HIRE-PURCHASE RIGHT AND WRONG
By FRANCIS GOWER
IT has been stated recently, as evidence of the restored prosperity of the country, that there had been fewer cases of bankruptcy in this than in any year since 1921. While it is true that the statistical curve of commercial and industrial bankruptcies will tend to follow directly the curve of prosperity, there is a form of individual bankruptcy the prevalence of which bears little relation to national economic conditions. For the state in which a person finds himself in the event of his being unable to continue the pay- ment of instalments to which he is under some hire-purchase agreement, must be regarded as virtual bankruptcy.
The system which enables a man to obtain the use of goods which it is impossible or inconvenient for him to pay for in a lump sum, but for which he can quite well find small monthly contributions, affords in principle, and not infrequently in practice, welcome and desirable assistance to people of limited means. But the abuses to which it lends itself—and which are far too common—are having a deplorable effect upon a wide range of unbusinesslike and simple people throughout the country. Unbusinesslike and simple, because the hire-purchase system is one which too often thrives upon the exploitation of foolishness and unfamiliarity with business methods.
If only such persons entered into such transactions as were capable of calculating rates of interest and capable of understanding the obligations to which they pledge them- selves by -signing these hire-purchase contracts, then the system would undoubtedly present considerable advantages and small grounds for censure. As things are, however, it frequently operates with scandalous harshness and injustice.
Take an example of what might well happen to any inex- perienced person. A young married couple with a moderate income decide to buy a house and enter into a contract to make payments for it on a 6 per cent. basis over twenty years. They will then need furniture, and, failing to realise that the instalments on their house will probably be as large a burden as they can comfortably discharge, they will enter into another contract for the hire-purchase of beds and chairs and tables, possibly without even reading, and almost certainly without fully understanding, the obligations to which they are thereby committing them- selves. The almost inevitable result is that very shortly they realise that they have involved themselves in periodical payments quite beyond their resources. Suppose the normal retail price of the furniture purchased to be £roo, in which case the hire-purchase price would probably be not less than £430. The couple contract to pay this off in thirteen monthly instalments (a deposit and twelve monthly) but at the end of the first month they find it im- possible to continue. The trader then has the legal right to seize the furniture and demand the outstanding debt, i.e., £120, less the proceeds of re-sale, which will probably be no more than a quarter of the purchase price. The couple, therefore, will still have to find £88. All other avenues failing, they may be persuaded to borrow the sum from a money- lender, who, because they will have no security to offer, may demand a rate of interest of, say, no per cent.--7-illegal, but common enough. Their total liability now is therefore £88 borrowed from the moneylender plus his interest of £106, giving a total of £x94. But the furniture for which the transactions were undertaken is no longer theirs. This example may well sound utterly preposterous and yet, because it is hypothetical, it is nevertheless typical of numerous outstanding cases, though not, of course, of the common practice.
While the majority of hire-purchase traders will not insist on seizing goods without any compensation so soon as instalments begin to lapse, nevertheless this practice is far too common today. The editor of Hire Traders' Record writes of it as follows : "As the law is at present, the owner can repossess and the hirer is without redress. . . . Take a piano, for instance. The agreement price is, say, £50. With £48 paid up, the instrument can be repossessed if there is a breach of the agreement. The hirer gets nothing and the owner can have the instrument touched up as the basis for a fresh agreement with another customer. Per- fectly legal. . . . I know that in the past certain firms made the practice of ' lifting ' whenever there was the oppor- tunity and amassed fortunes in the doing. But those concerns were outside the pale of decent business." It may be, but plenty of firms are doing indecent business and thriving on it.
As it happens, Miss Ellen Wilkinson is this week intro- ducing a Bill dealing with the whole question. It will include a clause to the effect that after a hirer has paid one- third of the total rent, he may return the goods and terminate his responsibility under the contract, and that once the one-third is paid the owner cannot repossess without giving the hirer seven days' notice. The latter may then apply to the County Court for relief and the owner must await its decisions. These would be welcome improvements. Because hire-purchase traders, unlike bankers, frequently do not take the trouble to investigate the character and financial position of their customers, the rates of interest which they demand in order to cover their risks are necessarily extremely high. If greater care were taken to determine whether or not the customer was in a position to be able to fulfil the obligations of the hire-purchase contract, then the question of seizing goods owing to lapsed instalments would less frequently arise, and, the risks of broken contracts being less, the rates of interest required would not be so exorbitant. But it is not easy to see how this could be covered by legislation. It would, however, be of great assistance to persons unfamiliar with business .technique if all hire-purchase agreements were legally required to have clearly indicated the actual cash price of the goods and the price which they, as hire purchasers, had to pay for them. Miss Wilkinson's Bill, it is understood, proposes to include such a requirement. It should also be incumbent upon the trader to endeavour to see that his customers fully understand the provisions of the contract to which they are placing their signature. This should save both parties a great deal of future trouble.
Another side of the Aire-purchase system which on all counts is most obnoxious is the practice of sending round young men from door to door offering goods for sale on hire- purchase terms, who, because they rely for their modest liveli- hood upon the commissions which they obtain from these sales, are not over-scrupulous in their methods, and tend to force unwanted goods on weak-minded or kind-hearted, yet unwilling, hirers. It is most desirable and should certainly prove possible to regulate this practice by legislation.
In the past the hire-purchase system has not brought unmitigated blessings. In the United States it had by 1929 grown so extensively that it may be regarded, as having been an important contributory cause of the unparalleled depth of the economic depression which that country then suffered. The system probably did damage not so much by the dan- gerous credit inflation which it tended to create in the years of prosperity as by the accentuition of the slump once this had set in. For when the great crash came, and incomes and capital had been drastically reduced, the bulk of all the avail- able resources of a large section of the American people went in paying Off hire-purchase instalments instead of entering into current consumption. On the other hand, as a means of reviving prosperity after a period of depression the hire- purchase system might prove most efficacious, for it would enable consumption to increase before the income level was restored, and this would stimulate production which would react favourably upon employment and incomes.
Thus the system proves to be a double-edged weapon, accentuating a depression during its first incidence only to lend its forces later to build up what it had helped to strike down.
The_ Attorney-General, replying recently to a question in Parliament, said that the Lord Chancellor was considering the desirability of holding an enquiry into certain aspects of the hire-purchase system. It is to be hoped that consideration will be followed by action. It is fully time.
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