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Money - Loans
COMMENT
Money was started as a means of trade, the trade of useful physical goods and services - an alternative to barter (my potatoes for your chicken). But the coming into being of physical currency allowed money to be traded itself - the buying and selling of money.
It's not that simple though. It seems odd to trade the same commodity with itself - ie. why would you trade a sack of coal for another sack of the same quality and quantity, why not just burn what you have? This reality reveals what you are really trading in a loan: on the one hand, the immediate availability of more money than you have right now in exchange for, on the other hand, staggered payments of smaller quantities of money over time as (you hope) your future labouring capacity can generate.
Because this is a purely 'money' transaction, much of the purchase price paid is de facto a return of the original money advanced, but the balance is quite rightly thought of as the 'cost' of the loan - commonly stated in percentage terms based on the original 'principal' - called Interest. 'Interest' is really the price in future labour that the debtor is paying for the loan. It's obvious that those who have excess money now can 'lend' it to those that have less, at no costs to themselves other than the risk of default and inflation. Money-lending involves no productive labour on the part of the creditor, only by the debtor.
. Steinberg v. Adderley
In Steinberg v. Adderley (Ont CA, 2024) the Court of Appeal considered (and partially granted) an appeal (by a non-party lender) against an order that reduced 20-24% compound interest on 'litigation loans', which were loans taken out to fund MVA litigation expenses (but not contingent on success).
In the lower court, the borrower unsuccessfully argued provisions of the rarely-used Unconscionable Transactions Relief Act (UTRA):[6] According to the loan documents, as of June 5, 2023, Mr. Steinberg owed BridgePoint $312,936.18 (after credit for the $70,000 paid in May 2022), with interest continuing to accrue. Mr. Steinberg’s position before the motion judge was that BridgePoint’s interest should be capped at 1.5 times the principal borrowed and that any additional interest charges were unconscionable. He relied on the Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2 (“UTRA”). Section 2 of UTRA allows a court to set aside loan agreements, in whole or in part, if the cost of the loan is excessive and the transaction is harsh and unconscionable.
[7] The motion judge rejected the contention that the interest on the loans was unconscionable. She said:I find that the litigation loans are contractually sound. Mr. Steinberg cannot now claim that the interest rate is unconscionable in light of the legal advice he received when obtaining the loans and based upon his signed acknowledgment on two different occasions where he acknowledged the quantum of interest that would accrue with time. ....
[10] On appeal, BridgePoint challenges the reduction of interest. We agree that the reduction cannot stand.
[11] Once the motion judge found that the loan transactions were not unconscionable, there was no basis to vary the interest owing. UTRA, which was the only basis upon which Mr. Steinberg relied on the motion, does not give the court the power to vary interest charges without a finding that the transaction is “harsh and unconscionable”.
[12] Mr. Steinberg argued, on appeal, that the reduction could be justified based on the equitable doctrine of unconscionability described in Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] S.C.R. 118. Leaving aside the issue of how that doctrine applies to loan agreements, which are the subject of a specific statutory regime in UTRA, there are two problems with this argument. First, that was not the basis on which Mr. Steinberg brought his motion. Second, the doctrine requires a finding of unconscionability, which the motion judge did not make. Her finding that the transactions were not unconscionable, because Mr. Steinberg had independent legal representation and signed acknowledgments confirming his understanding of how interest would accrue, was supported by the record and is entitled to deference in this court.[4]
[13] ... Courts are not generally empowered to rewrite contracts or relieve parties against the consequences of an improvident bargain: Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, [2004] 3 S.C.R. 575, at para. 31.
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