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I am not impressed, however, with the suggestion that requiring this will drive smaller business out of business.

One of the reasons-one of the primary reasons—for shopping at a smaller concern is that they frequently provide greater convenience or greater specialization, and consumers are willing to pay a few cents inore for it. I am concerned, however, that, as far as I know, there have been

I no studies of what it would cost if these stores were required to ship their billing out, and I would hesitate to flatly endorse the requirement of an average daily balance method unless I had some indication of whether the costs were going to be nominal or very significant.

But, again, the essential point, as far as we are concerned, is that the retroactive finance charge based upon the previous balance is not only unfair, but is contrary to public policy as expressed in the finance charge computation requirements of the present Truth-In-Lending Act.

Senator PROXMIRE. Were you here when the Consumer Federation testified?

Mr. SILBERGELD. Yes.

Senator PROXMIRE. What do you think of their argument that you should have a single method adjusted balance which would be uniform for purposes of comparison so that the consumer would know where he can get the best credit opportunities?

Mr. SILBERGELD. I am somewhat hesitant to suggest that the adjusted balance method be required partly because it would go beyond the requirements of fairness as reflected in the actuarial description, and in effect mandate some additional costs, regardless of how that is passed along, some additional costs for the purpose of having absolutely comparative figures among various creditors.

Again, I am not sure what those costs would be, or how they would be passed along.

I am somewhat concerned with mandating those additional costs. I think that on the other hand, as has been pointed out in numerous studies, that in open-end credit, unlike closed-end credit, the variety of methods of computing finance charges and the variety of factors that affect the true rate of interest result in

Senator PROXMIRE. Would you favor the single adjusted balance system, the uniform system, if we could determine that the costs were not excessive?

Mr. SILBERGELD. If the costs were not excessive I would have to say that I would not object to it. I don't know that we would have any particular grounds for insisting upon it, but I would not find it objectionable.

Senator PROXMIRE. Except the uniformity would be desirable.
Mr. SILBERGELD. Yes, it would be.

Length of billing period—I have no measure of the present size of this problem I mention, and I will skip over it. I think it must continue to some degree, and should be dealt with in S. 914.

Obligor's rights, credit card holders' rights are an essential provision of this legislation, and we would find it very difficult to support legislation despite our feeling of the need for the billing error provision, if obligor's rights are not protected in some acceptable fashion. Now, I realize from last year's experience that in effect this is a bill that is successor to a bill which was unacceptable, first to those others than the sponsors and, eventually, the sponsors; but we do have perhaps somewhat critical comments with regard to S. 914 as now drafted.

One is the geographic limitation. Our position is that so long as a credit card issuer seeks to take the benefits of having somebody authorized to accept his card, the responsibilities should go along with that. A limitation based upon unauthorized acceptors would be all right, and there are some plans now, I think, still in operation that would accept any recognized credit card and bill you directly without dealing with the card issuer--on the basis of that card as being acceptable identification.

That, perhaps, is not important; but I think as far as geographical limitation, the attempt to profit by authorizing somebody to accept the cards must be accompanied by the acceptance of the responsibility regardless of where that authorized franchised card acceptor is located.

As to a $50 limitation, I would simply incorporate Professor Leary's comments with regard to the number of transactions. I think any $5 or $10 limitation might possibly not render this section unobjectionable, but we would be very hesitant for a provision that in effect excluded most transactions from the protection of this section, I would point out to those who criticize the inclusion of an obligator's rights provision at all, that is not contained in S. 1930 and S. 914 clearly provides that this cannot be taken advantage of by simply a lazy consumer. There is a requirement for a good faith attempt for the card holder to adjust the matter with the merchant first. That is a requirement, in the exercise of the defense.

We think that with that kind of provision in it that this provision of S. 914 is necessary. We would hope that restrictions would be dealt with in the manner suggested.

The other provision which we feel is extremely important is class actions.

Consumers are faced with a Hobson's choice at this point. If no limitations are placed upon the amount to be recovered in a class action, we find at present, at least from my reading of the express language of Judge Frankel in that decision, is that the court will not certify a class action.

On the other hand, if the limitation is such that the consumer recovery

is not about $100 a consumer, consumers simply will not bring class actions, because they do not want to get tied up in terms of time and expense and the difficulties involved in exchange for just the few dollars to be realized. And without that, of course, there is a greatly lowered deterrent force to not necessarily intentional violations, because intentional violations are criminal—but to what I might call negligent violations of the Truth-in-Lending Act, that the credit card user is not taking the care necessary and appropriate to be in compliance.

While I realize that some of these cases have been brought on technical questions in which even the Federal Trade Commission itself has not easily come up with clearance—I say that because I was in the division of consumer credit—in providing that kind of advice to both creditors and card holders at the time the Truth-in-Lending was first enforced.

There have been other instances, such as the airlines. I have reviewed a substantial number of airline credit forms. There was a flat negligence in drafting the Truth-in-Lending disclosures there. A small amount of recovery will result in a lack of class actions filed, or a large amount of recovery will result in a lack of certification of class actions necessary to serve as a deterrent.

Our feeling—and I would also appreciate the opportunity to comment on the more innovative suggestions that may be presented to this commitee-is that at the very least that this limitation, and we will insist on the 1-percent provision as well as the dollar limitation, be accompanied by a provision in S. 914 that the court shall not disallow a class action simply because of the substantial amounts of potential liability.

If S. 914 does impose some limitations, it also should provide that the amount in controversy should not be the grounds for denying certification of class action.

Senator PROXMIRE. Thank you very much, Mr. Silbergeld.

Let me take the last point you made first. As I understand it, the purpose of the class action suit is not to reward or enrich the consumers as much as it is to provide a meaningful, effective penalty so that you can get compliance, and even though the award to the consumer might be small, the fact is that all you need is one consumer and an attorney, and of course, he gets a piece of the action, in order to have what could be an effective system of enforcement that would buttress and supplement the FTC.

Mr. SILBERGELD. That is right. That is the purpose and we like that scheme and have in other legislation testified in favor of self-enforcement by consumers who are customer's raiher than

Senator PROXMIRE. It is 50,000 or 1 percent of net worth. Doesn't that seem like a sufficient penalty to induce compliance?

Mr. SILBERGELD. That depends how large the class is. As the last witness pointed out, in one case that would have resulted in a recovery of 1 cent per member of the class.

Senator PROXMIRE. This could be a penalty that would vary from $50 to, in the case of the Bank of America, $10 billion.

Vr. SILBERGELD. This results in a Hobson's choice to consumers. You will not find in many cases consumers who are willing to sue at actual expense to themselves for a recovery of 1 cent of $1. The result is that you will not have any class actions. There are two problems.

Senator PROXMIRE. Presumably, consumers would rarely do it anyway for a $10 or $50 amount—even $50 is not much compensation.

What you have is the initiating force that would be the attorney, and the attorney, of course, bringing suit under these circumstances can bring suit up to $2 million and would have a real incentive for going ahead.

Mr. SILBERGELD. There are problems with that. The District of Columbia Circuit Court has recently ruled that a lawyer who serves as attorney in the case cannot bring a class action under the truth-inlending provision with himself as one of the members of the class. So, in effect

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Senator PROXMIRE. That is true; he has to have an independent plaintiff.

Mr. SILBERGELD. That is right, and since he cannot be the client as well, he may be engaging in barratry in the suit. He is made a secondclass citizen, because he cannot be a plaintiff even though his rights have been violated under the Truth-in-Lending Act.

If nobody comes to him, under the canons of professional ethics, he is not supposed to go out and look for clients if he is to generate a fee in that case.

Senator PROXMIRE. You gave examples of billing, and in some cases the sales slips appear to have been falsified. Does this suggest to you that merchants are deliberately turning in false sales slips and collecting on them on the assumption that the consumer will not look at the bill ?

Mr. SILBERGELD. That is the impression I have from looking at correspondence we received from a substantial number of subscribers to “Consumer Reports," and I would be pleased to provide some of that correspondence either for the record or for the committee's files as soon as I clear it with the people who corresponded. Some of them have also sent it to other public officials, and I could forward those promptly.

That is clearly our impression. The consumer states that, “That is not my signature.” In one letter, the consumer pointed out the differences in handwriting between the signature on the tissue that he retained and the handwriting that appeared on the carbon that was submitted with the bill.

Senator PROXMIRE. Then you also had the difference in the number.

Mr. SILBERGELD. That is right. The serial number in one case was three serial numbers higher than the serial number on the tissue. In many cases, these tend to become quite amusing. People are billed in gasoline sales for a number of gallons that their automobiles won't hold. Dodge Dart, 20.8 gallons, for instance.

Apparently, what happens in many of these is that it is most easy to forge a number; a three is made to be an eight, for instance. On some of them, it is just a change in the amount.

Senator PROXMIRE. I used to have a car that had a 16-gallon tank, and three different times my charge was run up on the gas pump as more than 17 gallons, and in one place 18 gallons. That was a case of a crooked pump.

Mr. SILBERGELD. According to the details, a few of those might be, but some of them obviously are not. The ones in which the numbers have been changed might be a crooked pump. The ones in which the serial number on the carbon is three numbers higher are not.

Senator PROXMIRE. Fair credibility provides the consumer with a remedy if they examine their bill. Can you think of any way that these consumers who do not examine their bills closely can be protected against fraudulent charges by the merchant ?

All of us get bills at the beginning of the month which are small, and few of us give time and attention to these smaller bills.

Mr. SILBERGELD. Provisions regarding identification of transaction provide that an actual carbon of the receipt, or in case of mail orders, I suppose, the order, be included in the bill rather than just a printout identification by the department store.

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That, of course, I think, protects the consumer about as much as I can imagine he can be protected, although I am open to suggestions.

The problem is that it practically requires that the consumer treat his consumer credit transactions in the same manner of detail and precision and recordkeeping as a businessman would treat his invoices, and for many consumers, this becomes a real bother. They may have six, seven, or eight credit accounts, and they may take them, throw the bills away once they recognize their signature. They may stuff them in a drawer. But to sit down, even once a month, and spend an evening doing your credit contracts makes you a professional consumer. Many do not want to be that.

Senator PROXMIRE. I would say it is a tiny minority of consumers who take the receipts and compare them and make sure things check out.

Mr. SILBERGELD. If they do not, they run the risk.

Senator PROXMIRE. Has the volume of complaints Consumers Union has been getting, have they increased, decreased, or remained the same?

Vr. SILBERGELD. I do not have a measure of that over a long period of time. When I asked our Mount Vernon headquarters office for all of the credit transactions complaints that we had had, I asked them for the date since my testimony on S. 652, and in that, I would say there were at least 35, perhaps 40 letters, and some of those contained complaints about not one, but several transactions with, in some cases, two or three creditors.

Some consumers had saved up, or overlooked some problems until they come to the point where they could not hold it back, and then complained to us about two or three creditors at once.

Senator PROXMIRE. What segment of the industry produces the most complaints?

Mr. SILBERGELD. I would say that travel and entertainment cards and gasoline company cards.

Senator ProxMIRE. Will you check that and determine whether these complaints have been rising or falling?

Mr. SILBERGELD. Yes.
[The information follows:]

CONSUMERS UNION,

Washington, D.C., May 31, 1973. Senator WILLIAM PROXMIRE, Chairman, Consumer Credit Subcommittee, Committee on Banking, Housing and

Urban Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN : During my testimony on S914, the Fair Credit Billing Act, you asked me to find out for the record whether complaints to Consumers Union regarding credit card problems have been increasing or decreasing over the past few years. I cannot provide exact figures, partly because our records do not distinguish between complaints and inquiries, but our librarian, who reads and classifies subscriber letters for our records, indicates that the number of credit card complaints has remained fairly constant over the period of the past five years. Therefore, I conclude that there has been no drastic improvement in this problem, although some companies may have improved their individual performance. Sincerely,

MARK SILBERGELD. Senator PROXMIRE. You say that you would like to see no geographic limitations at all. Other witnesses have criticized the statewide geographic limitation. But if some kind of geographic limitation is

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