s i o n s on i n d i v i d u a l  objectives. Decisions which  i s the  are t y p i c a l l y  entrepreneur's  bold  preferred  judgment aimed and made  environment.  under The  13  "planning  mode" i s e i t h e r  reactive  or proactive  and aims  primarily  growth and e f f i c i e n c y . Managers make l o n g term d e c i s i o n s under of  at  conditions  r i s k u s i n g a n a l y t i c a l t o o l s f o r assessment. D e c i s i o n s take the form o f  well  integrated  alternatives. evaluation  "global  strategies"  bargaining,  and t y p i c a l l y  the  "ideal"  recognizes  offer  The " a d a p t i v e mode" i s r e a c t i v e ,  i s judgmental.  typical  that  that  Decision  are short  a  limited  number  of  goals are indeterminant, term,  arrived  a t through  d i s j o i n t e d , a d a p t i v e and i n c r e m e n t a l . A l t h o u g h  conditions  f o r each  "mode" a r e d e t a i l e d ,  the modes a r e not m u t u a l l y e x c l u s i v e .  "modes" a r e more c o n s i s t e n t l y  developed as a l t e r n a t i v e  Mintzberg  Thus M i n t z b e r g ' s policy  approaches  than Lindblom's (1963) " d i s j o i n t e d i n c r e m e n t a l i s m " .  M i n t z b e r g makes no assumptions about i d e o l o g y o f world view n o r a r e his  "modes" p r e d i c t i v e  of substantive  policies.  H i s "modes" do however  a l l o w f o r i n n o v a t i o n and change o r " n o v e l t y " ( t h a t which i s q u a l i t a t i v e l y different or  from the s t a t u s  prevailing  quo and i s not based  alternatives).  typology does not e x p l a i n  Short  of  on e x i s t i n g  revolution  assumptions,  o r war,  Lindblom's  "novelty".  M i n t z b e r g a p p l i e d h i s modes t o b o t h government and b u s i n e s s , whereas McGregor  (1966),  developed  p e r s p e c t i v e . McGregor's economic  decisions  based  ("organizing  on assumptions  lacking  in  and  Theory  Y  from  a  business  the elements  people  Theory  ambition  and  o f how  of productive enterprise  people - i n the i n t e r e s t s o f economic  about  d e c i s i o n making and c o n t r o l . indolent,  X  (1966, p.256) was a d e s c r i p t i v e dichotomy  money, m a t e r i a l s , equipment, are  Theory  and assumptions  X assumes t h a t initiative,  about  -  ends")  means o f  people a r e by n a t u r e resistant  to  change,  14  unwilling  to assume r e s p o n s i b i l i t y must  be  and g u l l i b l e . According to Theory X  people  (employees)  directly  controlled  action  i s achieved through the h i e r a r c h i c a l  in a  situation  where  persuasion of reward  and  punishment.  Theory Y, on the other hand, assumes that people are not by nature passive  or  conditioned  resistant to r e f l e c t  to  organizational  Theory  needs,  X assumptions  as  but  rather,  a result  of  could  be  Theory  X  management. Therefore, Theory Y management works to create an environment and experience for employees  to develop motivation, r e s p o n s i b i l i t y  and  actions congruent with organizational goals.  McGregor  clearly  favored  Theory  Y.  His  theory i s normative  and  lacking i n p a r a l l e l development. Rather than being a theory for business decision  making  and  policy  development,  i t is  a  prescription  for  achieving goal concensus between an organization and i t s employees.  Downs (1967) created a typology of bureaucratic o f f i c i a l s based on observed single  psychological  motive  -  proclivities.  "climbers"  officials  - "zealots",  maximize  personal  and  income  promotion, aggrandizement" or new maximize  described  "conservers" and  "advocates" and  power,  He  and  five three  "types", mixed  two  motive  "statesmen". "Climbers" seek to prestige  and  therefore  seeks  job opportunities. "Conservers" try to  personal security and convenience by retaining current  income,  power and prestige. "Conservers" are biased against change and have a low expectation that attitudes or structure w i l l improve.  15  The goals  mixed motive  consistent  interest". specific  "types" are i d e a l i s t i c  with  their  For "Zealots",  policy  goals  own  and optimistic, and seek  peculiar  the public  concept  the  "public  interest means promotion  of very  regardless of the l e v e l  of  of antagonism.  Their  conception of the problem i s narrow i n focus, and stable i n content, both over  time,  and  optimistic,  over  changing  energetic,  circumstances.  aggressive,  "Zealots"  imperialistic,  "inner  are  very  directed",  f a n a t i c a l l y l o y a l , and r e l i s h c o n f l i c t .  "Advocates"  a l i g n the "public i n t e r e s t " with the promotion  of the  goals of the "advocate's" current position or o f f i c e . "Advocates", while optimistic  and energetic,  superiors, co-workers  are more "other-directed"  and influenced by  and subordinates. An "advocate" can be aggressive  and partisan externally ( i f supported) but i s an arbiter i n t e r n a l l y and a strong supporter of fellow workers.  For the "statesman", broad  policy  regardless conceptions  goals  of  the  that  the "public interest" means promotion of very are used  particular  are broad  and  quiescent  to  hyperactive.  directed",  philosophical,  as guidelines  position  stable, They  they  their  are  and academic.  occupy.  energy  less They  f o r decision-making  level  optimistic,  "Statesmen's" varies more  avoid c o n f l i c t  from "inner  and  seek  reconciliation.  Down's typology was developed as an a i d to explain and predict the behavior of government bureaucracy through descriptive c l a s s i f i c a t i o n of the motives  of the players. Although Downs typology describes general  16  policy styles and approaches to policy, i t i s not predictive or s p e c i f i c about substantive policy.  Maccoby (1976) created a similar cast of business "types" which he c a l l e d "dominant s o c i a l character types" — man",  the "jungle f i g h t e r "  and  the  the "craftsman", the "company  "gamesman". The  "craftsman" values  production and work, quality and t h r i f t . A "craftsman" i s sincere, quiet, modest, s e l f contained and a p e r f e c t i o n i s t , judging co-workers i n terms of whether  they  help or hinder  "production". As  a subcategory  to the  "craftsman" Maccoby adds the " s c i e n t i s t " , who i s l i k e the "craftsman" but i s more n a r c i s t i c and dependent on a key decision maker for support. The "company man"  i d e n t i f i e s with the company for power and protection and i s  concerned with the human side of the company. "Company men" worst, weak, f e a r f u l , submissive and concerned  primarily  are: at their with security;  or at their best, creative i n sustaining an atmosphere of cooperation, stimulation and  r e s p o n s i b i l i t y . A "jungle figher's"  fellow workers are  either  goal i s power  enemies or accomplices. A  and  "jungle f i g h t e r "  comes i n two v a r i e t i e s , the " l i o n " or conquerer and the "fox", winner by stealth.  The "gamesman" i s motivated by challenge and competition. A gamesman likes  to take r i s k s ,  to work hard, to learn new  ideas, techniques  approaches. Winning the game i s the most important. The "new  or  gamesman",  an evolutionary offshoot the "gamesman", puts costs and innovation before winning and puts the company ahead of personal ego. Maccoby l i k e McGregor (1966) aimed h i s typology support  for successful  at understanding  people  i n order  to engage  a business operation. Maccoby's "types" are not  17  designed  to  relate  to  a  e v o l u t i o n a r y n a t u r e o f the  "policy  framework".  " i d e a l " ("new  The  normative  and  gamesman") p r e c l u d e s i t s use as  an a i d i n a n a l y s i s .  The  bargaining  participants  patterns  i n public  policy  approaches t o m o d e l l i n g identifiable  models  and  formation  the p u b l i c  using  relationship  this  between , the  has been  policy focus  the f o c u s  major  of several  p r o c e s s . There have been f o u r -  the  pluralist  model,  the  accommodation model, c l i e n t model and the c o r p o r a t i o n model.  Pluralists influence acting  as  (Downs, 1967)  across  assume that' no one group e x e r t s o v e r r i d i n g  a l l issues.  neutral  judge  to  Policy  i s determined  determine  the  "public  by  the  government  interest"  from  the  a g g r e g a t i o n o r c o l l e c t i o n o f the v a r i e t y o f i n t e r e s t s r e p r e s e n t i n g narrow self  interest.  The describes  elite a  accommodation  process  determination  of  of  model  joint  policy.  It  as  elaborated  government is a  through  process  of  by  Presthus  interest  (1973),  group  accommodation  elite  where  the  p a r t i c i p a n t s r e p r e s e n t l e s s narrow and l e s s d i v e r g e n t views than those i n the  pluralist  model.  Elites  tend  to  be  "middle  r e p r e s e n t a t i v e s o f groups w i t h more d i v e r g e n t views. of  joint  overriding  consultation, claims  "elite-accommodation".  or  negotiation priorities  and  of  Policy  compromise.  inherent  in  the  the  road"  i s a product  There  are  process  no of  18  The this  client-patron  situation  established,  a  model i s also described  special  usually  client-patron  through  (e.g.,  Department  Department  of  institutions).  of  This  the  patron  influence conduit The  or agent and  for  and valuable  policy  The  model  the  farming  formally  department  community, the  regulated  relationship,  with  financial the  client  "street" and expert information and  access  to government  "client-patron"  bargaining  is  of a government  federally  symbiotic  (1973). In  of a p a r t i c u l a r interest group  and  the  providing  status.  "client-patron"  and  is a  providing a constituency  those  Agriculture  Finance  relationship  the creation  whose concerns corresponds with  by Presthus  at  relationship  the  can be seen  decision  making,  becomes the  interdepartmental  as a v a r i a t i o n  level.  of the " e l i t e  accommodation" model.  The  fourth  (Panitch,  model, "corporatism",  1977).  When  i s also  government-interest  a form of accommodation  group  relationships  become  highly i n s t i t u t i o n a l i z e d the interest group acquires a special status and gains d i r e c t access and influence over p o l i c i e s that a f f e c t and concern that  interest group  (even  to the point  of control  through government  delegation of power).  Nadel (1975) argues that private interest groups (corporations) make public policy both through i n t e r a c t i o n with government and on their own initiative.  Nadel defines  authoritative,  policy  binding ' and  as an a l l o c a t i o n of values  intentional.  While  not  that i s  denying  the  appropriateness ( i n given circumstances) of any of the four models just discussed,  h i s proposition  i s that  not a l l public  policy  i s mediated  19  through or with government. He  therefore argues for an expansion of the  "corporatism" model to include policy determination by  non-governmental  organizations, (see Figure 1 for an i l l u s t r a t i o n of these four "models" of representation.)  While these "models" describe the nature of the relationship between the  major  policy  making  conflict/accomodation,  participants,  nor  do  they  they  predict  do  not  policy  predict  level  of  outcome, either  in  terms of substantive provisions or of procedural approach. While each of these models i s descriptive for p a r t i c u l a r circumstances, no theory been developed  to l i n k these models together (Chandler, 1979).  The question of who four  has  part typology  benefits lead Blau and Scott (1962) to devise a  of organizations that relate benefit to major goal  trade-off issues. Thus "mutual benefit" organizations, where the members are  the  prime  beneficiaries,  have  as  their  major  concern,  democracy characterized by the trade o f f between apathy and  internal  oligarchical  c o n t r o l . "Business concerns", where owners are the prime b e n e f i c i a r i e s , have as their dominant problem, e f f i c i e n c y , that i s balancing gain versus cost  for survival  and  growth. "Service" organizations  serve  clients.  Clients by d e f i n i t i o n , according to Scott and Blau, do not know their  own  best  or  interest  interests  and  but  organization  a  not  must  "professional" necessarily  therefore  must  the  strike  serve  the  client's a  balance  wishes. between  subservience. "Commonwealth" organizations have the beneficiaries. control  versus  The  major  issue  efficiency  revolves  and  the  client's  around  A  needs  "service"  despotism  and  public at large as external  non-democratic  democratic nature  of  20  FIGURE 1 FOUR MODELS OF INTEREST GROUP REPRESENTATION IN THE DEVELOPMENT OF PUBLIC POLICY  PLURALIST  -  NGO  G  PO  .  ELITIST NGO NGO  NGO at.  *  PO  NGO  NGO NGO  CLIENTISM NGO NGO  ft  NGO  M  PO G  NGO - non-governmental  CORPORATISM  organization G  = = * = = C-3i w  V  PO  r  G - government  '  PO - p o l i c y  output  21  bureaucracies. Blau and  Scott  have related beneficiaries to key  dichotomies for each organizational nothing about how  policy  type. Their approach, however, says  policy or decision making i s approached ("modes") or  about the psychological d i s p o s i t i o n of the participants ("types").  Nadel (1971) changed Blau and to  how  are  types,  benefits  distributed?  " c o l l e c t i v e benefits"  and  Scott's question - from who  benefits?  He  into  divided  consumer policy  "differential  benefits".  "Collective  benefit" policy offers benefits undifferentiated with respect Such p o l i c i e s do  not  change the  power structure  two  to income.  s i g n i f i c a n t l y and  the  cost of compliance i s normally marginal and  passed on to consumers with  no  opposition  net  cost  to  industry.  There  is little  ( r e l a t i v e l y ) to  p o l i c i e s offering " c o l l e c t i v e benefits". " D i f f e r e n t i a l benefit" p o l i c i e s attempt to change the existing power structure by increasing  competition  in order to reduce price (especially to the poor), or to correct s p e c i f i c abuses that f a l l disproportionately policies  face  heavy  opposition  on  from  the  poor. " D i f f e r e n t i a l benefit"  industry  or  fail,  either  at  the  l e g i s l a t i v e stage or before, as they never get onto the agenda. Nadel's d i v i s i o n of c o l l e c t i v e versus d i f f e r e n t i a l benefits was  a less developed  and more narrowly focussed attempt at c l a s s i f y i n g policy than had  already  been developed by Lowi (1966).(5)  By  1972  four.(6) His  Lowi  had  approach  expanded was  his  1966  comprehensive  policy as  the  types title  from of  his  suggests, "Four Systems of Policy, P o l i t i c s and Choice", and was  three  to  article focussed  on public policy making. The bases for his taxonomy were types of policy (benefit  category)  and  level  of  government coercion.  He  isolated  key  22  variables  in  taxonomy.  The  the  public  key  variables  (e.g. primary u n i t s , trade of  the  relationship  bargaining, and  the  policy  involved  and  the  developed  type  and  a  descriptive  number  of  actors  association, single i n d i v i d u a l s ) , the nature  between  actors  (private  dealing,  collective  i d e o l o g i c a l c o n f l i c t ) , the degree of s t a b i l i t y among actors,  role of business versus  Congress,  and  the  "distributive",  executive.  "regulatory",  "Distributive"  policies  characterized by  participants.  Lowi's  called  i n lobbying his  "redistributive" tariffs  and  committees,  four  policy  and  "constituent".  subsidies  are  coercion,  decisions, and stable relationships among  policies  competition,  types;  and  i n d i v i d u a l p a r t i c i p a t i o n , minimal government  "Regulatory"  unfair  professionals  involve  decentralized and disaggregated  goods,  process  and  involve  elimination of  fraudulent  characterized by government coercion and  substandard  advertising  and  are  interest group organization  and  bargaining, and l i t t l e s t a b i l i t y among actors. "Redistributive" p o l i c i e s , such  as  the  income  tax  government coercion,  and  social  security,  are  characterized  by  i d e o l o g i c a l debate, m u l t i l e v e l p a r t i c i p a t i o n with  stable membership. "Constituent"  policy involves reappointment, creating  a  These  new  agency  government  and  propaganda.  coercion,  and  a  policies  centralized,  involve  status  little  oriented  direct function  involving e l e c t o r a l organization. Lowi therefore created a framework that accounted for differences i n substantive  policy ( a l l o c a t i v e e f f e c t ) and  differences i n the exercise of power.(7)  Aucoin (1971), supportive of Lowi's (1972) typology type an  that made policy  independent v a r i a b l e , proposed that the model must' go  further.  That i s , i t must not only include " a l l o c a t i v e " e f f e c t , but i t must also  23  consider  "positional"  effects.  Positional  relationship between individuals or groups and influence  on  the  Lowi's "coercion" was  effects  involve  the  a f f e c t the structuring  policy process. While Aucoin's " p o s i t i o n a l " effect factor appear to be very s i m i l a r , Aucoin (1971,  of and  p.28)  primarily concerned with the role of government. By r a i s i n g t h i s point concerning the l i m i t a t i o n of existing policy-making models i n regard to p o s i t i o n a l p o l i c i e s , we are i n effect saying "government" must be brought back into policy analysis. In fact i t might be argued that the d i s t i n c t i v e r o l e of the p o l i t i c a l science policy analyst i s to focus on positional p o l i c i e s insofar as they are often the c r i t i c a l policy issues for subsequent a l l o c a t i v e policymaking.  After  surveying the most widely used policy making models. Aucoin  (1971, p.33)  concludes that,  study of policy making as  Simeon (1972  and  "there i s not  an accepted paradigm for  the  yet".  1976), a p o l i t i c a l s c i e n t i s t l i k e Aucoin, developed  a framework for policy analysis. Simeon (1976, p.566) saw, Policy as a consequence of the 'environment' of the d i s t r i b u t i o n of power, of prevailing 'ideas', of ' i n s t i t u t i o n a l ' frameworks and of the 'process' of decision-making.  This (structure  framework i s very and  process), and  obscure categories such as providing  much concerned relies  on  with  "positional"  extraordinarily  "ambience" (environment and  general  aspects if  not  ideas).(8) While  topics around which to focus analysis, Simeon's  classification  of policy variables, offers l i t t l e e l s e . For instance, i t i s not  possible  to predict either the nature of the participants, the l e v e l of c o n f l i c t ,  24  or the substantive output (or issues). Simeons categories put ^policy type as a dependent v a r i a b l e .  Doern (1980) uses a similar categorical framework to Simeon (1976). Policy output  type,  however  being  the  "determinants"  i s an  independent variable,  dependent  variable.  the  specific  Independent  policy  variables  or  include:  1.ideology - general b e l i e f about the proper role of government; 2.objectives - the more s p e c i f i c purposes of public policy; 3. paradigms - principles of  that  embody assumptions about  the  procedural aspects of public policy; 4. physical  and  technological  realities  -  those  s p e c i f i c a l l y to the problem ( s p a t i a l , technical and 5. economic  -  domestic  and  international  related  material);  allocative  and  d i s t r i b u t i o n a l aspects; 6.intergovernmental relations - degree of c o n f l i c t ;  and  7.interagency (group) relations - degree of c o n f l i c t . Doern a f t e r  studying  three  policy  decision  in  the  nuclear  concluded that none of the determinants i n themselves, are  Cairns has  (1980),  an  economist  writing  in  attempted to be much more s p e c i f i c . ( 9 )  He  rationales  for regulation  and  and  (1963),  (1971), and  Scott  beneficiaries narrow  or  private  Nadel scope  of  interest  d i f f e r e n t i a t e s the  policy and  area  a  Lowi into  balance  (1972)). the  predictive.  of  regulation  developed a typology  effects based on benefits  regulation and  the  industry,  between  (much l i k e Blau  Cairns divides  broad the  of  public two.  the policy making process on  the  interest, He  then  the basis  of  25  the participants, the o r i g i n s of concern, the emphasis i n approach, and the a l l o c a t i o n a l and d i s t r i b u t i o n a l e f f e c t s of the substantive p o l i c y .  Cairns' t r i l o g y i s an attempt to describe process as  they relate to regulation. On  the myths of the policy  the one  hand Cairns offers a  choice of three frameworks for policy analysis, on describes  what  "regulatory"  he  sees  as  policy making. The  between market (private) and defined  the  evolution  of  the other  the  t h i r d model, that  myths  he merely surrounding  represents  a balance  p o l i t i c a l (public) objectives, i s not  well  either i n terms of " a l l o c a t i v e " or " p o s i t i o n a l " e f f e c t (to  Aucoin's  (1971) c l a s s i f i c a t i o n ) .  Cairns  describes  the  actors  in  use this  policy model as "human", the emphasis of policy i s on "imperfections power  in  the  market"  and  aimed "to improve the these  descriptions  either  the  objective  however,  a l l o c a t i o n a l and  distributional effects  functioning of markets given their power". None of  are  players,  the  and  the is  precise  in  process not  to  their  or be  the  definition issues.  precise  but  or  predictive  Cairns' to  of  (1980,  p.vi)  illustrative  that  regulation should not be oversimplified by s t r i c t c l a s s i f i c a t i o n . ...regulation i s far from as simple phenomenon. Analysts would do well not to oversimplify their theories. While t h i s may  be  true, i t i s not  at a l l h e l p f u l to those seeking  to  understand or describe the policy process.  Wilson (1978, p.393) appears to agree with Cairns  (1980) when he  says: a single explanation theory of regulatory p o l i t i c s i s about as helpful as a single explanation of p o l i t i c s generally, or of disease. The major variables i n a regulatory policy decision, according to Wilson,  26  include the perceived d i s t r i b u t i o n of costs and benefits of the proposed policy,  the  views  and  motives  of  the  participants  individually  and  corporately (as agencies, corporations and c o a l i t i o n s ) , and the p o l i t i c a l environment  including  technological  i n s t i t u t i o n s , p o l i t i c s and  change,  economic  conditions,  ideas.  Wilson (1978) proposes two typologies, one based on the d i s t r i b u t i o n of costs and benefits, and the other based on the behavior of individuals within  an  agency  (regulatory  body). "Majoritarian" p o l i c i e s  are  those  where costs and/or benefits are widely d i s t r i b u t e d and a l l or most expect to benefit  or  to  l o s e . There i s l i t t l e  incentive  for groups to  form  around majoritarian regulation. With "interest group p o l i t i c s " , costs and benefits are narrowly concentrated, organize  and  to engage i n a c t i v i t y  resultant  legislation  interest  group  concentrated  usually  participants.  and  costs  are  has In  widely  each side has a strong incentive to to exercise p o l i t i c a l influence. something "client  to  please  politics"  of  benefits  d i s t r i b u t e d . Here a  organized group w i l l lobby for benefits. Often those who  each  small, pay  The the are  easily  are unaware  of any change i n p o l i c y .  "Entrepreneurial  politics"  involves  policy  that  bestows  general  though small benefits ( c o l l e c t i v e b e n e f i t s ) , paid for by a small segment of the public. Such p o l i c i e s rely on the attitudes of t h i r d parties and require a s k i l l e d entrepreneur to mobilize latent public opinion.  There regulatory  is  some resemblance  politics  and  Lowi's  between  Wilson's  (1978)  (1972) c l a s s i f i c a t i o n  of  typology policy  for types.  27  Wilson's "interest group p o l i t i c s " could be described as a "regulatory" policy  using  policies  in  "private" benefit  Lowi's their  policy for  described  narrow  "Client range  cost  policy.  to  Lowi.  interchangeable. relationship  of  of  This  politics,  limited  nature  i s not  Wilson's the  a  cost  preference  is  say  that  the  is  for  offer  diffuse  parallels  Lowi's  similar  to  the  policies  as  classifications  are  "constituency"  classification and  "distributive"  that  number,  politics  of  to  resemble  b e n e f i c i a r i e s and  "Majoritarian"  noncontroversial by  politics"  making. Entrepreneurial  higher  "redistributive" widespread  term.  more  oriented  benefit to participants rather  to  the  than  the  d i s t r i b u t i o n a l effect of the benefits and costs.  Wilson's (1978) typology broadly  on position and  regulatory  agencies  corporate  archtypes,  bureaucrats.  individual behavior  narrowly on the behavior  only.  It  or  Wilson  -"careerists",  based on  does  like  (1967),  three and  of individuals within  include, l i k e  Downs  identifies  "politicians"  not  i s focussed  Maccoby  (1976),  characterizations  regulatory  agency  "professionals".  of  "types"  Bureaucratic  "careerists" require no external job source or external constituency. To maintain  the  individuals  agency are  and  their  extraordinary  position i s of risk  averse.  primary  Bureaucratic  concern.  Such  "politicians"  seek eventual e l e c t i v e or appointive o f f i c e and often take the "underdog" or  "public advocate" r o l e . Bureaucratic  seek employment  outside  an  profession for rewards and  agency but, approval.  "professionals" may none  the  less,  or may  look  to  not their  28  These two third  typologies are not  variable  in  regulatory  limited policy  and -  do  not  the  include Wilson's  external  political  environment. Wilson, therefore, acknowledges the combined importance of a number of variables i n the  policy process  (distribution  of  costs  and  benefits, values and motives of p a r t i c i p a n t s , and p o l i t i c a l environment), but f a i l s to blend them together  into a common framework or a series of  alternative models.  This lack of overarching framework i s not unusual, as Aucoin (1971) observed i n his survey of public policy making models. Some, l i k e  Cairns  (1980) and Wilson (1978), writing about regulatory policy argue that no s u f f i c i e n t single theory to lend support "pulling makers.  and  Halperin  (1972) would seem  to this perspective. Policy, they argue, i s a r e s u l t of  hauling"  The  e x i s t s . A l l i s o n and  two  and  most  not  of r a t i o n a l  important  variables  choice by  informed decision  according  to  Allison  and  Halperin (1972, p.43) are organizational process and shared values. What a government does i n any p a r t i c u l a r instance can be understood largely as a result of bargaining among players positioned h i e r a r c h i c a l l y i n the government . . . Both the bargaining and the results are importantly affected by a number of constraints, i n p a r t i c u l a r , organizational process and shared values.  They include i n their paradigm or organizational concept, three question: who interest)?;  plays?; what determines each players  and  how  stand  key  (position and  are players stands aggregated to y i e l d governmental  decisions and actions? These variables are constrained by organizational considerations by  shared  (standard  attitudes.  operating  His  procedures and  emphasis  on  programs), as well as  bargaining  among  "positioned"  29  players supports and  "allocative"  " p o s i t i o n a l " . The concern f o r the effect of interests and attitudes  relates  to  motivation and  the Aucoin (1971) view of policy as both  Downs  (1967)  theory  of  bureaucratic  and goal orientation. By approaching  "types"  based  organizational  on  process  operational procedures and as an independent v a r i a b l e , A l l i s o n and  Halperin  reverse  the perspective  of Mintzberg  (1973) and  Lindblom  (1972), who see policy style or approach to policy affecting the outcome in  terms  of organizational  process.  It does  not appear  to be a  fundamental d i f f e r e n c e , as i t d i f f e r s only i n the i d e n t i f i c a t i o n of cause and e f f e c t i while agreeing on the v a r i a b l e s . A l l i s o n and Halperin do not, however,  have  politics"  anything  i n their  model  or paradigm  of "bureaucratic  that considers the question of the d i s t r i b u t i o n of benefits.  Power, or to use Lowi's (1972) term "coercion", i s important  and A l l i s o n  and Halperin refer to i t as "influence".(10)  Bacharach and Baretz the  development  of a  (1962) have brought a d i f f e r e n t perspective to  policy  making  framework.  They  focuss  on the  "dominant values, the myths and the established p o l i t i c a l procedures and rules of the game" as a basis f o r analysing the two "faces of power" that i s decision making and non-decision making. This i s much l i k e the shared  values and organizational processes  of the bureaucratic  politics  model of A l l i s o n and Halperin (1972). Once the values and rules of the game are i d e n t i f i e d  and there  i s an analysis as to which persons or  groups, i f any, would gain or lose by the existing analyst  can investigate to what extent  groups  influence  community  values  "bias", the policy  status quo-oriented  and  political.  persons and  institutions  process. Thus, f o r Bachrach and Baratz, the policy process  and  consists not  30  only of exploring how issues and i d e n t i t i e s are raised, and how are determined that  are  not  supressed,  and  implemented, but  raised,  those  those  also how  issues that are  decisions that are  Ignored,  to identify taken  those issues  o f f the  postponed  policies  agenda or  or vetoed  and  those that are s e l e c t i v e l y implemented or simply not implemented.  Bachrach and Baratz (1962) offer a double aspect approach to policy that considers values or "bias" and d i s t r i b u t i o n of benefits as the key v a r i a b l e s . Their's i s a theoretical perspective that i s not f u l l y  prescriptive and  elaborated, systematic or well described. Like Aucoin  (1971),  Simeon (1972) and Cairns (1980), Bachrach and Baratz suggest an approach to analysis, without offering a systematic theory.  Of those (1978)  offer  comprehensive theory"  surveyed, more and  only  Lowi (1972),  elaborate  indeed  Mintzberg  frameworks.  Wilson  claiming that i t does not  argues  Still  against  e x i s t . Lindblom  (1973) and none  the  is  search  Wilson entirely  for  "the  (1968, p.101) would  argue that indeed, such a system cannot e x i s t . The policy making system i s not i n any regime merely a process that turns out p o l i c i e s . For any policy-making system has a prodigious effect on the very preferences, opinions and attitudes to which i t i t s e l f also responds . . . The machine actually manufactures both p o l i c i e s and preferences.  If the discussion has demonstrated anything about devising a theory of  the  policy  process i t i s that policy  formulation i s a complex  and  mobile process and any attempts at modelling must be undertaken with care and humility.  31  2.2  The Alpha and Beta Weltanschauung  Having  set out  comprehensive model  the  argument  f o r "policy  that  there  analysis"  we  i s no  return  accepted  or  to the proposed  typology of the Alpha's and Beta's. It includes statements about approach to policy; values and b e l i e f s ( s o c i a l , personal and economic); goals or criteria;  the  policy  process  (strategy);  proposals. While i t takes into consideration rich,  and  substantive  policy  p o s i t i o n a l effects (poor vs  consumer vs supplier, government vs market) i t does not predict  l e v e l of c o n f l i c t  or power r e l a t i o n s . It does, however, i d e n t i f y those  issues  there  on which  will  be disagreement  s p e c i f i c a l l y including a socio/psychological  or c o n f l i c t .  While not  typology of the players or a  framework of the player relationships within the policy process the Alpha and  Beta characterization does not preclude the use of either of these  dimensions i n analysis. With respect i s a "regulatory" and  to the Lowi typology, the BDPA story  p o l i c y . In this p a r t i c u l a r case history, the Borrowers'  Depositors Protection Act (BDPA) was a " l e g i s l a t i v e f a i l u r e " and as  such might well be considered a demonstration i n "non decision making" i n Bachrach and Baratz's  (1962) terms. Indeed, one might  mobilization of "bias" and organizational  argue that the  process, while not preventing  BDPA from reaching the l e g i s l a t i v e agenda, was  successful i n preventing  i t s enactment.  A d i f f e r e n t view would be that a r t i c u l a t e d by Nadel (1975) and some of the BDPA participants themselves, that i s , BDPA was not a f a i l u r e i n public policy making. A f a i l u r e occurred at the l e g i s l a t i v e l e v e l , but despite  initial  legislative  failure,  policy  was  developed  through  32  decision and non-decision. It was developed by deliberate non-decision, by  industry  or  corporation  activity,  and  by  subsequent  related  l e g i s l a t i o n . The Alpha and Beta perspective does not capture this aspect of the policy process. On the other hand the typology does not prevent the testing of either proposition.  While acknowledging developed  during  the  that public policy on consumer credit reform was period  1960-1980,  this  case  study  addresses  s p e c i f i c a l l y the l e g i s l a t i v e i n i t i a t i v e of the Department of Consumer and Corporate A f f a i r s Department The this  successful  Alpha and key  (the Department) and  seeks to answer "why  i n passing reform  consumer credit  Beta Weltanschauung i s c r i t i c a l  question. As  wasn't the  legislation?"  for the understanding of  with a l l constructs, i t cannot  reflect  a l l the  nuances of the approach to a policy i n the area of consumer c r e d i t . Alpha and Beta as we have described them, are archtypes. Needless to say there are Alpha/Beta blends that arise from combinations  and  permutations  of  the major Alpha and Beta categorizations.  The Alpha and Beta Weltanschauung has been observed surrounding side  of  the  credit  reform l e g i s l a t i o n  market. Much  of  the  i n the debate  aimed at a s s i s t i n g  elaboration  of  the  the consumer  Alpha  and  Beta  perspective i s issue s p e c i f i c and therefore i t can be argued that the two viewpoints are determined  primarily by the subject matter under review,  and do not represent a generic perspective or general approach to public policy formulation. I would l i k e  to argue otherwise. That i s , that the  Alpha and Beta typology i s at least c h a r a c t e r i s t i c of "consumer" policy formulation  and  perhaps  even  representative of  many  public  policy  33  debates. That question cannot be decided on the basis of one case study. It i s enough to hope that by the end of this thesis the reader would be willing  to agree  that  the Alpha  and Beta  "worldviews"  and  their  interaction r e f l e c t the underlying motivation behind the f a i l u r e to enact Borrowers  and Depositors Protection Act action and that the typology i s  worth testing on other public policy debates. The Alpha and Beta philosophy represent two divergent "worldviews". (11) Beginning with the assumptions  embodied i n these two approaches to  consumer policy making, the Alpha's assume a "root" type policy while the Beta's assume a "branch" mode. According to Lindblom's  process (1959)  c l a s s i f i c a t i o n a root approach assumes: 1.  Values  should  be  clarified  (identified),  ranked,  given  weights) i n advance of generating policy alternatives. 2. Means are chosen and evaluated i n l i g h t . o f  ends.  3. A "good" decision can be described without referring policy  to the  or i t s a l t e r n a t i v e , but without agreement on objectives  there i s no test of a "good" decision. 4.  Analysis  should  be' comprehensive  (synoptic) with  every  relevant factor-taken into account5. Policy theory  i s made r e l a t i v e l y  infrequently  with  application of  the most systematic and economical way to bring relevant  knowledge to bear on a s p e c i f i c  problem.  The "branch" approach that characterizes the Beta style assumes: 1. The only p r a c t i c a l way to disclose one's relevant values even to oneself i s to describe the p o l i c i e s them.  one chooses  to achieve  34  2. Means and 3.  ends are  "Good" p o l i c y  there 4.  i s no  simultaneously  secures  agreement  chosen. of  objectives  should  be  deliberately  incomplete  important p o s s i b l e outcomes, a l t e r n a t i v e s and Policy-making  is  a  marginal  Comparative a n a l y s i s i s a systematic comparison and "Results" If the two would be  approaches could  Alpha's about  the  and  the  about  Beta's of  of  from a macro l e v e l .  or  firms.  I f market  are v o l u n t a r y to  generally  and  work  viewed  terms of are that  not  and  relative  number of  the  use  one  at  series.  of  a national  "root"  credit,  the  about  cost  market, consumers  and  Alpha's view level  approach  relative.  about  i n p a r t i c u l a r , about  benefits  price the  are more  and  market  important  i n d i v i d u a l or f i r m , or group of i n d i v i d u a l s  and  are  occuring,  without  deposit the  unless  chronological  where  shape p o l i c y .  credit legislation-  and  there  p a r t i e s . The  type  i s widespread and  of  market  for  institution.  national  is  i t i s assumed  partiality  taking  entire  activities  generalized  the complaint  to  in a  out  activity  a l t e r n a t i v e to theory  assumptions  b e n e f i c i a l to both  well  frequent  i n a word, the  different  transactions  are  borrower, d e p o s i t o r are  make  correct  b e n e f i t s f o r any  help  leaving  values.  "branch" approach would be  c r e d i t , about  Net  and  proceed  summarized  poor consumers  nature  than net  be  while the  nature  generally, about  p o l i c y choice  of i n t e r a c t i o n should  absolute  ends, i f  " b e t t e r " p o l i c y a p o l i c y with agreement i s "good".  Analysis  5i  not  i s assumed vendor,  Individual  problems  financial  to  they  lender,  activities.  evidence  that  market,  in  S p e c i f i c problems  support  of major concern.  both  the  assertion  35  Beta's on the other hand view the market from a micro perspective, - from the perspective conferred  of the  i n d i v i d u a l or firm. Net  benefits or costs.  the Beta's, i f market transactions are occurring  that  they  are  voluntary.  discriminates against one  Beta's  feel  that  viewed  the market discriminates from  the  the  market  position of the  Beta consumerists the market discriminates industrialists  i t i s not assumed  perspective  of  against  against one  Beta person.  industry.  specific  is  contrary,  the  and  these  problems  Problems  market  i n d i v i d u a l problems are generalized,  to  For  consumers. For Beta  Furthermore, s p e c i f i c evidence  generally  segment or another. Naturally the usual target  for discrimination i s related to the  thus  (costs)  on an i n d i v i d u a l or group of individuals or group of firms i s  of greater concern than macro l e v e l or national net For  benefits  are  are  segment.  unless  assumed  there to  be  c h a r a c t e r i s t i c of what i s happening throughout the market.  For the Alpha's, c r e d i t i s a commodity l i k e other goods and services and  requires only a competitive  socially  market environment i n order  desirable outcome. Regulation  Alpha's view, i s not  unique and  i s unnecessary.  does not  require  to ensure a  Credit, i n  special  the  legislative  action.  Beta's hold quite the opposite  point of view - c r e d i t i s unique and  requires special l e g i s l a t i v e action. According  to the Beta's, unregulated  markets w i l l not produce s o c i a l l y desirable outcomes. Credit i s not  like  other goods and services; i t i s a derived demand good (12), i t i s used as a p o l i t i c a l tool i n the public policy forum (13), i t i s something of a "public u t i l i t y " (14), i t exhibits properties of a j o i n t product (15)  and  36  i t i s a complex o f f e r i n g . The Betax's (industry), therefore, believe that there  i s a need  for restricted  entry  provisions,  price  setting and  administrative controls. While Beta2's (consumers) c a l l for special i n s t i t u t i o n a l and functional provision i n c r e d i t laws to protect  against  exploitation of consumers.  Regarding desirable  credit use, the Alpha's maintain  to make more c r e d i t opportunities  that  i t i s generally  available to more people,  subject to price and income constraints. The Beta's don't agree and hold that  making  more  credit  opportunities  available  to more  people i s  undesirable. They argue that widespread a v a i l a b i l i t y of c r e d i t i s not an unalloyed  benefit - f o r some people c r e d i t i s inherently  bad -  alcohol f o r a l c o h o l i c s . Thus, f o r the Beta's some people should  like  not be  allowed to use c r e d i t .  For Alpha's i t ' s caveat emptor ( l e t the buyer beware). Consumers are the  best  judges of t h e i r own welfare,  information  failure,  and barring  consumers can make decisions  i n t e r e s t . Consumers can use more information  important cases of i n t h e i r own  best  to make "better" decisions,  that i s , decision that more p a r a l l e l t h e i r preferences.  Consumers learn  from "poor" purchasing decisions. Furthermore, any loss associated  with  "poor" decision making i s unlikely to be i r r e v e r s i b l e .  The  Beta perspective  on consumers i s much more p a t e r n a l i s t i c . For  Beta's, consumers have a limited cognitive capacity, and are seldom the best judge of t h e i r own welfare. and  They do not know t h e i r own  cannot make decisions i n their own best  preferences  i n t e r e s t . B's believe that  37  the  provision  of  more  or  better  information  will  not  assist  most  consumers i n making choices that better r e f l e c t their preferences because the new tends  information doesn't change the decision-making h e u r i s t i c s , or i t to  confuse  capabilities.  and  frustrate  Consumers do  not  ("overload")  learn  from  information  processing  "poor" purchasing  decisions  \ because such decisions are i r r e v e r s i b l y costly and/or cause increasingly severe problems that preclude  "better" decisions.  The Alpha and Beta position i s s i m i l a r l y polarized when i t comes to assumptions about the poor.(16) The problem of poverty, say the Alpha's, is  caused  from  primarily from a lack of adequate income and  stupidity,  According  mendacity,  to the Alpha's, the best way  their wealth and  income. The  in  them may  that  manevolence  serving  lender and they may  poor may  and  wealth and  profligate  increase  pay more for legitimate reasons -  r e s u l t i n increased  costs and  risks  for  the  prefer or require d i f f e r e n t market o f f e r i n g s . For the the "same" i n  r e s u l t i n the poor paying "much more" because:  1. attempts to increase has  behaviour.  to help the poor i s to  Alpha's, restructuring the market to allow the poor to pay the short term may  not  been f a l s e l y  competition,  assumed, may  where lack of  destroy  an  already  competition competitive  market (and Alpha's can characterize a market as competitive yet recognize  that the poor may  competition);  and  not  enjoy a l l the benefits of  2. d i r e c t market regulation by  price s e t t i n g , entry  etc.,  or "degenerative"  w i l l cause "exclusionary"  and  provisions  effects.(17)  \  38  While  the  Alpha's  claim  that  market  restructuring (18)  will  not  necessarily protect the poor, the Beta2's (consumers) maintain that  the  market should  the  be restructured to ensure protection of the poor. For  Beta2's the problem of the poor i s not only caused by a lack of adequate income and ability  wealth, but  and  also  from a lack of education,  assertiveness. The best way  them from  the  their  limited decision making  own  (consumers), competition  high  the  cost  poor  of  pay  to help  the  decision making  poor i s to protect  c r e d i t , from market e x p l o i t a t i o n and  more  ability. only  According  because  there  to  the  is  a  from  Beta2' lack  s  of  i n the market. The poor could pay the same i f the market were  restructured. The  Beta^'s (industry) are .a special case with respect  assumption about the  poor. They do  not  believe  that  to  Beta2 type market  intervention w i l l work, neither do they support d i r e c t income transfers as the  Alpha's do.  Direct income transfers to the  poor are not  in  the  short run interest of industry Beta's.  With respect to the relationship between cost and  price the Alpha's  believe that the price of credit should be r e l a t i v e , the ideal being, i n -  a l l situations for price to r e f l e c t the r e a l economic costs of providing credit.  Alpha's  determined  assume  that  i n _a competitive  doing business;  the  cost  the  normative  ("efficient")  market where price r e f l e c t s :  of money (the basic  input); the  the  price cost  r i s k of  is of the  transaction; and the demand for funds.  Beta's, however, assert that the price of c r e d i t should be and  believe that a lower price, regardless  than a higher  p r i c e . Beta's f e e l  that  of cost  absolute  i s always "better"  the normative ("just")  price i s  39  determined  by a value judgment independent of the unregulated competitive  equilibrium. Therefore Beta's hold the following b e l i e f s : 1.  Consumers should  not have to pay  greater than "x" rate of  interest. 2. Low-income consumers should not have to pay greater than "y" rate of interest ("y" being less than "x"). 3. The price of credit should be less than 24% per annum. 4. Rates greater than 45% are usurious independent of the market circumstances.  Beta's maintain that higher prices r e f l e c t managerial  inefficiency,  e x p l o i t a t i o n , and/or usury.  Turning  to  specific  assumptions  about  current  (1976)  credit  l e g i s l a t i o n , Alpha's believe that interest rate c e i l i n g are useless, and that  restrictions  credit  put  transaction  on  creditor  contract  remedies and  are  neither  specific  useful  nor  terms of  any  economically  supportable. Regulation of fraudulent practices and misleading disclosure will  enhance  the  efficiency  of  credit  markets  and  control  morally  reprehensible practices according to the Alpha's. For the Alpha's  usury  laws are a simple and uncontroversial e v i l . In their view usury laws and rate c e i l i n g s do not protect the needy. They are both exclusionary and degenerative. Competition, the Alpha's say, protects the needy. Similarly r e s t r i c t i o n s on c r e d i t remedies and exclusionary and  degenerative.  on the right -to contract freely i s  40  The  Beta's  not s u r p r i s i n g l y  take j u s t the opposite  the Beta's, usury laws are a simple u n c o n t r o v e r s i a l rate  ceilings  ceilings  the  low-income  are r e d i s t r i b u t i v e (19)  ceilings freedom  protect  are f a i r . to  Similarly  contract  practices,  "high  pressure"  "necessitous"  r e s t r i c t i o n s on as  collection  that  regulating  creditor  p r a c t i c e s and m i s l e a d i n g consumer groups nature while  arguing  usually  legislation,  With  such  Weltanschauung difference criteria  divergent i t should  between of  Betai's  f o r industry-biased  to c e i l i n g s , remedies, c o n t r a c t  come  as no  pose  fraudulent  as Alpha's  and a d v e r t i s i n g  between  and  to  of  Although both  legislation  the  that  and Beta's with  (equity)  regulation  these B assumptions  surprise  and on  fraudulent  of c o n t r a c t ,  "protection"  provisions  and  and d e s i r a b l e -  often  assumptions  t h e Alpha's  efficiency  hold  of  Such  c e i l i n g s are u s e f u l and  terms  d i s c l o s u r e are f a i r  and i n d u s t r y  of c r e d i t  remedies,  that  Rate  to the Beta's-  c r e d i t ' remedies  practices  d i s c l o s u r e . Thus the Beta's hold  laws and  borrower.  i s the r e g u l a t i o n  misleading laws  good. Usury  and are important  are u s e f u l ,  view p o i n t . For  the  in public  with  there  and  Beta  i s as w e l l  both  means  respect  regulations.  Alpha  respect  about the  a  to o v e r a l l  for  achieving  o b j e c t i v e s . The preeminent v a l u e of t h e Alpha's i s economic e f f i c i e n c y i n all  i t s dimensions  efficiency. "actuarial  allocative  With r e s p e c t rectitude".  distributive distributed  -  justice market  efficiency, X-efficiency  and  to consumer c r e d i t law, t h e Alpha's (20) The Beta's,  -  micro  level  power, widespread  on the other  equity  that  dynamic  strive for  hand  work  toward  argues  for  evenly  credit availability,  and u n i v e r s a l  access to c r e d i t at a low p r i c e . Beta's s t r i v e f o r "moral r e c t i t u d e " ( t h e d e f i n i t i o n of which v a r i e s between the B e t a i ' s  and the B e t a 2 ' s ) . (21)  41  E f f i c i e n c y i s an all-embracing cognitive  l i m i t a t i o n s , attempts  goal, that while recognizing c e r t a i n  to  maximize  dimensions as possible. Alpha's prefer a one offers r a d i c a l and (Lindblom, 1959  Beta's particular  benefits  across  however groups  1963)  synoptic  to  serve  the  individuals).  objectives simultaneously  needs  They  of  the  seek  to  i n d i v i d u a l (or satisfy  - even though they recognize,  several  i n some cases,  some of the goals are i n c o n f l i c t . Beta's prefer a piecemeal and approach  to  ideal  i s the Alpha's preferred method of analysis.  look of  many  step, omnibus approach that  rapid change on a systemic basis. The  and  as  policy making.  They  favour  the  incremental  serial  approach  and  gradual or slow change. Beta's policy i s fragmented, of an interim nature and  t o p i c a l , even cosmetic, i n that i t often addresses symptoms rather  than causes. The hoc  and  Beta's mode of analysis i s deliberately incomplete, ad  case-specific.  (Lindblom, 1959  It  i s , in  short,  "disjointed  incremental!sm"  and 1979).  In substantive matters, Alpha's prefer a p r i c i n g s i t u a t i o n where the price paid by or to the borrower equals marginal s o c i a l cost and  where  there i s no discrimination or cross subsidization.  Beta's on the other hand advocate both cross subsidization (Beta2*s) and  price discrimination  situation  (although  this  (Betai*s), even within is  technically  a  competitive  impossible).  therefore, w i l l argue for regulation of competitive markets.  The  market Beta's,  42  On  questions  credit  and  of uniformity, across  territorial  uniformity.  Betai's  boundaries,  (industry),  credit  Alpha's  institutions,  prefer maximum  prefer t e r r i t o r i a l  p r o v i n c i a l l e v e l ) , where Beta2*s (consumers),  types  of  levels  of  uniformity  (at the  argue for uniformity across  both i n s t i t u t i o n s and types of c r e d i t .  With respect believe  that  to  the nature  social  control  by  of preferred intervention the competitive  forces w i l l  Alpha's  regulate  the  market. They prefer "preventative", "permissive" and general l e g i s l a t i o n . Legislation  should  be  designed  to increase competition  either  through  increasing the number of competitors, the number of services offered, the number of  pricing  options  consumers, competitors state  should  regulation. legislation,  and  exercise They  and  prefer  legislation  the  amount of  information available  to the government. Beta's  social  control  "remedial" that w i l l  and  through  believe that  direct  "prescriptive"  or  to the  delegated  and  specific  increase protection through  direct  control of credit a v a i l a b i l i t y , service offerings, price and information disclosure.  2.3  Other Minor Themes  As with any typology there are issues that either do not f i t neatly into  the  model  or  tend  to  clutter  the  model's  main  elements.  This  section then, sets out, what w i l l be c a l l e d minor themes, the major theme being that of the Alpha and  Beta dichotomy. There were two  such minor  themes; need for new l e g i s l a t i o n (a non-issue), and j u r i s d i c t i o n (a major issue).  43  On the question of need, a l l participants to the policy process were i n agreement that there was a problem caused by outdated l e g i s l a t i o n , and that there was a need f o r new l e g i s l a t i o n . This i s not to say that a l l players concurred  with BDPA as the answer to this perceived need. Almost  without exception  (22) the major i n t e r e s t groups found  fault  with the  l e g i s l a t i o n . S t i l l , most f e l t a change i n l e g i s l a t i o n was needed; i t was on the s p e c i f i c provisions, on which issues were to be addressed or were not  to be  addressed  and on method  of l e g i s l a t i v e  enactment,  that  disagreement was most vigorous.  2.3.1. J u r i s d i c t i o n  J u r i s d i c t i o n was not so sanguine .a theme. J u r i s d i c t i o n with to  credit  was addressed  from  two perspectives:  respect  the f e d e r a l - p r o v i n c i a l  perspective and the federal i n t r a and inter-departmental  perspective. At  the f e d e r a l - p r o v i n c i a l l e v e l the j u r i s d i c t i o n a l questions centered around questions appropriate  such  as: who  raises  the key credit  issues?;  legislative  discussion  i s the  solution to the issues raised?; which government should  with the issues?; and which government w i l l administer any  what  and  initiatives?  On a l l these  negotiation  that  characterization.  While  fell  the Alpha  points  outside  perspective  and which enforce  there  was c o n f l i c t ,  the Alpha tended  deal  toward  and  Beta  a strong  f e d e r a l i s t or even "unitary state" p o s i t i o n , this was not entirely true. There were, as w e l l , f e d e r a l i s t s among the Beta's. Others from both the Alpha  and  questions.  Beta  viewpoint  Some,  while  held  a variety  acknowledging  of responses the  importance  to the key of  joint  44  federal-provincal agenda setting and solution determination, gave clear l e g i s l a t i v e j u r i s d i c t i o n i n a l l matters to the federal government. Others argued  f o r shared  legislative  j u r i s d i c t i o n and s t i l l  joint or cooperative l e g i s l a t i o n through  others argued f o r  interdelegation of powers (23)  and reference statutes.(24) Questions of j u r i s d i c t i o n between t h e federal and p r o v i n c i a l government did not lack f o r variety or conviction i n t h e alternatives presented.  They lacked, however, any unifying factor that  could be assimilated i n t h e Alpha and Beta  Weltanschauung.  Intra and interdepartmental j u r i s d i c t i o n a l c o n f l i c t at the federal l e v e l arose over the same key questions as that i n the federal-provincial arena. The question of which issues should be addressed matter  of intradepartmental  conflict  as  well.  The  discussion, but involved  same  was  true  was not only a  interdepartmental  f o r generating  the solution  alternatives and deciding on which government department and which branch within a department should be responsible f o r carrying out the solution. Administration  and enforcement s i m i l a r l y  were points of j u r i s d i c t i o n a l  disagreement p a r t i c u l a r l y at the interdepartmental l e v e l .  An  important  aspect  of the federal  jurisdictional  issue centered  around the client-patron relationship that t y p i f i e d the relations between the major federal government departments and their boundaries  constituencies. New  or areas of disputed j u r i s d i c t i o n arose - this time based on  c l i e n t groups: banks vs credit union vs r e t a i l outlet vs consumers. These were c l e a r l y traditional  questions  of paramountcy  federal-provincial  (25) but were not drawn  boundaries.  At issue  were  along  not simply  questions of who (which department) should negotiate or bring l e g i s l a t i o n  45  to  regulate whom (consumers,  banks, f i n a n c i a l  institutions),  but  also  question as to what issues should be addressed and i n what way.  Are banks  or  and  consumers  to  be  given  more  weight?  Within  the  Alpha  Beta  perspective these questions ran as a very strong undercurrent that did not respect the neat Alpha and Beta  dichotomy.  2.3.2. Timing  The  other  factor  that  remained  important  throughout  this  policy  process, was timing. While stable as theoretical constructs representing the major positional differences, the Alpha and Beta viewpoints were not held  consistently  p a r t i c u l a r groups switch t h e i r  throughout  the  debate  of players. Thus over  "official"  policy  stance as  by  the  players  or  by  time a group of players would players either  changed  their  mind, or new personnal or new power structures emerged.'  In some cases both Alpha and Beta perspectives emerged from the same group of individual at d i f f e r e n t times because both and perspectives were used i n argument to defeat the B i l l . (Those seeing BDPA as an e v i l worse than the present inadequate l e g i s l a t i o n were w i l l i n g  to use both Alpha  and Beta perspectives i n creating a case of t o t a l opposition.) This was less a matter of timing than i t was t a c t i c a l option. A related t a c t i c the Beta i n Alpha clothing  was  (or vice versa), where a Beta would use an  Alpha argument to protect a narrow Beta i n t e r e s t . A t h i r d version was the "all  things to a l l people position" where the policy stance pleased no  one, either through ignorance or design.  46  While representing the most fundamental arena of c o n f l i c t and while supplying a common basis for analysis, the A and B  Weltanschauung,  i s not  s u f f i c i e n t l y encompassing to address within i t s model either questions of j u r i s d i c t i o n a l dispute, or factors r e l a t i n g  to the timing  and t a c t i c s of  Alpha versus Beta positions. Thus the j u r i s d i c t i o n a l , timing and t a c t i c a l issues superimpose  a dynamic factor on the BDPA history. The next section  w i l l try to identify they  change  Depositors  those dynamics within the Alpha and Beta c o n f l i c t as  througout Protection  the 20 year Act's  period  conception,  resurrection and eventual genetic mutation.  spanning birth,  the Borrowers and death,  attempted  47  NOTES TO CHAPTER 2  1.  The model of A l l i s o n (1971) i n his Essence of Decision was a tempting one. It offered the p o s s i b i l i t y of making a simple case study more useful and relevant, i n that i t provided the opportunity to test the relevance of a series of "policy models" and the p o s s i b i l i t y that one or more of the analyses could be compared with existing l i t e r a t u r e .  2.  Just as A l l i s o n and Halperin (1972) l a t e r merged the models of bureaucratic p o l i t i c s and organizational process into a single model of i n t e r and i n t r a organizational p o l i t i c s so i t seemed that a more composite approach was needed for the BDPA debate. A single theory i s thus proposed (Alpha and Beta policy typology), while a number of other important factors are discussed as i n t e g r a l , but nonsystematic concerns ( j u r i s d i c t i o n and timing). This i s supported by Jenkins (1978, p.248), "...adequate policy theory seems to demand a merging of d i s c i p l i n a r y perspectives".  3.  We11ans chauung "worldview".  4.  Lindblom used as the basis of his "root" approach, the r a t i o n a l step wise appproach to policy making as described by Harold L a s s e l l (1956). That i s : (1) recognize the problem; (2) explore the nature of the problem; (3) create alternatives for action; (4) rank alternatives by priority; (5) evaluate alternatives based on predicted r i s k and consequences; and (6) make a decision by combining quantitative and q u a l i t a t i v e properties of the problem.  5.  Lowi's (1966) three policy types include: 1. Distributive one shot, independent, d i s j o i n t e d and i n d i v i d u a l i s t i c decisions to benefit one group. Winners and losers never meet. 2. Regulatory - Allocates benefits between^ parties on a case by case basis. Individual decisions are part of an ongoing and cumulative rule or p o l i c y . Participants tend to be groups and issues involve one sector of the economy. 3. Redistributive - Characterized by c o n f l i c t between the haves and the have-nots, involving property and possessions. C o n f l i c t i s stable and continual along class l i n e s .  6.  lowi's (1972) four s t r a t i e g i e s include: high understanding, small change strategies suitable for some "technical" and administrative decisions; high understanding, large change strategies suitable for revolutions and U t o p i a n decision-making; low understanding, large change situations of war, revolution and c r i s e s ; and low  is  a  German  word,  liberally  translated  as  i  48  understanding, low change situations of incremental "disjointed incremental!sm " i s appropriate.  p o l i t i c s where  7.  Chandler (1974) added a further dimension to the Lowi (1966) typology. She allowed the degree of p a r t i c u l a r i t y of each of the policy types ( d i s t r i b u t i v e , regulatory and r e d i s t r i b u t i v e ) to range from highly p a r t i c u l a r (micro) to very general (macro). This expanded typology r e l i e d on' the "elite-accomodation" model of relationships among policy players. Although Chandler proposed that l e v e l s of c o n f l i c t , evalution of the policy process and probability of success could be predicted with this expanded framework, her propositions are not supported by her l a t e r research (Chandler, 1979). Using the opposite approach, Nadel (1975) s i m p l i f i e d the Lowi (1972) typology from four into three - regulatory, constituent, and an new i n c l u s i v e category called resource transfer. Resource transfer combined the Lowi d i s t r i b u t i v e and r e d i s t r i b u t i v e policy types. The rationale for doing this was that the difference between d i s t r i b u t i v e and r e d i s t r i b u t i v e p o l i c i e s was primarily the l e v e l of awareness among the b e n e f i c i a r i e s and the donors.  8.  Simeon's (1976) framework includes socio-economic, environmental and provincial political forces, f e d e r a l - p r o v i n c i a l r e l a t i o n s and p r o v i n c i a l i n s t i t u t i o n s . This i s a framework, or set of constraints and opportunities that: 1. defines a set of problems considered to be important; 2. defines a set of acceptable solutions or policy responses; and 3. defines a set of procedures and rules by which they w i l l be considered.  9.  Regulation i s defined as "the imposition of constraints; backed by government authority, that are intended to modify the behavior of individuals i n the private sector s i g n i f i c a n t l y " (Economic Council of Canada, 1979, p.13). Regulation i s only one aspect of public p o l i c y , other aspects include the formulation of incentives and the development of goals and c r i t e r i a .  10.  According to Bachrach and Baratz (1963), influence i s l i k e power, i n that i t i s r a t i o n a l and r e l a t i o n a l (not possessive or substantive) and i s used without t a c i t or overt threat of severe deprivation. Influence does not depend on sanctions and there i s no disguise involved i n the nature or source of the demands.  11.  Sources f o r the compilation of this typology are too numerous to mention. The history of the Borrowers and Depositors Protection Act and the debate that surrounded i t s progress suggested the two "worldview" approach. Other writings that were p a r t i c u l a r l y h e l p f u l include: David Carne and JM.J. Trebilcock (1973), "Market Considerations i n the Formulation of Consumer Protection Policy", University of Toronto Law Journal, V o l . 23, pp.396-430; William D.  49  Warren (1975), "Consumer Credit Laws; Rates, Costs and Benefits", Stanford Law Review, February 1975, pp. 951-968; William C. Whitford (1973), "The Function of Disclosure Regulation i n Consumer Transactions", Wisconsin Law Review, pp. 400 - 420; M.J. Trebilcock (1976), "Pathology of Credit Breakdown", McGill Law Journal, Vol. 22, pp. 415-467; C.E. Lindblom and David Braybrooke (1963), A Strategy of Decision, New York: Free Press; Henry Mintzberg (1973), "Strategy - Making i n Three Modes", C a l i f o r n i a Management Review, V o l . XVI, No. 2, pp. 44-53; Amitai E t z i o n i (1967), "Mixed Scanning: A t h i r d Approach to Decision Making", Public Administration Review, Vol. 27, No. 6, December, pp. 385-392; Charles E. Lindblom (1979), " S t i l l muddling, not yet through", Public Administration Review, V o l . 39, Nov./Dec, pp. 517-526. 12.  "Derived demand" i s the term used to acknowledge the fact that "money c r e d i t " i s seldom bought or sold for i t s own sake. Rather money transactions are usually a precusor to market transactions involving other goods and services.  13.  The federal and p r o v i n c i a l government offer incentive compensation schemes to small business, export trade, farmers students that reduce the cost of c r e d i t .  14.  If c r e d i t i s a "public u t i l i t y " then i t becomes a r i g h t - credit a v a i l a b i l i t y and the cost of c r e d i t become key concerns and proposals for cross-subsidization are often r a i s e d .  15.  Credit i s a joint product i n that the cost of money, the cost of doing business and the cost of the r i s k s involved i n any transaction can be shared i n a variety of ways between buyer and s e l l e r i n determining an appropriate cost of c r e d i t . Similarly for sales c r e d i t , the price of the goods and the cost of c r e d i t become substitutable and the true cost of money may not be readily identifiable.  16.  The discussion i n this paragraph i s based on Carne and M.J. Trebilcock (1973).  17.  "Exclusionary" e f f e c t occurs where increased costs of constraints imposed on a merchant w i l l lead to a variety of responses including increasing the p r i c e , varying the quality, and f i n a l l y withdrawing from the market v o l u n t a r i l y . "Degenerative" e f f e c t occurs when an exclusionary rate leads to criminal market a c t i v i t y or where non-criminal rule violators remain, for the most part, unsanctioned (Carne and Trebilcock, 1973).  18.  Restructuring the market i n this context means a l t e r i n g the number, size or market segment of the firms currently operating.  19.  "Redistributive" e f f e c t occurs when excess p r o f i t , previously earned by the merchant, i s redistributed to consumers (Carne and Trebilcock, 1973).  an  a r t i c l e by  and and  David  50  20.  "Actuarial rectitude", as used by those i n the Consumer Research Branch of the Department of Consumer and Corporate A f f a i r s during the preparation of the BDPA, refers to a s t r i c t adherence to accounting of interest owing using an a c t u a r i a l formula. E f f e c t i v e annual rate of interest ( i ) i s calculated using the formula ( l j ) l 2 = ( l + i ) > where ( j ) i s the monthly rate of i n t e r e s t . The formula can be generalized to (l+j) (-'- -)» where (n) i s the number of periods i n a year. In c a l c u l a t i n g the e f f e c t i v e rate of interest applicable to a c r e d i t contract, i t i s the e f f e c t i v e annual rate of interest that w i l l equate the discounted value of future payments to the net p r i n c i p a l sum. Thus NPS=FMP(l+i)_ where NPS i s the net p r i n c i p a l sum (amount borrowed), and FMP i s the amount of the future monthly payments. +  =  +:i  n  n  21.  For the Betai's (industry), "moral rectitude" i s adherence to standard business practises as exercised by the f i n a n c i a l community. For the Beta2's (consumers), "moral rectitude" i s equated with low cost of c r e d i t , which Is defined as anything under 24% per annum.  22.  The Montreal Urban Police did not f a u l t the Borrowers and Depositors Protection Act. Their primary interest was i n establishing a c l e a r l y defined criminal rate. Section 37 of the proposed BDPA allowed for regulations to establish an interest rate, above which i t would be considered i l l e g a l to lend money under any circumstances.  23.  Interdelegation i s the transfer of authority by one l e v e l of government i n which such authority i s vested to some other l e v e l of government. (See Abel, 1973, pp. 2-10 and Hogg, 1977, pp. 223-227.)  24.  Reference Statutes are "statutes which refer to other statues and make them applicable to the subject of l e g i s l a t i o n . Their object i s to encorporate into the act of which they are a part the provisions of other statutes by reference and adoption", (Black's Law Dictionary, 5th ed.). (See Hogg, 1977, pp. 228-231.)  25.  "The rule which has been adopted by the courts i s the doctrine of "federal paramountcy": where there are inconsisitent (or c o n f l i c t i n g ) federal and p r o v i n c i a l laws, i t i s the federal law which prevails." (Hogg, 1977, pp. 101-114 at p.102.)  51  3- HISTORY OF BDPA  The  process of d e v e l o p i n g what  was  to emerge as the Borrowers and  D e p o s i t o r s P r o t e c t i o n Act can be seen as a sequence t h a t of the b i r t h p r o c e s s . The p e r i o d conception. existing agenda. from of  federal  this  credit  the p u b l i c  arena  showed  that  legislation, during  the i d e a  was  put  this  time  to the Consumer Research  and C o r p o r a t e A f f a i r s  the B i l l  from 1960 to 1974 was the p e r i o d of  time,  The c e n t e r of a c t i v i t y  Consumer  that  I t was d u r i n g  real  Ouellet),  and a new team  gestation  period.  of l i f e -  of o f f i c i a l s ,  came from  companies,  credit  companies);  from  a l l sides: unions,  from  caisses  the p r o v i n c e s ;  policy  of c o n c e p t i o n  shifted  of the Department  i t was a new  the b i l l  neared  into  populaires, from  reform- to  public  Branch  the f i n a n c e  and  the  With  On October 27, 1976, BDPA was i n t r o d u c e d Criticism  of major  on  i n 1968. Yet  signs  of events not u n l i k e  not u n t i l Minister  1975 (Andr  the end of . i t s  the House of Commons. industry  sales  (banks,  finance  consumers.  and  The B i l l  sooner born than i t s c r i t i c s were out to seek i t s e a r l y  trust loan  was  no  demise  November 1976 to January 1977 was a time when BDPA was s t r u g g l i n g to s u r v i v e . At the P a r l i a m e n t a r y l e v e l t h e B i l l was c l o s e l y Senate  Committee  on Banking,  Trade  s c r u t i z e d by the  and Commerce, and by  the House of  Commons S t a n d i n g Committee on H e a l t h , Welfare and S o c i a l A f f a i r s . the  Department  of  Consumer  and  Corporate  Affairs  there  were  Within renewed  e f f o r t s at c o n s u l a t i o n w i t h a l l those p a r t i e s a f f e c t e d by t h e B i l l .  52  The  next  criticism to  phase  was  on a l l s i d e s ,  prepare  to  the  and get the B i l l  Amendments  were  period  there was  amendments  legislation  the  prepared  of  metamorphosis.  a concerted Bill.  to t h i r d  The  attempt by object  reading  from February  to June  mounting  the Department  was  before  With  to  amend  the summer  of  1977.  the  recess.  Parliamentary  time ran out  The  Bill  BDPA a new  The  the order  their that  1977 i t was  of  Bill.  Consumer  From  a new b i l l  act.  A new  not  ready  August  abandoned  June  and  1977.  1977  Corporate to March  With  the death of  1978  the  strategy  version  Department  to  1978  of BDPA, was  attempted  the Department  introduce  on consumer  prepared.  Consumer  an  omnibus decided  credit.  and  through  work  revisions  legislation, market  to  and  practices.  obtain  the  to e x i s t i n g through the The  period  time o f " g e n e t i c mutation".  objectives bills,  consumer that  of  from March  by  Credit  credit  reform  It would encourage and work  credit  industry  1978  Affairs  the Department would  the i n t r o d u c t i o n  adoption  was  December  Corporate  o t h e r s , o t h e r Departments, the p r o v i n c e s and i n d u s t r y .  would  By  to  ( r e v i s e d ) d i d not r e s u r f a c e .  of  was adopted. I t was  another b i l l  Affairs  would be i n t r o d u c e d . The proposed F a i r  to be i n t r o d u c e d . The B i l l  i t s attempt  initiate  with  i n June  v  Savings A c t , a r e v i s e d  By  paper  p e r i o d began.  optimistic  it  on  Department  resurrect  and  died  reform  legislation  of new  non-omnibus  of  to June  Specifically  more  1981.  innovative was  then, a  53  This  chapter  Depositors mutation story  between  Protection  stage  -  the the  discussed chapter  (March  dynamics  the  3.1  1978  to  and  events  Period  Ron  interest, from the  of  the  Alpha  the  Borrowers  1960,  to  chapter's  Beta  The  the  At  i s on  the  relationship  the  point  and  genetic  model i s  Weltanschauung  narration. from  the  focus  BDPA debate.  and  the  of  in  1981). The  summarized  of C o n c e p t i o n Period  Basford  action  the  bill  into  the  both  the  total  (Ziegel  end  of  of  the  view of  the  to  parliamentary  1974  Minister the  Senate i n 1960 of  the  House of  1964,  to f u r t h e r  dollar  cost  Olley,  introduce interest  of  credit  1966,  pp.  private  aroused  the  public  a special  the  the  arena  sparked  through  conference.  a  These  initiatives.  a p r i v a t e members' including  annual  After  four  Interest  and  a t t e n t i o n moved  simple  members' b i l l s  appoint-  Consumer  credit disclosure,  139-143).  (2).  of  c e n t e r of  (1) i n t r o d u c e d  and  1968  disclosure  f e d e r a l government  f o r mandatory  similar was  and  to  through to  Department  the  Commons to  Task F o r c e ,  calling  new  1960  concept of c r e d i t cost  Senator David C r o l l  Senate  and  i n the  a Special  i n turn, lead  In March 1960,  to  c o n t r o v e r s y . In  Senate and  activities  1960  o f Study and P r o v i n c i a l A c t i o n  as  and  Royal Commission,  attempts  the  are  C o r p o r a t e A f f a i r s i n 1968,  rate  mid  throughout  From i t s i n t r o d u c t i o n of  conception,  timing and  process  Beta dichotomy.  3.1.1  ment  birth  from  briefly  major  the  Act  BDPA h i s t o r y only  Alpha and  traces  , both  groups  interest successive  public  quickly  and took  54  sides,  with  consumer  favoring the  groups,  legislation  and  credit  the rest  lobbying among the Senators against By 1964  of the  and  finance  the b i l l s  populaires  industry  (Ziegel and  actively  Olley, 1966).  1964,  the  with credit disclosure (Ziegel and Olley, 1966). Also  Report  of  the  Royal  Commission  on  (referred to as the Porter Commission Report), was year  caisses  there were eleven private members' b i l l s on the order paper, a l l  dealing i n some way in  unions  of the formation  Banking  and  issued and  Finance  i t was  the  of the special Joint Committee of the Senate  and  the House of Commons on Consumer Credit.  The Porter Commission had a broad mandate to study foreign capital Analysis  done at  increasing through  and  financial  a macro or  levels  innovation  of and  institutions, industry  competition an  in  c a p i t a l markets,  including security trading.  level  concluded  financial  that  markets  increasing overlapping  of  there were  brought  functions  about between  i n s t i t u t i o n s . The Commission found personal finances to be well managed. Despite  these  indications of  Commission's competition  recommendations through  a  healthy  were  uniformity  credit  aimed  of  granting  toward  regulation  anticompetitive impact of current protectionist  industry,  fostering while  the  greater  reducing  the  legislation.  The Commission's recommendations included: 1. r a i s i n g  the  ceilings  under  the  Small  Loans  Act  and  for a l l  personal loans, to $5,000 from $1,500, 2. maintaining a maximum interest rate of 2% per month for loans made under the SLA  (under $300). And  than $300 (rather than 1  1% per month for a l l amounts greater  % per month for loans from $300-$800),  3. removing the chartered bank lending rate c e i l i n g of  6%,  \  55  4. updating the Bank Act i n order to cover a wider group of f i n a n c i a l institutions,  to  limit  horizontal  directorship,  and  to  remove  r e s t r i c t i o n s that i n h i b i t innovation, and 5. requiring  special  government  lending agencies  to loan at market  rates.  The Porter Commission took the Alpha  approach to policy making i n  the area of c r e d i t . The  incremental nature of i t s proposals, contrasted  with  approach  the  all-embracing  of  the  pure  Alpha,  was  a  merely  a  r e f l e c t i o n of the b e l i e f that more thorough analysis was necessary before more comprehensive changes could be effected. The Commission assumed that the  competitive  outcome. It was  market  would  this b e l i e f  determine  the  most  acceptable  social  that placed the Porter Commission firmly in  the Alpha camp. We have argued that the public dealing with f i n a n c i a l i n s t i t u t i o n s and markets can never be guaranteed against loss, but that the best safeguard against this p o s s i b i l i t y i s l e g i s l a t i o n which provides for adequate disclosure and sets high standards of self-regulation backed up by stong government supervision and powers to enforce proper practises.-.Hence our stress on the importance of the proper co-ordination of p o l i c y , our recommendations for strengthening the policy making staff of the federal government and our urging that more careful consideration be given to the immediate and long-run costs and benefits of following one policy rather than another. (Report of the Royal Commission on Banking and Finance, 1964, p.565) v  No  sooner  had  the Porter  Commission  issued  their  report  than  a  Special Joint Committee of the Senate and House of Commons on Consumer Credit was  set up under the joint chairmanship of Senator David C r o l l and  Member of Parliament, J . J . Greene. This was  a "peoples" committee which  56  travelled  across  Canada  listened  t o many  personal  instances  abusive  credit  raising  stories  of  issue  individual  of h a r d s h i p  practices.  the  caused  In  consumer  credit  by  February  of  problems,  rising of  credit.  interest  1966  the  It  injustices rates,  and  Committee  was  r e - e s t a b l i s h e d w i t h an a d d i t i o n a l mandate - the Cost of L i v i n g , and a new co-chairman, continued (known report  Ronald S. B a s f o r d , to r e p l a c e J . J . Greene,  i n t o May  and i n January  as the C r o l l / B a s f o r d reflected  the  24  Report)  Committee's  1967 a Report was  issued.  concern  M.P.  Hearings  on Consumer  The emphasis  for  individual  Credit  of t h i s consumer  transactions. Of the many problems a r i s i n g out of consumer c r e d i t which were brought to our a t t e n t i o n d u r i n g the h e a r i n g s , two have been i d e n t i f i e d which appear i n various forms and which stand out above the o t h e r s . The f i r s t concerns the t r o u b l e s besetting those who buy on c r e d i t without understanding the p r i c e they are paying f o r borrowing. The second concerns the p l i g h t of low-income f a m i l i e s who are from time to time i n desperate need of c r e d i t f o r necessary goods or s e r v i c e s but to whom commercial credit i s e i t h e r not r e a d i l y a v a i l a b l e or not a v a i l a b l e at a l l .  While  the  Croll/Basford  recommendations with r e s p e c t  Report  echoed  the  Porter  Commission  to consumer c r e d i t , C r o l l / B a s f o r d went much  f u r t h e r . They recommended: 1 .disclosure,  o f both  the lump  sum and the simple annual  to  Combines  Investigation  interest  rate, 2. amendments  the  Exchange A c t , and the  A c t , the  Bills  Bankruptcy A c t ,  3. a scheme f o r guaranteed loans to h i g h r i s k borrowers, 4. a three day c o o l i n g - o f f p e r i o d  f o r consumer  transactions,  5. r e g u l a t i o n of c r e d i t c o l l e c t i o n p r a c t i s e s and wage assignments,  of  57  6. establishment of independent agencies to give f i n a n c i a l advice and counselling, and 7. preparation  of "objective  and authoritative" general  information  for a l l potential credit buyers. It  also  registry  made recommendations for a l l cars  to the provinces.  to f a c i l i t a t e  the setting  It proposed  a central  of maximum  rates f o r  finance charges for used car purchases and the adoption of unconscionable transactions  relief  legislation.  Further  action  Committee recommended both i t s own continuation policy  options  establishment  and to propose of a continuing  consumer  credit  was  foreseen  as the  i n order to investigate legislation,  and the  federal-provincial committee on consumer  credit at the technical l e v e l .  The  Beta type c h a r a c t e r i s t i c s of piecemeal and incremental policy  proposals,  of paternalism,  of a p r o c l i v i t y  for absolute  pricing and  r e s t r i c t i o n s on creditor remedies, of attention the d e t a i l s of the terms of  contract  and of a concern for particularized consumer  transactions  were apparent i n the Croll/Basford Report. The Croll/Basford approach was one  of social control through state intervention. While not denying the  relevance of any of the recommendation i n the Porter'Commission Report, Croll/Basford  took  a very  different  approach. P a r t l y ,  this  could  be  attributed to i t s more s p e c i f i c mandate and to the personalities of those who  comprised  the Committee,  but part  must  be  attributed  to the  a c t i v i t i e s and writings of Professor Jacob S. Ziegel.(3)  In 1966, i n the midst of the Croll/Basford hearings, the University of  Saskatchewan  hosted  a Conference  on Consumer Credit  organized by  58  Professors  J.S.  participants industry,  Ziegel  included  and  summarizing  the  act".  proceedings,  he argued  of  that  isolated  immediately.  Small  2. The  credit  the  those  Loans  the  There  was  was  identified agreement  in  regulation  no  approach  need  of and  the  of  finance  provincial.  the  In  financial  problems,  that  had  revision  number  and  and while  s o l u t i o n to be  to  be  addressed  of  with  new  might  policies  the  ( Z i e g e l and O l l e y ,  this  new  outlets,  evolve  was  response  Conference  fed  into lead  the into  changes. On March 3, 1967,  Ministers the major  of  and  notes ( B i l l s of  urged  process to  rate  to  be  Exchange).  incremental  continuous, changing  provisions  i n order  market  and that  conditions  1966).  so too d i d the Report  legislative  i n promissory  making in  to  security  to loan  f o r s i m p l i f i e d b a n k r u p t c i e s or  legislation  policy  respect  disclosure,  and d i s c l o s u r e ( 4 ) ,  provision  to  and  was  and  Bank A c t s i m i l a r l y needed amending w i t h r e s p e c t  consultative,  of  federal  The  "time i s r i p e f o r a uniform consumer c r e d i t  to prevent c u t - o f f c l a u s e s  Credit,  1966).  a l l segments of the  s p e c i f i c problems  Act  ceilings, advertising  As  both  Ziegel  requirements, a d v e r t i s i n g  The  from  Olley,  For example:  ceilings,  3.  people  ( Z i e g e l and  that both a s p e c t s must be c o n s i d e r e d f o r any  Ziegel  1. The  E. O l l e y  government,  aspects  acknowledging  Robert  academics,  from  non-financial  effective,  and  Consumer  item on  the  and  Corporate  agenda. The  Croll/Basford further  Report  discussions  the F e d e r a l - P r o v i n c i a l A f f a i r s met. following year,  on  Consumer  and  even  to  Conference  "Consumer  credit"  the Government of  59  Ontario  convened  an I n t e r - P r o v i n c i a l Conference  the f e d e r a l l e v e l , to d i s c u s s i o n s bills 16,  to c r e d i t and i n t e r e s t were  1967 the Bank A c t r e g u l a t i o n s  on consumer loans  the  the 27th P a r l i a m e n t gave a c o n s i d e r a b l e  on c r e d i t , i n t e r e s t and banking.(5)  relating  It  and to provide  i s important  to r e a l i z e  provincial level,  and  Between  1955  unsuccessfully, consumer  interest  1963,  transactions  that  there  as w e l l  had  were  and  their  respective  (Ziegel,  recent  reports  Scotia  passed  the C r e d i t  administer  to r e q u i r e  a  regulatory  this  period  of  Manitoba  e f f e c t i v e rate  of  were  and  Nova both  legislation  among  vendor  had and  Scotia  other  legislation  and  engage  that  deemed  Scotia  Nova  period  for  and most p r o v i n c e s  things,  had  allowed  to be harsh bills  before  lender  credit  and  c r e d i t ( Z i e g e l , 1966).  A c t , which  tried,  c r e d i t charges f o r  of  o f C r e d i t who would l i c e n c e and s u p e r v i s e the  at  "cooling-off"  relief  Manitoba,  on consumer  place  ( Z i e g e l , 1966). The b i l l s  allowed  In 1966, Quebec  issued  Registrar  and  i n terms  transactions  Furthermore,  ceiling  But by 1966, both Saskatchewan and  l e g i s l a t u r e s to cover  1966).(8)  November  taking  during  to reopen and r e v i s e consumer t r a n s a c t i o n s  unconscionable.  On  level.  with i n t i n e r e n t s e l l e r s ,  some form of u n c o n s c i o n a b l e court  stated  which  events  Alberta  by c r e d i t g r a n t o r s .  consumer s a l e s c o n t r a c t s  the  both  as i n d o l l a r s and cents  legislation  p r i v a t e members  to remove the 6%  States,  legislation  to be  Eight  f o r rate d i s c l o s u r e . ( 7 )  i n the U n i t e d  to i n t r o d u c e  opposed v i g o r o u s l y Manitoba  and  amount of time  introduced.(6)  were changed  study and p u b l i c d i s c u s s i o n at the n a t i o n a l  all  on Consumer C r e d i t - At  Ontario  had  In 1965  Nova  established  a  a l l credit  grantors,  i n public  education  60  respecting in the  1966,  credit.(9)  one  Protection  directly  counselling,  recognized  and  s e v e r a l had address  uniform  that  Act  (10)  consumer fraud,  there  Government  Many  introduced  their B.C.  and  credit  New  for  misleading  were  coverage,  provisions  credit,  problems  passed or were i n the  consumer  in  provinces,  to  consumer  had  to  Ontario  two  to e s t a b l i s h a consumer p r o t e c t i o n bureau and  Consumer  related  The  example,  etc  in  of  area  Still,  were  they  Brunswick being  these evenly  early  to  create  proposed  act  mortgages,  advertising, the  one  this  The  debt  provinces  consumer c r e d i t  process of p a s s i n g  issues. nor  of  bills  new  legislation  intiatives  were  not  distributed  among  the  outstanding  exceptions  (Ziegel,  1966).(11)  While i t was  t r u e that awareness of consumer i s s u e s and  of consumer c r e d i t i s s u e s was provincially,  the  By  1968,  in  the  growing among Canadians both n a t i o n a l l y  strength  i n i t i a t v e s d i d not  of  match that  United  consumer p e r s p e c t i v e  public  support  evidenced  States,  i n market  the  passed i n t o law.  paralleled book,  The  that  of  Politics  The  momentum of  transaction  of  until  Consumer  began i n the Senate with the require  1967.  calculated  on  express the  unpaid  the  States  public  legislative of  America.  sympathy  accelerated  to  Nadel  Truth-in-Lending (1971,  pp.  to  the  the  point Act)  legislation  130-137) i n h i s It  p e r s i s t e n t i n t r o d u c t i o n of a p r i v a t e b i l l  to  i n 1960  to press financial  balance  described  and  history.  Senator P a u l Douglas continued to  federal  (known as T r u t h - i n - L e n d i n g  Protection,  c r e d i t d i s c l o s u r e . Beginning  requirement  had  h i s t o r y of the U.S.  Canada  for  i n the U n i t e d  where the Consumer C r e d i t P r o t e c t i o n Act was  specifically  and  the  continuing  until  for total credit disclosure. cost  through  as  simple  time became the  annual  1966, The  interest  rallying  point  61  for to  vigorous  o p p o s i t i o n . The  calculate,  effect  of  the  wasn't  annual  change and  annual  business  there  s t a t i n g an  because of "true"  that  interest  community,  opposition  agreement  rate  the  would  on  Typical  Schumaker  a  create  psychological  rates.  Brooks  argued that i t would be  the  the  and  f e a r , doubt  reaction  of  of  formula,  to  that  and  the  distrust  discovering  reaction  National  difficult  of  the  Retail  the U.S.  Merchants  A s s o c i a t i o n argued that the b i l l , propagates fear, doubt and distrust through j u n k i n g . . . the w e l l understood monthly terms f o r monthly t r a n s a c t i o n s and s u b s t i t u t e s new and little understood simple annual rates for monthly transactions requiring in turn a radical readjustment of the consumer mind - p a r t i c u a l l y the female mind. (Nadel, 1971, p.131, o r i g i n a l l y in C o n g r e s s i o n a l Q u a r t e r l y Almanac (1962))  From 1963 disclosure 1963  bill  to 1964,  legislation introduced  stage.(12)  1967  Truth-in-Lending  Bill.  Senate Committee, no  being  opponent  amended  contracts  The  given  increased  Senator I t had longer  William  strong chaired  provide  where the  by  year  Representatives, included  coverage  interest  rate  a  charge was  Leonor much  of  Sullivan  more  revolving  ceilings  and  emerged from committee  On  for  Bill  l e s s than $10  introduced credit  Still, of  backing and  passed  for credit  committee  charge  powerful  cards  (Nadel,  into  the  went to a  unanimously  and  after  and  for  1971).  the  House  of  disclosure  bill.  It  provision  for  accounts, c o n t a i n e d  banned wage garnishments. A much weaker i t s r e t u r n to the  the  introduced  Robertson, a  revolving  extensive charge  support.  Proxmire  Willis The  support  passed out  administrative  exemptions  finance  and  public  Senator Douglas never got  of T r u t h - i n - L e n d i n g .  to  same  was  by  By  hostile  p u b l i c h e a r i n g s were h e l d  f l o o r of the House, the  bill bill  62  was  significantly  passed  previously  garnishments and  strengthened. by  the  Amendments  Senate  encorporated  exemptions on  wage  made loan sharking a federal offence. On May  29,  1968  States signed into law  a  the  ceiling  the President of the United  and  eliminated  the Consumer Credit  Protection Act• This Act not only had his personal support, but also had the support credit  of the average American voter, both p o l i t i c a l  unions  and  mutual savings banks (long time  parties,  the  supporters), and  the  banks (recent supporters) (Nadel, 1971).  Meanwhile,  in  Truth-in-Lending appointed  Canada,  months  after  the  l e g i s l a t i o n i n the United States, Ronald  Minister of  Consumer  appointment the progess new  two  and  Corporate  passage S. Basford  Affairs.(13) With  of was this  of consumer credit l e g i s l a t i o n i n Canada took a  turn as i t moved from the public forum into  the womb of government  bureaucracy•  3.1.2. The Department Takes on the Issue - July 1968  to December  1969  Once Ron Basford was  the Minister of Consumer and Corporate A f f a i r s ,  he picked up the i n i t i a t i v e for consumer credit reform on three fronts; within his own Department, through  the Canadian Consumer Council(14) and  through public speaking engagements.  On October 28,1968 the Department prepared  by  Director  of  Research,  presented Dr.  three position  Warren  James,  papers to  the  63  Federal-Provincial  Conference  P r o v i n c i a l Credit Disclosure need  for  strict  legal  documented  evidence  regulated,  argued  or  of  of O f f i c i a l s .  legislative  James,  function. Without reference  paper  Requirements" concluded  consumer  Dr.  The  uniformity  problems.  were  not  on  "Federal  that  where  there  was  no  there  was  no  would  be  Institutions that uniform  in  and  structure  or  in  to either the Porter Commission Report or to  the Croll/Basford Report, he concluded that credit disclosure l e g i s l a t i o n was  unnecessary.  The the  paper, "Federal Policy Respecting  constitutional  current  issues  issues raised by  paper was  surrounding  this piece  the  the  Interest Act"  Interest  of antiquated  written from a legal viewpoint, and  discussed  Act(15)  and  the  legislation.(16) The  although i t provided  some  amusing words about ancient attitudes to c r e d i t , i t did not recommend or even suggest  any  policy options.  conditional sales contracts, concluded that prevent  the  there  was  holder-in  the  On  the  subject  any,  under the  of the  -due-course  from  present  law  and  supplanting  felt  that  that  less  Department, Basford and  Corporate  than  enthusiastic  any  and  paper, Dr. James  normal  no information  l e g i s l a t i o n would be dangerous, inadequate and  From  third  no need to amend the B i l l s of Exchange Act  redress- James observed that there was if  issue of promissory notes  remedies  on the  amendment  to of  injustice, to  current  inequitable.  response  from  within  the  next received the Report to the Minister of Consumer  Affairs  on  Consumer  Consumer Council. It recognized  Credit  (1969)  from  the dual problem of shared  the  Canadian  jusrisdiction  and lack of federal consumer credit s p e c i a l i s t s to formulate policy.  64  The inadequacy of the existing federal l e g i s l a t i v e framework i s i n part due to the d i v i s i o n of j u r i s d i c t i o n among several government departments -Justice, Finance, Department of Consumer and Corporate A f f a i r s - but even more in our opinion to the absence at the federal level of s p e c i a l i s t s i n consumer credit who can competently advise the goverment with respect to i t s p o l i t i c i e s i n this area and supervise the administration of the regulatory legislation.(The Report, p.21)  The  Council recommended revisions to the  the creation of a two  Small  Loans Act  part "Consumer Loan Act". Part One  through  would apply to  a l l consumer loans made by professional lenders up to a maximum amount of $25,000  and  would  cover  disclosure  regulation of unconscionable regulated  clauses The  terms. Part Two  loans (up to $7,500) and  also deal with  recommended  transferred  rebate  rights,  to  the  that  licencing would be requird. It would  less  than $2,500 and  responsibility  Department  Furthermore, the Council study  and  would deal exclusively with  such things as wage assignments, after-acquired  mortgages for loans  report  requirements,  of  seizure of  for the  Consumer  and  Small  property property.  Loans Act  Corporate  be  Affairs.  recommended that the federal Interest Act  be repealed i n favor of a cost of credit disclosure act that would apply uniformly that for  across  the B i l l s consumer  institutions,  types  of Exchange Act be sales  credit  of  and  jurisdictions,  amended to regulate promissary  transactions.  action on credit card problems and  credit  The  Report  on bankruptcy and  and  notes  recommended  that  creditor r e l i e f  commenced as soon as j u r i s d i c t i o n a l questions were cleared. The  be  Council  i  was  clearly i n favor of comprehensive omnibus l e g i s l a t i o n . It recognized,  however,  that  expeditiously  the  route  through  a  to  that  piecemeal,  goal  might  incremental  prior to amalgamating everything into one act.  be  accomplished  joint  more  action approach  65  The v a r i o u s p o i n t s on which we have recommended legislation though they g i v e the i m p r e s s i o n o f b e i n g d i s p a r a t e i n c h a r a c t e r , i n f a c t cover many of the e s s e n t i a l landmarks of a comprehensive consumer credit a c t . They will require much detailed drafting and careful consideration of some d i f f i c u l t p o l i c y q u e s t i o n s . While as a matter o f p o l i t i c a l expediency i t may not be p o s s i b l e t o i n t r o d u c e a l l the d e s i r a b l e changes at once we see no l o s s and much g a i n i n t h e i r e v e n t u a l l y being brought together under one roof, and we so recommend.(Report on Consumer C r e d i t , 1969, p.21)  T h i s was an a r t i c u l a t e p r o p o s a l from the Beta p e r s p e c t i v e .  In A p r i l  1969, the Honorable R.S. B a s f o r d  P i t b l a d o Lectures first he  on C o n t i n u i n g E d u c a t i o n  p u b l i c i n d i c a t i o n of contemplated  (1969) spoke at t h e Isaac  i n Winnipeg. Here he  gave the  changes to the I n t e r e s t A c t , when  said, We are u n d e r t a k i n g a complete study of the f e d e r a l I n t e r e s t A c t to determine i t s s u i t a b i l i t y to modern l e n d i n g , mortgaging and f i n a n c i n g p r a c t i s e s and i t s r e l a t i o n s h i p to p r o v i n c i a l laws.  On  November  Affairs  was  Council  of S a l e s  Assistant  11,  invited  Deputy  be i n t r o d u c e d  between  the  Osbaldeston, considered  to be  Finance  the Department guest  Bills  and  Dr. Warren James i n depth  what i s c a p i t a l ? " .  spoke  of Consumer  the convention  of  and  Corporate  the  Federated  (FCSFC).(17) Mr. Gordon to  the  convention  Ostaldeston,  about  proposed  o f Exchange A c t and the I n t e r e s t A c t t h a t were  i n the f a l l  Department  at  Companies  Minister,  amendments to the to  1969,  of 1970 or s p r i n g of 1971. T h i s FCSFC  continued  and Mr. Carne  the c o n c e p t u a l  questions  thoughout  1970  Bray, P r e s i d e n t of "what  dialogue as  Mr-  of FCSFC,  i s interest  and  66  In the e i g h t e e n month p e r i o d from J u l y saw  f o u r Department  Royal  Assent(18),  yielded  no  if  new  the  Fetus  next  credit  related  Shows  January  two  legislation  the  Signs  1970  years  legislation  federal-provincial fundamental  level.  of  Life  to February  firmly  to  legislation  implanted w i t h i n  any  of  1970  would  be  hiring  the  the  passed.  of new  least  Bills  holder-in-due-course  demand payment This  i n the Act  administration. i n t e r e s t " . The  had  Basford  event no  16,  indeed  alive,  These  signs  personnel w i t h  indicating passage  the Department  of which was  marred the  by  named  took the i n i t i a t i v e  a  transfer  series of  the  department.(19)  credit  amended  to p r o v i d e  purchases  of a d i s p u t e between the o r i g i n a l  f e d e r a l Cabinet and  the  i n d i c a t i o n s of c o - o p e r a t i o n at the  consumer  Minister  in  i n c l u d e d the  o f Exchange Act was  for  kicking  1972  T h i s p r o g r e s s , however, was  problems not  In March  -there's  there were a number of  l e g i s l a t o n ' s mentor, Ron B a s f o r d , to another  seller.  through  credit  reform l e g i s l a t i o n was  of Consumer and C o r p o r a t e A f f a i r s , and  that  bills  Basford  kicking.  Within  of  consumer  the i s s u e was  of consumer c r e d i t  womb  of  on  1970,  there were s i g n s , i f only from w i t h i n the Department,  3.1.3. The  that  Still  to January  Corporate A f f a i r s  a l l activity  results.  and  the concept  not  while  tangible  the bureaucracy that  of Consumer and  1968  to  be  responsible  could  not  buyer  and  for  its  to amend i t " i n the consumer  the Department of Finance were a g a i n s t  67  the  Department  of  Consumer  and  Corporate  Affairs  sponsoring  such  an  amendment, but f i n a l l y acceded in the absence of any strenuous objections from the chartered banks. This amendment to the B i l l s of Exchange Act was viewed as a victory for the Department of Consumer and Corporate A f f a i r s .  On  the  9th  of  July,  1970,  responsibility  for the  Interest  Department  Finance  to  of  the  Cabinet Act and  authorized  transfer  of  the Small Loans Act from  the  Department  of  the  Consumer  and  Corporate  A f f a i r s , e f f e c t i v e on the revision of these acts. Consultation with the provinces  i n the co-ordination  of  the  administration  of  the  consumer  credit law was prescibed. Cabinet authorized, as well, the preparation of amendments to the Criminal Code in respect of "loan sharking".(20)  In November, the Speech from the Throne referred  to measures that  would be introduced to further protect the users of consumer credit and promised that l e g i s l a t i o n would be introduced to amend both the Interest Act and the Small Loans Act. Looking from the outside i n , the prospect for l e g i s l a t i v e action was promising  This bright future was very much dimmer when viewed bureaucracy. Consumer desire  and  Earlier  i n the year  Corporate  Affairs,  Mr.  Jim  conveyed  to amend the Small Loans Act  and  Grandy,  Deputy  to Dr. James, to c u r t a i l  from within the Minister the  acquaintance  with  Ministers  loansharking. Dr.  James (21) noted in his personal diary: March 23, 1970 Made my f i r s t  of  the Pawnbrokers  68  A c t . I am sure I w i l l l i v e to r e g r e t ever f i n d i n g out about i t . Grandy intimated today that t h e M i n i s t e r f e e l s that something must be done about l o a n s h a r k i n g and the Small Loans A c t . There i s no joy i n e i t h e r o f these a r e a s .  A p r i l 27 1970 The" m i n i s t e r mentioned that he wanted l e g i s l a t i o n on small l o a n s , a d v e r t i s i n g , l o b b y i n g , I n t e r e s t A c t and I l a t e r l e a r n e d from Grandy that he wants t o take over the Small Loans A c t and i n c r e a s e the l i m i t s . I f he p e r s i s t s i n t h i s he w i l l undoubtedly damage a great many poor people. He seems to be unable or unwilling to recognize that many consumers are poor c r e d i t r i s k s and that they w i l l have to pay a f a i r l y high r a t e to get c r e d i t a t a l l . The i m p o s i t i o n of c e i l i n g s simply d r i e s up the funds and a s i g n i f i c a n t number of people w i l l be f o r c e d i n t o the hands o f the loan sharks • How he f a i l s to make the c o n n e c t i o n between c o m p e t i t i o n i n o r d i n a r y markets and i n the market f o r l o a n a b l e funds i s beyond me.(22)  Nevertheless, University  of  Legislation: worked  Dr. James  Toronto  Problems  from  to  that  w i t h minimal  interference  terms,  that  transactions, regulations ceilings and  of g e n e r a l  under  for  a  with  Professor  paper  Directions".(23)  unconscionable  conduct  individual rights  facilitate terms must  a  clear  interest  that  types  penalty  borrowers  and prepayment and l e n d e r s .  Professor must  Rate Waters  prevented  to n e g o t i a t e  contract  i n everyday  of  credit  language  different  and government terms  with  complete removal of  f o r an "unwarranted"  mortgages,  of c r e d i t ,  of the  "Interest  understanding  be expresed  rate  Waters  be  a p p l i c a b i l i t y . He recommended  for different  He argued  W.R.  entitled,  t h e Small Loans A c t , p r o v i s i o n  variable  requirements loans.  to  contract  prepare  and P o s s i b l e  the premise  and  commissioned  should  In other  words  rate  disclosure guaranteed  be s u b j e c t to  negotiation  between  this  report  represented  a mixed Aipha and Beta^ approach. I t met Dr. James' view that  69  interest  rate  proposing  recommendations  industry for  interest  disclosure  would  (a Beta  (an Alpha  a l l o w each  position).  r a t e mortgages (an A l p h a  s c h o o l ) combined  consumers.  Loans  unnecessary  that  government guaranteed  Beta of  were  position),  segment  while  of the f i n a n c e  to meet i t own needs i n n e g o t i a t i n g c o n t r a c t terms and a r r a n g i n g  suitable  and  ceilings  conference  approach  D r . James',  the need  "Observations  f o r Basford  i n 1971, endorsed  both  policy  prior  offerings)  f a v o r e d by the  of the l o a n i n d u s t r y and  on t h e I n t e r e s t  just  of v a r i a b l e  to i n c r e a s e market  loans(an i n t e r v e n t i o n i s t  to address  A c t " , prepared  The i n t r o d u c t i o n  to a  A c t and Small  federal-provincial  Waters recommendations. But these  were not  the recommendations f o r which B a s f o r d was l o o k i n g . ( 2 4 )  In 1971 three new people January,  Dr. James h i r e d  provincial two  legislation  young  were h i r e d  Mr. J i m Mann to i n v e s t i g a t e  relating  to c r e d i t .  lawyers,  Mr. H a r v i n P i t c h  they  to w r i t e  assistants,  were  to work i n the c r e d i t  a  In May  and review c u r r e n t Mr. B a s f o r d  and Mr. Andrew policy  a r e a . In  document  Roman.  took on  As  special  f o r Cabinet  on the  amendments to the Small Loans' A c t and the I n t e r e s t A c t . A l s o i n 1971, the May  25th  general  Conference Interest  agreement  of  o f Consumer A f f a i r s  A c t and the Small  Mr.  Basford s  activities  1  special  and progress  that  Ministers,  at a  Federal-Provincial  to p o s s i b l e  Loans A c t p r o v i d e d  c o n s u l t a t i o n on the s p e c i f i c s  It was soon c l e a r  the p r o v i n c e s  that  revisions  of the  t h e r e would be  full  p r i o r to l e g i s l a t a t i o n being i n t r o d u c e d .  t h i n g s were not going w e l l .  assistant,  Mr. Tex Enemark,  of the Consumer A f f a i r s  the M i n i s t e r . I n view o f the l a c k of a c t i v i t y  On June 6, 1971,  after  Branch,  o b s e r v i n g the sent  a memo t o  and l a c k of c o - o p e r a t i o n on  70  the  part  of  the  Consumer  Research  Branch,  Enemark  recommended  that  revisions to the Small Loans Act be transferred to the Corporate A f f a i r s side of the Department.(25) P i t c h saw countered Affairs,  the v a l i d i t y  with a proposal for a Consumer Credit staffed with people  of the argument, but Bureau under Consumer  from outside the existing Consumer A f f a i r s  personnel or, a l t e r n a t i v e l y ,  to set the Bureau up within the  arm. (26) Basford, too, sensed  that a l l was  Corporate  not well, and at an informal  gathering of the Consumer A f f a i r s personnel, pressed for a rethinking of Departmental was  that  capacity".  goals and the  p r i o r i t i e s . One  Department  Neither  Credit Bureau was  of  these  should  specific  develop  initiatives  a  had  suggestion that emerged "true  any  set up, and no new Departmental  primary  effect.  No  research Consumer  goals were formulated.  Meanwhile, based on the work of Harvin P i t c h , a Cabinet Document was prepared. It proposed  the revision and consolidation of the Interest Act,  the Small Loans Act and the Pawnbrokers Act into a new  act to be  called  "The Interest and Consumer Credit Act". This act would provide for credit charge  and  advertisement  disclosure  regulation,  court  relief  from  excessive rates, updating of the Small Loans Act interest rate c e i l i n g s , a  government-backed  charge  more  than  loan program 12%  per  year  for the rate  of  poor,  licencing  interest,  no  for a l l who liability  for  unsolicited credit cards, and amendments to the Criminal Code to outlaw abusive credit c o l l e c t i o n practices. It was would be introduced i n the 1971 case before the next  anticipated that l e g i s l a t i o n  to 1972 Parliamentary Session (or in any  e l e c t i o n ) . Consultation had already begun with the  Departments of Finance and Justice and discussions with the Department of  71  Insurance  had  been  extensive. It was  estimated  that  this  legislative  proposal would increase expenditures for the Department of Consumer and Corporate A f f a i r s by $200,000 or by  100%.  P i t c h presented a Beta2 proposal emphasizing direct  intervention  determine  in  the socially  the  market  in  order  acceptable outcome. The  although usually an Alpha position, was  adopted  consumer protection and that  regulations could  idea of an omnibus act, here without  detracting  from the clear Beta perspective of the substantive portions of the act proposed by P i t c h .  The memorandum never got the Department. In January  to the Cabinet as Basford was  1972  the Honorable Robert Andras took over as  Minister and another, but very similar, Cabinet document was This time the document was the  Department  of  co-sponsored  Consumer  moved from  and  drafted-(27)  by the Department of Finance and  Corporate  Affairs.  This,  too,  never  reached Cabinet, as Parliament dissolved was February 16, 1972. A general election was  held and  the Liberals  were returned but  with  a minority  government.  During the third Consumer Royal  and  Corporate  Assent.(28)  Competition  session of the 28th Parliament, the Department of  Act  A (to  Affairs  seventh, replace  introduced but the reaction was  saw Bill the  six b i l l C-256,  successfully  amendment  Combines  to  through the  Investigation  to  proposed Act)  was  swift, strong and negative and i t died on  the order paper (Stanbury, 1977).  The "Interest and Consumer Credit Act"  never even got as far as Cabinet. The most obvious question i s "why?".  72  3.1.4. Years o f I n a c t i v i t y  - perhaps i t w i l l  be s t i l l  born  February 1972 to May 1974  From 1974,  the end of the 28th P a r l i a m e n t  when  another  general  election  Consumer and Corporate A f f a i r s House  of  Commons.  legislation minority  government  was  called,  d i d not i n t r o d u c e  Similarly,  was slow  i n February  progress  and h e s i t a n t . saw, a g a i n s t  on  t h e Department  a single  consumer  a background  never  November  1972 a d r a f t  submitted. T h i s memo was seen  1970  Cabinet  document,  although  revisions  to the Interest  appointed  Minister  the  of changing  o f Consumer  reform  faces,  only  credit.  to Cabinet  was prepared but  to be a f o l l o w - u p from  the J u l y  the 1972 memo d e a l t  Shortly  after  this,  i n t o the  of the L i b e r a l  i n fact  Act.  of  Mr. Herb  and C o r p o r a t e A f f a i r s ,  taking  only  9,  with  Gray was over  from  Honorable Robert Andras who had been m i n i s t e r f o r only 10 months.(29)  Four  months  Deputy  later,  Minister.  position at  Memorandum  bill credit  The 27 month p e r i o d  t e n t a t i v e and minimal movement i n the area o f consumer  In  1972, to May 8,  on March  He took over  for exactly  1. 1973, Mr. M i c h a e l P i t f i e l d from  and a new Deputy  On section postpone  July  Gordon Osbaldeston who had held t h e  one y e a r . T h e r e f o r e , 1972 produced  s u b m i t t i n g a Cabinet document,  was named  and the appearance  only  one attempt  of a new M i n i s t e r  Minister.  19, 1973 C a b i n e t  6 and s e c t i o n s any d e c i s i o n  approved,  i n principle,  11 t o 13 o f t h e I n t e r e s t  on v a r i a b l e  interest  the amendment of  Act.  r a t e mortgages  I t agreed t o (VIRM) and  it  73  authorized  t h a t any  c o n s u l t a t i o n s with (to which Mr.  and  a l l l e g i s l a t i o n be d r a f t e d only a f t e r a p p r o p r i a t e  the Departments of F i n a n c e , J u s t i c e  B a s f o r d had  and  Urban  been moved), as w e l l as w i t h the  Affairs  Superintendent  I  of  Insurance,  Corporate  The  the  of  Canada  and  the  Department  of  Consumer  and  r a t e mortgages  was  Affairs.  postponing  significant. Department  of  over  was  any  Many  decision  of  the  Warren James was Gray,  Bank  the  last  very  persuaded  on  interest  interdepartmental  year  or  committed by  variable  his  more  to the  had  consultations concerned  concept.  colleagues(31)  with  VIRM's.(30)  When the M i n i s t e r ,  during  the  Cabinet  Dr. Herb  committee's  c o n s i d e r a t i o n of t h i s document to withdraw the VIRM p r o v i s i o n s , Dr. James walked out of the Cabinet committee meeting i n anger and  The  tally  s u c c e s s . The the  year  1973  can seen  only  be  registered  as a very  as  partial  serious defeat w i t h i n  bureaucracy•  presented  approved  to  1974  the Department of Consumer and C o r p o r a t e  the  Interest  the document. Key  interest"  where the sum "net  14,  Cabinet with a Working Paper o u t l i n i n g  amendments  The  the  e x c l u s i o n of VIRM was  On January  of  for  disgust.(32)  was  to  paid  legal  fees,  for  sum"  the  A  Cabinet  order  of  d e f i n i t i o n s were proposed. the  rate  of the d i s c o u n t e d  principle  amounts  be  Act.  i n more d e t a i l  was  benefit  application  the of  determined  payment  fees,  the  The  amount  lender, bonuses,  of  actuarial  the  including  proposed 28,  1974  "effective rate  e q u a l l e d the net  principal the  by  February  Affairs  principal  sum.  mortgage  less  such  discounts  equation  things  as  appraisals,  74  registration, and any a  and  insurance.  Benefits  of  the l e n d e r  items designed to reduce r i s k or i n c r e a s e  mortgage  interest  contract  although  subsequent  would  the  have  rate  knowledge  of  to  could  the  disclose  be  security.  effective  adjusted  absolute  covered  downward  quantum  of  both  Furthermore,  annual as  the  yield  a  rate  of  result  of  benefit  to  the  lender.  About  this  responses  Michael  from the f i n a n c i a l  the need  scope  Interest  Act;  approach; within  time,  and  timing  industry  Deputy  of r e v i s i o n s  to the Small Loans  industry;  of  the  lenders  true  nature  "Federal  Legislation"  Interest  and  Credit  "Green Paper".(33) Although t h i s was consulted  Insurance,  and  closely  had  Corporation(CMHC).  also The  of  v e r s u s borrowers the Department  had  initiated  on a number of fundamental  u n i f o r m i t y . By March 12, 1974  he  Minister,  Act  points: and  the  the a p p r o p r i a t e n e s s of the omnibus v e r s u s the i n c r e m e n t a l  understanding  the  Pitfield,  with  Mr-  conferred  provinces  primarily D.M.  and  completed was  to be  currently  the need  for  proposals f o r released  as a  the work of Warren James,  Humphrys  with  received  rights;  had  that  competition  Canada  of  the Department  Mortgage  an advance  copy  and  of  Housing  of the  "Green  Paper" i n o r d e r to prepare f o r f e d e r a l - p r o v i n c i a l c o n s u l t a t i o n s scheduled in  April.  The contents of the "Green Paper" were  i n summary form:  Purpose: -to  abandon  interest  many  of  the  ancient  prejudices  about  r a t e s , and c r e d i t and to approach c r e d i t  interest,  rationally.  75  -to engage in close co-operation  between federal and provincial  government especially in the areas of c o n s t i t u t i o n a l uncertainty and shared j u r i s d i c t i o n . -to clearly recognize  the mutual r e s p o n s i b i l i t i e s of a l l parties  involved i n credit transactions. -to keep pace with advances in the technology of money transfers and i n s t u t i t i o n a l changes. This was  an  attempt  to revise  the  Interest Act  i n the  following  areas: -disclosure -protection to a l l forms of credit -prepayment of mortgages -credit/interest calculation -usurious  transactions  -treatment of the poor Substantive  recommendations for Section 6 included: requirement f o r  disclosure  for  specified  computational  Substantive  recommendations  uniform  ;  e f f e c t i v e rate  disclosure  amount was  derived;  of  of  interest, broadly  methods  for  for Section  e f f e c t i v e annual  and  coverage of  defined;  calculating 4 included:  interest.  provision for  credit rates  interest on  and  and  how  revolving  the  charge  accounts, credit card, and statement of accounts. It i s doubtful whether there is anything to be gained by maintaining special regulations applying only to the banks.(34) Generally -the  i t was  recommended that:  effective  whenever any  annual  rate  of  rate return  of  interest  i s offered  shall in an  be  disclosed  advertisement,  76  prospectus, or other any  limitation  deposits  or  or  representation condition  saving  of  to the public, or whenever interest  certificates.  Daily  i s put  on  interest  saving  rate  is  suggested as the ideal method of interest accrual; -the  rule of 78's (35) be abandoned and that a prepayment and  late penalty  of no more that 1% be recommended as "reasonable"  for the "majority of cases"; -a s l i d i n g scale of penalties for mortgage prepayment, when the date of the o r i g i n a l mortgage i s applicable; and -when the demand by a mortgagee for prepayment at the end of a term that i s less than the amortization  period, that the amount  of the mortgage repayable i s less six months i n t e r e s t . New  regulatory mechanisms to deal with s p e c i f i c problems associated  with borrowing and lending included the following: -no usurious should cost  lending  rates  will  be estabished  but l e g i s l a t i o n  allow courts to reopen and revise credit contracts  i s not commensurate  with r i s k . The onus of proof  where  i s to be  on the lender; -except for specified exemptions money lenders will  be  registered  and  licenced  and  and pawnbrokers  required  to  fullfill  reporting obligations; -licencing  requirements  will  include  discounting  anticipated  receipts -exemptions w i l l  include banks, those licenced under the Small  Loans Act or p r o v i n c i a l government agencies and, trust mortgage companies.  loan and  77  Small  Loan Act  amendment  alternatives  were  set  discussion of the trade-offs between freemarket  out  along  with  a  deregulation versus  protection. The alternatives l i s t e d were discussed. - a b o l i t i o n of the loan c e i l i n g -keeping c e i l i n g s off loans less than $1000. -adjusting rates so that loans greater than $1,500 cost between 1 1/2  -2% per month.  No recommendation among these alternatives was offered. There was  a vague recommendation for consideration of a voluntary  loan insurance scheme created by premiums payable by the lenders on the basis of total consumer loans made. It was scheme  would  have  to  have  government  acknowledged that the  support  and  many  of  the  were covered  by  the  mechanical d e t a i l s would have to be worked out.  Thus,  only  amendments  "Green Paper". The  to  approach  minor, incremental and mainly  the  was  Interest Act  Beta,  and  the  proposed  changes were  i n the area of disclosure and unfair terms  of credit contracts.  In the United States, 1972 and 1973 were not years of i n a c t i v i t y . On December 31,  1972  the National Commission on Consumer Finance  after three years of study, issued i t s Report United  States.  The  Report  contained  100  (1972),  on Consumer Credit i n the  recommendations  to  improve  consumer credit l e g i s l a t i o n . The Commission approached i t s task from perspectives. One was  two  a structural/economic perspective where the concern  was with r e s t r a i n t of trade, b a r r r i e r s to entry, and economies of scale. The  big question  was  "Is  there  sufficient  credit?". The  second was  a  78  consumer  protection  disclosure  and  consumers  make  Commission  perspective  unfair the  there  where  transactions.  best  were  choices  five  concerns  Here  the  big  themselves?".  dissenting  were  with  question  From  statements,  information  the  four  was  "Can  nine-member of  the  five  objecting to the recommendation to raise interest rate c e i l i n g s . Reasons, however, d i f f e r e d . The very obvious lack of agreement among commissioners was  blamed on  the  time pressures  Congress, which necessitated  the  brought on by  the  ending of the 92nd  substantial involvement 1  and  influence  of Commission staff.(36) The recommendations covered a very wide range of credit  related  issues,  most  of  which  were  not  subject  to  disagreement•(37)  Then, i n November of 1973,  the United States National Conference of  Commissioners on Uniform State Laws, Committee on Uniform Consumer Credit Code issued a "Tentative F i n a l Draft". This document discussed amendments to  the  original  1968  p r a c t i c a l experience recent U.S. structure  Uniform Consumer Credit and  Code  (U3C)  in  changing trends, for example, credit  light  of  cards  and  court decisions. It recommended: revisable c e i l i n g s i n a step that  stipulated maximum allowable  interest  rates on consumer  loans; licencing of a l l lenders dispite the implications for reduced ease of  entry  to the  industry; and  action on  associated with consumer sales credit and  Thus, as the United credit  legislation,  20 year  problem  holders-in-due-course.(38)  States moved to improve on  i t s 1968  the Department of Consumer and Corporate  Canada slowly moved over the course "Green Paper" on  the extensive  consumer  Affairs in  of 27 months to the preparation of a  "Federal Interest and  Credit L e g i s l a t i o n " . This was  a  79  paper  that  posited  many  broad  abandoning p r e j u d i c e ,  engaging  and  with  keeping  specific  current  policy  i n co-operative  changing  recommendations  alternative  philosophical  and  objectives,  federal-provincial  technology,  suggested  such  very  but that little  as  action  offerred  in  the  few  way  of  positions.(39)  3.1.5. F a s t Changes - sharp k i c k i n g ,  the pregnancy i s obvious  June 1974 to December 1974  The issue an a  c a l l i n g of a g e n e r a l f e d e r a l  back i n t o the p u b l i c  undeveloped full  discussion  election thrust  the consumer c r e d i t  forum. Reform c r e d i t l e g i s l a t i o n switched document i s s u e d  blown L i b e r a l P a r t y  platform  from w i t h i n  policy  used  from  the bureaucracy to  to garner  votes.  This  move s e t a new course f o r c r e d i t l e g i s l a t i o n i n Canada-  On June "Green  Paper"  adopted form part  24, on  1974  the Prime  "Federal  as government  Interest  policy  of the L i b e r a l P a r t y  "Green Paper" turned  Minister and  and would election  declared Credit  be i s s u e d  that  the proposed  Legislation"  would  be  as a "White Paper" t o  p l a t f o r m . And so i t was that the  "White".  During the course of t h e i r campaign the L i b e r a l s  promised:  l e g i s l a t i o n r e q u i r i n g d i s c l o s u r e of the e f f e c t i v e rate of interest in a l l interest bearing transactions (and) l e g i s l a t i o n a l l o w i n g the buyer to pay o f f r e s i d e n t i a l mortgages d u r i n g the f i r s t 5 y e a r s o f the agreement without e x c e s s i v e p e n a l t i e s . ...plans f o r a low income insurance p l a n to help' e s t a b l i s h c r e d i t f o r low-income , s t e a d i l y employed wage e a r n e r s .  80  ...consumer-help s t o r e f r o n t o f f i c e s the number which would be increased to 20 by the end 1974.(Gray, 1976)  July of  141  8th  saw  seats  the  same  a L i b e r a l Government r e - e l e c t e d with a c l e a r  to  Andre O u e l l e t  the  was  time,  Acting  Conservative  named M i n i s t e r Dr.  Research. There was as  Warren no  Director.  Party's of  95.  Exactly  Consumer and  James  resigned  The  following  month,  on  Throne promised amendments to  establishing  standard  system  of  as  month  Director Mr.  E.C.  September the  disclosure  one  majority later  Corporate A f f a i r s .  immediate replacement and  Speech from.the a  of of  of  Consumer  Savage  30th,  At  served  1974,  the  I n t e r e s t Act aimed a t  of  interest  rates  for  borrowers and d e p o s i t o r s . To h e l p home b u y e r s . . . - b e t t e r d i s c l o s u r e p r o v i s i o n s f o r the t r u e i n t e r e s t r a t e of mortgages To p r o t e c t consumers ... - a comprehensive o v e r h a u l of consumer c r e d i t l e g i s l a t i o n , i n c l u d i n g d i s c l o s u r e by a l l l e n d i n g i n s t i t u t i o n s a t e f f e c t i v e r a t e s of i n t e r e s t on a l l l o a n s .  The  Honorable  legislation, ceilings. Department,  reopened  While  amendments to a full  dated  i n d u s t r y on Mr.  Clare  the  29,  to  the  move merits  continued  federal  the  department  speak out  "The 1974  Introduction was  never  of  on  reforming of  the  delivered.  debate (Justice,  the  Finance  and  dealing  were happening a t  I n t e r e s t Act Instead,  of  Acting the  Deputy  Canadian  Minister Life  (Consumer  Insurance  rate  within  with once,  Amendments",  discussions  i d e a of a comprehensive consumer c r e d i t b i l l  Bolger,  credit  interest  about p r o p o s a l s  I n t e r e s t Act.(40) Many t h i n g s  speech on  representatives  other  (1974) s t a r t e d to  November  on  bureaucrats  with  the  anxious  discussion  the  and  CMHC), O u e l l e t  and  Andre* O u e l l e t ,  were begun.  Affairs),  Association,  with  met the  with Trust  81  Companies A s s o c i a t i o n of Canada, the Canadian FCSFC,  as  well  d i s c l o s u r e was  One Affairs approved  as  with  reached  month  later,  decided  that  by  CMHC  through  he  intented  amendments  proposed  February  24,  1974  to  would be  to  6 and  - a new  reform  year 1975 advocate  together  with  consultations internal  and  a  Leader, New  saw  1975  new  Team - p r e n a t a l  to December  team  in  the  of  turn  incorporated  as  i n t o the  the r e s t of  the  to  O u e l l e t had shown see  the  birth  of  phase had begun.  of  Andre  (42),  parties. process  approach.  preparation  of e v e n t s . A new  bureacrats  consultation  t o r a d i c a l l y change i t s p o l i c y  Act,  1975  person  a l l interested  external  Corporate  1976  a complete  emerged  with  a  to October  January  rate  11 to 13).  comprehensive consumer c r e d i t l e g i s l a t i o n  3.2.1. New  lead  of  Interest  with the Small Loans A c t and  effort  The  the  swung back to an omnibus approach.  B i r t h - 1975  nature  the  concerted  3.2  the  the  these meetings.(41)  I n t e r e s t A c t (not j u s t s e c t i o n s  that  on  Department of Consumer and  C a b i n e t on  a c t i o n had  agreement  however, the  overall l e g i s l a t i o n dealing  The  No  Bankers A s s o c i a t i o n and  had  Ouellet.  began  By  consumer c r e d i t  the  a  fresh  end  persuaded  M.  of the  Ouellet, round 1975  of the  Department  82  For spoke area  four  successive  p u b l i c a l l y about of  consumer  legislative  the  months imminent  c r e d i t . On  amendments  to  the  be  Honorable  introduction  January  28th  introduced  he  of  6  Ouellet  legislation  talked  within  Andre  about  to  9  a  in  the  series  weeks.(43)  of  This  l e g i s l a t i o n would: -prevent undue e x p l o i t a t i o n of c r e d i t and -provide f o r c r e d i t information  especially credit  cards;  disclosure;  - p r o v i d e f o r consumer c l a s s a c t i o n ; - p r e v e n t unsavory c r e d i t c o l l e c t i o n p r a c t i s e s ; -ensure a c c u r a c y i n c r e d i t b i l l i n g ; -amend the  Bankruptcy  Act.  In an address to the N a t i o n a l 1 9 7 5 , O u e l l e t s a i d t h a t he  March  Affairs'  Task  1975, Force  the  Anti-Poverty  i n t e n d e d to r e l e a s e  P r o t e c t i o n Act"(BPA) w i t h i n  In  i n t e r n a l Department  on  basis  of  Consumer  Credit  e f f e c t i v e annual  computation  Organization  on March  proposals for a  18,  "Borrowers  a month.  recommended, i n p r i n c i p l e , l e g i s l a t i o n 1. e s t a b l i s h the  and  and  of  (44)  Consumer issued  and  its  Corporate report.  It  to: rate  of  disclosure  i n t e r e s t as in  all  the  universal  consumer  credit  transactions; 2. reduce or e l i m i n a t e  p r a c t i c e s whereby i n t e r e s t charges may  not  be  unreasonable p e n a l t i e s  on  i n accordance with d i s c l o s e d i n t e r e s t r a t e s ; 3. p r o v i d e p r o t e c t i o n  f o r consumers a g a i n s t  l a t e payments or prepayment of a l l l o a n s , 4. enable c o u r t s excessive  to c o r r e c t c o n t r a c t s  under the  circumstances;  i n c l u d i n g mortgages.  which i n c l u d e  i n t e r e s t charges,  83  5. ensure  that  authorities  so  a l l money abuses  such  lenders as  are  licenced  loansharking  can  by be  appropriate detected  and  punished; 6. discourage lenders from requiring homeowners to a pay large amount of p r i n c i p l e at the end of a mortgage; 7. make more dollars available for cash loans  of less than $1,500;  and 8. reduce certain undesirable  practices  in the  operation  of c r e d i t  integrated  scheme to  card systems. It  also recommended  facilitate  access  that to  the Department credit  by  study  certain  an  classes  of  low  income  borrowers.(45)  Then on A p r i l 28th 1975,  Ouellet (1975), outlined in a speech to the  Junior Chamber of Commerce in Rimouski, Quebec, the major ingredients of the  BPA.  A  uniform  system  of  disclosure  and  credit  definition  and  l i c e n c i n g scheme and provisions against loansharking were discussed. So as a f i n a l step we hope to bring about a standard system of disclosure of annual interest rates. This system w i l l apply to every lender for the protection of every borrower . . . and to every transactidn ranging from mortgages to finance company loans to r e t a i l credit transactions where the consumer winds up owing money.  Acting boldness  Deputy  and  Ouellet was  Minister  cautioned  undeterred.  Clare  against  Bolger  such  hasty  was and  alarmed  at  comprehensive  Ouellet's action-  84  Then on June 5, 1975 Corporate  Affairs  "protectionist"  Cabinet approved a Department of Consumer and  memorandum  (Beta  type)  dated  May  legislation  29,  1975.  aimed  at  It  proposed  regulating  a the  individual terms of contract between borrower and lender for transactions of loan and finance  companies. Banks, c r e d i t unions, caisses  populaires  and trust companies were excluded from the proposed l e g i s l a t i o n . Interest rate c e i l i n g were to be retained. The objectives of the l e g i s l a t i o n were: -to protect borrowers against grossly excessive  interest rates;  -to enforce disclosure of e f f e c t i v e annual rates of interest; and -to protect borrowers who mortgage real estate. Authorization was given to: 1. develop  plans  to encourage  responsible  lending  institutions, to  make loans at reasonable rates to low-income consumers; and to 2. develop l e g i s l a t i o n as outlined i n the ' Green (White) Paper  with  the following modifications: (a) exclusion  of those i n s t i t u t i o n s that  are already  regulated  (banks, c r e d i t unions, caisse populaires and trust companies); (b) maintenance of a rate c e i l i n g on cash loans up to $1000 (2% per month on the f i r s t $300 and 1% per month on the loan portion $700-$l,000.); (c) l i c e n c i n g of a l l lenders under the Small Loans Act; (d) provision  f o r a penalty  to be paid  to the mortgagor i f  mortgage renewal i s denied and mortgagor has a clear record of good behavior; (e) an  unwarranted  challenge rates  rate  concept  the appropriateness  a  consumer  could  of the interest rate charged. For  below 35% the onus of proof  above 35% the onus  whereby  would be on the borrower,  reverses and l i e s with the lender;  85  ( f ) the the  date  the mortgage was  mortgage  renewal  date  originally  would  c a l c u l a t i n g mortgage p e n a l t i e s ; (g) c r e d i t o r s would be r e q u i r e d a c r e d i t dispute  This went  proposed  further  used  for  rather  the  than  purposes  of  and to take s u b s t a n t i v e  a c t i o n should  arise  legislation  than  be  negotiated  was  previous  not  only  from  the  recommendations  Beta  for  school,  it  "protectionist"  legislation.  By this  June  of  1975  legislation  Sylvia  Ostry  Minister  of  a new  through  moved  bureaucratic  the  from  House  head  Consumer and  of  and  team had  been assembled  Senate.  Statistics  Corporate A f f a i r s .  On  February  Canada  to  In May,  Mr.  to  see  19th  become M.M.  Dr.  Deputy  Goldberg,  f  from  the  legal  Department  advisor  Protection  to  Act.  of  assist  professor  University  of B r i t i s h  Evans' early  in  Finally,  assistant  Research,  Justice  replacing  of  came  the  in  drafting  June,  finance  to Consumer A f f a i r s as  in  Columbia) , was  of  the  Dr.  John  L.  the  faculty  hired  Dr. Warran James who  primary mandate was  as  had  a  proposed Evans, of  Borrowers (previously  Commerce  the D i r e c t o r , of  retired  special  10 months  at  the  Consumer earlier.  to prepare an omnibus consumer c r e d i t b i l l f o r  i n t r o d u c t i o n i n t o the House of Commons.  With a new credit activity  reform  team, a newly-approved advocate  involved  as M i n i s t e r ,  widespread  and  the Cabinet document of June 1975,  Cabinet memorandum, and a consumer activity  simultaneous  i n t e n s i f i e d . Much of consultations.  consultation  had  As  taken p l a c e  that  noted  in  primarily  86  between  the  Department Still  v  Department  of  Insurance  agreement  was  of  Consumer  and  Canada Mortgage  not  and  unanimous.  Corporate  While  anticipated from the consumer sector, i t was community  would  complain  about  the  and  added  Affairs  Housing  complete  expected that the costs  and  In  June  risk  obligations. apparent from  consultations.(46)  1975,  two  across  teams  of  Consumer  Canada.(48) As  with representatives  and  Corporate  Affairs  well, during  of the Canadian L i f e  July  the  Bank of  Nova  Bankers Association.  Scotia,  Minister  Insurance Association,  Banque Provinciale,  Then in August  a Consumer and  and  and  financial  L i f e Company, London L i f e Company, SunLife Company, Prudential Company,  was  financial  Department of Finance o f f i c i a l s were formed.(47) They v i s i t e d institutions  the  Corporation.  agreement  Strong differences of opinion on j u r i s d i c t i o n were already federal-provincial  and  met  Mutual  Insurance  the  Canadian  Corporate A f f a i r s  team v i s i t e d Nova Scotia, Quebec, Ontario, Alberta and B r i t i s h Columbia.  During concern was  these  consultations  for consumers and  the  Department  stated  that  i t s major  that the proposed l e g i s l a t i o n would cover  three areas: protecting consumers against  excessive  rates; disclosure of  interest rates, and provision of certain other consumer r i g h t s . Interest was  proposed  would be and  to  be  broadly  defined  and  licencing of a l l credit grantors  disclosure and  record  calculated  a c t u a r i a l l y . There  unwarranted rate  provisions,  keeping provisions. A l l transactions  f i n a n c i a l i n s t i t u t i o n s would be  regulated.  and a l l  87  Internal  reports  consultation inclusive  compiled  indicated  that  definition  of  as  there  a  result  was  interest  strong the  of  this  industrial  opposition  definition  to:  of  the  lender;  e f f e c t i v e , as opposed to the nominal r a t e c a l c u l a t i o n method; the of prepayment p e n a l t i e s ; and  Corporate new  Act  were  Affairs  issued  was  Occurring provinces  industry,  Branch,  f o r Mr.  Department  Kingdom to v i s i t the  draft  Consumer current  BP A  draft  of  Code  This  mean  and  1975  the Borrowers  i n t r o d u c t i o n of  in  to  with  lengthy  S y l v i a Ostry  talk light  and the  with of  1974)  approach  would  mean  consumer  credit  that  and  Canada  legislation.  Several The  enforcement.  Co-operation  to be a t t a i n a b l e .  have from  arguing  Consumer of  with  Credit  the  United  staff  about  the  British  deficiencies  resulting  with  the  O s t r y , meanwhile,  experience  in  d e c i s i o n was  the to  to develop model c r e d i t  jurisdictional  would  15th,  Consumer Research  his  with  consulations.  on J u l y  Protection  look at c r e d i t , the  and  Secretary,  Consumer  negotiations  administration  discussions  Assistant  (1974).(Good,  deal  discussions  r a t e c e i l i n g s . Dr-  and  to  implementation,  felt  to be  J u s t i c e . Consumer  "outside"  l e g i s l a t i o n were d i s c o v e r e d .  and  approach was  these  interest  Prices  Ottawa  legislation,  of  fall  "internal"  take a more g l o b a l , a l l - e m b r a c i n g  would  early  with  Derek Hyde,  legislation  Credit  Department  memo to Dr.  of removing the  arranged  the  were  Dr. Evans wrote a lengthy  had  removal  Parliament.  simultaneously  and  the m e r i t s  to  p r e d i c t i n g an  legislation into  the  average d a i l y balance c a l c u l a t i o n s  On J u l y 30th, d r a f t i n g i n s t r u c t i o n s f o r what was Protection  all  problems  the It  provinces was  complete the  separately-  felt and  provinces  as  that  to this  effective on  this  88  The resulting recommendations included: 1. that licencing provisions be expanded to include vendor c r e d i t , 2. that  the unwarranted  rate  concept  e x p l i c i t c r i t e r i o n rate, and instead at  zero percent -any  be revised  to eliminate  an  an i m p l i c i t c r i t e r i o n rate set  be adopted by providing that;  lending contract i s re-openable by the courts, and  -the burden of proof  as to whether or not a p a r t i c u l a r lending  transaction i s warranted i s always on the lender,; 3. that a l l interest rate c e i l i n g provisions be eliminated.(49)  The  position of the Department had switched, from the Beta approach  approved i n a Cabinet Memorandum of June 1975, to an Alpha approach the following month.  The changes  drafting of a new memorandum to Cabinet in  consulations realized  the was  legislation i n progress  resulting by  August  from  i n order  to allow  all  major  interdepartmental  of 1975.(50) The Department  that this redrafting would mean a delay  of the l e g i s l a t i o n  to incorporate  i n the introduction of  for further consultation  and  for  joint federal-provincial action.(51)  On November 7,1975 the f i r s t met  f u l l scale interdepartmental  to discuss the "Borrowers and Depositors  committee  Protection Act".(52) Areas  of progress were minimal, while the points  still  substantive  was d i s s a t i s f a c t i o n  part  and numerous. Generally,  of the Departments consulted  there  that  there  under discussion were  were too many  on the  provisions  89  left  to  regulations-  More  specifically,  application  of t h e A c t ,  definition  licencing,  appropriate  disclosure  requirement  f o r notice  of  there  of i n t e r e s t  rate  disagreement  and l e n d e r ,  f o r future  changing  was  on  the need f o r  receipts  the form  and  the  method  the  only  one  of  and rate  calculation.  The  interdepartmental  Department  received  forum  criticism  it  cautioned  against  would be p o l i t i c a l l y  of the p r o v i n c e s . report  not  and o p p o s i t i o n . P r o v i n c i a l  growing. I n a memo to the Deputy Goldberg  was  M i n i s t e r , dated  the e a r l y  where  o p p o s i t i o n was  September 3, 1975, Mr.  i n t r o d u c t i o n of BDPA, h o l d i n g  d i s a s t e r o u s to move without  the f u l l  "Federal P r o v i n c i a l  Relations  i n the F i e l d  that  co-operation  The next month t h e Consumer Research C o u n c i l  entitled,  the  issued a  of Consumer  P r o t e c t i o n " , by L o u i s J Romero (1975), p r o f e s s o r of law a t the U n i v e r s i t y of  Saskatchewan.  levels  o f government  legislation for  tracing  both  became  to pass  federally  fraught  overlapping  legislation,  Federal  rather  increasing  i n the race  passed  and  noted  competition consumer  between  the two  legislation.  As more  and p r o v i n c i a l l y ,  with  problems  administration  and  of  the areas  left  constitutional  enforcement.  After  the h i s t o r y of f e d e r a l - p r o v i n c i a l r e l a t i o n s h i p s i n the area of  consumer  Romero proposed  Provincial  than s t r u c t u r a l  co-operation that  was  legislation  jurisdiction  for  Romero  a plan  Relations".(53) or p r o c e d u r a l  i n decision-making,  "New Machinery". (54)  With  f o r reform,  "New Machinery  the caveat  that  attitude,  changes, were more d e t e r m i n a t i v e of  Romero suggested one p o s s i b l e format f o r  90  Certainly words of caution had  been dispensed, both from within  the  bureaucracy and from outside government c i r c l e s . Subsequent events proved them prophetic.  On December l Consumer  and  conference partners"  emphasized the  would  institutions". proposals, "two  vitally  Affairs the  be The  in  Ottawa.  of  the  reasserting  protected  against  p r o v i n c i a l reaction and  of and  aspects  of  the  licencing  in  the  the and  The  preamble  federal  their "the  purpose of the meeting was  important  administration  met  importance  provinces,  receive  legislation,  a Federal-Provincial Conference of Ministers of  Corporate  with  consumers  1975  v  the  government  "as  influence  powers to  set  of  out  so  that  the  big  the  federal  to arrange for follow-up in legislation:  inspection  appropriate  to  the  cooperative  provisions  harmonizing  of  of  the  disclosure  requirements."(55)  The  provincies  were not  happy  with  either  the  substance  l e g i s l a t i o n or the federal goverment's approach to securing This response was  not unanticipated.  input  already  they  had  received,  federal  the  i t s passage.  Before the Conference, and the  of  government  based on prepared  responses to a number of issues  the most salient being the need for the  legislation,  process,  the  consultative  unwarranted rate and  jurisdictional  l i c e n c i n g provisions. It was  rights,  the  noted in the course of  the proceedings that in the face of possible duplicaton or contradiction between federal and p r o v i n c i a l disclosure regulation, "We the provinces  cannot 'expect'  to do anything we hope they would change their own  or regulations."(emphasis not added).  statutes  91  In  the  midst  consultations,  of  these  very  Ron  Basford  sharking.  More  proposed  than  problem  by  Messrs.  Marchessault  Corporate  five  that years  and  legislation later  Legault  Marchessault  Affairs  antisocial  that  activity  not  that  drafted  intensive into  intensive  to  of  that  only  loan  was  squad  met  of  sharking  an  problems,  loan  into  the  Department  Consumer  and  insidious  and  but  the  that  the law to establish a "criminal" rate of  interest and criminal sanctions for abusive c o l l e c t i o n  techniques, curb  operations of the loan shark. Marchessault recommended that  a criminal rate of interest be established at approximately  eight  prime and that penalties imposed by the lender must not exceed the  the  Urban P o l i c e ,  with  Department  widespread  curb  study  squad of the Montreal  the  caused  be  after  convinced  Department could, by changing  the unsavory  and  that of loan sharking. As far back as  the special loan shark  officials.(56)  changes  several old issues resurfaced and were blended  policy process. The f i r s t issue was 1968,  fundamental  effective  annual  rate  of any  Consumer and Corporate A f f a i r s  loan. A v i s i t  officials  by  times  10% over  the Department  of  to the o f f i c e s of the Montreal  Urban P o l i c e convinced the Department that the law could and  should be  strengthened to curb loansharking a c t i v i t y .  Variable interest rate mortgages (VIRM), rejected by the Cabinet in 1973, were again recommended by the Department of Finance at the November 9, 1975 his  interdepartmental meeting.  Department  having  another  introduce VIRM, but ministry  M.  Ouellet was  said  introduce the  that  concept  he  not w i l l i n g would  be  to have  amenable to  i n a separate  piece of  l e g i s l a t i o n . Later the same month, following a l e t t e r dated November 18, 1975  from  the Honorable  Barney Danson, Minister  of Urban A f f a i r s ,  to  92  Andre  Ouellet,  inclusion  of  VIRM  c u r r e n t l y being  The  Sylvia in  Ostry the  wrote  BDPA.  offered.(57)  to  She  M.  noted  Ouellet that  VIRM  Thus, VIRM were a g a i n  third  concern was  December,  the  Department  provisions  d e a l i n g w i t h terms of c o n t r a c t must be  i n t e r e s t i n order  The and  fourth  item  d i r e c t i o n . In  the  of  to be v a l i d  was  July  need to r e - e v a l u a t e of  t h a t of  Department.  a of  matter 1971,  of Ron  and  action  the  1974,  the  i n emphasis  direction  for  Cloud  appointed  was  Branch. Book"  One  for  current  the  of the  Mr.  Acting Cloud's  Assistant  directions  for  d i r e c t i o n was  future  again  agenda.  the  BDPA. In  regulations  or  phrased i n r e l a t i o n  to  raised  the  organization  question  of  a c t i v i t i e s of the Consumer A f f a i r s resulted  from  this  initiative.  hands. He h i r e d o u t s i d e  the side  So  the  consultants.  Group completed  Corporate A f f a i r s .  Then,  Assistant  a  I t recognized  consumer p r o t e c t i o n  study the  in  December  Director  Minister.  program  development.  a concern.  of  need  legislation  consumer i n t e r e s t s i n a wide range  responsibilities  Deputy  and  effect,  the b e g i n n i n g of a second attempt to look  Department.  organizational  Basford  representing  This was  that  in  i n t e r n a l Departmental  "from d e v e l o p i n g  to f i n d i n g s o l u t i o n s and of problem a r e a s " .  cautioned  Canada C o n s u l t i n g  Department of Consumer and  for a s h i f t  the  c o n s t i t u t i o n a l i t y of  Justice  M i n i s t e r took matters i n t o h i s own  In November  on  were,  the  federal legislation.(58)  the g o a l s No  the  recommending  plans The  of  was  of the to  This  book  along  with  issue  of  1975,  at  Mr-.  Jonathon  Consumer  Research  prepare was  to  a "Briefing assess  the  recommendations  for  i n t e r n a l structure  and  93  Added  t o these r e c u r r i n g and f a m i l i a r problems,  constitutionality, three  new  i n t e r n a l Departmental  legislative  initiatives.  g e n e r a l concern f o r c r e d i t the  Liberals  preparation changes into  were  related  returned  f o r the d i e n n i a l  Act  respecting  of  "bankruptcy  acceptance  Finance  and  1974, j u s t  Minister  review,  reinforced  John  called  after  Turner, i n  for briefs  on  on May 5, 1975, Andre O u e l l e t i n t r o d u c e d  T h i s "exposure"  a d m i n i s t r a t o r " . The proposals  out of  In September  f o r study by the  Bankruptcy".  of  issues.  legislative  to the Bank A c t . Then  the House o f Commons,  d i r e c t i o n and o r g a n i z a t i o n , were  A l l arose  to power,  l o a n s h a r k i n g , VIRM,  from  government, B i l l bill  C-60, "An  proposed  a new p o s i t i o n  administrator could  a u t h o r i z e the  overcommitted  debtors  for either  an  e x t e n s i o n or an amalgamation o f debt o b l i g a t i o n s t h a t would be b i n d i n g on all  creditors.  Then  i n November  of  Macdonald, M i n i s t e r o f Finance, t a b l e d statement c a l l e d Price  1975,  the  Honorable  Donald  S.  i n the House of Commons, a p o l i c y  "Attack on I n f l a t i o n : a Program o f N a t i o n a l A c t i o n " . ( 5 9 )  and wage c o n t r o l s  were subsequently enacted  (Maslove  amd  Swimmer,  1980).  By the end o f 1975 l e g i s l a t i v e reform i n the a r e a o f consumer c r e d i t was  a  new  Protection  game.  There  was  A c t ; a new mentor,  departmental  bureaucrats,  a  new  Andre  name, Ouellet;  Dr. J . L . Evans,  Borrowers  and  Depositors  a new team o f s u p p o r t i v e  Mr. M.M.  Goldberg,  Mr. J.K.  Mann, and Mr. J . Cloud; a s u p p o r t i v e Deputy M i n i s t e r , Dr. S y l v i a O s t r y ; a new manadate proposed and rate  f o r an omnibus  Alpha  approach;  and a new  environment f o r  f e d e r a l l e g i s l a t i o n r e f l e c t i n g p u b l i c concern f o r h i g h  interest  rates.  mortgages,  The o l d i s s u e s  constitutionality  of loan s h a r k i n g , v a r i a b l e and the r o l e  inflation interest  of the Department  were  94  re i n j e c t e d provincial  into  the  process  consultations  while,  continued  enhanced r e s o l u t i o n . Thus i n the fundamental increase  change  in  the  concerted  effort  provinces  and  in  policy  number to  with  increased  from  substantive  consult  i n t e n s i t y but  span of l e s s than one  approach  of  interdepartmental  Beta  issues  simultaneously  to to  with  year,  Alpha be  other  and  without  t h e r e was position,  addressed  and  departments,  a an a  the  industry.  3.2.2. The  Race to be Ready - g e n e t i c  January 1976  The  industrial,  to October  r a p i d changes and  characterized  1975  were  plethora  repeated  1976  of c o n s u l t a t i o n s  during  There were d i f f e r e n c e s though, as  engineering  the  the  first  and 10  activities months  of  r a t e of change a c c e l e r a t e d  1976.  and  The  the  f e d e r a l government departments, r e s u l t e d i n  a number of Department Minister personnel not  and  with  other  substantive had  three  during and  Alpha  t e c h n i c a l amendments  different 10  month  organization  change. The the  this  and  Ministers interval.  at the  approach  timetable  for  to  credit  l e g i s l a t i o n remained f i x e d . The  of p r o v i n c i a l o p p o s i t i o n and  a  1976  Added  to Two  credit  introduction  new this  with  draft b i l l . Assistant were  The  Deputy  changes  in  t h i n g s , however, d i d legislation  remained  of  consumer  omnibus  p e r i o d ended w i t h a  an i n c r e a s e  r e l a t e d i s s u e s were being  a  consumer  and  i n the  and  lower l e v e l s  firm,  credit  of c o n s u l t a t i o n s , p r i m a r i l y  the  number of changes i n c r e a s e d . provinces  welter  that  solidification  i n the number of arenas i n which  discussed.  95  By Branch  January had  14,  1976  prepared  P r o t e c t i o n Act". This the  Department  market  would  paper set out  Consumer  in credit  govermnent  John Evans,  " P o s i t i o n paper  provide  imperfections and  of  a  Dr.  and  the  Corporate  markets  a c t i o n was  on  very  most  Director the  that,  Affairs,  socially  therefore  Consumer  Borrowers  clearly  were caused  of  a  and  opinion  competitive  only  in  of  credit  outcome.  information  appropriate  Depositors  i n the  desirable by  Research  Any  inadequacies so  far  as  it  would r e d r e s s i n f o r m a t i o n f a i l u r e s . The p o s i t i o n paper s t a t e d : Any consumer p r o t e c t i o n l e g i s l a t i o n may be thought to have one or both of the f o l l o w i n g f u n c t i o n s : to i n f o r m and to p r o t e c t . In a f r e e and competitive market environment, adequate consumer p r o t e c t i o n could be achieved through complete and accurate i n f o r m a t i o n a l o n e . Consumers a c t i o n i n the market p l a c e would then ensure that they r e c e i v e o p t i m a l treatment. However, markets are not fully competitive and consumers are not capable of o b t a i n i n g or d i g e s t i n g the mass of i n f o r m a t i o n that i s r e q u i r e d to make wise d e c i s i o n s on the myriad of products which they purchase- The v a s t amounts of information confronting consumers (much of i t irrelevant) frequently leads to "information overload", and impulse buying behavior. In s i t u a t i o n s such as t h i s , i t i s a p p r o p r i a t e f o r the government to respond by e s t a b l i s h i n g " r u l e s of the game" to f a c i l i t a t e consumer d e c i s i o n making. In the field of consumer credit, this entails s p e c i f i c a t i o n of that p r o v i s i o n , r e g u l a t i o n of the nature and content of standard agreements and p r o v i s i o n of a means f o r e n s u r i n g compliance by providing effective penalties and remedies in s i t u a t i o n s where v i o l a t i o n s occur.  F i v e o b j e c t i v e s f o r f e d e r a l i n t e r v e n t i o n were  listed:  l.The  flow  related  increase  and  information,  lending ;  the that  improvement is  accurate  of  the  of  relevant  d i s c l o s u r e i n every  and  phase of  96  2. The  elimination  that  is:  develop  perspective 3. The that and  and  unnecessary  a  standard  require.a  reduction  of  i s : enhanced  the  complexities notion  standard  incidence  competition  credit  high  standard  of  and  federal  of  excessive  legislation for  "key  1. E s t a b l i s h m e n t of an unwarranted  times the  of  an  a  maximum  and  borrowers  charge  rates,  unwarranted  the  Canadian  rate  creation  borrowers,  of  a  that  and  data base on  i s , require  items were d e s i g n a t e d as  2. E s t a b l i s h m e n t  credit  d e f i n i t i o n of  protection  e s t a b l i s h m e n t of a n a t i o n a l  of consumer c r e d i t , t h a t  Eight  from  field,  disclosure;  up-to-date f e d e r a l c r e d i t l e g i s l a t i o n ;  5. The  credit  '  r a t i o n a l i z a t i o n of  uniform  the  r e c o r d s and  i s s u e s - They  e x t e n s i o n and  reports  by  use  lenders.  included:  rate;  (or  Criminal)  rate  -  suggested  as  7  prime r a t e ;  3. L i c e n s i n g  and  4. D i s c l o s u r e 5. No  of  i n the  a criminal rate;  4. The  is  of  the  designation  of an  Administrator;  ( a l l a s p e c t s of a c r e d i t  D i s t i n c t i o n between Vendor and  transaction);  Lender C r e d i t ;  6. Removal o f I n t e r e s t Rate C e i l i n g s ; 7. Mortgage P r o v i s i o n s 8. A p p l i c a t i o n  of  the  (prepayment, VIRM); law  to  all  and  lenders  and  all  non-corporate  borrowers.  On  January  Federal-Provincial  16th  1976,  Conference h e l d  Dr.  Sylvia  Ostry  i n Ottawa. Here o f f i c i a l s  chaired reviewed  the the  97  "Orange  Book",  included  a  notes  detailed  on  the  government presented result  o f December  specific  deposit  and  (left  review  changes that  specific  abusive  to r e g u l a t i o n )  The  changes  calculation  and  information  disclosure  of  federal  were  very  of d i r e c t  practices,  i n the case  "deposit",  that  were made as a  i n the area  collection  sum",  interest,  of the BDPA  legislation.  The suggested  of mortgages, l e s s  nonspecific  "net p r i n c i p a l  provincial  1975 c o n s u l t a t i o n s .  transactions  deliberately of  relevant  a number of s u b s t a n t i v e  i n the area  solicitation  section-by-section  and  of d e f i n i t i o n  credit  charge  (contractual  and  and in  advertising).  Time pressure evident  at t h i s  and p r o v i n c i a l o p p o s i t i o n  meeting. I n her opening  to p r o c e e d i n g w i t h BDPA were  remarks Dr. Ostry  s a i d that she  regretted, ...that i t was necessary to postpone t h i s meeting by one week and t h a t the documentation f o r the meeting was not a v a i l a b l e e a r l i e r . . . . I apologize f o r the l a t e a v a i l a b i l i t y of t h i s document, and I suggest that a f t e r we have reviewed and f i n a l i z e d the agenda, we break u n t i l c o f f e e time to give y o u an opportunity to review and digest the document.(60)  These  remarks  were  Columbia d e l e g a t i o n  followed  lead  would should  government's  be  to f i r s t  effect  declaration  identify  to d i s c u s s  from  ( t h e Deputy  the  British  M i n i s t e r of  t h a t B.C. was not prepared to accept t h e  jurisdiction  a solution.  meeting continued  a  by Mr. W.A.W. N e i l s o n  Consumer and C o r p o r a t e A f f a i r s ) , federal  by  ( 6 1 ) , and that  the i s s u e s Neilson's  and next  position  was  the f e d e r a l goverment  the proper  procedure  to d e l i b e r a t e not adopted proposals.  on who and the  98  One  week l a t e r ,  Ostry  suggested m o d i f i c a t i o n s  wrote t o the M i n i s t e r , Mr. Andre O u e l l e t , and  to the BDPA, to take account of the major  areas  of p r o v i n c i a l c o n c e r n . These were; 1 . l i c e n c i n g and a d m i n i s t r a t i o n , 2. d u p l i c a t i o n and a d m i n i s t r a t i v e 3. c o n s t i t u t i o n a l The in  o v e r l a p , and  jurisdiction.  o v e r a l l negotiating  p o s i t i o n o f the f e d e r a l government was o u t l i n e d  the memo. I t i s important t o note t h a t i f we do n o t h o l d f i r m on the e s s e n t i a l a s p e c t s o f the proposed Bill: e.g. the b a s i c a d m i n i s t r a t i o n , the unwarranted r a t e and d i s c l o s u r e , the B i l l w i l l tend to c o l l a p s e and w i l l be of q u e s t i o n a b l e v a l u e . F u r t h e r , i f we do not move with d i s p a t c h , the p r o v i n c e s w i l l move t o adopt the b e s t of our p r o p o s a l s and remove much o f the r a t i o n a l e f o r our B i l l . We know t h a t B.C., Quebec and Nova S c o t i a are a l r e a d y moving i n t h i s direction.(62)  The  federal  proposals  were  incorporated  Paper on the Borrowers and D e p o s i t o r s 1976.  The  January  Protection  objectives  remained  the same  16th v e r s i o n ,  but  means  consulations.  the  into  as had  a  Act",  those  revised dated  "Position  February 5,  articualted  changed  as  a  i n the  result  of  The f o l l o w i n g changes were recommended:  1. t o abandon l i c e n c i n g p r o v i s i o n s ; 2. to reduce and r e d i r e c t the d u t i e s and powers of the A d m i n i s t r a t o r , 3. t o d e l e t e p r o p o s a l s  respecting d i r e c t s o l i s i t a t i o h ;  4. to modify the d e f i n i t i o n o f "borrower" so as to exclude who  receive  loans  f o r the purpose  of purchasing  goods  borrowers f o r resale  (trade c r e d i t ) or f o r other  b u s i n e s s uses;  5. t o modify the d e f i n i t i o n  o f " c r e d i t charge" t o e x p l i c i t l y  a reference 6. to p r o v i d e  to assignment o f f u t u r e b e n e f i t s ; f o r a review of the a c t e v e r y 10 years;  include  99  7. to  modify  account,  procedures  so that  for c r e d i t i n g  the payment  applies  purchasing, the oldest debt eliminated  payments according  to a borrower's to the order of  first;  8. to delete the minimum term for a fixed-rate mortgage; 9. to  change  variable  rate  the index  for adjustments  transactions  to r e f l e c t  i n credit  charge  the lender's  cost  rate i n of funds  rather then a lending rate; 10. to change the d e f i n i t i o n  of a mortgage to s p e c i f i c a l l y  include  "hypothec"; 11. to change the day a payment i s made to the day of receipt by lender; 12. to modify  the penalty  f o r late  payment  so that  there  i s a $2  c e i l i n g ; and 13. to modify  the d e f i n i t i o n  of deposit  to exclude c e r t i f i c a t e s or  other instruments for which issuing i n s t i t u t i o n s are l i a b l e .  Having  conceded  these  points  i t was stated  that  a reconciliation  between federal and p r o v i n c i a l position should be possible. ...We believe that the modified proposals now before you represent the best available approach, given a cooperative environment, to the attainment of the specified objectives. While there i s room for additional refinement with regard to s p e c i f i c d e t a i l s and there w i l l certainly be thorough and detailed consultations concerning the regulations under, and administration of the Act, the following fundamental features must be maintained: 1. the unwarranted rate 2. the maximum rate 3. e f f e c t i v e administration 4. disclosure at a l l phases of the lending transaction 5. mortgage provisions  100  The  r e c o n c i l i a t i o n that  February  16th,  Provincial  j u s t one  Relations  introduction reply.  of  The  importance  with to  the  the  matter  of  Andre  took  British  the  the  and  to  and  i n Toronto. Mr.  Sid  the  Columbia  was  that be  regularly  p r o v i n c i a l governments to go  Rafe  Commercial  heralded  should  meet  on  imminent quick  a  they  have  70%  established on  questions  consumer  this  the  B.C.  Minister  the  Corporate an  Affairs.  analysis  pro-active  of  In  its  January,  operations,  managerial  unarticualted)  research  philosophy  P o l i c y A n a l y s i s Group was was  out.  under  Changes w i t h i n  discussion.  Assistant  Deputy  the  Then  of  the  the  to,  consumer  on  Minister,  was  taking  place,  there  Consumer Research Branch put with  model the  proposals  for  based  a  on  change broad  to  (but  February  and as  then disbanded b e f o r e proposed  6th,  a  Affairs.  He  McCabe replaced  and  more  as  yet the  the month  i n January, were  Michael  a  forward  consumer i n t e r e s t . In February,  Branch,  Consumer  were  f e d e r a l Department of Consumer  reorganized the  of  '  p r o v i n c i a l - f e d e r a l dialogue  number of changes o c c u r r i n g w i t h i n  of  matters.  c r e d i t market - h i t the tax r e b a t e r - h i t the cheque d i s c o u n t e r s - h i t the loansharks (64)  As  to  beyond i t s j u r i s d i c t i o n  Mair,  of  to  continuing  Ottawa to e x e r c i s e i t s l e a d e r s h i p and  -  On  Federal  position  officials  f e d e r a l government not  banks  met  Ouellet  of  credit legislation.  the  materialize.  Department of Consumer and  senior  Consumer A f f a i r s c h a l l e n g e d -hit  not  meeting,  the  B.C.  and  last  of  another  federal  I t warned  of  did  Consumer A f f a i r s  government  of  one  for  of  meeting.  BDPA. The  committee  communicate  in  the  Government  technical  (63)  Minister  chaired  hoped  month a f t e r t h e i r  Deputy M i n i s t e r s  Handlemen, O n t a r i o  was  was Mr.  still named Clare  101  Bolger. full  Also  time  i n February,  services  a s s o c i a t e d with  All  of  the c r e d i t Mr.  Jean-Pierre  the w h i l e ,  the Department  optimistic  progress ability the  and  a  o f BDPA was  who  into  pessimistic charted.  targeting  out f o r i n t r o d u c t i o n before  critical  path  The o p t i m i s t i c  f o r the  p a r t i e s to l i m i t  time  the B i l l  in  the summer to be r e v i s e d and to go through l e n g t h y  in  the f a l l .  interdepartmental  there  rate  concept,  strong  representation were  committee  would  disagreement over  made  of the a d m i n i s t r a t o r . from  On March  the Department  to the d r a f t  form  of  on  hearings  quarter specific  i t was c l e a r  the unwarranted the a c t , and the  4th, as a r e s u l t o f  Finance,  o f the Borrowers  the f o l l o w i n g and  Protection Act: - t r a d e c r e d i t was excluded  passage  frequent  confer  the scope of the r e g u l a t o r y powers under  and powers  with  on the order paper  s c a l e monthly meetings. By February,  was major i n t e r d e p a r t m e n t a l  duties  changes  dying  necessitated  s e v e r a l o f the departments  p o i n t s between the f u l l that  timetable  to enable  meetings. They were h e l d monthly i n the f i r s t  1976.(66) Often  on the  would be d i s c u s s e d i n the  30th. The p e s s i m i s t i c view had the B i l l  legislative  June.  an arrangement  June  tight  to  legislative  view was premised  by  of  previously  i t s activities  Committee o f the House to four weeks i n order  A  was  the House o f Commons e a r l y i n 1976.  of the M i n i s t e r , Andre" O u e l l e t , to n e g o t i a t e  Opposition  Standing  Toupin,  was  By March 4th, as time was running  An  p r o j e c t a c q u i r e d the  the P l i c y A n a l y s i s Group.  i n t r o d u c t i o n of the l e g i s l a t i o n (65)  legislation  i n the d e f i n i t i o n o f borrower;  Depositors  102  -the l i s t of factors to be considered  by the court i n determining i f  a rate i s warranted was expanded and l e f t very open ended; and -information  required  by  the Administrator  could  be  submitted  through other public regulatory and/or administrative a u t h o r i t i e s . Other provisions were strenghtened: -mortgage  insurance  was  specifically  included  as  a  charge i n  calculating the credit charge rate; -prepayment protection  of mortgages  provision  of variabble  rate  mortgages  lenders by simply writing short-term -lenders  were prevented  from  rate to balances outstanding  ensured  that  the prepayment  was not circumvented by  fixed rate mortgages;  applying  an increased  credit charge  prior to that increase; and  -lenders must prove the date of payment i n case of dispute. (67)  These  concessions  allowed  work  to begin  on a new 'memorandum to  Cabinet. On A p r i l 8th such a memorandum was signed by Bryce Mackasey.(68) It 1975 for  represented  extensive  revisions to the Cabinet  document of May 29,  (approved June 5, 1975). The following provisions were recommended inclusion i n the Act: 1. that a l l credit transactions be included in the scope of the Act; 2. that lenders include discounters to make available s t a t i s t i c a l  and that a l l lenders be required  data;  3. that i t be an offence to f a i l to keep records; 4. that  a l l terms  and  conditions  concerning  credit  charges f o r  deposit and for lending transaction be f u l l y disclosed; 5. that advertising of credit related information r e l a t i n g to deposit interest be regulated;  and of information  103  6. that  courts  be  empowered  to  re-open any  credit transaction  and  place the onus on the lender to prove rate i s warranted; 7. that  there  be  prepayment  without  penalty  on  a l l non-mortgage  loans; 8. that courts be empowered to grant  r e l i e f to the borrower whenever  the rate in a lending transaction has been held to be unwarranted; 9. that the criminal rate be 7 times prime; 10. that there be substantial penalties for offenders; 11. that variable lending transactions be  permitted;  12. that the o r i g i n a l date of a mortgage amortization  over 5 years,  but with a 5 year term, or less, be the date used i n any prepayment after the 5 years, so that each renewal of a r e s i d e n t i a l mortgage i s not subject to treatment as i f i t were a f i r s t time mortgage; 13. that  individuals who  corporation  assume  a  mortgage  held  initially  by  a  have the same rights of prepayment as other individual  mortgagors; 14. that credit charges be calculated according  to regulations;  15. that interest on deposits be calculated and payable according  to  regulation; 16. the the Interest Act, Small Loans Act, and the Pawnbrokers Act be repealed; 17. that there be a uniform manner of charging  interest on  judgment  debts 18. that there be provision for the charging rate of accrual in situations where no  of interest and  for the  interest rate i s mentioned;  and 19. that there be penalties for v i o l a t i o n s of the Act.  104  It  looked  unforeseen  events  Protection  On  Mr.  of  Bryce  Affairs  June  passage  changed  the  may  course  have  of  the  been  be  possible,  Borrowers  and  Depositors  9th,  the  Honorable  c o u r t i n the Mackasey  and  as  Ouellet  was  Atlantic  Sugar R e f i n i n g c a s e .  over  Minister  took  Post  Andre"  Master  as  General.  The  of  charged On  Consumer  same day  Mr.  May  with  19,  and  He  t h a t the purpose of  argued  the  scheduled  April  27th  Neilson,  meeting be  t h a t i t would have a v e r y d e t r i m e n t a l e f f e c t  federal-provincial questions  relations  were not  to be  in  consumer  addressed  before  affairs  on  the  if  1976  Corporate Deputy  M i n i s t e r of Consumer A f a i r s i n B r i t i s h Columbia wrote to Dr. S y l v i a urging  but  Act.  April  contempt  like  Ostry  changed. course  of  jurisdictional  the  r e g u l a t i o n s to  the  Committee  BDPA were  discussed.  The  Consumer  Credit  Subcommittee  of  P r o v i n c i a l Deputy M i n i s t e r of Consumer and Corporate 27,  1976.  The  minutes  of  s u b s t a n t i a l disagreement federal  perspective,  regulations revised was  to  to  be  legislating Columbia provinces  as its  proposed  provincial explore  the  credit  the  the  meeting,  c h a i r e d by  Quebec  continued  purpose under  was  the  question  of  to  new  legislation.  participated the  Federal  A f f a i r s met Mr.  on  McCabe,  federal  The  the  achieve  recorded  provinces  sharing  as  d i s c u s s i o n on  observers the  harmony  act  felt  of  existing the  only  proposals,  or  committee  whereby while  the  between  responsibility  reached  federal  and  and  April  to the purpose of the subcommittee. From  i n the area of c r e d i t . Agreement was  and  of  the  for  British other  with  the  105  understanding  that  their  participation  would  acquiesence to the federal p o s i t i o n . It was legislation  would be  implemented  not  be  construed  as  anticipated that the federal 1 9 7 7 . The  starting i n January  meeting  ended with the Department having made a series of undertakings to revise the They  ( 6 9 ) There  legislation.  were: deemed date  of  were some issues future  benefit  lending transactions; and the role of the  The  very  next  day,  the  release  which, among other  recent  federal  constitutional  s t i l l underconsideration-  (discounter);  Administrator.  Western Premiers  things,  legislative  expressed  met  into  Later,  analysis  an  and  concern  initiatives  jurisdiction.  disclosure i n  issued with  areas  of  a press  regared  to  provincial  appeared  as  the  "Intrusions Reports".  The concern over j u r i s d i c t i o n was not confined solely to the Western premiers. After  a  Administrators,  Mr.  Consumer A f f a i r s , feeling  fall  Interprovincial Conference  H.M.  Mcllroy  wrote to Mr.  overwhelmed by  proposed  of  the  Nova  McCabe to say federal law  of Consumer Scotia  that  Affairs  Department  the  of  provinces were  i n the consumer f i e l d .  He  said that the confrontational atmosphere of f e d e r a l - p r o v i n c i a l relations was  counterproductive and  was  necessary. The  approach  Bankruptcy  Act,  he  Act.(70)  that  a move toward  Department of Consumer and  the enactment and  Protection  suggested  enforcement  suggested,  in  a  disentanglement  Corporate  Affairs  might  of the Borrowers and Depositors way  similar  to  Part  X  of  the  106  Drafting M.M.  of  the  proposed  federal  Goldberg. During this time, the  introduction concern on  of the  the  bill.  part  of  As  the  legislation  timetable  continued  under  Mr.  shifted to an early  months passed,  there  several bureaucrats within  increasing  Department,  that  the pro-competitive and non-paternatistic ^philosophy adopted in 1975-  was  shifting  to  a  more  protectionist  stance.  returned  early  from  French  immersion  staffing  positions  occurred  within  In  leave the  the  was  fall  July and  1976,  John  a major  Department  of  shake-up Consumer  Corporate A f f a i r s . With i t came a change in philosophy. Mr. left  the  Justice  Department. Mr. Officer  who  Mel  joined  Goldberg, the  Consumer and  Department  of  Evans in and  Buff McCook  Corporate A f f a i r s  Consumer and  Corporate  A f f a i r s as Director of the Consumer Credit Branch just six month e a r l i e r was  replaced  by  Evans. Mr. J.K. of  Consumer  Dr.  John Evans. Goldberg  arrested  Research  became  Goldberg's  at this point, and  task was  Bagnall and M.M.  in  research  as much as was  In August the drafting of the regulations  drafting  to  divided  among the  outstanding issues  adjustment  mechanism;  advertising of credit terms.  deemed  Act  replaced  to accompany the BDPA was  staff,  included:  date  The  (71)  including J.K.  Goldberg. By October 25th regulations  stage. The  assistant.  possible, i t was  of  Mann. J-  were s t i l l  in the  i n c l u s i o n of insurance  the calculation of credit charge rate; National  rate  made assistant  bias of the Borrowers and Depositors Protection  by a free market economic philosophy (Alpha).  started. The  now  Mann, previously a researcher d i r e c t l y under the director  protection/regulation was  was  Housing Act mortgage future  benefit;  and  107  Consultations  with  the Department  drafting d e t a i l s and on substantive  of Insurance and with CMHC, on  provisions f o r BDPA continued  right  through into late October.  On September  16, 1976, Mr. Antony Abbott was sworn i n as the new  Minister of Consumer and Corporate A f f a i r s replacing Bryce Mackasey. Mr. Abbott was to hold the position for only one year.  Much of the period between January to October 1976 involved internal and  i n camera consultations,  intradepartmental  The  with p r o v i n c i a l governments or, inter or  meetings.  Ministers  of Consumer and Corporate A f f a i r s  didn't  speak out  during 1976 with the same frequency or vigor as d i d M. Ouellet i n 1975. (72)  Nevertheless,  the issue  of consumer credit was s t i l l  public concern. The Department recognized  very much a  this when i t began commenting  on the need to explain their proposed l e g i s l a t i o n to the general public. In a memo to M. Ouellet dated February 5th, Dr. Ostry provinces  appeared confused about the concept of maximum rate  was a rate established to assist set  remarked that the  a "fair"  market  i n criminal prosecution  c e i l i n g . ) She observed  that:  (that i t  not a rate to  "a positive  public  relations job w i l l have to be done to ensure that the public understands the intent of this provision".  On February  18th, again  , /  i n a memo from Ostry  to Ouellet,  i t was  noted that with the imposition of wage and price controls (introduced i n October 1975) that i t would be even more important for the Department of  108  Consumer  and  Corporate  Affairs  to have  a  strong,  clear  statement  explaining why the Department chose the unwarranted rate concept over the more obvious solution of e x p l i c i t Cabinet  Document  compaigns,  both  i t was on  rate c e i l i n g s . Then i n the A p r i l 8th  observed  First  that  Reading  and  education  after  and  information  Proclamation,  would  be  essential f o r the e f f e c t i v e implementation of the B i l l . It i s clear that the Department had the intention of making the public aware of the new credit reform l e g i s l a t i o n , i t was r e a l l y just a matter of time.  If active  the Department publicly  opportunities 1976.  of Consumer and Corporate A f f a i r s  i t did not  f o r public  mean  that  discussion  there  was  was not very  a  of c r e d i t - r e l a t e d  shortage issues  of  during  On January 1, 1976 B i l l C-2, The Stage I of the Amendments to the  Combines Investigation Act became law (Kaiser, 1976). By July 1, 1976 a l l sections were applied for  the f i r s t  regulating  to services as well as to goods. This meant that  time f i n a n c i a l  misleading  services would be included  advertising  and  anticompetitive  i n provisions practises. In  March, the Minister of Finance released the "White Paper on the Revision of the Canadian Banking L e g i s l a t i o n " . By August 24th there was a revised edition.  The  competition  emphasis  of  the  proposed  on  in  financial  markets.  related, as both sought The  Corporate A f f a i r s and Finance recognized and  was  fostering  within the banking and near-banking communities. BDPA and the  Bank Act revisions were therefore competiton  changes  Departments  of  to increase Consumer and  this t i e . O r i g i n a l l y the banks  trust companies were excluded from coverage under BDPA, but when i t  appeared that the BDPA was going to get to Parliament f i r s t was appreciated  that  the provinces  saw no merit  and, when i t  i n a federal credit  109  disclosure  law  that  did not  include  the federally  regulated banks and  trust companies, Finance agreed to the inclusion of the banks. (73)  During September entitled,  Efficiency  I n s t i t u t i o n s. The approach  the Economic Council of Canada released  on  how  and  Regulation  study was to  -  A  Study  of  interest  rates  institutional)  for borrowers,  interest rates for depositors and to increase the variety financial  study  Deposit-Taking  a functional (rather than an  reduce  a  to increase and number of  service options through competition and a f l e x i b l e  regulatory  framework. The recommendations were aimed at structural changes and thrust  was  structural  for  gradual,  decentralized  change, that was,  regulationConsumer  a  and  The  objectives  Corporate  approach  to  enact  a shift  from  institutional  coincided  with  those  Affairs,  even  i f the  of  to  a  major  functional  the Department  means  to  the  achieve  of  those  objectives did not.  The province of Quebec was concerned about loan sharking  On October  9th Judge Jean D u t i l , Chairman of the "Quebec P o l i c e Commission Inquiry into  Organized  Lalonde.  Lalonde  documentation  Shortly  Crime",  made  replied,  his  "the  report  report  I needed for l e g i s l a t i o n " .  after,  the Montreal  to S o l i c i t o r  gives me  General  almost  Fernand  completely  the  (74)  Urban P o l i c e  Force  released  a study  which showed that 80 percent of loan shark customers l i v e on a low income and cannot find c r e d i t .  110  Credit was  a topic in many forums• On October 6th Maxwell Henderson,  former Auditor-General of Canada, summed up what was  on the minds of many  when he said, Credit buying i s the main cause of i n f l a t i o n and credit must be brought under control i f the a n t i - i n f l a t i o n program i s to work. The f i r s t step must be to put a moratorium on the use of credit cards. It would create a h e l l of a row but i t ' s the only answer.(75)  By dealing  the  fall  of 1976  generally  incidentally  with  many of the  with  business  The  Alberta Act. (78) bill  suit  in 1975  In the f a l l of 1976  form. It was  preparing  was  same year the Ontario followed  or  had  trade  rumored  proclaimed  enacted  practices  consumer credit (Belobaba, 1977,  Columbia Trade Practices Act (76)  provinces  legislation and  p.334). The  in force  on July  thus, British  5,  1974.  Business Practices Act became law. with  the  Alberta Unfair  Trade Practices  the Saskatchewan Trade Practices Act was  that  Manitoba, Quebec and  (77)  in  Newfoundland were  omnibus consumer trade practices l e g i s l a t i o n (Cohen and Z i e g e l , f  1976,  p.17).  lending did  The  B.C.  transactions;  Trade Practices Act the Ontario,  Alberta  extended coverage and  Saskatchewan l e g i s l a t i o n  not. None of the four covered credit that was  security of real property (sales c r e d i t ) was  to money  extended solely on  the  (mortgages). Only in the case of vendor credit  there undisputed inclusion in a l l four acts. Remarking  on this inconsistency  in application, Belobaba (1977, p.342) said,  the potential for deception and unconscionability i s no less s i g n i f i c a n t in the lender-credit f i e l d than i n the area of vendor-creditYet only the l a t t e r transaction i s indisputably subject to the provisions of the p r o v i n c i a l enactments.  Ill  During  the  time  the provinces  were  enacting  trade  practices  l e g i s l a t i o n , 1974-1976, the Department of Consumer and Corporate saw  two pieces of l e g i s l a t i o n through Parliament,  Corporations  Act (1975) and the Stage  Investigation Act  The  Affairs  the Canadian Business  I Amendments  to the Combines  (1975).  Borrowers and Depositors Protection Act, by October 1976, was  close to being introduced into the House of Commons. It was almost  fully  drafted, work on the regulations was i n progress, the second session of the  30th  Parliament  was about  to begin,  and the new Minister, Tony  Abbott, was anxious to be successful i n his f i r s t Cabinet posting.  3.2.3. Birth - rush delivery  The  Borrowers  formalities  and Depositors  of the opening  October 1976  Protection  Act, ignored  of a new Parliamentary  i n the  session, was thrust  onto the floor of the House of Commons. It received quick support  in the  press and got as far as Second Reading before the opposition started to build.  Tony  Abbott  was sworn  i n as Minister of Consumer  and Corporate  A f f a i r s on September 16th. Less than one month later the second session of the 39th Parliament opened on October 12, 1976. There was no mention of consumer credit  legislation  i n the Speech from the Throne, despite  both promises and expectations to the contrary. On Oct 15th Abbott  spoke  to the Association of Canadian F i n a n c i a l Corporations on the subject of  112  consumer credit and p a r t i c u l a r l y  about on the proposed, and "soon to be  introduced", Borrowers and Depositors Protection Act. On October 22nd the Honorable Herb Gray, L i b e r a l M.P. and a former Minister of Consumer and Corporate in  Affairs, criticized  the Speech  from  the government for not including the BDPA  the Throne. He was quoted  i n the Windsor Star as  follows: It makes no reference to "a comprehensive overhaul of consumer credit legislation", which was mentioned i n the 1974 throne speech, even though reports indicated the government i s ready to introduce a b i l l to achieve this aim,...(79)  Five days l a t e r , the Honorable Tony Abbott introduced B i l l C-16, "An Act  to provide  regulate  f o r the protection  interest  on judgment  debts,  Pawnbrokers Act, and the Small  of borrowers to repeal  and  to  the Interest Act, the  Loans Act and to amend  statutes i n consequence thereof".  depositors,  certain  other  The timing was a surprise to everyone,  including the Honorable Antony Abbott.(80)  The B i l l was presented  as a "protection" act and these aspects could  be i d e n t i f i e d i n the objectives of the B i l l , Abbott,  and i n the provisions  position presented  that  were  the "thrusts" as outlined by changed  from  the March 1976  to the provinces. The objectives as outlined by Mr.  Abbott were: 1. to protect borrowers against loan sharking; 2. to provide  the public with  more and better  information  on  all  credit and deposit dealings; 3. to eliminate unnecessary complexities and confusion i n the credit f i e l d ; and  113  4.to define s t r i c t  and uniform  rules to protect a l l borrowers and  depositors to r a t i o n a l i z e federal credit l e g i s l a t i o n . ( 8 1 )  The  Bill  transactions involving  had  two  "thrusts":  of a l l kinds;  and  to  regulate  legitimate  to outlaw i l l e g a l  credit  or criminal actions  loansharking.  Tabled  with  the B i l l  need  for the B i l l ,  with  a  "Guide  was  a detailed "backgrounder"  outlining  the  i t s scope and purpose, and i t s main features, along  for Consumer  Help  Officers  and  Funded  Groups  on  the  Borrowers and Depositors Protection Act", and a series of plain language explanations  of current  credit  practices that act against  the consumer  interest, (see Appendix II)  Bill  C-16  incorporated substantive changes  from the draft of March  1976. These included: 1. Deletion of the disclosure of penalty provision; 2. Provision for c i v i l remedies so that third parties suffering loss or damage could recover by bringing a c i v i l person being proceedings and other  sued was  convicted  suit.  of an offence  Further, i f the  under  the Act the  of that t r i a l would be admissible evidence. remedies  Injunctive  to compensate loss were available through  this  new inclusion; and 3.Shopping  lists  of  offences  related  included: coercion and threat; oppressive  to  collection  and abusive  conduct; unreasonable publication or communication  of  practices  or harassing information;  and use of f a l s e , deceptive or misleading representation.  114  Corporate  Affairs  had  promised  reconsideration, the following was 1. The  definition  of "credit  the  provinces  there  would  be  provided: charge" was  to include  insurance  that  protects the lender against default or other credit loss; 2. The following was  l e f t to regulation:  -deemed date of future benefit, -definition  of  deposit  institution,  criminal rate  and  credit  charge, -NHA  home ownership loan rate,  -determination  of non-chequing savings rate and prime rate,  -variable rate, -advertising form for credit/deposit, - c a l c u l a t i o n of interest earned on deposit; 3. A  "closely  held  corporation"  was  one  that  had  less  than  15  shareholders; 4. Where the per annum rate was  not  specified, the prime rate would  be charged; 5. Advertising was  to cover representation of a v a i l a b i l i t y as well as  that r e l a t i n g to s p e c i f i c credit 6.If a lender was Administrator  charges;  already governed by other federal a u t h o r i t i e s , the  could only  audit or examine the  there had been a complaint.  the lender was  department,  Minister  the  records i f  If the Administrator wanted to search or  seize information, but then  lender's  of  governed by the  other  another federal department  could  authorize someone i n his/her department, or the Administrator, to do the search, audit, etc.;  115  7. The  sunset clause was omitted; and  8. For payments sent by mail the date of the postmark would be the date  that  other  the payment would be deemed to have been made. For a l l  the deemed date of receipt would be the day the payment i s  received.  As Mr. Abbott stated i n the October Departmental press release, Any Canadian who needs to put his personal c r e d i t on the l i n e has the right to demand a high minimum standard of protection. And the same right to protection belongs to the many m i l l i o n s of people who are trying to earn a l i t t l e interest on their savings.  Initial  press  reaction was mixed, but generally  favorable.  Several  papers took a " p o s i t i v e , but" p o s i t i o n . That i s , BDPA was seen as a move i n the right d i r e c t i o n , i n that i t was aimed at protecting consumers, but i t didn't go f a r enough, or i t was "too l i t t l e too l a t e " , or i t attempted too much i n one step. On October 29th the following news items appeared in the press. In the Globe and Mail the Canadian Bankers Association was reported as  calling  the Borrowers  confusing and dislocating  and Depositors  Protection  Act (BDPA)  to consumer finance because,  -foreign precedents and procedures have been adopted; -the  cost  adversely  and a v a i l a b i l i t y  of credit  to consumers  would be  affected because of the administrative burden and the  problem of matching funds; and -there was no public discussion prior to massive proposals f o r change.(82)  116  A Canadian Press story reported Bill,  that there was mixed reaction to the  positive on disclosure and prepayment and negative  rate c e i l i n g  1  removal. S t i l l ,  to be a winner". (83)  i t declared,  CP stated  that  "The B i l l  on interest  itself  appears  the Consumers' Association of  Canada predicted strong opposition from lending i n s t i t u t i o n s . I can only hope that the government w i l l stand up to the pressures from business and that the b i l l can truly become an act to protect borrowers and depositors," said CAC President Ruth Lotzkar.  Commenting only on the loansharking  aspect  of BDPA, the Toronto Sun  >read: ...This l e g i s l a t i o n might help. Now comes the obvious ending, delivered not so sotto voice: Huzzah for Antony Abbott.(84) In the Sudbury Star, Vincent Egan (85) wrote: The Borrowers and Depositors Protection Act, as i t now stands, i s something of a paper t i g e r , notable more for i t s caution than for i t s ferocity i n defence of consumers. Egan argued that because most consumers don't deal with loan sharks and won't l i t i g a t e , for  the BDPA should  offer more protection or clout  consumers.  A Cape Breton Post e d i t o r i a l declared, with a few minor c r i t i c i s m s , i t i s an excellant b i l l , and i f the banks and trust companies don't succeed i n emasculating i t before i t gets through Parliament, the b i l l should result i n a tremendous strengthening of the consumers' position i n the credit market. One can scarcely await the howl of protest these entirely sensible proposals w i l l evoke from the money lending i n s t i t u t i o n s . I t w i l l be interesting to see whether their complaints w i l l succeed i n preserving a system that, up u n t i l now had operated exclusively i n their favor.(86) The Calgary Albertan stated: So sensible are the disclosure provisions of the b i l l that the only wonder i s that i t has taken the government so long to put them into law.(87)  117  The weakness, continued interest  the Albertan, i s i n the requirement  i s to be calculated. Industry  competitive  spurs  and  to do  should  the d e t a i l  of how  be able to react to  work without  government  interference.  The  next day news items were somewhat l e s s p o s i t i v e , more "yes, b u t " . The  Toronto  Star c i t i c i z e d  Act c l a i m i n g t h a t duplicate  the Borrowers  i t would  provincial  and D e p o s i t o r s P r o t e c t i o n  i n c r e a s e the c o s t of consumer  laws.  It  called  for opposition  loans and to  ceiling  removal. Ottawa's s o l u t i o n was not to take the obvious approach and simply r a i s e the c e i l i n g to a more r e a l i s t i c l e v e l . . . b u t , f o r some perverse reason, to a b o l i s h the c e i l i n g a l t o g e t h e r . ( 8 8 ) The Edmonton J o u r n a l commented: The a c t seems custom-made for recipients of w i n d - f a l l - such as a l o t t e r y p r i z e - w i t h which to c l e a r up t h e i r debts. But i t w i l l do n o t h i n g about high interest rates other -than force their disclosure... to f i g h t l o a n s h a r k i n g i s good but i t doesn't h e l p people get money e a s i e r . Headlines Impact". field of  i n the Montreal The  federal  read, has  and the p r o v i n c e s have f i l l e d  calculation  consumers  will  his series  less  Michael  "The  taken  Borrowers  too long  One  effect  because Grenby  of three p l a i n  Bill  Lacks  to e n t e r  the  the gap, c l a i m e d P e t e r Thompson  the c o s t / b e n e f i t r a t i o  i s dubious.  borrow  economy, he s a i d . of  government  t h e S t a r . Furthermore,  rate  Star  of a  of d a i l y  of the b i l l dampening  may  interest be  that  effect  on the  of the Vancouver Sun,^at  the end  language columns e x p l a i n i n g BDPA ( 9 0 ) ,  asked i f consumers would r e a l l y b e n e f i t from the l e g i s l a t i o n . The average consumer might never notice the difference.  118  After a l l , why bother holding an umbrella over somebody i f he or she doesn't even know i t s raining? There's no point. Or i s there? (91)  By  the time of Second Reading, November 1. 1976, there was d i r e c t  and f o r c e f u l opposition. Heward Grafftey (P.C.- Brome-Missisquoi) adopted the position argued by the Consumers' Association of Canada, that i s , the removal of the interest rate c e i l i n g would be detrimental  to low-income  consumers. The Daily Commercial News of Toronto reported that the Ontario Mortgage Brokers Association and the Metropolitan drive  up  the cost  prepayment  of mortgages  because  Trust  said BDPA would  of the daily  interest and  provisions.(92)  On November 1st 1976 the Honorable Antony Abbott (1976) spoke to the House of Commons on Second Reading of B i l l  C-16. He spoke i n terms of  three objectives which were, 1. to  impose uniformity  i n c a l c u l a t i n g , c r e d i t i n g , describing and  disclosing interest for both borrowers and depositors; 2. to f a c i l i t a t e the proper functioning of the market, by encouraging more vigorous  competition  and by providing consumers with avenues of  recourse; and 3. to deter loansharking  by establishing a clear and easily provable  criminal offence.  The  next day, a former Minister of Consumer and Corporate A f f a i r s ,  Herb Gray the  Bill  criminal  (1976), speaking during f o r removing rate  so  debate on Second Reading,  interest rate  f a r i n excess  ceilings  criticized  and f o r establishing a  of the normal  lending  rate.  The  119  unwarranted  rate  would  not  provide  protection  to  the  average  low-income consumer, he charged, because consumers are l o a t h court  or  to use the  system. However, i n s p i t e of the impression conveyed by these words i f the B i l l simply i s passed i n i t s present form, no l e n d e r w i l l be o b l i g e d to make any l o a n he i s not o b l i g e d to make now. Lenders have never been o b l i g e d to make l o a n s ! No borrower w i l l have any g r e a t e r r i g h t to o b t a i n c r e d i t - to o b t a i n a l o a n a f t e r the B i l l i s passed than he has a t present.  Gray  criticized  (Pritchard, federal and  1979),  guarantee  f o r the l a r g e  At Affairs  (1976),  insurance  f o r low-income  who  saved  left  scheme  steadily  actions  or system of  employed  persons,  to r e g u l a t i o n . He a l s o  the banks  took  harmless  i n the c r e d i t  of Consumer  and C o r p o r a t e  field.  the same  time,  i n British  liberties national  because credit  consultation difficulties  press  November  f o r licensing, f o r class  number of p r o v i s i o n s  t o Abbott  granting  of p r o v i s i o n  and f o r a low-income  government  exception  The  the l a c k  Mair,  Columbia,  charged  bank.  He  to  the BDPA  f o r abuse  and  despite  report  3nd, Canadian P r e s s  that  vigorously  the p r o v i n c e s ,  with the p r o v i n c e s  continued  Minister  of the p o t e n t i a l  data  with  Rafe  said  i n the p r o v i s i o n s protested  that  that  Herb  Gray  the  civil for a  lack  the A c t would  i t s laudatory  the c o n t r o v e r s y  said  threatened  of  cause  goals.(93)  surrounding felt  that  BDPA.  On  a criminal  r a t e of 80% was too h i g h . Abbott agreed, but s a i d that r a t e s would be s e t by  r e g u l a t i o n . (94)  Another Canadian P r e s s s t o r y M.P.s from the three  read, major  political  parties  120  Indicated yesterday there are s e v e r a l d e t a i l s they don't like i n the Government's proposed new consumer c r e d i t b i l l . ( 9 5 ) Ron it  H u n t i n g t o n (P.C.) p r e d i c t e d didn't  and  help  low-income  d i s r u p t i o n , Arnold P e t e r s  consumers,  Tom Hebert (L-P.Q.) claimed  (NDP) s a i d  while P i e r r e DeBane  (L-P.Q.)  that d a i l y i n t e r e s t r a t e c a l c u l a t i o n  would be d i f f i c u l t . The  Toronto S t a r ,  interest  i n an e d i t o r i a l ,  c e i l i n g s and simply  suggested  that  r a i s e the a l l o w a b l e  BDPA should  keep  r a t e otherwise the  market i n t e r e s t r a t e w i l l r i s e to j u s t below the c r i m i n a l r a t e . (96) The  Canadian P r e s s r e p o r t e d t h a t : Consumer Credit legislation i s proving too complicated f o r some M.P.'s - they lashed out at the House of Commons y e s t e r d a y at p o i n t s that are not contained i n i t . ( 9 7 )  Professor Small  Jacob Z i e g e l , i n a F i n a n c i a l Post  Loans  Act  ceiling  removal  would  article really  said hurt  that the low-income  consumers.(98) Ben M a l k i n of the Ottawa C i t i z e n welcomed the BDPA, but f e l t  that i t  was  without  very  like  a  program  p u t t i n g up anything Herb  Gray  Lambert  (L), (PC)  that  razes  a  condemned  buiding  i n i t s place.(99)  Beno F r i e s e n  (PC),  a l l criticized  John  Gilbert  (NDP),  stated  and M a r c e l  the  Bill,  the  Canadian  that  Saskatchewan Consumer A f f a i r s  Press.(100) The  Regina  Minister,  Leader P o s t Ned  low-income Act.  reported  Shillington,  consumers  He favoured  was  of removing  raising  concerned  about  the c e i l i n g  felt  rates.(101)  that  effects  i n the Small  the c e i l i n g s w i t h p r o v i s i o n  He d i d n ' t b e l i e v e that the i n d u s t r y was s u f f i c i e n t l y therefore  the  on  Loans  f o r updating.  c o m p e t i t i v e and  BDPA would have the e f f e c t of r a i s i n g  interest  121  The  Borrowers  claimed not  and  Depositors  Protection Act  the V i c t o r i a Times. It may  against  everyday  is "not  good enough"  protect against loan sharking  credit/deposit  transactions  with  but  financial  institutions.(102)  Angela Barnes of President claimed  the  Globe and  Mail  reported  that  Roland Frazee,  of the Canadian Bankers Association, spoke out against BDPA.He  that a White Paper should have been issued. One of Mr. Frazee s main objection to the b i l l is that there was no e f f e c t i v e consultation with f i n a n c i a l i n s t i t u t i o n s before i t s introducation. "The banks had been aware over the past 18 months that the government was drafting consumer credit l e g i s l a t i o n but the objectives and the philosophy of the l e g i s l a t i o n were not discussed with them," Mr. Frazee said.(103) 1  The Borrowers and Depositors Protection Act passed Second Reading on November 5th, 1976, B i l l . The  with only the New  Democratic Party voting against  vote came after four days of debate. There was  generated by the 70%  the  a l o t of heat  criminal rate figure, which Abbott denied as  being  the true criminal rate proposal. Yet, an a r t i c l e by Canadian Press (105), stated  that  officials  from  the  Department  of  Consumer  A f f a i r s appeared to contradict t h e i r Minister and of' establishing criticized  the  a daily  criminal  rate  around  70%  interest c a l c u l a t i o n . The  opposed the removal of interest rate c e i l i n g s and for bill  substitute action. (104) because i t did not  The  New  and  Corporate  affirmed the intention per  annum.  Consumers'  The  Banks  Association  the lack of provision  Democratic Party  protect consumers from high  voted against  the  interest rates. The  same CP story quotes John Rodriguez (NDP - Nickel B e l t ) , The b i l l would take low income earners out of the  122  hand of the barracudas. Rodriguez  wanted  loansharks  an  insurance  and  into the hands of the  scheme for  low  income  consumers  and  a  c e i l i n g on small loans along with provision for credit counselling.(106)  After was  the B i l l  passed  Second Reading Mr.  Abbott  announced that  he  receptive to constructive amendments.(107)  The B i l l was  now cleared to be sent to committee. (108) A tumultuous  four months was about to begin.  3.3.  STRUGGLE FOR SURVIVAL 3.3.1.  Parliamentary relations  November 1976 Committees  November 1976  As the two Parliamentary  to January  and  the  Press  to December  Committees prepared  1977 -  skeptical  1976  to s i t to consider the  Borrowers and Depositors P r o t e c t i o n Act, the press coverage reflected the united  opposition to the B i l l .  Now  the c r i t i c i z m  of a l l three sectors  the finance community - prominent participants in the early 1970's, the provinces - most active  in the 1975-1976 period  and  consumer groups -  just recently involved, converged. The reasons d i f f e r e d , but the message was  the same, "We  don't l i k e the B i l l " . The only item of agreement by a l l  parties came on the unanimous condemnation of loan sharking Still,  there  was  no  agreement  on  the  best  approach  to  activities. curb  loan  123  sharking. Only the Montreal  Urban P o l i c e were wholeheartedly  i n favor of  the B i l l . (109)  Uncertainty, costs  reduction  unnecessary  restraints  i n the flow  of funds  industry message was articulated 1976  on legitimate lenders, for loans  higher  and mortgages - the  i n many different ways. On November 6,  Sonita Horvitch of the F i n a n c i a l Post reported: The banks and trust companies say there was i n s u f f i c i e n t consultation with them i n drafting the l e g i s l a t i o n . Both agree that i t i s good i n i t s attack on loan sharks, but they complain of the considerable restraint on legitimate lenders - new advertsing and disclosure rules, to say nothing of the unwarranted loan rate and new mortgage rules. These could affect the cost and a v a i l a b i l i t y of c r e d i t , some trust company o f f i c i a l s and bankers say . "They have used a sardine net to catch the sharks," a trust man quips. Only the finance companies admit they have had considerable input i n designing the b i l l . The finance companies would welcome one governing act, vs the various provincial laws under which they now operate, an industry spokesman says. That doesn't mean the finance companies are happy about the entire bill although there's still confusion about many aspects of the proposed l e g i s l a t i o n , the finance industry i s concerned about the c r i t e r i a for the unwarranted rate and many other provisions.(110)  On November 17th the Daily Commercial News of Toronto reported that Phillip  Armstrong,  Company threatened  Vice-President, to withhold  Mortgages  f o r Metropolitan  funds i f the trust  Trust  companies didn't get  input into BDPA Committee hearings. He noted that even now the B i l l had introduced uncertainty into f i n a n c i a l markets.(Ill)  124  The  next  day,  Mr.  Stewart Riply, President  told the Progressive Conservative would  lead  to increased  of Metropolitan Trust  caucus committee on finance that BDPA  mortgage costs  due  to front end  fees  such as  those applied i n the United States. He said, All the disclosure i n the world • won't help consumers pay the costs of strangling trust companies i n yards of red tape.(112) He  claimed  that  cease, and  low mortgage rates on  one  and  two  year  mortgaes  will  that mortage terms w i l l be for three years. He also objected  to the fact that the B i l l covered  small business as well as consumers.  Professor Seymour Friedland writing on December 3nd i n the F i n a n c i a l Times stated: ...the consumer and corporate a f f a i r s minister has confused the symptoms of i n f l a t i o n with those of borrowers being gouged by lenders. A s t a b i l i z e d rate of inflation would do more to protect consumers than would generally misguided intentions of the proposed legislation.(113)  On  December 16th J.L.A. Calhoun, President  of National Trust  that BDPA could increase loan sharking.(114) Five days l a t e r T.R. Chairman  of  the  Canadian L i f e  Insurance Association, warned  Suttie,  that BDPA  could cause a drop i n the number of r e s i d e n t i a l mortgages.(115) The dissenting voice in this steady President  of Canada Trustco. He  said  only  barrage of c r i t i c i s m came from Mr. Ming felt  that his company  could  live  with  BDPA despite what other trust companies were saying.(116)  Saskatchewan, objections Corporate  to  the  Affairs  Ontario, actions  Nova of  the  Scotia  and  Quebec  federal Department  made of  strenuous  Consumer  and  Most took exception to BDPA's intrusion into areas of  125  provincial  jurisdiction.  Ontario  though, echoed  that the unwarranted rate with the reverse sufficient market.  uncertainty  Saskatchewan  Shillington court. He  that  lenders  Consumer  the  impracticality of  Corporate  a question  the  Small  Commercial Relations  BDPA could  "classic  have  to  withdraw  Affairs  the E.B.  create  more  superior  of intrusion. In addition  Loan Act  revisions.(117)  than  it  solved.  It  case of well intended l e g i s l a t i o n backfiring". The  conventional  sources  cases.(118) The Corporate  same day,  Affairs  in  woulds use  institutions the  section had  of  loan  the  money Mr.  an  Ontario  might  that be  lo ans  and  was  provisions, of  to but  raise felt  financing,  and  financial  ceilings  consumer should  response  not  be  had  one  removed. On  that  unwarranted  risk  to  court  financial  interest rates. that  redundancy.(119) On  quoting La Presse, described  sales  not  concerned  the  disclosure  December 22nd, the  intention of  companies  He  involved  the the in  to commit a l l consumer credit  transactions to public f i n a n c i a l i n s t i t u t i o n s and  The  would  a  Brown, Minister of Consumer and  excuse  P a r t i Quebecois to abolish a l l private personal  lenders  (Guy)  Scotia,  BDPA as  possibility  Winnipeg Free Press,  A.C.  Nova  sharking  because  to  there  Minister, Sid Handleman, charged  problems  in  rate might drive people to loan sharks or i t might deny them access  applauded  to  from  Minister,  claimed that although the federal l e g i s l a t i o n was  Consumer and the  argument  c r i t i c i z e d BDPA and predicted that i t would be challenged  p r o v i n c i a l l e g i s l a t i o n , i t was was  industry  onus provision would lead  would  and  the  common  co-operatives.(120)  theme -  November 5th  the  the  interest  editorial  Moncton Times stated the position succinctly. It noted that while  rate  of  the there  were positive aspects to the Borrowers and Depositors Protection Act,  the  126  removal of the loan c e i l i n g was not one of them. (121)  The most positive  note was voiced by Michael Grenby writing the next day i n the Vancouver Province. But at the r i s k of suffering a reduction i n the number of l e t t e r s I get from readers with deposit and credit problems, I hope most of the BDPA proposals do become law.(122)  This  remark  came  at  the  end  of  a  series  on  the fundamental  provisions of BDPA and the t i t l e of the last column was, "At last they're going  to make the banks play  fair."  On November 18th the Toronto Star  argued that the criminal rate was set too high and that t h i s , with  the removal of the small  disastrous for consumers.(123)  loans  interest  rate  ceiling,  combined would be  The removal of interest rate c e i l i n g s was  attacked by Herb Gray (L) and John Rodriguez (NDP). If the government can establish fixed rate loans for farmers, export development and students, the  two Members of Parliament  interest  suggested, then i t could  consumers.(124) The Windsor Star  observed  do i t for low  that  Mr.  Gray  was  p a r t i c u l a r l y concerned with the false impression created by the Borrowers and  Depositors Protection  Act. He  felt  that  BDPA would  not  increase  credit a v a i l a b i l i t y to an increased number of consumers.(125)  Michael VanDusen article  headed,  of the F i n a n c i a l Times t r i e d  "Consumers,  borrower  bill".(126)  objected  to the method  insurance  Companies  He  bankers, r e t a i l e r s ,  wrote  that  like  the  find  faults  in  new  the Canadian Bankers Association  of calculating  didn't  to sum i t up i n an.  interest,  while  requirements  the trust  and  for statements of  accounts to be given to customers, provision for reduced mortgage terms and lower prepayment penalties. The Consumers' Association of Canada was  127  basically  happy with the B i l l , VanDusen stated, but  i t was  not i n favor  of removing the interest rate c e i l i n g s . R e t a i l stores on the other hand, did  not really know just what the effect of the b i l l would be.  On November 10th  the Woodstock Sentinal Review printed the views of  Dr. Bruce Halliday (M.P.) on why  everyone was  opposed to BDPA. While most  supported some aspect of BDPA, observed Halliday, no one found i t without f a u l t . He gave four reasons: -the  government  promised, but  didn't  d e l i v e r , an  insurance  scheme  (127); -the  government  promised,  but  didn't  d e l i v e r , more  store  front  offices; -the b i l l didn't protect low-income consumers; and -there was  too much regulation i n the b i l l . ( 1 2 8 )  By December, quietly supportive November  for December  newspaper headlines %",  a r t i c l e s on BDPA, written  publication, clashed  violently  with  early i n  the  current  that carried banners such as, "Interest Ceiling of 70  "Rough Passage",  "Not  tough  enough", "Unconstitutional",  wants change". These conveyed a very  and  "NDP  d i f f e r e n t message than a r t i c l e s i n  the publication, Canadian Banker and the Canadian Churchman. The Canadian Banker reported  Mr.  Frazee, of  the  Royal Bank of  Canada, saying  that  f i n a n c i a l i n s t i t u t i o n s should have no problems meeting the demands of the Borrowers and costs for  Depositors  for increased  Protection  computation. The  the maintenance of interest rate  Act  although  i t would  mean  Canadian Churchman, while ceilings,  felt  that  positive even i f i t was not s u f f i c i e n t l y comprehensive. Although Mr. Abbott's Bill presents some  the  extra arguing  Bill  was  128  d i f f i c u l t i e s ( c r i t i c s suggest that the protection of the "unwarranted rate" concept may be rather elusive), i t has had a generally good reception. At best i t deals with one side of a growing s o c i a l problem.(130)  In  the midst  of the public  debate  hearings began. On December 2, 1976, Salter A. reviewed  Hayden, the Senate Bill  C-16  with  surrounding BDPA the  under the chairmanship  Committee on Banking,  the  assistance  of  Mr.  Trade  committee of Senator  and Commerce  Dawson H.  Tilley,  a  chartered accountant in the firm Thorne, Riddell and Company. On the 16th of  November  report said  the Committee voted  itself  authorization  upon the subject-matter of the B i l l Bill-  coming  deliberations  were  before to  the  provide  Senate."(131)  C-16,  and  . . . i n advance of the  The  recommendations  "to examine  objectives  of  of  their  "ways i n which  the  stated objectives could be attained other than i n the manner proposed", so as to: 1. avoid the clash of c o n s t i t u t i o n a l i t y , 2. ensure a f a i r balance of the interests of a l l parties affected; 3. avoid the unnecessary  disturbance of borrowing markets, mortgage  markets, and conventional business practices; and 4. ensure  that  understandable  rights and  and  capable  obligations of  created  are  clear,  within  our  present  enforcement  constitutional framework. During i t s eleven days of deliberations on this matter, from December 2, 1976  to May  12, 1977,  the Senate received 13 briefs and  one  letter  and  heard d i r e c t l y from 13 groups which had submitted written b r i e f s . It also heard from the Department of Consumer and Corporate A f f a i r s , represented by:  Mr.  Michael McCabe, Assistant  Deputy Minister,  Bureau of Consumer  129  Affairs;  Dr. J.L. Evans,  Director,  Consumer Research  J-P. Toupin, Economist with the Consumer Research  Five  days  Committee  on  Honourable  the Borrowers  Antony  and Mr.  Branch.(132)  on December 7,th, the House of Commons Standing  on Health, Welfare  sittings  addressed  later,  Branch;  and Social  held  i t sfirst  and Depositors Protection  Abbott, Minister  of 36  Act.(133)  The  of Consumer and Corporate A f f a i r s ,  the Committee on i t s f i r s t  paper before the committee  Affairs  day. The B i l l  died  on the order  could submit i t s report. A t o t a l of 44 b r i e f s  and l e t t e r s were received, and 28 individuals and groups made personal presentations to the Committee.  While BDPA was struggling for survival  i n the public  arena, there  were anxious and intense consultations going on within the Department.  1.3.2. Departmental Consultations and Analysis - anxious parents November 1976 to January 1977  Immediately  after the introduction of the Borrowers  and Depositors  Protection Act, the Department of Consumer and Corporate A f f a i r s began a process of re-examination of the proposed l e g i s l a t i o n . The f i r s t step was to  prepare what  Completed  Book" or "Blue Book"•  under the d i r e c t i o n of Dr. John Evans, this detailed reference  book outlined the  was known as the "Contingency  the purpose  of the Act and provided detailed analysis on  major credit issues and areas of concern. As well, i t summarized and  responded  to the c r i t i c i s m s  of the Borrowers  and Depositors Protection  130  Act  raised  during  the House  of Commons Debates  on F i r s t  and  Second  Reading. By November 29th the Department had completed i t s reevaluation of the provisions of the B i l l as a result of comments by consumer groups, the  business  community  and  p r o v i n c i a l governments.  Ten  changes  were  proposed: 1. the held  definition  of borrower and  depositor  would  exclude closely  corporations;  2. the  definition  family  and  of lender  friends,  but  would exclude occasional the  criminal  rate  would  loans  made by  apply  to a l l  lenders; 3. the  definition  $25,000  or  one  transactions  in  of lending secured  transaction would be a loan by  securities  real or  property  and  commodities  would  acccounts  less than exclude and  time  transactions that do not involve credit charges; 4. a substitute action by the Administrator  would be possible with  respect to the unwarranted rate provision; 5. the d e f i n i t i o n of credit charge would exclude: over draft charges; insurance surveys; 6. the  for mortgages, fees for t i t l e search and related and fees for preparation of deeds and other  property  documents;  date a payment i s made would be the date of receipt by the  lender. Up to five days grace period  before  and a f t e r the payment  due date would be allowed before interest accrues; 7. the d e f i n i t i o n of deposit  held would be r e s t r i c t e d  to money held  by a f i n a n c i a l i n s t i t u t i o n ; 8. there would be detailed revisions to the mortgage provisions that include changes r e l a t i n g term and i n t i a l  amortization  period,  call  and put options, interest rate charges, prepayment, and penalties;  131  9. the  Administrator  could  seek  compensation to the borrower, and  a  voluntary  compliance  and  to the government, from a lender *  i f that lender had contravened the Act;  and  10. access by the poor to credit should be pursued separately and  not  under the Borrowers and Depositors Protection Act.(134) Areas  that  remained  under  consideration  for  amendment  included  the  d e f i n i t i o n of deposit interest, and the criminal rate.  The  next  step  cross-referenced  occurred  briefing  i n January  when  number  books were prepared. The  three sets of clause-oriented b r i e f i n g books. One rationale,  a  c o n s t i t u t i o n a l considerations,  of  detailed,  system consisted  of  l i s t e d each clause, i t s  comments  and  proposals  for  changes. Another l i s t e d comments raised i n the two standing committees. A third l i s t e d  comments raised by Members of Parliament  Senate and i n the Standing Committees. It was the "Contingency Book" continue  to be updated and that b r i e f i n g material Committee.(135)  The two months, November and December 1976, action  Corporate A f f a i r s two  months  prepared  to  and  begin  leadership  by  the  to reaction, response and  opposition a  to  BDPA grew.  fresh  and  suggested at this time that  be prepared on a l l submissions to the Standing  initiation,  in the House  round  of  The  marked a t r a n s i t i o n from  Department  of  Consumer  and  accommodation. During these Department  consultations  retrenched  with  the  hope  and of  a r r i v i n g at a set of amendments that would allow BDPA to clear the House before the Spring recess.  132  Consultations  resumed,  beginning  on  January  16th  Federal-Provincial Meeting  of Consumer and Croporate A f f a i r s  During  months,  the  next  three  consultations  with  the  Officials.  interdepartmentally,  intradepartmentally and at the M i n i s t e r i a l level i n t e n s i f i e d . Discussions with  interest  consumers and  groups  such  as  the  financial  the provinces were renewed with  institutions,  the aim  police,  of amending  the  B i l l and preparing draft regulations.  3.4  Metamorphosis  February 1977 to June  1977  3.4.1. Amemdment Process  There was a f r a n t i c scramble  to consult and amend i n time to see the  Borrowers and Depositors Protection Act period  February  Branch was, it of  to June  1977.  figuratively  During  committees  but  i t was  rethinking. This rethinking was provisions  of the B i l l ;  alternatives  for action  Simultaneous  with  financial  on and  these  community,  i t s proposed  time  the  Consumer  i n the Research  the  engaging  in  some  substantive  occurring on four fronts: on the major  the research underpinnings on  was  worded amendments for consideration also  of the B i l l ;  options for harmonious  internal  activities,  provinces,  consumer groups continued. In May, presented  this  to Royal Assent  speaking, doing ten jobs at once. Not only  preparing s p e c i f i c and precisely the  through  amendments  other  the Department was to  the  implementation.  consultations with  government  on  departments optimistic  House Standing  and  as i t  Committee  Health Welfare and Social A f f a i r s . Later events reversed that mood.  the  on  133  Activity the Minister  was  Intense during the amendment process. On February 8th  sent a l e t t e r  that modifications to B i l l mortgage  provision,  the  to the House Standing Committee C-