July 11, 1967
Page 18412
Mr. SPARKMAN. Mr. President, the matters pertaining to the bill, I believe, have been fully covered. There are several matters I wish to mention. First of all, the bill would not go into effect until July 1, 1969. As has been pointed out in previous discussion, the National Conference of Commissioners on Uniform State Laws, which is made up of representatives of the different States of the Union, has been working long and hard attempting to get a uniform consumer credit code to be placed before the State legislatures. I feel and I believe that many members of the committee feel that they are getting very near to an agreement on such a uniform code, and that it may be presented to the various State legislatures before this bill actually becomes effective, and that it may become a uniform law by action of all of the States of the Union. Personally, I hope that will be done.
Mr. President, I wish to mention another matter. I do not know that it disturbs anyone but it was brought out in the report. We have some provisions in the bill to try to make this law fit in with existing State laws and even fit in with State laws pertaining to usury. One important part is that we provide if there is any inconsistency between this law and the State law, it does not invalidate the entire State law. We do not impose this law on the State in its entirety, but only in that instance where there is an inconsistency, and we provide for a certain amount of tolerance between the Federal and State law.
As explained in the colloquy on the floor of the Senate, initiated by the senior Senator from Florida [Mr. HOLLAND], we have tried to take care of small business and the different viewpoints as between disclosing dollars and cents and annual percentage rates; and we tried to take care of differing views of revolving credit. I believe we have worked out the best bill that can be worked out and, as I have said, a finely balanced bill.
Mr. President, I hope the bill will be accepted without amendment because I believe it is just that finely balanced.
Mr. President, again I want to pay my respects and tribute to the able leadership given in connection with this legislation by the distinguished Senator from Wisconsin [Mr. PROXMIRE] and the distinguished Senator from Utah [Mr. BENNETT].
A year ago I believe that no one would have been willing to predict there would ever come before the Senate a truth-in-lending bill by unanimous vote. However, that is the situation today, and I hope that the Senate will confirm the action of the full Committee on Banking and Currency.
Mr. McINTYRE. Mr. President, it is with a mixed feeling of relief and unhappiness that I wish to make a few comments on the bill now before the Senate, the truth-in-lending bill.
I say relief because this particular piece of legislation has taken up a great deal of my time and attention since I first arrived in the Senate. In practically every year since I was first elected to the Senate, the Banking and Currency Committee has agonized over the basic decisions which had to be made before this bill could be reported to the floor. Those of us who have tried to make this a workable piece of legislation have been subjected to criticism from all sides.
It is a real relief to be done with truth in lending for the time being.
I would like to point out that the full credit for making it possible for the Banking and Currency Committee to report this bill out after 7 long years goes to the bill's principal sponsor and manager, the distinguished Senator from Wisconsin. His complete grasp of all of the details of our consumer credit economy, his parliamentary skill, and his ability to negotiate, have uniquely made it possible for the Senate to be considering truth in lending today. Building upon the ideas of our former colleague, Senator Paul Douglas, Senator PROXMIRE has done what many of us had considered almost impossible. He deserves the full gratitude, not only of the consumer public, but also of the various segments of the lending industries. The Banking and Currency Committee is in his debt.
At the same time, I must admit to a feeling of unhappiness with the pending legislation. It is not all that I had hoped it could be. It is still subject to many of the objections which I have had to this type of legislation for several years.
Before the Senate votes on truth in lending, I would like to take a few minutes to set out, for the record, precisely those points of the present bill which I find myself in disagreement with. I would then like to cover a few of the improvements in the present bill which made it possible for me to vote to report it out of committee. Even as I say these words, I still have not decided whether I shall vote for passage of this bill.
The major objection which I have to truth in lending, and this objection goes right to the heart of any form of truth-in-lending legislation, is the probable adverse effect which it will have on very small, poorly capitalized, businesses in competition with larger businesses.
Truth in lending was designed to improve competition among all classes of lenders. Everybody is in favor of improving competition, of course. But it seems to me that any improvement in competition, and I refer specifically to competition in vendor credit, will place the national chain stores, the great mail order houses, and the large metropolitan retailers, in a substantially advantageous position over the small neighborhood or country store, with its limited access to credit facilities and its inabilty to use automated data processing techniques for its accounts receivable.
Perhaps, from the viewpoint of the consumer, such competition will continue to be desirable.
But, Mr. President, we are legislating for an entire Nation, not just a nation of consumers, but a nation of shopkeepers, of small businessmen, of corner groceries and small automobile dealers.
And I believe that the present bill may tend to injure these men and women.
Another objection which I have to this bill, as well as to its predecessors, goes to the appropriateness of congressional action in what has traditionally been an area subject to State regulation. Practically every State in the Union already has consumer credit legislation on the books, but in one fell swoop the Congress is preparing to enter, and practically preempt the field.
I must point out that my colleagues on the Banking and Currency Committee are aware that the primary responsibility for the administration of consumer credit legislation should lie with the States. Section 6 of the bill before us provides for those circumstances under which State law and State administration will preempt the operation of the Federal law.
I might point out that my preference for State, as opposed to Federal legislation in this area is not based upon any reliance on the old cliche of "States rights." Rather, it is based upon two practical results of the historic regulation of consumer credit by the States themselves. First, the States have already created and funded the administrative machinery needed to enforce and administer consumer credit laws. The Federal Government has no such administrative machinery, and its creation would add to the taxpayers expenses only to duplicate existing State machinery.
In addition, consumer credit legislation is intertwined with a whole network of related State legislation. The pending bill deals only with disclosure, and, although we have tried our best to foresee any conflicts with other State laws, we do not know how well we have succeeded. What, for example, will be the effect of this bill on existing State usury laws? We hope that disclosure under this bill will have no relevance to State usury laws, but only a State legislature, and not the Congress, is competent to dovetail the two different kinds of regulation.
Yet another objection with the present bill goes to the basic compromise which made it possible for the bill to be reported out of committee, the language in section 3(h) designed to separate the sheep from the goats, or rather, to separate those creditors who must disclose in annual terms from those disclosing in monthly terms. This is a crucial difference, for almost every witness before the committee indicated that creditors disclosing in monthly terms will be given a competitive advantage over the others.
If the Congress is to permit any creditors to disclose in monthly terms, and I believe certain creditors should be so authorized, then obviously some line, some distinction between creditors will have to be drawn. In the process of drawing such a line, some people are going to be hurt.
This result is inescapable. Since the definitions in section 3(h) are, in the last analysis, somewhat arbitrary, we could expect to see that, say, two similar department stores on the same block operating in essentially the same way may receive very different treatment under that section. If we have to generalize about the distinctions under 3 (h), however, I think that it is unfortunate that those merchants generally able to qualify for monthly disclosure will be the large, well financed, enterprises who will be directly competing, in some product lines, with the small, poorly financed, local small business such as furniture stores, auto accessory dealers, and others who will be required to disclose in annual terms. I think that this is a truly unfortunate consequence of the present bill.
Finally, I am not entirely happy with the penalty section of the bill, section 7. Unfortunately, it will still be possible for a merchant who makes a wholly unintentional, bona fide error, to be subject to a penalty. But I must say that this section has been vastly improved over its original language.
It is only fair, after mentioning all of the reasons for my unhappiness with this bill, to point out a few of the reasons why I did vote to report it out of subcommittee and out of the full committee.
As I mentioned before, the Senator from Wisconsin has displayed great understanding of the problems which this bill will cause the credit industry. He has been willing to negotiate on the details of the bill's administration, while of course, maintaining the basic principle of full and comparable disclosure of the cost of borrowing money. Under his leadership, the Subcommittee on Financial Institutions was able to reach agreement on a bill which, while still deficient in some respects, represents the very best possible compromise which I believe the Senate can accept.
The major attraction of the present version of this bill is its recognition of the difficulty of requiring annual rate disclosure across the board for all classes of creditors. The revolving credit provisions of this bill represent a major victory for the honest, responsible retailers of our Nation, and for those of us who believe that periodic disclosure of revolving credit is the most meaningful type of disclosure and the most useful to consumers. In more personal terms, the committee's decision on revolving credit is a tribute to the clear logic of the Senator from Maine [Mr. MUSKIE] who was able to convince all of us of the difficulties and the pitfalls of attempting to impose an annual rate disclosure requirement on revolving credit.
The change from a "simple annual rate" to an "annual percentage rate," while not very significant in terms of the numbers involved, is a vast improvement in terms of simplicity of administration.
The provisions for complete exemption of certain types of transaction remove a wholly unnecessary burden on large segments of the lending industry.
The complete bill, as it now stands, does, in my opinion, give the consumers of this Nation a meaningful way of comparing the entire cost of credit. It deserves the full support of consumers.
Mr. President, I have indicated that I am still uncertain about the way that I will vote on final passage of this bill. I am not at all uncertain about the way that I will vote on any substantive amendments which may be presented. I believe that this bill, as it now stands, represents the best possible compromise of which the Senate is capable. I intend to oppose any and all substantive amendments to this bill, because of my own experience that amendments to this type of legislation should be considered only in situations where we are able to check out all of the effects of proposed changes to this highly technical legislation. This subject of truth in lending is much more complex than it appears at first glance, and I hope that my colleagues will accept or reject the entire bill which has been reported out, without trying to change it here on the floor.
Mr. MONDALE. Mr. President, I wonder if I could address a few questions to the distinguished senior Senator from Wisconsin and chief author of the truth-in-lending bill.
Mr. PROXMIRE. I am happy to yield.
Mr. MONDALE. I would like to ask a few questions to straighten out my understanding of the proposal that is before us.
As I understand it, most department stores with revolving credit plans charge 1.5 percent a month.
Mr. PROXMIRE. Most do. This is not universal. As the Senator knows, in the hearings the representative of one department store testified that, instead of charging 1.5 percent a month, it was 1.5 percent for a 35-day period. But 1.5 percent a month is the usual charge.
Mr. MONDALE. At any rate, under this bill the stores would not have to translate the monthly rate of 1.5 percent into an annual rate of 18 percent unless the plan met certain conditions?
Mr. PROXMIRE. Unless the plan met certain conditions; that is correct. The conditions, we feel, would prevent the kind of situation which might have developed without these conditions.
I might point out that 4 or 5 years ago the subcommittee reported a bill to the full committee which simply exempted all revolving credit from disclosing an annual rate.
That bill was killed in full committee. So this bill is much more careful than the one reported out of subcommittee before.
Mr. MONDALE. The original measure which the Senator from Wisconsin introduced included all revolving accounts in disclosing an annual interest rate.
Mr. PROXMIRE. Yes.
Mr. MONDALE. Why should not a housewife know that her revolving credit is costing her 18 percent a year?
Mr. PROXMIRE. That is a good question. It is a question we asked again and again in the committee. I share the view of the Senator from Minnesota that a housewife should know. There were others in the committee who had a different point of view. Say that the housewife buys something on the 10th of the month and buys it on credit. In effect, at that time the store owner is giving her a loan, but she does not pay a service charge between the 10th of that month and the time the bill is sent, and, indeed from the time of the bill for another 30 days. So, in effect, she gets a free ride for that period of time. At the end of that time, if she has not paid it yet, she pays 1½ percent, for each subsequent month. Calculating the interest from the 10th of the month, when she made the purchase, it would be between 6 and 9 percent. It would be far below 18 percent.
I share the view of the Senator from Minnesota, but a majority of the committee disagreed with that view. Their view was that under the circumstances the 18 percent would be a distortion and would be inaccurate. Our view was that it could be made perfectly clear to the housewife that the 18 percent only ran when the credit charge was assessed. Only at the point did the 1½ percent become effective. Only at that point did the 18 percent become effective.
Mr. MONDALE. So, under your original bill, the consumer would be advised of the interest-free period under the revolving credit, but would be given the annual interest rate that would be applied by the store in developing its own credit charge against that revolving account?
Mr. PROXMIRE. Yes. A good case could be made that this would be unfair to the store, and some of the committee members made that case with persuasiveness – indeed, they had a majority of the committee with them, and if they made it on the floor they might convince a majority of the Senate – that it was not requiring truth in lending to say it was 18 percent when the free period during which the loan was outstanding was ignored, a free period that, with the average department store sometimes results in a charge of 8 or 9 percent – and not 18 percent.
So I think working out this compromise does not do a great deal of violence in this particular area, although I agree with the Senator from Minnesota. It would be far better to tell the housewife she is getting a free ride and at the end of the free ride she could take money out of a savings account, if she had one, or sell bonds, and use that money, instead of paying 1½ percent a month, up to 18 percent a year, to assess against a charge account.
Mr. MONDALE. What is the size of revolving credit today in terms of billions of dollars?
Mr. PROXMIRE. The sum of revolving credit, based on the best estimates we have been able to get, is $3.5 billion. This is only 3 percent of consumer credit, plus second mortgages, which we have included. This would include only $3 out of every $100 of consumer credit. So it does not represent a figure like 40 or 50 percent, but only 3 percent of consumer credit.
Mr. MONDALE. Of that $3.5 billion, how much of that credit would be exempt from disclosure of an annual rate?
Mr. PROXMIRE. That is a good question. In answering the previous question, I might have indicated that a larger amount would be exempted than actually would be, when I say 3 percent, I am referring to revolving credit amounting to about 3 percent, but of the revolving credit most, not all, probably about 80 or 90 percent, would be excluded because of our definition.
Mr. MONDALE. So that of that credit extended, the revolving credit extension makes up about 3 percent of the credit extended, and of that amount between 80 and 90 percent would be exempted?
Mr. PROXMIRE. We did exclude first mortgages, but they are excluded because they always specify the annual rate. Therefore, if we take only consumer credit, I think it would be less than 3 percent, but in the 3-percent area.
Mr. MONDALE. How significant is this exemption in terms of future trends in the industry?
Mr. PROXMIRE. I would hope this exemption would not become very significant. Some say as much as 50 percent of consumer credit will go into revolving credit, but I think that overlooks the provisions that have gone into the act. I hope it would not be much bigger than present, but I think we should recognize that it might get larger.
Mr. MONDALE. Would it not be wiser to change the law now and eliminate this exemption, or does the Senator think it would be wiser to wait?
Mr. PROXMIRE. I should like to change the law. We tried to do that in committee, but we did not have the votes either in the subcommittee or in the full committee. We worked out what I think is a reasonable compromise.
First, only 3 percent is being excluded from annual rate disclosure, but 97 percent is covered. Second, we have written into the law safeguards to guard against the possibility that we have opened up a large loophole. Third, if this practice does widen greatly, we can take a look at it in the future, and consider additional legislation.
So I think this was a reasonable compromise when we did not have the votes.
Mr. MONDALE. The last point, I think, is particularly impressive.
Would it not be possible to make large sales on revolving credit without disclosing the annual rate, and if so, would not that destroy true comparability?
Mr. PROXMIRE. There are two reasons why we should not have to worry about that. First, the bill requires that the creditor must not require a security interest. This means that title to the automobile or title to the refrigerator or other product must be in the hands of the buyer to get the exclusion. The creditor cannot hold on to it until he is paid off. This, all by itself, is a real protection, because, after all, few people will sell an automobile, a refrigerator, or anything else that is very large, to any consumer who walks into his store, give him title, and then hope he will pay. So this is some protection.
There is another important provision – there are three, but I shall discuss only two, because only two are of significance. The first is the security interest, that I have just discussed. The second is that if 60 percent of the amount or more is paid in less than 1 year, then there can be exclusion from annual rate disclosure. But if less than 60 percent is paid over a period of a year, then the exclusion is lost, and it is necessary to specify the annual rate. In effect, this means that if an item is to be paid for over a period of more than 19 months – and if an automobile is paid for the way Americans buy them now, 19 months is a pretty short period; and even for the purchase of appliances it is a relatively short period – the seller would not fail to disclose his annual rate.
I might also add that our discussion so far implies tht revolving credit is exempt over the whole period. If I have given that impression, it is wrong. It is still necessary with respect to revolving credit, to specify the monthly rate. As I said in my initial statement, some department stores will not do this now, but they are all going to have to do it if the bill becomes law, and they will also have to state the dollars-and-cents service charge, so the consumer will be given this information, but not the annual percentage rate, for most revolving credit.
Mr. MONDALE. The Senator mentioned cars, but what about the case of large appliences? Would it not be possible to sell furniture or color TV sets on revolving credit, over 18 months, without a security interest, and thus escape disclosing an annual rate? Should not the consumer know the annual rate of credit when he makes a $500 purchase?
Mr. PROXMIRE. I think the provision for the security interest takes care of that pretty well. I would hope so. The seller definitely should have to specify the annual rate.
Mr. MONDALE. I commend the distinguished Senator from Wisconsin for what I regard to be a remarkable legislative accomplishment. I know that everyone here respects the magnificent leadership which Senator Douglas provided on this truth-in-lending issue over the years. I must say that the Senator from Wisconsin learned well, and has become not only a great spokesman for truth in lending, but one of the leading spokesmen for the consumer protection movement in this country.
Without his understanding and his sophisticated grasp of the practical business problems which must be dealt with in working toward this objective; without his sensitive and thoughtful handling of the measure in the committee and here on the Senate floor, we would not have come to this day, where it now appears that truth in lending, which has long been sought as a key objective of the consumer protection movement, is at last within grasp. I think the citizens of Wisconsin are rightfully proud of the Senator, and the entire Nation is in his debt.
Mr. PROXMIRE. Mr. President, I thank the Senator from Minnesota. I say to him that there is no one whom I would rather have commend me in those terms, because the Senator from Minnesota has long been identified – when he was attorney general of the State of Minnesota and when he was on the President's Committee on Consumer Interests' and certainly even since then – as a great champion of the consumer, and one who early recognized the great importance of protecting the consumer in our laws, and the administration of law.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. PROXMIRE. I yield.
Mr. MUSKIE. I should like to take just a moment to add my statement of gratitude to the Senator from Wisconsin. He and I have been members of the committee from the moment that Senator Douglas first introduced a truth-in-lending bill several years ago. Together, we have struggled with this problem, with somewhat different points of view from time to time.
I share the view the distinguished chairman of the full committee [Mr. SPARKMAN] expressed a few minutes ago when he said that a year ago it seemed very doubtful that this bill could have progressed to the point where it appears to be at this moment. I think it is a remarkable thing that it is on the verge of passage with scarcely a dissenting voice. I believe that the change in its prospects is largely attributable to the efforts of the distinguished Senator from Wisconsin. He and I have had differences of opinion about some aspects of the bill. I am glad to see a truth-in-
lending bill finally reaching the enactment stage in the Senate. I am glad to see that it has been modified in ways which, to me, are more realistic than some forms of the bill in past years may have been. But I simply cannot resist taking the opportunity to say for the RECORD, that in my judgment, the distinguished Senator from Wisconsin, building upon the great contribution of Senator Douglas, is largely responsible for bringing this bill to this point in the legislative process. I think he has reason to be proud of his work, as I am proud to have worked under him, differing as we have from time to time.
Mr. PROXMIRE. Mr. President, I say to the Senator from Maine that I have referred several times to the ability and vigor of members of the committee who disagreed with us on some of the elements of the compromise we worked out. As I think all members of the committee know, I was referring particularly to the Senator from Maine. I think he did a most workmanlike and constructive job in developing a compromise that he was able to accept and we were able to accept, and which won the unanimous support of the committee. Believe me, this was not the idea, the brainchild, or the work of the Senator from Wisconsin. It was the idea and the work of the Senator from Utah [Mr. BENNETT] and the Senator from Maine, who hammered away, not only in working out a compromise, but in establishing a record in the questioning of witnesses during the hearings – a record that stood up very well, and was so persuasive that, although we had a lot of force on our side – everybody is for the consumer, of course – I think the Senator from Maine deserves much credit for working out a practicable and workable bill.
Mr. MUSKIE. Mr President, the bill in its present form is a compromise. I am sure there are aspects of it, as revealed in the colloquy between the Senator from Wisconsin and the Senator from Minnesota, which they would like to see changed. There are things in it that I would like to see changed. But after 6 or 7 years of labor on this bill, I think, in all its aspects, it represents a compromise which the Senate should consider in its totality. Although I would like to see some changes made in it, which I think would improve it, I support it in its present form, because I believe it reaches the best consensus which could be developed after long, hard, and careful work by Senators over a period of several years.
Again I congratulate the Senator from Wisconsin.