USURY- BILL IN VICTORIA.

Press, Volume LIII, Issue 9604, 19 December 1896, Page 7

USURY - BILL IN VICTORIA.

The Bill for the prevention of usury now before the Legislative Assembly (says the Melbourne Argus) must have been drafted in ignorance of what a rate of interest means. Nobody wishes for a moment to defend usury, but usury and an occasional high rate of interest are totally different things. The Victorian Bill prohibits the recovery of a higher rate than 10 per cent, under any circumstances, but only six weeks ago merchants and stockbrokers in New York were willing to give 50 to 100 per cent, per annum for short loans. Now, if the provisions of the Victorian Bill had been law in New York financial business would have been brought to such a standstill that a great crash would have occurred. What appears the usurious rate of 50 to 100 per cent, was really the safety valve. It has to be remembered that one element in the making of a rate of interest is the risk of losing the principal. The element is really an insurance premium, varying, as all insurance premiums do, in accordance with circumstances. The Banks have been reproached with charging too high rates in past years, but there was never a more illfounded charge. For the upshot was that they over-advanced millions sterling, without making an adequate provision for the risk they incurred. We could easily name three Banks which have lost at least £10,000,000 for their shareholders, and, in part, for depositors, and to accuse these Banks of usury, oven although they charged high rates, is the quintessence of obtuseness. At the present time the enactment of the Usury Bill would not affect the Banks, whose rates are far below those named in the Bill. But circumstances may arise, as in London in 1866, and in New York in several years, notably 1893 and 1896, when the provisions of the Bill, if observed (as doubtless they would not be), would frightfully accentuate a crisis. There is no need to meddle with the formation of an interest rate on honest and legitimate lines, even although the rate may be high. Many a poor man has struggled through difficulties to success because he has been able to borrow on indifferent security, or no security at all, by undertaking to pay an insurance premium on the risk, which the thoughtless call a usurious rate of interest. The Bill for the prevention of usury will, if it becomes law, work injuriously with respect to the struggling man, and thus, like other semi-socialistic Acts, prove itself to be anti-democratic.