limitation will be tolled by administrative enforcement actions and provides that involuntary sales arising out of a transaction sought to

The

be rescinded will not terminate the consumer's right to rescind. second provision grants equitable and declaratory relief to courts seeking to enforce the right of rescission and allows for reasonable attorneys' fees to be awarded to consumer counsel. The section also stipulates that exercising the right of rescission shall not limit the consumer's right to recover under section 130. Noting that the second provision is similarly treated in its draft bill, the Board supports enactment of this section.

Section 6 of S. 1653 amends the fair credit billing customer notification provision by requiring that such notices specify the types of errors which a consumer is entitled to dispute. Further enumeration of types of errors on these notifications would add substantially to their length and contribute to information overload. Therefore, the Board opposes enactment of this section.

Section 7 of S. 1653 amends section 165 of the Act dealing with the treatment of credit balances. The thrust of the amendment is to require creditors to make a good faith effort to refund directly balances of more than $1, even without prompting from customers when such balances have remained on an account for more than six months. The Board supports enactment of this section but would suggest that it be amended to not require further refund efforts by creditors if a customer's refund is returned through the mail because of an unknown change of address.

Senator RIEGLE. Well, thank you, Mr. Jackson.

I appreciate your efforts and your easy-to-follow explanation of these simplified forms you have been kind enough to prepare for us. Let me raise one question at the outset regarding credit insurance. To the extent that that is required as part of the financing package, wouldn't it make sense to combine it with the finance charge into one figure?

Mr. JACKSON. I believe that is the correct interpretation of the present statute so no change would be required. If the lender requires the life insurance or disability insurance as a condition to the extension of the credit, it is my understanding that that is presently included in the finance charge.

Senator RIEGLE. So you would not argue for splitting that apart? Mr. JACKSON. No.

Senator RIEGLE. I think we would like to have your panel of experts join you if they would come up.

Mr. JACKSON. Certainly.

Senator RIEGLE. Perhaps if and when they are called upon to comment or undertake to comment, they would identify themselves by name for the clerk.

STATEMENTS OF JONATHAN LANDERS, PROFESSOR, UNIVERSITY OF ILLINOIS SCHOOL OF LAW; RALPH ROHNER, PROFESSOR, CATHOLIC UNIVERSITY, COLUMBUS SCHOOL OF LAW; AND STEVEN PERMUT, PROFESSOR, YALE UNIVERSITY, SCHOOL OF ORGANIZATION AND MANAGEMENT

Senator SCHMITT. Thank you, Mr. Chairman.

I just a couple of days ago was reading an article. I don't know that it is necessary to put it in the record. I can't remember the man's name who wrote it, but it had to do with the contractual provisions that are imposed on contractors that are going to do business with the Federal Government. The man said something to the effect that many of these provisions, what is said is not what is meant and often what is meant is not what is said.

Do you feel we are headed in that direction in the implementation of the truth-in-lending statutes and regulations that are going with that, or do you feel that at least as far as the regulations are concerned that they are coming out saying pretty much what is meant, that the consumer and creditors should comply with.

Mr. JACKSON. Of course, that would be the logical objective of simplification. Simplification means different things to different people or it really has many aspects. To one person, simplification would be a focus on important disclosures that would result in a better understanding.

To a creditor, for instance, simplification might be reduction in the things disclosed and in the technicalities for disclosure. You get different emphases, but it is my judgment that ultimately a more understandable law and regulation-let me emphasize the regulatory aspect as well-would be of benefit to all involved.

Communication is difficult in the most ideal discussion, and the real intent of this statute is to communicate so that the consumer can

understand the nature of the transaction and can comparison shop alternative sources of credit in order to utilize the best sources.

Senator SCHMITT. Mr. Jackson, your task force has, I think, done an outstanding job and obviously much work in recent months on this complex problem. In particular, do you think we are being a little presumptuous and I think this is directed to Professor Permut, presumptuous in trying to decide or tell the consumer what the consumer can understand? What do you think is the rationale for this?

Professor PERMUT. I think the rationale probably is to try to make the availability of information that we assume the consumers can benefit from available in an understandable and usable form. I think it is clear that many consumers will choose not to use information that is provided for a variety of reasons. We know also that many consumers behave in what we would call the satisfying rather than the optimal way.

So you can provide the information and try to provide it in as reasonable, fair and understandable a format as possible. Then I think you have to sit back and allow the consumer to use it in a way that is appropriate for himself or herself.

I don't think we know yet which specific bits of information are most important. We can make certain assumptions about what should be most important, what as a matter of public policy should be made available to the consumer.

But unfortunately, or perhaps fortunately, because of the freedom people enjoy, the consumers may feel free to use or disregard information at their pleasure. All that simplification here is trying to accomplish is the communication of essential information in the most useful form that we can provide.

Senator RIEGLE. I am sorry, if I may just interrupt. Did you identify yourself?

Professor PERMUT. I am Steven Permut, Yale University, consultant to the board.

Senator SCHMITT. What is your research technique to determine what a consumer can and cannot absorb?

Professor PERMUT. I would be happy to give you a more detailed explanation, certainly.

Senator SCHMITT. I would appreciate that for the record, but briefly. Professor PERMUT. One, to ask consumers what they have used, what they would like to use, what, in fact, they did use. In other words, survey research that is relatively well-known to behavioral scientists.

What we find from asking people these kinds of questions is that oftentimes people say they want certain kinds of information, such as was found in the studies of nutritional labeling. People said they would like to have a variety of information about products and then studies subsequent to the providing of this information found that consumers were, in fact, ignorant or unaware of the meaning of specific disclosures, terms, chemicals, additives and so on.

Of course, there are certain advantages and disadvantages in the first approach, the survey approach, where one asks consumers what they would like, what they used, how much they used, these kinds of questions.

Senator SCHMITT. In that technique, do you find that a problem with consumers being unwilling to admit their ignorance of certain terms or to say that they use more information than they really use just because of ego, I guess.

Professor PERMUT. There may well be that kind of

Senator SCHMITT. I know I have that tendency sometimes and I presume most everybody else does.

Professor PERMUT. There may well be that kind of tendency. People want to give a socially acceptable response to an interviewer and certainly provide as much of an intelligent answer as they can.

On the other hand, if consumers are asked specifically can you explain the meaning of this term, for example, annual percentage rate, can you explain security interest, what happens in the event a security interest provision were acted upon by the creditor; one finds only a small percentage of indiviudals having what would be classified as a good understanding of the term.

I am saying this in a general sense. Certainly the awareness or understanding or comprehension will vary among different categories of individuals and among the terms provided on this or any other form.

Senator RIEGLE. Would the Senator yield at this point?

Senator SCHMITT. Sure.

Senator RIEGLE. Just by way of background, I assume that there is no category of transaction in terms of dollar amount that would be higher for the average citizen over a period of months or years than the money that they spend in various kinds of credit transactions. More money is probably spent through credit arrangements than there would be through any other sort of activity.

Would that square with the work you have done?

Professor PERMUT. I am not quite clear in the way that you're asking

this.

Senator RIEGLE. I guess what I am saying is this: because we are essentially a credit society, I would assume that people probably end up spending a larger percentage of their dollars in credit transactions than they would spend ready cash for items in their budget even if it were a large category like food or clothing or energy.

Professor PERMUT. I can't give you a definitive answer on that. I am certain the statistics would be available and would be provided to you, but I would assume it would occupy major activity.

Senator RIEGLE. The reason I make the point is that I suspect that credit transactions are something that people have had to develop a good deal of familiarity with. But it is very tough for anybody who isn't a lawyer to understand, but

Senator SCHMITT. Certainly a geologist has a problem.

Senator RIEGLE. So do finance people. I think the public is probably going through credit transactions with an enormous degree of frequency. Therefore, what we are talking about here is not some small item insofar as either the amount of money they spend or the importance of the process.

It seems to me this may be as important a part of any family budgeting process and decisionmaking as we are likely to discuss. We could talk about the prices of goods and talk about inflation and a lot of

other things, but I would daresay that if we were to do the kind of category analysis that I am talking about, we would find that the largest single item in any budget would be the block of transactions that are credit transactions.

Professor PERMUT. The second technique is the more recently developed approach that attempts either in a laboratory or field setting to try to assess the amount of information that a given consumer would want on a given purchasing situation.

The technique very briefly is as follows: subject is asked from a large display board to request specific bits of information where, on one side of the board one might list the specifics, for example, in the truthin-lending disclosure form, annual percentage rate, security interest and so on.

The consumer would be asked to select those bits of information necessary for that indiivdual to feel confident, comfortable or sufficiently pleased with the decision in order to then make a credit transaction.

Now, what one can do using this procedure, and it is a bit more elaborate than I have described, is to try to assess both the number of bits of information as well as the kind of information that an individual feels he or she requires in order to make a satisfactory decision, a purchasing decision, even though this may be in a simulated environment.

One can also study differences among and between groups of people. For instance, people with higher education or those people with higher abstract reasoning ability may use more or less information than those of other characteristics. Only in this way have we been able to get some hold on the amount of information and the type of information that individuals are likely to require in order for themselves to feel confident in making these decisions.

You're talking about an area that requires studying the human mind and as you well know, this is difficult indeed. People vary greatly in their abilities to process information, the capacity to use information. So using these kinds of approaches, one is able to somewhat triangulate, but never know precisely what information is required, how much of it is required and in that way get some basic idea of the nature of information required or desired by consumers; and I think, basically, these forms reflect the findings of these kinds of studies.

Senator SCHMITT. Do you feel they reflect the interaction of State law with Federal law?

Professor PERMUT. I would have to defer to my colleagues on that. Professor LANDERS. Jonathan Landers, University of Illinois Law School.

Senator, it's difficult to tell, because there are really no reliable studies so far as I know that try to determine which of the various bits of information that are given in a typical consumer credit contract, consumers would want. In other words, whether it's the information that is required by the Federal Truth-in-Lending Act, whether it's the information required by the other Federal regulatory agencies, or whether it's the State law information or contract information.

We really have no idea which of those four categories consumers regard as most important to them.