Mr. BUCHANAN. I cannot testify to that, Mr. Chairman. I have no knowledge of the experiences of the credit card companies other than the airlines operating under the UATP plan.

Senator PROXMIRE. Is there any evidence that the evidence of lost or stolen credit cards has increased since the enactment of the limitation of liability provision?

Mr. BUCHANAN. There is evidence, sir, if I might state. In the case of one carrier, a member of the universal air travel plan, there is now a total of about $200,000

Senator PROXMIRE. I was talking about consumer cards.

Mr. BUCHANAN. Oh, consumer cards. I cannot testify to that, sir; I have no knowledge of that.

Senator PROXMIRE. Was there any reason to assume that businessmen using company credit cards were less responsible or honest than consumers using their own cards?

Mr. BUCHANAN. No reason to think so, sir. The incentive at the present time is for the holder of the universal air travel plan to report the loss or theft of the card at the earliest possible time, which he can do by telephone or telegram.

Senator PROXMIRE. Why wouldn't he still have the incentive if he is liable for $50?

Mr. BUCHANAN. Perhaps there would be some incentive with regard to the liability for $50, but it is our belief that the incentive would be greatly diminished, and that the removal of the present business exemption to that liability would have the effect of increasing the airlines' losses for unauthorized use of credit cards.

Senator PROXMIRE. That hasn't been borne out on the consumer side. Mr. BUCHANAN. I cannot testify as to that, sir.

Senator PROXMIRE. It seems to me, if I were working for a corporation, I would be even more careful about losing a card that would involve the corporation even in $50, because, after all, that is a black mark on your record. No employee, who has any sense of responsibility or self-respect or loyalty toward his employer, would want to get into a position where he has that mark.

In fact, I would-most employees, I would think, would rather pay it themselves, the $50, than to have the boss say, "This guy lost his card and cost me money."

At the same time, if I were a corporation, I would be very annoyed, if I were a corporation executive, and I had an employee who lost his card and cost the corporation $50-the way corporations operate, they pay the $50, and to pay it and explain it would probably cost considerably more than that. So I don't see that there is any, at least prima facie, obvious convincing evidence that the employee would be more careless than the normal consumer would be.

Mr. BUCHANAN. The point in our entire testimony. Mr. Chairman, is that, if the business exemption were removed from the liability provisions, that would shift the liability from the corporate account as distinguished from the individual cardholder to the airlines. The corporate account has the liability under the universal air travel plan until it gives notice of the loss or theft. It would shift that burden from the corporate account to the airline which issued he card, and, of course, I again wish to emphasize that as of today neither the cardholder not the corporate account bears any liability whatsoever after notification

to the airlines of the loss or theft of such a card. The airlines assume all liabilities from that point on.

Senator PROXMIRE. Well, I understand your position. It is still very difficult for me, frankly, to see why we should discriminate. I will study this carefully, and I appreciate very much your testimony. Mr. BUCHANAN. Thank you, Mr. Chairman. [Complete statement of Mr. Buchanan follows:]

STATEMENT OF GEORGE A. BUCHANAN VICE PRESIDENT-TRAFFIC AIR TRANSPORT ASSOCIATION OF AMERICA, AND SECRETARY UNIVERSAL AIR TRAVEL PLANS

My name is George A. Buchanan. I am Vice President-Traffic of the Air Transport Association of America and Secrtary of the Universal Air Travel Plan. With me today is Mr. Jerome F. Huisentruit, Assistant Counsel of ATA and Counsel for the Universal Air Travel Plan. The Air Transport Association of America is the trade association of the U.S. scheduled airlines. The Universal Air Travel Plan is a joint credit card program of U.S. and foreign scheduled airlines. Administrative services are provided by members of the ATA staff for the Plan, which I am representing today.

We appreciate this opportunity to testify on the two Bills that are being considered by this Subcommittee, S. 914 and S. 1630. We will concentrate our comments on Section 210 or S. 914 which would remove the application of the business purpose exemption contained in Section 104 (1) of the Truth in Lending Act from its present application to Sections 132, 133 and 134 of the Act, which deal respectively with the liability of credit cardholders, the unsolicited issuance of such cards, and the theft of credit cards.

The UATP is the standardized credit card plan of the scheduled airlines of the world. It is a Civil Aeronautics Board approved inter-carrier agreement in which some 160 U.S. and foreign airlines participate. The Plan operates to extend airline credit to "subscriber" accounts, which are almost without exception businesses and commercial concerns, both small and large, including such organizations as International Telephone and Telegraph, General Electric, General Motors, American Telephone & Telegraph.

The subscribers enter into a contract with one of the airlines, pay a one-time $425 deposit and then may request that any number of Air Travel Cards be issued to their personnel. The cards are then issued to named individuals by the contractor airline. All charges against such cards including charges on airlines other than the "contractor" are consolidated by the contractor airline and are billed to and paid by the subscriber account as opposed to the individual cardholder.

The UATP card, unlike the vast number of bank type and general purpose credit cards, offers the feature of monthly centralized and single billing of the subscriber company for all charges on outstanding cards of that account. There are presently 115,000 subscriber companies under the Plan with some 1.7 million Air Travel Cards issued to personnel of these organizations. The point that I wish to emphasize here is that the Universal Air Travel Plan is designed to be used, and is in fact used, primarily for business or commercial purposes.

The present UATP Subscriber's Contract provides that, in the event of a lost or stolen card, the "subscriber will be responsible for the value of the tickets and other documents so purchased" until that loss or theft is reported to the Contractor airline. As a result of this provision, the UATP Contractor airlines have a contractual right to recover from the subscribers all charges which have been incurred prior to notification by the subscriber of loss or theft of a card. After such notification the carriers assume all risks of unauthorized usage.

Title I of the Consumer Protection Act provides in Section 104 that certain transactions are exempt from coverage, among these are credit transactions involving extensions of credit for business or commercial purposes, or to government or governmental agencies or instrumentalities, or to organizations. The exempt transactions all involve an extension of credit to those individuals or entities who are not "consumers" as that term is commonly used and as defined in Section 103 of the Truth in Lending Act.

Pursuant to the provisions of Section 104 of the Act, the Federal Reserve Board on July 1, 1969, adopted certain regulations, known as Regulation Z. implementing these provisions of the Act. The exemption for business credit, provided by law was included in Section 226.3 of the Board's regulations.

On October 26, 1970, Congress enacted Public Law 91-508 which, among other things, amended the Truth in Lending Act by adding new definitions and substantive provisions. These provisions prohibited the unsolicited mailing of credit cards (Section 132), limited liability in the event of unauthorized use to $50 (Section 133), and provided for criminal prosecution for those who steal credit cards (Section 134). This law, however, did not amend the exempt transactions provision of the Act as originally adopted. Moreover, the legislative history of Public Law 91-508 demonstrates that Congress intended to include the credit card provision in an Act which contained a business purpose exemption. The inclusion in other Acts which did not contain such an exclusion was considered but rejected.

After the enactment of Public Law 91-508, the Board amended Regulation Z by adding provisions to implement the new credit card amendments. Again, no amendments were made dealing with the exempted transactions.

On February 5, 1971, UATP informed the Federal Reserve Board that in its view, the business exemption of Section 104 would apply to virtually all UATP subscriber accounts. On February 24, 1971, the Board replied:

"This is in response to your letter of February 5, 1971, concerning the limitation of liability contained in Section 226.13 (c) of Regulation Z for the unauthorized use of credit cards.

"Most subscribers to the Universal Air Travel Plan are commercial or business accounts. However, occasionally there are some accounts existing for consumer purposes. Since these accounts are somewhat difficult to identify, you propose to place on the notice of limitation of liability a statement to the effect that the limitation does not apply to business, commercial, governmental or organizational cardholders where the card is being used for a business or commercial purpose. In our view, this would be an acceptable way to deal with the problem."

This opinion of the Board was followed by two informal staff opinion letters written by the Board's Chief, Truth in Lending Section. On June 3, 1971, in response to an inquiry regarding the applicability of Regulation Z to another card issuing company he wrote, as reported in Volume 4 of the Commerce Clearing House Consumer Credit Guide that:

"As we understand it, these cards are issued exclusively to operators of commercial motor vehicles for use in paying tolls on the thru-way. In the staff's view, this amendment to the Act is subject to the exemption in Section 104 for credit transactions involving extensions of credit for business issued."

or commercial purposes, and is therefore not applicable to the charge card things, that the adoption of these amendments would exceed the Board's authority and that the amendments were not authorized by the original provisions of the Truth in Lending Act or by the subsequent amended provisions relating to credit card usage. Following the implementation of these amendments to Regulation Z, UATP applied to the Federal courts for a declaratory judgment that such regulations are invalid as a matter of law and to request that the Federal Reserve Board be permanently enjoined from taking any action to enforce or otherwise give effect to such regulations. A decision has not yet been rendered.

In view of the foregoing we feel it is clear that the Truth in Lending Act is intended to benefit the individual consumer and is not intended to protect or insulate the commercial or business users of credit cards and other credit financing arrangements. We suggest that there is no valid reason why a conAnd in the second of these letters, on July 15, 1971, as stated in the same publication, the Board's staff stated:

"It has been the staff's view that it was the congressional intent that the credit card amendment be subject to the Truth in Lending Act's exclusion for extension of credit for business or commercial purposes." Subsequent to the above comments, an informal staff opinion letter of the Federal Trade Commission, dated September 2, 1971, stated that it was the staff's view that Section 104 indicates a clear Congressional intent to provide protection only in situations in which "consumer credit" is being extended.

Notwithstanding these opinions and staff comments, approximately one year later, on August 4, 1972, the Federal Reserve Board issued a Notice of Proposed Rule Making amending Regulation Z, citing as its purpose the intent to "make it clear" that the business exemption is not to be applied to the credit card liability amendments of Public Law 91-508. On November 6, 1972, these proposed

amendments were incorporated into Regulation Z and became effective on December 16, 1972.

At the time that the Federal Reserve Board proposed its credit card liability amendments to Regulation Z, the UATP filed comments asserting, among other tractual balancing of loss and risk-sharing ability should be disturbed by this legislation. For if this committee were to approve, and the Congress were to enact, the amended provisions in question, in the case of UATP there would be no deterrent to prevent subscribers from relaxing their controls over the distribution and use of Air Travel Cards. Absent this deterrent control it is reasonable to assume that unauthorized use of Air Travel Cards would greatly increase and that there would be significant losses to the airlines.

Practically speaking, a limitation of $50 maximum liability for commercial or business use of UATP credit cards would be tantamount to removal of all liability. It would destroy any realistic incentive for a company to strictly monitor and control the distribution and use of Air Travel Cards. It would also eliminate the impetus to immediately notify the carriers of lost or stolen cards. The carriers would thus have no means of protecting themselves against unauthorized usage until, through their collection efforts, they learn of such loss or theft of Air Travel Cards.

The business users such as the UATP subscriber companies, are able to protect and even insure against negligent acts of their personnel or risks of theft or loss that might result in an unauthorized use of credit cards. There is no justification for transferring this risk of loss from the company or organization that determines who may use its cards and is in a position to monitor and control such use to the UATP Contractor airlines, as would occur under the proposed amendment to the Truth in Lending Act contained in Section 210 of S. 914. Consequently, we respectfully submit to this Subcommittee that the Truth in Lending Act does not require "clarification". The Congressional purpose and intent of the Act is manifestly clear and well stated. There is no reasonable rationale for extending to the business or commercial community the protection with respect to credit cards that is necessary for the individual consumer. We, therefore, oppose the inclusion of the provision entitled "Section 210. Business Use of Credit Cards".

UNIVERSAL AIR TRAVEL PLAN,
September 14, 1972.

BOARD OF GOVERNORS,
Federal Reserve System,
Washington, D.C.

GENTLEMEN: This letter constitutes the comments of the Universal Air Travel Plan (UATP) to the Board's proposal with respect to Part 226 of the Regulations (Regulation Z) to amend Section 226.13 to make clear that all credit cards, regardless of use, are covered by the $50 maximum liability limit for unauthorized use, and may be issued only upon the request of the prospective card holder.

The UATP is the standardized, world-wide credit plan of the air transportation industry, and functions under a Civil Aeronautics Board approved inter-carrier agreement. One-hundred sixty (160) airlines presently participate in the UATP, including all U. S. international, trunk and local service carriers, as well as intra-Hawaii and intra-Alaska airlines, air taxi operators. foreign flag airlines serving the U. S. and foreign flag carriers which do not serve the U. S. Forty-two (42) of the above airlines are UATP "Contractors", which individually enter into contracts with subscribing accounts in accordance with a standardized agreement. Over 115.000 of these subscriber contracts are presently in effect. With very few exceptions, these subscribers are business organizations rather than individuals. These organizations, in turn, authorize certain of their employees or other individuals to charge air transportation over the lines of any air carrier which participates in the Plan against individual credit cards which are issued by the Contractor airline. The subscriber account receives its billings directly from the airline with which it has concluded the UATP contract. Presently, there are approximately 1.7 million Air Travel Cards outstanding. The above-mentioned facts, which were noted in our initial comments to the Board respecting the implementation of P.L. 91-508 by adding Section 226.13 to Regulation Z, are reiterated to illustrate the clear and distinct method of operation that separates the UATP Contract accounts from customary con

sumer credit card practices intended to be governed by the Truth-In-Lending Act and the regulations of the Board pursuant thereto.

Accordingly, we offer the following detailed comments regarding the proposed amendment to Part 226 (Regulation Z):

1. Section 133 of the Truth-In-Lending Act (15 USC § 1643) provides the statutory authority for imposition of liability upon a credit card holder for unauthorized use of the card. This section was proposed as an amendment to the Truth-In-Lending Act by a Senate addition to a House bill on banking and was enacted into law in P.L. 91-508. In the legislative history of this amendment to the Act, it is shown that it was the manifest intent of the Congress that it apply solely to consumer credit card transactions, and not to business or commercial accounts such as UATP.

In the Senate consideration and agreement to the Conference Report of this legislation, (H. Rept. No. 91-1587), Senator Proximire recites, in adopting the language of the Senate bill to amend the Truth-In-Lending Act to regulate the liability and issuance of credit cards, that:

"The Senate-House Conference Committee has executed a triple play for the American consumer....

"The Senate provisions on credit cards agreed to by the House conferees will stop the unsolicited distribution of credit cards and limit a consumer's liability for a lost or stolen card to $50". S. 17632, Congressional Record, October 9, 1970. (Emphasis supplied)

In the same Senate consideration and agreement on this legislation, it is further pointed out that in enacting Section 133 of the Act, it would parallel certain Federal Trade Commission (FTC) legislation respecting the unsolicited distribution of credit cards, but would clarify the doubtful application of the latter to a common carrier. The Senate consideration thus notes that it is intended to apply to all issuers of credit cards, including airlines, in order to give complete protection to the consumer interests to which the Truth-In-Lending Act applies. (See S. 17634 supra) And, the House agreement to the Conference Report notes specifically that it is the intent of the legislation to "protect consumers from the worrisome and often expensive consequences of being sent credit cards they do not want and which they have no intention of using." H. 10049, Congressional Record, October 13, 1970. (Emphasis supplied)

It is clear from these statements of the drafters of Section 133 of the TruthIn-Lending Act that the limitation of liability provided the holder of a credit card and the provision relating to issuance were enacted for the benefit and protection of consumer credit card transactions, and were not designed to apply to credit cards issued and used for business or commercial purposes.

2. However, resort to the history behind Section 133 of the Act is not required as the statutory language makes it clear that this Section is not applicable to business or commercial credit card transactions.

The Truth-In-Lending Act is in actuality the short title to Title I of the Consumer Credit Protection Act. See P.L. 90-321 (90th Cong., 2nd Sess., 1968; 82 Stat. 146). Section 104 of Title I (Truth-In-Lending Act) provides inter alia that:

"This Title does not apply to the following:

"(1) Credit transactions involving extensions of credit for business or commercial purposes, or to Government or Governmental agencies or instrumentalities, or to organizations." (Emphasis supplied.) When the Congress enacted P.L. 91-508, a Bill to amend the Federal Deposit Insurance Act in 1970, it included in a separate provision an amendment to Title I of the Consumer Credit Protection Act (Truth-In-Lending Act) to regulate the issuance of credit cards and provide for liability for unauthorized use. P.L. 91-508 was simply the vehicle for providing further regulation of the consumer finance industry by adding Section 133 to existing Title I of the Consumer Protection Act.

Thus, it is clear that the Title I exemption for business and commercial purposes provided in Section 104 of the Truth-In-Lending Act governs the interpretation of Section 133 of the same Act as it relates to credit card issuance and liability. A contrary conclusion is untenable in that Congress at the time of this amendment did nothing to restrict the application of the Title I exemption to the Act as amended by Section 133.

In the face of such direct and abundantly clear language respecting the business or commercial purpose exemption, it would appear that the Board is attempting to interpret the Act as allowing for different treatment regarding the extension of consumer credit as opposed to the issuance and utilization of credit