I don't know why it has to be that way, though some will say that it is just the bureaucracy running wild, and some will say that it is the creditor who does not want to use good faith, and some will say it is the legislative body that by its nature generates products that don't work.

But it seems to me the whole issue of whether or not there ought to be an itemized list of what somebody is getting and paying for ought not to be a real question. I don't know a bank or financial institution that is doing business with another business, somebody, whether they are buying typewriters or anything else, where they are not getting an itemized list of what they are paying for. Of course they are, it is standard business practice, and no accounting firm would accept the records of any business that wasn't getting good solid documentation as to what they were buying. Otherwise, there are too many chances for fraud. It is standard business practice. Why good solid business practice doesn't also carry over into the relationship between the business and the consumer really escapes me. I think it ought to. I think for the most part the businesses I have been associated with have held that view, that good business practice is full disclosure. I don't think most reputable businesses want to hide the facts from consumers. I don't think there is any value in that. I think to the extent one does that, it catches up after a period of time, unless the whole system is so lax that you get a pattern of abuse. That is what we want to put an end to.

Mr. CLENDENEN. A number of the lenders want to do that, the retailers, they want to disclose all of the information. The more they do that, many have told me, they get a competitive advantage over others, by giving more information, they say we are better than that one. It is the basic marketplace at work. I agree 100 percent.

Senator RIEGLE. Well, we appreciate your testimony. Thank you very much. We will excuse this panel, and call the next panel, Carol S. Greenwald, commissioner of banks, Commonwealth of Massachusetts; James McCaffrey, deputy administrator, Oklahoma Department of Consumer Affairs; Lawrence Connell, Jr., bank commissioner, State of Connecticut; and John L. Quinn, superintendent, Maine Consumer Credit Administration.

Senator Hathaway is with us and would like to have the opportunity to make some introductory remarks with respect to Mr. Quinn. Senator Hathaway, we would be delighted to hear from you.

Senator HATHAWAY. I just would like to present Mr. John E. Quinn to the committee, who has testified before this committee before, and who has the Pocket Credit Guide, which I understand the Federal Government is interested in reproducing to the tune of one-half million copies.

Mr. Quinn, as you know, is superintendent of the Maine Consumer Credit Administration, and he has worked diligently to protect the interests of consumers in Maine. I am sure the testimony he will give this morning will be very beneficial to the committee.

Thank you for giving me this opportunity.

Senator RIEGLE. We are delighted to have you. Let me invite you to sit with the committee, as your time allows.

Senator HATHAWAY. I have another committee hearing going on at the same time, Mr. Chairman, but thank you.

Senator RIEGLE. Fine. Ms. Greenwald, would you like to begin?

STATEMENT OF CAROL S. GREENWALD, COMMISSIONER OF BANKS, COMMONWEALTH OF MASSACHUSETTS

Ms. GREENWALD. Thank you. I am delighted to be here. I don't often get a chance to testify in favor of such proconsumer legislation as is

S. 1312.

I think the three major provisions of the bill are extremely excellent. As I explain in more detail in my written statement, we need the section which says in explicit language that the States that have applied for exemptions, those exemptions should apply to federally chartered credit institutions, because without the explicit language, we will never get a fair hearing by the Federal Reserve Board.

Senator RIEGLE. Let me interrupt you and say to all of the panelists, as well as to you, that we are running long today. We have your statements, and they will be made a part of the record, but to the extent you can summarize, that would help us and we would appreciate it.

Ms. GREENWALD. The exemption clause is very necessary. I gave in the written testimony a case history of the "Catch 22" that we are in, in which the Federal Reserve says to the State you don't have a completed application, and then notifies each of the Federal agencies who would have to give us permission to enter into their institutions. Unless you give the States this permission, Massachusetts will never have a completed application. And then we get an unsolicited letter from the Chairman of the Federal Home Loan Bank Board explaining he would never give such permission, therefore we never have a completed application.

The second provision of the bill I think is excellent. I think the forms to be provided by the Federal Reserve is just exactly what is needed. This is a way of simplifying compliance for the lender without doing away with any of the disclosure that is required to benefit the consumer. And the form that the Board presented in its draft to the Consumer Advisory Council is very good, with one of two very minor changes. So I think that is the way to go on that.

On the third major part of the bill about restitution to borrowers, I think restitution to borrowers and then publicity about repeated offenders is not only the best way to go about getting enforcement, but it is the simplest way of getting enforcement. Clearly anyone who has been denied accurate information deserves restitution and I think it is the job of the regulator to insist that the institution give that restitution.

Now it is clear that the Federal agencies have been so reluctant to antagonize their constituents that they were not willing to do this without a clear directive from Congress, and this bill gives them the clear directive.

All of the five excepted States have been doing this, we know it can be done, it is very painful, and we would be happy to see this legislation pass, even though it wouldn't directly affect Massachusetts, because I have seen such success with insisting on restitution, and it would make it easier for me to continue doing that. However, since we are aware the Federal agencies don't like to do this, there is a loophole clause I would like to see eliminated in the language. The clause in the bill savs unless "unduly burdensome" to the institutions. I think Congress should clarify that and say if the refund is more than $5, it must

be made, and unless the solvency of the institution is involved, restitution must be made.

Another witness testified here that solvency would probably never be a problem. But I have had two cases where it was a question. So it is not inconceivable, if you are using all of the wrong forms, as we had, that the amount that would be required to be refunded would be extremely large. In those cases we made compromises.

Also I think the language should include that the regulatory agency, in the case where a financial institution will not make a voluntary refund, in that case not only should the borrower be notified but the law enforcement agency should be notified. On the one hand we hear people say there has been a lot of litigation; some say there has not been. I tend to believe there is not much at all, because on an individual basis the amount that can be received is not very large. In Massachusetts it is $1,000. That is not really enough in most cases to make you go to the court and pay lawyer's fees and go to that much trouble. Given the number of violations we have found, there has been very little litigation.

On the other hand, one person sees only that he has been violated, but when the regulator goes in he sees the widespread pattern, in which case they should go to the law enforcement agency. We have good communications with our Consumer Protection Division of the Attorney General's office; we have four cases pending there now, and I think that is the way it should proceed, if lenders will not make voluntary restitution.

I am very sympathetic to the notion of promulgating interest rates to make credit information available to all. But I think that this legislative proposal may well be unworkable. There are very many people who make credit available and to get interest rates published on all of the available loans of different types may well be beyond the capability of the Federal Reserve System.

I would recommend we try a more experimental approach, we authorize the Fed to fund consumer groups in different geographic areas to experiment with what is the best way of providing information, trying different aproaches. I have some concern that if interest. rates are published for an area, that this is the interest rate prevailing here, that instead of having a diversity of rates, we will find everybody going to one rate. I think we need to know what is the reaction of lenders, as well as borrowers, to knowing what all of the rates are. I would like to make some detailed comments on S. 1501. This is a terrible bill.

Senator RIEGLE. That is going to hurt Senator Schmitt's feelings, and he is not here right now.

Ms. GREENWALD. I think the thrust of S. 1501, unlike the thrust of S. 1312, is really to reduce the protection afforded in truth in lending, both by eliminating specific protections in certain provisions of the Federal statute, and then by preventing the States from enacting or enforcing their own laws.

I really think the public deserves better from its representatives than this bill. I do believe the bill was written so no one on the consumer side could read it, it was clearly meant to be unintelligible to the public, but I did get through it.

As to section 3, we are opposed to this, because we think it prostitutes the purpose of an open end credit plan. It would allow a true closed end credit transaction to be classified as open end and deprive the consumer of pertinent disclosure information like the total finance charge, deferred payment price, total of payments, number and amount of payments.

We are opposed to the elimination of itemized charges proposed in section 4(a). Fees and charges, as we heard this morning, are a significant cost to the borrower. Are we to allow unscrupulous lenders to low ball on rates and make it up in higher fees and charges? We have heard a great deal about that this morning. The present system affords the best disclosure; either the charge should be itemized or it should be included in the computation of the finance charge.

We are opposed to changing the right of rescission as proposed in section 7(a). This would increase the time period for creditors to return any money to customers and to recover any property from 10 to 20 days in the case of a rescinded transaction. There has been no showing that the current 10-day period is not sufficient.

Section 7 (c) should be deleted. There the proposal reverses the present law. The current statute says that the borrower tenders property after the lender has returned his downpayment and released any security interests. The proposal is to do the reverse. As a consumer I am aware the only way one has any leverage over an institution is you are still holding onto the property until they make amends. With this statute language, I am sure many borrowers will have a long wait before they get the downpayments back.

Section 8 should be eliminated. Sections 9(5) (c) and (d) should be eliminated. Sections 10 (b) and (c) should be eliminated, and section 14 (a).

As I point out in my written testimony, this bill tries to destroy the protection of the truth in lending statutes by gutting their provisions. Section 15 tires to accomplish the same goal by removing State authority in this area. Massachusetts has a proud history of passing consumer protection laws and of vigorously enforcing them. I can think of only one reason for passing a statute like this, and that is that the industry is opposed to the strict enforcement of these laws by the exempt States.

Finally, one further comment on the recommendations of the Federal Reserve Board.

In the memorandum they presented to their Consumer Advisory Council on the draft law, in general I think their suggestions are excellent and I would recommend that in conjunction with S. 1312 they would be very helpful to the consumer. There is a small clause in their recommendations, however, which I think will undermine the efficacy of enforcing truth in lending. In section 130 (b) of their 130(b) draft they remove any liability to a creditor if within 30 days the creditor makes restitution after receiving a report of examination from a regulatory agency. This is fairly unheard of generosity in legal terms. It creates a situation of heads I win, if you don't catch me I can go on cheating, and tails I don't lose if I am caught, because all I have to do is what I was supposed to have done in the first place.

It is analogous to a thief caught by an officer who says I will return the goods within 30 days, and then society is denied any further action. I think the present statute, which allows a creditor to correct a mistake before he is told by a regulatory or law enforcement authority is adequate. I really feel it would serve to undermine selfenforcement of the act.

In the Fed's recommendations, I don't think on page 3 of their memorandum they are asking for enough information to be disclosed. Here I think I may be in slight disagreement with Senator Proxmire. We really feel it is important to disclose how you get to the amount financed. That may be only for the enforcement agency. It may be true that individuals don't look at the different items that add up to the total, but we have found the most common error in truth in lending is not subtracting out the prepaid finance charges. That is why the APR is wrong, that is why the total amount financed is wrong. If we didn't have that breakdown, it would be impossible for us to figure out what is happening in the transaction.

So at least for enforcement, we need that information. The other point is that on residential mortgage transactions, page 6 of the Fed's memorandum, they suggest that the proposed disclosure requirements on the first mortgage only apply to mortgages in excess of $25,000. I had to laugh when I saw that, because it was clearly written by someone living in suburbia. There is no understanding that in our inner city many, many home sales are for a great deal less than $25,000. I don't think they meant to deprive the poor in the cities from this information. I am sure you are aware of how high suburban home prices are, but I glanced at the Mortgage Review Board cases, and we had 51 cases in the last year, and two-thirds of those involved home sales for less than $25,000. I would recommend we use a figure of first mortgage disclosure on anything over $10,000. That would take in virtually all of the Boston inner city home sales.

Thank you very much.

[The prepared statements of Ms. Greenwald follow :]