Mr. FRITZ. The major national companies. Senator BENNETT. Were opposing all legislation involving the small loan laws. Mr. FRITZ. No, I specifically stated when I started, Senator Bennett-you may have been busy with a phone call or something-but I specifically stated that I was referring to the truth-in-lending feature of that bill alone, because that is what is before this committee. Senator BENNETT. Well, of course, these same people are opposing that feature of this bill on the grounds that have been developed during the hearing, as I am opposing it. So I do not think they should be condemned because they take the same position with respect to the disclosure of all credit charges in terms of a simple annual rate. Mr. FRITZ. There is a difference. They are stating that in the States it will be taken care of and so the Federal Government does not have to; but that is not true. Senator BENNETT. No, no Mr. FRITZ. They are fighting it in the States as well. Senator BENNETT. You misunderstand their position. Their position is that the declaration of credit charges in terms of a simple annual rate is unnecessary at the national level, at the State level, and anywhere else. That adequate protection can be given the borrower in terms of disclosure of the charges in terms of dollars. Mr. FRITZ. I see. I have read statements where they were saying this is a State problem and not a Federal problem and let the States solve it. Senator BENNETT. That is right, but they are not referring specifically to the question of the simple annual rate only. Actually yesterday I put in the record a list of 12 States that this. year have considered the simple annual rate provision and have rejected it. No State has accepted it. There is still one still one State whose legislature is still meeting and the matter is theoretically open but I doubt that it will accept it. Mr. FRITZ. Yes, sir. This is the reason that it very important that the Federal Government do so, because the credit industry pressure is very great in the States. I was referring there, answering in part, Senator, you statement in the quarterly report of the personal finance law which was put out by these major loan companies in which you wrote an article and they printed it and you said: Fourth, there is no justification for legislation in this field at Federal level. The States have not been asleep to the desirability of accurate, workable laws to provide truth in lending. All they did in Texas, the credit industry, and these other 12 States that you have pointed out, I think, is to obstruct such workable laws. Senator BENNETT. You equate truth in lending with the disclosure of all credit charges in simple annual interest. That is the phrase that is applied to this bill. And there is a very serious disagreement between me and the author of the bill and between me and you as to whether that is, in fact, truth in lending, and for 2 weeks we have been arguing it. I would like to put in the record copies of two articles from Houston newspapers. The first one says "Extra Session on Loan Bill Daniel Warns, and the second one says "Special Session for Tax and 'Loan Shark' Bills Almost Sure." (The articles referred to follow :) [From the Houston (Tex.) Press, May 11, 1961] EXTRA SESSION ON LOAN BILL, DANIEL WARNS, IF LEGISLATORS FAILS TO PASS ACCEPTABLE LAW AUSTIN, May 11.-Governor Daniel warned legislators today they can expect to work on "loan shark" bills during a special session if they fail to pass an acceptable law during their regular session. Daniel said he would submit the need for "loan sharks" legislation to the lawmakers as an emergency matter in the special session. PRESS QUERY The Houston Press asked the Governor : "If the legislature fails to pass an acceptable bill and if there is a special session, would you submit the matter to it?" His answer was blunt and to the point, "Yes." Daniel would decide what matters the legislature should take up if there is a special session. BILL IN COMMITTEE The House passed a bill which would put finance companies under State supervision and set limits on interest they could charge. The bill has been held up in a Senate committee. Backers say "loan sharks" are trying to kill it. Opponents say it would let large finance companies collect too much interest on big loans and deny small companies the right to collect enough interest on loans of less than $200 to stay in business. [From the Houston (Tex.) Post, May 29, 1961] SPECIAL SESSION FOR TAX AND "LOAN SHARK" BILLS ALMOST SURE The status of legislation, as the 140-day regular session enters its dying hours at Austin, points almost certainly to a 30-day special session-possibly two or three of them. Only a parliamentary miracle Monday can avert it. When the next session will be is a bigger question mark than whether there will be one. Failure of the lawmakers to pass a tax bill to raise an estimated $300 million needed to cover State spending in the next 2 fiscal years automatically means another session, probably in July. Even if the bill is passed an extra session will be insured if it does not meet Gov. Price Daniel's demands, for he has declared that if they pass a tax bill that does not conform to specifications which he laid down, he will call them back in one or more sessions until they do pass one. House and senate members of a joint conference committee seem hopelessly deadlocked in the tug-of-war effort to work out a compromise that might be acceptable to both houses and to the Governor. Consequently, in all likelihood, they will have to attempt, in a 30-day session, to solve this paramount problem of Texas government, which they have failed to solve in more than 4 months. Likewise the loan shark bill is in its last gasps, victim of a minority coterie of obstructionists led by Senator William Moore of Bryan and Culp Krueger of El Campo, whose filibustering and delaying tactics have kept the Senate from voting on its passage. If the "loan shark" bill expires with the session Monday, and all hope for its survival has been abandoned, Governor Daniel will breathe new life into it by submitting it to a special session; he has so declared. However, he said Friday that if a "satisfactory" tax bill is enacted before midnight Monday, a session for the "loan shark" bill and other matters "could best be timed for later in the year or early next fall." Whenever it comes, presumably the small loans leeches and their legislative friends will be ready to renew their efforts to thwart the will of the people, imperatively expressed by their overwhelming adoption of a constitutional amendment last November demanding that the "loan shark" evil in Texas be outlawed. Considering the unprecedented gravity of the State's financial plight, the legislature has been sluggish in the endeavor to solve it. On the whole, the House has been fairly diligent, as have a majority of the Senate. But the small obstructionist blocs have slowed down the legislative wheels probably to the extent of one-fourth of the session's time. This will cost the taxpayers plenty, but the lawmakers themselves have little cause for worry. Under the constitutional amendment adopted last year they get a salary of $4,800 a year, plus $12 a day for the 120-day regular session and for special sessions. This gives them three times as much pay for their biennial term as legislators previously received for the same number of days served. Thanks principally to the dilatory elements, and to the complication of the Governor's tax ultimatium, Texans may as well brace themselves for another legislative session or more. Senator BENNETT. You have confirmed that there probably will be a special session of the legislature to consider this problem? Mr. FRITZ. Yes, sir; not this problem that is before the Senate but to consider the small-loan problem. Senator BENNETT. Loan problem. Mr. FRITZ. Small-loan interest rate problem. Senator BENNETT. Mr. Lindley representing Senator Douglas in his absence would like to ask a couple of questions for the record. Mr. LINDLEY. Mr. Fritz, I believe you indicated earlier that under the Texas law charges for credit life insurance are regarded as incident to the extension of credit and are part of the finance charge? Is that correct? Mr. FRITZ. That is correct. In certain instances, that is, where they are forced or where they are with a purpose of obtaining additional compensation for the use of money. But my experience is that this is the reason that credit insurance is forced in almost all instances where it is used in the small-loan field. There are exceptions, however, possible. Mr. LINDLEY. Is a similar interpretation made in other States, to include credit life insurance charges as part of the finance charges, or is this peculiar to Texas? Mr. FRITZ. As I understand the laws in certain other States where the charges are provable as having been made with a purpose of obtaining additional compensation for the use of money, those are included as interest, unless there is legislation, as in some States, specificially to exempt them therefrom.. Mr. LINDLEY. In the penalty section of S. 1740, in section 7 (c) there is a provision in regard to willful violation of any provision of this Do various State laws have similar language; criminal penalties for willful violation? Mr. FRITZ. Yes. Under the uniform small-loan law there is a similar provision for criminal penalties against willful violations. Mr. LINDLEY. Has this term "willful violation" been defined in State courts? Mr. FRITZ. Well, yes; this is one of the main terms in criminal jurisdiction, and it is well defined and well understood in every jurisdiction in Anglo-American jurisprudence. Mr. LINDLEY. Thank you, Mr. Chairman. Senator BENNETT. I just remembered that earlier we had a conversation about your calculation of this little problem. Mr. FRITZ. Yes, sir. Senator BENNETT. I suggested to the last witness to whom I offered the same proposition that she go home and figure it and call me up and tell me what answer she got, but she never replied. So I would be grateful after you get home if you would write me at note and tell me which deal you have decided to take, and why. Mr. FRITZ. All right. Senator, let me ask you a question. When I get home I will have access to Professor Hassell's chart. If I decide to use that, is there any objection to my doing so? Senator BENNETT. Do it this way: Do it in pencil first and then do it with the chart and tell me how much time you saved by using the chart. Because the customer does not have Professor Hassell's chart. Mr. FRITZ. That is correct. Senator BENNETT. So I think I would be interested in discovering how much time you saved because you have to do some computation, with the professor's chart. But the important thing is your answer and the reason for the answer. Mr. FRITZ. Yes. Senator BENNETT. During the hearing we have had a number of charts suggested to us. My assistant here took a quick look at Professor Hassell's chart, and he thinks that Professor Hassell has discovered what maybe the Consumer Credit Corp. discovered in 1942. I think his tables will probably be based on the same mathematical principles, but they cannot handle all cases. Mr. FRITZ. You understand all he did was give a brief excerpt. Senator BENNETT. Yes. Mr. FRITZ. Then he has a whole lot more to the chart. Senator BENNETT. It would have to be if he has 88,800 possible permutations. These certainly cannot be put on one sheet of paper. Mr. FRITZ. That is right. Senator BENNETT. The record is still open, and at this point I would like to ask a question. How soon will that chart be available? Mr. FRITZ. This is a matter for the publishers to determine. Senator BENNETT. In other words, it may not be available to us before the hearings are concluded? Mr. FRITZ. I would like to try to expedite it so that it would be, but it is a question of how soon the publishers and the author are ready. I just do not really know the day-to-day answers on their schedules. Senator BENNETT. He has had it accepted for publication? it. Mr. FRITZ. No; I said that he has had two publishers interested in Senator BENNETT. I see. We would like to examine this excerpt and compare it quietly with other existing charts and before the hearing record is closed we may put in a memorandum making our observations with respect to this chart and others. Mr. FRITZ. And I am sure that Professor Hassell would appreciate that and would appreciate knowing the result of your comparison. Senator BENNETT. Fine. Any further questions? Mr. LINDLEY. No. Senator BENNETT. The committee will return at half past 2 to hear the remaining witnesses. Thank you very much, Mr. Fritz. (Mr. Fritz's prepared statement, and exhibits, follow:) STATEMENT OF EDWARD C. FRITZ, ATTORNEY, DALLAS, TEX. My name is Edward C. Fritz. I am an attorney in Dallas, Tex. Since 1953, I have tried numerous usury lawsuits in Dallas and have also represented clients in usury cases in Fort Worth, Amarillo, Houston, Corsicana, and in Oklahoma. My experience is primarily in the area of personal loans, auto and furniture loans, and so-called time-price purchases. All references hereinafter made must be considered as relating to those types of credit. The cases which I have handled and the other experiences I have had in this field demonstrate to me the following points: (1) In noncommercial credit transactions, rates of charge are not generally stated in accordance with any meaningful standard. (2) There is a resultant dangerous overobligation of the typical debtor. (3) This danger could be vastly reduced by universal rate disclosure in terms of percent per annum. (4) History and current trends demonstrate that the credit industry will not practice full disclosure of charges in terms of percent per annum until it shall be so required by law. (5) The laws of the States do not require meaningful rate disclosure. (6) Inasmuch as the States, under credit industry pressure, are tending away from meaningful rate disclosure, the only remaining answer to the growing crisis of rate concealment is through a federal truth-in-lending law. Let us now examine these points in detail. I shall attempt to use examples to illustrate the first three points: rate concealment, the economic instabilities resulting from rate concealment, and, how these examples never would have emerged in a jurisdiction of truth in lending. Some of the examples reflect how existing State laws do not protect against rate concealment. AUTO LOAN; Y COMPANY Mr. A was and still is a trusted employee of a Dallas laundry company. He drove a laundry pickup and delivery route for a salary. On August 21, 1955, Mr. A purchased for an agreed price of $2,980, a 1955 Chevrolet from Z company in Dallas. The agreed trade-in price of Mr. A's 1949 Plymouth was $1,195, leaving a net balance of $1,795 to be financed. Mr. A was required to cancel his existing insurance on his Plymouth instead of transferring it to the new automobile, and to purchase insurance from the finance company, the name of which Mr. A did not know. Thereby Mr. A was caused to pay higher total insurance premiums than he would have paid by transferring his existing policy. Mr. A agreed to payments of $72 per month. In the paper which Mr. A signed, Z inserted the figure $2,300 as the deferrel balance and the figure $1,076 on the 18th month as the final installment (known in the trade as a "bumper" installment.) Y company, a Texas corporation, purchased the note from Z company and issued the insurance through X company. Y and X were both wholly controlled subsidiaries of W company, an Indiana corporation, one of the biggest in the field of auto financing. The insurance charges were $98.75. The total finance charges were $505. This amounts to almost 30 percent per annum. Mr. A made two $72 payments before he discovered he was being charged an excessive rate of interest and realized that he could probably never pay the "bumper" installment. He contacted Y Co. and Z Co. in an effort to have the interest rate reduced. Y Co. refused, and referred him to Z Co. which in turn refused. He thereupon tendered back the 1955 Chevrolet and demanded restitution of his 1949 Plymouth and the payments he had made. Such restoration was refused. After taking back the Plymouth, Y Co. resold it through Z Co. for $750 and sued Mr. A for an alleged deficiency of $403.50, plus $60.53 attorney's fees and court costs. Because of the fact that Z Co. had not stated to Mr. A a time price on the car, in addition to the cash price of $2,985, Mr. A was able, after a jury trial, to obtain a judgment cancelling the entire alleged balance of $403.50. However, Mr. A could not even have done this if the car dealer had stated to him the time price, in addition to the cash price. The time price would have been $3,495, comparing the trade-in of $1,195 and the deferred balance of $2,300. |