TRUTH IN LENDING BILL TUESDAY, JULY 25, 1961 U.S. SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The subcommittee met, pursuant to recess, in room 5302, New Senate Office Building, at 2:32 p.m., Senator Paul H. Douglas (chairman of the subcommittee) presiding. Present: Senators Douglas, Bennett, and Beall. Also present: Senator Hart. Senator DOUGLAS. This has been a day of delays and detours, and I want to apologize to the witnesses for being slow in coming in. Our first witness is our colleague, Senator Hart of Michigan. Senator, I want to apologize to you. STATEMENT OF PHILIP A. HART, A U.S. SENATOR FROM THE STATE OF MICHIGAN Senator HART. Mr. Chairman and Senator Bennett, I have a statement which I would like to file. I have never decided whether it takes a longer time to summarize a statement or to read it. Senator DOUGLAS. Just proceed as you wish, Senator. We will be very glad to have you read the statement in full." Senator HART. Although I was privileged to join you as a cosponsor of the bill, it occurred to me that I might properly make the point in this hearing that the objective of the bill, as I understand it, parallels rather markedly the study that the Judiciary Committee has just begun with respect to labeling and packaging of produce. Senator DOUGLAS. In response to your bill, I think. Senator HART. Thank you. We can quarrel always and amicably about means, but the purpose and the goal, I think, in the effort of you and others in S. 1740 is to insure as rational a shopper judgment as possible. The same is true of our desire to see that packages reflect adequately the basic information essential if one is to make a rational shopping judgment. Mr. Chairman, it is really for that point that I appear, just to sound again the bell for a need in both of these areas, and I welcome the opportunity, and perhaps unfairly use you as the device for making this point. Admittedly, the automobile industry is importantly affected by consumer credit, and my statement explains that in my judgment this bill will service a constructive purpose and, in the long haul, be beneficial to that industry which is so important in our State. I have concluded by indicating the very broad interest, judged by correspondence which I have received in the last 2 weeks, resulting from the packaging and labeling hearings, and I think that we could assume that that interest extends to, and indeed may be exceeded by, the public concern that we do have a rational judgment in simple language when we shop for credit. Thank you. Senator DOUGLAS. Senator, I want to thank you for that statement. You come from the center of the automobile industry, and a few years ago the proposal was made that the elements which entered into the list price and the prices of accessories of automobiles should be publicly stated, or at least stated to the buyer. This was opposed by many groups in the automobile industry. I wonder if you have any judgment as to what the effect on the automobile industry has been of this listing of prices and accessories. Senator HART. I have indicated, Mr. Chairman, in my statement that it has not caused chaos in the industry, and I think it has been enormously helpful to the purchasers of automobiles. I know, though I was not here at the time, that predictions were rather grim as to its effect if enacted. Like so many other pieces of legislation, once on the books I honestly have not heard any voice directed toward me to undertake the removal of that page from the law book. Perhaps that is because they know that I have a rather deaf ear to the suggestion, but I think really there is no organized effort by the automobile manufacturers to eliminate the requirement which you have just mentioned, the statement of list price and accessory prices. And I am quite sure that the public generally would agree that it makes good sense. It enables them more intelligently to compare as they shop. This, I think, is your purpose in this bill. It is our purpose in the packaging and labeling study. Senator DOUGLAS. I know you watch the Detroit newspapers closely and also the trade journals in the automobile industry. Have you detected many speeches or articles in opposition to the listing of automobile prices and prices of accessories? Senator HART. Subsequent to the enactment of the bill? Senator HART. I have seen nothing of that sort. But in fairness I should admit that while you credit me with being a careful reader, there are days when I am not that, and it may be possible that some voice, some responsible voice, continues to be raised against it. If so, I have not heard it. Senator DOUGLAS. I want to thank you for testifying. I am very honored to have you as a cosponsor. Senator Bennett? Senator BENNETT. I am sure my friend from Michigan can understand that I may not agree with his assumption that these are two parallel situations, but I have no questions. Senator DOUGLAS. Senator Beall? Senator BEALL. I have no questions. Senator HART. I welcome help on whichever one of them makes sense to you, Senator. Senator BENNETT. I am doing the best I can to help with this problem, which is about all one man can do at one time. Senator DOUGLAS. I would say I heartily agree with you on truth in packaging and labeling, Senator. I think you perform a great public service. Senator HART. Thank you. (The prepared staement of Senator Hart follows:) STATEMENT OF PHILIP A. HART, A U.S. SENATOR FROM THE STATE OF MICHIGAN Mr. Chairman, it was a privilege to join with you in sponsoring S. 1740, the proposed truth in lending legislation which I believe to be essential in today's economy. The protection that would be afforded consumers in S. 1740 provides a long-overdue safeguard for the millions of Americans making purchases on the installment plan. What legitimate objection can possibly be made to telling the buyer in plain language and understandable figures exactly what he is paying for credit? Who can deny that truth, plainly stated, is essential to a healthy and ethically orientated economy? There is no excuse for deluding the consumer or making a rational choice practically impossible. This applies to the cost of credit, just as it applies to the subject that I recently had the occasion to examine: The packaging and labeling of food and household products. Our inquiry demonstrated that consumers are outraged at what must be done to figure out something so simple and basic as the per unit cost of the commodity being purchased. Even with a calculating machine, this was proved to be a complex and time-consuming job on many products. Unfortunately, the average consumer doesn't have a calculator or a slide rule. Nor should he be expected to need them as he goes about his daily family purchases. As a Senator from Michigan supporting this legislation, this opportunity should not pass without a comment on what I believe to be the importance of this legislation to the automobile industry. About 40 percent of all consumer installment credit outstanding today is extended for the purchase of automobiles. Needless to say, much of this industry depends on the available supply of credit, and to a significant extent on the auto purchaser's continued confidence that not only the car but his credit arrangements are a good buy. A few years ago we heard much about the complexities and difficulties that would ensue if on each automobile there was a clear statement of the manufacturer's list price, and listing of accessory prices. This is now being done. It has not caused chaos in the industry. It is enormously helpful to the purchaser. There is no doubt in my mind that the long-range best interests of the automobile industry, just as any other major industry substantially dependent on consumer time purchases, will benefit if the purchaser knows what price he is charged for credit purchase. The consumer has a right to the clear, easy-to-understand information essential to a rational choice in the market place. And the businessman seeking his patronage has a corresponding obligation to provide it. There should be no reward for obfuscation. Commonsense, sound ethics, protection for the ethical businessman, and a healthy economy demand passage of this bill. Like truth in packaging and labeling, truth in lending is among the truths this country cannot afford to be without. In closing, Mr. Chairman, because it bears on the concern which motivates 8. 1740, I would like to share with you some excerpts from letters that have come to me as a result of our packaging and labeling hearings. We have, to date, received more than a thousand letters from consumers. Throughout these one finds a repeated protest over the difficulty the consumer has today in making a rational choice in spending the family income. Here are a few examples from the letters: "I hope you will continue the excellent work you are doing in publicizing the problem of the American housewife, confused in the American supermarket." * "I have seven children, and I spend a great deal of time figuring the price per pound on odd sizes when I am shopping. It is not only a time-waster, it is disheartening to finally conclude the manufacturers are out to take you for all they can." "I can tell you that the consumer needs a lot more help and the sooner the better. *** It is tough enough to maintain, educate, and properly raise a family these days, and if you can relieve our plight and give us a fair shake and proper protection in our purchases, we will be grateful to you." "I feel it is time something should be done about advertisements that lure such a large number of people from their home, consuming time and expense, looking for a bargain that don't exist." "Over many years I have professionally defended our free enterprise system. *** Reluctantly, I have concluded that unless present trends can be reversed, American business will by its sharp practices so completely destroy the public's confidence that in desperation people will turn to socialism or worse." * "Our economic system exists to fulfill the needs of its citizens. When it fails to do so honestly and efficiently, then remedial action is necessary." Senator DOUGLAS. The next witnesses are Mr. Duncan Mc. Holthausen and Prof. Theodore N. Beckman, of the National Retail Merchants Association. Senator BENNETT. Mr. Chairman, may I suggest, at the request of these gentlemen, that they be permitted to complete their statement before either is questioned. Dr. Beckman is prepared to take 20 minutes, and Mr. Holthausen 40 minutes of the hour which was assigned these gentlemen. Senator DOUGLAS. Very good; we will do that, Senator. STATEMENTS OF DUNCAN MCC. HOLTHAUSEN AND DR. THEODORE N. BECKMAN, NATIONAL RETAIL MERCHANTS ASSOCIATION Dr. BECKMAN. If it please the chairman, I just talked briefly with my colleague, Mr. Holthausen, and tried to squeeze out 5 minutes of his time because of a misunderstanding as to the division of the time, and he agreed to it provided it is agreeable to the committee. Senator BENNETT. It is agreeable to the Senator from Utah, which means that your time will run until 5 minutes after 3, or for 25 minutes, if that is all right with the chairman. Senator DOUGLAS. Yes. Will you continue, Dr. Beckman. Dr. BECKMAN. Mr. Chairman and members of the subcommittee, I am Theodore N. Beckman, professor of business organization, or marketing, College of Commerce and Administration, the Ohio State University, Columbus, Ohio. I appear here on behalf of the National Retail Merchants Association, an association of department stores and of specialty stores, which has this year celebrated its 50th anniversary. I also appeared on behalf of this association in connection with the hearings on S. 2755, on April 5, 1960. As brought out in these hearings, in addition to being a professor, I am also a consulting economist and in that capacity I receive compensation for services rendered, on behalf of private enterprises, the Federal Government, or State governments, although at times I have rendered service without any compensation or on a dollar-a-year basis in time of national emergency. At no time, however, have I been motivated solely or primarily by pecuniary considerations on matters of this kind, because all of my adult life has been devoted to teaching and research at the university level, and thus in a constant search for the truth. In this instance I am motivated by a desire for truth, because I feel the truth has been mutilated beyond recognition. To me, truth is sacred. I have devoted all my adult life to a constant search for it, and I am therefore pained to see what is being done to it. In the brief time allotted for this oral presentation, it is impossible for me even to point out the many misstatements about consumer credit that have been made, about bankruptcy, et cetera, let alone the fallacious reasoning of cause and effect relationships. Even the so-called labeling attached to this measure, in my judgment, is not true at all, for as far as I am concerned, it is not a lending act, since two-thirds of installment debt is incurred in the purchase of goods and services, not in the borrowing of money, and less than one-third in borrowing of money. To call this a lending act is almost as offensive to the cause of truth as is calling a seller of merchandise on credit a debt merchant, as has been done in a recent publication. To come with my presentation in an honest search of truth, into an atmosphere so charged with emotion, in which there is so much heat and so little light, judging by press reports, is indeed a hazardous undertaking. However, as you know, Mr. Chairman, in an educator hope springs eternal. Perhaps what I present will not fall on deaf ears, certainly not as far as members of this subcommittee are concerned. For the purpose of these hearings, I have prepared a statement which I have submitted and which I believe will be included in the published hearings. Senator BENNETT. Mr. Chairman, I move that the complete statement of both these gentlemen be put into the record. Senator DOUGLAS. Yes, that will be done. The statements will appear at the close of their presentation. Dr. BECKMAN. Mr. Chairman, there were just a few changes of a typographical nature that have been made, and I submitted that corrected statement to Mr. Field, if that is satisfactory. Senator DOUGLAS. Yes. Dr. BECKMAN. Mr. Chairman, in that statement I summarized the 14 principal points I made in the hearings on S. 2755, and which I deem equally applicable to S. 1740. However, some of those points need clarification, especially in the face of the current confusion on the subject. Some of them need greater emphasis, and some need a little additional thought, especially in the light of what has happened since my testimony on April 5, 1960. One of the points, for example, that needs to be clarified and emphasized time and again is that the proposed legislation has nothing to do with credit transactions in which there is no explicit finance charge. That immediately rules out all noninstallment credit of the charge account type, or of the service credit type-and that represents two-thirds of all noninstallment credit outstanding, the other third being in the form of single-payment cash loans on which there is a finance charge. In an article which I was privileged to write and have published in the 1961 Britannica Book of the Year, on the subject of consumer credit, I pointed this out, as well as several other things. For example, I emphasized in that article that in order to determine how much consumer credit outstanding amounts to, it is neces |