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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.
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,
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
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
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
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
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
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
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.
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.
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
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
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
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.
---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
---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