The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News and The Echo. SATURDAY, APRIL 16, 1927. THE HIRE-PURCHASE SYSTEM.

Auckland Star, Volume LVIII, Issue 89, 16 April 1927, Page 8

The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News and The Echo.

SATURDAY, APRIL 16, 1927. THE HIRE-PURCHASE SYSTEM.

For the cause that lack* assistance, For the wrong that need* resistance. For the future in the distance, And the good that we can do.

The last issue of that useful little periodical, the "Auckland Chamber of Commerce Journal," contains an interesting discussion of the practice of purchase ou the instalment principle. This so-called " hire purchase system " has been developed on a very large scale in the United States since the war, and it has extended its operations in this country with ever-growing speed since the passing of the Chattels Transfer Act of 1924. This piece of legislation greatly enlarged the list of articles then subject to " customary hirepurchase agreements" (such transactions not requiring registration), and the question raised by the " Chamber of Commerce Journal" is briefly whether the law has not gone too far in this direction for the financial interests of the community. It may not be generally known that the Act to which we have referred has made it possible to purchase by instalment, without a registered agreement, not only pianos and pianolas, gramophones and-typewriters and motor cars, but also farm and dairy equipment and all the machinery requisite for the bootmaking, printing and bookbinding trades. But the Act goes even further than this, for a clause has been introduced permitting the further extension of the list bv Ordcr-in-Council.

The editor of the " Chamber of Commerce Journal" deserves credit for his attempt to answer this question clearly and impartially. He shows in the first place that from the standpoint of the seller the arrangement works out very satisfactorily, with a surprisingly low percentage of losses. The General Motors Corporation of the United States, whose operations under a similar system run into hundreds of millions a year, admits a loss ratio for 1924 of only 1 per cent. "From the point of view of those whose business it is to sell goods on time," it seems that, generally speaking, " the institution of instalment selling is a splendid thing." But though the provision for "repossession" in case of default gives the seller substantial security, the finance companies which in America underwrite such instalment business have frequently complained that their assets have been " frozen " by the accumulation of dead stock taken over from buyers who have failed to keep up their instalments.

But from the public point of view the seller is not the only or the most important person to be considered. How does the system affect the position and prospects of the buyer? There can be no doubt that the instalment plan, especially in the case of luxuries, tempts to extravagance. Moreover, the purchaser, paying so much a month, does not always realise that the nominal 6 or 8 per cent that he is supposed to be charged works out at a far higher rate, if he is paying off capital and interest together. In America it is •asserted that hire-purchase buyers are not usually reduced to poverty'by this system, but rather encouraged to work harder and earn higher wages so as to pay for their luxuries. Moreover, it is contended that the increased demand for goods thus created leads to large scale production and a consequent fall in prices. There is the further question, often raised, whether the instalment plan, by. encouraging extravagance, dissuades wage-earners from saving and thus checks the accumulation of capital. In the United States competent authorities hold that the worst weakness of the economic system just now is over-capitalisa-tion, with inevitable overproduction, and that the hire-purchase system, by helping to deplete surplus stocks, performs a highly useful function. We may also consider eeriously the claim put forward by many sellers that the attractions of the instalment plan have deprived ordinary traders of the custom that they had a right to expect and prevented the payment of just debts. All these considerations certainly deserve to be taken into account, and they help to <3onfirm the opinion already quoted that the operation and effects of the Chattels. Transfer Act will deserve the eareful attention of our legislators.