One witness last year who was in the lending business described the average borrower today as being caught in a—

wonderland of credit where percentages are divided and multiplied at will, where finance charges materialize on command, and fees are collected on the way outwhere sharp practices and rackets not only inflate the cost of credit but also impose enormous financial hardships on the debtor, particularly those who can least afford it.

Chairman Martin, of the Federal Reserve Board, indicated last year that he was confused by the present practices of expressing consumer credit costs. Indeed, even leaders in the finance industry admit that consumers are not adequately informed by lenders about the cost of credit.

Dr. Theodore O. Yntema, vice president in charge of finance, Ford Motor Co., testifying during the Senate hearings on automobile financing, stated, and I quote:

The variety and complexity of finance and insurance arrangements and the charges for them are such as almost to defy comprehension. It is impossible for the average buyer to appraise the rates for the finance and insurance services offered, as compared with alternatives available elsewhere.

It would appear that camouflaging the price of credit is a serious problem pervading major segments of the consumer credit industry. Since the end of World War II, mortgage credit has increased almost six times-from $18.6 billion in 1945 to $140 billion in 1960. Consumer credit has increased more than eighfold-from less than $6 billion in 1945 to approximately $55 billion by the end of 1960. At this rate, personal debt in the form of mortgage credit and consumer credit in a few years could exceed the national debt.

It is ironic that many who bewail the size of the Government debt demonstrate little concern over the massive and more rapidly growing consumer debt.

It should be made perfectly clear once and for all that S. 1740, the truth in lending bill, in no way attempts to control personal credit or rates of interest charged on credit plans, but merely requires the disclosure of accurate information about the price of credit.

Those of us who are the sponsors of this bill are concerned about the conditions under which the borrower assumes the burden of debt. This is a major problem. We ask only that he be permitted to know the truth.

The Federal Reserve Bank of Philadelphia in the April 1960 issue of its Business Review stated that the real burden of economyoccurs because consumers often buy on time in an uninformed way without knowing the cost of the money they are borrowing. When they do this, they not only hurt themselves, but they reduce the efficiency with which the economy provides goods and services in accordance with consumer taste.

In short, Federal Reserve officials suggest that the economic growth of our country is jeopardized when consumers are misled about the price of credit.

I may say we have made every effort to have all groups represented at these hearings and have extended invitations to companies engaged in consumer financing and individuals and scholars who have taken an interest in the matter, along with those who have had a concern and informed interest in this matter from the standpoint of the borrower and consumer.

I am going to ask unanimous consent that the text of S. 1740 be printed in the hearings at this point.

(The bill referred to follows:)

87TH CONGRESS 18T SESSION

S. 1740

IN THE SENATE OF THE UNITED STATES

APRIL 27, 1961

Mr. DOUGLAS (for himself, Mr. PROXMIRE, Mrs. NEUBERGER, Mr. CLARK, Mr. LAUSCHE, Mr. CASE of New Jersey, Mr. MAGNUSON, Mr. JACKSON, Mr. YARBOROUGH, Mr. YOUNG of Ohio, Mr. MCNAMARA, Mr. CHURCH, Mr. MORSE, Mr. GRUENING, Mr. McGEE, Mr. CANNON, Mr. HART, Mr. BARTLETT, Mr. LONG of Hawaii, Mr. BURDICK, Mr. SMITH of Massachusetts, and Mr. LONG of Louisiana) introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

A BILL

To assist in the promotion of economic stabilization by requiring the disclosure of finance charges in connection with extensions of credit.

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Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That this Act may be cited as the "Truth in Lending Act".

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DECLARATION OF PURPOSE

SEO. 2. The Congress finds and declares that economic 6 stabilization is threatened when credit is used excessively for 7 the acquisition of property and services. The excessive use

8 of credit results frequently from a lack of awareness of the

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1 cost thereof to the user.

2

It is the purpose of this Act to

2 assure a full disclosure of such cost with a view to preventing

3 the uninformed use of credit to the detriment of the national

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(1) "Board" means the Board of Governors of the Fed

8 eral Reserve System.

9 (2) "Credit" means any loan, mortgage, deed of trust, 10 advance, or discount; any conditional sales contract; any 11 contract to sell, or sale, or contract of sale of property or 12 services, either for present or future delivery, under which 13 part or all of the price is payable subsequent to the making 14 of such sale or contract; any rental-purchase contract; any 15 contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim 17 against, or for the delivery of, property or money; any 18 purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the 20 foregoing; and any transaction or series of transactions hav21 ing a similar purpose or effect.

(3) "Finance charge" includes interest, fees, service

charges, discounts, and such other charges incident to the 24 extension of credit as the Board may by regulation prescribe. 25 (4) "Creditor" means any person engaged in the bus

73079-61-2

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1 iness of extending credit (including any person who as a 2 regular business practice makes loans or sells or rents prop3 erty or services on a time, credit, or installment basis, either as principal or as agent) who requires, as an incident to the 5 extension of credit, the payment of a finance charge.

6 (5) "Person" means any individual, corporation, part7 nership, association, or other organized group of persons, 8 or the legal successor or representative of the foregoing, and 9 includes the United States or any agency thereof, or any 10 other government, or any of its political subdivisions, or any agency of the foregoing.

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DISCLOSURE OF FINANCE CHARGES

SEC. 4. Any creditor shall furnish to each person to 14 whom credit is extended, prior to the consummation of the

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transaction, a clear statement in writing setting forth, to 16 the extent applicable and in accordance with rules and regu17 lations prescribed by the Board, the following information— (1) the cash price or delivered price of the property or service to be acquired;

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(2) the amounts, if any, to be credited as downpayment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are

paid or to be paid by such person in connection with the

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transaction but which are not incident to the extension

(5) the total amount to be financed;

(6) the finance charge expressed in terms of dol

lars and cents; and

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of credit;

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obligation.

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(7) 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

REGULATIONS

11 SEC. 5. (a) The Board shall prescribe such rules and

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regulations as may be necessary or proper in carrying out 13 the provisions of this Act. Any rule or regulation prescribed 14 hereunder may contain such classifications and differentia15 tions, and may provide for such adjustments and exceptions

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as in the judgment of the Board are necessary or proper to

effectuate the purposes of this Act or to prevent circum

vention or evasion, or to facilitate the enforcement of this

19 Act, or any rule or regulation issued thereunder. In pre

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scribing any exceptions hereunder with respect to any par

21 ticular type of credit transaction, the Board shall consider

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whether in such transactions compliance with the disclosure

requirements of this Act is being achieved under any other

24 Act of Congress. The Board shall exempt those credit

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transactions between business firms as to which it deter