bill rate shall exceed the ceiling rate by more than 1.5 percent, that the interest rate shall increase at the rate of 1 percent per year.

This would enable us to have fair market rates within a 3- to 4year period instead of a 10-year period. This cannot be achieved without some financial help to the savings and loans. As we have proposed previously to you, we believe the answer is a direct subsidy of one kind or another to efficiently run savings and loans. This is not a radical proposal. As the Secretary of the Treasury informed Congress, the Federal Government, through advances from the Federal Home Loan Bank Board, guaranteed mortgages and federally held mortgages, has $142 billion invested in home mortgages. We believe the proposed subsidy will cost less than $1 billion a year.

Lastly, we think that if the elderly are to be denied $8 billion a year and have previously been denied $19 billion over the last decade, at a very minimum, this Congress, with the support of the Secretary of the Treasury, should issue, as Ms. Cloud has indicated, an inflation fighter certificate for the elderly. We believe as long as the maximum to be held by any elderly person is $3,000, that approximately 10 million persons will be eligible who will seek such accounts.

The cost to the Treasury each year will be approximately $200 million, a far cry from the loss of $8 billion per year to the elderly under the present subsidized system.

Regarding the May 30 pooling regulations, as you are aware, they were done without public comment. They were presented in such a way as to appear pro consumer. They are, in fact, anticonsumer. No unsophisticated saver can possibly effectively pool.

We have a report done by the Gray Panthers at the request of Congressman Roybal, and it will be submitted to this committee tomorrow. The Gray Panther study indicates that banks and savings and loans are either unwilling to accept pooling, contend it is illegal and/or that it will not work at all.

So, in effect, the Federal regulatory bodies have said pooling is

out.

Regarding advertising, Ms. Cloud has given you an ad that appeared in the Sunday San Francisco Examiner and Chronicle that we believe is quite misleading. What is disturbing to us is not this Bob Hope ad, but that the Federal regulatory bodies have failed to fulfill their statutory obligations and fiduciary obligations to protect the consumer and the small saver.

No action has been taken with regard to this ad and, more importantly, the Federal regulatory bodies have failed to develop standards to protect the consumer. We think those standards should include FTC-like warnings, such as: "If savings are kept in passbook accounts at the present rates over a 5-year period, you stand to lose one-third of your savings.

In conclusion, Citibank issued a truth in lending ad last month, albeit for self-serving reasons. It said to this Congress, "If you give us $500 today, in 1 year we will give you back $475."

Thrift institutions cannot survive if the public knows this, and we believe the public does know this. The Gray Panthers have eloquently called this to the attention of the public. But more

importantly, the market itself knows it. That is why investments in liquid funds are now at $23 billion and why they will be over $100 billion within a couple of years.

The thrifts' fate is intertwined with the small saver, and unless this Congress acts swiftly to provide fair market rates for the small saver, there will be a continued consumer revolt and an erosion of savings that may very well cause, unfortunately, the collapse of most thrifts.

STATEMENT OF HILDA CLOUD, CONVENOR OF THE SAN FRANCISCO GRAY PANTHERS

Mr. Chairman and the other honorable Senators, from last October, less than a year ago, where the Gray Panthers and several other organizations, with the capable guidance of Robert Gnaizda of Public Advocates, presented a petition for a fairer rate of interest on passbook savings, until today, we have seen a remarkable turnabout on the part of high public officials and even banks.

Perhaps that is what everyone involved in the banking business and its regulation was waiting for. They weren't going to take the imitiative in pointing out that small savers, among whom are numbered at least 24 million elders, were being cheated by a mandatory low interest rate.

But when we (the small depositors) cried out against this injustice, they all, including the President, nodded their heads solemnly and agreed. Even that reluctant public servant, the august Secretary of the Treasury, who refused to meet with us a few months ago, is now saying that President Carter's plan to raise interest rates for smaller savers is a potent anti-inflation weapon that could prevent a recession.

We don't really mind having the credit for bringing this up taken away from us, if the President wants the credit, who are we to deny it to him? We'll take the cash that's due us, instead.

But, this is what we must tell you gentlemen: we cannot wait ten years to have those interest rates brought up to what richer people are getting now.

I am 75 years old. In ten years, I and millions my age will be dead. But let's forget that.

In ten years, if in the meantime we do not have a catastrophic depression, and no one can guarantee that we won't, not even the Congress of the United States, then we must anticipate the same galloping inflation we now have continuing.

So If we get 9 percent on our money in ten years, what good will it do us if the inflation rate is by then 18 or 20 percent?

I don't claim to know more than Secretary Blumenthal about stemming inflation. I am glad to defer to his judgement that giving us now what we're entitled to would be a potent anti-inflation measure to reverse the serious trend of more and more passbook withdrawals.

However, in spite of all the fine talk, we must look at the facts. And the facts are that the regulatory agencies have permitted a rise of a whole quarter of one percent. On a thousand dollar account, that comes to 21 cents a month, less than a penny a day. Big deal! What kind of anti-inflation measure is that, Mr. Chairman? We don't like talk out of both sides of the mouth. We don't like the implication that we should be grateful for the big statement and the minuscule action. Do they really think the moment we reach the age of 65, our brains dry up?

Now, I have a proposal which we hope will meet with your approval. What about issuing through the Treasury, "Inflation Fighter Certificates for the Elderly"? They could be indexed to the CPI and pay 2 percent above the inflation rate. People could buy these in $50 denominations up to $3,000 maximum for any one individual. They'd be limited to $3,000, so that those few of us who are in the upper income bracket would not unduly benefit.

Don't you agree that it's a great idea? I present it to you as one of the finest gifts you can make to us elders who look to the Congress to make life a bit easier in our last years.

PREPARED STATEMENT OF ROBERT GNAIZDA, PUBLIC ADVOCATES, INC.

MAY 30 FEDERAL REGS: LESS THAN A PENNY A DAY

Senators Cranston, Proxmire, and other members of this subcommittee, the Gray Panthers, the Campaign for Economic Democracy, and the California Council for Older Americans, as well as myself, would like to thank this Subcommittee and Senators Cranston and Proxmire for playing a decisive role in encouraging the President of the U.S., and the regulatory bodies, to address what many believe is the most important consumer issue, in terms of dollars, of the year.

We believe that the proposed Congressional and regulatory resolutions intended to remedy the plight of the small saver and the elderly are inadequate and, in large measure, will be of no value to the elderly during their lifetimes.

In our prior testimony before this committee, we documented that the small saver, due to Regulation Q, was likely to lose 17.5 billion dollars in interest during the year 1979. Treasury Secretary Blumenthal's June 21, 1979 statement to Congress that Americans, over the last decade, have lost 42 billion dollars in interest, including a 19 billion loss by the elderly, as a result of Regulation Q, is confirmation of the multi-billion dollar impact of precent regulatory policies and of the need for your immediate action.

As you are aware, the May 30, 1979 federal regulatory response to the Gray Panther October 19, 1978 Class Action Rulemaking Petition seeking market rates for small savers is wholly inadequate. On a thousand dollar passbook account, the one-quarter of one percent regulations provide for less than a penny a day in additional interest-that is, $2.50 per year per thousand dollars.

Compounding the impact of this shortsighted, trivial, and discriminatory onequarter of one percent rise in interest rates, was the decision of the Federal Reserve Board to terminate the opportunities for small savers to pool their assets into $10,000 Money Market Certificates. The Board's anti-small saver decision was made in direct response to this Committee's April 11, 1979 questioning of the federal regulatory bodies on this subject.

We would like to address: (a) the interrelated issues of the inadequacy of the federal regulatory response to small savers in terms of interest rates, pooling, and advertising, and (b) the inadequacy of the Secretary of the Treasury's June 21, 1979 Congressional response to the data he has collected and the economic analysis he has made regarding this data. For example, the Secretary of the Treasury stated on June 21, 1979 to this Congress that the raising of interest rates for small savers is a potent anti-inflation weapon to prevent recession and that we cannot counter inflation unless Americans consume less and invest more. We are perplexed as to how this can be achieved if the interest rates remain, as the Secretary has requested, at the present rate for the next two years. And we are disturbed that the time frame for the Secretary's proposal will not provide market rates until more than twothirds of our clients-the elderly, are dead.

Before discussing the specifics, we would initially like to call to this Committee's attention the regulatory bodies' tacit encouragement of member institutions' use of the less than a penny a day rate increase to boldy proclaim the benefits of small saver accounts. For example, see Section III referring to the California Federal Bob Hope Ad: "Starting July 1st small saver balances can earn the high interest formerly available to large accounts."

I. POOLING REGULATIONS: ANTI-CONSUMER AND PERHAPS UNCONSTITUTIONAL In April of 1979, a few banks, having become sensitized to the plight of the small saver and the alternatives available to the small saver via uninsured money market mutual funds, began to advertise pooling arrangements for the small saver.1

The Gray Panthers raised the pooling issue before this subcommittee on April 11, 1979. The Chairman of the Federal Home Loan Bank Board, Robert McKinney, and a Governor of the Federal Reserve System, Charles Partee, in response to questions by Senator Proxmire, stated that there was no statutory basis for blocking pooling. (Mr. McKinney also told this subcommittee that he had reservations about a past Federal Home Loan Bank Board effort to block pooling.)

On May 30, 1979, without public input and clearly against the wishes of consumers, certain members of this subcommittee, and of its many member institutions, the Federal Reserve Board issued anti-pooling regulations. To disguise its impact, the Board stressed its full support for individual pooling so long as it was done without the direct or indirect solicitation or assistance of any bank.

1

' For example, First Pennsylvania Bank and Security National Bank in California.

Pursuant to the request of Congressman Edward Roybal, Chairman of the Select Committee on Aging, Subcommittee on Housing and Consumer Interests, the Gray Panthers conducted a Study on the impact of these anti-pooling regulations on individuals. The results of this Study will be presented to Congressman Roybal's subcommittee on June 28, 1979 and a copy will be simultaneously delivered to this subcommittee. In summary, the Gray Panther Study documents what we all suspect and what the Federal Reserve Board surely must have known. Member institutions are, at best, unwilling to handle individual pooling and at least one major bank informed the Gray Panthers that individual pooling is illegal. As things presently stand, any savers sophisticated enough to enter into a mutual agreement regarding survivor rights, duties of an executor, and tax problems emanating from pooling are probably sophisticated enough to go to a money market liquid fund that provides similarly high interest rates and total liquidity, and have no need of these new regulations.

The Federal Reserve Board has further compounded the lack of opportunities for individual pooling by failing to offer to small savers even an outline of what actions they must take to pool and what rights individuals within a pooling arrangement may have among themselves and with member institutions.

As a result, the Gray Panthers have filed a formal protest in regard to the May 30th anti-pooling regulation.

We also believe that these anti-pooling regulations may violate due process, exceed the discretionary authority of the Board, and be an unconstitutional infringement on the right of member institutions to express their free speech views in regard to opportunities for small savers. See, for example, the recent U.S. Supreme Court cases in which the court upheld the freedom of expression rights of corporations. (First National Bank of Boston v. Bellotti, 98 S. Ct. 1407 (1978); see also Buckley v. Valeo, 96 S. Ct. 612 (1976).)

As set forth in Section V, Recommendations, we urge this subcommittee to introduce legislation (should the Federal Reserve Board refuse to reconsider its antipooling regulation) to permit any member institution to promote pooling and to assist individuals in their efforts to secure the advantages of pooling.

Pooling will not only help the small saver, it will, as the Secretary of Treasury has advised this Congress on June 21, 1979, enable this nation to conquer inflation by encouraging Americans to consume less and invest more.

II. MAY 30 SMALL SAVER REGULATIONS ARE INFLATIONARY AND ANTI-CONSUMER

On April 3, 1979, in response to the Gray Panther October 19, 1978 Class Action Rulemaking_Petition, the federal regulatory bodies, including the Federal Home Loan Bank Board and Federal Reserve Board, issued proposed regulations, via four instruments, that would have provided small savers with an estimated four billion dollars a year in additional interest.2

Without holding hearings, except for a "one day notice" sham private hearing held by the Federal Home Loan Bank Board and without securing adequate consumer comment, the federal regulatory bodies substantially reduced the financial impact of their April 3, 1979 proposed regulatory changes. On May 30, 1979 they announced two so-called substantive changes. One would provide one-fourth of one percent additional interest on all passbook accounts. The other would provide one and one-half percent below Treasury Bill rates for those willing to tie up their money for four years, or for a period eight times longer than required for $10,000 Money Market Certificates.

The value of 4 of one percent on a thousand dollar passbook account is $2.50 a year. This comes to less than one penny per day, hardly sufficient either to alleviate the plight of the small saver or to achieve the Secretary of the Treasury's objective of helping conquer inflation by encouraging Americans to invest more.

To the small saver, and particularly to the elderly, a four year certificate at a rate significantly below the Treasury Bill rate, is of little, if any, value. For example, more than one-third of male senior citizens age 70 will not be alive four years from today.

2 See April 11, 1979 testimony of Robert Gnaizda before this Subcommittee, p. 4, footnote 5 of Prepared Statement.

3 The Federal Home Loan Bank Board May 1, 1979 sham hearing was protested by the Gray Panthers via a formal Petition of Protest mailed May 11, 1979.

III. MISLEADING ADVERTISING BY BOTH MEMBER INSTITUTIONS AND THEIR

REGULATORS

The May 30, 1979 regulations were announced with somewhat more fanfare than would appear to be deserved. The joint press releases of the Federal Home Loan Bank Board and the Federal Reserve Board portrayed the less than a penny a day increase for a thousand dollar passbook account as a change that "Will help small savers obtain a higher return on deposits... [and will provide] improved opportunities for small savers...

The media, influenced by this hyperbole, inaccurately reported to the public that this constituted "a better deal for savers". See press headlines such as "A Better Deal for Savers", "Higher Savings Interest OK'd!", U.S. To Allow Higher Savings Interest" (S.F. Examiner, 6/4/79, S.F. Chronicle, 5/31/79, and New York Times, 5/ 31/79, respectively.) See also, for example, New York Times, 5/31/79 D13, "The actions today are consistent with President Carter's decision a week ago [for small savers to] earn market rates of interest currently available only to large investors..

As might have been predicted by the Federal Home Loan Bank Board and the Federal Reserve Board, certain member institutions commenced an unrestrained advertising campaign to mislead the small saver into deposting savings in accounts that if held for five years would cause her to lose at least one-third of her savings. One of the nation's largest and most respected federally chartered savings and loans deliberately using the well-known name of a long time favorite of the elderly, produced the following high impact advertisement accompanied by a large photo of Bob Hope. Pertinent portions are as follows:

"California Federal gives small savers three new ways to get the most for their money."

"Introducing higher interest for small accounts. Until now government regulations required savers to maintain big balances to get the top interest offered by certain certificates of deposit."

"Starting July 1st, small savings balances can earn the high intertest formerly available only to large accounts."

-BOB HOPE, California Federal Ad Sunday S.F. Examiner and Chronicle, June 2, 1979, p.8.

As of June 27, 1979, the date of this hearing, the Federal Home Loan Bank Board has taken no action to prevent or correct this misleading act or to set any policies in regard to misleading advertising by member institutions.

It is experiences like the above that have caused the Gray Panthers to urge the federal regulatory bodies, pursuant to their statutory authority (e.g. 15 U.S.C. Section 57A(f)) to adopt their slogan "savings may be hazardous to your wealth." In the alternative, the Gray Panthers have asked that the regulatory bodies insure that member institutions not mislead the small saver and provide full and adequate information regarding the impact of savings accounts whose interest rates are well below the inflation rate.

IV. NEED TO CONTROL INFLATION BY PROVIDING HIGHER INTEREST RATES

IMMEDIATELY

On May 22, 1979 the President of the U.S. delivered a clear message to Congress to help the small saver as quickly and as fully as possible.

As admitted by the Federal Home Loan Bank Board and the Federal Reserve Board at the April 11, 1979 hearings before this subcommittee, the Presidential mesaage, in a certain sense, was unnecessary. That is, the federal regulatory bodies, pursuant to Regulation Q, have full and plenary power to immediately provide market rates to small savers. They also have the full and plenary power, as they admitted, to immediately put into effect Senator Proxmire's SR59, which would provide for one thousand dollar and up money market certificates.

SR59 is strongly supported by the Gray Panthers, and our other clients, and is an esential first step in eliminating discriminatory rates.

Regarding Senate Bill 1347, we are in full agreement with the spirit of this bill. Were the difference in interest rates between Regulation Q and market rates less, and were inflation under control, we could support the bill as is. However, in light of the substantial disparity between ceiling rates and market rates and runaway inflation, we believe this bill will assist neither the small saver or thrift institutions, nor will it achieve the laudable objectives sought by the Secretary of the Treasury regarding controlling inflation.

This bill, which appears to be consistent with the Secretary of the Treasury's June 21 message to Congress would provide for fair market rates for small savers in