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title. The amendment also lists a number of factors that would be considered by the court in determining the amount of statutory penalties imposed.

The Association strongly supports adoption of a limiting test. However, we have some concern about how this particular limiting test, "substantial noncompliance", would be applied. We presume this test is meant to be applied on a transaction by transaction basis. In other words, if a creditor had made a good faith attempt to comply with the disclosure rules in the transaction under consideration, no civil liability would apply.

However, the standard could be interpreted in another way. For example, a plaintiff may assert and the court find that every contract and disclosure statement written by a defendant creditor contained the same technical or hypertechnical violation. Based upon such a finding a plaintiff may then assert that, since every one of the creditor's contracts or disclosure statements contained a violation, the creditor was in substantial noncompliance. In light of this possible interpretation, the Association recommends that a "good faith" test be substituted for the "substantial noncompliance" test. A creditor should have immunity from civil liability if the creditor can demonstrate a good faith effort to comply with the requirements of the act. Application of this test on a portfolio basis would not have the potential disastrous

results of the "substantial noncompliance" test.

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We suggest that the proposed subparagraph B of section 130 (a) (2) be amended to read as follows:

"(B) the creditor has not made a good faith effort to comply with the requirements of this title,. . .

The Association strongly endorses the elimination of the minimum statutory penalty of $100. The Association has previously recommended tht all statutory penalties be eliminated. The statutory penalty provisions have been an incentive to nonmeritorious litigation. The majority of Truth in Lending law suits are unrelated to any effort to insure proper consumer protection.

For the reasons that we have proposed that all statutory penalties be eliminated, we oppose the increase of the maximum penalty to $5,000. While the effect of this increase would be substantially mitigated by the addition of a "good faith" compliance test or the proposed "substantial noncompliance" test (if it is interpreted on a transaction by transaction basis), we see no need for increasing the penalty. An increase in statutory penalties would serve to encourage nonmeritorious litigation unrelated to the

essential purposes of the law.

Section 706: Section 706 would extend for six months the optional effective date of the changes required by the Truth in Lending Simplification and Reform Act. We strongly support this extension.

In spite of the best effort possible, the Federal Reserve Board staff has just recently been able to publish Commentary interpreting the new Regulation Z. This

its

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Commentary of over 150 pages is crucial to form development and other compliance efforts. Consequently, creditors have

waited for this Commentary in order to insure that their compliance efforts are in accordance with its provisions. The new law has required a change in every closed-end contract form and in virtually all open-end disclosure forms. Creditors need an additional six months in order to have the full year contemplated by Congress to implement the numerous changes.

FINANCIAL INSTITUTIONS RESTRUCTURING

AND SERVICES ACT OF 1981

WEDNESDAY, OCTOBER 21, 1981

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, D.C.

The committee met at 9:30 a.m., in room 5302 of the Dirksen Senate Office Building, Senator Jake Garn (chairman of the committee) presiding.

Present: Senators Garn, Proxmire, Heinz, and Sarbanes.

The CHAIRMAN. The committee will please come to order. This morning we are happy to have a panel of expert witnesses before us: Edwin Brooks, legislative vice chairman, U.S. League of Savings Associations; James A. Coles, treasurer, National Savings and Loan League; Robert Masterton, chairman, National Association of Mutual Savings Banks; John R. Wood, president, National Association of Realtors; Mark Riedy, executive vice president, Mortgage Bankers Association of America; and James Shimberg, chairman, Mortgage Finance Committee, National Association of Home Builders. Gentlemen, we are glad to have all of you with us this morning, and would start with Mr. Brooks.

STATEMENT OF EDWIN B. BROOKS, JR., LEGISLATIVE VICE CHAIRMAN, U.S. LEAGUE OF SAVINGS ASSOCIATIONS; JAMES A. COLES, TREASURER, NATIONAL SAVINGS AND LOAN LEAGUE; ROBERT R. MASTERTON, CHAIRMAN, NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS; MARK J. RIEDY, EXECUTIVE VICE PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF AMERICA; AND JAMES SHIMBERG, CHAIRMAN, MORTGAGE FINANCE COMMITTEE, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. BROOKS. Thank you, Mr. Chairman. I am Edwin B. Brooks, Jr., president of Security Federal Savings and Loan Association of Richmond, Va. I appear today on behalf of the U.S. League.

We commend you, Mr. Chairman, both for your approach to financial institution legislation in this 97th Congress, and for the content of S. 1720, the Financial Institutions Restructuring and Services Act.

As I am sure you understand, we have some reservations and suggestions for portions of S. 1720. It is overall a great beginning for the process of modernizing the laws which govern our association.

Furthermore, we believe you are correct to approach the task in a comprehensive manner, rather than isolate requests for emergen