ADDITIONAL STATEMENTS AND DATA-Continued 333 National Consumer Law Center, reprint of submitted article titled "Shop- Page ping for Credit in New Orleans: An Exercise in Futility". National Home Furnishings Association, reprints of sample old and new credit forms_ National NOW Action Center, letter from Linda M. Cohen, credit task force coordinator___. National Retail Merchants Association: Notice of change of terms provisions under Federal and State law... New Jersey Department of Banking, letter from Commissioner Virginia 785 916 758 755 918 Production Credit Association of Dodgeville, Wis., letter from Byron Berg, farmer-director__. 485 Reprints of newspaper real estate advertising showing promotion of rates other than annual percentage rate__ 150 United Student Aid Funds, Inc., statement on regulation Z.---. 923 927 CHARTS AND TABLES Comparison of Connecticut, Massachusetts, Maine, and FDIC truth-inlending compliance findings- 922 Comparison of FDIC compliance findings for exempt and nonexempt 922 Consumer installment credit outstanding, by holder, yearend, 1970–76--- 596 36 Examples from Down Easters' Credit Guide, published by Bureau of Con SIMPLIFY AND REFORM THE TRUTH IN LENDING ACT MONDAY, JULY 11, 1977 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, D.C. The subcommittee met at 10:05 a.m. in room 5302, Dirksen Senate Office Building, Donald W. Riegle, Jr., chairman of the subcommittee, presiding. Present: Senators Riegle, Proxmire, Garn, and Schmitt. STATEMENT OF SENATOR RIEGLE Senator RIEGLE. The meeting will come to order. Before we call our first witness today and hear from him, I have a brief statement I would like to make, and I think both my colleagues have introductory statements that they too would like to make. This morning we begin 3 days of hearings on truth in lending simplification and reform. Enacted in 1968, truth in lending marked the Congress' first entry into the consumer credit field. While several consumer statutes have been enacted since then, truth in lending stands out in my mind, because its underlying concept, namely, meaningful disclosure to the consumer, is still as sound and so necessary today. Of course, the person responsible for truth in lending is seated to my left, and he, Senator Proxmire, deserves the lion's share of credit for other important consumer statutes, as well. I might say that I do not profess to be a truth-in-lending expert, but I am doing my best to learn and I fully expect to be an expert by the time these hearings are concluded and I have had a chance to counsel with all parties of interest. I know, for example, that truth in lending has come under heavy criticism for being too complex and technical. Many creditors have charged that no matter how hard they try to comply, that they are nonetheless subjected to nuisance suits. But there is also very troublesome evidence indicating that even now, 9 years after the act's passage, there is widespread creditor noncompliance. It is also very disconcerting to learn that most people agree that the agencies charged with enforcement have done a rather poor job. So my mind is open on truth-in-lending reform, and I very much look forward to these hearings. (1) But I want to emphasize at the outset that I consider it essential that this dialog stick to the facts, and I will insist that it stick to the facts and not become choked with hyperbole. Let me just give an example. One of the most frequent complaints I have heard from creditors is that the Federal courts are literally swamped with truth-in-lending litigation. So I asked the Library of Congress to investigate this issue, and it reported some very interesting facts. First, the total number of truth-in-lending suits in the Federal courts dropped last year, but even in the highest year 1975, the total number of suits, 2,237, was less than 2 percent of the civil caseload. That is not what I would consider a deluge. But, even more revealing, it averages out to less than 45 lawsuits per State per year. And the following statistic is quite interesting. According to the Federal Reserve Board, there were approximately 2 billion consumer credit transactions last year, and in the face of those 2 billion consumer credit transactions, there were 2,147 suits. So that figures out to 1 suit for every 931,000 transactions, or about 1 per million. Again, hardly the torrent of litigation I had expected to discover. Now, I am not citing these statistics for the proposition that no nuisance suits are being filed, because I am certain that they are occurring. But these figures point out what I think is the serious overstatement. one hears regarding the effects of this law. Now, with regard to the legislation before us, I would like to emphasize that my own bill, which is numbered S. 1653, is not intended to be a comprehensive reform. Senator Proxmire has already introduced excellent legislation to accomplish this, and I support it. My bill, rather, focuses on several miscellaneous issues surrounding administrative enforcement and rescission which need serious consideration. Particularly important is the need to augment the FTC's enforcement authority, so that it can enforce violations of the act as if they were violations of a trade regulation rule. This is the same authority granted in the Equal Credit Opportunity Act. This would greatly streamline the Commission's laborious administrative procedure and significantly help the Commission with its Herculean task of policing 90 percent of the Nation's creditors. This reform is long overdue. So, before we move on to our first witness today, I would like at this time to call on Senator Schmitt. STATEMENT OF SENATOR SCHMITT Senator SCHMITT. Thank you, Mr. Chairman. I also am delighted to join with you and Senator Proxmire in these hearings and measures to simplify, where necessary, reform in truth in lending. The need for these oversight hearings is dictated by problems in truth in lending that we have all heard about. Consumers who are not receiving understandable disclosure statements of credit costs, small business firms which are unable to cope with the complex regulations and Federal courts that are being overburdened by small claims litigation. I agree with your general statement, Mr. Chairman, that the load is only something like 2 percent overall, but in some district courts it is up to 50 percent of their total docket, so there is a problem there. When I was assigned to this committee, I was appalled to find that Congress had been piling one law on top of another regulating the consumer credit area without objective analysis into the overall impact of such regulation on the freedom of choice of the consumer in the marketplace and of the burden placed on small business firms, financial institutions, and the consumers themselves. Congress' foray into consumer credit, an area heretofore reserved to the States, began in 1968 with the passage of the Federal Consumer Credit Protection Act, commonly known as the Truth-in-Lending Act. Since 1968, Congress has passed seven major amendments to the Consumer Protection Credit Act, as well as three separate disclosure statutes involving credit terms. These include the Fair Credit Reporting Act of 1970, credit card amendments to Truth in Lending in 1974, technical amendments to Truth in Lending in 1974, the Fair Credit Billing Act, 1974, the Equal Credit Opportunity Act of 1974, the Real Estate Settlement Procedures Act of 1974, the Federal Trade Commission Improvement Act of 1975, Home Mortgage Disclosure Act, 1976, Consumer Leasing Act 1976, and amendments to the Equal Credit Opportunity Act, 1976. Presently the Banking Committee is considering enactment of the Fair Debt Collection Act which your subcommittee, has held hearings on recently, which will impose additional Federal restrictions on the credit industry. Not to be overlooked, is the Magnuson-Moss Federal Credit Improvement Act of 1975, which authorizes the FTC and Federal Reserve Board to issue regulations governing various credit practices. When Congress considered these measures, there were no cost-benefit analyses, regulatory impact statements, or judicial impact studies. Serious questions are now being asked as to whether these laws are serving those they were intended to benefit. For example, the National Commission on Consumer Finance, in its report on consumer credit in the United States in December of 1972, noted that although the truth-in-lending statute was intended to enable consumers to comparison shop for credit, 15 months following its effective date, substantial portions of consumers remain unaware of the annual percentage rates they were charged, particularly consumers with high school education, or with family incomes below $8,000. Because of the information overlooked and cluttered disclosure statement, it is not now-it does not appear that Truth in Lending is benefiting the middle- and upper-income consumer. The technical studies of the Commission established that only 8 / percent of the credit buyers used information on credit terms to compare rates and charges. One need only to look at the typical installment sale contract disclosure to perceive the problem. In many installment sales, contracts, |