I believe there is an organization known as the Association of State Bank Supervisors. May I ask the Chairman of the Federal Reserve, do you know of such an association? Mr. MARTIN. There is. Senator BUSH. There is such an organization? Mr. MARTIN. There is. Senator BUSH. They have officers? Mr. MARTIN. Right. Senator BUSH. They have testified, I think, in connection with other financial legislation. Have they been invited to send a witness? Senator DOUGLAS. No request was made to have them invited. Senator BUSH. It seems rather an obvious thing. Would you mind one more additional suggestion from me? Senator DOUGLAS. I anticipated that up from the submarine depths would come these torpedoes at the appropriate time. Senator BUSH. I am in favor of the principle of the bill, as you know. Senator DOUGLAS. I know, provided it is ineffective. Senator BUSH. We ought to explore this State angle very carefully, because they have been in this picture for many, many years. I believe you will find that the State Bank Supervisors are in convention assembled at the present time. Senator DOUGLAS. Let me say that I have consulted the staff of this committee, and they say we are jammed up with witnesses next week, but we can continue the hearings until later. Senator BUSH. We can set a day or two in the future. Senator DOUGLAS. I will be very glad to do that. I am very glad to meet here every day all summer, and I may say with 15 minutes exercise each day I am ready to meet each day beginning at 10 o'clock and go until midnight every night. Senator BUSH. I congratulate the chairman on his vigor and health and attitude. It is wonderful. May I make my suggestion clear: that the Association of State Bank Supervisors in convention assembled be addressed by telegramSenator DOUGLAS. You want the small loan supervisors; do you not? Senator BUSH. Do I want them? Senator DOUGLAS. You want the small loan supervisors? Senator BUSH. I want the State banking commissioner from New York, and I want the commissioner Senator DOUGLAS. If you start on this I think you ought to get the supervisors of small loans. Senator BUSH. That is your suggestion. I had not thought about it. Senator DOUGLAS. Why are you afraid of having the supervisors of small loans? Senator BUSH. Wait a minute. I do not fear them. I said it had not occurred to me. That is your suggestion. Senator DOUGLAS. Good. Senator BUSH. I am not going to object to it any more than you object to the State bank supervisors. Senator BENNETT. I am the fellow here in the middle, and I suggest that is the balance that should come in. Senator DOUGLAS. That is my reputation for balancing. Senator BUSH. I do not want to inhibit the chairman, and I do not think he has been inhibited in scheduling witnesses. Senator DOUGLAS. The hearings will not close next week. We will have later hearings. I will be glad to accept further suggestions. I shall have some suggestions of my own. Senator will you give me the name of your Maryland witness? Senator DOUGLAS. Thank you very much, Mr. Martin, for coming in. I hope you had a good time this morning. We enjoyed having you. We have some excerpts from the report of the Federal Reserve on "Consumer Installment Credit, Growth and Import." They will go in the record here. (The material referred to follows:) CONSUMER INSTALLMENT CREDIT GROWTH AND IMPORT (Board of Governors of the Federal Reserve System) The borrower may be ignorant of, or deceived as to, the cost of borrowing or the terms, and this may result in uneconomic decisions. To the extent that a misallocation of the borrower's resources does result, a burden arises from this source. The entire cost of the borrowing under such conditions does not constitute the burden in this sense. The burden arises only in connection with any excess paid because of ignorance or deceit over what the borrower would have been willing to pay with full knowledge and full disclosure, and this is an indeterminate amount. In some cases, it may be zero, since it does not necessarily follow from absence of knowledge of terms that, with such knowledge, decisions would have been different. Burdens that arise out of deceit and ignorance are not unique to the costs of consumer borrowing. They can arise in connection with any purchase made in ignorance or under induced misinformation. In the area of consumer installment credit, however, the exact costs frequently are not known, or the information on costs is not readily available or readily calculable in a form that the borrower can use. The same problem of lack of knowledge also may exist with respect to the "effective" price of the good itself as well as to the credit terms. This is true, for example, when prices are stated in terms of monthly payments. [Emphasis added.] A prime factor in business fluctuations.-Consumer installment credit has often been a factor in changes in the level of business activity, but it has not been the principal cause of such changes. Although consumer credit has been associated with economic fluctuations, other factors have been of greater importance. This was clearly evident in 1929-33, 1937-38, 1949, and the downturn in 1953. A leading and amplifying force.-Although not the principal factor in any cycle, consumer installment credit has been both a leading and an amplifying force in economic fluctuations. In an impressive number of times, credit extended appears to have moved ahead of other economic changes to have led at turning points. Time leads appear to have been longer in recoveries than in downturns. This differential experience may be due partly to the fact that consumer installment credit has been growing so strongly. But the lead record remains impressive even when allowance for growth is made. As an amplifying factor, consumer installment credit has been rather similar to other forms of credit in that its movements have conformed to the general business cycle. The secondary and stimulating effects of credit extensions come more during booms; the secondary and retarding effects of repayments have often hung over into periods of recession. This amplifying effect is probably of greater relative importance in the modest turns in business activity. A growing influence in credit market fluctuations.-Consumer installment credit has grown in influence as a factor in the credit market and in credit market fluctuations. The rapid rate of growth has increased the relative importance of consumer credit institutions as borrowers. One of the basic problems of economic stabilization is to adjust the fluctuating total of cerdit demands in relation to the fluctuating flow of saving. Since all forms of credit fluctuate, it is difficult to select one form that has been more responsible than others for instability; however, the statistical record of consumer installment credit seems to put it among the less stable kinds of credit. Senator DOUGLAS. The next witness is Prof. Richard L. D. Morse, of Kansas State University. Dr. Morse, will you come forward? Senator BUSH. I must say, Mr. Chairman, just for the record, I do recall now that last year when these hearings were in progress, I did ask then that State banking authorities, State officials who have had experience with this type of legislation, be brought in, but I do not think any were invited. Senator DOUGLAS. Mr. Morse, you are accompanied by Mr. Theodor Schuchat, who is a member of the board of directors of the National Consumers League. I will invite Mr. Schuchat to make a preliminary statement. Mr. MORSE. Thank you, Mr. Chairman. STATEMENT OF THEODOR SCHUCHAT, MEMBER, BOARD OF DIRECTORS, NATIONAL CONSUMERS LEAGUE Mr. SCHUCHAT. Mr. Chairman, my name is Theodor Schuchat. I am a member of the board of directors of the National Consumers League. On behalf of our organization, I want to thank you for this opportunity to present our views concerning S. 1740. Since its founding in 1899, the National Consumers League has supported legislation to improve the standard of living of our Nation and to protect the consumer's interest and health. Basic to much of the consumer legislation now on the statute books, and to the bill before this subcommittee, is the principal that the consumer has the right to know the full facts concerning items purchased in the market. Complete knowledge of credit cost is an important part of necessary consumer information. The widespread use of installment and credit purchases led the league to endorse the principle of full disclosure of credit terms and to support legislation similar to S. 1740 during hearings last year. At the league's annual meeting in February 1961, we reaffirmed our support of this legislation and listed it as one of the four most important types of consumer protection needed on the Federal level. To present to the subcommittee a detailed and expert analysis of the problem and the need for S. 1740, we have asked Dr. Richard L. D. Morse, chairman of the Department of Family Economics of the School of Home Economics at Kansas State University, to discuss the results of his careful study. Professor Morse is a recognized authority and teacher in the field of consumer credit, which he has studied and taught for many years. It gives me great pleasure to introduce Professor Morse. STATEMENT OF RICHARD L. D. MORSE, PROFESSOR AND HEAD OF DEPARTMENT OF FAMILY ECONOMICS, KANSAS STATE UNIVERSITY Mr. MORSE. Mr. Chairman, may I ask first whether Senator Bush is going to remain for some time or if he has to leave? Senator BUSH. I cannot hear you, Mr. Morse. Mr. MORSE. Are you scheduled to leave very shortly? I would like to comment on Senator BUSH. Yes, I have to leave in about 20 minutes. Mr. MORSE. I wanted to make a comment with respect to this question we have just had about representation from the States. Senator BUSH. Fine. Mr. MORSE. I looked at last year's hearings in the first place with respect to the usury laws. I believe in table 17 the usury laws are stated, if I am correct. Is that not the intention of the left-hand column? Secondly, on page 486, Governor Freeman, now Secretary of Agriculture, has a statement with respect to Federal-State relationships, and as you recall last year he testified as then Governor of a State on this issue. Thirdly, I could not help but observe as you were struggling as to who would represent the consumer in his attitude toward credit at the State level, and the focus of attention seemed to be on the State banking commissioner. Senator BUSH. Only because in New York State the law provides that the enforcement or regulation of the law be under his jurisdiction. Is that right? Mr. MORSE. I am from Kansas. I thought the State attorney general might have some interest in this as well, and when it is a question of Federal-State relationships the State attorney general might be the one person out of the State. Senator BUSH. Are you familiar with the New York law? Mr. MORSE. I am somewhat familiar with it because I studied it a little bit when it was passed in 1955, and I remember the remarks then made in Sylvia Porter's column that New York was getting an awful lot of credit for doing something many other States had already done. Then our Kansas law was passed after that in 1957 or 1958 and was modeled on that, with, I believe, some improvements in it, and 11 other States copied our Kansas law. Senator BUSH. The reason I have suggested we have the New York State banking commissioner here is twofold. First, it is a very large State; second, it has been said in these hearings that they have a good law on the subject. Also, the enforcement or regulation provisions of the bill are under the direction of the State banking commissioner. Of course, I suppose the attorney general would be brought in if there is a question of criminal action under that bill just as he would under this bill. Senator DOUGLAS. I think the witness has made a very interesting suggestion, and we will consider this question as to whether various State attorneys general might not appropriately be asked to testify. Senator BENNETT. Did not the New York State attorney general submit a statement in last year's hearings? I think he did. Mr. MORSE. Our present Governor, John Anderson, was attorney general when he uncovered some rather unscrupulous dealings in used car financing, and it was after that was uncovered-fortunately the legislature was in special session, and within 2 weeks' time we were able to pass the Kansas Finance Act. Senator BUSH. Could you tell us what is the principal provision of the Kansas Act? Mr. MORSE. It is an add-on, on all goods, as well as automobile-type of contracts. It is in one of the exhibits. It requires fairly full disclosure. Senator BUSH. Does it require simple annual interest rate disclosure? Mr. MORSE. No; and that is what I wanted to comment on. Unwittingly, I was calling one of the car dealers in town about the various charges and about the bill, and he had a very active part to play in the bill, and I said I objected to the bill because it did not require full disclosure. He said, "But no one asked for it. No one has asked for it." Since that time in Kansas I have seen to it that they have asked for it in part, or at least brought this to the attention, and in the record last year there is a resolution from the Kansas Home Economics Association which does ask explicitly for full declaration of cost and expression of these costs in terms of simple annual rate. Senator BUSH. I certainly think that any State bill should make it clear that the finance charge expressed in terms of dollars should also, upon the request of the buyer, be given as a simple annual interest rate, if it is possible to calculate that figure. Certainly an approximation of it. Our good friends from New York have given us that as a tool. Mr. MORSE. It is a tool. Senator BUSH. I think it is perfectly appropriate that the States require a seller or a lender to give the measurement of the charge in terms of an annual rate if they are asked to do so. Mr. MORSE. I think I have evidence that this is pretty hard to get even if you ask for it, and I submit Senator BUSH. You mean it is hard for the seller to give the information? Mr. MORSE. It is hard for the consumer to get it. Senator BUSH. What? Mr. MORSE. It is hard for the consumer to get it if he asks for it. Senator BUSH. If it was required by a State law? Mr. MORSE. This would be fine. Senator BUSH. Why did you not put that in the Kansas law? Mr. MORSE. Because of some realities with respect to the power of the consumer within the State to gain consumer representation at the State level. It is difficult to make his voice effective enough to combat the pressures that are brought upon the State legislators to reflect current practices which are not necessarily in the interest of what the consumer group wants. If I were to probe this, I would need to study the lobbyists that are at the State capitol and the pressures that are placed upon legislators. This I am not prepared to do, except that I will say that the Kansas Home Economics Association passed its resolution. It was adopted by the membership, and |