Also recorded in the Wall Street Journal were the auto industry profit estimates for the first quarter of 1960. The estimates showed that out of the dealers' average profit of $70 per new car, $43 or more than half came from the financing charges.

Forbes magazine informed its readers that a leading manufacturer of musical instruments has learned to make money from financing installment purchases of organs and the like. In 1957, the manufacturer formed a captive sales finance company. Forbes offers this exuberant quote from an executive in the firm:

We are making almost as much money from our financing business as we do from manufacturing and selling.

I might add the boom in captive finance companies started in 1950 when the consumer credit explosion got underway. These captive finance companies are subsidiaries of large manufacturing and retail concerns. Their aim is twofold: To help finance their dealers and thus move goods and to reap the sizable profits that come from selling credit. The range of firms that have set up captive finance companies in recent years include a large manufacturer of TV sets and appliances, a leading maker of floor and wall coverings, and a large auto maker, to mention only a few.

Many of the Nation's retail merchants are even using merchandise as a tool to sell credit. William Whyte, Jr., writing in Fortune, notes that some department stores are making more profit on the interest charges on revolving credit than they are on the goods themselves. The most hardened creditmen are flabbergasted, he says, adding:

Department store people don't quite have a guilty conscience on the subject, but when they start talking about high administrative overhead, the service to the customer, et cetera, only the humorless can keep a straight face.

He goes on to quote one department store executive, who after closing the door, said:

It's fantastic. Eighteen percent a year. Imagine it. We didn't expect they would all stay bought up, but if you want to know whether we like the plan, just ask us if we like money.

One of the most interesting and in a way curious aspects of debt merchandising is the sale of debt to children. In fact, it has reached the point where some merchants are carrying on vigorous sales campaigns to get youngsters as young as 12 to buy on time.

Here, in part, is how it is done. A disk jockey_in Lancaster, Pa., would tempt his teenage listeners with this offer: Each youngster receives a free 45 LP record of a hit song. All the child has to do is request an application to join a local store's new program—a teenage credit account.

Senator DOUGLAS. Where did you get the material for this, Mr. Black?

Mr. BLACK. This particular item comes from a conversation that I had with a man who was a credit manager of a store that sells teenage debt.

Senator BUSH. Where?

Mr. BLACK. A credit manager of a store that sells teenage credit. Senator BENNETT. How many credit managers who sell that credit did you interview-just one?

Mr. BLACK. I interviewed that man. I also interviewed the head of a merchants association, also the executive director. Other sources of our material on teenage debt include a survey made by a magazine, Seventeen, which was quite extensive. I also talked to other credit managers of stores who do not sell debt, but who told me about it. Senator BENNETT. I did not mean to interrupt; I think we should allow you to go through.

Mr. BLACK. Thank you, sir.

Senator DOUGLAS. I wanted to get the sources as we went along. Mr. BLACK. I might add I did have some difficulty getting people to discuss the issue.

One merchant sells his on-the-cuff living to teenagers by promoting the plan with local school authorities and the parent-teachers' association. When the youngster joins the plan, he receives a white honor charge card with the credit limit set at $25. If all goes well at the end of the first year, he is given a silver charge card. At the end of the second year, the teenager receives a gold card, he is recommended to the local credit bureau, and his limit is raised to $50. And all this can be accomplished without parental authority of any kind. It would appear that among the boons of living on time, even our children can win status through debt.

Sometimes efforts to get children into the debt habit can be coated with irony. One pied piper of debt in Missouri unhappily announced that his store had only 120 teenage credit accounts. He added ruefully, "We had a couple of accounts that bought nothing but candy.' One of the unusual aspects of teenage credit is that unlike adult debt, the credit grantor generally has no legal way of forcing junior to pay up. Thus, if junior persists in being a deadbeat, he usually is charged off to profit and loss. Some pied pipers of debt, though, do not give up so easily.

One credit manager calls on the parents and informs them that unless they pay their child's overdue bills their youngster will be publicly exposed in court. If the parents insist that legally he has no case, the credit manager replies, "I know we can't win, but do you want your kid to have a court record?"

One problem credit managers have had to solve was the criteria they could use to decide which children would make good credit risks. Many teenagers through part- or full-time jobs have both the capital and capacity to pay their debts. But asked the credit managers, "How do we judge their credit character, that is, their paying habits?" Unlike their parents who make up the 110 million credit histories in the Nation's credit bureaus, teenagers have simply not lived long enough to build up their own dossiers. So the pied pipers of debt had to search elsewhere to find whether children would pay back what they owed. One credit manager told me how he solved the problem. "If the parents show a good credit record," he said, "we take a chance on the children. If their record is bad, then the child's record will be bad. Although we don't tell the kids why we reject them, they know it's because their parents owe a lot of money."

According to the inexorable logic of these credit sellers, we are like the Jukes and Kallikaks who pass on our credit sins from generation to generation. One might question whether the rejected teenager always knows his parents are looked upon as credit bums. And one

may further wonder, if the child does know, whether this is the healthy way to handle youngsters.

Since teenage debt is so recent an innovation-it did not really get started until the late 1950's-credit managers are still experimenting with the solution to an important problem: How do we convince parents the debt habit is good for their children?

A major selling point used to convince parents that their children should acquire the debt habit is to tell them that teenage credit teaches youngsters financial responsibility. As some credit manager said, it gives "young adults an early education in how to use credit, planning purchases, and assuming responsibility."

Another has called teenage credit "living educational programs in money management." Said a third, "Its purpose is *** to promote their early appreciation of a good credit standing in their community." To sum up, teenage credit is not a business but a "community" service. But is it?

Perhaps one could find childhood debt justifiable if it taught youngsters the true cost of credit. But this lesson is ignored in the credit sellers appeal to both parents and children. For example, all that one program tells its youngsters is, "The terms will be $2 weekly plus a small service charge to be paid for from their own allowance or earnings." Not even a monthly percentage is quoted. Not only is it impossible for youngsters to calculate the true annual interest rates, but the service charges may be greater than the charges applied against adult accounts.

Here is how it may work. Revolving credit is the plan most frequently used in teenage time buying. The service charge for revolving credit usually amounts to 12 percent a month on the declining balance, or 18 percent simple annual interest. The minimum charges apply when the ceiling rate of 112 percent per month yields less than a certain amount. This means that since many teenage accounts cannot rise above $25, the teenager may have to pay the higher rates. Consumer Reports observed:

In New York State, for example, the legal minimum charge is 70 cents a month. At that rate a junior account of $25 would cost $8.40 a year in carrying charges; that's 33.6 percent in true annual interest terms. In Colorado, the legal minimum is $10 a year, a 40-percent charge. In California and Florida, the legal minimum is $1 a month. This comes out to $12 a year, or 48 percent in true annual interest for such an account. In Kansas, the minimum is $15, or 60 percent at true annual interest. And in Montana, the legal minimum is a generous $20 a year; on a $25 teenage account that amounts to an interest charge of 80 percent.

Thus, we have the unbelievable situation where interest rates of up to 80 percent have actually been legalized. One also cannot help wondering whether parents would be so agreeable to allowing their children to learn so-called responsible money management if they knew that their youngsters could be paying between 33 and 80 percent for their credit education. But the pied pipers of debt are not concerned with a parent rebellion, since neither the parents nor the children could hope to figure out what teenage credit actually costs. Along with this enormous pressure to get all of us into the debt habit, there is another disturbing factor. When it comes to knowing the cost of credit, the consumer is undoubtedly one of the most ignorant and easily deceived. We are almost completely incapable of

shopping wisely when we buy on time. The irony is that in his own country, the American consumer who buys on time is treated like an ignorant tourist in a foreign land. Incapable of even translating the value of the coin he uses, he readily accepts the first price given him. If these seem like strong words, I need only refer to survey after survey that points up the consumer's abysmal ignorance of the cost of credit. One study published in the Journal of Marketing, October 1955, was made in the twin cities of Champaign and Urbana, Ill. Jean Mann Due, the author of the survey, reported:

Although the respondents readily answered questions relating to amounts of credit contracted, approximately two-thirds of the users of installment credit did not know the amount of the carrying charges or interest rate on their most recent installment purchase.

In the fall of 1959, the Survey Research Center of the University of Michigan conducted a nationwide study. Prof. George Katona, the author of the Michigan study, noted: "Obviously many people believed that the cost of installment buying is lower than it actually is." He added this significant comment:

On practically any item of knowledge or information we have studied, we find that high-income people, people with college educations, and people with personal experience in the matter studied are better informed than other people. But this finding is not sustained on the item of cost of installment credit.

William Whyte, Jr., writing in Fortune in May 1956, examined the budgets of 83 young couples in the $5,000 to $7,000 income bracket. The author observed:

With a few exceptions, the couples reveal themselves as so unconcerned with total cost or interest rates that they provide a veritable syllabus of ways to make $2 do the work of one.

Finally, I need only refer you to the previous testimony before this very committee of William Martin, Jr., Chairman of the Board of Governors of the Federal Reserve System and the financial expert in the United States. Mr. Martin noted that he, too, was personally confused in an attempt to figure out the cost of credit when buying on time.

Mr. Martin, of course, had a good reason to be confused when he bought on time. When the consumer buys now and pays later, he will be at a total loss to find a standard finance or interest rate method quoted to him. Banks will use one method, department stores another, small loan companies a third, et cetera. All these rates are deceptively lower than what the consumer in effect is truly paying. The consumer, if he wants to figure out the cost of debt, must be a mathematical wizard in many instances. I might add this occurs only when the consumer borrows or buys on time. In both business and Government, the cost of money is always quoted in terms of simple annual interest. This is the one yardstick by which the cost of debt can be compared. But the consumer is never told the cost of credit in simple annual interest.

Senator DOUGLAS. With the exception, that is, of home mortgages. Mr. BLACK. That is correct, sir.

Senator DOUGLAS. I want to say I think the real estate industry deserves a good deal of praise for their practice in this respect.

Senator BENNETT. May I intervene to remind the Senator that mortgages are sold at a discount so that the face of the mortgage is often not the true annual rate.

Senator DOUGLAS. Perhaps my praise was premature.

I thank the Senator from Utah.

Senator BENNETT. That tends to knock out the only single example we could develop this morning of the simple annual rate that is now available to any borrower in the United States.

Senator DOUGLAS. The need for the bill is even greater than I thought.

Senator BENNETT. We are forcing the whole industry into a pattern that is strange to it and unnecessary.

Senator DOUGLAS. Senator Bennett and I enjoy these passages at arms with each other, Mr. Black. You will have to be reconciled that frequently we will be the witness.

Mr. BLACK. That is all right; I appreciate it.

This tremendous pressure to have us buy on time at a cost we cannot calculate must be measured in another way. How does debt living affect our lives? What are some of the strains that are being put upon us? By the end of this year, 125,000 families will have gone into bankruptcy. To put it another way, more families will go bankrupt in 1961 than did so during the depths of the depression. It has reached the point where a Chicago collection agency has actually set up an employment service for people who cannot pay their bills. The employment bureau finds people second jobs so that they can pay off their creditors and still feed their families.

The pressure of debt living has been further heightened by the bill collector, the shadow who always walks with debt. In fact, there is a new breed among us, the specialists in friendly anxiety. Let me quote just one of them. He is a former psychology instructor who is now a research director for a debt collection agency.

He said:

You can't get away from the use of fear in collecting bills. We can't offer the debtor anything positive like a nice frosty cake. We can only offer relief from anxiety, and, therefore, the collector has to make sure that a certain amount of anxiety is present.

I might add this gentleman belongs to a small group of psychologists who have anointed the credit industry with their special talents. Unbelievably we have actually reached the point where men trained to alleviate anxiety spend some of their time instilling it.

Sometimes, of course, fear is not enough to make people pay up. Then, the debt collector must turn to the ultimate weapon, one which has caused economic destitution for thousands. That weapon is the wage garnishee. Under a wage garnishee, the credit grantor gets a court order which forces the debtor's employer to turn over part or all of his wages to the creditor. Many employers find the paperwork too costly and simply fire the garnished debtor.

No one knows just how many wage garnishments are filed in the United States each year. But the total must run into hundreds of thousands. In Chicago alone, over 58,000 wage garnishment suits were filed in 1959. Ironically, 130 years ago, only 13,000 delinquent debtors were imprisoned throughout the United States. Then, we had debtors' jails. Today, we do not.

It is fair to assume that in the America of the 1960's, thousands and thousands of people will be impoverished because of the garnishee.