Mr. COBB. I don't recall any such instances.

Senator PROXMIRE. Let the record show Mr. Blaisdell shook his head. Meaning no, I take it.

Mr. BLAISDELL. That is correct.

Senator SCHMITT. Mr. Taylor had a frown on his forehead.

Mr. TAYLOR. I was trying to think of any particular situations, but I cannot. On several occasions we have worked cooperatively with the FTC.

Senator SCHMITT. Mr. Marston cleared his throat.

Mr. MARSTON. In general, no.

I would just point out, Senator, the difference between the FTC and the other agencies here, especially the Bank Board. The FTCand this is not a criticism-acts as a policeman. That is its basic function, as I understand it.

The FTC takes people to court, and regulation through the courts tends to be quite effective on a case-by-case basis.

However, regulatory agencies have more pervasive power over regulatees than the FTC, because they have the policeman function and general supervisory authority. In some cases, the regulatory agencies act as a chartering authority and make advances through their credit windows. The regulatory agencies often lead their industries through informal persuasion and do not have to rely solely on adjudication in the courts. I might add that the competitive marketplace is a far more stringent and merciless regulator than either the courts or the Government.

Senator SCHMITT. Thank you.

I hope that I will have time to study all of your testimony in some detail and will probably have some questions related to that study in the future.

I hope that you will have an opportunity to answer them.

Thank you.

Senator PROXMIRE. First, let me ask, do all four of you gentlemen favor the simplification thrust generally and in principle of the Federal Reserve Board?

Mr. Blaisdell, do you favor it?

Mr. BLAISDELL. Yes.

Mr. COBB. Yes, we do.

Mr. TAYLOR. Yes.

Mr. MARSTON. Favor the thrust, yes.

Senator PROXMIRE. So you all feel generally, of course, there are some differences of opinion on some sections of the legislation, but generally you think if this should pass, it would be in the public interest, if it did so? Let me ask of any of you feel that this legislation may give a new advantage compared to the old law to lenders, as compared to borrowers?

That is a matter that I am concerned about and that many consumer groups are, and the FTC indicated they felt that might be a possibility, something we ought to be sensitive to.

You are all in the business of protecting consumers to a considerable extent. Do many of you have that sense, that this may, by not specifying some of the provisions of the law on the form, mean that there would be less action taken, civil action, to protect consumers?

Mr. Cobb?

Mr. COBB. Well, we assume that a consensus will be reached as to what information is material to the creditor in making his credit judgment. If the disclosures are limited to those items of information, and civil remedies are provided to him for erroneous disclosure of that information, we don't see any tipping of the scale.

Senator PROXMIRE. Mr. Taylor?

Mr. TAYLOR. I don't think that this is going to be that much more favorable for the creditor.

I think it does have benefits to the borrower, because I think this is a situation where more disclosure may be less meaningful, and I think these terms will focus the borrower's attention on the items important to a credit decision.

Senator PROXMIRE. One of those rare cases where less is more, I guess.

Senator SCHMITT. More is the enemy of good, is what we call it in the space program in dealing with computer programs.

Mr. MARSTON. In general, I would agree. In my background, we have put out simplified pamphlets just to inform the consumer, and I think that is good.

I think it is important to keep in mind that in a mortgage credit transaction, the borrower doesn't want a loan; he wants a house. In general, I don't think that most people concentrate on the technical details of the transaction but on the goods or services which the credit will buy. Because of this attitude, simplified credit information should help consumers understand the essential details of the transaction. The questions, in my experience, that people really ask are; how much do I have to pay back? How much is my rent? What happens if I am late? These are the essential questions they ask. I think the simple forms will be good for the consumers and good for the lenders too.

Senator PROXMIRE. Let me ask each of you in turn, starting with Mr. Marston, will this make enforcement of truth in lending, A, more effective; B, cheaper? Will it save you any money? Will it mean you can save any personnel costs or other costs?

Mr. MARSTON. Mr. Sprague, head of our office of examinations and supervision, is with me, and his offhand reaction is that less costly and more effective enforcement would be a logical consequence of truth in lending simplification.

Senator PROXMIRE. Both more effective and cheaper?

Mr. MARSTON. Yes, because we would be able to enforce more expeditiously.

Senator RIEGLE. Mr. Taylor.

Mr. TAYLOR. I disagree because I don't think it is going to make our examination effort any easier. We would still be looking at basically the same core terms we are looking at now.

Senator PROXMIRE. Well, then would it make it more effective?

You could concentrate more on the limited items you would be concerned with.

Mr. TAYLOR. Our present concept, as I testified last year, is that we are going for a bullet concept and looking at the areas which would affect the borrower most adversely. So I think that this sort of reflects our original concern and we are going to focus in on the core terms with this type of proposal.

Senator PROXMIRE. Mr. Cobb.

Mr. Cовв. The provisions of S. 1312 would make enforcement more effective. We would suggest one wrinkle in that enforcement provision, which we thought would save us some money in terms of disclosure to individual borrowers. We are suggesting that as the first step, we have the institution itself distribute the forms that we would provide to save the examination manpower.

Senator PROXMIRE. I like that very much.

Mr. COBB. Only if the institution refused

Senator PROXMIRE. The only problems we run into are, no matter how simple we make it, we are going to get the credit industry saying, "Now, we have to produce some more new forms."

Mr. COBB. We would produce the forms, but they would provide the personnel and time to assemble and mail them out.

Senator PROXMIRE. Even though this is simpler when you compare it with the nightmare on the extreme left, you will still get some of that complaint.

Mr. Blaisdell.

Mr. BLAISDELL. We are well assured that the simplification proposals would definitely make our efforts more effective.

I personally doubt that there would be a cost savings but that wouldn't be a guiding differential from our point of view. The most important thing is that we would be able to do a more effective job.

Senator PROXMIRE. Now, I would like to go after Mr. Marston and Mr. Taylor on an issue they both raised and I am concerned about. We have some exempt States; they are exempt from Federal truth in lending inasmuch as their State truth in lending laws are similar to the Federal law. They want to enforce the law. It is their law, they think they ought to enforce it against all creditors in their States.

You say no. In fact, you say, as I understand it, Mr. Marston, that you doubt whether State truth in lending laws even apply to Federal S. & L.'s in exempt States.

That would suggest they are not under any kind of truth in lending law because if we exempt them and the State truth in lending law doesn't apply, are they out completely?

Mr. MARSTON. No, they would be subject to the Federal law.

Senator PROXMIRE. Why? Don't you respect our law? When we say in the law that the State law applies, why isn't that respected?

Mr. MARSTON. State law is not required to be more far reaching. As I heard Governor Jackson say it, State law must be comparable only.

Senator PROXMIRE. All right, let's make it comparable, then.
Mr. MARSTON. Then, it would be just a tradeoff.

Senator PROXMIRE. Then, why not recognize their law under the circumstances, as our basic statute requires?

Mr. MARSTON. It seems to me that you are suggesting that the Federal chartering agency examine Federal institutions for compliance with the State law. That presents no particular problem except to raise the question of the need for a uniform Federal law.

Senator PROXMIRE. Why not let them examine?

Massachusetts has a good, tough, strong banking commissioner up there who wants to get into this. Why not let her do it?

Mr. MARSTON. They may have one today, but what about tomorrow?

Senator PROXMIRE. Well, the Federal Reserve Board could revoke the exemption if they slip.

Mr. MARSTON. We could do that but then the Fed has to monitor enforcement activities in excepted States on a continuous basis.

Senator PROXMIRE. Why should the Federal S. & L. have special status? Why should they have that competitive advantage over Statechartered S. & L.'s?

Mr. MARSTON. In the dual system, Mr. Chairman, the savings and loans can move back and forth from one system to the other. If they feel that there is a competitive advantage in being a Federal association, they can become a Federal association. If they feel that there is a competitive advantage in being a State association, they can become a State association. There are many advantages tied to being a State association in certain States. There are many advantges tied to being a Federal association in other States. You will see this around the country.

Senator PROXMIRE. Let's consider some other laws. Are Federal S. & L.'s subject to State usury laws?

Mr. MARSTON. Yes, sir.

Senator PROXMIRE. Who enforces those?

Mr. MARSTON. We do.

Senator PROXMIRE. Entirely?

Mr. MARSTON. Aside from private enforcement, the Bank Board is the primary enforcer for federally chartered institutions. An additional point, Mr. Chairman, is that there is no Federal alternative. If the Congress passed a Federal usury law then there would be a comparable situation.

Senator PROXMIRE. I don't see why it makes any difference. The State should have the right, it would seem to me, especially where the Government says that a comparable law preempts, to enforce their own law.

Mr. MARSTON. Aren't we talking about several steps?

One is the existence of a Federal law, the second is the existence of a State law, and the third is who enforces them?

Senator PROXMIRE. If the Federal S. & L. is subject to State usury laws, why shouldn't the Federal S. & L. be subject to State disclosure laws?

Mr. MARSTON. There is no Federal alternative with respect to State usury laws.

Senator PROXMIRE. I don't see that that makes any difference.

Mr. MARSTON. When there is no Federal alternative, there is no uniformity with regard to the law applicable to Federal associations to protect.

Senator PROXMIRE. It doesn't violate the dual banking system in the case of usury. Why should it violate the

Mr. MARSTON. I think it probably does. That is a weakness in the dual system. There should be an alternative to allow institutions to move back and forth between the State and Federal charter.

Senator PROXMIRE. Well, Mr. Taylor, let me ask you. Right now, the State-chartered institutions are subject to both State and Federal examination for compliance with consumer laws but national banks are examined only by the Comptroller. Why should national banks have that competitive advantage, especially when State officials con

sistently complain that the Comptroller of the Currency is not enforcing the State consumer laws?

Mr. TAYLOR. Well, first, I think that there are a few States that have complained, not that many, about our enforcement or lack of it concerning State laws. We don't have difficulty with the concept of which law should apply. Rather we feel that we should be the ones to enforce it. This is Congress historically has always recognized that national banks should be subject to, by and large, the sole examination functions provided by the Comptroller of the Currency. We see no reason for there to be a distinction in the area of consumer laws from any other laws.

Senator PROXMIRE. Doesn't the Fed exempt State-chartered banks? Mr. TAYLOR. I am sorry.

Senator PROXMIRE. Doesn't the Federal Reserve Board exempt State-chartered banks?

Mr. TAYLOR. For truth in lending?
In five or six States.

Senator PROXMIRE. Why should national banks be different?

Mr. TAYLOR. That is my point. We are not particularly concerned about whether we should enforce the State version of truth in lending or the Federal Truth in Lending Act. We simply believe that the provisions of 12 U.S.C. 484 should be adhered to. It's been the clear congressional intent from the beginning this would be so. It has been considered many times since it was enacted and it has always been upheld.

Senator PROXMIRE. But the State member banks, Federal Reserve Banks, are then examined by the State and the national banks are not?

Mr. TAYLOR. That's right.

Senator PROXMIRE. They have that advantage.

Mr. TAYLOR. That is part, I think, of the competitive advantage of the dual system, or one of the competitive factors in the dual system, is the fact that State banks whether they be member or nonmember, are subject to joint examinations, with the State authorities and either the Fed or the FDIC.

National banks are subject to the sole examining authority of the Comptroller's Office. This has long been recognized as one of the competitive advantages national banks have.

Senator PROXMIRE. Obviously, I am not making any progress in persuading either of you gentlemen, but at least we understand our positions better.

Finally, Mr. Cobb, do you agree with the Federal Trade Commission that the cost of credit insurance should be included in the finance. charge?

Mr. CоBB. Yes, we do.

Senator PROXMIRE. All right.

Well, gentlemen, thank you very much.

I think you have made a most helpful record.

The committee will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:40 p.m., the hearing was adjourned, to reconvene at 10 a.m., on Tuesday, July 12, 1977.)

[Statements of the preceding witnesses and reprints of the bills being considered at this hearing follow:]