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SENATE

74TH CONGRESS

1st Session

REPORT
No. 2

AMEND SECTION 1180 OF THE CODE OF LAW FOR THE DISTRICT OF COLUMBIA WITH RESPECT TO USURY

JANUARY 3 (calendar day, JanUARY 7), 1935.-Ordered to be printed

Mr. REYNOLDS, from the Committee on the District of Columbia,

submitted the following

REPORT

[To accompany S. 396]

The Committee on the District of Columbia, to whom was referred the bill (S. 396) to amend section 1180 of the Code of Law for the District of Columbia with respect to usury, having considered the same, reports favorably thereon and recommends that the bill do pass.

OBJECT OF THE BILL

The bill is identical with S. 587, introduced in the Senate in the second session of the Seventy-third Congress. Its purpose is to so amend section 1180 of the Code of Law for the District of Columbia as to permit the correction of grave abuses in the making of small loans with the interest greatly in excess of that authorized by law.

The section to be amended may be found under title 17, chapter 1, section 3 of the new code of the District of Columbia, and was originally enacted on March 3, 1901 (31 Stat. 1377, ch. 854, sec. 1180). This section reads as follows:

Usury defined. If any person or corporation shall contract in the District, verbally, to pay a greater rate of interest than 6 per centum per annum, or shall contract, in writing, to pay a greater rate than 8 per centum, the creditor shall forfeit the whole of the interest so contracted to be received: Provided, That nothing in this chapter contained shall be held to repeal or affect chapter 2 of this title. (Mar. 3, 1901, 31 Stat. 1377, ch. 854, sec. 1180; June 30, 1902, 32 Stat. 542, ch. 1329; Apr. 19, 1920, 41 Stat. 568, ch. 153.)

Under an act of February 4, 1913 (37 Stat. 657, ch. 26, sec. 2), as subsequently amended, the business of lending money in the District of Columbia is licensed and is subject to regulation, the license tax being fixed at $500 per annum. This statute was not affected by the new License Act approved July 1, 1932.

Investigations conducted by the Commissioners of the District of Columbia indicate that persons in distress are compelled to borrow money in small sums from persons and corporations who require in connection with the contract the payment of disproportionate charges for appraisal fees, title searches, fire and other insurance, preparation of chattel mortgages, notarial and other fees, and fees for signatures of endorsement. The inquiry of the Commissioners indicated that these fees on many occasions amounted to 50 percent of the sums actually received by the borrower under short-term loans, although the normal rate of interest charge would not exceed the 8 percent permitted by law in express contracts in writing (par. 2, sec. 1, Usury Act, supra). The purpose of the bill is to prevent such extortionate payments.

CONTENTS OF THE BILL

The bill provides for the inclusion in the rate of interest, subject to statutory restriction, of all amounts "with the knowledge of the lender” charged as extra fees in connection with the procurement of a loan. In order to provide for legitimate charges for service rendered, the bill enumerates classes of reasonable expenditures and provides that they shall be in addition to the amount of interest. Criminal penalties are provided for violations of the statute. In a report dated March 25, 1933, and set forth hereafter, the Commissioners of the District of Columbia call attention to certain defects in the legislation which would nullify its effectiveness. The Commissioners recommend provisions placing the burden of proof as to the reasonableness of the expenses in addition to interest upon the lender.

Inasmuch as the section becomes operative as to the lender only when the charges are made “with the knowledge of the lender", and information as to the reasonableness of the charges and book records is peculiarly restricted to sources over which the lender has control, the necessity for such amendment is apparent.

After full consideration, the committee is of the opinion that the protection of necessitous persons from devices intended to evade the usury laws is of immediate importance, and that the provisions of this bill will not interfere with the legitimate transactions in lending money.

Appended hereto and made a part of this report is a letter from the president of the Board of Commissioners of the District of Columbia recommending favorable action upon this legislation. COMMISSIONERS OF THE DISTRICT OF COLUMBIA,

EXECUTIVE OFFICE,

Washington, February 13, 1934.
Hon. WILLIAM H. KING,
Chairman Committee on the District of Columbia,

United States Senate, Washington, D. C.
DEAR SIR: The Commissioners of the District of Columbia have the honor
to submit the following on Senate bill 587, Seventy-third Congress, first session,
entitled “A bill to amend section 1180 of the Code of Law for the District of
Columbia with respect to usury”, which you referred to them for report as to the
merits of the bill and the propriety of its passage.

This bill proposes to amend section 1180 of the code, relating to usury by providing that any compensation, charge, or commission, or any other expense in connection with the loan shall be considered a part of the interest charged. The purpose of the legislation is good, but it is practically nullified by a proviso which

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vould permit “the reasonable expense of inspecting any security offered in connection with said loan, or investigation of the responsibility of the applicant, the reasonable expense of procuring or extending any abstract of title or certificate of title insurance covering such surety, etc.” as not being included within the interest charged. Under section 1183 of the code, while the borrower is entitled to search the conscience of the lender in action where usury is claimed, the burden of proof is on the party claiming fraud, as the good faith of a transaction is generally presumed. It would add force to the legislation to throw the burden of proof on the lender. The Commissioners recommend favorable action on the bill. Very truly yours,

M. C. HAZEN, President. Also appended hereto and made a part of this report is a letter from the president of the Board of Commissioners of the District renewing its recommendation of this legislation with certain amendments, which have been incorporated in the bill. COMMISSIONERS OF THE DISTRICT OF COLUMBIA,

EXECUTIVE OFFICE,

Washington, December 31, 1934. Hon. WILLIAM H. KING,

United States Senate, Washington, D. C. Sir: With reference to your suggestion that a bill to amend the law of the District of Columbia with respect to usury, similar to S. 587 in the Seventy-third Congress, first session, be introduced at the forthcoming session of Congress, we beg to report that on February 13, 1934, the Commissioners reported favorably on that bill, suggesting certain amendments. These amendments were written into the bill by a subcommittee of your Committee, and the amended bill was reported by your Committee on April 28, 1934 (Reprint No. 853). We have no reason at this time to alter our prior recommendation. Very respectfully,

M. C. HAZEN, President Board of Commissioners, District of Columbia.

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RECORDING AND RELEASE OF DEEDS OF TRUST AND

MORTGAGES IN THE DISTRICT OF COLUMBIA

JANUARY 3 (calendar day, JANUARY 7), 1935.—Ordered to be printed

Mr. King, from the Committee on the District of Columbia, submitted

the following

REPORT

[To accompany S. 397)

The Committee on the District of Columbia, to whom was referred the bill (S. 397) to provide for recording of deeds of trust and mortgages secured on real estate in the District of Columbia, and for the releasing thereof, and for other purposes, having considered the same, report favorably thereon and recommend that the bill do pass.

NEED FOR LEGISLATION

The need for an equitable and effective law governing the recording and release of deeds of trust on real-estate properties in the District of Columbia has been conclusively demonstrated by the circumstances of the recent failure of the Washington firm of Swartzell, Rheem & Hensey Co., real-estate operators.

Because of the laxity of existing District laws, and the complete absence of protective enactments, investors in bonds and notes secured by deeds of trust on real estate have suffered heavy financial losses.

Through its subcommittee on insurance and banks, the committee has had under consideration for several months legislative proposals designed to afford the necessary protection to the public.

At a public hearing on two of these bills, Senate 11 and Senate 2229, the need for such legislation was generally conceded, but the form of the bills was criticized. At the suggestion of the subcommittee, representatives of the District Commissioners thereafter met with delegates for the reputable real estate and banking interests of the city, for the purpose of drafting a suitable bill.

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