Mr. HARSHA. Do you know how many States in the country have that kind of law-can you provide that for the record? Mr. JENNINGS. We could provide it. I would say that at least onehalf of them do. Mr. HARSHA. Will you provide it for the record? Mr. JENNINGS. So we are not doing anything-we are not asking to do anything that is unusual. You may not like that, but there are many States that do it that way. Mr. GUNTHER. If I may say this to Mr. Steiger, I provided the Chief Counsel for the Comptroller of the Currency, Mr. Bloom, who is here to testify today, with excerpts from the laws of each State of the Union and their interest rates. And Mr. Bloom might possibly know how many States there are. (See appendix, pp. 27–32.) Mr. BLOOM. I have the material that you sent over to us yesterday, but I have not had a chance to look at it. Mr. Dowdy. Before you go further, this letter from Mr. Tobriner that you mentioned will be made a part of the record, Mr. Steiger. Mr. STEIGER. Thank you. (The letter referred to follows:) GOVERNMENT OF THE DISTRICT OF COLUMBIA, Executive Office, Washington, D.C., January 25, 1966. The Honorable JOHN L. MCMILLAN, DEAR MR. MCMILLAN: The Commissioners of the District of Columbia have for report H.R. 12180, 89th Congress, a bill "To amend chapter 33, subtitle II, Other Commercial Transactions, of title 28, District of Columbia Code, with respect to charging or deducting in advance interest on loans to be repaid in installments." Section 28-3301 of the District of Columbia Code presently provides that the parties to an instrument in writing for the payment of money at a future time may contract therein for the payment of interest on the principal amount thereof at any rate not exceeding 8 percent per annum. Section 28-3302 of the Code provides that, in the absence of express contract, the rate of interest upon the loan or forbearance of money, goods, or things in action, shall be 6 percent per annum. Section 28-3303 of the Code provides that if any person or corporation contracts verbally to pay a greater rate of interest than 6 percent per annum or in writing to pay a greater rate than 8 percent per annum the creditor shall forfeit the whole of the interest so contracted to be received, and the excessive interest, under section 28-3304, may be recovered in a civil action brought by the debtor. The bill amends existing law relating to interest and usury, as set forth in chapter 33 of subtitle II of title 28 of the District of Columbia Code and outlined in part in the preceding paragraph, so as to insert therein a new section, section 3302a (properly section 28-3302a) which would authorize interest computed on the principal amount of a loan at a rate permitted by sections 3301 and 3302 (sic) of this chapter to be charged or deducted in advance where the borrower is required to repay the indebtedness in installments. This means, of course, that on a loan of $1000, with interest at 6 percent, repayable in installments over the period of a year, the creditor would be authorized to charge or deduct the $60 interest in advance, without taking into account the lessening of the principal through the installment payments, so that in effect the interest so charged or deducted is payable on an average unpaid balance of approximately $500. In short, the effective rate of interest is not 6 percent but is closer to 12 percent. Should the contract be in writing and call for interest at the rate of 8 percent, the effective rate which the bill would authorize, assuming interest be charged or deducted in advance on a loan repayable in installments, would be approximately 16 percent. The Commissioners are constrained to object to the bill in its present form as not being in the public interest. If, however, the bill be amended to provide that interest may be charged or deducted in advance on loans repayable in installments so long as the effective rate of interest when so collected does not exceed 8 percent per annum, the Commissioners would have no objection to the enactment of the bill. In its present form, however, they recommend against its enactment. Sincerely yours, Mr. Dowdy. You may proceed. WALTER N. TOBRINER, President, Board of Commissioners, D.C. Mr. STEIGER. I do not mean to belabor this. In my view, the fact that other States have similar legislation does not remove the chicanery aspect. I want to make it very clear that I have nothing but the deepest respect for the banking industry. I recognize the problem. I think that to a greater extent, because I served on a bank board myself. I am not unsympathetic. I think that you find yourself in this position because of the existence of the Truth-In-Lending law, because you would find yourself in a position where you would need some help. What I am suggesting is perhaps, the solution to this class of loans is that we should raise the effective rate to 15.4 percent, and let you arrive at that figure in any way that you feel is best. I think it is our role here as a Committee to act, not only in the interests of the District of Columbia, but in the interests of the banks. I think they are synomymous. I think these interests cannot be divorced from each other. INTEREST AND USURY I quote from the District of Columbia Code, Title 28, Chapter 33, Subsections 3301, 3302, and 3303, which limits the lending rate to six percent per annum, and eight percent under certain conditions. Actually, what you are doing and I really do not care if you arrive at it by computation or by definition-you are saying that you have been doing this for 60 years and that there is a greater cost involved, and you simply cannot make these loans unless you arrive at a maximum of 15.4 percent in the District. If we did-would the industry resent this approach? Would there be unhappiness with this approach in which this Committee would frame legislation or you would frame legislation that we would adopt, in which we said that the effective rate was to be 15.4 percent on this type of loan? Mr. GUNTHER. I can only answer your question according to my own bank. I would resent it, because I think it gives the banking interest an unnecessary black eye in the eyes of the public. In other words, there is such a small percentage of the credit that we extend at this rate, so far as our totals are concerned, like most of the bankers-that if we were to do this, we would have the strong possibility of some nuisance lawsuits coming up, and our counsel feels that we are on safe ground charging the rates we do, on the basis of Supreme Court decisions, but if we were to have nuisance usury suits filed against us, we simply would not make this type of loan any more. Mr. STEIGER. What you are saying is that if this is changed in some manner you will be subject to usury. I think that your judgment is very sound on that. I think your counsel advises to the effect that if you will do this you will not be subject to suits. You will not be in jeopardy. But it does occur to me that what you are saying is that you do not want it known that you are charging 15.4 percent. on some loans and you would prefer to go this route which will not reveal that. I hope that is not what you are telling me. If you would clarify that I would appreciate it. Mr. GUNTHER. I am not talking for the District of Columbia Bankers Association. I do not know what the attitude of other bankers would be in answering that question. So far as I am concerned you are quoting me correctly. Mr. JENNINGS. May I add this? Of course, the State of Arizona has $8 per hundred per year interest and discount to be added. So it is the same thing out there. This is nothing new. What will we do? What would our reaction be on the 15.4 percent? I do not know. You know very well that under the Truth-In-Lending law we will be required, if we advertise, to point out that the rate ranges from one point to another point. When the customer comes in to borrow, if he is charged eight percent, we would say that it is 15.4 percent. I think that we would continue to make these loans right along. I prefer that it be handled as in so many States, as in the State of Arizona, for example, and I must say that the State of Virginia, a competing State, too. We dislike being the symbol here on this, but, on the other hand, to point out what we are charging for this loan I think, probably, we would resent that. If you insist on it and if it had to be done, we would go ahead and do it. After all, these people must know that when they cross the District Line they pay a lot more than that. Maybe some of the local banks would not. And they would get out of the business. I think that mine would, probably, stay in it, whichever way you handled it. Mr. STEIGER. I do not want to belabor this. I think that we would like to say from what you have told me it is that you would prefer that it not be generally known that you charge 15.4 percent Mr. GUNTHER. I did not say that. Mr. JENNINGS. I did not say that at all. Not at all. We will advertise that they pay 15.4 percent. It is that. Mr. STEIGER. As a matter of fact, you will advertise at 15.4 percent. Rather, you will not do that. You will advertise that you have consumer loans. You would be foolish if you did otherwise. Mr. JENNINGS. When the customer borrows, he will have to know. Mr. STEIGER. In the light of that, I accept this. And I know that you are going to comply with the law. You are only objecting to having the usury rate raised to 15.4 percent. There must be a public relations objection. Mr. JENNINGS. I suppose so. Mr. STEIGER. What you are saying is that Mr. JENNINGS. That they will not be doing that, because of the law being written as it is in Arizona where it is $8 per hundred add-on. Mr. STEIGER. What you are saying is that because the State of Arizona is permitted to deceive and that in the State of Virginia it is all right, on that basis you wish to Mr. JENNINGS. We think it is all right on the basis of the add-on discount of six or eight percent. We think it is all right. If you feel that it will be beneficial to the public, I guess our bank will continue to make loans, accordingly. Mr. STEIGER. Thank you. Mr. HARSHA I Kould like to have comparable information on Ohio WILL YOU LATE presezieiz Arizza Mr. Jassis. I think that I can get it for you from some of the reference I have. They say maximum hans-wait a minute the maximum time, no special provisions, interest charges, interest rates allowed by law. And they have a footnote here which I do not have with me, so that I cannot give you that information now. The information requested follows:) REFERENCES ARE TO OHIO REVISED CODE, AS AMENDED SELECTED LAW PROVISION B See, 134301 Maximum rate. The parties to a bond, bill, promissory note, or Cher instrument of writing for the forebearance of payment of money at any fasure time, may stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight per cent per annum payable annually. Sec. 1343.02. Bate upon judgments on instruments containing stipulation. Upon all judgments, decrees, or orders, rendered on any bond, bill, note, or other instrument of writing containing stipulations for the payment of interest in accordance with section 133.01 of the Revised Code, interest shall be computed until payment is made at the rate specified in such instrument. Sec. 1343.03. Interest when rate not stipulated. In cases other than those provided for in sections 1343.01 and 1343.02 of the Revised Code, when money becomes due and payable upon any bond, bill, note or other instrument of writing, upon any book account, or settlement between parties, upon all verbal contracts entered into, and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of a contract, or other transaction, the creditor is entitled to interest at the rate of six per cent per annum, and no more. Sec. 1343.04. Usurious interest. Payments of money or property made by way of usurious interest, whether made in advance or not, as to the excess of interest above the rate allowed by law at the time of making the contract, shall be taken to be payments made on account of principal; and judgment shall be rendered for no more than the balance found due, after deducting the excess of interest so paid. Sec. 1701.68. Usury. No domestic or foreign corporation, or anyone on its behalf, shall interpose the defense or make the claim of usury in any proceeding upon or with reference to any obligation of such corporation; nor shall any corporate note, bond, or other evidence of indebtedness, mortgage, pledge, or deed of trust, be set aside, impaired, or adjudged invalid by reason of anything contained in laws prohibiting usury or regulating interest rates. FOOTNOTES Any special plan bank which contracts with its depositors for the receipt of deposits which are not payable unconditionally upon demand or at a fixed time may discount interest at the rate allowed by law on loans made in reliance for repayment on the character and earning capacity of the borrower and may require the borrower as security for the loan to make periodic deposits, with or without allowing interest on the deposits and with or without additional security. The transaction is not usurious. (Sec. 1107.26, as added by Laws 1967, 8.B. No. 97, approved September 8, 1967, effective January 1, 1968.) DECISIONS OPINIONS .361 Discount of paper.-The claim that a secured note was usurious and that at the time of making the agreement the mortgagor was not correctly informed as to the payment terms was rejected by the court since by making a number of payments, the mortgagor ratified the terms of the agreement, and as between the dealer and the finance company, the transaction bore the outward form of a sale or negotiation of the note. As long as this was true there could be no usury, as there had been no loan of money and no charge for the use of money. Bills and notes, like other property, may be bought and sold, and a discount at any rate is not usurious.-Battle v. Patsy Auto Sales, Inc. Ohio Ct. App. 1951) 99 N. E. 2d 812. Mr. HARSHA. Thank you. Could I ask you this question? Somewhere in the testimony it developed that your counsel had some judicial decisions as to this add-on cost, to the effect that it was legal. Mr. GUNTHER. Yes, sir. Mr. HARSHA. Do you have that? Mr. JENNINGS. That has already been turned over. Mr. HARSHA. Thank you. Mr. JENNINGS. That letter has been turned over. Mr. HARSHA. That is all I want, Mr. Chairman. Thank you. Mr. DowDY. Thank you, Mr. Gunther and Mr. Jennings. I believe that the D.C. Building & Loan Association is not represented here. Is Mr. John Raymond here? Mr. GUNTHER. No, sir; he is not. May we be excused? Mr. Dowdy. Yes, sir. The next witness is Mr. Thomas F. Moyer, Assistant Corporation Counsel of the D.C. Government. We will be pleased to hear from you now. STATEMENT OF THOMAS F. MOYER, ASSISTANT CORPORATION COUNSEL, D.C. GOVERNMENT Mr. MOYER. Mr Chairman and Members of the Subcommittee, I would just like to say this. The Mayor of the District of Columbia has been on vacation. He returned yesterday. We discussed this bill with him yesterday. Of course, the bill was only introduced last Thursday. As of last night the Mayor had still not reached a conclusion on it. He would like to discuss this further with us and with Members of the City Council. He hopes to be able to submit a report as soon as possible. Mr. DOWDY. All right, thank you. Our next witness is Mr. Robert Bloom, Chief Counsel, Comptroller of the Currency. We will be pleased to hear from you now. Mr. STEIGER. I wonder if I might address a comment to Counsel for the District of Columbia? Mr. DOWDY. Yes. Mr. STEIGER. It would be my suggestion that you present Mr. Tobriner's view to Commissioner Washington. Mr. MOYER. Yes, sir, we will make that known to him. (Subsequently, the following report was received from the District Government:) DISTRICT OF COLUMBIA GOVERNMENT, EXECUTIVE OFFICE, Washington, October 4, 1968. The Honorable JOHN L. MCMILLAN, DEAR MR. MCMILLAN: The Government of the District of Columbia has for report H.R. 19740, a bill "To authorize banks, savings and loan associations, and other regulated lenders in the District of Columbia to charge or deduct interest in advance on loans to be repaid in installments." Section 28-3301 of the District of Columbia Code presently provides that the parties to an instrument in writing for the payment of money at a future time may contract therein for the payment of interest on the principal amount thereof at any rate not exceeding 8 percent per annum. Section 28–3302 of the Code provides that, in the absence of express contract, the rate of interest upon the loan or forbearance of money, goods, or things in action, shall be 6 percent per annum. 21-111 0-68 4 |