In determining its stand on this bill, the Maine Merchants Association contacted a number of its members throughout the State. These members were advised of the requirements of the bill and asked how their present practices compared with these requirements. They were asked to furnish examples of their method of disclosing credit charges to their customers.

This sampling indicated that Maine merchants are already complying with the spirit of the Douglas bill by furnishing the first six requirements of section 4 of this bill on lease accounts. In each case the customer is advised of the cash price, and told exactly how much it will cost him to finance the purchase over a period of time. Only the seventh requirement, that of the simple annual percentage rate is not now furnished.

This information has always been furnished customers, not as a requirement of any law, but simply as normal business procedure. Publicity given to this hearing and to other statements made from time to time create an impression that retailing may be derelict in its credit ethics. In our opinion, this is simply not true.

It is the opinion of the Maine Merchants Association that requiring retailers to furnish customers with their finance charge in terms of simple annual rate is unrealistic. It would create confusion on the part of the customer, and would place an impossible burden on the retailer, particularly on the small retailer.

It is also the opinion of the Maine Merchants Association that any regulation of credit practices should be left to the individual States, and not be handled as a Federal matter. We recognize that there may have been abuses by certain unethical operators, and that it is possible that such abuses occur in our Maine communities. However, we do not believe that Federal regulations which would place a burden on all retailers should be initiated to correct the abuses of a few.

Many States now have regulatory laws affecting interest, and have realistically recognized that the traditional 6 percent is myth insofar as consumer credit costs are concerned. Most States have small loan laws allowing rates of 2- to 3-percent interest per month on unpaid balances. Some States have laws applicable to consumer merchandise credit, and have supported the customary prevailing rates of 11⁄2 percent to 212 percent per month on revolving credit accounts.

The Maine Legislature in 1959 ordered its legislative research committee to study and report its conclusions and recommendations on the use and operation of revolving credit accounts in the State and the need, if any, for State regulation. The committee decided unanimously that no such regulation was needed. If and when it does become necessary to regulate the credit practices of retailers, we feel that this is a proper function of our State legislatures, and not the Federal Government.

Consumer credit plays an important part in the economy of this country. We believe that this proposed legislation would have an adverse effect upon our credit system, and we respectfully urge the defeat of this bill.

Senator PROXMIRE. Senator Bennett?

Senator BENNETT. I asked all my questions as I went along.

Senator PROXMIRE. I want to say, Mr. Foley, that this has been a fine presentation, and as one who supports the bill and who is one of

the cosponsors of the bill, I think you raise one of the most difficult and perplexing problems in it; however, I do think we don't have the answer now. If you have a copy of the bill, on page 4 under regulations, I think line 13, we say:

Any rule or regulation prescribed hereunder may contain such classifications and differentiations, and may provide for such adjustments and exceptions as in the judgment of the Board are necessary or proper to effectuate the purposes of this act or to prevent circumvention or evasion, or to facilitate the enforcement of this act, or any rule or regulation issued thereunder.

We will try to work out some kind of recognition of these problems you raised, to meet it. The problem you raise is where you say you have a 12 percent per month finance charge and a person will buy an item on the 1st, on the 4th, on the 8th, on the 10th, two on the 15th, and so on. So many shoppers do that. If they charge them from the first of the month, they are charging too much. If they are charging from the end of the month they are not charging what they say, either they are charging too little, or they do not meet it in either way.

It is a practical problem and a tough problem. We are working hard to solve it, and the examples you give are very helpful. This kind of problem we have to solve.

So next week we expect to have testimony from some of the big mail-order houses who use this credit plan. I am delighted we had you this week. It gives us a preview of what to expect.

Mr. FOLEY. Thank you very much.

I recognized in the earlier testimony that you recognized some of these problems that we brought up here, and I am glad to know that it is being considered.

Senator BENNETT. May I throw in another variable now. Department stores do their billing throughout the month. They don't accumulate their accounts on the last day of the month. Some are billed on the 10th, some on the 15th, and so on. Mr. FOLEY. Cycle billing.

Senator PROXMIRE. That would essentially be the same problem. Senator BENNETT. It is another variable.

Senator PROXMIRE. It is another kind of complication.

Thank you, Mr. Foley. Once again, I am very sorry Senator Muskie couldn't be here. He extends his apologies.

Mr. FOLEY. I am sure he would have if he could.

Senator PROXMIRE. I appreciate your appearance.

Senator BENNETT. Do you have the list of witnesses for Monday? Senator PROXMIRE. We will have the list of witneses by noon to

morrow.

Senator BENNETT. All right. That is fine.

Senator PROXMIRE. The committee will stand in recess until 10 a.m. Monday.

(Whereupon, at 5:40 p.m., the committee recessed to reconvene at 10 a.m., Monday, July 24, 1961.)

TRUTH IN LENDING BILL

MONDAY, JULY 24, 1961

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE ON PRODUCTION AND STABILIZATION, Washington, D.C.

The subcommittee met, pursuant to recess, in room 5302, New Senate Office Building, at 10:10 a.m., Senator Edmund S. Muskie presiding.

Present: Senators Muskie and Bennett.

Senator MUSKIE. The subcommittee will be in order.

Senator Douglas wanted me to say that he was called away over the weekend and unavoidably detained. I am sorry he cannot be here, and he is sorry. He asked me to take over the hearings this morning.

Our first witnesses this morning are Rev. Robert J. McEwen, S.J., and Mrs. Martha O'Neil, from the Massachusetts Attorney General's Advisory Consumer Council.

Father McEwen and Mrs. O'Neil, it is a pleasure to welcome you here this morning.

You have a prepared statement I understand.

STATEMENT OF REV. ROBERT J. MCEWEN, S.J., ACCOMPANIED BY MRS. MARTHA E. O'NEIL, ON BEHALF OF MASSACHUSETTS ATTORNEY GENERAL'S ADVISORY CONSUMER COUNCIL

Father McEWEN. Yes.

Thank you, Mr. Chairman.

My name is Robert J. McEwen. I am an associate professor of economics and chairman of the department in the university at Boston. College, Chestnut Hill, Mass.

In addition, I am the chairman of the advisory consumer council to the attorney general of Massachusetts.

For the record, the membership of this advisory consumer council is as follows: Dr. Virginia L. Galbraith, Mount Holyoke College; Prof. Colston E. Warne, Amherst College; Dr. Philip L. Gamble, University of Massachusetts; Mrs. Martha E. O'Neil, member of National Association of Credit Unions State board; Dr. Arnold M. Soloway, formerly of Harvard University; Mr. James R. McPherson, insurance consultant; Mr. John C. Cort, executive secretary of the Newspaper Guild; Attorney John J. Graham; Prof. Joseph Golemme, Northeastern University; Attorney Nathan S. Paven; Assistant Attorney General Bernard I. Kaplan; Mrs. Henry R. Atkinson, for

merly a Food and Drug Administration official; Mr. John E. Tully, owner of New England Frozen Food Distributors, Inc.; Mr. William F. Martin, managing director of Massachusetts CUNÁ Association, Inc.; and Miss Velia DiCesare, with the division of employment security.

For the benefit of the record, also, I may state that the testimony that I am giving is a personal statement on my part, without any official commitment from either church or university. However, it has been concurred in and approved by the membership of our council at its last meeting on July 17, 1961.

In addition to my own testimony, I have with me Mrs. Martha O'Neil, a member of our consumer council, who has prepared testimony on two aspects, one the history of our effort to get legislation at the State level and, second, several case histories typical of the problems that prompted us to give wholehearted support to the principle of full disclosure of interest and credit costs.

Let me address myself for a moment to the question whether regulation of this sort should be done at the Federal or State level. There is a famous principle in Catholic social philosophy called the principle of subsidiarity. According to this a higher body should not attempt to do something that can be more properly and effectively done at a lower level.

Let me explain to you the reasoning behind this proposition, and let me explain to you why I launch into this, because on the face of it it looks as if this proposition should prevent the Federal Government from entering this field.

If you examine why men are compelled by their nature to join in civil societies, you will get the purpose for which these societies exist. It is precisely to provide for men those things that impel them to join together, those things they could not do for themselves.

These goals are customarily grouped under the heading of the "general common good," which is interpreted, as far as the civil state is concerned, as the provision of those conditions of peace and prosperity which are indispensable to granting to each individual the opportunity of working out his own life and achieving his own end.

The principle of subsidiarity is but the reverse side of this coin. If individuals and smaller groups create the State to do for them what they cannot do for themselves, then it is obviously a violation of right order if the State should turn around and prevent them from doing what they could better do for themselves.

In other words, if the people at lower levels are able to regulate business relations for themselves, then higher bodies or higher governmental units should not attempt to do it for them.

For a long time I thought that principle implied that the Federal Government should only do what the States absolutely cannot do. However, in this particular case of general regulation of certain trade practices, I have come to the firm conclusion that adequate regulation at the lower levels of government, such as county, city, State, and so forth, is a far too difficult thing to achieve. The only adequate regulation of some business matters emanates from the Federal Government.

Obviously, this is not meant to be a universal principle. Not every item of business falls under the Federal Government. Perhaps the

reason that leads me to this conclusion will also indicate the limits to which it should be applied.

I am convinced that both legislators and those charged with executing and enforcing laws are under far more severe pressure at the local levels from interested parties than is the case at the higher Federal level. Therefore, human nature being what it is, the chance of the community getting fair and adequate legislation for the regulation of business and fair and impartial enforcement is much greater at the Federal level than at the local level.

Obviously, I do not mean this principle to apply Federal control to every rule and regulation concerning the conduct of local businesses. It can properly apply, it seems to me, in a matter such as the one before us today where you are establishing a general rule for the fair conduct of a certain business operation that will be applicable throughout the whole 50 States. For that reason, then, I support Federal legislation in this area.

It strikes me that there is a close similarity between what Senator Douglas and his cosponsors are attempting to do in this bill and what Senator Hart has been exposing and attacking in his recent hearings. Senator Hart has attacked the deceptive packaging of goods. Senator Douglas is now attacking the deceptive packaging of credit.

The general principle justifying both Senator Douglas and Senator Hart is the same, and that general principle is this: No meaningful consumer decision or choice between products or between credit sources can be made unless the terms offered to consumers are comparable and known as such in each case.

We have accepted the theory that the fair market evaluation of interest and financing charges, as well as of the price of goods, will result from an informed and free consumer choice. If that is so, then a vital ingredient in this consumer choice is an adequate and truthful representation on the part of sellers of exactly what they are selling in terms that will enable the consumer to compare it with the package offered by a competing seller.

Without this meaningful comparison, the consumer is choosing in the dark, and no true valuation can result from market choices that have been made in relative ignorance.

Gentlemen, let me digress for a minute to give you my reaction to certain arguments which have been used in print against the Douglas bill. I have before me a column from the Herald Tribune of New York by Mr. Rogers, their financial_editor. He is speaking of a book on consumer finance charges by Professor Johnson of Michigan State University, from whom I understand you heard testimony last week. The heart of the article is an example to show that if you prohibit a salesman of used cars from cheating the customer in one manner he will devise another one that will effectively continue his cheating but which will baffle the consumer.

Therefore, it is argued, the Douglas bill should not be passed, because one mode of cheating will just supplant another.

I find myself at a loss to understand the logic of such a position. It comes down to asserting that we should do nothing to attempt remedial legislation in one area because clever and unscrupulous sellers will change their tactics and cheat the customer through other

means.