Mr. Hock. We submit again that if in fact there is such a horrendous problem, perhaps the direct and best approach is for the Congress to address itself to laws that prevent merchants from doing this.

Senator PROXMIRE. I noted when you said that, that there is a lot of wisdom to it. The only difficulty is that we want to use every system that is available, and the plain system, usual system, that if somebody buys something that is shoddy or doesn't work, is just not to pay for it. That is something everybody understands. The merchants understand it, and so does the customer. Otherwise, he has to run to a Government bureaucrat to help him.

Mr. HOCK. Are you implying that the banks are in a better position to do a job of law enforcement than the Government?

Senator PROXMIRE. No, absolutely not. I wouldn't envision for a minute the banks playing any part in that. All I envision is the banks charging it back to the merchant, and he has to settle it up with the

customer.

Mr. Hock. But the bank is using its power and resources to adjudicate automatically in behalf of the customer, regardless of the merits, and forcing the merchant to seek redress.

Senator PROXMIRE. The merchant would have the same redress he would have if the credit card wasn't used. In other words, if the merchant were in the right

Mr. Hock. That seems to imply that the system of law would make it easier for a merchant to sue a customer and recover than for a customer to sue the merchant. If that is the case, then probably there is some inequity in the law.

Senator PROXMIRE. Not necessarily. It depends on the circumstances. Either one could sue.

Let me press ahead.

If the Federal Government enacts restriction on holder-in-duecourse, why shouldn't the States be free to go beyond these restrictions? Your proposed language would permit the States to exceed Federal protections, and it seems to me we should permit States to take any initiative. One of the most appealing aspects of the administration's move toward revenue sharing and so forth gives the States more rights, better rights. We may have quite a limited holder-in-due-course provision in the bill which eventually is enacted. Why shouldn't the State be permitted to go further?

Mr. Hock. We think there is potential for conflicts between the two that could very well cause the kind of class action litigation over technical language between what States might require and what the Federal Government may require.

Once again, we see no reason why the States are not competent to act in these areas themselves.

Senator PROXMIRE. If they are, why limit their ability to act, as you propose?

Mr. Hock. Their ability to act in this area is not limited at the present time. They could pass a law modifying holder in due course.

Senator PROXMIRE. Yes, but what you are doing, you are saying that they can't go further than the Federal Government.

Mr. Hock. We are saying that if this is what is considered to be by the Congress proper national law on the holder-in-due-course issue holder in due course, for want of a better term-that it should be clear

that this is the maximum to which we are subject, and therefore a uniform means of administration.

Senator PROXMIRE. What you are saying, Mr. Hock, is that when you can benefit by the Federal Government big brother monolith, like Russia stepping in and telling the States they can't act in a way that would adversely affect your interests, then you are for it. Otherwise, you are against it.

Mr. Hock. On the contrary, our statement makes it quite clear that we think any Federal legislation in this area unwarranted. It suggests improvements only in the event Congress proceeds contrary to our position.

Senator PROXMIRE. You were saying that the statement makes it quite clear that we should not do anything in the area, but it goes further and says if we do anything, the States should not be allowed to go further.

Retail merchants participating in a bank credit card plan—well, I have read this provision here, and I take it your view is necessary, but I would like to ask you how is this provision enforced; who determines whether the agreement is followed; and is there a fair policy?

Mr. Hock. First, I think we may be leaving an implication here that may not be true.

There is no standard merchant agreement in the Bank Americard system. Each bank has their own, and each bank

Senator PROXMIRE. We have a representative sample that we read you. I assume this isn't atypical. You stated this is a very exceptional one?

to

Mr. Hock. No.

I think it is generally true that banks do have provisions of that kind and do attempt to resolve the disputes.

My point is that we do not prescribe the standard contract, and that each contract is between that bank and the merchant. The extent to which it enforces it and the method by which it enforces it, are a matter of relationship between the parties.

They are not dictated by National Bank Americard.
Senator PROXMIRE. How is it policed?

Mr. Hock. In general, our regulations give one bank under certain circumstances, a right of chargeback against another bank, and what that bank does with it, if it is a legitimate chargeback, is between it and its merchants.

Senator PROXMIRE. So the bank itself determines whether the merchant is being fair?

Mr. Hock. It attempts to, but often the bank that has the merchant is very remote from the bank that has the cardholder. It is a very difficult situation.

Senator PROXMIRE. Do you have any figures on the amount of chargebacks which the banks imposed on member merchants last year?

Mr. HICK. No, sir, we do not.

Senator PROXMIRE. Will you see if you have any for the record? If not, you don't have them, but if you can, would you give us an estimate?

Mr. Hock. We have none at National Bank Americard.
We could see if it is available from our members.

Senator PROXMIRE. Any estimate would be helpful.

I would like to reinsert in the record an ABA rewrite of the civil "Truth in Lending" provisions furnished to the committee. Have you see this rewrite and do you endorse it?

Mr. HALE. We have seen it. It is a draft which at least for working purposes we feel would accomplish what the committee, what the Congress has in mind, without the class action difficulties.

Mr. LARKIN. We have not seen it.

Mr. Hock. We have not seen it.

Mr. REYNOLDS. We have not yet seen it.

Mr. HALE. This is something that came from the ABA staff as a possible alternative to the class action proposal.

Mr. Hock. We have not seen it and have no knowledge of it. Senator PROXMIRE. In your statement, you say that any limitation predicated on a transaction of size, "can only lead to concentrated efforts to sue the largest institutions, the very largest institutions that are least likely to be engaged in effort to deceive consumers.

Are you suggesting that smaller banks are more likely to deceive consumers than large ones?

Mr. LARKIN. No. They make more tempting targets. Our general counsel told us that a sum of $22, the fellow in California banksSenator PROXMIRE. The first part of the phrase is that it can lead to concentrated efforts to sue the larger institutions.

But the very institutions, you add "the institutions least likely to be engaged in efforts to deceive the consumer."

Isn't that a reflection on the smaller banks?

Mr. LARKIN. No. It is a pragmatic statement that big banks live in glass houses, and that their actions are subject to careful scrutiny. We have 3 million cardholders in California. The bank that has 20,000 cardholders is much less likely to have customers who are exacting, persnickety, tempted to make hay out of our capital structure.

Senator PROXMIRE. I am not too sure about that. I would think a big bank in a big city would be less subject to this kind of scrutiny than a bank in a Waterloo, Wis., where I used to have a business, and which is a town of about 800 people, and the banker was under much. more of a microscope all the way along, than a big bank.

Mr. REYNOLDS. If I may, Mr. Chairman, there was no intention to indicate that the smaller banks would be less likely to follow the law if they had the ability to do so. But the big banks do employ counsel that are subjected, or exposed to the type of legislation that we are talking about, rather cumbersome and complicated, and the big banks therefore are better able to be sure they comply. Inadvertence, failure to comply is less likely in a big bank than a small bank.

Senator PROXMIRE. That may be, but you see, what you have said is to be engaged in efforts to deceive the consumer.

Maybe it was just an unfortunate construction, because maybe it engaged in efforts that are less, or have less expert counsel, but not effort to deceive.

Mr. REYNOLDS. There was no intention to indicate that the smaller banks to try to deceive any more than the large ones: neither one of them is likely to intend to deceive.

Senator PROXMIRE. That is better.

Bankers don't like me, but I like bankers. I used to be in the banking business myself years ago, and I am very proud of it. I worked for J. P. Morgan & Co. in Wall Street. I don't know how proud they are of it.

This is my last question.

You say the size of the creditors should not be taken into account in assessing civil penalties. Yet the American Bankers Association draft made a part of this record does direct the court to take into account the resources of the creditor in setting a liability.

As I read it, the ABA draft would set a maximum liability for the largest bank and lesser liability for the smaller banks.

If the penalty is to be based on the degree of evil committed, then certainly the $50,000 limitation would mean that it would be a lesser penalty for a big bank.

Mr. Hock. I have not seen the draft.

Mr. REYNOLDS. We do recommend a $50,000 penalty limitation. Senator PROXMIRE. Mr. Hale, would you comment on that?

Mr. HALE. This was in the draft of the committee-S. 914-includes the size of the creditor as one of the factors to be considered in calculating the extent to which you go up to the ceiling, along with the willfulness, the wickedness, the number of failures to comply, the actual damages caused, and so on.

Senator PROXMIRE. You are right; it is in ours, and we think size should be a factor, but, as I understood it in your statement, you said size should not be, and yet you have this limitation.

Mr. HALE. In this alternative draft that the ABA staff submitted to your staff, we had used the same formula for fixing the penalty that you had used in S. 914. This was a working draft to illustrate a different approach to the class-action issue. It may be that the size of the creditor should not be considered.

I would think there would be a certain relevance to the creditor's size in determining how closely to approach the ceiling.

Mr. REYNOLDS. It happens to be the same amount that I used in my recommendation.

Senator PROXMIRE. That is right, and I don't quarrel with the fact that size should be a factor.

Our bill reflects that we think it should be. We got the impression from your statement here, that it should not be.

Mr. REYNOLDS. We feel it should not be a factor, because what you are trying to do, we believe, is to stop the evil. That is the most important thing.

I can assure you that a $50,000 penalty for a large bank, plus the legal time that they have to spend, and the notoriety that is involved in this thing, is just as much a deterrent as would any other amount be. This would stop the evil, $50,000.

Mr. LARKIN. Plus the fact that having this qui tam type of injunction, if the bank then flies in the face of that after having been fined $50,000 would bring the full power and force of the law down on them.

Mr. HOCK. It essentially is a different approach, also, because it permits the Government to get into the middle of the act and throw its weight behind them.

Senator PROXMIRE. Gentlemen, I want to thank you very, very much. It has been a fine panel.

I did not mean by my questions to indicate consistent hostility. I thought an adverse position might bring out more information. You did extremely well, and I am very grateful to you.

The committee will stand in recess until tomorrow morning at 10 o'clock when we will hear from nine additional witnesses.

[Whereupon, at 12:50 p.m., the hearing was recessed to resume at 10 a.m., the following day, Thursday, May 24, 1973.]

[The complete statement of the panel of witnesses and an additional submission from the American Bankers Association follow:]

REMARKS BY EUGENE H. ADAMS BEFORE THE FLORIDA BANKERS ASSOCIATION, BAL HARBOUR, FLA.

In ancient Britain, the Saxons had a unique method of determining whether a man was really trustworthy. They tied him up hand and foot and threw him into the nearest pond. If he sank, they fished him out and congratulated him on his credibility. If he floated, they considered him a fraud.

Today, we rely on more sophisticated methods of establishing trustworthiness. Bankers in particular have taken pains to develop sound criteria for rating the credit standing of customers. The five C's of credit are based on facts and long years of experience—a far cry from the superstitions of our Saxon forbears.

Or are they? Isn't it possible that some of our lending criteria-perhaps especially those dealing with women-might be based not on fact but on timehonored assumptions so old that they have taken on the appearance of fact? We are currently being accused of some such practice.

At any rate, I think we need to reexamine those assumptions to see if they stand up in light of women's changing role in our society. Certainly they once had validity. But do these assumptions retain that validity today, when more and more women are working for longer periods of time at better paying jobs? Is it possible that outdated assumptions-if they are outdated-are blinding us to a potentially very profitable market right on our own back doorsteps?

Let me give you a little background information about that market. In the past decade, women accounted for two-thirds of the increase in the labor force. The Labor Department estimates that the number of working women will increase by 70 per cent during the next decade. Today they comprise more than 44 percent of the work force-32 million women working full time. Nine out of ten women will work for some period during their lifetimes, and six out of ten will work full time for up to 30 years.

Obviously, women's growing participation in the labor market makes them an increasingly important force in the economy. As they take on a larger role in economic affairs, their need for credit becomes more pressing.

How do we bankers approach women's credit needs? What are the assumptions we make about women-and their ability to repay loans-that bear most heavily on our lending decisions? It seems to me there are five assumptions that exert a major influence on our willingness to grant credit to women.

Assumption Number One is that single women who work will probably get married and leave the work force. Therefore, they do not make good credit risks. I won't bore you with too many statistics, just a few pertinent facts about the single working woman. Single women today account for 14 per cent of the labor force and head nearly 12 per cent of all American families. These women aren't working for pin money; they're working to support themselves and their dependants. Furthermore, if they choose to remain single-as a growing number are— they can be expected to work for 45 years-a longer work life than that of the average man.

Exactly what are the chances that a single woman will marry? If she is over 30 years old, it's a pretty good bet she will never tie the knot. She has discovered the pleasures of independence-and she would rather devote her energies to pursuing a career instead of a husband. If she is under 30, however, she has a pretty good chance of taking the plunge. Let's assume she does decide to get married. What does this do to her credit-worthiness?

If she continues to work after marriage-as more and more women are doingany debts she has incurred are now offset by two incomes rather than one. Moreover, women tend to marry men better educated than themselves. And since men still make significantly higher salaries than women with the same education, it