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TABLE 1

ACCOUNT DATA BY FAMILY INCOME GROUPS

Total Household

Income

Account Averages (12 Month Period):
Net

Number of
Percentage Total Net Revolving Finance Revolving
Distribution Sales Sales Sales Charges Months

No

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Share of Share of

Share of Net Sales Finance Charges Work Units

2.1%

4.2%)
6.1
3.9

6.8
12.1
15.5

13.8
26.5
26.5

26.8
19.4
29.0

22.7
13.8
10.2

13.8
19.7
12.8

11.9 100.0% 100.0%

100.0%

Ratio of Finance

Chasse Revenues to: Net Sales Revolving Sales

10.1%
4.1

7.9
8.3
6.5

10.1
9.7

15.2 4.8

8.8 4.2

7.3

10.3

All

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Ratio
Net Sales to
Work Units

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6,5%

10.3%

Share of Finance Charges

50¢ or Under

$ 3.90

6.20 5.90 6.70 5.80 6.80 11.20

9%
13
23
30
10
9
6

$ 6.80

100%

Data weighted by relative share of sales in California b Actual number of accounts in ()

Based on months accounts were open
donly 4% of all account months involved finance charges of 50¢ or less.

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(R): Account holder was reached when called. (NR) Account holder was called but not reached. aefforts to locate delinquent account holders through central Information agencies. bThe firm sends one of its own representatives to try to collect the account.

Since supervisor salaries are higher, their to

counter separatoly.

TESTIMONY BEFORE SENATE COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

SUBCOMMITTEE ON CONSUMER CREDIT

S. 914--FAIR CREDIT BILLING

(93rd Congress, First Session)

by

E. Ray McAlister, Ph.D. Professor of Business Administration North Texas State University

Denton, Texas
May 24, 1973

Mr. Chairman and members of the Subcommittee. I am Ray McAlister,

Professor of Business Administration at North Texas State University in

Denton, Texas. I appear here today at the request of the Subcommittee. I have been asked to share with the Subcommittee some of the results of a study

on which I have been working off and on for about eighteen months. The results of this study may be of interest in regard to S. 914, specifically Sections

167 and 168.

In my duties as Professor of Business Administration, I regularly teach upper-level courses in consumer and commercial credit management. As a

result, I have been more or ess continuously interested in updating my

expertise in economic and legal matters pertaining to consumer credit.

My interest in consumer credit in particular dates back to the early

1960's at which time I was working on a doctoral dissertation at The Ohio State University pertaining to state and federal credit legislation. I

received my degree in 1963 and since that time have been on the staff of

the College of Business at North Texas.

During the past ten years or so I have engaged in a number of different

research projects and have written numerous articles on the economic and lega'

aspects of consumer credit. I have enjoyed the opportunity of sharing the

results of my studies with legislative committees in various states. As you may recall, I also had the pleasure of appearing before a committee on which

some of you were members in 1967 when the Truth in Lending legislation was

under consideration.

Origin and Design of the Study

As a part of my efforts to keep up-to-date in the field of consumer credit, naturally I was aware of some of the legal developments concerning

the particular area of revolving credit. As you know, one of the more

discussed subjects in this area recently has been with regard to the type of billing method employed by stores and banks in assessing finance charges on open-end credit plans.

It occurred to me that in all of the debate in this area, the discussions

centered entirely around hypothetical examples of how one billing method compared in cost to another. I was unaware of any substantial published materials based on empirical data. It seemed to me that much of the legislation that had been proposed and in some instances enacted into law, while

no doubt well-meaning in its purpose, was based on a total absence of any objective findings; and, instead, was designed purely on the basis of

theoretical possibilities.

Therefore, it appeared to me that a thorough examination of actual account histories over an extended period of time would provide very meaningful data from which to evaluate legislative proposals and enactments.

Accordingly, in December, 1971, I made a proposal to Sears, Roebuck & Company in Chicago that a random sample of their accounts in Texas be selected for analysis over a twelve-month period. Recognizing the value of such a study, the project was approved and undertaken that same month.

Selection of the Sample

It was decided that use of a single billing cycle would be appropriate

since customers were assigned to cycles in a completely random manner and

since preparation of the computer program for analysis of the data would be greatly simplified. Thus, the sixth billing cycle, closing on the 12th of each month and containing some 75,000 individual accounts throughout the

state, was chosen by random selection.

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