페이지 이미지
PDF
ePub

by NHFA, namely those dealing with the length of the billing period and the identi

fication of transactions are now incorporated in both s. 914 and S. 1630.

It is

regrettable, however, that Congress did not pass many of these vital consumer safe

guards in 1972,

We submit that a similar impasse could possibly result if the Con

gress again attempts to transform the Truth in Lending law into one that sets stand

ards for granting credit, forces credit grantors to use a particular type of credit

plan, or requires a particular method of applying finance charges.

The purpose of the Truth in Lending law is, of course, to provide disclosure

of information that would permit the credit customer to make an informed decision

egarding the use and the cost of credit.

Congress should not run the risk of ad

versely affecting the availability and the cost of credit by seeking to prevent the

use of varying methods of assessing finance charges.

As the Chairman of this Sub

committee has stated "competition is the essence of our free enterprise system."

We have great faith in the inherent competitiveness of retailing to insure that the

American consumer will receive the best possible credit terms,

If Congress

enters the area of rate management, there is little doubt but that

the very consumers who require credit the most will be the first victims of any credit

crunch,

Briefly, I would like to identify several of the basic concerns that both S. 914

and s. 1630 have generated among home furnishings retailers.

Retroactive Finance Charges

In the home furnishings industry, the finance charge on revolving credit plans

has typically been applied on the opening or "previous" balance which is the amount

owing and unpaid on the first day of a billing cycle.

Section 167 of S. 914 would outlaw the use of the previous balance method of

applying finance charges and would force home furnishings retailers to use the ad

justed balance method.

When we ask why such a proposal, we are told that retroactive

finance charges are "discriminatory, deceptive, usurious, intimidating, and confusing."

During our last appearance, we dealt with a hypothetical calculation of finance charges determined by the previous balance and adjusted balance methods to help to make

our point that the cost to the consumer was nearly identical using the two methods.

We are delighted this time that we don't have to create any examples which could be

rightly called self-serving, rather we can depend on data collected from literally

millions of credit transactions in various states,

This 18 a step forward, and we

compliment the academic community for their valuable contribution to the record.

We are satisfied that these studies, the results of which have been shared with

this Committee and analyzed by members from the academic community, amply demonstrate

[blocks in formation]

discrimination, confusion, intimidation and deception are my ths

that surround the discussion of retroactive finance charges.

NHFA is opposed, therefore, to provisions of s. 914 that would prohibit the use

of any particular method of calculating finance charges.

Prohibition of Minimum Finance Charges

The Truth in Lending regulations require that monthly statements be sent to all

This

revolving charge account customers with an outstanding balance of $1 or more. provision has forced retail-creditors to prepare and mail statements to customers whose outstanding balance is very small, To help offset the costs involved in pre

paring and mailing monthly statements on those accounts, and to encourage customers

to pay off small outstanding balances, many retailers make a minimum monthly charge

of 50¢.

This minimum monthly charge is permitted under the Truth in Lending law,

provided the charge is fully disclosed to the customer both at the time the account

is opened and on each monthly statement.

Section 168 of s. 914 would prohibit minimum finance charges unless they were

(1) uniformly imposed on all accounts without regard to the amount of credit outstanding or (2) uniformly imposed on all accounts where the credit customer has

failed to make the minimum periodic payment for two preceding billing periods.

We do not agree with the statement that the minimum monthly finance charge is

a "device for charging lower Income customers a higher rate of interest." It is

no more than a method to have small balances owed by the customer paid promptly.

There is no reason for us to penalize our large active accounts by imposing a min

imum finance charge. Furniture is not an every day purchase, it is a big-ticket

item, and we do not understand why Congress would want to force all credit customers

to pay a minimum finance charge,

Section 168 (a) (2) of s. 914 explicitly recognizes that the minimum finance charge does assist in the collection of small balances from recalcitrant consumers.

We do a disservice to credit customers to deceive them into thinking that credit

doesn't cost.

It is a gross distortion of the basic thrust of the Truth in Lending

law to go beyond total disclosures of credit costs to dictating what the merchants

must or must not charge.

The competitive market place is the best control on charges

for credit.

Significantly, s. 1630 does not contain comparable provisions to Sections 167

and 168 of s. 914.

Its sponsors have wisely chosen not to run the risk of diminishing

the availability of credit, driving the cost of credit up, or culling out those consumers who need credit most, As they have stated, it is a "delicate balance," and

Sections 167 and 168 of s. 914 would create both credit imbalance and distortion.

NHFA supports, therefore, the provisions of the Truth in Lending law that permit

the use of the 50¢ minimum monthly charges when full disclosure of the minimum is

given to the customer.

Credit Advertising

We welcome the change of disclosure requirements for credit advertising con

tained in s. 1630,

From the inception of the federal Truth in Lending law, this

Association has been keenly interested in credit advertising developments.

with

in the first year of the law's effective date, the Association voiced its concern

in a letter to the Federal Reserve Board to the effect that:

-- the credit advertising disclosure requirements of Regulation Z are

so detailed and so cumbersome that credit advertising has virtually
been driven out of newspaper advertisements and off of radio and TV
commercials. As a result, instead of being able to "shop" for credit
in advertising, the customer gets no information from which significant
comparisons can be made of Annual Percentage Rates, Finance Charges, or
Downpayment Requirements.

What is especially noteworthy of the recommended changes in credit advertising 1s the clear effort by the sponsors to treat uniformly, to the extent possible,

revolving and installment credit plans.

This even-handed approach is one that NHFA

has always supported.

The present law and implementing Regulation 2 have helped to eradicate sub

stantially misleading rates and other deceptive credit advertising. It is important that the legislation and the legislative history of the Fair Credit Billing Act of

1973 clearly demonstrate to the Federal Reserve Board that the present proposed

simplification of credit advertising disclosure requirements is a part of a design

to restore the "shopping functions to credit, a crucial ingredient of Truth in Lending.

Additional Disclsoure for Credit Insurance

s. 1630 includes in Section 216 a recommendation contained in the Report of the National Commission on Consumer Finance that would require disclosure of credit 11fe

and accident and health insurance charges both in dollar amount and as an annual per

centage rate in the same manner as finance charges and annual percentage rates of

finance charges are requireed to be disclosed under the Truth in Lending law and

Regulation 2.

The Commission concluded that such disclosure, particularly in

credit advertising, would help to provide a competitive market for credit insurance.

The new disclosure burdens on retailing in terms of printing new sales con

tracts and monthly statements, would not be accompanied by corresponding benefit

to the consumer. It is always important that we weigh the costs of recommended changes and this is an example in which there are excessive costs compared to the

consumer benefits.

Presently, our credit customers may choose to have credit in

surance, and the absolute dollar cost is disclosed at the time of the transaction.

The cost is relatively little and the translation of this cost to an APR (Annual

Percentage Rate) would be more confusing than it would be helpful.

In short, there

is abundant disclosure under the present law, and NHFA opposes the inclusion of

additional requirements concerning credit insurance.

Recommendations of NHFA

The National Home Furnishings Association agrees with the disclosure concept

of the Truth in Lending law that permits credit customers to make an informed de

cision regarding the use and the cost of credit. NHFA, however, opposes provisions

that would create undue hardships for independent home furnishings retailers and

call for drastic changes in operational procedures presently permitted by the Truth

in Lending law without accompanying benefit to consumers.

Therefore,

---VHFA supports the prompt resolution of credit billing errors,

---NHFA opposes the provision that would prohibit the use of the previous

balance method, or any other method of calculating finance charges,

---NHFA supports provisions of the Truth in Lending law that permit 50¢

monthly minimum charges, and opposes provisions that would severly
limit the use of minimum finance charges,

---NHFA supports liberalizing all credit advertising disclosure require

ments to insure the "shopping functions for credit, ---NHFA opposes the additional disclosure of the Annual Percentage Rate

requirements for credit life and accident and health insurance.

Mr. Chairman, we appreciate the opportunity to appear before you and your

committee,

« 이전계속 »