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of the expectations of consumers, then the $50 limit is quite reasonable. In short, the $50 limit represents an appropriate exercise of the legislature's prerogative to draw lines where a range of reasonable choices is available.

(d) Geographical Limitation.—The final provision upon which I wish to comment is the third requirement that the transaction must have occurred "in the same State as the State in which the card issuer maintained a place of business." I understand that this language is an attempt to satisfy the objections of those who feel that a geographical limitation should be placed on the operation of the statute. The arguments in this regard are adequately developed in Brandel & Leonard, Bank Charge Cards: New Cash or New Credit, 69 Mich L. Rev. 1033 (1971). Even assuming that a geographical limitation is desirable, I have some serious doubts about whether the language employed in the statute represents a rational limitation. The benchmark for the operation of the statute is the issuer's maintenance of a place of business in a state. This standard provides an adequate guideline where bank charge cards are involved. When applied to other issuers, however the statutory language may be the source of considerable confusion. As a first step, it is necessary to determine what amounts to maintaining a place of business. Is a gas station operated under lease from a major oil company "a place of business" for the oil company which issues cards? If the oil company's cards can be used at motels and restaurants, is the operation of those facilities "attributable" to the card issuer? (This latter question would arise only in situations in which the oil company did not otherwise have its own stations located in the state.)

A second question is whether the issuer's operation of any business in a particular jurisdiction will subject it to claims in that state. For example, it might be argued that if the issuer of American Express cards operated a travel agency in Chicago, claims against a merchant in Peoria could be asserted, even though there is no rational nexus between the issuer's business operation in Chicago and the transaction in Peoria. A third level of complexity arises in the situation in which the issuer operates his related business as an entity legally separate from the card issuing operation. If the issuer's credit card operation is separately incorporated, do other business operations of the same firm satisfy the statutory language?

I regard these as troublesome questions because they both introduce an unnecessary level of complexity and foreshadow potential unevenness in the protection afforded consumers.

If the Committee feels that state desginations ought to provide the basis for a limitation on the application of the statute, then I would suggest that the state of the cardholder's residence be employed. This approach to a considerable extent lessens the level of uncertainty which the statute presents.

A reasonable argument can be made, however, that an effective liimtation can be achieved without resort to a state designation. If the statute were drafted to exempt transactions of the popularly-denominated "travel and entertainment" variety (meals, lodging, air fare, etc.), this would meet much of the concern of card issuers about having to deal with merchants in distant cities

Surely the vast majority of purchases made at a distance from the cardholder's home are for travel and entertainment. I appreciate that this approach would in some respects weaken the protection afforded by the present statute. For example, local travel and entertainment uses would be exempt. However, on balance, I feel that a transactional, as opposed to a locational-or state-based-exemption produces a more coherent regulatory scheme. A number of considerations support this conclusion.

(1) The proposed transactional exemption would remove one of the more arbitrary effects of the state-based classification by conforming more closely to the buying patterns of consumers in many metropolitan areas. Unlike the present form of the bill, the proposed alternative would protect the suburban resident who buys goods in New York City with a bank card issued in New Jersey or Connecticut. (Similar_illustrations can be drawn from other metropolitan areas such as Chicago, St. Louis, and Kansas City.)

(ii) The transactions in which consumers have the greatest need for the protection afforded by the statute are those involving the purchase of goods, and to some extent services, for home and personal use. There is little evidence that the typical travel and entertainment purchases (meals, lodging, air fare, etc.) are a major source of concern or abuse for consumers. Indeed, few reported cases (other than those involving serious personal injury) can be found in which the subjective quality of a restaurant meal, lodging, or air transportation gave rise to a legal complaint.

(11) Finally, it is probably true that the typical consumer engages in relatively few and relatively small travel and entertainment transactions. To the extent that large businesses are the major consumers of such services, they have considerably greater bargaining strength which can be applied to provide a self-help remedy.

CONCLUSION The bill clearly takes a step in the right direction by denying the continued ex. pansion of the holder in due course philosophy. By and large, the execution of the bill meets the task demanded by the dictates of policy. Assuming that additional attention is given to the mechanics of the new regulation, the bill will represent a major achievement in direction the future growth of the credit card economy.

Senator PROXMIRE. Professor Gary Fontana of San Francisco had to be in court this morning and consequently couldn't be here, but he will file his statement.

The committee will stand in recess until Tuesday-tomorrow morning—10 a.m., and reconvene in this room, to hear four other witnesses on the Fair Credit Billing Act. Thank you.

[Whereupon, at 11:30 a.m., the hearing was adjourned, to reconvene at 10 a.m., Tuesday, May 22, 1973.]

INACCURATE AND UNFAIR BILLING PRACTICES

TUESDAY, MAY 22, 1973

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, SUBCOMMITTEE ON CONSUMER CREDIT,

Washington, D.C. The subcommittee convened at 10 a.m. in room 5302, Dirksen Senate Office Building, William Proxmire, presiding.

Senator PROXMIRE. The subcommittee will come to order. Our first witness this morning is the Chairman of the Federal Trade Commission, Mr. Lewis A. Engman. Mr. Engman, we are honored and happy to have you here. You have a substantial statement here covering some 18 pages and we have three other witnesses. I would like to interrogate you and, if you want to skip over any part of your statement or abbreviate it in any way, the entire statement will be printed in full in the record (see p. 119).

STATEMENT OF LEWIS A. ENGMAN, CHAIRMAN, FEDERAL TRADE

COMMISSION

Mr. Engman. Thank you. I am happy to be here this morning on behalf of the Federal Trade Commission to express my views and those of the other members of the Commission. I do not intend to go over my statement in detail but I would comment on two or three of the highlights.

I apologize in advance if my voice gives out. I seem to be suffering from some kind of a bug this morning. If you will bear with me, I will attempt to be cooperative.

The Federal Trade Commission, in general, supports these two bills, S. 914 and S. 1630. With respect to the first title of these bills, the Fair Credit Billing Act, we believe that S. 914 is particularly well designed to insure that creditors will be more responsive to consumers in connection with billing disputes, and that the bill will help establish a code of conduct by regulating such matters such as offsets, prompt crediting of payment and the like.

I should say that it is by now fairly common knowledge that a major factor which causes these frustrations is the advent of the age of cybernetics. There are few of us who have not experienced the dissatisfaction of attempting to communicate effectively with a computer. While they are a boon to customers and creditors alike in terms of improving speed and possibly accuracy, automated billing systems have proven to be inadequate when there is a need for focusing attention on a bill in dispute.

(89)

So I would like to repeat that the Commission enthusiastically endorses the objectives of these bills and strongly urges enactment of legislation along these lines.

I do not propose, Mr. Chairman, to discuss specific sections. My prepared statement covers those. We view the provisions of S. 914 as essential requirements in any legislation of this type.

I might comment very briefly on the second title, the amendments to the Truth-in-Lending Act.

Specifically, I would like to turn to the question of the extent of civil liability in the event of noncompliance with the Truth in Lending Act. We prefer the approach of section 208 of S. 914 and believe that it is one of the most important provisions contained in the legislation. Basically, section 208 would amend section 130 of the Truth-inLending Act, to provide that with respect to class actions there shall be no minimum recovery and total recovery may not exceed the greater of $50,000 or 1 percent of the creditor's net worth.

Our experience in enforcing Truth-in-Lending legislation persuades us that only a high degree of civil liability can provide the deterrence essential to achieving compliance with these provisions.

What the maximum limit should be is difficult to predict. However, on balance, the Commission joins the Federal Reserve Board in advocating the 1 percent ceiling on S. 914, which is a higher, more stringent ceiling than the $100,000 maximum contained in S. 1630.

I would like to say in conclusion, Mr. Chairman, that the five members of the Federal Trade Commission are unanimous in supporting enactment of both titles of the bill as modified by some of the relatively minor changes suggested in my prepared statement.

We believe that this legislation is absolutely essential, if the initial promise of the original Truth-in-Lending Act to improve the consumer credit marketplace is to be fulfilled.

Thank you very much.

Senator PROXMIRE. Thank you, Mr. Engman. I just cannot thank you enough for your vigorous and forthright support of S. 914 and Í intend to call this to the direct attention of every member of the subcommittee and of members of the full committee.

The Federal Trade Commission, of course, has a very heavy responsibility with respect to the consumer, and, I think, especially in recent years it has done an outstandingly good job.

The fact that the Commission, unanimously, without exception, unanimously endorses this legislation is particularly encouraging and I think it goes a long way toward making it possible for us to win enactment of it.

I am glad to see the Commission is supporting the revisions on the holder-in-due-course doctrine as it pertains to credit card transactions. One of the arguments advanced against these restrictions is that they would give commercial banks and other card issuers too much power over retail merchants. Accordingly to this argument, the banks would have to police the retail practices, and practices which properly belong to the FTC.

Now, what is your view of this argument?

Mr. ENGMAN. I do not think that is so at all. I do not believe it is necessary for the banks to get involved in the nuts and bolts of retail operations.

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