Senator BENNETT. All right. Senator DOUGLAS. It is about 18 percent. So it would be false to say to a customer, "We use a 13-percent rate," because if you buy a $460 article you are paying 18 percent, and if you buy a $200 article you are paying 13 percent, assuming that these are accurate and not approximations. So this would prove to me that what you are telling us is the truth: You do not use rates; you use a range of charges. You use a single charge to cover a range of prices. And they are not calculated on the basis of rates at all; it is a convenient breakdown of your charges. If you had to calculate it on a basis of rates, this chart which fills half a page would be a book if you tried to stay with the same rate. So I think this demonstrates as clearly as anything that has happened today that you are not basing your system of charges for the service of credit on rates. We were talking about revolving credit a minute or two ago, and Senator Douglas would like to have us believe that your revolving credit program is based on 18 percent. We now take this kind of service, and he, using this gimmick which is very inaccurate, says it is 13 percent. This variation is, to me, the best evidence of the point you make, that you are not basing your program on interest rates or on rates at all. Mr. DUCATE. This entire discussion on rates completely ignores the variable in the contract life, which is a very important factor in computing any rate. Senator BENNETT. Now you have me a little confused. This rate chart says that I can have up to 24 months to pay, and if I take it on $200 I have to pay $9.50 a month. What happens if I pay it up in 12 months? Mr. DUCATE. You would pay less. That was not necessarily my point. My point is that at $9.50 a month there is a difference between the contract life on $200 plus $32, and $180 plus $32, at least a 2-month contract life difference, which would alter your rate. I do not want to belabor the point. It is not that important. I do think you might pick this point up, though, at this time: Even if we reached an agreement that a simple annual rate could be stated on a single-sale transaction, it still stands as a mater of record that this represents only 20 percent of our easy-payment transactions, and none of our revolving-charge transactions. So we are talking about somewhere between a maximum of 20 percent of our total transactions, and a minimum of 5 percent of our total transactions, even if we were able to find some way in which this could be done. And you asked a question about a computer to do this. One of our mathematicians estimated that it would take a slide rule 9 feet high to accomplish for us what this small slide rule purports to accomplish for the Bowery Bank. Senator BENNETT. I have no further questions. Senator DOUGLAS. Thank you very much, gentlemen. Do we have still another witness? (Discussion off the record.) Senator DOUGLAS. Thank you very much, gentlemen. I will ask that the statement of Dwight D. Townsend, director of the Washington office of the Cooperative League of the USA be filed for the record. (The statement referred to follows:) STATEMENT OF DWIGHT D. TOWNSEND, DIRECTOR, WASHINGTON OFFICE, THE COOPERATIVE LEAGUE OF USA Mr. Chairman and members of this committee, my name is Dwight D. Townsend. I am director of the Washington office of the Cooperative League of the USA. The Cooperative League is a national federation of producer, consumer, and service-type cooperatives that includes 14 million families in its membership. I am authorized by resolution of the Cooperative League Congress, assembled September 30, 1960, and by direction of our board of directors, just last week, to support with all possible vigor the effects of legislation that will be provided by passage of S. 1740. The language of the resolution of our Cooperative League Congress follows: TRUTH IN INTEREST RATES "Whereas the average consumer is confused and taken advantage of by lenders who refuse to reveal the true amount and annual rate of interest required on installment payments and other credits; and "Whereas hidden and inflated interest charges are detrimental to the economy as a whole as well as being a burden on the consumer; and "Whereas the consumer has a right to know the actual rate of interest he is charged on any purchase or financing: Therefore, be it "Resolved, That the Cooperative League of the USA and its member organizations support legislation such as that introduced by Senator Douglas in the 86th Congress calling for truth in interest rates." Mr. Chairman, this was in support of your bill, S. 2755, of the 86th Congress, and I am sure it properly reflects our organization's regard for S. 1740 in this, the 87th Congress. Consumer credit is important to the people of this country, but its abuse as a sales device has in many cases proven a curse. Doubtless, the sales pitch has spawned the "buy now, pay later" idea without intending to do anything wrong to the consumer and the public interest. It is redundant to recite case after case where families drift upon the financial rocks largely because idea selling emphasized low or no downpayments, a flat sum per month, many times without disclosing how many months they will be obligated to pay, and never being apprised of the price they must pay for the use of money, either in terms of jacked-up prices or in actual annual interest charges. If sellers feel that a sale price must be attractive, there should certainly be a correlation of responsibility to disclose completely the service fees, carrying charges, accounting cost and annual interest which make up the package. The alternative to this is to impose an impossible economic debt on the middle and lower income people of this country, a luxury our economists warn us will definitely not be in the public interest. Retail credit should not be suppressed if the cost of that credit is made clear to the consumer. The growth of the credit union movement, which gives full and complete information about their rates of interest, is proof that the consumer does accept the idea of full disclosure. Any loan practices that hide the true rate of interest are of questionable service to people. We are pleased, Mr. Chairman, to add our full support to a bill that speaks up firmly for the public interest, and especially for the poorer people who may have a lesser command of arithmetic while they struggle to make a living. Senator DOUGLAS. Congressman Halpern, of New York, has sent us a statement on this legislation. Without objection, it will go in the record here. (The statement referred to follows:) STATEMENT OF SEYMOUR HALPERN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. Chairman, I truly appreciate this opportunity to present my views on S. 1740. As a cosponsor of companion legislation in the House, my bill being H.R. 7013, I am particularly pleased that this committee has agreed to hold hearings and thereby give every opportunity for all viewpoints to be heard on this important issue. I want to express my admiration and commendation to the distinguished Senator from Illinois, Paul H. Douglas, for his tireless determined efforts to correct one of the gravest consumer problems directly affecting a vast portion of our population and, in turn, the economy and stability of our Nation. I was privileged to have been associated with the distinguished Senator in the sponsorship of this legislation in the 86th Congress, and to have joined him in the present Congress by introducing H.R. 7013 which is identical with S. 1740. Considerable strides forward have been made since the introduction of the bill last year. Ample opportunity has been given to all sides for a full study and evaluation of the legislation and now, these further hearings provide the opportunity to present the fullest views, reports, and conclusions of all concerned. I am certain that complete evaluation of the problem will be given by the committee and I urge that with the conclusion of these hearings the committee act, without delay, in bringing the issue before the current session of Congress. Mr. Chairman, since introducing H.R. 10340 in the 86th Congress, I have become even more convinced that this kind of legislation is necessary. I restudied the problem; I reviewed every aspect of the legislation-the pros, the cons and have concluded that its enactment is essential. That is why I introduced H.R. 7013 this year. That is why I commend the committee for holding hearings on the subject and why I welcome this opportunity to contribute my own views to the testimony. Mr. Chairman, a true interest and credit carrying charge disclosure law will protect the public against the credit deceptions that have brought misery to so many families. Installment purchasing abuses are the biggest consumer gyp of our times. With some $52 billion in consumer credit, exclusive of mortgages, outstanding in this country, it's obvious this represents a tremendous portion of our economy and that regulatory legislation is needed to inform the borrower of the full extent of his commitment. Mr. Chairman, too often the average person is unaware of the full amount of the total costs he must pay when he borrows or buys on time. The borrower, whether it be a direct loan, or for a home, a car, a television set or any other appliance, or acquisition of property, is entitled to know how much his total cost is going to be. And this should be mandatory, in writing, and as simple as possible. Few lenders or installment sellers tell the consumer the true and actual rate except on mortgages. Not a single State requires all lenders or sellers to tell the true rate except in specified instances. They may state the rate as a monthly percent on the unpaid balance. But, 3 percent per month charged by a small-loan company is a true 36 percent per year. The 12 percent monthly charge by department stores or mail order houses is a true 18 percent. They may state that the rate is a percent of the original debt but a bank that charges $6 per hundred dollars annually charges a true rate close to 12 percent per annum. A finance company that charges 7 percent on the original balance for a car loan really charges you about 14 percent annually. When you pay back every month you owe an average of only about one-half of the original debt. Say you buy a used car and have a balance of $600. The dealer set a finance charge of 15 percent, a typical rate on used cars, you agree to pay in 12 monthly installments and the finance charge should be $90 but your average debt during those 12 months is $325. The true per annum is 28 percent. Unfortunately, it is not always that simple to figure the true rate. Many contracts run for 12 months-relatively easy to figure-but many may be for 6, 9, 18, or 36 months. Surveys have shown that buyers rarely can tell the true rate when the payments are more or less than 12 months. Or, sellers may merely tell you the amount of credit fee in dollars. An auto insurance company says you can pay one-third of this premium now and the balance after 60 days for a "small extra charge." The small charge actually amounts to a true annual rate of 15 percent. The latest device is not to disclose the monthly interest or "discount" rates, tricky enough as they are. Sellers say "you can buy this refrigerator for as little as $10 a month." There is no mention of how much finance charge this includes or even the price of the article itself. When you put your money in a bank it states the interest it pays you as a true rate, for example, 31⁄2 or 4 percent a year. But when you borrow, the amount of interest you pay the same bank is stated as a discount rate-abount one-half the true rate. All the varied ways of stating finance charges and interest rates due to the lack of disclosure requirements pave the way for tragic deceptions. The case of a Memphis, Mich., family which has come to my attention tragically illustrates this example. A wife recently wrote to her husband's union as follows: "A couple of months ago my husband brought home two cards for a free drawing of a freezer and a turkey. I sent them in. A Mr. A came to the house and said he was sorry I didn't win the freezer. Some old couple won it. He said he would like to explain the company's food plan to us. He had a wonderful gift of gab. Now we're in trouble and wonder where all this will lead. "He explained how we would save on our food if we bought their freezer and the food from them. We signed a blank contract which he filled out later. Here's the contract; "We would be paying $907.42 for a freezer only, in 130 weekly installments of $6.79. "The food is to be paid for in 21 weeks' installments of $15.36. This man never told us we would have to pay all that interest. He said we could pay $22.15 for 21 weeks, could reorder again for 21 weeks and at the end of 21⁄2 years we could say the freezer didn't cost us a cent because we saved on food. The food is only meat and some canned goods and doesn't take care of all the staples one uses.' This poor family is being charged a true rate of 21 percent on the freezer and is even paying interest on the sales tax and its food! Another example brought out by the Credit Union National Association concerns a San Francisco working man who wrote: My wife and I went We told the salesman "I am married with four children and another expected. to buy a station wagon. We walked into the lion's mouth. we could pay only $60 a month. With my trade-in and cash I had a total of $750 to put down. The salesman came up with this deal: 'You pay $60 a month for 10 months, and then refinance and pay $60 for another 36 months. I am going to keep $100 of your down payment in reserve for when you refinance. You pay us on the side $60 in 30 days and in the following 10 months, another $110.' "This was in addition to the $60 to the bank. I didn't realize it but he was tricking me into an $87-a-month payment. I "The next day I saw it more clearly and told them I didn't want the car. was threatened that they would make me borrow the money from a finance company. I went through with the deal, figuring that I would pay $87 for only 10 months. But the dealer didn't tell me that it would cost me $250 in interest for the 10-month period. The whole incident has put a terrific burden on me. The balance on the contract at time of purchase was $3,132." Thus, you can see how this man was tricked into buying a car for $3,882 that he couldn't afford. The deal was so involved it's virtually impossible to figure out how much true interest he is paying. I know I need not elaborate any further. This committee, I am sure, has been presented with ample facts and figures to prove how borrowers are duped or misled by interest rates and finance charges when signing consumer credit contracts. The proposed new law under consideration by this committee would go a long way toward correcting these abuses by requiring credit branches to tell the truth about the cost of credit. It would make lenders and dealers tell you both the true annual interest rates and the total finance charges, including fees, service costs and discounts, and other charges when you borrow or buy on time. It would require before the transaction is consummated a clear, written statement setting forth the total amount of each charge to be borne by the borrower and the percentage that such amount bears to the outstanding principal obligation or unpaid balance expressed in simple terms of interest. No longer, then, could the credit grantor merely say that the loan costs you "only 3 percent a month" or "you pay only 7 percent" or "you can buy this car for just $60 a month". If lenders and dealers are required to tell the simple truth the public will know how much interest and charges it pays and can compare these rates with those charged by others. In other words, then the consumer goes into a transaction, he'll do so with his eyes wide open. It is important to note that the proposed law does not tell any creditor that he cannot levy the charges in question. All it does is simply require that the consumer be fully informed how much he is paying and what for. If the consumer buys a car on time, the total indebtedness would have to be broken down to show what part is for the auto, what part is for service fees not incident to the credit transaction, what part is for interest; what the rate of interest is, etc. This certainly seems reasonable enough. Mr. Chairman, I said the bill would promote economic stability. I believe this point requires further explanation. The cost of credit, as we realize, normally rises in boom times and drops in periods of recession or depression. Under classic economic rules, these fluctuations in credit costs should help to stabilize the economy. High credit costs in boom times would restrain credit purchases while low costs in a recession would encourage credit buying. But, because of the confusing array of credit charges which confront them, conconsumers, unfortunately, are seldom aware of the actual costs. Thus, most of the stabilizing effect of changes in credit costs now is lost I repeat the provisions of this bill are vital. With the kind indulgence of the committee I would like to sum up by stating my full conviction that the legislation would: (a) promote economic stability and thus help to prevent depressions; (b) protect consumers against fraud, deception, and gouging on credit transactions; (c) stimulate competition among merchants and vendors; (d) have little or no effect on the average use of consumer credit; and (e) not be burdensome to business nor interfere with normal business activities. Mr. Chairman, I reiterate my profound appreciation for the privilege of testifying today. And, again, I would like to express my commendation to the committee for holding these most informative, enlightening and, I am certain, productive hearings. Senator DOUGLAS. I would suggest that the record of these hearings be kept open until a week from next Monday to accommodate other materials that may be submitted to the committee. I have several exhibits myself to place in the record; I imagine Senator Bennett has also. Senator BENNETT. That is right. What is that date? Senator DOUGLAS. A week from next Monday. Senator BENNETT. Is that the 7th of August? Senator DOUGLAS. Yes. Senator BENNETT. The 7th of August. Senator DOUGLAS. A number of statements regarding this legislation have been received and will go in the record. Many letters have been received and we will insert in the record a few of them that are representative. |