Senator PROXMIRE. Any estimate would be helpful.

I would like to reinsert in the record an ABA rewrite of the civil "Truth in Lending" provisions furnished to the committee. Have you see this rewrite and do you endorse it?

Mr. HALE. We have seen it. It is a draft which at least for working purposes we feel would accomplish what the committee, what the Congress has in mind, without the class action difficulties.

Mr. LARKIN. We have not seen it.

Mr. Hock. We have not seen it.

Mr. REYNOLDS. We have not yet seen it.

Mr. HALE. This is something that came from the ABA staff as a possible alternative to the class action proposal.

Mr. Hock. We have not seen it and have no knowledge of it.

Senator PROXMIRE. In your statement, you say that any limitation predicated on a transaction of size, "can only lead to concentrated efforts to sue the largest institutions, the very largest institutions that are least likely to be engaged in effort to deceive consumers."

Are you suggesting that smaller banks are more likely to deceive consumers than large ones?

Mr. LARKIN. No. They make more tempting targets. Our general counsel told us that a sum of $22, the fellow in California banksSenator PROXMIRE. The first part of the phrase is that it can lead to concentrated efforts to sue the larger institutions.

But the very institutions, you add "the institutions least likely to be engaged in efforts to deceive the consumer."

Isn't that a reflection on the smaller banks?

Mr. LARKIN. No. It is a pragmatic statement that big banks live in glass houses, and that their actions are subject to careful scrutiny. We have 3 million cardholders in California. The bank that has 20,000 cardholders is much less likely to have customers who are exacting, persnickety, tempted to make hay out of our capital

structure.

Senator PROXMIRE. I am not too sure about that. I would think a big bank in a big city would be less subject to this kind of scrutiny than a bank in a Waterloo, Wis., where I used to have a business, and which is a town of about 800 people, and the banker was under much more of a microscope all the way along, than a big bank.

Mr. REYNOLDS. If I may, Mr. Chairman, there was no intention to indicate that the smaller banks would be less likely to follow the law if they had the ability to do so. But the big banks do employ counsel that are subjected, or exposed to the type of legislation that we are talking about, rather cumbersome and complicated, and the big banks therefore are better able to be sure they comply. Inadvertence, failure to comply is less likely in a big bank than a small bank.

Senator PROXMIRE. That may be, but you see, what you have said is to be engaged in efforts to deceive the consumer.

Maybe it was just an unfortunate construction, because maybe it engaged in efforts that are less, or have less expert counsel, but not effort to deceive.

Mr. REYNOLDS. There was no intention to indicate that the smaller banks to try to deceive any more than the large ones: neither one of them is likely to intend to deceive.

Senator PROXMIRE. That is better.

Bankers don't like me, but I like bankers. I used to be in the banking business myself years ago, and I am very proud of it. I worked for J. P. Morgan & Co. in Wall Street. I don't know how proud they are of it.

This is my last question.

You say the size of the creditors should not be taken into account in assessing civil penalties. Yet the American Bankers Association draft made a part of this record does direct the court to take into account the resources of the creditor in setting a liability.

As I read it, the ABA draft would set a maximum liability for the largest bank and lesser liability for the smaller banks.

If the penalty is to be based on the degree of evil committed, then certainly the $50,000 limitation would mean that it would be a lesser penalty for a big bank.

Mr. Hock. I have not seen the draft.

Mr. REYNOLDS. We do recommend a $50,000 penalty limitation. Senator PROXMIRE. Mr. Hale, would you comment on that?

Mr. HALE. This was in the draft of the committee-S. 914-includes the size of the creditor as one of the factors to be considered in calculating the extent to which you go up to the ceiling, along with the willfulness, the wickedness, the number of failures to comply, the actual damages caused, and so on.

Senator PROXMIRE. You are right; it is in ours, and we think size should be a factor, but, as I understood it in your statement, you said size should not be, and yet you have this limitation.

Mr. HALE. In this alternative draft that the ABA staff submitted to your staff, we had used the same formula for fixing the penalty that you had used in S. 914. This was a working draft to illustrate a different approach to the class-action issue. It may be that the size of the creditor should not be considered.

I would think there would be a certain relevance to the creditor's size in determining how closely to approach the ceiling.

Mr. REYNOLDS. It happens to be the same amount that I used in my recommendation.

Senator PROXMIRE. That is right, and I don't quarrel with the fact that size should be a factor.

Our bill reflects that we think it should be. We got the impression from your statement here, that it should not be.

Mr. REYNOLDS. We feel it should not be a factor, because what you are trying to do, we believe, is to stop the evil. That is the most important thing.

I can assure you that a $50,000 penalty for a large bank, plus the legal time that they have to spend, and the notoriety that is involved in this thing, is just as much a deterrent as would any other amount be. This would stop the evil, $50,000.

Mr. LARKIN. Plus the fact that having this qui tam type of injunction, if the bank then flies in the face of that after having been fined $50,000 would bring the full power and force of the law down on them.

Mr. Hock. It essentially is a different approach, also, because it permits the Government to get into the middle of the act and throw its weight behind them.

Senator PROXMIRE. Gentlemen, I want to thank you very, very much. It has been a fine panel.

I did not mean by my questions to indicate consistent hostility. I thought an adverse position might bring out more information. You did extremely well, and I am very grateful to you.

The committee will stand in recess until tomorrow morning at 10 o'clock when we will hear from nine additional witnesses.

[Whereupon, at 12:50 p.m., the hearing was recessed to resume at 10 a.m., the following day, Thursday, May 24, 1973.]

[The complete statement of the panel of witnesses and an additional submission from the American Bankers Association follow:]

REMARKS BY EUGENE H. ADAMS BEFORE THE FLORIDA BANKERS ASSOCIATION, BAL HARBOUR, FLA.

In ancient Britain, the Saxons had a unique method of determining whether a man was really trustworthy. They tied him up hand and foot and threw him into the nearest pond. If he sank, they fished him out and congratulated him on his credibility. If he floated, they considered him a fraud.

Today, we rely on more sophisticated methods of establishing trustworthiness. Bankers in particular have taken pains to develop sound criteria for rating the credit standing of customers. The five C's of credit are based on facts and long years of experience-a far cry from the superstitions of our Saxon forbears.

Or are they? Isn't it possible that some of our lending criteria-perhaps especially those dealing with women-might be based not on fact but on timehonored assumptions so old that they have taken on the appearance of fact? We are currently being accused of some such practice.

At any rate, I think we need to reexamine those assumptions to see if they stand up in light of women's changing role in our society. Certainly they once had validity. But do these assumptions retain that validity today, when more and more women are working for longer periods of time at better paying jobs? Is it possible that outdated assumptions-if they are outdated-are blinding us to a potentially very profitable market right on our own back doorsteps?

Let me give you a little background information about that market. In the past decade, women accounted for two-thirds of the increase in the labor force. The Labor Department estimates that the number of working women will increase by 70 per cent during the next decade. Today they comprise more than 44 percent of the work force-32 million women working full time. Nine out of ten women will work for some period during their lifetimes, and six out of ten will work full time for up to 30 years.

Obviously, women's growing participation in the labor market makes them an increasingly important force in the economy. As they take on a larger role in economic affairs, their need for credit becomes more pressing.

How do we bankers approach women's credit needs? What are the assumptions we make about women-and their ability to repay loans-that bear most heavily on our lending decisions? It seems to me there are five assumptions that exert a major influence on our willingness to grant credit to women.

Assumption Number One is that single women who work will probably get married and leave the work force. Therefore, they do not make good credit risks. I won't bore you with too many statistics, just a few pertinent facts about the single working woman. Single women today account for 14 per cent of the labor force and head nearly 12 per cent of all American families. These women aren't working for pin money; they're working to support themselves and their dependants. Furthermore, if they choose to remain single-as a growing number are— they can be expected to work for 45 years-a longer work life than that of the average man.

Exactly what are the chances that a single woman will marry? If she is over 30 years old, it's a pretty good bet she will never tie the knot. She has discovered the pleasures of independence and she would rather devote her energies to pursuing a career instead of a husband. If she is under 30, however, she has a pretty good chance of taking the plunge. Let's assume she does decide to get married. What does this do to her credit-worthiness?

If she continues to work after marriage-as more and more women are doingany debts she has incurred are now offset by two incomes rather than one. Moreover, women tend to marry men better educated than themselves. And since men still make significantly higher salaries than women with the same education, it

seems likely the husband will make more than his wife. Thus, by marrying, the young woman has more than doubled the salary backing her debts.

In light of these facts, it seems obvious that the changes most likely to occur in a young woman's marital and work status do not necessarily mean she will have less money to repay her debts. In fact, it seems to me that a young, single, working man might be a worse risk than a young, single, working woman. After all, if he gets married, he runs the risk of taking on the expenses of a non-working dependent. If she gets married, she only gains another salary.

Assumption Number Two is that married women who work will probably have children and leave the work force to take care of them. Presto! These women are not good credit risks.

Let's make sure we understand exactly how many people we're talking about. In 1972, 55 per cent of all husband-wife families had both spouses working. That's more than 21 million families. Moreover, these working wives account for a substantial proportion of family incomes-27 per cent in the average family.

If the family has no children, the chances are good that both husband and wife will continue working. For example, a 30-year-old working wife can be expected to continue her career for 27 more years.

If the family does have children, they will probably all be born before the wife reaches age 35. And once she's had her children, there's a fifty-fifty chance she will go back to work. Half of all married women with school-aged children were working full-time in 1972. Nor are these working mothers merely temporary employees-they will probably work for 24 more years.

That leaves us with working wives under 30. Here it is more difficult to project years of work expectancy, because this is the group that is undergoing the greatest change in projected family size. Unlike their parents, most couples in this age group want only two children. And a growing number are opting for no children at all. Since 1955, the percentage of women who expect to have two or less children has jumped from 34 per cent to more than 70 per cent.

It's not hard to figure out how this change in family size is affecting the labor force. Indeed, we're already seeing some of the early effects. There has been a dramatic increase in the numbers of married women who are working or seeking work. Perhaps more surprising, the steepest increase in work propensity has been among women with children under age 3. Almost 27 per cent of these women were working in 1972.

Taking all these facts into consideration, the President's Manpower Report for 1973 finds that women "are indicating a far greater propensity to work and to avoid interruptions in their careers." When women do have children, they will probably have no more than two-and once they've had these children, they are likely to return to work. Today, one-third of all mothers with pre-school children work. One-half with school-age children return to their careers.

Given these facts, I think we must realize that denying credit to a working woman who also happens to be married or gets married while employed-simply because she might get pregnant-may be an excessively cautious practice. Since 1965, the FHA has acknowledged this new state of affairs. Its regulations state in part:

"The principal element of mortgage risk in allowing the income of working wives as effective income is the possibility of its interruption by maternity leave. Most employers recognize this possibility and provide for maternity leave, with job retention, as an inducement of employment. With strong motives for returning to work, any failure to do so after maternity leave would probably be due to causes which would be unpredictable and would represent such a very small percentage of volume that it could be accepted as a calculated risk.” Assumption Number Three is that legal restrictions on a married woman's ability to make contracts prevent bankers from extending credit to married women without their husband's consent.

The fact is that most states now have Married Women's Property Acts, which allow a woman to acquire, own and transfer all kinds of property exactly as if she were single. She may make contracts. She may sue and be sued. She may get herself into debt-all without her husband's signature, and in many cases, without even his knowledge.

Several states, however, still have laws on the books that limit a married woman's ability to conduct certain business transactions. Most of these laws are archaic, written for another time when women were not working outside the home and generally did not have independent incomes.

But that time has long since passed. Congress has acknowledged the change in women's status by its passage of the Equal Rights Amendment. And the ad

ministrative branch of the Federal government has recognized this change in the regulations issued by FHA and FNMA. Both agencies now go out of their way to make sure the incomes of working wives will be counted when determining a young couple's ability to buy a home.

When Congress and federal agencies acknowledge the importance of working wives' incomes, I don't think bankers should allow themselves to be subject to possible claims of discriminations. In those states where Married Women's Acts are in force, married women who work occupy precisely the same legal position as married working men. It behooves us as bankers to give them the same consideration and service. In those states where restrictive laws are in force, we might do well to consider working for the reform of such laws. After all, they may be denying us access to a potentially profitable market-the growing army of working wives.

Assumption Number Four is that divorced women are bad risks, because they are largely dependent on alimony and child support payments that could be cut off at any time.

I would like to lay to rest once and for all the myth of the gay divorcee who spends her days lolling on her couch, eating chocolates and living off her alimony. The truth is that more and more divorced women are going out to find themselves jobs to help support themselves and their children. The exact same thing applies to widows. In 1972, well over half of all divorcees and widows between the ages of 20 and 65 were working or looking for work. Nor are these women likely to leave the work force if they remarry. A woman who is divorced and working at age 35 can be expected to work for at least 29 more years. A 35year old widow will probably continue working for 27 years.

Before denying credit to a divorcee or widow, I think we must take the trouble to determine whether she is supporting herself through her own job. If she is, she deserves to be given credit for her efforts-if you'll pardon a bad pun. Assumption Number Five is that our bank doesn't discriminate against women in its lending policy. This is probably the most common assumption of all.

This past spring the ABA conducted an informal survey on women and credit among a number of banks around the country. We wanted to know if banks did in fact have any specific lending policies for women, as opposed to men. Almost without exception, all the banks answered that their criteria for lending to women were the same as criteria for lending to men: that is, ability and willingness to repay the loan.

Nevertheless, the fact remains that a growing number of working women feel they are objects of discrimination-not just from banks but from the entire credit industry. Two studies of this problem-neither of them favorable to lenders have received a good deal of publicity.

In St. Paul, the Department of Human Rights sent out two "loan applicants", one male and one female, to test the effects of a recent law forbidding sex discrimination in lending policies. Both applicants were in their mid-20's, employed as researchers at identical salaries for the same length of time. Both were supporting spouses who were students at a nearby university. Each applied for $600 to buy a second-hand car. Each wanted the loan without the signature of the spouse, because each was the "breadwinner".

The results of the survey were not flattering. Of the 23 banks they visited, nine gave preferential treatment to the man. In fact, two banks which made the loan to the man would not even discuss the loan with the woman.

In the second study, the Federal Home Loan Bank Board asked a sampling of its Savings and Loan members what credit they would allow for a working wife's income on a mortgage. The wife in question was age 25, had two school-age children and worked full-time as a secretary. Again the response was significant. Only 22 per cent of the S&L's would count all of the wife's income. And fully one quarter would recognize none of her income. This was despite the fact that all Labor Department projections show that a woman in this position will probably have no more children and will continue working for 40 years.

I cite this study not to level special criticism against the S&L's but rather to illustrate that assumptions about women and credit permiate the entire credit industry. Indeed, these assumptions are so prevalent that even when a particularly liberal lending policy is adopted, the word does not always filter down to the lending officers. I think most of us saw the story about the New York city couple who could not get a mortgage loan because lending institutions would not consider the wife's salary. The couple finally got their loan, but not before a senior vice president of a large New York bank heard about their plight. He

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