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Mr. LEARY. It does seem the regular credit card fellows are going into the third-party business.

It is interesting to find out how many of the items that you are now solicited to buy are priced at $49.98 or lower. I expect that has something to do with the origin of the proposed $50 limitation.

It is interesting that if you ask the American Bankers Association what the average ticket is in credit card transactions, that it is way below the $50 limits. Thus, if you impose the $50 limit, you are in effect saying, "Well, we are going to exclude the great bulk of the transactions that go on credit cards from any consumer protection.”

I have in my statement suggested one of three compromise areas. There is the one you talked about with Miss Kessler, that is, protections apply only to transactions in the same State the issuer and the merchant have offices, or the cardholder has a residence. There is also the standard metropolitan area limitation, but it seems to me there is another area where compromise could well be effected and that is to exclude from the coverage of your section 172 in S. 914, food and drink consumed on premises, lodging, tickets for travel, and entertainment.

One of the big arguments made to me by the credit card people is that they fear-if defenses are allowed in—the nonacceptance of a credit card at a distance from the cardholder's residence and place of business of the issuing bank. It seems to me in the consumer context—if I am the consumer—and I am traveling, I will use my credit card, so to speak, in lieu of travelers' checks. I know I have to pay cash for those first, and that I will have to take my chances with the merchant if I use a traveler's check.

On the other hand, when I am buying hard goods, or I am solicited to buy everything from towels to soap, I would like to have my defenses protected, especially when I am solicited to buy on a time payment plan.

One thing that should be able to be handled in this age of cibernetics by some symbol in the credit card industry would be the identification of food and drink consumed on the premises, lodging, travel, and entertainment. But the consumer defenses should be upheld without limitation as to amount or locale in the purchase of hard goods and the purchase of what I call consumer capital goods.

I also suggest that you should make some distinction, just as the National Commission of Consumer Finance did in their recommendations, and permit the consumer to assert his defenses when the card company has directly solicited him, or has permitted a direct solicitation to come through the mails soliciting the use of the particular card, as for example, American Express on the insurance. It seems to me this comes very close to the doctrine of related lender that the National Commission on Consumer Finance was talking about.

The second point that I think we should talk about for a few minutes is a new form of credit which your bill does not seem to reach at all, and that is the so-called ready cash or instant cash or other check credit plans, where the bank advises you, "Don't worry about an overdraft. If you overdrew your account, we will put the money in for you."

They put it in in fixed increments, $25, $50, or $100. Then they have a schedule of paying back which they do not make as clear as they might in the initial transaction, so that one tends to forget or is not told. We have given you a few examples where a fellow had overdrawn by $500 in a hypothetical example. We then put his salary check of $750 in his deposit account on the first of the month. He was charged for the month on the full $500, although his actual use of money was only $177.

It seems to us that, while you are interested in prohibiting retroactive finance charges, there is also an interest in prohibiting prospective finance charges after the debt has been paid back.

A third area concerns a few technical items. We have points in our statement with respect to the preemption of State laws, and with respect to the use of the words "notwithstanding any agreement to the contrary" in section 170, which would, to some lawyers, raise the implication that the rest of the statute is subject to agreement otherwise. This implication is something you definitely would not want, because then all the statute will be doing is adding a line of fine print to the normal contract.

We have also urged that a more detailed report on interest rates be required, and I would urge the committee to add section 206 from 1630 into S. 914, if that is the bill the committee ultimately reports out, and I would hope it would be. I urge this because we have been trying for some time to get detailed information on what the effect is of various consumer laws on consumer credit. Those are exactly the kinds of questions you have been asking. I, personally, have had conferences with some of the officials of the Federal Reserve Board to try to get them to report interest rates on a geographical State-by-State basis. This would enable us to see whether there is any correlation between interest rate and the availability of various consumer protection laws. So far, the effort to obtain a geographical breakdown has been unsuccessful.

My fourth point concerns the matter of civil liability, and it seems to me that both S. 914 as it is now drafted and S. 1636 do not quite get to the heart of the problem. I have suggested in my statement that the committee make a slight change in the measure of damages. In the individual suit the measure of recovery should be twice the amount of any finance charges, plus any actual damages and I would include there, "including consequential and incidental damages caused by the failure to comply," as well as a sum to compensate the individual plaintiff for time and effort consumed in the case. Here, we suggest that the liability should not be less than $100 or greater than $2,000 as determined by the court, based on the number of days that the individual plaintiff spends on the case. We suggest this because, if courts are refusing to certify class actions—and I get that feeling from my reading of the cases, too, because of the potentially large awards—damage then if the policy is to encourage individual plaintiffs to take 5, 10, 15 days off from work to be an individual plaintiff, you have to give them something more than the $100 that the act would now give an individual plaintiff.

The reason for that spread between $100 and $1,000 has not been spelled out, I do not believe.

We then say that particularly if defenses are going to be preserved, there is need not only to cover attorney's fees, but also the cost of expert witnesses and economic experts.

!

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