wrote the couple that it had long been his bank's policy "to take into account total family income in determining a family's ability to borrow". He enclosed a mortgage application-but he was too late. The couple had already been turned down by his bank.

I think we have to acknowledge that banks, along with the rest of the credit industry, do in fact discriminate against women when it comes to granting credit. The question then becomes: is that discrimination justified?

I don't think anybody really knows the entire answer to that question. In my remarks here today I've tried to point out ways in which women's status in the work force has changed and will continue to change. We've looked at some of the assumptions that form the basis for our credit policies for women. I think it's apparent that some of them have not kept pace with reality. But the statistics and figures I've given you, courtesy of the Labor Department, don't begin to provide the entire answer. We need much more information. For example, we know that when an employed woman marries, she will probably continue to work. But we don't know how long she is likely to work. Nor do we know the statistical probability that she will leave the labor force if she has a child, nor the probable duration of such an absence. There is a great need for more refined measures of the working patterns of women in various circumstances-according to education level, age, husband's income, number and ages of children, and past work history.

Furthermore, we don't really have any hard figures on how to measure the loan risk of various borrower characteristics, such as marital status and sex. If we are going to act on the assumption that loans to single women are risky, we had better have good evidence to back up that assumption. Otherwise, we may be unnecessarily denying credit to good customers, unnecessarily denying a profitable market to ourselves, and laying ourselves very vulnerable to charges of discrimination which may not only be costly but also very embarrassing. Actuarial-type tables dealing with these factors would enable us to realistically appraise the stability of a woman's income. We would no longer be forced to rely on tradition-but perhaps unsound-rules of thumb, such as the one that discounts wives' incomes by 50 per cent. By using such tables we would honestly be able to say that we evaluate each case on its merits.

I'm happy to say that some groups are beginning to develop precisely the statistics we need to make up these tables. The Center for Women's Policy Studies in Washington, D.C., has been funded by the Ford Foundation to conduct a thorough study of women and credit. Only a few days ago, representatives of the ABA met with two women from the Center to go over specific problem areas that need special attention. We're hopeful that this may prove to be the beginning of a mutually beneficial relationship.

Indeed, one of the more frustrating aspects of this whole problem is the fact that banks and women seem to consider themselves adversaries, when in fact they should be allies. We want to lend money; they want to borrow it. If we can develop equitable criteria for lending-based on fact rather than assumption-we will have gone a long way toward cementing this mutual friendship. As Hamlet put it," "Tis a consummation devoutly to be wished for”.

JOINT STATEMENT OF

THE AMERICAN BANKERS ASSOCIATION

THE CONSUMERS BANKERS ASSOCIATION

INTERBANK CARD ASSOCIATION

NATIONAL BANKAMERICARD, INC.

The organizations listed above represent approximately 10,000 banks which engage in bank card transactions and which are, therefore, vitally concerned with the main subject of these bills, open end credit. Interbank Card Association is a bank card operation, primarily concerned with the interchange aspects of the Master Charge transactions of almost 5,800 banks. National Bankamericard, Inc. is the other principal, national bank card organization, and it has a membership of 4,500 banks. While these two groups are centrally concerned with those portions of S. 914 and S. 1630 which touch open end credit. The American Bankers Association, with more than 13,000 member banks and the Consumer Bankers Association, with approximately 290 member banks, are interested in both open and closed end credit features of these bills.

I. INTRODUCTION

This statement is submitted in support of the general principle of both bills which would:

1. Require adequate identification of an open end transaction on the consumer's periodic billing statement;

2. Prescribe routines and disclosures that obligors and creditors must follow relating to the correction of billing errors and provide protections against unfavorable credit ratings due to disputed amounts;

3. Set standards regarding how early a bill must be mailed before the date when a finance charge would accrue to amounts owing;

4. Require prompt crediting of initial payments, excess payments, and returns and prompt refunds when appropriate;

5. Ban the prohibition of discounts for cash payment instead of card use, subject to certain conditions, and the requirement that a merchant, as a condition for participating in a card plan, take other services;

6. Conditionally limit a creditor's power to offset an amount in dispute against funds of a card holder on deposit with the creditor;

7. Clarify the fact that the disclosures of the Truth in Lending Act apply to those credit extensions repayable in more than four instalments, even when no finance charge is imposed;

8. Clarify the fact that the right of rescission obtained under the Truth in Lending Act applies to those cases in which liens arise against the residence of the consumer by operation of law as well as by contract;

9. Provide a statute of limitations for the right of rescission; disclosures otherwise required by the Truth in Lending Act.

10. Remove a creditor's monetary liability for acting in good faith compliance with Truth in Lending Act regulations of the responsible governmental authorities even though such rules might subsequently be determined not to be in conformity with the Act by a court; and

11. Conditionally limit liability for multiple failures to disclose according to the Truth in Lending Act to a single recovery.

12. Allow the Board of Governors of the Federal Reserve to regulate the itemization and timing of closing costs with respect to disclosures related to real estate transactions.

This statement is also submitted in support of one concept included in S. 914 that does not appear in S. 1630 and which would:

13. Exempt state lending agencies from the right of rescission.

Further, this testimony supports certain principles contained in S. 1630, alone, which would:

14. Establish a quarterly reporting system for annual percentage rates charged nationally on new automobile, mobile home, and personal loans;

15. Establish criminal penalties for the fraudulent use of credit cards and interstate crime with respect thereto;

16. Provide a "grace period" during which the card issuer may accept payment wihout imposition of a finance charge after the date upon which a finance charge might normally be imposed without creating a violation of the disclosure requirements of the Truth in Lending Act;

17. Rework the present, overly detailed requirement on open and closed end credit advertising so as to permit meaningful but undeceptive advertising of terms; and

18. Require any premium for credit life, accident, and health insurance to be stated as a dollar amount and as an annual percentage rate in the disclosures otherwise required by the Truth in Lending Act.

Although some technical changes will be suggested on these subjects in the course of this testimony, we believe that the state of the art of bank cards is now ready for such legislation on these points or that the Truth in Lending Act needs those alterations and clarifications which are pertinent to closed end credit.

On the other hand, there are a number of provisions in the bills which seem illadvised in terms of principle or which should be extensively revamped in order to promote the public interest. These divide into two categories: those which received considerable attention during the 92nd Congress when the Senate passed S. 652 and those which did not. In the latter group are four issues which can be disposed of here in the Introduction and need not be treated in the balance of this statement.

1. S. 914 at Section 202 and S. 1630 at Section 202 would exempt extensions of agricultural credit of more than $25,000 from the disclosure requirements of the Truth in Lending Act. We think that such disclosures should be entirely eliminated from the Act because the structure of agricultural lending is inherently closer to business lending and the requirements of the Act have proven wholly anomalous with regard to the highly variable manner in which loans have to be written to satisfy the maturity and collateral needs of farmers. Unlike either installment or open end credit that is customarily extended to buyers of consumer goods and services, the maturities and rates applicable to agricultural loans operate in highly sophisticated and seasonal settings that defy accurate computation of such core factors of Truth in Lending disclosures as annual percentage rates and finance charges no matter what the amount of the loan in many instances. Moreover, due to the nature of farm tenancy and land ownership, it is very difficult to tell in many cases whether a lien might arise against the residence of the borrower and whether or not a transaction has to be delayed for three days while it is subject to the right of rescission even though a farmer might immediately need disbursement of funds.

2. S. 1630 at Section 203 includes requirements on which points charged to a seller, as opposed to points directly charged to a buyer, must be included in the finance charge disclosures and, consequently, the annual percentage rate. Due to the highly technical and variable situations involving points of all kinds, we do not believe that a statutory approach is wise. Presently, the Federal Reserve Board has the ability to "fine tune" in this area and spell out in great detail those instances in which seller's points are, in fact, passed on to the buyer and must be considered part of the finance charge. Letters from the staff of the Board have been written on this topic and are publically available. See, for example, CCH, Consumer Credit Guide, ¶ 30,260.

3. S. 1630 would repeal the present exemption of appraisals and credit reports relating to realty loans from the finance charge computations that underlie the disclosures required by the Truth in Lending Act. We do not believe these charges are attributable to the "use of money" but are legitimate transaction charges which are usually set by parties other than the creditor and are often under the control of the real estate agent involved. Moreover, it would needlessly complicate the computation of many mortgage transactions' annual percentage rates since the gross rate on such money is now frequently, directly convertible into an annual percentage rate due to the fact the gross rate is usually simple interest. It should be noted that if a provision passes empowering the Board to regulate closing cost disclosures that the consumer could be informed of these costs without imposing distortions on the annual percentage rate and that both S. 914 and S. 1630 contain provisions which work in this direction.

4. S. 914's Section 210 would subject cards issued for business purposes to the Truth in Lending provisions that restrict card issuance to situations where an application has been made and would limit liability for unauthorized use to $50. The Board recommended this in its 1972 report to clarify what it believes is now in the Act. Its opinion as to the implict applicability of Section 132, prohibiting the unsolicited distribution of cards, and Section 133, limiting the liability of the card holder to $50 for unauthorized use, to cards issued for business purposes is questionable since the law, by definition, is now limited to "true" consumer situations. See 15 U.S.C. 1642, 1643.

Indeed, attempting to regulate commercial cards under Sections 132 and 133 would have very disruptive results simply because those clauses were not designed to fit commercial situations. There is a substantial difference between cards issued for consumers and with respect to which the consumer is frequently the sole obligor and those issued for a business reason and with respect to which the employee-recipient is often only the user and the employer is the primary obligor or, at least, the guarantor.

With regard to the solicitation issue, Section 132 bans issuing a card "except in response to a request or application therefore". In a business situation, there is often no contact between the final recipient-employee and the issuer. With respect to some organizations, cards for employees could number in the hundreds, and issuance would be solely based on the financial stability of the company. The issuer probably knows nothing of the worthiness of those using the cards and often does not have the right to approve the user. Applying Section 132 here is simply inappropriate because it is impossible to tell from that section who the holder is. Is it the company who applied for, say, 100 cards and then distributed them among its employees, or is it the recipient-employee who had never filed an application for a card with the issuer?

With regard to the question of the maximum $50 liability limit of Section 133, more difficulties arise. If the card holder is considered to be the company, then is it liable for $50 on each card on which it is an obligor? Or is the recipientemployee the party who is to be considered the card holder who is liable for the $50 maximum and the company, as some type of obligor other than a card holder, liable for further debts that might have been incurred by an "unauthorized use" of a card?

While we are not adverse to some sort of statutory regulation of business related cards, we are opposed to equating business and consumer cards, which would be the result of S. 914 as presently drafted. Although the organizations submitting this statement would gladly work with the Subcommittee to develop adequate statutory language to distinguish consumer and business cards for purposes of regulation, we would suggest that the entire matter be deleted from S. 914 until we are able to compile an adequate data base with respect to the diversity of contracts now existing with relation to the issuance of business purpose cards.

Prior to turning to the four points which appear in either one or both of the bills which received considerable attention during the deliberations on S. 652 in 1971 and which we believe should either be struck or extensively reworked, we would like to refer to the hearing record which we developed before this Subcommittee on that prior measure at pages 297 through 382, especially pages 314 through 370. We do not do so because that testimony continues to reflect our opinions. Indeed, developments in the bank card industry, the courts, and in the basic proposals for a Fair Credit Billing Act, as evidenced by S. 914 and S. 1630 themselves, have led us from supporting a wholly "administrative agency" approach, i.e., delegating to the banking agencies enough authority to regulate cards as they see fit, into support of a “statutory-agency" approach, i.e., requiring the bank agencies to follow and expand on certain, Congressionally determined, standards. We, therefore, have largely a new pasture. However, there also appears on those pages a great deal of background material explaining the operational aspects of bank cards which we think would be of assistance in understanding the nature of the industry but which we will not repeat in this lengthy statement.

As a conclusion to these summarizing remarks, we would simply like to list the four areas of "1971-type" controversy which are, to our minds, basically again at issue:

1. Restrictions on calculating certain kinds and methods of imposing finance charges:

2. Rights of credit card customers against card issuing banks-the so-called waiver of defense question;

3. Civil penalties:

4. Relation of State laws to the proposals of S. 914 and S. 1630.

We move now from these introductory statements to a substantive discussion of these four. Thereafter, we will turn to a technical discussion of those above listed 18 points which we support in principle but which, in some cases, we believe could be improved through largely technical alterations.

II. RESTRICTIONS ON CERTAIN KINDS OF FINANCE CHARGES

Sections 167 and 168 of S. 914 would, if enacted, put the Federal government for the first time in the arena of regulating lending interest rates, a responsibility heretofore left entirely to the States. We are strongly opposed to both these provisions, not only because of the unwarranted intrusion into State regulatory matters, but also because of the discriminatory nature of the provisions themselves. Section 167 would, in effect, require that a finance charge may be assessed on an open end consumer credit account only on the basis of the closing or adjusted balance. It would, therefore, outlaw the use of both the open or previous balance method of computing finance charges and the average daily balance method, both of which are in widespread use in this country today.

To amplify these three types of balance computations, an example is helpful. Assume that on May 1, an account has an outstanding balance of $100 after all purchases, cash advances, payments, and credits posed prior to that date have been taken into account. Assume further that on May 10, a purchase in the amount of $10 is posted to the account, a payment of $10 is posted on May 15, and another purchase of $15 is posted May 20. This constitutes all the activity in the account during the May billing cycle.

If the creditor is employing the previous or opening balance method, the finance charge for the May billing cycle will be assessed against the $100 opening bal

ance. If, on the other hand, the creditor is using the adjusted or closing balance method, the finance charge will be assessed against the closing balance of $115. If the creditor employs the average daily balance method, the outstanding balances at the end of each day are summed and the total is divided by the number of days in the cycle. Thus, the balance was $100 for the first nine days, $110 for the next five, $100 for the next five, and $115 for the last twelve. This total of $900+ $550+$500+$1380=$3,330 is divided by the 31 days in the cycle to yield an average daily balance of $107.42 and the finance charge is assessed against this figure. Much has been made of the examples showing that a much higher finance charge can be assessed under the previous balance method than under the other methods if an obligor should pay nearly all, but not quite all, of his outstanding balance. An equally undesirable result can also be demonstrated with the adjusted or closing balance method; for if a large purchase is posted to the account on the closing day and payment therefor is made within the next few days-i.e., the first few days of the new billing cycle, the finance charge would be assessed against the full amount of purchase even though the obligor enjoyed its use only for a few days. Congress should not be concerned by either of these examples, however, because our statistics show that both of these extreme patterns of behavior rarely, if ever, occur in actual practice.

Because the average daily balance method of computation accurately reflects the amount of credit outstanding for each day during the cycle that the consumer actually has the use of it, it would seem the most equitable method to use. So why, you may ask, should not Congress mandate that method? The answer rests with the fact that many small creditors simply do not have at their disposal the means of making the complicated calculations required by that method. Many small creditors prepare their monthly statements essentially by hand and the cost of performing the average daily balance computation is simply prohibitive for them.

The Report of the National Commission on Consumer Credit made some cogent observations on this question. At page 108 the report states:

Another much debated problem is how those offering revolving credit should be permitted to assess their monthly finance charges. One aspect of the issue is to identify a system that is fair to consumers. But the selection of a particular system as a matter of law also effectively raises or lowers the rate ceiling.

With regard to the issue of fairness to consumers, the Commission believes, first that firms providing revolving credit should deduct any credits for returns and allowances before determining the periodic rate is applied. A consumer who has had to return merchandise bought on credit has evidently received little or no benefit from its use and should not be asked to pay a finance charge on its initial unpaid balance. Second charges for purchases and credits for payments should at least be treated symmetrically within a billing period. Specifically no finance charge should be made for a purchase within a billing period unless credit is also given for payments received within the same period. Third, within these guidelines it is important to leave open as many reasonable options as possible. Were all retailers forced to levy charges on the basis of the average daily balance, for example, most small retailers would be unable to assume the expense of compliance and would be forced to adopt bank credit cards. Such a result would not only be noncompetitive but would also reduce consumer options. While these observations do not recommend the "pure" previous balance or average daily methods, since it calls for the total deduction of returns of goods, as opposed to other kinds of credits which might reduce the account balancee.g. partial payments, before computing any of the balance against which a finance charge may be imposed-the statement does not suggest that they should be abolished. Indeed, it implies they are fair as long as they meet the guidelines. Moreover, these observations do suggest that the full adjusted method is not equitable. This is so because under both the previous and average daily techniques, debits and credits are treated symmetrically. Under the previous balance method, no charge is imposed for purchases during the cycle, and no credits for payments are given. Under the averaging approach, debits and credits are applied to the account as they occur in terms of time, another symmetrical approach. Under the fully adjusted balance scheme, however, the creditor does not charge for part of the credit outstanding during part of the billing cycle if the obligor should pay part of the amount in the account prior to the date on which the adjusted balance is computed. In other words, the creditor carries the debtor free of charge for that portion of the debt which the debtor elected to liquidate