and indicated really that people were no more aware of the rate of interest than before. Senator PROXMIRE. How long after July 1, 1969 did you do this? Mr. MANDELL. I took persons only from after July 1969 who purchased a car. Senator PROXMIRE. What was the time of your study? Mr. MANDELL. That was a study that was done in January and February of 1970, and April and May of 1970. Senator PROXMIRE. Was there any indication that there has been improvement since then? Mr. MANDELL. I did a study in 1971 which did not utilize the same methods but asked people the rate of interest that they would have to pay on various things, and of course we don't have the factual basis for comparison in most instances. However, when we asked credit card users the rate of interest they thought they would have to pay on their store cards, I believe that little more than a third estimated it to be 18 percent per year. Of course, it was less than 18 percent in some States, of course, but fewer than one-half estimated any rate between 12 and 18 percent. That is really the only basis I have. I am afraid I don't know whether the situation has materially improved. People who are knowledgeable tell me that over time it has improved. I am not entirely convinced of that. Senator PROXMIRE. Did you ask about the various billing systems? Did you make studies of that? Mr. MANDELL. No; I didn't. I am sorry. As for leading us to a checkless society, my studies of credit cards found that credit cards had the opposite effect. Even after controlling for age and income, credit card users write, on the average, three checks more per month than noncard users. It appears likely that these additional checks are written to pay monthly credit card bills, since three is the median number of cards used by credit card-using families. Even if credit cards are not leading us to a checkless society, they bear careful watching. The discovery by credit card issuers that their systems can be profitable only if users borrow on their cards has caused the issuers to solicit the business of middle and lower income customers who are more likely to pay finance charges than their higher income counterparts. There have been suggestions even that families with $15,000 or $20,000 a year have their bank cards taken away from them since. these cards often represent a net loss to the banks. Since many of the families find it difficult to save money, it is likely that, once caught in the whirlpool of revolving credit, they are unlikely to emerge soon to the surface. Open-ended credit, by its very nature, can easily become a no-exit system of debt for the consumer. In conclusion, I would like to reiterate my support for the provisions of the Fair Credit Billing Act. Those provisions which are designed to put the consumer on a more equal footing with his computer antagonist at the credit card office are unarguable. I am less excited about the prohibition on retroactive finance charges since I do not feel that it would, in itself, substantially reduce the welfare transfer from the poor to the rich. However, I view the matter as definitional and within the purview of the truth-in-lending law. Any basis used for calculating finance charges is "fair" if it is understood by both parties to the transaction-the consumer as well as the creditor. But since I found in my studies matters relating to consumer finance are not well understood by the consumer and since no one appears anxious to educate him in such matters, the Government can, and probably should, exercise a parental role even if, in this instance, it only saves the consumer a few dollars per year. Senator PROXMIRE. Thank you very much. This is especially useful in view of studies you have made and documentation which you have. What are the characteristics of families who tend to pay their bills on time compared to those who use the credit features? Mr. MANDELL. I don't have the figures here but in my study for both bank and store credit cards we asked people first whether they pay bills on time, thus avoiding charges, or whether they did incur charges; we found that of the 50 percent of families who used the cards, it was split pretty evenly; 25 percent said they paid on time. This was heavily concentrated among families making over $15,000 a year. Half of the credit card users, essentially 25 percent of all families, said they used the credit feature of the bill and these tended to be lower income families. In a second question for those that sometimes use the credit feature of the cards we asked again whether they treated their credit cards as kind of an installment plan, paying a little at a time, essentially the minimum required monthly charge or whether they tended to pay it off as soon as they could, using it as a means of interim short-term financing. Again we found this split. One-half paid a little at a time, one-half paid off as soon as possible. Again there was a large income differential. Those with incomes of $15,000 and over were likely to pay their bill as soon as they could event to the extent that they used the finance feature of the credit card bill. Senator PROXMIRE. You mean as soon as they could, you mean when they got the bill? Mr. MANDELL. No. Among those who occasionally incurred a finance charge, even some of the wealthier families did occasionally, for instance, after Christmas and seasons of heavy expenditures, they might incur a charge for a month or two but they tended to pay the charge off as soon as they could. Generally speaking, the lower income families in our sample tended to-many of them tended to treat the credit card as they would have an installment loan. If it said the billing amount was to be $20 a month, they would pay that and incur the larger finance charges. Senator PROXMIRE. Would you submit for the committee tables which would show the kind of things you told now, that shows a correlation between the income and use of the credit features on the cards? Mr. MANDELL. Yes. In fact, it is contained in my book on credit cards. Senator PROXMIRE. You have tables in your book! Mr. MANDELL. Yes, sir. Senator PROXMIRE. You might just pick out the ones you would think to be appropriate and incorporate them in the record. Mr. MANDELL. Fine. [The information follows:] CREDIT CARD USE IN THE UNITED STATES Table 6-7 Whether Pays Bank Card Bill in Full Within Specific Groups |