Senator WILLIS ROBERTSON, Senate Office Building, Washington, D.C. POPULAR DRY GOODS Co., DEAR SENATOR: Although we are not one of your constituents, we are taking the liberty of writing you as a member of the subcommittee of the Banking and Currency Committee in connection with the hearings on S. 1740, the so-called truth-in-lending bill. This bill, if passed, could result in the abandonment of what is commonly known in retail stores as revolving or optional term credit accounts. This type of credit extended to customers permits them to make regular purchases and pay in 30 days without a service charge or to make purchases and pay over a period of a number of months with a reasonable service charge. There has been excellent acceptance of revolving or optional term accounts by the American publicin fact, this is what the buying public now demands. The abandonment of such a popular type of credit, would, undoubtedly, serve as a deterrent to retailing in general. As it presently stands, the bill is unrealistic and impractical since it provides that the amount of the finance charges must be individually itemized, as well as the amount of the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. This simply cannot be done, for no one knows at the time of the purchase, because of the very nature of this type of account, how much the customer is ultimately going to buy or how she intends to pay for her purchases on a revolving account. It would be impractical to figure these with so many unknown factors, and even if it were, I am sure that you would agree that the average salesperson is not capable of making such computations-particularly at the time that the sale is being consummated on the sales floor. No honest merchant will be embarrassed by the disclosure of his credit charges, but he should not be asked to express these charges in such a way that he must make mathematicians of his clerks and subject himself to a Federal penalty for errors which will surely result from an unworkable formula. We strongly urge that the bill in its present form be opposed. ALBERT J. SCHWARTZ, Vice President. WESTINGHOUSE ELECTRIC CORP., Hon. WILLIS A. ROBERTSON, Washington, D.C. DEAR SENATOR ROBERTSON: I have heard that hearings are scheduled to begin July 17 on S. 1740, the Douglas bill, requiring that charges for financing consumer purchases be expressed as a simple annual percentage of the unpaid balance. It is my understanding that you opposed a similar bill last year and that you are opposed to S. 1740 now, and I want to commend you for this realistic attitude. While this bill purports to help consumers, I believe it would actually confuse consumers, and it could easily frighten prospective purchasers of appliances and other consumer products. Our wholly owned subsidiary-Westinghouse Credit Corp. was formed several years ago to provide readily available credit for purchasers of our consumer products and to provide an adequate line of credit for dealers handling our products. We follow a policy of telling borrowers how much of their total loan covers the purchase price of the product and how much represents the cost of the credit. Westinghouse Credit Corp. believes in a full disclosure of all relevant facts to borrowers. However, we do not approve of the arbitrary requirements of S. 1740 that finance charges be expressed as a simple annual percentage of the unpaid balance. Competent mathematicians disagree as to how such a percentage should be computed. Lenders and dealers would find it extremely difficult, if not impossible, to make the computations required by this bill. Also, research has shown that consumer-borrowers would be confused by having their finance charges expressed in terms of simple annual interest, which could deter them from purchases they want to make. I am glad you understand that this bill, which is supposed to protect consumers, would probably have an entirely different result, and I hope you will continue your opposition to this measure. Yours truly, To the Person Addressed: R. K. SERFASS. MONTANA BANKERS ASSOCIATION, Enclosed herewith please find a copy of resolution VII as adopted by the Montana Bankers Association in convention. This is sent to you in accordance with the instructions of the association. RESOLUTION VII OF THE MONTANA BANKERS ASSOCIATION Whereas we believe that banks have the serious responsibility for continuing and maintaining consumer credit in banks upon the firm, sound, and beneficial basis it has come to occupy over the past 50 years, and Whereas while we believe that the members of the Consumer Bankers Association observe the principles of truth in advertising and disclosure of costs to users of installment credit; nevertheless, there are segments of business which through their failure so to do prejudice the far greater number of those who do, and Whereas we believe that the problem of compelling disclosure and truth in advertising is a State and local problem and not a national problem; Now, therefore, be it Resolved, That this association carry on an organized and continuing program, urging its members to (1) Express the cost of borrowing in terms of dollars; (2) Express rate of charge in terms of dollars per hundred per year; (3) Scrupulously observe the prime responsibility of banks for guiding seekers of installment credit so that such seekers of credit do not assume a burden of debt inconsistent with their ability to repay; (4) Carry on in their respective communities a continuing program directed to the public, to competition and to State and local government officials concerning the true principles upon which consumer credit has been successfully and soundly administered by banks during the past 50 years: (5) Adhere to the principle that if legislation is deemed necessary it must be susceptible to practical administration and must be administered at the State level and not at the national level; and, be it further Resolved, That a copy of this resolution be forwarded to each member of the association, to members of the Senate Banking and Currency Committee, to members of the House Banking and Currency Committee, to the secretaries of the State Banking Associations, to the Installment Credit Commission of the American Bankers Association, and to the Federal Deposit Insurance Corpora tion and the Federal Reserve Board. Editor SHEA, Wall Street Journal: ST. HELENS, OREG., July 12, 1961. Your column "The Outlook" of July 10 sounds like an Alice in Wonderland. Figure interest on the unpaid balance at a certain percent, 2 percent a month at the most. Charge $5 for setting up the account, which includes all filing charges, and only one charge a year. Any and every business transaction is simple enough to figure this method. All other methods are used to gouge the borrower. One of the biggest mail-order houses makes much of its profit thus. Banks are establishing branches on every corner to get their share, and finance companies advertise every hour on the radio. Nothing is added to our economy by camouflaging interest charges, except slaves who never get out of debt. Let banks, finance companies, stores, dealers, go back to their original business, selling their wares. Banks can sell the use of money without leading the borrower to think he is paying only about half the interest rate he thinks he is paying. Finance companies could survive at lower interest rates by closing a third of their offices. This is written by an ex-banker who still has quite a few thousand dollars in bank stocks. EDITOR, WALL STREET JOURNAL, LAWRENCE MEISSNER. WASHINGTON, D.C., July 12, 1961. DEAR MR. EDITOR: It was astonishing to find that the article titled "The Outlook, Appraisal of Current Trends in Business and Finance" in the Wall Street Journal of July 10, 1961, intimated that there is more than one way to compute annual interest on unpaid balances. The article implied that on a loan or installment purchase with monthly payments, the interest could be calculated by doubling the percentage of the annual installment charge, or, what amounts to the same thing, by calculating the annual installment charge as a percentage of half of the amount of the loan or purchase price. Half of the amount of the loan or purchase price was claimed to be, not approximately the average, but actually the average amount borrowed for the year. This is not obvious and probably not true, but it is not germane to the purposes of this letter. The well-known and readily derived formula P=L i(Hi)" is the correct method of computing the amount, P of the payments on a loan or installment purchase, L, with interest rate, i, for the period of each payment, where the loan is to be repaid by n equal payments. The article stated correctly that the interest rate, i, on a $100 loan repaid by 12 monthly installments of $9 each is slightly over 1.2 percent monthly. Taking twice the annual installment charge of 8 percent to get 16 percent is a crude approximation of the annual interest rate of slightly over 14.4 percent. The monthly payment for an annual interest rate at 16 percent is about $9.07. Admittedly the formula does not yield readily to simple calculation in most cases, but, if the rate is more than 1 percent a month for monthly or less frequent payments, the calculation of P can be made quite accurately on a log duplex slide rule. Further, the formula has been tabulated extensively for annual interest rates to quarters of each percentage point and for L=1. From tables, one can easily and quickly determine the annual interest rate to the nearest quarter point for any loan amount and, within the limits of the tables, for any number of installments and any installment amount. Since the formula is not suited to mental calculations, contrary to comparison of two prices on two different size packages of competitors on the same commodity, there is all the more need for the finance industry to show cost of borrowing as an annual interest rate figured on unpaid balances. The second section of the article takes issue with the statement of finance charges in dollars on amounts which may vary widely from month to month and states it cannot be done. Yet the fourth section of the article indicates that Sears, Roebuck & Co. does state finance charges in dollars on a monthly basis on revolving credit. Further, the second section of the article notes that the charge on such amounts can be stated as a monthly (or annual) interest rate and is so stated also by Sears on their revolving credit. Most of the remainder of the article questions whether the finance charge is really interest in the true sense. There is no question in my mind that the finance charge is interest in the true sense, which is the sense of the charge for the use of the borrowed money. One could similarly beg the question by asking is rent really rent in the true sense. Obviously rent is really rent in the true sense, even though rent includes protection against risk of damage to or depreciation of the property, costs of handling the lease and rent, including payment of salaries and fees, profit and cost of the property itself which may have been obtained by lease (or sale and lease back) to one who subleases the property to others. The bill is generous in excluding certain insurance premiums, which are part of interest in the true sense. Rent, like interest, varies with the size of the quarters rented, and the variation is indeed much more radical. One can well expect that rent on a per room or per square-foot basis will decrease as the number of rooms or square feet rented increases, just as interest rates decrease as the size of the loan or installment purchase increases. The same kind of sliding scale also applies to the size of the monthly payment on a revolving credit as indicated in the article for Sears charges. As indicated in the article, the argument that the bill would have contracyclical effects is weak. However, that does not weaken in the least the very strong arguments for passage of the bill. It is incredible to me that this article containing misrepresentations, contradictory statements and half-truths was written by the same author as previous articles, which have appeared over the name of George Shea. Previous articles over this name have shown perceptive analysis, shrewd reasoning, astute judgment, and great intellectual honesty. It appears that the usual author of this column is on vacation or otherwise absent and a ghostwriter has been substituted. Surely the usual author would not lower himself to the deceit evident in this article. In conclusion, the basic provisions of the measure to force full disclosure of finance charges on consumer loans not only seem fair and simple at first sight, they seem fair and simple on more intensive examination, and one may conclude they are fair and simple. The measure deserves the support of the honest operators in the finance industry as well as the support of the general public. Sincerely yours, G. E. MORGAN. MASSACHUSETTS STATE AUTOMOBILE DEALERS ASSOCIATION, INC., Re S. 1740, Douglas truth-in-lending bill. DEAR CONGRESSMAN CURTIS: The following represents the viewpoint of the Massachusetts State Automobile Dealers Association on Senate bill 1740, Senator Douglas' truth-in-lending bill. We respectfully request you will convey our views to the apppropriate committees handling this legislation and keep our position in mind should this bill or one similar to it reach the floor of the House or Senate. We agree that the public should be protected against unscrupulous lenders and that they have the right to know the dollar cost of financing to them. Massachusetts already has a law which protects people from the actions of a few unethical lenders. This law has the support of a great many business groups, including finance companies, banks, and auto dealer groups and was sponsored by MSADA in 1958 and enacted that year. Enforcement of such law is more easily handled on a local level than on a national level. We understand 32 or more States have already enacted similar legislation and others are considering enactment, which makes national legislation unnecessary. Furthermore, competition to give buyers the best terms keeps rates clearly within the public interest. Another reason for our opposition to this bill is the stating of finance rates in terms of "simple annual rate” of interest. If all finance contracts were writen to that repayment was made at even periodic intervals and at exactly equal payments, it would be a simple procedure to look up a table of conversion to arrive at the simple interest figure. However, many contracts are not written in this manner in Massachusetts. There are farmer plan contracts which call for unequal payments, at staggered intervals, as crops are harvested and as payment is received for crops. These defy easy mathematical computation of simple interest. The so-called teachers plan of high payments in times of higher earning and "pickup" or "contact" payments in small or no income periods also defies quick figuring of simple interest. Many contracts have unequal payment schedules with so-called catchup payments at intervals designed to bring the contract up to an agreed point periodically. These also defy the mathematical computation of simple interest. These are but a few of the finance plans arranged for the convenience of the buyer. There are many others, all of which would require electronic brains or a college degree in mathematics in order to even estimate simple annual interest. A third reason for opposition is the confusion which this bill would create in the minds of the customer. We can pride overselves in Massachusetts for having astute buyers. But they are interested in how many dollars it will cost to finance the purchases they make. They shop for the best terms in relation to the fewest number of dollars it will take to buy the goods for sale in our State. If a man borrows $1,200 and pays one lump sum in 12 months at 6 percent interest, he pays $1,272 back to the finance agency. If he borrows $1,200 at 6 percent discount and pays it back in 12 equal monthly payments of $106 per month, he still pays back $1,272. The higher simple interest rate is brought about by the customer not having the use of the money for the full year. This does not interest the majority of buyers. The buyer who purchases goods for this $1,200 has the use of these goods for the 12-month period while he is repaying the loan. His main interest is that it's going to cost him $72 to borrow $1,200. Not only would the quoting of simple interest be confusing to the public but it would actually throw roadblocks in the path of his credit purchases. Discount interest is easy to figure and understand. Basic arithmetic can be used in figuring it. If simple interest were quoted, the customer would have to wait for delivery of his goods until someone goes through complicated mathematic calculations to find out what the rate would be, assuming the rate can be figured. Payments through the use of coupon booklets, which tell the customer exactly what he owes each month, would be curtailed. When making a payment, in many cases, the customer would have to go to the lending agency and wait while the interest was figured for each of his payments. The covenience of mailing his payments directly to the lending agency would also be greatly curtailed. Further, we feel this type of legislation is discriminatory to the lending agencies. A bank borrows money on a wholesale basis (simple interest) and loans it on a retail basis (discount interest). Cost of operation must be figured in order to establish the rate. These costs are considerably greater for installment credit than for one-payment notes due to accounting procedures involved. Furthermore, disclosure of simple interest rates by lending agencies would be like a clothier, a groceryman, or a car dealer showing the customer the invoice cost of his products, trying to explain how much it costs in expenses to sell his product, and asking the customer to pay a profit based on a reasonable volume of sales on top of that. No amount of explaining would convince a buyer he wasn't being taken if this process were used in merchandising. He would figure the merchant was lying about his operating expenses or was exacting an unreasonable profit. This holds true for "merchandising" money. These are a few of the reasons why we urge that this legislation not be adopted. This area is being adequately taken care of by the States. Computation of simple interest would be impossible in a great many cases. The public is interested in the dollar cost of financing and would be confused by the simple annual interest concept. Competition is vigorous on terms which protects the public's interests. The whole concept of the bill would be discriminatory to lending institutions and would cause them undue hardships in accounting and administration. The Douglas bill would create more problems than it would solve. Very truly yours, SENATE BANKING AND CURRENCY COMMITTEE. WILLIAM A. PLUNKETT, NORTHERN ILLINOIS CORP., De Kalb, Ill., July 18, 1961. GENTLEMEN: I am tremendously interested in Senator Douglas' bill, S. 1740, the Truth in Lending Act. I have a great deal of respect for Senator Douglas but do feel there are certain elements of our business with which he is not thoroughly familiar and that the bill will result in creating a tremendous amount of sales resistance for the first 2 or 3 years, particularly at a time when all good Americans are interested in doing everything possible to restore employment. I, of course, dislike very much things of this kind being taken away from the various States and put under Federal regulation as there are different problems in every State. There is no doubt in my mind after 50 years experience in the installment financing field, 7 years of which time I served as a member of the Illinois Emergency Relief Commission, that laws can be enacted in States that can take care of the small percentage of unethical, greedy operators in the handling of money, and this is not a case of just finance companies or credit unions. One of the worst offenses that I have ever seen or heard of was by a Loop bank in the city of Chicago. I do not think that people who are not in close touch with this business realize the importance of it to the economy of the whole country. It is greatly |