Clearly, careful consideration should be given to refining present disclosure formats while protecting creditors from hyper technical legal challenges. In this regard, NCFA is probably closer to the thinking of the consumer groups who have indicated a strong desire not to lessen or take away from the presently mandated disclosures. As we have indicated from the outset, compliance with truth in lending would pose no great problem if the Congress and the Board could find a way to introduce some consistency in its application. As one cynic recently observed, the courts and plaintiffs' attorneys have introduced a quaint consistency of their own: "The creditor is always wrong." We are hopeful that the Congress and the Board can find a way to eliminate this kind of "consistency." We believe that the foregoing positions, if carefully considered, will suggest some solutions. CONSUMER INSTALLMENT CREDIT OUTSTANDING, BY HOLDER, YEAREND, 1970-76 1 Excludes 30-day charge credit held by retailers, oil and gas companies, and travel and entertainment companies. 2 Mutual savings banks, savings and loan associations, and auto dealers. Source: Board of Governors of the Federal Reserve System revisions of July 1976. Senator RIEGLE. Mr. Morgan, can we hear from you next? STATEMENT OF R. C. MORGAN, EL PASO, TEX., ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION Mr. MORGAN. Thank you, Mr. Chairman. We very much appreciate on behalf of the credit unions the opportunity you have given us today and I personally appreciate your remarks, Senator Tower. You stated I was a pioneer. I suppose you could say I was a pioneer, too, insofar as truth in lending is concerned because I testified as a witness in support of the original Truth in Lending Act which has not, incidentally, worked out exactly as we hoped it would. Senator TOWER. The things we do rarely do work out the way we expect them to. Mr. MORGAN. I'm sure that's true, Senator. Mr. Chairman, my name is R. C. Morgan and I'm manager of the Government Employees Credit Union of El Paso, Tex. I am appearing before you today on behalf of the Credit Union National Association, CUNA. I am vice chairman of CUNA's Governmental Affairs Committee and the Association's past president. I also am a member of the Federal Reserve Board Consumer Advisory Council. My testimony, of course, does not necessarily express the views of the council. We appreciate the opportunity to appear before this subcommittee on issues related to revising the Truth in Lending Act. CUNA's dedication to truth in lending is well known. We supported its enactment in the 1960's and we continue as strong supporters of effective credit cost disclosure to consumers. By "effective" disclosure we mean (1) easily understandable information which enables consumers to shop for and use credit wisely; (2) disclosures which enable consumers to avoid burdensome credit transactions; and (3) disclosures which can be provided easily and cheaply without an undue threat to creditors of expensive litigation over technical violations. The present act, unfortunately, has not accomplished these goals. We believe consumers are confused by present disclosure requirements. Consumer protection, to the extent it exists at all, is retrospective rather than prospective. Finally, creditors have come to regard every consumer credit contract as a potential lawsuit. Without assigning fault, this was never intended to result from truth in lending legislation and it is not a necessary byproduct of an effective disclosure law. In our view, both consumers and creditors would be served best by drafting a completely new law. A new law would correct the shortcomings of the present act and accomplish true simplification. To be effective, it should contain the following fundamental provisions. First, it should require disclosure of only the most significant elements of a credit transaction-no more than six to eight-to avoid consumer confusion. The annual percentage rate (APR) is the single most important item. The APR (and thus the finance charge) should include all involuntary charges incident to a credit transaction. This is the only way a borrower will know the actual cost of credit in order to shop among creditors. Second, the required information should be segregated from the contract documents in order to enhance consumer understanding. At present, required disclosures must be printed "more conspicuously" than other terms in the text of a contract but their significance becomes lost in a morass of complex terminology. It is more likely consumer attention will be drawn to disclosures if they are furnished in a separate format. Third, model disclosure forms should be provided which, if used, would guarantee compliance with respect to the information to be provided. Model forms would tend to promote uniformity of disclosures from creditor to creditor and thus add to consumer understanding of the credit process. Fourth, creditor liability should be limited to a misstatement of material credit terms which deprives a consumer of the ability to use credit wisely. If the disclosure statement contains only a few substantive disclosures, as we have suggested, all disclosures would be "material credit terms," misstatement of which could result in civil liability. Reasonable tolerances should be allowed for numerical disclosures. This, plus publication of model forms, would eliminate senseless lawsuits which do nothing to contribute to consumer awareness and protection. Fifth, restitution to borrowers should be required in any case where the amount charged exceeds the lowest figures quoted in the disclosure statement. This is nothing more than a guarantee that a borrower pays no more than the "price tag" for credit. Finally, Federal law should preempt all State disclosure laws. In many States, dual disclosures are now required. Consumers are confused by dual disclosures and creditors are uncertain of the require ments they must meet. We believe total preemption is the only workable approach to disclosure laws. Let me emphasize I'm talking only about disclosure laws at this point. This still leaves the States free to respond to consumer protection issues with substantive credit practices laws. Mr. Chairman, credit unions were in the truth-in-lending business long before the present law was enacted. They conduct extensive, continuing programs of education at the local level of practical economics and money management. They provide their members with financial counseling. Under the present Truth-in-Lending Act, the credit union share of the installment credit market has increased by more than 50 percent. Strengthening of the truth-in-lending concept is not only in the consumer's interest but also in the credit union movement's own self-interest. That completes my oral statement. We have submitted for the record a more complete statement and I will be glad to respond to questions at the proper time. Senator TOWER. Your statement will be included in full in the record. Thank you very much, Mr. Morgan, for your very cogent testimony. [Complete statement follows:] STATEMENT OF R. C. MORGAN VICE CHAIRMAN OF THE GOVERNMENTAL AFFAIRS COMMITTEE OF CREDIT UNION NATIONAL ASSOCIATION, INC. Mr. Chairman, members of the Subcommittee, my name is R. C. Morgan. I am manager of the Government Employees Credit Union of El Paso, Texas. I am Vice Chairman of CUNA's Governmental Affairs Committee and past president of CUNA. I am also a member of the Federal Reserve Board Consumer Advisory Council. I appear before you today on behalf of the Credit Union National Association, Inc. (CUNA). My testimony, of course, does not necessarily express the views of the Consumer Advisory Council. We appreciate the opportunity to appear before this Subcommittee on issues related to revision of the Truth in Lending Act. CUNA supported Truth in Lending in the 1960's. We continue to support the idea of effective credit cost disclosure. By "effective" disclosure we mean: (1) easily understandable disclosures which enable consumers to shop Consumers, we The present law has not accomplished these goals. believe, do not adequately understand disclosures required by the present Act. Consumer protection under today's law is retrospective to the extent it exists at all. And finally, creditors have come to regard every consumer credit contract as a potential lawsuit. This situation was never intended to result from Truth in Lending legislation, and it is not a necessary by-product of an effective disclosure law. |