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or consumer accounts. There the consumer rules would not be applicable to business accounts no matter what the particular transaction was in which the card was used.
REPORT ON INTEREST RATES Section 206 of 8–1630 has no counterpart in S-914. With slight modifications it can be a most important section. Traditionally states have been laboratories for studying the effect of changes in law. With the present variegated pattern of state law as to creditors remedies in consumer finance, it is important that there be knowledge as to the impact of changes in creditors remedies on the cost of consumer credit. We have urged the Federal Reserve Board to give some geographical break-down to its reports to the Committee on Interest and Dividends on interest rates. We have so far not been successful. The report should have a state by state breakdown of interest costs and finance charges and amounts of credit extended in the following categories A. Installment Credit 1. Automobile Paper
(i) New Cars--purchased paper
(vi) Used Cars-4-6 years old—direct loans
(i) New-purchased paper
(iv) Used—under 5 years old-direct loans 4. Home Repair and Modernization Loans
5. Other Personal Installment Loans B. Non-Installment Credit
1. Single Payment Loans
2. Check Credit The distinction between “purchased paper" and "direct loans" is valuable in determining the effect of an abolition of "holder in due course” and “waiver of defense” rules. For example Federal Reserve Board Statistical Release G-18 dated May 4, 1973 shows that of $2.609 billion dollars of automobile credit extended in March 1973 by commercial banks 58.5% was purchased paper. In March 1972 the percentage of purchased paper was 57.9%, and for June 1971 the figure was 59.4. Again we have no state by state breakdown.
Both bills modify the civil liability sections of the Truth in Lending Act without change in the language with respect to the award of attorneys fees to the successful consumer plaintiff since the language refers to a successful action “to enforce the foregoing liability." But what of the consumer who successfully interposes a defense to a creditor's action. Shouldn't attorney's fees be recovered in this situation, too? We believe so.
The language "a reasonable attorney's fee" should be broadened to make it clear, as it was to the judge in the Ratner case (Ratner v. Chemical Bank, N.Y., 54 F.R.D. 412 (S.D.N.Y. 1972)] that the dollar amount of any recovery should not be a limiting factor, hence the sentence should now end with the words "at reasonable hourly rates based on time reasonably spent without regard to the amount in controversy." Consideration must also be given to the fact that representation of consumer interests is necessarily of a contingent nature. If not successful the attorney is just not paid, unless he is on salary with some group legal services organization. Hence there should be legislative history to show that the “reasonable hourly rate” should reflect the contingent nature of a consumer attorney's representation.
An element that should be added is the fee of an expert witness or an economics experts in the preparation of a brief. As matters become more complex, expert witnesses will become more and more necessary to enable consumer actions to be successful. We also suspect that expert witnesses will become more and more expensive. Under existing rules of law, experts may not be subpoenaed to give expert testimony where fee arrangements have not been made, particularly where the testimony is in the nature of expert opinion. The creditors have easy and mutual access to this type of witness. An example is found in the parade of witnesses for the defense in Messenger v. Sandy Motors [195 A. 2d 402 (N.J. Super Ct., Chanc., 1972)] in New Jersey, or the econoinic appendix to a brief amicus in Adams v. Egley, 338 F. Supp. 614 (S.D. Calif. 1972) appeal Docketed No. 72–1484 9th Cir. Mar. 1972 prepared by Dr. Robert Johnson of the Krannert School of Business Administration of Purdue University.
Thirdly, there is the problem of compensating an individual plaintiff or two or more participating plaintiffs for time taken from gainful employment to consult with counsel, locate documents and other data desired by counsel, submit to opposition depositions and discovery, wait at the courthouse when his case is listed for trial until the proceeding is actually started, and for days or hours spent at trial. We suggest that this is the function of the fixed dollar figures, but at today's prices the spread should be from $160 (4 days at $40) to $2,000 (20 days at $100).
The business defendant has these costs too, but they can be included in overall costs of operation where the burden will be spread, mostly in the cost of the product or service or credit, and in part absorbed by reducing profit. If we take almost any one of the Fortune's 500, very sizeable awards in dollar amounts appear miniscule in comparison with net profit or cost of sales. So too with the purveyors of finance. Bank of America has a new worth of over $1.2 billion. An award of $100,000 is roughly 8143 thousands of 1% of that figure. Given a bank one hundredth the size of Bank of America, the award of $100,000 would be eight-tenths of 1% of that figure.
Hence, we can conclude that, in individual suits, the recovery of the items of cost and expense we have suggested will not impose any serious burden on credit grantors. We would, therefore change the proposed rules of damages for individual suits so that they would read, from line 19 on page 18 of S-914 as follows:
“any person is liable to such person in the case of a successful action or defense based upon a violation of or a failure to follow the provisions of this act, for an amount equal to the sum of
“(A) in an individual action.
“(1) twice the amount of any finance charges imposed in connection with the transaction ;
"(2) any actual damages, including consequential and incidental damages, caused such person by the failure :
* (3) a sum to compensate the person for time and effort consumed in the case, but the liability under this subparagraph shall he not less than $100 nor greater than $2,000 as determined by the court; and
(4) the cost of the action including reasonable fees and expenses of expert witnesses and economic or other experts reasonably employed in connection with the case, together with a reasonable attorney's fee based on compensatory hourly rates for the hours reasonably expended, all as determined by the court.
“(B) in a class or other group action : ...." At this point we would like to pass, for, in the time since we were requested to prepare our testimony, we have not been able to reach any conclusion except that we are not in favor of the class action language in either S-914 or, even more so, in S-1630. There are some rather novel suggestions under discussion in various quarters, and, if we may, we would like to submit a written memorandum on this aspect at a later date when we have reviewed more thoroughly the qui tam and declaratory judgment proposals which we understand will be proposed.
We thank the Committee for this opportunity to present our individual views on this important legislation.
SUGGESTED REDRAFT-S-914, SECTION 172
SECTION 172. RIGHTS OF CREDIT CARD CUSTOMERS
(a) A credit card issuer shall be subject to all claims and defenses of the card holder arising out of any transaction in which the credit card is used
(1) in any sales, lease or service transaction in which the seller, lessor or person rendering the service is the card issuer or any person under direct or
indirect common control with the card issuer or who is a franchised dealer in the card issuer's products or services or who through the mails or by other advertising solicits the card holder to enter into the transaction and use the particular credit card or one issued by an affiliated card issuer;
(2) in any sales, lease or service transaction in which the seller, lessor or person rendering the service is not subject to the provisions of sub-paragraph (1) provided
(i) the transaction does not involve food or drink consumed on the vendors premises, or travel, lodging, or tickets for entertainment; and
(ii) all liability for any one transaction shall not exceed the amount initially financed in that transaction; and
(iii) at the time the card holder gives the card issuer notice of his intention to assert the claim or defense, the card holder has not paid for
the transaction if full. (b) After receipt of a notice of intention to assert a claim or defense, the card issuer shall take no action to collect the amount of the disputed transaction or any part thereof until the card holder has had one full billing cycle in which to negotiate a direct and satisfactory resolution of the dispute or problem relative to the transaction with the person honoring the credit card.
(c) A card holder who does not give notice to the card issuer within a reasonable time after discovery of the facts giving rise to the dispute or problem and make a good faith attempt to promptly negotiate a direct and satisfactory settlement during the billing cycle following his notice of intention to assert a claim or defense shall, unless he has previously made such an effort and reached an impasse, be deemed to have waived the claim or defense.
(d) For the purpose of determining whether a transaction has been paid for in full, the amount originally financed shall be reduced at each billing cycle
(i) by the amount of and agreed monthly or other periodic installments; or
(ii) if there has been no such agreement by the application to the amount originally financed of the minimum monthly payment required by the card issuer, as if the disputed transaction were the only item in the account, plus any greater reduction occasioned when the total unpaid balance in the account at any intermediate time falls below the remaining computed balance on the disputed transaction by reason of remittances from the
card holder. (e) The provisions of this section shall not apply to credit and transactions in which the account to which the charge is made is opened with the card issuer by, and is billed to, a business or professional organization without regard to the nature of the transaction.
Source: Federal Reserve Board Statistical Release G-18 and statistical appendix of monthly bulletin for yearend figures. Percentages are our own calculations.
Senator PROXMIRE. Our final witness this morning is Mr. Mark Silbergeld, Consumers Union.
You, too, have a very substantial statement, and the statement will be printed in full in the record.
You can abbreviate it in any way you you wish, and we will get into questions (see p. 169).
STATEMENT OF MARK SILBERGELD, ATTORNEY, CONSUMERS
UNION, WASHINGTON OFFICE
Mr. SILBERGELD. Thank you, Mr. Chairman. .
As always, Consumers Union appreciates the invitation that has been extended to present our views on this very important consumer legislation.
I will summarize five areas, and then I will be happy to respond to your questions, and if there are any areas which we did not touch upon in detail, I will be glad to make short additional statements. We did not cover all the technical details.
We will be pleased to submit for the record, along with the correction of comments, any more substantial technical comments you might wish.
When I testified on S. 652, I had a tale to relate to you about a personal experience with billing, and what I have found since is that having one is no indication that you have already played your odds and you aren't likely to have more.
Once again, my prepared testimony describes, in addition to the many letters that Consumers Union has received regarding billing errors, another personal experience. I would summarize that by saying that in the company involved, Citgo in this case, I found the human employees to be very sensitive-once I managed to get in touch with them. The computer employee was not terribly sensitive, and insisted on staying in touch with me in lieu of personal contact.
We feel that the billing error section is really a must for consumers. At present there is no incentive for the credit operations of card issuers to have people who are particularly competent at dealing with their computers in the more complex situations, and that has been my experience.
There may be a limitation on an employee or there may be a limitation on the program, but we find from our letters-once you get in touch with somebody, there is an inability to correct the data. In one case, a person was told the correction couldn't be made, that the program and the machine, or programer, or whoever, simply was not competent to enter the correction, which the company agreed should have been made.
This bill will provide the incentive for creditors to provide themselves with the ability to make those corrections properly. I
ly need to make one point with regard to this, and that is about the actual delivery provision contained in S. 914, but not in S. 1630, in which, if the consumer complains the goods were not delivered in accordance with the agreement at the time of the transactions, the creditor is required to determine that the goods actually were delivered.
We have had an increasing number of consumer complaints over the past few years about at least allegedly and from the facts de scribed to us quite apparently—falsified credit slips, in which the employee accepting the consumer's credit card may make a double impression or use the card to make a second impression upon a second slip, one or several serial numbers higher than the slip. Something appearing to be the consumer's signature appears on the billing copy that the consumer sees that does not compare with the tissue copy which the consumer retained.
The credit card issuer may not be directly responsible. But we are extremely concerned.
The result is that
Senator PROXMIRE. That wouldn't be an employee, that would be an independent agent that would get benefit?
Mr. SILBERGELD. Most have been franchised gas stations. There have been others. There was a charge for a completely nonexistent purchase of flowers, which was described by the credit card issuer as being in one city and the customer said she never made that purchase.
The second response described a second florist in a second city as being the source of the purchase, and despite the customer's indication
Senator PROXMIRE. Was that a married couple involved in that one? Mr. SILBERGELD. That is right.
Senator PROXMIRE. Are you sure it wasn't a fellow who was giving flowers to somebody else, not his wife?
Mr. SILBERGELD. That is a possibility. But I think if that were the case he might have been somewhat hesitant to raise a fuss and pass letters around to a variety of consumer organizations about it, however.
Senator PROXMIRE. Maybe he wanted it to be known that he was a lothario.
Mr. SILBERGELD. That is a possibility.
Senator PROXMIRE. When you reach a certain age, up until you reach a certain age, you are concerned about that.
Mr. SILBERGELD. I see your point.
Retroactive finance charges. Use of the previous balance method is contrary to the notion, as expressed in the congressional determination for the actuarial method, that consumers only pay for as much of the credit as they have had outstanding at the time the finance charge is computed.
We strongly support the prohibition on the previous balance method.
I am aware of the discussion that has taken place this morning previously on the question of whether the adjusted balance or the daily balance should be acceptable.
Arguments have been advanced that the adjusted balance may be necessary for stores which do not have the electronic facilities for computing an average daily balance and must post by hand, and arguments have been made counter to that, that a single method of computation should be required.
Frankly. I am somewhat concerned about the possibility that was alluded to by, and I think more fully explained in the full statement of, the Chairman of the Federal Trade Commission this morning, that smaller merchants do not have the electronic facilities to compute average daily balances, and they may either have to contract their billing out at somewhat higher expense, or may have to acquire such, if they can afford to.