140

S. 1630 would repeal the present exemption from the finance

charge of appraisal costs and credit reports on loans secured by real property. We do not believe these charges constitute a cost for

the use of money,

but rather are legitimate transaction charges.

Therefore, we oppose this change.

In conclusion the League applauds the efforts of the Consumer

Credit Subcommittee in attempting to improve the language in the present Truth-in-Lending Act.

We act as legal counsel to Western States Bankcard
Association ("WSBA"), a nonprofit organization with a member-
ship of more than 200 banks having more than 2,500 banking
offices in seven Western states, each of which operates one
or more phases of a Master Charge bank card program. As of
April 30, 1973, the member banks of WSBA had contractual rela-
tionships with approximately 175,000 merchants and 4.5 million
cardholders, representing 2.6 million Master Charge accounts.
On behalf of WSBA, we submit the following comments on those
provisions of the above-referenced legislation relating to
open-end credit, and ask that you include these comments as
part of the written record being compiled as a result of the
recent hearings concerning this proposed legislation.

At the outset, we would recommend that the provisions currently appearing in Title I and Title II be severed and treated as two separate bills. The provisions of Title II, for the most part, represent amendments that clarify or improve currently effective provisions of the Consumer Credit Protection

MORRISON, FOERSTER, HOLLOWAY, CLINTON & CLARK

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Act. The great majority of these provisions have been specifically requested by or agreed upon by the Federal Reserve Board, and by representatives of both consumers and creditors. The hallmark of Title II is that, with the possible exception of the class action provision, it is non-controversial at this juncture. The distinction between the two titles was pointed out clearly by Senator Bennett in the Senate floor debates in the spring of 1972. Senator Bennett described Title I as imposing "new federal requirements and restrictions on banks and other credit grantors which do not presently exist in the law," and Title II as "intended to improve the administration of the Truth in Lending Law." He then pointed out that each of the measures in Title II had your concurrence and that most of them were "recommended by the Federal Reserve Board and were accepted by the Committee with little discussion . .

It is quite likely that several provisions in Title I as it exists, not to mention such new provisions as may be introduced and joined for debate with existing provisions, will be discussed extensively in Congress before ultimate passage. Title II, on the other hand, may evoke little or no discussion. We recommend that serious consideration be given to the introduction of Title II as a separate piece of legislation, since we believe that the enactment of Title II, whose provisions are beneficial to consumers and creditors alike, should not be delayed by the more controversial provisions of Title I.

follow:

Our comments on specific provisions of the two bills

Disclosure of Fair Credit Billing Rights (S. 914, $104; S. 1630, § 105). The requirement that fair credit billing rights be disclosed semiannually places a heavy financial burden on creditors with few corresponding benefits to consumers, particularly in the case of inactive accounts. A survey we conducted of several of our members indicates that an average of approximately 30% of cardholder accounts do not show any activity during a typical month. According to the estimates of one of our major banks, it would cost that bank more than $15,000 per distribution to send out a semiannual disclosure notice to its inactive accounts. We believe that annual disclosure of fair credit billing rights would provide a sufficient reminder for consumers, and, at the same time, would somewhat alleviate the card issuer's heavy burden. if the requirement of semiannual notification is retained, subsection (a)(2) should at least be modified to provide that this notice need only be provided to accounts that are active during the billing cycle in which the notice is distributed.

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This semiannual (or annual) disclosure is not in the nature of an initial disclosure as required by section 127(a), nor is it the sort of periodic (per billing cycle) disclosure required by section 127(b). The placement of this provision in either of those subsections could thus be considered inappropriate. For this reason, the Subcommittee might consider adding a new subsection (c) to section 127 requiring this semiannual (or annual) disclosure, rather than including this provision as part of subsection (a) (8). If this suggestion is accepted, present subsection (c) should be renumbered as subsection (d).

At the very least, since the first sentence of the proposed new paragraph (8) relates to the requirement of disclosure of fair credit billing rights on the initial disclosure statement before the opening of an account, the language of the provision might be improved by adding to the second sentence the word "also" so that the sentence reads: "Such statement shall also be provided to the obligor at least annually."

Because proposed section 127(c) would require disclosure of certain of the information required to be disclosed under subsection (a) whenever an amendment to subsection (a) is adopted, it could be interpreted as reopening the statute of limitations for past violations of subsection (a) whenever an amendment to subsection (a) is adopted. To clarify the true intent of proposed section 127(c), we recommend that it be modified to read as follows:

(c) In the case of any existing account
under an open-end consumer credit plan having
an outstanding balance of more than $1.00 at
or after the close of the creditor's first full
billing cycle under the plan after the effec-
tive date of any amendment to subsection (a),
the disclosures required by such amendment, to
the extent applicable and not previously
disclosed, shall be disclosed in a notice
mailed or delivered to the obligor not later
than the mailing or delivery of the next
periodic billing statement required to be
furnished to such obligor by subsection (b).

Correction of Billing Errors (S. 914,
161; S. 1630, § 161).

Subsection (a)(2). A precise meaning for the phrase "the amount of the billing error" is important at several junctures within section 161. It should be made absolutely clear that the intended definition of "the amount of the billing error" is

MORRISON, FOERSTER, HOLLOWAY, CLINTON & CLARK

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limited to that amount actually contested by the obligor and not the entire outstanding balance of the obligor's account or the total dollar amount of a particular transaction that is alleged to contain an error. Consequently, we would suggest adding the following language to subsection (a)(2) of S. 914, page 4 at line 15, and S. 1630, page 4 at line 20:

. error, which amount shall be the difference between the amount the obligor believes to be correct and the amount set forth on the statement, and . .

Subsection (a)(2) of S. 914 also contains a typographical error at page 4, line 15, where the word "error" should be substituted for the word "errors."

Subsection (a)(3). If the dispute settlement scheme contemplated by this legislation is to be effective, creditors must be given sufficient information to identify and resolve any problems raised by the obligor. To facilitate prompt settlement of disputes, consumers should be obliged to set forth facts regarding the alleged billing error with sufficient precision to enable creditors to determine that there is a reasonable basis for the obligor's inquiry and to investigate the matter. we recommend that subsection (a) (3) be modified to read:

sets forth facts providing a reasonable basis
for the obligor's belief that the statement
contains a billing error, . . .

Therefore,

Subsection (a)(A). Neither bill specifies what the

obligor's acknowledgement must contain. To make it clear that this provision is only intended to require an acknowledgement of receipt of the billing inquiry, and not a substantive reply thereto, we suggest that the phrase regarding the acknowledgement be amended to read: "a written acknowledgement of receipt thereof" (addition underlined).

Subsection (a)(B). We assume that the word "accounts" in the third line of subparagraph (i) is a typographical error and that this word should actually be "amounts."

The requirement in subparagraphs (1) and (ii) that the creditor provide documentary evidence of an obligor's indebtedness may create significant problems as we move toward electronic funds transfer and electronic recordation of credit card sales. A problem may exist even before implementation of a full electronic transfer funds system; that is, a descriptive billing system or a truncated system where all paper generated flows to a central depository institution and is not delivered to the card issuing