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raises prices since he will incur substantial costs in handling more cash and check transactions. For example, time is consumed in accounting for cash receipts, and security procedures are also generally required. In addition, there is the risk of loss due to theft or other misfortune. In short, while we do not oppose the principle of this section, since we believe the bank card can and is competing as a payments system even in situations where a merchant has the best of worlds, i.e., where he uses a card as a means of identification and takes a check as payment without giving any discount to the customer, we do not believe Subsection (a) will have the result contemplated by its sponsors.

We are, however, deeply concerned over the possibility that freeing merchants from contractual restraints on discounts or transaction premiums could open a bank card issuer to liability for violation of State usury laws for the following reason. In so far as any merchant imposed "service charge" (whether in the form of a charge on the transaction or a discount for cash sales) could be considered an interest charge, instead of a price differential, for non-cash customers, who would be paying more if such a "service charge" would be imposed, it could, in many cases, generate a total finance charge in excess of that permitted by State usury laws. Since, if merchants were freed from such restraints by Subsection (a), there would be no way in which a bank could protect itself from the merchant's prac. tices and since the definition of usury is a matter of the law of fifty States, a Federal statute prohibiting these restraints could set off a rash of usury suits against banks and other card lenders for situations over which they would have no control. We, therefore, believe it should be Federal law that card issuers should, at least, be able to contract with merchants to the effect that the discount policies of merchants would not place the bank in the position of participating in violations of the usury laws of a given jurisdiction. This again would place banking in the dubious position of policing merchant practices, but we see it as the only means whereby discounts for cash payment can be offered while at the same time insuring, to some degree, that banks do not end up participating in schemes to avoid the interest laws of the States. Indeed, even now it is hard enough to avoid this possibility considering the fact it is impossible to know what is going on, day to day, in thousands of stores and, even if one knows, to prevent illegal practices. An added handicap such as that which would be imposed by Subsection (a), in its present form, is an unneeded handicap on banks who attempt to make sure merchants do not involve banks in illegal practices.

Due to the nature of a change in Subsection (a) that would accomplish this goal, it would have to be preemptive of state law since it would be a Federal authorization to contract according to state law but simultaneously a nation-wide ban on contracts prohibiting cash discounts.

Subsection (b) would allow any discount that is not in excess of the 5% offered by the seller to induce payment by cash or check not to be considered a finance charge for the purposes of the disclosure requirements of the Truth in Lending Act if the discount is offered to all prospective buyers clearly and conspicuously in accordance with regulations of the Board. In other words, as long as the discount is held to 5% or less, non-cash, i.e. credit customers, would not have to receive the disclosures under the Act. Without this exemption, it would be conceivable to say that a finance charge was being imposed on a non-cash buyer due to the differential between what he would pay and what the cash customer would pay. We are concerned over the possibility of confusion between usury rate ceilings and Truth in Lending disclosures with respect to this subsection, and we believe it should be made perfectly clear that the requirements of this subsection relate to the disclosure provisions of the Truth in Lending Act alone. Moreover, we believe card issuers should not be responsible for a merchant's failure to perform according to Subsection (b) because it would necessitate a representative of the bank on the premises at nearly all times and that the liability for such a failure should lie solely with the merchant.

While we do not object to the provisions of this section, given the modifications suggested above, we know of a number of attorneys who are very well versed in consumer lending law and who have expressed great concern over the fact that these sections contain great pitfalls because they confuse merchant pricing issues with the question of charges for the use of money. They would point out that this confusion does great violence to the basic scheme of the Truth in Lending Act and needlessly complicates State interest rate control laws. Should they present their views to the Subcommittee independently, we hope their arguments receive very serious consideration.

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9. Tie-in services (8. 914, section 170; 8. 1630, section 167)

With regard to tie-in services, both bills would prohibit a card issuer from requiring, as a condition of participation in a charge card plan, that a merchant open an account with or otherwise obtain service from the card issuer. We fully support the concept that no minimum balance or other thing of value should be tied to participation in a charge card plan. Our only difficulty with the section relates to the convenience of a merchant maintaining an account with the card issuer for the purpose of depositing his charge card sales tickets, which are handled by the card issuer in a manner similar to checks. However, we feel this convenience will be so obvious to the merchant that there is really no need to require him to open an account with the card issuer as a condition of participation. 10. Prohibition of setoffs (8. 914, section 171; S. 1630, section 168)

With regard to setoffs both bills would prohibit the card issuer from offsetting against an amount owed by a cardholder any funds the cardholder may have on deposit with the card issuer. We agree that where a cardholder has protested the accuracy of his bill and has refused to pay a portion of it which he feels is in error, a card issuer should not be able to put the cardholder on the defensive by offsetting the disputed amount against other funds of the cardholder. On the other hand, when a cardholder arbitrarily fails to pay his bill-because, for example, he charged an item which later decided he did not want, but which the store would not take back because it was a "sale" item—the card issuer should not be required to go to the expense of bringing a formal action against the cardholder. The costs of such proceedings will only increase the cost of operating the card plan for everyone, and the outcome for the particular cardholder will be the same in any event, since he does not dispute that the amount is, in fact, owed to the bank. We would therefore like to see the provisions relating of offsets modified so that the prohibition would apply only to amounts in dispute. 11. More-than-four-installment rule (S. 914 & S. 1603, section 201)

Both S. 914 and S. 1630 contain provisions which would amend the Truth in Lending Act to make certain that credit transactions involving more than four installments where no separate identifiable charges are shown are subject to the Act. Both bills propose to amend the definition of "creditor" in Section 103 (f) of the Truth in Lending Act to include those who extend credit “which is payable by agreement in more than four instalments." S. 914 contains an additional provision which would amend Section 121 (a) of the Truth in Lending Act to make certain that the disclosure requirements in Chapter 2 are applicable to extensions of credit payable by agreement in more than four instalments.

We believe the amendments in S. 914 are desirable and should be adopted. We endorse the concept of legislation in this area even though it may appear as unnecessary duplication of authority in the Board as a result of the April 24, 1973 decision of the Supreme Court of the United States in Mourning v. Family Publications Service, Inc. (No. 71-829).

The decision, inter alia, held that the Board of Governors of the Federal Reserve System had sufficient rule-making authority to require, by regulation, compliance by those creditors who extend credit repayable in more than four instalments. (See 12 C.F.R. 226.2(k)). We agree with the results of the decision which requires such creditors to be covered by the Truth in Lending Act. We also believe it is desirable for the Congress to restate its intent to cover such transactions by adopting the proposed amendments in S. 914. 12. Administrative enforcement (S. 914, section 201; 8. 1630, section 205)

Section 203 of S. 914 would relieve the Interstate Commerce Commission of all enforcement duties under the Act. Both Section 203 (b) of S. 914 and Section 205 of S. 1630 would relieve the Federal Trade Commission of and vest in the Farm Credit Administration all regulatory responsibilities for administrative enforcement of the Truth in Lending Act under the Farm Credit Act of 1971 with respect to any Federal land bank, Federal land bank association, Federal Intermediate credit bank, or production credit association.

This proposal was first put forward by the Board of Governors of the Federal Reserve System, and two agencies principally involved, the Federal Trade Commission and the Farm Credit Administration, concur with the change. We believe the change desirable and would urge that the provisions of s. 914 be adopted.

Although we previously urged dropping agriculture completely from the Truth in Lending Act, the above listed types of lender engage in lending which is not always for an agricultural purpose. Consequently, the adjustment remains appropriate. 13. Liens arising by operation of State law (S. 914, section 204; S. 1630, section

209) These provisions of both proposals would amend Section 125 of the Truth in Lending Act in order to make clear that a lien arising by operation of state law, such as a mechanics or materialman's lien would have to be disclosed to the borrower just as if the lien were raised contractually. We support this provision on the grounds that the consumer is entitled to know what security interests are involved in an extension of credit. 14. Time limit for right of rescission (S. 914, section 205; S. 1630, section 210)

Section 205 of S. 914 and Section 210 of S. 1630 propose to add a new subsection (f) to Section 125 of the Truth in Lending Act which would limit to three years the period in which the right of rescission contineud in force where the creditor failed to notify the customer of his right to rescind a consumer credit transaction which involved a security interest in the customer's residence.

This proposal is another suggestion of the Board of Governors of the Federal Reserve System, and we agree that there is a definite need for this amendment to the Truth in Lending Act. The right of rescission has allowed many titles to become clouded since substantial questions of law remain unanswered relating to the continuance of the right of rescission where incorrect disclosures were made under the Act or where no disclosure of the right of rescission was originally given the customer. Since the right of rescission was originally included in the Act to give the borrower a “cooling-off" period, we believe the amendment is consistent in retaining that intent but is progressive in not allowing the right of rescission to be subverted into a tool which raises questions relating to titles on real estate and potentially enormous liabilities through an inadvertent technical non-compliance with the Act. We believe the language in Section 210 of S. 1630 to be the preferred vehicle to achieve the goal of limiting the right of rescission to a definite period. 15. Good faith compliance (S. 914, section 206; S. 1630, section 211)

We endorse this provision which would protect a creditor from liability for actions which are taken in good faith reliance upon a rule, regulation, or interpretation thereof by the Federal Reserve Board, even though such action may later be regarded as having been in violation of the Act, by virtue of a change in the Board's position or a ruling of a court or other legal authority. A creditor must be able to rely on the Board's guidance, or he is put in the untenable position of having followed an apparently valid ruling only to face possible liability because the ruling is later changed or held to be invalid. We also support the additional provision of S. 1630 that includes within the scope of protections actions taken pursuant to rulings of the enforcing agencies. 18. Disclosure of closing costs (S. 914, section 209; S. 1630, section 208)

The provisions of Section 209 of S. 914 would continue to allow the typical closing costs involved in connection with a real estate transfer to be exempt from inclusion in the computation of the finance charge only "when itemized and disclosed in accordance with regulations of the Board.” Section 208 of S. 1630 would add a new subsection (c) to Section 121 of the Trurth in Lending Act and would specifically require a full statement containing the closing costs to be incurred by the consumer which shall be presented (in accordance with regulations of the Board) “(1) prior to the time any downpayment is made or (2) in the case of a consumer credit transaction involving real property, at the time the creditor makes a commitment with respect to the transaction."

In principle, we do not object to disclosure of closing costs. The provisions of both bills would create problems for lenders since compliance would be technically impossible. In section 106(e) of the Truth in Lending Act, items which are generally accepted to be "closing costs" are exempted from inclusion in the computation of the finance charge. Those items are:

(1) Fees or premiums for title examination, title insurance, or similar purposes.

(2) Fees for preparation of a deed, settlement statement, or other document. (3) Escrows for future payments of taxes and insurance.

(4) Fees for notarizing and other documents.
(5) Appraisal fees.
(6) Credit reports.

It is evident, hopefully, that lenders are seldom, if ever, in a position to know what fees an attorney will charge for a title examination, preparation of a deed, or preparation of a settlement statement. Lenders are unable to determine, except in general terms, the amount an appraiser will charge for his services or what a notary will charge for his services. However, both bills would require such disclosures in detail since S. 914 speaks in terms of itemization and S. 1630 calls for a “full statement of colsing costs". We believe enactment of either provision would be an invitation to litigation since we doubt if any lender could accurately predict the exact cost of each item which falls into the general closing cost category.

While we fully support the concept of disclosure of closing costs in real estate transactions, we do not believe lenders should be responsible for events which are beyond their control. We would urge that the Committee amend s. 914 to make certain that any disclosure by lenders of the closing cost items in Section 106(e) of the Truth in Lending Act are only estimates of what may be the true cost. We believe statutory language is needed to adequately protect lenders in such situations.

It is our view that the flexibility of regulatory control in the Federal Reserve System is absolutely essential. However, we do not want to allow the situation to arise where the Board does not have any leeway under the statute. Therefore, we believe the approach taken in S. 914 is sound, provided it is amended in an appropriate manner to make certain that disclosure of rea. sonable estimates of the closing cost items will insure compliance with the Act. We suggest the following be adopted as an amendment to the Act:

"If at the time disclosures must be made, an amount or other item of information required to be disclosed, or needed to determine the required disclosure, is unknown or not available to the creditor, and the creditor has made a reasonable effort to to ascertain it, the creditor měy use an estimated amount or approximation of the information, provided the estimate or approximation is clearly identified as such, is reasonable, is based on the best information available to the creditor, or is not used for the purpose of

circumventing or evading the disclosure requirements of this Act. 19. Exemption of State lending agencies from recission requirements (S. 914,

section 212) This clause would exempt State lending agencies from the requirements of the recission portions of the Truth in Lending Act. Since the original concept of recission was to protect consumers against unscrupulous home improvement lenders; since State governments do not fall into that category, and since the present provisions have caused such lenders considerable difficulty, we would encourage this change. 20. Identification of transaction (S. 914, section 211; 8. 1630, section 104)

S. 914 and S. 1630 would require a creditor to disclouse on each periodic statement the date and amount of each extension of credit and to furnish, either on the statement itself or accompanying it, a brief identfiication of each extension cf credit, in a form prescribed by the Board, sufficient to enable the obligor to identify the transaction or to relate it to copies of documens previously furnished. Enactment of this section was recommended by the Federal Reserve Board in its annual report for 1972.

We certainly agree that cardholders are entitled to idetification of extensions of credit made during a billing cycle pursuant to an open-end plan. We would qualify the foregoing, however, by urging that any such provision retain sufficient flexibility so as not to impede the development by creditors of descriptive billing arrangements and the move toward electronic funds transfer.

It is virtually common knowledge that there is a tendency among banks to shift to descriptive billing from other billing systems. Not only is descriptive billing less expensive, it is generally seen as a necessary step which will permit control of the use of credit and control of frand and provide the basis for an electronic funds transfer system. Under a descriptive billing system, essential data concerning each transaction is entered by the creditor into a computer, which prints our at the end of each periodic cycle a billing statement. Generally, the statement will identify each transaction by a date, the name of the merchant, and the dollar amount. At the present time, many of the computer programs and equipment in

use are not capable of handling additional details concerning a transaction. Where that capability does exist, substantial additional costs would be incurred by the creditor to input, record, and print out such additional data.

We believe it is essential, therefore, that the proposal be modified so as to make it clear that disclosure by a creditor of the name of the seller, the amount of the transaction, and a date constitutes adequate disclosure. Such a provision would go far to assure that the development of descriptive billing techniques by banks, and other creditors will not be retarded by the imposition of standards which result in little or no benefit to obligors, Furthermore, identification of this information would, in virtually all cases, be sufficient to allow the obligor to identify transactions through sales slips previously furnished.

In addition, it is suggested that the provision be modified to reflect the fact that the date of an extension of credit may be either the date of the transaction giving rise to the extension of credit or the date upon which the extension of credit is posted to the obligor's account. While the latter practice has been adopted by many creditors and is sanctioned by Regulation Z, the language without further clarification may be interpreted as requiring disclosure of the transaction date. Many actions have been filed recently that challenge the propriety of certain regulations promulgated by the Board. Yet disclosure of the transaction date by creditors is often impossible. For example, as to certain transactions, performance by the seller may take place over a period of time, or the transaction might contemplate delayed delivery of the goods or services purchased. With respect to such transactions, payment, either in whole or in part, is frequently required by the seller prior to performance. Furthermore, banks are dependent upon the retail seller for the information concerning the transaction date, and the seller may not provide the date, or if it is provided, the date might be incorrect. Yet, to the extent that a court may rule that the section requires in all cases disclosure of the date of the transaction, it imposes upon creditors a substantial and wholly unwarranted contingent liability. 21. Advertising of open end credit plans (8.1630, section 212)

S. 1630 would amend Section 142 of the Truth in Lending Act by providing that an advertisement may, without additional disclosure, state a rate of finance charge provided that such rate is stated as an annual percentage rate. Where other terms of the plan are stated, the advertisement would have to set forth, in addition to the minimum periodic payment, the methods of determining the balances upon which a finance charge may be imposed and the periodic rate.

The provision is consistent with the recommendations of the National Commission on Consumer Finance to simplify credit advertising and encourage advertising of credit terms by creditors. This position is also supported by the Federal Reserve Board, which in December 1972 sought by amendment to Section 226.10 of Regulation Z to reduce the amount of disclosure required in both open end and closed end credit advertising. With respect to the proposed amendments of the Board, creditors, in comments sent to the Board, evidenced concern that the amount of disclosure which would have been required under the proposed regulation, although less than that required by existing regulation, would not achieve the desired objective.

We believe that the proposed amendment to Section 143 would stimulate the competitive advertising of open end credit terms and we support its enactment. Moreover, we feel that simplification of the required disclosures will eventually prove more meaningful to the consumer than the existing requirements. We would, however, suggest that one change of a technical nature be made in Subsection (c) (3) to reflect the fact that often more than one periodic rate may be applicable to an open end plan. In other words, "rate" should be changed to "rates". 22. Grace period for consumers (S. 1630, section 215)

S. 1630 would amend Sections 127(a) (1) and 127(b) (10) of the Truth in Lending Act to permit continuance of the common practice of issuers of credit cards of allowing a five or six day "grace period” during which payments received after the specified payment due date, but before the actual closing date of the billing cycle are credited without the imposition of additional finance charges. No comparable provisions is contained in S. 914. This practice has been adopted by creditors to suit the operational practicalities of periodic billing cycles and operates, also as a convenience to the obligor. Coupled with the use of a 25 day payment due date, it serves to give the obligor an adequate reminder to make timely payment and avoids the imposition of finance charges for minor

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