interests, taking a statesman-like approach to the problem, and trying to do an education job. It is going to take the unified effort of government of business and of consumers to learn how to use these tools. Keep in mind that the consumer credit industry as we know it today, which is providing the tremendous way of life that we have come to achieve in this country, in terms of real goods and standard of living, has really developed since World War II and it has all been a learning process, not only for business but for the customer. Senator PROXMIRE. Thank you very much. Thank you for that very eloquent summation. Thank all of you gentlemen. As Senator Bennett pointed out, this is the largest retail organization in the world and you have done a great job. I was referring, when I talked about merchandising revolution, to something before consumer credit became so important. But I think they are both very, very important, and we value your testimony and we will study it carefully, and I am sure it will have an impact on this committee. Thank you very much. Mr. WOOD. Thank you very much. Senator PROXMIRE. Next we have a panel, an outstanding retail panel, and, gentlemen, I want to apologize to you for the late hour. We have Mr. Eugene Keeney of the American Retail Federation, Mr. Michael Zorova of the National Retail Merchants Association. Mr. Lawrence Nathan, Menswear Retailers of America, Mr. Leonard Gay, National Home Furnishing Association, Mr. Joseph Hanley, Maine Merchants Association, and Mrs. Laura Sternkopf, Delaware Retail Association. I should say, lady and gentlemen. I'm going to ask Senator Hathaway, who has a distinguished constituent on this panel, to introduce him. Senator Hathaway has a plane that he has to catch, and I think if Senator Hathaway would like to do so, we can have the representative from Maine, the gentleman from Maine, speak first, and then Mr. Hathaway can question if he wishes. Senator HATHAWAY. Thank you very much, Mr. Chairman. It gives me a great deal of pleasure to present to the committee Mr. Joseph Hanley, representing the Maine Merchants Association. He is president of the Credit Bureau of Greater Portland. I have talked at length with Mr. Hanley on two occasions with regard to his testimony, and I know he is going to present to the committee some very valid points which the committee should consider and give a great deal of weight to before marking up this legislation. There are many problems of the small retail merchant that Mr. Hanley will explain to you. So it's nice to have vou here, Mr. Hanley. Senator PROXMIRE. I want to say before vou take over, Mr. Hanley, I understand Mr. Keeney is kind of the lead-off witness, but if he wouldn't mind, we will defer to Mr. Hanley first, is that right, sir? Mr. Keeney will follow Mr. Hanley. Mr. KEENEY. All of the members here are members of the American Retail Federation, and the views expressed by them are views of the retail community. STATEMENTS OF EUGENE KEENEY, AMERICAN RETAIL FEDERATION; MICHAEL ZOROYA, NATIONAL RETAIL MERCHANTS ASSOCIATION; LAWRENCE NATHAN, MENSWEAR RETAILERS OF AMERICA; LEONARD O. GAY, NATIONAL HOME FURNISHING ASSOCIATION; JOSEPH N. HANLEY, MAINE MERCHANTS ASSOCIATION; AND LAURA STERNKOPF, DELAWARE RETAIL ASSOCIATION Mr. HANLEY. Mr. Chairman, and members of the Subcommittee on Consumer Affairs on the Senate Banking, Housing, and Urban Affairs Committee, as Senator Hathaway stated, I am Joseph Hanley, manager of the Credit Bureau in Greater Portland, Portland, Maine. I am here today on behalf of the Maine Merchants Association. I have submitted copies of my prepared testimony to the committee, and I feel that in the best interest of time, I should not cover it in detail). I would, sir, with your permission, like to briefly brush the areas of my concern, and at the conclusion, I would be most happy to answer any questions addressed to these comments or to my prepared testimony. I am concerned in reference to the definition of creditor, correction of billing errors, regulation of credit reports, length of billing period, and prohibition of minimum finance charges. While I did voice our concern on the prohibition of retrocative finance charges, I would just for a moment share with you some further feelings I have in this area. We are concerned about the various methods now used by retailers in Maine in making up their monthly or periodic statement. Our grave concern is that the proposed Federal legislation will infringe on the historic duties of the State government in this area of rate restriction. And any restriction on the retailer which tells him he must make up his monthly statements in a predescribed regulated method is in fact a form of rate ceilings. The use of the various systems should remain as much a part of our system of competition in the marketplace as our rates themselves also, the pricing of our goods and services. Federal regulation in this area is unwise and would impose severe difficulties on the retailers in Maine. Basic needs and conditions differ from State to State, and it would appear that the State government is the closest to the grass roots and should be the logical vehicle to regulate. The State would be far more capable to see the need for change. If retailing in Maine or in any of the other States enforced by State regulation to lockstep with the other 49 States, it would be very difficult to see the need for change, but would set standards regardless of the needs of the individual States. The required flexibility now present in our State laws would not be present in Federal regulations. I refer you to chapter 6 and 7 of the Report of the National Commission on Consumer Finance, chapter 6, rate ceilings, chapter 7, rates and availability of credit. Their findings appear to support our position. 96-687 - 73 - 23 It, therefore, appears to us that at the State level, we can come closest to the two most important elements for proper consumer protection in this area of rate restriction and credit availability, namely flexibility and proper design for area condition. Thank you, sir. Senator PROXMIRE. Thank you very much. Senator Hathaway? Senator HATHAWAY. Thank you very much for your testimony. And I imagine, Mr. Chairman, that you will make the complete statement part of the record. Senator PROXMIRE. Yes, indeed. [The complete statement of Mr. Hanley follows:] STATEMENT OF JOSPEH N. HANLEY, MANAGER, CREDIT BUREAU OF GREATER PORTLAND, MAINE Mr. Chairman, members of the Subcommittee, my name is Joseph N. Hanley. I am manager of the Credit Bureau of Greater Portland, Maine. For the past ten years I have been a member of the Maine Merchants Association, where I have served as Director and Treasurer in addition to membership on the Legislative Committee. The Maine Merchants Association is a non-profit organization which represents over 400 retailers in the state of Maine, the bulk of which are small, independently owned business firms. Today I am appearing as a representative of the Maine Merchants Association and, in addition, I am appearing on behalf of the American Retail Federation. The Federatiton, through its fifty state and thirty-one national trade association affiliates comprising a membership of over one million retail establishments, represents thousands of other small retailers across the United States. My remarks today are on behalf of these small retailers, nationwide. The thrust of my comments are not directed at the entire bill, but rather to the following sections: A. Definition of Creditor (S 914, § 103; S 1630, § 103) B. Correction of Billing Errors (S 914, § 161; S 1630, § 161) C. Regulation of Credit Reports (S 914, § 162; S 1630, § 162) E. Prohibition of Retroactive Finance Charges (S 914, § 167) Although I do not intend to imply that the other sections of the proposed bills do not warrant comment, these sections mentioned above are the ones that I feel affect small retailers most directly. I feel sure that other witnesses will comment adequately on the remaining sections. As a manager of a credit bureau, I am naturally interested in fair credit practices. My customers are the retailers and others to whom consumers apply for the use of credit. It is this relationship with the retail community that causes me to question and even object to the definition of "Creditor". Presently, the Truth-In-Lending provisions cover creditors only if the assessment of a finance charge is involved. As I read these bills, this definition would be extended to cover all grantors of credit including those who offer what we call "Open Accounts". The bulk of small retailers offer this 30 day open account that does not impose a finance charge. It is also widely used by service stations. the corner grocer, the hardware store, and the professions such as lawyers, doctors and dentists. From where I sit, extending coverage to all of these people doesn't make much sense. Businessmen in small towns depend on their friendly service and the development of personal relationships with their customers in order to build a profitable business. One of the ways they do this is to bill their customers on a 30 day open account for merchandise or services. It is simply a convenience they offer their customers. They do not have formal billings systems, computers and sophisticated billing machines. Their 30 day open accounts are not presently covered by the Truth-In-Lending laws. These small businessmen would be forced to either hire expensive outside help in order to comply or stop offering their own credit plans. Certainly all small retailers agree with the need to properly correct billing errors. However, as it is presently written, this section does not give the business man the benefit of good faith compliance. A provision for such good faith compliance is needed in this bill to protect legitimate businesses when they have made an honest and sincere effort to comply with its provisions. Without this provisions, small retailers may find themselves victims of some technical violations. Sophisticated attorneys could take advantage of these situations and severely harm the retailer without performing any substantive good for the consumer. This could easily result in higher prices and less competition in the consumer marketplace because of this increased risk of doing business. I question whether Section 162 of S. 914 and S. 1630 should be included in this legislation. These provisions might more appropriately be considered as amendments to the Fair Credit Reporting Act. The proposed section entitled "Length Of Billing Period" could perhaps be better titled "Early Mailing Of Statements". The effect of this section is that a merchant must mail his statements at least fourteen days before payment is due. We do not disagree with doing this. Certainly the retailer already has every incentive to mail his statements as early as he can. The retailer needs the early cash flow in order to pay his own bills in time. The retailer needs the money generated by his billing statements to buy more merchandise. If there is to be a time limitation requirement, a clause protecting the merchant from unavoidable circumstances is needed. There needs to be a provision to protect retailers in case of a natural disaster, an accident or fire affecting his ability to prepare statements, especially for a small retailer, during a period of extremely high usage of credit-such as at the Christmas or Easter seasons. As I have said, the retailer already has sufficient reason to bill as early as he can and certainly will make every effort to meet the proposed 14 day requirement. He should not be subject to penalties caused by situations beyond his reasonable control. I do not think that this adjustment will be harmful to the position of the customer but it is certainly needed by the small retailer. This brings me to my chief concern in S. 914-specifically section 167 which would require most retailers who offer revolving accounts to change the methods they use for computing finance charges. If the retailers in Maine are forced to use the so-called adjusted balance method which S. 914 apparently attempts to require, it will have the effect of reducing the charges made by the retailer for credit. It costs money for the retailer to prepare and mail bills to his customers, keep books, finance his receivables pay collection cost, etc. These costs are paid only with moneys received from customers-either as a finance charge or from the sale of merchandise. Thus, if this Senate bill is passed and the retailers of Maine are forced to change their method of computing finance charges, it will result in reduced finance charge income and force retailers to recover their costs elsewhere either by increasing prices or reducing services. The last section I want to comment on is the one entitled "Prohibition of Minimum Finance Charges". Like legislating the methods retailers can use to assess finance charges, telling us we cannot use a minimum charge is another form of federal rate regulation and an infringement on the varying competitive environment in which retailers operate in the several states. Minimum finance charges are important to the small retailer who must recover the costs of providing the service of billing customers each month. There are fixed costs which are not covered by 12% on balances of $10.00 or $15.00. Mr. Chairman, this concludes my remarks on the proposed bills. I hope you will be mindful of the small retailer and the competitive retail environment when you consider this legislation. I especially implore you to remove the two sections that prohibit minimum charges and legislate the methods we use to assess financial charges. Senator PROXMIRE. I appreciate it very much. Again, I apologize for the late hour. I know you are all hungry, and it's after 12 o'clock, and if you could abbreviate your testimony, it would be very much appreciated. Senator BENNETT. May I interrupt at this point. I, too, have a plane to catch, and I'll have to leave at 12:30. I have a number of questions for members of the panel. I think I should like to ask Mr. Keeney to get them answered. Mr. KEENEY. Fine, yes, sir. Senator BENNETT. They can be answered for the record. Senator PROXMIRE. Very good. You can answer it when you correct your remarks. Senator Hathaway? Senator HATHAWAY. Joe, could you give us one example where the proposed legislation would make it very burdensome for the small retailer? Mr. HANLEY. I think, Senator Hathaway, right at the beginning, in the definition of credit, I think the definition in Truth in Lending is fine, and I think in S. 914 we open a whole brandnew world. We take into account the grocery store, the little druggist, the service station. Suddenly he who has difficulty now with all his regulations, must give disclosure on his open 30-day account. Senator HATHAWAY. And you feel that would be too cumbersome for him? Mr. HANLEY. No question. I'm sure that I know I have, when I deal with a local garage, at the end of the month, I get a little slip with grease thumbprints on it that says that, you know, I had a lube job done. This is the best of his ability to get a statement to me. And sometimes we never get a statement. It's just a question of driving up, and you know that you had the lube job, and you pay for it. I just don't know how they could cope with this type of legislation. Senator PROXMIRE. Would the Senator from Maine yield? Senator PROXMIRE. Last year when this was discussed on the floor, it made legislative history and it was clear that the Federal Government could issue regulations exempting small businesses. The primary purpose was to bring in the big credit card issuers. Perhaps that should be done by explicit amendment to the basic legislation. But at any rate, this is the intention. Senator HATHAWAY. Good. Thank you very much, Mr. Chairman. Thank you, Bill. Senator PROXMIRE. Now, why don't you go right ahead, Mr. Keeney, in your own way. I understand you are introducing the panel, and we'll hear from each of them. As indicated, whatever they can't deliver orally, we will have it printed in full in the record. Mr. KEENEY. Possibly members of the panel can summarize or highlight some of the points they would like to make. [Mr. Keeney's complete introductory remarks follow:] |