charges with a uniform yardstick or standard. But this contention will not stand the test of close examination. For it is only too obvious that the same minority of unethical merchants who currently exploit the public will be the first to hide the finance charges in the basic price of the unit and advertise either minimum charges or no finance charges whatsoever. By an ironic twist, the reputable merchant who advertises the true annual rate of 15 to 18 percent will be viewed by the average consumer as the credit-exploiter. Doctor Johnson, in his monograph, "Methods of Stating Consumer Finance Charges," gives the following example: "Assume that a given used car might normally retail for $800. If the dealer obtains a downpayment of $200, the unpaid balance would be $600. On a 24month contract the finance charge might be $108, bringing the amount of the note to $708. This is an effective annual rate of about 17.3 percent. If this seems too high to be competitive, the dealer can resort to a relatively easy device. He can advertise the car at $887, but still accept a low downpayment of $200, leaving an unpaid balance of $687. By adding a finance charge of $21, the dealer brings the amount of the note to $708. Compare the two situations at this point. In each case the dealer has received a $200 downpayment; in each case he has a note promising to pay $708 over a period of 24 months. In each case monthly payments are $29.50. The dealer can either keep the note or sell it to a finance company. There is one important difference: now the dealer can advertise his finance charge as being less than 3 percent per annum." Proponents of this bill argue that in such a case, the purchaser would immediately be aware that the dealer was packing the unit with finance charges. But would he? Are there any two used cars of the same type make in the United States today which are identical, or even similar with respect to condition, accessories, tires, etc.? As a matter of fact, even among new cars of the same make, there are literally thousands of different possible prices depending upon the combinations of optional equipment and the chances of any two units in dealers' inventories carrying the identical optional equipment, trim, paint, etc., are extremely small. Furthermore, even assuming two new cars identical in every respect, can it reasonably be said that the "annual rate" requirement of S. 1740 offers any real, useful information to the consumer in making an intelligent choice between credit costs? We think it does not. Victor Nyborg, president of the Association of Better Business Bureaus, in testifying at the hearing last year, confirmed that customers are concerned, not with percentage rate information, but with the dollar cost on installment purchases: talking to thousands of interested in what the They are interested in "I have a great deal of doubt in my own mind from customers over the years that they are particularly so-called interest rate is in the installment contract. what the dollar cost is and how much it is going to cost them per month to pay the balance which they have obligated themselves for." Several other witnesses testified to the same effect at the hearing this year. 4. The bill is unenforceable without extensive and expensive Federal controls. Since nothing in the bill, as presently drafted, prohibits the concealment of credit costs in the price of the article itself, only a system of price controls fixing maximum cash prices and requiring a separate statement of credit charges would stop this practice. In that connection, Senator Bennett, in a forceful statement on the Senate fioor on May 3, 1961, called attention to the fact that the annual rate requirement can neither be enforced, nor observed, except upon two intolerable conditions: "The first is Federal regulation of the methods and procedures by which merchants may extend credit. Even the author of the bill denies this purpose. "The second is the establishment of a full-blown Federal price control agency to fix maximum cash ceiling prices for every merchant and on every item in every corner of the United States, and to compel the separate statement of the percentage credit rate. Otherwise the credit will be buried in the price." Mr. William McC. Martin, Jr., Chairman of the Board of Governors of the Federal Reserve System, the governmental agency that would be charged with administering S. 1740, in testimony before the committee on July 19, 1961, stated that he would want to be "very certain" that the States are not able to handle legislation in this field "before I would want to go to Federal legislation" (trans., p. 533). In answer to questions posed by Senator Beall, Mr. Martin pointed out that the Federal Reserve Board would have to rely upon the Justice Department to enforce the bill and that its enforcement would be costly (trans., pp. 533, 534). In fact, Mr. Martin stated quite candidly that "administration of such legislation would not constitute an appropriate activity for the Federal Reserve System" (trans., p. 490). To summarize and conclude, NADA is sincerely convinced from its study of C. 1740 and the testimony submitted at the hearings last year as well as this year, that the avowed purpose of the bill-to assure a full disclosure of credit costs to prevent the uninformed use of credit to the detriment of the national economy-would not be achieved; the unscrupulous practices of the relatively few unethical merchants would not be curbed; the economic burdens and hardship on the small businessman would be increased; the additional costs involved would inevitably be passed on to the consumer; the public would be confused and misled rather than informed; and proper and effective administration and enforcement on the Federal level would be both difficult and expensive. Therefore, we sincerely urge that S. 1740 is not in the public interest and should not be enacted into law. STATEMENT OF AMERICAN HOME LAUNDRY MANUFACTURERS' ASSOCIATION This statement is submitted on behalf of the American Home Laundry Manufacturers' Association, a trade association representing 19 manufacturers of electric washing machines, dryers, and ironers. The association has its headquarters at 20 North Wacker Drive, Chicago, Ill. As manufacturers of laundry equipment, the members of the association are seriously concerned with the effects S. 1740 would have on their industry. In the opinion of the association certain provisions of the bill would create very real difficulties for appliance dealers in the sale of our members' products, and could easily result in serious loss of sales. The particular provision which our members believe would create the most difficulty is the requirement for the statement of a simple annual rate for the finance charges in a credit transaction. In the first place, there are a number of ways of calculating the simple annual rate. Unless a specific method were agreed upon by Congress and included in the legislation, it would be difficult to arrive at an accurate or consistent figure. In view of the civil penalties provided in the act, under which a consumer may bring an action, an error in the rate calculation could well lead to litigation. Even if the method of calculating the simple annual rate is clearly developed in the legislation and regulations thereunder, the appliance dealer would be faced with an almost impossible task in making the many calculations necessary to cover the variety of credit practices followed in the industry. Illustrative of these variables are extensions of time before the first installment payment is due, irregular payment arrangements to accommodate a customer whose income is not received regularly, and variation in the amounts of the scheduled payments. All of these variables and others would make calculations of the simple annual rate most complex. In addition, the so-called revolving credit plan used by many department stores where our members' products are sold makes it very difficult to calculate the actual amount of credit in any given period of time and therefore, of course, the rate. Moreover, it is difficult for the appliance dealer himself to calculate the rate, it will be much more confusing for the customer. Consumers are becoming accustomed to the diclosure of the finance charges in dollar amounts, in compliance with State laws. The addition of a simple annual rate requirement will lead to trouble and misunderstanding for a buyer in trying to make an intelligent choice as to the best terms being offered to him in buying a home laundry appliance. While no one can quarrel with the intent of the bill, i.e., to provide information on the basis of which an informed choice may be made, the effect of the simple annual rate provision will be to confuse and not enlighten the consumer. As mentioned, many States now have laws requiring the disclosure of finance charges. According to recent information, two-thirds of the States have such requirements. The States have followed this situation closely and are constantly seeking to improve the effectiveness of their own statutes. Most of these laws do not have the simple annual rate requirement. They would, therefore, not be identical with the Federal law and the exemption of section 6(b) would not 4. The American Red Cross, Home Service Department. 8. The National Committee for Education in Family Finance. 9. The Associated Credit Bureaus of America. The unit has been used in "Teachers' Workshop" programs for public school teachers at The University of Connecticut The University of Georgia The University of California The University of North Dakota The University of Vermont Washington University, St. Louis Tulane University New York University State University of Iowa East Tennessee State College Chicago Teachers College Southern Methodist University and in the regular semester classes of some 35 colleges and universities. "Using Our Credit Intelligently," has been commended for classroom use by most of the State departments and offices of education. We mention these developments because at the hearings thus far, so many inferences have been injected into the record indicative of failure of private enterprise and business sources to make proper continuing and sincere effort to give the public the facts and a sound background of understanding of consumer credit and its use. True, in our school unit, while we do teach the simple annual rate method as well as several others, we have not insisted that consumer credit charges should always be expressed that way. Indeed, at the time the unit was written and even when it was revised, nothing on the economic or political horizon had indicated a feeling that this is considered the only acceptable expression of such costs. The foundation itself and the study unit to which I refer, both have held the firm position throughout their respective existence that the customer must be told clearly everything listed in S. 1740 with respect to consumer credit costs with the exception of the designation of this one specific method of disclosure as universally required. As we told the subcommittee last year, the school authorities did not ask it and I might add that up to the present moment, no teacher, principal, superintendent nor member of a school board has ever indicated to the foundation in connection with this educational program, or in any other way, that the simple interest type of disclosure is paramount in his mind or preferred to any other method. We cannot offer it as "statistical" for we have not kept a tally upon it, but certainly in our many conversations with school people throughout the United States, the matter of public knowledge of the dollars and cents cost of the credit transaction, has been by far most frequently expressed an on numberless occasions we have been told that the high school graduate is prepared to compare the relative values of products, services, and costs in terms of dollars and cents far more keenly than by any other measurement because he does not understand percentages clearly. Again we must say that the foundation cannot thoughtfully take a position which would insist upon the disclosure of consumer credit service charges in any one specific manner in every type and nature of transaction.. HELPING CONSUMERS IN FINANCIAL DIFFICULTY Now, also, we want the committee to know that the foundation has taken serious cognizance of the consumer bankruptcy and hardship situation-following your hearings last year. HOLBROOK AND MCKINSEY, Washington, D.C., June 13, 1961. COMMITTEE ON BANKING AND CURRENCY, U.S. Senate, Washington, D.C. GENTLEMEN: I enclose herewith copy of resolution approved by the steering committee of the National Independent Automobile Dealers Association on May 22, 1961. This resolution sets forth the position of the association with respect to S. 1740, the Truth in Lending Act. Would you please include this resolution in the report of the hearings on this bill. Very truly yours, ROBERT J. MCKINSEY. NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION Washington, D.C. RESOLUTION ON DOUGLAS FINANCE DISCLOSURE BILL Whereas the problem of installment financing in the sale of automobiles and other goods is basically a matter for State or local regulation, Whereas some 30 or so States have already enacted legislation regulating the the extension of installment credit, and Whereas the requirement of the so-called Douglas bill, that the finance charge be expressed in terms of simple annual interest is unworkable, impractical, and not needed: Now, therefore, be it Resolved, That the National Independent Automobile Dealers Association be recorded as opposing the enactment by the U.S. Congress of any legislation which embodies the principles of the so-called Douglas bill. STATEMENT OF THE NATIONAL FOUNDATION FOR CONSUMER CREDIT, INC., WILLIAM J. CHEYNEY, EXECUTIVE VICE PRESIDENT My name is William J. Cheyney. I am executive vice president of the National Foundation for Consumer Credit, an organization comprised of retailers, manufacturers, wholesalers, banks, consumer and sales finance companies, insurance companies and other financial institutions, dedicated to making consumer credit more widely and more perfectly understood by those who use it and all others in American society. Through your courtesy last year, I was permitted to appear in behalf of the foundation, before the subcommittee, concerning S. 2755, and in order not to be repetitious refer you to the record of that hearing for an explanation of the foundation's feeling about the appropriateness of the legislation now embodied in S. 1740. At that time, at the request of Senator Douglas, I submitted a list of our Board of Trustees, and to bring the record up to date, I should like permission to record here our current list of officers and trustees.' HELPING TO EDUCATE PEOPLE TO USE CREDIT INTELLIGENTLY Last year, I gave each member of the subcommittee a copy of our study unit, "Using Our Credit Intelligently," which at that time had been accepted for classroom use in the public and private schools of some 1,500 communities.2 I am happy to report that in the interval, several hundred more school systems have commenced to use it. You may like to know that the unit is listed favorably for active educational use by 1. The Joint Council for Economic Education (which also has urged us to provide copies of it for each participant in the 50 or so teachers' workshops conducted under the joint council's auspices each year-reaching about 2,000 teachers annually in training-refresher courses. 2. The Council on Consumer Information. 3. The Credit Women's Breakfast Clubs. 1 Attached at end of statement. Again, for the committee's interest, a copy of the study unit is enclosed. 4. The American Red Cross, Home Service Department. 8. The National Committee for Education in Family Finance. 9. The Associated Credit Bureaus of America. The unit has been used in "Teachers' Workshop" programs for public school teachers at The University of Connecticut The University of Georgia The University of California The University of North Dakota The University of Vermont Washington University, St. Louis Tulane University New York University State University of Iowa East Tennessee State College Southern Methodist University and in the regular semester classes of some 35 colleges and universities. "Using Our Credit Intelligently," has been commended for classroom use by most of the State departments and offices of education. We mention these developments because at the hearings thus far, so many inferences have been injected into the record indicative of failure of private enterprise and business sources to make proper continuing and sincere effort to give the public the facts and a sound background of understanding of consumer credit and its use. True, in our school unit, while we do teach the simple annual rate method as well as several others, we have not insisted that consumer credit charges should always be expressed that way. Indeed, at the time the unit was written and even when it was revised, nothing on the economic or political horizon had indicated a feeling that this is considered the only acceptable expression of such costs. The foundation itself and the study unit to which I refer, both have held the firm position throughout their respective existence that the customer must be told clearly everything listed in S. 1740 with respect to consumer credit costs with the exception of the designation of this one specific method of disclosure as universally required. As we told the subcommittee last year, the school authorities did not ask it and I might add that up to the present moment, no teacher, principal, superintendent nor member of a school board has ever indicated to the foundation in connection with this educational program, or in any other way, that the simple interest type of disclosure is paramount in his mind or preferred to any other method. We cannot offer it as "statistical" for we have not kept a tally upon it, but certainly in our many conversations with school people throughout the United States, the matter of public knowledge of the dollars and cents cost of the credit transaction, has been by far most frequently expressed an on numberless occasions we have been told that the high school graduate is prepared to compare the relative values of products, services, and costs in terms of dollars and cents far more keenly than by any other measurement because he does not understand percentages clearly. Again we must say that the foundation cannot thoughtfully take a position which would insist upon the disclosure of consumer credit service charges in any one specific manner in every type and nature of transaction. HELPING CONSUMERS IN FINANCIAL DIFFICULTY Now, also, we want the committee to know that the foundation has taken serious cognizance of the consumer bankruptcy and hardship situation-following your hearings last year. |