thereon, except that the amount required to be forfeited cannot exceed $50 in S. 1630 and $100 in S. 914.

The position of Consumer Federation of America is that there should be no limitation on the amount forfeited; why should the creditor be able to collect monies when it does not even choose to justify the validity of the charges it imposes? These sections may even enable a creditor to derive benefits from its own international wrongdoing.

Some deterrent effect should be built into this statutory framework; and, at a minimum, traditional notions of justice require that a violator of the law should at least stand to lose the full amount of an incorrectly billed total. CFA proposes that in addition to providing for forfeiture of the full amount in dispute there should be a provision permitting recovery of punitive damages for intentional or grossly negligent misconduct of the creditor in violation of Sections 161 or 162. In addition, the consumer should not be precluded from the recovery as presently provided for in Sec. 130 of the Truth in Lending Act.

7. LENGTH OF BILLING PERIOD

Granted, these are very arbitrary determinations. However, CFA strongly believes that consumers ought to have more than a minimum of fourteen (14) days at their disposal in which to pay a bill not subjected to additional finance charges. Allowing time for incoming and outgoing mail may leave but a week in which to pay the bill, and this is simply not adequate time to investigate the validity of a statement or, if necessary, to arrange for a loan to cover it. Also consumers, like businesses, often schedule bill paying for once a month. It is suggested that the consumer have thirty (30) days in which to send payment, or at a bare minimum twenty-one (21) days.

8. CREDITING EXCESS PAYMENTS

S. 1630 and S. 914 provide in Sec. 165 that where the obligor pays more than the total balance due that "the creditor shall promptly (1) upon request of the obligor refund the amount of the overpayment, or (2) credit such amount to the obligor's account." As additional prophylactic procedures, CFA suggests that the consumer either be affirmatively informed by the creditor of the overpayment and the consumers option of having it returned or credited to his account; or, if the money overpaid is not drawing interest while sitting idly in the account, then perhaps it should be required that the amount of the overpayment only be permitted to stay in the account when a separate consent of written approval is received from the consumer.

9. PROHIBITION OF MINIMUM FINANCE CHARGES

Said prohibition is found in S. 914 but not in S. 1630. As originally proposed in S. 652, "No creditor who operates an open-end credit plan shall impose a minimum finance charge on the periodic billing statement." S. 914 continues the proscription, with two exceptions if the charge is uniformly levied on all accounts and is directed toward recovering legitimate billing expenses.

Consumer Federation of America does not hesitate to join those states which have already acted to proscribe these charges in toto. The arguments here are also well-worn, and, without adding fuel to the existing inflammatory rhetoric, CFA does no more than reaffirm its belief in the inequitable, if not unconstitutional, nature of this "tax" on low income customers which, in effect, exact usurious interest from the poorer consumer users of credit cards. In short, the uniformity of imposing these charges on all accounts may lessen the invidiously discriminatory impact of this practice, but it will not eliminate it.

10. LIMITATION ON CLASS ACTION LIABILITY

There has been considerable discussion of late concerning the propriety of class actions based upon disclosure violations of the Truth in Lending Act. As a result, there has been strong sentiment voiced in various circles to impose a limit on the recovery a class action may realize. To reach this end. S. 914 suggests a limit in the total recovery of a class action of the greater of $50,000 or 1 percent of the net worth of the creditor. S. 1630 proposes a flat limit of $100,000, S. 1630 also provides for "a reasonable attorney's fee which shall be the reasonable value of the services rendered by the attorney without regard to the amount of any recovery."

The Consumer Federation of America is flatly opposed to any legislative limitation on class action liability. The judicial process has proven its ability to interpret Rule 23 of the Federal Rules of Civil Procedure and exercise the discretion contemplated by the Rule which is necessary for fair resolution of differing and unique factual patterns. Each case deserves to be considered on its own merits. Certainly no remedies for disclosure violations of the Act have been judicially imposed and caused a company to go out of business. In sum, without commenting upon the value in sustaining the financial security of a corporate entity which does not comply with the disclosure provisions of the Truth in Lending Act, it appears to CFA that a flat $100,000 limit on a § 130 class action recovery is without a sound basis of reasoned support.

So far as the limit on attorney's fees is concerned, CFA reminds the Subcommittee that the attorney who brings a class action subjects his practice to great risks as it is. Just as there is no limitation in Title VII discrimination suits so should there be no limitation in consumer credit litigation. The prudent lawyer must carefully weigh the time and investment of energy and resources prior to agreeing to serve as counsel to a class action suit. The recovery, if any, can be long in waiting and ultimately not worth the price expended. True enough, it is difficult to justify windfall profits to an attorney based upon the size of a recovery as opposed to the actual services rendered toward securing the victory. However, it strikes CFA as even more difficult to justify a system which enables a corporation to effectively insulate itself from illegal activity, so that illegal conduct amounts to no more than an ordinary accounting item to be considered in the economic cost of doing business. Furthermore, in most cases it is very difficult to predict the likelihood of success. Consequently, the valid claims of thousands of persons who have been wronged may not be corrected by the legal process where there is not sufficient incentive to counsel who anticipate a long hard fight ahead.

11. TIME LIMIT FOR RIGHT OF RESCISSION

Sec. 210 of S. 1630 proposes to amend Section 125 of the Truth in Lending Act to limit the time a consumer has to rescind a transaction in which the creditor has violated the Act to three years from the date of consummation of the transaction. CFA contends that this proposal is tantamount to encouraging the creditor who violates the law to refrain from giving notice to consumers of their valid legal rights. In effect, this amounts to a legislative incentive for continued violation of the Act which we submit justifies the immediate withdrawal of this section from consideration by the Subcommittee.

12. GOOD FAITH COMPLIANCE

Sec. 211 of S. 1630 seeks to add a new subsection to § 130 of the Truth in Lending Act to provide, in general, that any act in violation of this law which is committed by the creditor in good faith compliance with a rule, regulation, or interpretation of the Federal Reserve Board shall not result in the imposition of liability on the creditor. The Consumer Federation of America submits that this proposed section results in the delegation of authority to the Board in contravention of well-established legal principles. In short, it can effectively insulate the Board's judgment from judicial review to the detriment of consumers.

When a statute is written, all persons subject to it must interpret the law as they see fit subject to the traditional risks of interpreting the law incorrectly. And, just as a law is subject to the risk of being incorrectly interpreted, such should be the case with an interpretative ruling or regulation. A mistaken interpretation, even when a result of a good faith reading of a Board ruling simply should not be able to curtail judicially recognized consumer rights and remedies. Therefore, the creditor should stand in no preferred position to that of the consumer in pre-judging the meaning of a rule or law, and this proposal must be deleted from any fair credit bill that passes this Subcommittee. Thank you for the opportunity to comment.

Senator PROXMIRE. During the debate on S. 652 last year, it was argued that deletion of some provisions from the bill would be harmful to consumers in the long run. Do you consider the alleged anticonsumer effects of the two provisions I have cited in determining your position?

MS. KESSLER. Senator, that argument is always raised when we try to eliminate the holder-in-due-course doctrine. It is interesting to me that it is the people who have been fleecing the consumer in one way or another who raise that argument.

As you know, extensive testimony was given to the FTC on this very issue. I think the answer is very simple, really, the argument seems to be that, if we abolish holder-in-due course, a lot of small businesses will be forced out of business and the consumer will not be able to get credit and the price of goods will go up.

There are a number of States in the country which have either abolished the doctrine or severely limited it. There has been no study, to my knowledge, in most States showing the kind of anticonsumer effects predicted. This point is totally unproven and speculative. I do not think it is going to happen. I do not think businesses are going to go out of business or be forced into bankruptcy. I think historically, whatever field you are talking about, labor standards or consumer matters, for that matter, whenever Congress has taken action to increase the protection of the public, the industry always comes in screaming that they are going to go out of business, don't go out of business, they tailor their practices, and improve their practices and the consumer is always better protected.

Finally, I think you have to deal with the honest question whether unlimited credit should be available to people. My own conclusion is that you do not do the uncreditworthy consumers any favor by giving them easy access to unlimited credit which is going to get them deeper and deeper into a morass of debt. So, in that sense, if the givers of credit become a little more careful in whom they give credit to, and impose tighter restrictions in terms of making sure that the people who incur credit obligations will meet them, I think, in the long run, that does not hurt the consumer at all.

Senator PROXMIRE. I am grateful for your qualified endorsement of S. 914 and I assure you that the original S. 652 would be preferable. However, I hope you realize that we have 16 members of this committee with different views on the subject and it is sometimes necessary to tailor legislation to achieve majority support.

Nonetheless, when a bill is substantially weakened, we need to really draw the line and start all over again. This is what a number of us who supported S. 652 did last year. We voted against it because it was weakened so badly that it did more harm than good. I think it is one of the few times that all of the cosponsors of legislation voted "No," when it came up for final passage.

In that connection, I would appreciate your guidance on the kind of bill the CFA could support, albeit reluctantly.

No. 1, could you support S. 914 if the holder-in-due-course provision under section 172 were eliminated?

MS. KESSLER. Do you want to speak to that?

Mr. BLUESTONE. I think the CFA would have to say no to that. Senator PROXMIRE. Do you agree?

MS. KESSLER. Yes, we do. For this reason. We are a membership organization and we respond to our board's directives. The policy of our board is very clear that abolition of the doctrine is really essential to the enforcement of consumer rights and we consider that a key provision of the bill. I understand full well problems in terms of

tailoring this legislation and getting it out of the committee and I think the cosponsors of your bill last year were completely justified in voting against it when it finally came to that vote.

I think that the problems in terms of getting it out of committee may be one set of problems whereas the actual vote on the flood may come out very differently. So, while you may be forced to take one tack in the committee, it may be possible to remedy it once it gets to the floor. But we would have to, as an organization, oppose a bill that did not have that provision in it.

Senator PROXMIRE. We did better in the committee than we did on the floor. We won in the committee-I guess we lost 8 to 7 and we lost on the floor by 10 votes. It was 46 to 36, or 38—something like that. Mr. Bluestone?

Mr. BLUESTONE. I think the only other provision that the CFA at this time is in a position to say is not negotiable so far as protection of the consumer is concerned is the prohibition of retroactive finance charges.

Senator PROXMIRE. You anticipated the second part of the question. I am glad you did. The question is, Could you support S. 914 if the retroactive finance charges were eliminated?

Mr. BLUESTONE. In all fairness to the body of the Consumer Federation of America, I don't think this particular question has been addressed in full as has the question of the holder-in-due-course doctrine, but in our discussions with representatives of the CFA, these two points, the holder-in-due-course abolition and the prescription of retroactive finance charges, have received prime attention. We deem both necessary for minimal consumer protection.

Senator PROXMIRE. You have to have both of them. If you had one, it would not be enough.

Mr. BLUESTONE. That's correct.

Senator PROXMIRE. Some retailers have argued that the average daily balance system is the fairest system because that charges the consumers for the exact amount of credit they use. What is your view on that?

Mr. BLUESTONE. This argument has been made before. In fact this is not susceptible to a quick and easy answer.

In short, we believe that, if the advertiser of the consumer credit is going to report to the consumer that he is only being charged 112 percent on an average monthly basis, then that is a nominal rate but that should also be the actual rate. Where the charge amounts to greater than 111⁄2 percent per month by imposition of a retroactive charge, whether it is done on an average daily balance system, or whatever, then that, in fact, is usurious. Thus we do not think it is fair to the consumer, as the adjusted balance system is.

Senator PROXMIRE. Do you recommend that the adjusted balance method be used for creditors on revolving charge accounts? The retailers claim they don't get enough yield under that method and if they were required to use it, they would have to raise their prices. This might place small retailers at a competitive disadvantage with large retailers, might reduce the number of retailers and might penalize the cash customers as compared to credit customers in a discriminatory and unfair way. What is your opinion on these arguments?

Mr. BLUESTONE. Again, a good question. The problem is the balancing of interests. Under one particular method, the adjusted balance system, as we said before, at least the consumer will be able to make a knoweldgeable and intelligent choice.

On balance, we think that result is worthy of the risks that must be taken.

Senator PROXMIRE. So you feel the benefits of uniformity would outweigh the other

Mr. BLUESTONE. And the disclosure that would result. The point is the meaningful choice resulting from disclosure to the consumer of the billing system employed.

Senator PROXMIRE. One of the problems with the class action provision in the Truth-in-Lending Act is the enormous penalty that creditors would face. The act has a minimum liability per consumer of $100 for a disclosure violation. Thus, if a creditor has 10 million revolving charge customers, which is true in the case of a few retailers, he faces a liability of $1 billion. Do you think creditors need to be subjected to penalties of this size to comply with the laws?

Ms. KESSLER. I think the question, Senator, is whether we are going to include those penalties for the deterrent effect they have and then leave it to the courts as to whether those penalties should be applied in a specific situation. I believe there was at least one case in New York City against Master Charge in which Master Charge was found guilty of violating the act but again, the court ruled: "Yes, you are guilty, you did not have a proper disclosure on your monthly statement, but we will only find you guilty as to the one individual named plaintiff. We will not certify the class action."

And consequently, the damages that Master Charge was held to in that case were exceedingly low. I think the courts have been extraordinarily sensitive to the very issue you raise; namely, a very high potential liability under the act. I think, given the experience that we have had already, and there has been a good deal of litigation under Truth-in-Lending, there is no reason to expect that the courts will apply, especially in a case where you have an unintentional mistake, or one of minor importance, there is no reason to believe the courts will apply those provisions in a certification situation. They say they will not certify the class and you are not going to have 100,000 holders of Master Charge coming in to sue that particular entity. You are just going to have one person coming in to sue. So the problem is taken care of under rule 23 and I do not think there is any need to change the precedent which we have established; namely that if credit givers are violating the act, then they are going to be subject, at least potentially, to substantial penalties.

Senator PROXMIRE. It is expensive to pursue on a case-by-case basis. I would agree that we have to face reality that the courts are not going to honor the class action element here but when we have this enormous potential liability, there ought to be some compromise that would induce the court to honor the class action status.

Mr. BLUESTONE. I don't really think so, Senator Proxmire, with all due respect. I believe there has been a very well written opinion in the last couple of months out of the 10th circuit, in the case of Wilcox v. Commerce Bank of Kansas City. The court reaffirms the conviction