Our association represents primarily small stores, approximately 8,000 stores around the country. Most of our firms do operate on manual systems, so they can apply a judgment factor which eliminates a lot of the problems which arise out of mechanical means.

The hour is late. I would just like to refer to a few aspects very briefly.

I respectfully submit that in reviewing these that there are certain dangers that are imminent which we think might work to the disadvantage of the consumer and contrary to the purpose of the legislation and I would like to point out those.

The new definition of a creditor would expand regulations to all retailers who extend credit. The primary reason for many of our members not charging carrying charges is because they do not want to be exposed to the requirements of the truth-in-lending law.

Now, if these people are automatically subject to these regulations I think that what would happen in most cases is that they would automatically start adding carrying charges. This would be contrary to the benefits of the consumer; certainly contrary, I think, to the intention of this legislation.

Now, as regard to the correction of billing errors, we substantially support this concept. However, there are certain requirements which create hardships and impossible situations.

The obligor's inquiry alone should not be treated as a billing error and, therefore, trigger the subsequent forfeiture provisions of this section.

The question of delivery is a two-way street and should not be entirely the burden of the creditor.

As for the forfeiture-and this has been discussed by others beforeof up to a ceiling of $100, it really would encourage nuisance claims. and claims by unscrupulous people. We think that it is really sufficient to limit this to the finance charges that have accumulated.

With regard to the length of the billing period, I think that there possibly has been an oversight in that no reference was made to delay due to an act of God. Especially we recall last year that many of our retail stores suffered because of damages during Hurricane Agnes, they could not possibly get their statements out on time.

Now, this question of retroactive finance charges I think is a very, very important one. Most of our stores around the country do provide for free periods of 30, 60, or 90 days. We feel that, contrary to the desire to be of benefit to the consumer, these free periods might very well be eliminated by forcing retailers to adopt a mandatory method of computing their charges. This would definitely be contrary to the purposes of this bill.

There is a question with regard to promptness of crediting payments that may have been overlooked.

In most cases retailers do provide a snap-off portion of the statement which is to be returned. I know in years of experience I have found that in many cases these are not returned and in many instances checks do not have a printed name and address and are illegible. We would certainly hope in cases of that kind that there would not be a penalty. There is another area we think that might produce results contrary to the purpose of this legislation and that is the question of minimum finance charges.

In retailing, it is the concern of storeowners that they operate at a profit.

In many businesses customers develop certain buying habits. I have seen cases where customers, let's say, return 30 or 40 or 50 percent of their merchandise. The account is unprofitable, and the retailer closes that account.

We are concerned of the impact on low-income buyers who may carry $10 or $15 or $20 balances, on their charge accounts. In such cases retailers, because they cannot collect a minimum charge, would find that these accounts are unprofitable and therefore would close these accounts. This would be a disadvantage as far as the low income consumers are concerned, and this could well happen.

We submit that this is a real possibility.

Lastly, on the question of limitation of class action, we would submit the recommendation that a one-fourth of 1 percent penalty would certainly be a more realistic limitation than 1 full percent.

[Complete statement of Mr. Nathan follows:]

STATEMENT OF LARRY NATHAN ON BEHALF OF MENSWEAR RETAILERS OF AMERICA

Mr. Chairman and Members of the Subcommittee: I am Larry Nathan, a retail consultant to the Office of Minority Business Enterprise and a former retailer and Past President of Menswear Retailers of America. My retail background extends over 41 years, and included ownership of a Washington based men's wear specialty store chain.

Menswear Retailers of America is the national trade association, representing 4,000 independent men's wear merchants who own and operate approximately 8,000 stores throughout the United States.

We appreciate this opportunity to appear before this Subcommittee and present the views of our members as they relate to the various Fair Credit Billing proposals.

The typical member of Menswear Retailers of America owns and operates a retail establishment which does approximately $250,000 to $300,000 in annual gross sales, and employs between 5 and 7 employees.

We are, of course, talking about small business, and it is important to point out at the outset that many of the automated devices found in the credit departments of mass merchandise retailers are often totally beyond the economic reach of these small stores.

Most of the stores we represent have manual billing procedures and this is a consideration which we must continually weigh as we consider each aspect of the proposed legislation.

Despite their small size. the hallmark of our typical store is personalized service and our members are genuinely aware of their responsibilities to be honest, fair and open in their relations with consumers. It is the official policy of this Association to favor legislation which attempts to foster consumer fair practices, such as those proposed in Senate bills S. 914 and S. 1630.

However, some of the specific proposals, while attempting to protect consumers, would place additional and sometimes harsh burdens on retailers, particularly the smaller stores on whose behalf we are speaking.

We would like to address ourselves to those aspects of the proposed bills which we believe would have an impact upon the day-to-day store operations of our members.

Definition of creditor

TITLE I-FAIR CREDIT BILLING

We oppose what is a considerably broadened definition of a creditor under the Truth in Lending Act. As presently written, the Act defines a creditor as one who extends credit for which a finance charge is required. The new definition of creditor would extend to those retailers who do not add a finance charge, and add the disclosure requirements of the Truth in Lending Act and Fair Credit Billing measures now being proposed.

Thousands of smaller retailers throughout the country do not presently levy a finance charge because they think it too burdensome to comply with the disclosure requirements of the Truth in Lending Act.

The impact of this Amendment would be for these smaller retailers to commence levying finance charges, since the chief reason for their earlier reluctance would be removed.

Disclosure of fair credit billing rights

Creditors would be required to furnish, semi-annually, a disclosure to their customers explaining their rights to have billing disputes resolved.

The correction of billing errors is as important to the creditor as to the obligor. However, we think it sufficient that the disclosure of customer billing rights be made a requirement with the opening of each account (and to already active accounts), rather than require semi-annual disclosure, and thereby add one more (twice a year, every year) paper work burden for small retailers. Additionally, we believe that any disclosure of billing rights included with statements would be a waste of time and money, as it would simply be ignored by most consumers. Disclosure of billing contact

This adds a new requirement that the creditor of any account under an open end credit plan must include in monthly billing statements the address to be used by the creditor for purposes of receiving billing inquiries from customers. This section has our support and proposes a practice already followed by many men's wear merchants.

Correction of billing errors

In substance, we support the concept of this proposal, which would require that a creditor acknowledge a customer billing inquiry within 30 days and must resolve the inquiry within 90 days. Additionally, the creditor could not send dunning notices or take other collection steps until the inquiry is resolved.

While the concept appears reasonable, certain requirements of this section are less than fair to retailers.

First, we believe that it should be rewritten so as to make it clear that an obligator's inquiry alone should not be treated as a billing error and thereby trigger the subsequent forfeiture provisions of this section.

Further, in attempting to settle disputes the creditor must have the right to submit any and all evidence of the obligator's indebtedness, not just documentary evidence as is now specified in this section.

Another stringent objection concerns the situation where a customer alleges that the creditor's statement reflects goods not delivered in the customer in accordance with the agreement made at the time of the transaction. In such circumstances, the creditor cannot construe an amount to be shown correctly on his statement unless he determines that such goods were actually delivered. In effect, the burden of proof of delivery falls solely and absolutely on the creditor. The tracing of deliveries is a two-way street and we urge that this section be modified so as to remove this absolute burden of proof requirement from creditors.

Finally, with respect to this section, it is set forth that any creditor not complying with the provisions must forfeit the amount in dispute and finance charges up to a ceiling of $100. We believe that this provision would cause many customers to intentionally dispute accurate billings in the hope of triggering forfeiture.

The proposed ceiling of $100.00 is unfair to retailers and we think it sufficient that the amount of forfeiture be limited only to finance charges accumulated during the period the account was in dispute.

Regulation of credit reports

Subsection A prohibits a creditor from sending duming notices or taking other credit collections steps until a billing dispute is resolved. This appears reasonable and is in accord with fostering good customer relations.

Additionally, Subsection B states that if a customer continues to dispute a billing after he has received the creditor's explanation, the creditor may commence his collection steps; however, the creditor may not report the disputed amount to a credit bureau unless that creditor also notifies the customer of the name and address of the agency and tells the credit reporting agency the amount in dispute.

Finally, the creditor must also report any subsequent resolution of the dispute to those parties previously notified of the dispute. Again, these requirements appear reasonable and are now pratciced by many men's wear specialty store retailers.

Length of billing period

This section is proposed to remove the so-called "shrinking bill period" and requires, creditors to mail their billing statements at least 14 days before à payment must be made to avoid finance charges.

We presume it is just an oversight that this section does not contain an Act of God exception. Certainly, the several men's wear retailers who, during the flooding caused by hurricane Agnes, were seriously disrupted but kept their doors open, are an outstanding example of the need to exclude delays resulting from Acts of God.

Apart from that recommendation, we believe that a 14 day rule is reasonable, and we applaud the change from the 21 day rule which had been proposed in S. 652, and would have been unreasonable for smaller stores with manual credit operations.

Prompt crediting of payments

This section would require the prompt crediting of payments, in accordance with regulations to be issued by the Federal Reserve Board, and which would specifically prevent a creditor from imposing a finance charge if the customer's payment is received on or before the due date.

Generally, we are in agreement with this section, which merely states the current practice being used in our industry. We do feel, however, that an exception must be incorporated in any subsequent regulations.

Although many men's wear retailers include a perforated statement head or a snap-off portion of the statement, which is returned with the payment, these are frequently not returned. Also, it is a common practice of some consumers to send an unprinted check, leaving only their written signature as a means of identification.

We urge that an exception be made in instances where the statement head or similar identification is not returned with the payment, or where the name and address are not clearly legible.

Crediting excess payments

The requirement that creditors must promptly credit excess payments or refund them, if requested, is a reasonable proposal.

Prompt notification of returns

This section concerns third party credit card transactions and requires that if a retailer allows a return of goods (or the forgiveness of a debit for services) the retailer shall notify the credit card issuer of the return of merchandise or other adjustment, and the credit card issuer must credit the customer's account for the appropriate amount. This is a reasonable proposal.

Prohibition of retroactive finance charges

This is a controversial subject, since to restrict or cause to restrict the method of computing balance methods is a form of credit rate restriction. We understand that the purpose of S. 914 and S. 1630 is to amend the Truth in Lending Act. What is proposed here is a step beyond amending the Truth in Lending Act.

In principle, we believe that the choice as to method of computing finance charge balances should remain the option of the retailer. We can report that the vast majority of our members are today using a pure adjusted balance method, whereby credits are deducted from the previous balance before a finance charge is imposed.

While we are encouraged that the bill does not take a position on whether or not retailers should grant a free period, we are of the opinion that imposition of a mandatory method of computation of finance charges could result in the restriction or abolition of free periods. Such a result would be contrary to the best interests of consumers.

The prevalent practice in our industry is for the retailer to grant a free period, generally of 30 or 60 days; however, free periods of 90 days or more are not

uncommon.

We understand from comments appearing in the February 20, 1973 Congressional Record that the practical effect of Section 167 might be to make use of the adjusted balance method the all but mandatory method of assessing finance charges.

In summary, no method of computing finance charge balances should be made a mandatory feature of legislation affecting our industry where the adjusted balance method is already common practice. Furthermore, it is important not to legislate so as to discourage the practice of granting free periods.

For these reasons, we believe Section 167 should be removed from further consideration as part of a Fair Credit Billing measure.

Prohibition of minimum finance charges

It is proposed to prohibit minimum finance charges except where they are imposed on all monthly statements regardless of the amount of debt or the amount of repayment, and secondly where the customer has not made a payment for two successive months.

We oppose this section, believing that it may result in the cancellation of the accounts of low income customers who keep very small balances and are therefore cancelled, due to high carrying costs.

What also concerns us is that the requirement to permit minimum charges, if they are imposed uniformly, regardless of payment practices, is tantamount to placing a service charge on all accounts over and above finance charges.

The effect of such a policy would be for our inactive accounts to take the drastic step of simply closing out their accounts, and understandably so. We believe this section should receive no further consideration, as part of a Fair Credit Billing Act.

Effective date

A one year effective date for Title I appears reasonable.

TITLE II-AMENDMENTS TO THE TRUTH-IN-LENDING ACT

With respect to this Title, we shall only comment on those proposals which would have some direct impact upon men's wear retailers.

Good faith compliance

This is a helpful amendment allowing for creditors' good faith compliance with Regulation Z. No liability section under the Truth in Lending Act shall apply to any act done or omitted in good faith, in conforming with any rule, regulation, or interpretation thereof by the Federal Reserve Board.

Limitation on class action liability

This would amend the Truth in Lending Act by stating that in the case of a class action, each member of the class action is not entitled to a minimum recovery, and the total recovery in class actions may not be more than the greater of $50,000 or 1 percent of the net worth of the creditor.

We believe that the ceiling for class action recovery should be rewritten so as to recognize the resources of small businessmen. We recommend a ceiling of one-quarter of one percent of the net worth of the creditor.

Identification of transaction

Most of our members have found that the simplest way to comply with Regulation Z's requirement to provide a brief identification of purchased goods is to furnish the customer with a copy of his sales slip at the time of purchase, and to subsequently include a copy with his periodic statement. Others make a brief identification on their periodic statements. As this has not posed serious compliance problems for men's wear retailers, we wish to see these alternatives preserved.

In conclusion, while there is merit in many of the proposals contained in the proposed legislation, there are also potentially serious complications which we have cited here today. We hope our thoughts and recommendations will be given serious consideration by this Subcommittee.

Senator PROXMIRE. Thank you very much.

Maybe the best way to handle this, since you are a large panel is for me to ask you the question, and then you can refer it to whatever member of the panel you think would be appropriate.

Let me ask you this first. The previous balance method has come under legal attack in a number of States.

As a matter of fact, in some States, where they haven't outlawed it, they have still indicated that the legislature ought to abolish it. In California, for instance, the superior court says this. Plaintiffs claim that the previous balance method is unfair, the consumers are left unprotected, and are very confused. The consumers would fare better under the adjusted balance method, these are all good arguments.