DEALERS VOICE OPPOSITION We have just completed a series of meetings in Brush, Greeley, Colorado Springs, Pueblo, La Junta, Trinidad, Monte Vista, Durango, Montrose, and Grand Junction. Virtually all dealers in these areas were represented at these meetings. All were most vigorously opposed to the provisions of this bill. THE LEGISLATION IS UNNECESSARY 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. Colorado 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. Enforcement of such law is more easily handled on a local level than on a national level. We understand 22 or more States have already enacted such 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. SIMPLE ANNUAL RATE IS DIFFICULT, IF NOT IMPOSSIBLE, TO COMPUTE Another reason for the opposition of Colorado dealers to this bill is the stating of finance rates in terms of "simple annual rate" of interest. If all finance contracts were written so 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 Colorado, which is still largely a rural State. 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 socalled 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. BILL WOULD CREATE CONFUSION IN THE MIND OF THE BUYER A third reason for opposition is the confusion which this bill would create in the minds of the customer. We can pride ourselves in Colorado 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 goods for sale in Colorado. 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. BILL WOULD THROW ROADBLOCKS IN THE PATH OF INSTALLMENT FINANCING 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 convenience of mailing his payments directly to the lending agency would also be greatly curtailed. BILL IS DISCRIMINATORY TO LENDING AGENCIES 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 out on a retail basis (discount interest). Costs 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 this 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 these 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. SUMMARY 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. Hon. MAURINE B. NEUBERGER, SALEM, OREG., May 5, 1961. MY DEAR SENATOR NEUBERGER: As usual your Washington Calling was interesting. I look forward to receiving it each month. Of particular interest to me in this issue was your article on "Truth in Lending." From the brief presentation in Washington Calling I surmised that the Senate bill stops short of its goal. It appears as if lending institutions such as banks would not be covered. Yet they are as guilty of deception of a sort in their lending practices as any other group of money handlers. When I go to the commercial section in the bank and borrow $100 for 90 days using a U.S. Treasury note as collateral I am told the interest rate will be 61% percent. I receive $100 in my hands. Ninety days later I pay the bank $103. Actually I should be charged $101.625, but the bank has a minimum of $3 for a loan. Consequently I pay 12 percent rather than the 6% percent which was quoted. It is even more malicious if you go to the regular loaning department where negotiable collateral is not required. I do not remember the interest rates in that section; however, I remember how they operate. They take the principal, add the interest to it, and the borrower signs a note for both principal and interest. I am told that this procedure pushes the interest rate beyond the quoted amount. In the furniture store I bought a freezer for $318.88. The vendor quoted the interest rate as 9 percent. I said I thought that was higher than I had paid before. But he explained that the furniture dealers had agreed to the increase (I guess we might call it interest fixing). As I wanted a 3-year contract, he multiplied the $318.88 by 27 percent (to cover 3 years of interest), added the two together, divided by 36, and announced that I would pay $11.25 per month for 36 months. In the cases above the actual interest rates are much higher than those quoted. In the case of the freezer the man did say, however, that the rate was 9 percent on the original unpaid balance. So you can see that I knew what I was paying. A different type of situation exists with Meier & Frank. If I buy an appliance there I pay 1 percent per month on the unpaid balance (not the original unpaid balance). Everything is out in the open. But here, there is a fly in the ointment. Meier & Frank calls their charge a service charge rather than inter est. Because it is called a service charge I cannot declare it on my income tax as such. I must take my average monthly balance for the year, and calculate 6 percent of that. This amount is far less than the service charge. I have no out as the income tax instruction read that way. Someone once told me that the reason Meier & Frank and other credit stores (and what store is not a credit store these days) call their charge a service charge is that if they called it interest they would fall under the regulations of the small loan businesses. I don't know what difference that would make, but I imagine there is some reason why they don't want to have to answer to that group. I would propose the following: 1. Interest charges would not be disguised as service charges unless there was a clear-cut service provided. 2. Interest would be calculated on the unpaid balance monthly. Maybe monthly is not correct; however, I believe that all businesses should do it the same way so that customers would be able to compare interest charges. 3. A provision would be written into each credit agreement whereby a buyer would be permitted to pay off his obligation at a faster rate without a penalty. I am told that it is a common banking practice to charge a higher interest early in a loan contract so as to make more on the contract percentagewise if the contract is paid off early. The average wage earner, unfortunately, is not too much concerned with how much interest he is being charged, but rather with how much the monthly payments will be. I believe it is only through the honest and straightforward reporting of the interest charges by the seller that the average buyer will be alerted to the excessive charges which are being made against him. I don't want you to think that I am opposed to the payment of interest. I believe that interest charges are a rightful part of the business climate. What I believe is wrong is the bilking the public through hiding the interest charges or superficially reducing them. In closing I'm not certain that the Senate should point the finger at the installment sellers and leave untouched the merchandisers who mislead the public through the use of containers which appear to be sizes they aren't or establish weights for their packages so that the large "economy" size is not as cheap per ounce as the regular size. And we could consider the seller who hides the weight of his package in fine print or hides the weight by using different systems of marking. Which is bigger, 221⁄2 ounces or 1 pound 61⁄2 ounces? I think the canning industry has done a wonderful job of standardizing their merchandise. Of course the Government has helped (pushed) them. You are a busy hardworking Senator, and I should not have taken as much of your time. But once I'm wound up I can't seem to stop. I hope you will keep me informed on this "truth in lending" legislation which you and Senator Douglas may cosponsor. Sincerely yours, GEORGE D. PORTER. MONTANA CONSUMER FINANCE ASSOCIATION Whereas the Congress of the United States has had before it legislation requiring the statement of finance charges as annual rates of interest on the monthly unpaid balance, such legislation sometimes being called a truth-in-lending bill, although its enactment would conceal more than reveal truth with respect to finance charges; and Whereas the finance charges, both with respect to extension of credit and to lending of money in relatively small amounts, to be repaid in installments cannot be meaningfully and realistically declared in the interest-rate form of statement and if universally used would result in misunderstanding and confusion; and Whereas practice of and the trend toward stating finance charges in dollars and cents is true, realistic, fair, reasonable, and clear and is meaningful to persons to whom credit is extened and loans made: Now, therefore, be it Resolved by the Montana Consumer Finance Association in convention assembled on the 14th day of July 1961, That this association oppose, by all appropriate means, the enactment of Federal legislation, and particularly S. 1740 of the current session of the U.S. Congress relating to any requirements of interestrate form of statement of finance charges, and that the Honorable Mike Mans field and the Honorable Lee Metcalf, U.S. Senators from Montana, and the Honorable Arnold H. Olsen and the Honorable James F. Battin, Representatives in the Congress from Montana, be advised of the opposition of this association to such legislation generally and to S. 1740 particularly, and that a copy of this resolution be sent to each of said Senators and Representatives, together with information that may be available from time to time on the subject and, at present, the Prof. Robert W. Johnson study presented by Columbia University Graduate School of Business. Adopted July 14, 1961. I. M. NYQUIST, Attest a true copy: JOE H. IRWIN, Secretary. STATEMENT OF MELBOURNE BERGERMAN, VICE PRESIDENT, This statement is filed on behalf of Universal CIT Credit Corp. (which purchases consumer financial receivables) and its affiliate, CIT Corp. (which purchases industrial and commercial financing receivables). Both companies are subsidiaries of CIT Financial Corp. I. DISTINCTION BETWEEN CONSUMER AND INDUSTRIAL TRANSACTIONS Senate bill 1740, which is all-inclusive in its scope, makes no distinction between sales on credit of consumer goods and sales on credit of goods for industrial or commercial use. There is, and ought to be, a clearly defined distinction between these two types of transactions. Whatever may be the merits or demerits of this bill insofar as it pertains to credit sales of consumer goods, the bill is wholly unnecessary and impractical as applied to credit sales of industrial or commercial goods. Certainly, as to the latter, it cannot be said, as it is in section 2 of the bill, that "excessive use of credit results frequently from a lack of awareness of the cost thereof to the user." If the purpose of the bill is, as stated in section 2 thereof, "to assure a full disclosure of such cost with a view to preventing the uninformed use of credit to the detriment of the national economy," the bill is inappropriate and improper as applied to sales of industrial or commercial goods. In these transactions there is no "excessive use of credit"; there is no "lack of awareness of the cost thereof to the user"; there is no "uninformed use of credit." If a large mining company buys on credit a strip mining shovel at a cost of more than a million and a half dollars, one could never find a seller who would knowingly permit "an excessive use of credit" or a buyer who would be able to obtain and use "excessive credit." These sales are made only after careful study, extensive investigation, and protracted negotiations in which engineers, accountants, lawyers, purchasing agents, technical and financial experts may and usually do participate. There is no "uninformed use of credit"; there is no "lack of awareness of the cost thereof to the user." They know precisely what their costs are and the terms on which they buy. They know also precisely what it costs to finance their purchases. The same is true with respect to purchases on credit, which may run into millions of dollars, of construction machinery, tractors, cranes, machine tools, ships and barges and all variety of machines and devices purchased for the production of income rather than for consumption. The differences between credit sales of consumer goods and credit sales of goods for industrial or commercial use is fundamental. Indeed many of the States which have by statute regulated credit sales recognize this difference by expressly providing in the regulatory statutes that they shall have no application to these business transactions in which neither consumers nor consumer goods are involved. II. INVASION OF AN AREA OF STATE REGULATION We also are obliged to oppose this bill in its application to sales of consumer goods on credit. A major program of Universal CIT Credit Corp. and CIT Corp. for many years has been the advocating of legislation to eliminate abuses in the field of installment selling through effective State laws. In this endeavor they have not stood alone. The finance industry and especially the larger companies in that field have acted together in this program and have pursued it forcefully and with marked success. The history of regulatory legislation, as sponsored by the finance companies, was fully related to your subcommittee in 1960 by Dr. Albert Haring, appearing on behalf of the National Retail Furniture Association. Attorney General Louis J. Lefkowitz of New York told this committee at its last session, how effective legislative regulatory controls at the State level had been in New York. We shall accordingly not burden the committee's record with a recital of the full story. We note, however, that at the present time some 35 States or more have regulatory laws that go much further in protecting the consumer than does the bill now before your committee. We are continuing to urge the enactment of similar regulatory statutes in those States which do not have them now. The legislation which we favor and which has been enacted in most of the States affords effective protection against abuses in credit sales. For example: A provision for the licensing of finance companies. In the absence of such licensing, a consumer with a legitimate complaint of abuse, but who does not want to hire a lawyer and take his case to courts, is without a forum at which his grievances may be heard. This is one of the most important regulations for curbing and controlling abuses. A requirement for the printing of the contract in substantial type and the inclusion of notices cautioning the buyer against signing the contract unless all spaces have been filled in. The inclusion in the contract of the price of the goods or services which are the subject of the sale. The inclusion of an itemized statement in the contract of the buyer's downpayment. The inclusion in the contract of a notice to the purchaser advising him of his rights under the law. A requirement that the buyer be furnished with a copy of the contract signed by the seller. The inclusion of a statement of any expenses such as those for filing or recording or other matters incidental to the transaction which the purchaser may have agreed to pay. A provision which limits delinquency charges for defaulted installments. Provisions that facilitate rewriting of the contract for the buyer's convenience and at his request. The disclosure in the contract of a statement of insurance coverages and of the cost of such coverages. The inclusion of other protective provisions affecting insurance practices. The inclusion of a provision giving the purchaser a fair and proper refund upon anticipation of payment. The inclusion in the law of prohibitions against requiring the purchaser to execute extraneous papers such as notes which may be saparately negotiated. A provision in the law prohibiting inclusion of wage assignments or confessions of judgments in the contract. The inclusion of limitations on the seller or finance company's right of repossession. The inclusion of provisions protective of the buyer's rights following repossession. The inclusion of restrictive provisions relative to subsequent purchases of consumer goods from the same seller and the application of payments after subsequent purchases. The inclusion of provisions for cancellation of the contract upon payment. As perhaps the most important regulation of all, a statutory limitation of the amount of the credit charge, and we favor a requirement that the contract separately state the dollar amount of such credit charge. We believe that the purchaser is interested in knowing the dollar amount he has agreed to pay. He thinks in terms of dollars and not of percentages. "How much will the article cost me? How much will the credit cost me? How much do I have to pay? How much do I have to pay a month?" These are the questions which the purchaser wants answered. The percentage does not have any great meaning to him. To the purchaser, a statement of the dollar amount of the credit charge represents a full dis |