Credit and Great Amounts of Money Involved, It Is Essential For

DOCUMENT RESUME ED 029 950 VT 007 114 Consumer Credit in Family Financial Management. Proceedings of a National Workshop (University of Wisconsin. October 9-12. 1967). American Home Economics Association. Washington. D.C. Pub Date May 68 Note-180p. Available from-American Home Econo. mics Association. 1600 Twentieth Street. NM. Washington. D.C. 20009 ($2.00) EDRS Price MF-S0.75 HC-S9.10 Descriptors-*Conference Reports. Consumer Economics. *Consumer Education. Credit (Finance). Financial Problems. Financial Service& *Home Economics Education. Money Management. Speeches. Teacher Workshops. Workbooks The social invention of consumer credit has expanded greatly during the past 20 years with resultingabuses such as personal overextension of credit or lenders taking an unfair advantage of less knowledgeable consumers. With the new types of credit and great amounts of money involved,itisessential for consumers. distributors, and educators to understand the role of consumer credit in our. economy. The viewpoints and commentsof 35 attorneys. family finance specialists. educators, government officials, business representatives, home economists, and experts in consumer credit were presented at a national workshop attended by 200 home economics leaders. Presentations are classified according to: (1) Consumer Credit in the United States Economy. (2) Problem Users of Credit. (3) Guidelines for Using Credit. (4) Teaching Consumer Credit in Money Management.. and (5) Overview. A workbook on consumer credit, a bibliography. charts and tables*, a roster of participants and a list of regional and state follow-up meetings are included in the document. (FP) U.S. DEPARTMENT OF HEALTH, EDUCATION & WELFARE

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Proceedings of aNational Workshop

CONSUMERCREDIT in Farn4Financial Management

University of Wisconsin October 9-12,1967)

Sponsored by AmericanHome EconomicsAssociation

y Arr. roommor.....

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Library of Congress CatalogCard Number 67-31317 10m/5-68/MM FOREWORD

The Workshop on Consumer Credit in Family Financial Management is one of several national workshops presented by the American Home Eco- nomics Association in recent years to reinforce the contribution of home economists in areas of broad social concern.In the past decade, hundreds of specialists from diverse areas of home economicsbusiness, education, health and welfare, extension, and researchhave met at workshops to consider problems of low-income families, the rehabilitation of handicapped homemakers, and programs for the aging. The Workshop on Consumer Credit was designed to strengthen teaching, research, and counseling in family financial management through an examination of the most pressing issues in consumer credit today.Its objectives were: To increase the understanding of the nature and scope of credit in the national economy and in the family unit To extend knowledge of the legal foundations of credit To consider the role of financial institutions, professions, and agencies in the area of credit To explore the socio-psychological aspects of credit addiction To identify the contribution of home economics in the area of credit through education, research, counseling, and legislation This collection of papers and other material from the Workshop is intended to serve as a resource to home economists and other professional people working in consumer credit or related areas.It is our hope, too, that users and extenders of credit may gain useful insights and knowledgeabout today's credit practices. The Association is grateful to the planning committee, distinguished speakers, panelists, and participants who contributed to the success of the Workshop. HELEN J. MANDIGO, PRESIDENT AMERICAN HOME ECONOMICS ASSOCIATION

z Foreword Helen J. Mandigo, President, American Home EconomicsAssociation__ 3

Introduction Louise A. Young, Chairman, Workshop Planning Committee 9

CONSUMER CREDIT IN THE U.S. ECONOMY

Consumers and Credit in the Economy George W. Mitchell, Member, Board of Governors of the FederalReserve System 11

Family Use of Credit James N. Morgan, Program Director, Survey ResearchCenter, University of Michigan 16

Historical Development of Consumer Credit Richard L. D. Morse, Head, Department of FamilyEconomics, Kansas State University 20

What is Electronic Data Processing? Claude Rice, Attorney; Rice, Grover, Nugentand Baska, Kansas City, Kansas 27

Universal Credit Cards Bill W. Dixon, Assistant Vice-President, FirstWisconsin National Bank of Milwaukee _31

An Electronic Cash and Credit System Robert H. Whitby, Staff Consultant, Booz, Allen & Hamilton,Inc., Man- agement Consultants 36

Some Reflections on an Introductory Course in Economics and Consumer Credit Robert J. Lampman, Professor of Economics, University ofWisconsin__43

11 CONSUMER CREDIT AND THE LAW

Consumer Credit and the Law Barbara A. Curran, Research Attorney,American Bar Foundation 47 74-q

The Importance of Credit in Our CompetitiveEconomy and the Role of the FederalTrade Commission Mary Gardiner Jones, Commissioner, FederalTrade Commission 53

The Search for Uniform CreditLegislation Cyril J. Jedlicka, Senior Vice-President,City National Bank and Trust Company, Kansas City, Missouri 61

What is Beyond Truth-in-Lending andOther Credit Issues Leslie V. Dix, Director for LegislativeAffairs, President's Committee on Consumer Interests 66

Revolving Credit Plans and the Law Bronson C. La Follette, Attorney General ofWisconsin 70

PROBLEM USERS OF CREDIT

Profile of the Problem User of CreditThe Bankrupt Suzanne Matsen, Assistant Professor, Consumer Education,New York State Cooperative Extension, Cornell University 73

A Neighborhood Lawyer's 4-1pproach to theProblems of Consumer Credit J. Kirkwood White, Staff Attorney, Neighborhood LegalKrvices Project, Washington, D. C. 78

Problem Users of Consumer Credit as Seen by aCaseworker Faith S. Goldberg, Caseworker in Financial Counseling,Family Service of St. Paul, Minnesota 87

The Primrose Path front Easy Credit to Bankruptcy Jack N. Eisendrath, Attorney; Eisendrath and Roffa,Milwaukee, Wisconsin93

GUIDELINES FOR USING CREDIT

Sources of Credit Barbara Higgins, Family Economics Specialist,University of Massachu- setts Extension Service 98

Cost as a Guideline for Using Credit Albie Rasmussen, Assistant Professor of FamilyEconomics, Kansas State University 104

S. Contracts as a Guide in Using Credit Josephine H. Staab, Professor of Home Management and Family Living, University of Wisconsin 110

Budget Guides Faith Clark, Director, Consumer and Food Economics Research Division, Agricultural Research Service, U.S. Department of Agriculture 117

TEACHING CONSUMER CREDIT IN MONEY MANAGEMENT

The Obstinate Audience: Teaching Through Mass Media Faith Prior, Extension Family Economist, University of Vermont Exten- sion Service 122

Teaching in the Classroom Sally R. Campbell, Assistant Director, Money Management Institute, Household Finance Corporation 129

Teaching Through Extension Erna K. Carmichael, Consumer Marketing Specialist, Milwaukee County Extension, Wisconsin 133

Decisions, Dollars, and the Disadvantaged Alice M. Stewart, New York City Extension Specialistin Consumer Education 135

Financial Management Counseling Mary Feeley, Columnist and Money Management Consultant 140

OVERVIEW

Means and Ends Ruth L. Bonde, Chairman, Department of Home Economics, Northwestern University 144

The Square Tomato, or A Look to the Future Helen G. Hurd, Professor Emeritus of Sociology, Rutgers University__ 153

Panel: We Take This Home Gwen J. Bymers, Moderator; Professor of Household Economics and Management, New York State College of Home Economics, Cornell Univ.ersity 158

Sarah Manning, Associate Professor, Department of Home Management and Family Economics, Purdue University 158

Myrna P. Crabtree, Director, Home Economics Education, State of New Jersey 159 Betty E. Hawthorne, Dean of Home Economics, Oregon State University 1 6o

Nathalie D. Preston, Supervisor of Homemaker Service, Brooklyn Bureau of Social Service and Children's Aid Society 161

Eloise Cofer, Assistant Director of Extension, North Carolina State University 162

APPENDIX

The Workshop on Consumer Credit in FamilyFinancial Management was supported in part by the American Home Economics Association Foundation.

PLANNING COMMITTEE: Louise A. Young, Extension Home Management Specialist, University of Wis- consin (Chairman) Ruth L Bonde, Chairman, Department of Home Economics, Northwestern University Constance Burgess, Home Management Specialist, University ofCalifornia at Berkeley Gwen J. Bymers, Professor of Household Economics and Management,New York State College of Home Economics, Cornell University Faith Clark, Director, Consumer and Food Economics ResearchDivision, Agri- cultural Research Service, U.S. Department of Agriculture Leone A. Heuer, Director, Money Management Institute,Household Finance Corporation Richard L. D. Morse, Head, Department of Family Economics, Kansas State University Edith- E. Taittonen, Director. Home Economics Service, Community Service Society, New York City

WORKSHOP COORDINATOR: Edna Poyner,AHEA Staff PROCEEDINGS EDITOR: Anita DeVivo, AHEA Staff WORKSHOP GRAPHICS: Alice E. Hudders, GeneGalasso Associates, Inc. INTRODUCTION

Credit is one of many social inventions widely With credit an increasingly important tool in the used by families, by retailers, by financial institu- lives of most citizens today, it is as essential for the tions, and by many others involved with distribut- users of credit as for educators and members of the ing_goods and services to the ultimate consumer. business community to have a real understanding The expansion in the use of consumer credit by of the role of consumer creclit in our economy: American families during the past 20 years has what it is, what it does, what it can do. been .of great interest and some concern to home As we consider the presentations that follow, the economists as well as to others in education; busi- comments and viewpoints of attorneys, family ness, and finance. finance specialists, .educators, government officials, We recognize changes taking place in society business representatives, home economists, and which have influenced consumers' attitudes toward experti in consumer credit, we have an opportunity credit use. As a result,_some persons are overfor dialogue. We will hear differing views. We will extending their use of credit as evidenced by the expand our levels of. knowledge and understand- increasing numbers of people going through bank-, ing of consumer credit and explore ways in which ruptcy proceedings or having wages garnisheed or home economists can make an increasing con- both. On the other hand, some lenders may be tribtition. In these ways this workshop can serve taking unfair advantage of less knowledgeable as a catalyst. consumers. Two hundred hOme, economies leaders were During the early 1940's, concern was expresscd selected to attend this national workshop. Each that some families were using too much credit came with a commitment to accept leadership and using it unwisely. At that time consumer for state or regional activities that will ultimately credit outstanding was about 8 billion dollars, but have an impact on the lives of people, to help consumer incomes were also at low levels. With them achieve optimum well-being as they strive the advent of World War II, saving was promoted. to achieve their goals. As we ponder the ideas Few consumer durables were available, and the and knowledge offered during the days of the use of consumer credit was reduced. By the end workshop, we shall glean suggestions for tech- of 1945, total cash loans and installment credit niques and information that can be shared and for family living amounted to less than 6 billion multiplied. dollars. Ours is the opportunity for educating, for in- Since that time, installment credit as a means volving, for stimulating other home 'economists, for paying for automobiles, consumer durables, and for expanding the home economist's 'role in and services such as vacations has expanded rap- education in family finance. Ours is the oppor- idly. New types of credit such as multi-purpose tunity to reach consumers through teaching and credit cards and revolving credit have been of- research, through counseling with families, through fered. The number of users of consumer credit interaction with other professions and business, has grown just as rapidly. Now consumer credit and through service to our community and our

outstanding is 96 billion dollars. . government. LOUISE A. YOUNG, CHAIRMAN WORKSHOP PLANNING COMMITTEE

9 CONSUMERS AND CREDIT INTHE ECONOMY

GEORGE W. MITCHELL

flow of goods A truism well known but littlerecognized in $4,000 per capita. Most of this discussions of debt has to do withthe relation- and services (about $500 billion) goesdirectly to ship between debt and thrift.If one saves by consumers in the formof durable goods, such as retirement automobiles, household furniture,equipment ($75 investing his money in life insurance, a food and annuity, a corporate bond, Treasurysecurities, billion); nondurable goods such as and services($205 state or local governmentbonds, or by depositing clothing ($220 billion); it in a commercial bank, amutual savings bank, billion). loan association, or a credit union, Governmentfederal, state, and localisab- a savings and $800 billion someone has to gointo debt in order for him to sorbing about $180 billion of the savings. For every dollar lent total, divided roughly in half betweenthe federal earn a return on his The other there must be a dollar borrowed. Infact, debt and and the state and local governments. thrift are a little like love and marriage;while $120 billion is mainlybusiness investment in (between $85 you can have onewithout the otheri.e., you plants, equipment, and inventories In addition, about $25 billion can save bybuying a house, investing in stocks, and $90 billion). construction and $5 billion for or buying otherequitiesthe usual relationship, goes for residential as in love andmarriage, is one of matched debts net exports (Table 1). and credits. Theiit and debt (or credit and saving)play an TABLE 1. Flow of Goods andServices indispensable role in our economy. Thisindis- (in billions of dollars) financial pensability is linked to the nature of our CONSUMER To instruMents, institutions, markets, and mores. Durable goods 75 private and public provide the resources to build Nondurable goods 220 machines, housing, facilities, such as factories, Services 205 have highways, utilities, schools, and the like, we 500 developed an efficiedt and sensitive setof financial GOVERNMENT relationships for channeling funds from saversto Federal 90 investors. The channeling takes place forthe most State and local 90 part either 'throughfinancialintermediaries 180 and loan as- banks, insurance companies, savings 120 and BUSINESS sociations, credit unicnsor through money 25 and HOUSING capital markets. If we look at these sources 5 uses of savings andthe channels through which NET EXPORTS 830 they flow, we can obtain a usefulperspective of GROSS NATIONAL PRODUCT total credit the relationship of consumer credit to of output the discussion How does credit fit into this pattern in our economy. Let me introduce point let us the gross national and how significant is its role? At this of this problem by reference to consider Tables 2 through 5 on the next pages output. and significant Ours is an $800 billion economytoday. By that which present some interesting and services at a facts and relationships.These figures seem to be I mean we are producing goods providing background for a year, would amount of particular signifi...mce in rate which, if continued credit. For example: to $800 billion, or with200 million people, about for discussions of consumer (0/11 ..1111,

12MITCHELL

1. Debt in the economy at the end of 1961 and commercial and mutual savings banks, savingsand at the end of 1966 was about three times as large loan associations and credit unions, and inre- as th a gross national product. However, sinc; serves in life insurance companies and private financial intermediaries borrowonly for the pur- pension funds. pose of lending to others, their debt, which is 5. Not only are financial intermediariesthe about one-third of the total, shouldbe deducted major channel through which the non-equitysav- if our purpose is tocompare the relative use of ings of individuals flow, but individualsare the funds by various sectors of theeconomy. Overall main source of funds for financial intermediaries debt on this basis is little less than twice as large (about 75 percent). Financial institutionsalso as GNP (180 to 185 percent). hold more of the debts of individuals thanthey do 2. At the end of 1966consumers were using of the debts of either governmentor business. less of the credit outstanding thangovernment What is missing in thissummary of financial (23 percent) and even less thanbusiness (nearly relationships?Mainly the significance of large 21 percent). Of their 17 percent share, almost equity investments by individuals andbusinesses, two-thirds was in mortgages and only 26percent which has the effect oe further strengtheningtheir in consumer credit. financial condition.Governments and financial 3. Consumers, overall,are in a strong creditor institutions are not significantly affected" bythe position; their debt assets in 1966 were 21/4 times omission of equity holdings. The equityinvest- their liabilities. ments of financial institutionsare limited by the 4. Consumers' debt assetsare mainly (over character of their liabilities, and the equityinvest- two-thirds of the total) in the form ofdeposits in ment of governments in facilities, other than land,

TABLE2. Summaryof Total Debt in the UnitedStates Estimatedas of the End of 1961 (inbillions of dollars)

TOTALS, BY TYPE CONSUMERS BUSINESSES GOVERNMENTS FINANCIAL INSTITUTIONS LONG-TERM DEBT

Residential Commercial Savings bonds...... 46 Corporate bonds 10 mortgages 148 mortgages 63 Other federal Retirement fund Farm mortgages 14 securities 101 reserves 62 713 Bonds 78 State and local gov- Life insurance ernment securities.. 59 reserves 88 Retirement fund and insurance reserves 44

SHORT-TERMDEBT

Consumer credit ...... 58 Trade payables 57 Federal securities* .-151 Borrowing from Policy loans and Bank loans Federal Reserve 398 52 State and local security credit 19 and Home. Loan Other ioans securities* 15 16 Banks 3 Other payables 11 1 Other loans 16 MONEY-TYPE DEBT

Currency 37 Commercial bank Deposits in Federal deposits 206 377 Reserve Banks 17 Mutual bank deposits 39 Postal savings and Savings and loan other 2 1488 and credD union shares 76 . SOURCE: The Two Faces of Debt, Federal Reserve Bank of Chicago,P.O. Box 834, Chicago, Illinois 60690, 1963,p. 4. Covers debt domestically owned and owed. *Maturing in less than five years. MITCHELL-13 is usually eroded by obsolescence and amortiza- about 10 percent oil GNP. This ratio has shown tion periods which tend to fully cover the useful a plausible rise from 8.5 percent atthe beginning life of the asset. of the 1960's, reflecting the growing importance of An overall look at these debt and financial re- durable goods in consumer economy patterns. lationships gives little suggestion of unbalance or Another frequently used relationship is the ratio disproportionate use of credit by consumers or of repayments to disposable income, which at households as a group. Their purchases of goods 14.3 percent appears, on the basis of our recent and services amount to over 60 percent of the experience, at a reasonable level. Similarly, one gross national product, and their use of consumer does not find over recent years evidence of over- credit measured by outstandings is less than 5 use or exposure to subsequentdisequilibrating ad- percent of the total credit use.This is a very justments in the relationship of extensions to re- crude relationship, but I use it merely to infer that payments for the major consumer credit sectors over $100 billion of consumer credit is a relatively automobiles, other durables, repair and moderni- small number in terms of the total the economy zation, or personal loans. generates in its savings. Does it also sound small Cite final aggregative type measure should be at $500 per capita? mentioned. Extensions of credit on purchases of Another way of looking at it is that installment autos and other durable goods by consumers are debt (about 80 percent of consumer credit) is running at an annual rate of a little over $50

TABLE 3. Summary of Total Debt in the United States Estimated as of the End of 1966 (in billions of dollars)

TOTALS, FINANCIAL BY TYPE CONSUMERS BUSINESSES GOVERNMENTS I INSTITUTIONS FOREIGN3

LONG-TERMDEBT Nonfarm Savings bonds._ 50 Corporate Bonds ...... 9 bonds .... 19 mortgages 62 Other federal Long-term Mortgages 232 Fams securities2 44 Refirement fund loans 20 23 reserves 100 mortgages State and local Direct invest- 1003 Bonds 108 government insurance ment from securities ...... 106 reserves U.S. 53 Direct investments from Retirement and abroad 9 insurance reserves...... 64

SHORT-TERMDEBT Consumer Trade Federal Borrowing from Bank loans 7 securities 141 Federal Re- credit 95 payables 115 Other loans 3 serve and Other ... 12 580 Policy loans Bank loans 84 Home Loan and security Other 49 Banks 7 credit 34 Other loans 34

MONEY-TYPEDEBT Currency ..... 45 Commercial bank Deposits in Fed- deposits 304 eral Reserve Banks 20 Mutual savings bank 547 deposits 55 Savings and loan and credit ur.ion 2130 shares 124 SOURCE: Board of Governors, Federal Reserve System. I Includes Federal Reserve System and certain accounts on a consolidated basis. a Due in five years or more. 3 Amounts owed to U.S. creditors.

1 '.5 -

14--MITCHELL

TABLE 4. Credit in the U.S. Economy, extended and that some lenders are not seriously Year-end, 1961 overextending. Explorationin workshops, class- (in billions of dollars) rooms, andotherinterdisciplinary meansof practices giving rise to such abuses reflects a HELD AS OWED AS proper concern with real problems. ASSETS DEBTS The Federal Reserve System is concerned, too, Consumers 591 225 and well beyond its responsibilities for collecting Busintsses 159 280 consumer credit statistics. Our concern, in many Govirm men ts 179 483 respects, parallels that of home economists and Financialinstitutions 539 500 other professional people, but our responsibility TOTAL 1488 1488 stems primarily from the need to make continuing SOURCE: Two Faces ot Debt, 1963, p. 7. evaluation of the quality of credit held by financial institutions. TABLE 5. Credit in the U.S. Economy, The concept of credit quality is elusive, and Year-end, 19615 much depends on one's point of view. From the (in billions of dollars) credit grantor's point of view, it has to do with the soundness of his loan portfolio and the prob- HELD AS OWED AS ability of loss should the debt not be repaid on ASSETS DEBTS schedule or in full.Since the consumer credit Consumers 805 361 mechanism reaches into mass markets, including Businesses 289 450 marginal as well as good credit risks, there is Governments 185 481 always the certainty of some loss. From the stand- Financialinstitutions 816 746 point of an individual borrower, credit quality Foreign 35 92 relates to his ability to repay the debt he owes, TOTAL 2130 2130 given the probability of changes in income, em- SOURCE: Board of Governors, Federal Reserve System. ployment, liquid asset holdings, and other variables that determine repayment prospects. billion per yearthis is against total sales at an Unfortunately, we do not now have entirely annual rate of $75 billion.Such credit has an satisfactory measures of the quality of consumer average life of 20 to 25 months, considerably less credit.Recently, however, developmental work than the useful life of the goods being purchased. on a credit quality project has been undertaken in With one-third of these purchases being initially cooperation with commercial banks. financed with cash and two-thirds being amortized Some of you may have heard of the work in at a considerably lesser period than the useful progress at Mobile, Cleveland, or Buffalo. In ef- life of the durable goods purchased, there seems fect, participating commercial banks in each of little in the aggregates or relationships to view with these metropolitan areas and others soon to be alarm. Indeed, if we include in our concept of added have been supplying detailed data on the total saving, saving in the form of acquisition of characteristics of borrowers and the loans they equities in durable goods, then savingnot pro- make. The information being assembled includes: fligacyis probably proceeding at a greater rate ( I ) data on the borrower's financial situation than would be the case if consumer credit were income, old debts, and number of dependentsto not available for the purchase of durable goods. provide a guide to his ability to repay; (2) data on the borrower's social stabilityhis age, marital THE QUALITY OF CREDIT status, and years at present addressto provide a guide to his probable desire to repay; and (3) Looking at the overall relationships and ag- data on the loan itselfpurpose, terms, and se- gregates, I see nothing which lmds me to view curityto provide some measure of the protection with concern the present dependence of house- offered the bank. These data will enable us to holds on consumer credit.This does not mean associate the characteristics of each individual that some individuals are not seriously over- loan with its performancesomething we could MITCHELL-1S never have done before electronicdata processing. responsible lendersis a fringe of unregulated In addition to data on individuals, datasuch lenders and vendors who account for most of the as time series will alsotell us something about abuses of consumer credit. Vendors whose lend- changes in financing patterns. Are cashdown ing operations are so merged with selling of goods payments for automobiles gettingsmaller? Are that it is difficult to determine how much of the trade-in allowances getting larger? Arefewer and price is for credit service and how much is for fewer of the cars being traded fullypaid for? To merchandise are a particular source of difficulty. what extent are the most favorable termsbeing Congress, in the truth-in-lending bill, is attack- reserved for strong borrowers? Towhat extent ing this problem by highlighting the cost of credit are borrowersrolling over their debt instead of in every retail transaction involving its use. This paying it off? is a bill that merits support. Our credit quality project will alsoobtain data on charged-offloans, so their characteristics may CONVENIENCE CREDIT be compared with the good loans whichhave been paid off.Still another special category to be sur- No discussion of consumer credit today would veyed will be a sample of the rejects;that is, those be complete without some discussion of con- loansthat were "almost made."Comparing venience credit, credit cards, and the cashless- characteristics of these loans with theweakest checkless society. We are, beyond any doubt, in loans actually granted will serve tobracket the a transition period inthe ways of keeping the minimum standards in effect at a giventime and community's books and records and in the meth- place. This will be invaluable in ourstudy of how ods of money settlement. By now everyone knows lending standardsand hence creditavailability that electronic data processing and the techniques shift in response to monetary policyand the busi- of transmitting data electronically arerevolutioniz- ness cycle. ing our paper economy. In this period it seems These studies will undoubtedly improve our likely that convenience credit may grow dis- understanding of factors impinging oncredit ,proportionately solely because of its frequent ad- quality and should enable the lenders who rec- vantages, accounting and conveniencewise, over ognize such facts to do a better job ofavoiding certaintypesof present-day cashsettlement bad loans, or at least pricing bad loansrealis- methods. Probably this phenomenon will be of mechanics tically.But the problem of the bad lenderis rather short duration as we perfect the something else. We have not been verysuccessful of instantaneous settlement without thedisad- with legislation or competition in protectingthe vantages accompanying the use ofcoin, currency, ignorant, the 'gullible, or the hard pressedfrom and checks. Conceivably, such an accommodating exploitation by unscrupulous vendors andlenders. role of convenience credit could give rise to a Usury laws, by keeping the more responsible future series of alarms about the"frailties" of a lenders out of high cost markets, haveprobably new use of consumercredit.It would certainly increased rather than decreased, consumers' ex- not be able to reproduce itself for verylong. posure to bad lenders.Statutory segmentation of Considering consumer credit's future in very consumer creditmarkets has, as has often been broad and general terms, the following facts are pointed out, raised the cost of those types ofcredit certain: (1) Credit is still here to stay infinancing which are, as a consequence, sealedoff from the acquisition of consumer durables; (2)there be less competitive forces. will continue to be bad-loans but they will There are hundreds of thousands of sourcesof and less of a problem; (3) there willcontinue consumer credit. Mostof the responsible lenders to be bad lenders who will beresponsible for a operate in competitive marketswith considerable larger and larger proportion of bad loans (!would know-how and under corporate or businesspoli- hope that substantial progress would bemade cies responsive to the public interestsin credit in identifying and dealing with bad lenders);and use. In addition,the financial institutions involved (4 )convenience consumer credit may play a are regulated andperiodically examined as to the significant lubricating role to ease us into the quality of their assets.'Jut around the core of cashless-checkless society. .v.lealAMINIIIIMIRMIIM IN, MISIIMIIMVOIIIIIINIMAIMPal.

FAMILY USE OF CREDIT

JAMES N. MORGAN

It is not to the credit of theAmerican educa- This ranking of acceptableuses for credit has tional system that most Americansdo not know not changed since 1959, though the proportion how to estimate the rate of interest on a loan. approving the use of credit for medicalexpenses The more formal education peoplehave, thc more has fallen and approval of creditfor education, willing they are to hazard a guess, but they are furniture, and meeting cuts (presumablytem- no more likely to be correct. Therefore, the first porary) in income has risen.In other words, problem most families face is knowingenough to consumer ignorance about technical details of be able to handle their own financial decisions. credit is in part offset bysophistication about Yet things are not as bad as they might be. where it is cheaper, and by discriminatingnotions People know that credit is cheaper insome places about acceptablepurposes for credit. than others, and that it is better toget it at a bank, It is doubtful thatmany people understand the or savings and loan association, or credit union. complex arrangementsa seller uses to hide part The well-educated aremore likely to have heard of the price in what purportsto be a finance of the credit union, but most believecredit is charge. Nor can peoplesee much justification for cheaper at the bank, which is usually true even if the rebate to the seller, the so-called"participa- part of the difference is in rebates thatgo to the tion in the finance charge" in whichthe seller dealer (and may allow him to lower his price). neither lends money nor takes risk. The variety And people have goodreasons for using credit, of things the seller can manipulate allowshim to even knowing that it costs them something. Credit appear to compete along whatever line thecus- helps them budget theirmoney to pace the buying tomer appears sensitiveprice, trade-in allowance, of necessary itemsover a period of time. insurance costs, accessories,or finance charges Over the 13 years since the University of Mich- and to make it upon -Idlers.It is doubtful that igan Survey Research Center started askingna- the average consumer i ever be taught enough tional samples whetheror not it was a good idea about the complications _A credit buyingso that to buy things on the installment plan, the overall he could do much better than fix thenumber of and predominantly favorable attitude pattern has months he'll stay in debt andattempt to get the not changed, though the reasons tend to be less lowest monthly payments. emotional and more discriminating. Young people focus on cost as a reason for not buyingon credit, whereas they feel that the help credit provides in WHO USES INSTALLMENT CREDIT? budgeting is a reason for using it.Older people The use of credit isa middle-income phenome- are more likely to say either that it is the only way non. Those with a high income use itmore rarely, to buy large items, or that there is a risk of buying but over longer periods of time,as in buying a too much if credit is used (/ ). People rank ac- car.Those with the lowest income rarelyuse ceptable uses for creditas follows: credit, and whether it is from theirown "won't medical expenses 80% power" or the unwillingness of lenders education 77% to consider car ___ ...... 65% them a good risk is difficult tosay. They are even (about equal to the fraction that do buy less likely to use revolving credit their cars on credit) accounts, charge furniture______52% accounts, and gasoline credit cards,even though paying accumulated bills______43% the last two provide free credit forshort periods. covering expenses when income is cut______40% v acatiors______9% The reasons are yet to be determined carefully, fur coat or jewelry______4% but some evidence exists thatmany use installment

16 MORGAN-17 credit as a budgeting device to schedule payments proportion to the population as in that dismal and to provide a regular indicator of depreciation period. It is still a small fraction of the popula- cost that might otherwise be forgotten.It is pos- tion who go bankrupt, but educators need to know sible that the reason the low-income group does the details of the path from delinquency to gar- not use the free credit of charge accounts and gas nishment to bankruptcy. credit cards is that rather than help people handle Garnishments depend on 50 different state laws their money, they often increase financial difficul- and vary as to how much is excluded for the ties. One more bill of unknown size would be debtor to live on. Some states, like Texas, have coming in each month, and less restraint would be no garnishment law at all. But the amount of in- exercised in using one's car unnecessarily. But come left after garnishment in many states is less upper income people also take more vacations, than the amount given to a family on welfare (and and make more long trips(2). As many as one- still less than the standard current federal defini- third of those with incomes over $7500, and more tion of poverty, which is roughly $1,000 plus $500 than half with incomes over $10,000, use gas per person). credit cards. With regard to charge accounts, half of those earning over $7500 use them while two- CHAPTER XIII OF THE FEDERAL thirds of those earning over $10,000 use one or BANKRUPTCY LAW more such accounts. Much of the increase in installment credit buy- Threat of garnishment, loss of job, or an un- ing in the last decades has been the result of more bearable burden of debts supposedly allows the frequent use of credit in the upper middle-income individual to declare personal bankruptcy under brackets, rather than an increase in the proportion federal law. Some years ago, at the urging of of people with more debt than they could handle. Alabama Judge W. I. Grubb, a Chapter XIII was Economists' concern with aggregates, such as the added to the federal law in the Chandler Act of ratio of aggregate consumer debt to aggregate con- 1938, providing for scheduled repayments, rather sumer income, led them to a misplaced concern than cancellation of debts, under the supervision when the ratio grew. They did not notice that the of a court-appointed lawyer. Chapter XIII had average ratio of debt to income among consumers the double intent of lessening the pressure of bank- was growing little if at all, and the proportion of ruptcies on the business community and of allow- a high ratio of debt payments to income was growing the wage earner an opportunity to pay his ing still less (because repayment periods were debts without being subjected to garnishment and lengthening). other harassment by hiscreditors.Statistical This does not mean that no one has trouble with tables show that few people go through bankruptcy installment credit, or that there is leeway for fur- in Alabama, southern Georgia, or western Tennes- ther expansion. A national sample was asked early see. This might be the result of the pressures from in 1967: "Suppose you'd like to make some more the particular federal referees in bankruptcy in large purchaseswould it be easy or a hardship those areas, since the vast majority go through for you to take care of larger payments than you Chapter XIII proceedings.(3) make now?" Bankruptcy is allowed only once every seven Nearly two-thirds reported that it would be diffi- years, therefore the high-pressure sellers regard a cult or very difficult among the families with exist- bankrupt as a good credit risk. However, Chapter ing debt. The optimism and confidence people XIII can be used as often as desired. The argu- have in their own and the country's future can ment for these scheduled repayments was that they also change their judgment about how much debt would act as a rehabilitation device in demonstrat- they can carry. ing how to pay off bills. But a recent study of The annual reports bf the Federal Referees in Alabama cases has shown that a very large frac- Bankruptcy show that the number of personal tion of the Chapter XIII cases were going through (non-business) bankruptcies has been growing for the third, fourth, or even the fifth time! (4) rapidly, passing in absolute numbers the record Of 4200 Chapter XIII wage-earner petitions filed of the great depression, and is about as high in in Birmingham in 1965, 65 percent were repeaters, 18--MORGAN and 20 percent were going through this expensive of the house (since you are paying interest rather procedure for the fifth time or more. than earning it). The justification for Chapter XIII asan educa- Compound interest discounting at an appre- tional device is doubtful, but the American Bar ciable rate, say 5 percent, has a great effect on the Association is mounting a campaign to revise the value of money over a period of years.The law so that the federal referees can make itman- present value of $1.00 fifty years from now, if the datory. What started out as an idealist's way of market rate is 5 percent, is less than 10 cents. At helping the poor to avoid harassmentnow threat- 8 percent, it's worth only 2 cents! Compound ens to become an expensive court-and-lawyer growth rates are equally staggering. At 6 percent system for enforcing the collection of private compound interest, an original sum (or a popula- debts, many of them incurred through high- tion) doubles in 12 years. In 40 years it ismore pressure selling methods. The legal fees are gen- than 10 times its original size. erally as high as for straight bankruptcy. People are already aware that credit is costly. They will be more aware of this fact when the APPROXIMATING CREDIT COSTS annual interest rate is printed on installmentcon- tracts under the new truth-in-lending bill, and One of the difficulties with regard to credit is when revolving credit statements point out that the complicated algebra of interest rates. If we interest is charged at 11/2 percent per month, or put $1.00 in the bank at 5 percent we will have 18 percent (and a little more) per year. I think $1.05 at the end of the year (or a little mi-re if the truth-in-lending bill is a great step forward the interest is compounded several times during and I am convinced that many people can multiply the year). When periods of more than a year are 11/2 X 12. However, people are not alwaysaware involved, compounding of interest begins and few of the alternatives, nor can they handlemoney realize how fast a sum will accumulate, or how well enough to provide some of the alternatives. A much one must depreciate a distant sum. It might man who could use a savings account as a depre- seem a good idea to buy a piece of real estate, and ciation reserve could easily, after a small initial sell it for twice the price 15 years later. However, wait, be earning 5 percent interest on a varying a man would be making less on his money than if sum for the rest of his life, instead of paying 16 it were in a savings account at 5 percent, even be- percent or more on a varying installment debt for fore taking account of property taxes (though his the rest of his life(5). If the' average size of that taxes might be less, since it is a capital gain). debt is $500, and we are talking about 40 years, A simple guide that will allow one to make the difference is` between earning $1,000 in inter- crude estimates is the "rule of 72." Seventy-two est over that period, or paying $3200 in install- divided by the interest rate is the number of years ment credit charges. Can the average man wait a it takes to double an original sum by compound- year to buy his next durable for a lifetime saving ing of interest alone. This is a good approxima- of $4200? tion for interest rates from 3 percent through 7 Once a man can handle his own depreciation percent. It can be stated the other way: if you funds, he can decide to avoid expensive credit, must wait a number of years for your money even if it means keeping the mortgage on his equal to 72 divided by the interest rate, the present house. He has little choice about pension plans value of that future right is just half of the sum of to which he lends money at low interest rates. money you'll get. Eventually he might learn enough about life insur- Similar approximation rules can be developed ance to realize that most types involve lending for annuities, sums of money which you accumu- money at 3 to 4 percent, at the same time that he late to provide a sum, or that are paid to you ex- might be borrowing it at three to five times that hausting a sum. If the number of years of pay- rate.Indeed, a dramatic case illustrating this !Tient times the interest rate amounts to about 155, phenomenon is the combination mortgage and life then the total value of the accumulation is roughly insurance arrangement, sometimes advertisedas a twice the total amount you have put in, or the low-interest mortgage. The interest looks low be- payments on a mortgage will total twice the price cause it is combined with a life insurance policy _

MORGAN-19 that builds'up a reserve. In time the amount still percent. And yet, even those extra amounts may owed on the mortgage is equal to the reserve on be cheaper than buying a succession of cars on the life insurance, so that one is considered to be credit over the same period. lending money at a low interest rate, while borrow- Some evidence on auto installment paper indi- ing the same amount from the same company al cates that lenders have been selling long-term a higher rate. This implies thatfamily use of credit paper, 36 months for instance, knowing that a can be intelligently handled only whenthe family large fraction of buyers will trade in the car be- understands the interest implications of life insur- fore that time, pay off the loan, and take some ance as well.In this regard I urge everyone, penalties for prepayment. Once again the con- students, too, to read the series of three articles on sumer is lulled into a false sense about the true life insurance in Consumer Reports (January, cost of an item. And now the mail order houses February, and March 1967), now issued in ex- are lengthening their terms, so that you can buy panded form by Harper and Row under the title an appliance at Montgomery Ward in September, The Consumers Union Report on Life Insurance. not start payments until March, and take 36 months to pay after that, adding a third to the CONCLUSIONS total cost, so that a $460 appliance actually ends up costing $616. Consumers are uninformed and lack the tech- Finally, if we are to educate people as to the nical insights to understand the intricacies of complexities of the modem merchandising and amortized loans, level premium life insurance, credit systems, something more than dull books, garnishment, annuities, or even compound interest teaching, and panel discussions will be necessary. rates. But they have some defenses. Consumers What is required, particularly for those who read know that credit is costly, and that it can be more little, attend no meetings, and like drama, are costly in some places than others. They do shop television plays focused on the economic problems around, and perhaps the poor are right in the of the household, where the truth gradually un- feeling that they could not get credit at the bank folds, and we learn from others' mistakes. where it is cheaper. What we do not have is clear evidence about one final issue. Do the different REFERENCES interest rates charged for various forms of credit, I. Most of the data in this paper are in the 1967 Survey and at 'various places, bear any relationship to the of Consumer Finances and earlier annual Survey of cost of giving that credit, even if we include the Consumer Finances volumes published by the Survey expected bad debt loss? 1 suspect that part of the Research Center, University of Michigan. 2. Lansing, John, and Blood, Dwight. The Changing higher interest rates reflect real cost differences, Travel Market. Ann Arbor, Michigan: Institute for but they are more a reflection of what a market Social Research, 1964. of careless or otherwise restricted buyers will pay. 3. See the Annual Table of Bankruptcy Statistics. Ad- Perhaps the most effective thing we can teach ministrative Office of the United States Courts, Wash- students is, not how to construct a table of com- ington, D. C. 4. Haden, H. H. "Wage-Earner PlansForgotten Man pound interest, but how to realize that a $10,000 Bankruptcy," Kentucky Law Journal, Vol. 55, 1967. house bought on a 20-year mortgage calls for pay- Chapter XIII, pp. 564-617. ments of $13,333 at 3 percent interest, or $17,200 5. A substantial number of people do use their savings at 6 percent. If the mortgage runs for 40 years, accounts to finance large purchases and then replenish them. See E. Mueller and J. Lean, "The Savings Ac- the same house will require total mortgage pay- count as a Source for Financing Large Expenditures." ments of $17,200 at 3 percent or $26,400 at 6 In Journal of Finance, September 1967, pp. 375-393. HISTORICAL DEVELOPMENT OF CONSUMER CREDIT

RICHARD L. D. MORSE

According to an Associated Press story last make a net with which he could catch more fish. August, a professor of Assyriology, Dr. Leavy, Modern families are similarly involved in time was translating a clay tablet when he came upon decisions. a promissory note written 3800 years ago. The The modern family can seldom match incomes note was for 10 minas of silver borrowed by an with expenditures. Within a year there are peaks Assyrian exporter. The banker making the loan of heavy expenditures such as back-to-school was to receive 29 minas in return after a year clothes and supplies, vacation trips, Christmas, inan interest rate of 190 percent. come taxes, and spring clothes. These expendi- We have evidence of the use and misuse of tures seldom coincide with income peaks. They credit in the codes or laws reflecting the judgment can be met with cash either previously saved or of society. These are to be found in the Civil Code borrowed through the use of credit from future of Hammurabi 2200 years before the Christian income. And within a family's lifetime, cash era, the laws of Manu, Israelitish pronouncements flows can be advantageously synchronized through in Exodus, Deuteronomy, and the Talmud, the wise use of credit and savings. Twelve Tables of Rome, the Justinian Code, and We have a motto at our house: "The Morses many doctrines which have issued from the Chris- will be through in '72." That is the year our tian church. Credit enthusiasts will remind us that youngest is expected to be through college, after consumer credit came over to our land on the May- which we anticipate a period of financial recovery flower. Furthermore, it took the Pilgrim Fathers to a level that will enable us to coast through re- 25 years and much refinancing to repay their tirement with reasonable comfort. The years of original seven-year loan. Consumer credit was accumulating children, cars, and home furnishings, part of the Colonial family's way of life. and of anticipating salary increases and job pros- Benjamin Franklin's sage advice against bor- pects are now behind us (but not entirely, for we rowing was based not only on his sad experience will undoubtedly empathize with our children as with uncollectible credit, but on his observations they wrestle with finances and juggle hopes and of the use of credit in Colonial America. And so, aspirations with hard financial facts). credit is not new. It has been with mankind long- Therefore, savings are used to take up the slack er than documented history, and it will endure. when there is an excess of income over current needs, and credit is used to pay out under pres- SOME GENERALIZATIONS sure of current needs which exceed available income. For most consumers, saving is "postponed" Before discussing specific historical develop- consumption, whereas credit is "premature" con- ments, I wish to present five basic generalizations sumption. Time is the essence of the matter. about the course of credit. First, since credit and This concept became very clear to me when I its companion, savings, are a natural outgrowth was counseling a father of three children. He was of the misalignment of income and expenditure, heavily in debt, yet wished to plunge further into they may be presumed to have existed since the debt to finance his education in order to obtain the beginning of time. Robinson Crusoe, whom econ- degree necessary to keep the well-paying position omists use to exemplify a simple one-man econ- he then held on a temporary basis. He said, quite omy, is portrayed as having to decide whether to correctly, "I'm just buying time." Ancient man, forego current income of fish and take time to as modem man, has needed to buy time.

20 MORSE-21

My second basic generalization is that credit unwilling to sanction the high rates that mustac- involves mutual trust: a promise to pay and an company high risks. Throughout history, there expectation to receive repayment. Such trusts may have been injunctions against usury and ceilings be presumed to have existed ever since man has placed on rat,s for legitimate lending, creatingan been able to communicate. In the large extended illegitimate market to accommodate high risk-rate family, intricate systems are built into their cul- credit. tural pattern to effect credit and savings. The Creditors have been given authority to write growth of commerce has been accompanied by into contracts sufficient power to enforcerepay- growth in credit. This in turn has required a sys- ment. This is justified on the theory that with this tem of law or tradition which upholds the rights power creditors can reduce the risk of default, and responsibilities of the contracting parties. lower the rate, and open credit to those for whom Consumer credit, widely used as it is today, is credit would otherwise be unavailable. The ruling essentially a modern creation, the development of elders in a society tend to sympathize with the which is directly related to that intangible but creditor since they, too, are of the property class essential character of trust, bounded by law. A and frown on borrowers, renters,or users who fail serious problem today is that credit is extended to to meet fully their commitments to the property illiterates who are then bound by written contracts. owner who has shared his wealth. Hence, laws This incongruity permits entanglement of the un- tend to support creditors' rights. suspecting who, when caught, quite logically view the process as a trap. A fourth basic observation is that while credit is the result of a mutual agreement, it cannot be A third basic observation is that there is an in- assumed that the bargain is between equallycom- herent inequality of risk in this mutual trust ar- petent bargainers. As I have said, contracts are rangement. At the time credit is extended the written to the satisfaction of the creditor. This creditor knows with cenainty that he has parted need not necessarily give him an unfair advantage, with money. Although the debtor may feel with for it must be recognized that the borrower need equal certainty that he will repay, in most cases never sign an unsatisfactory contract; however, we this cannot be completely assured. (An example should recognize that the professional creditor of when it can be assured is a loan on the cash does know and understand the detailed terms of value of a life insurance policyholder or a savings the contract. He probably also knows which and loan passbook loan.) To protect himself, phrases are "bluffers" and would not hold up in therefore, the creditor plays the averages and court. The debtor, on the other hand, is not often charges at a rate no lower than enough to cover skilled in drafting contracts or reading fine print the risk of loss for bad debts (as well as the cost with full comprehension. Nor does he know which of money to him and his operating costs including sections are legally enforceable and which are con- profits and taxes). To reduce the incidence of tract padding, and what the consequences of czr- such losses the creditor protects himself by making tain actions may be. the contractual agreement one that enables him to The professional creditor is usually a skilled and take effective action to collect on the debts. trained full-time worker, whereas the debtor does The element of risk in a mutual trust arrange- not incur debts as frequently nor does he have ment has resulted in the following: the professional creditor's experience or skill. The There have always been, and of necessity always creditor usually has more "staying action" than will be, discriminatory lending practices.It is a the debtor. By withholding credit he loses only requirement of the trade to be discriminating. interest, so he can afford to be reserved about lend- Since not all of mankind is trustworthy, honest, ing money; a defective loan could cost himover or able to exercise prudent judgment regarding 100 percent. The debtor may be equally detached future events or restraint from overbuying, the and calculating about borrowing, but often he is risk rate of some consumers may be very high. pressed into borrowing by an emergency arising Unfortunately, well-intentioned and respectable out of ilhess, tragedy, or the need to secure relief citizens, unaware of this high risk rate, have been from the pressures of other creditors.As a 22-MORSE "necessitous borrower" he cannot be on equal Credit and savings rates are even more compli- terms in bargaining for a loan. As a result, from cated than simple percentages. They involve a time to time, there have been remedies to provide double ratedollars per hundred dollars per year. for the borrower who is disadvantaged at the credit There are two "per's" in the credit rate expression. bargaining table. There have been protestations The ability to conceptualize to this high level is from churches and outbreaks of civil disorder as not common among the majority of the public. a result of credit abuses throughout history. But even a larger portion of the public is in- In all fairness, we must acknowledge that the capable of grasping the fill significance of the balance is not always in favor of the creditor.I compounding of rates.I know no better way to made my first credit sale to a grade school class- illustrate what I am saying than to refer to the mate when I sold a bicycle I had renovated. He population explosion. The earth now holds ap- asked to pay for it in installments, which I thought proximately 3 billion people.At the present would be all right since I did not need the money growth rate of 1.7 per hundred per year, in immediately. I received one installment and lost another 40 years we will have added another 3 bil- one bicycle. I later learned this was the pattern of lion people. Twenty years after the turn of the that family, which soon moved out of town. They century as many people as there are now on earth knew how to get the most from their credit! will again be added, and 10 years later there will I have witnessed in horror news of a group of be added another 3 billion. Then in the five-year debtors being instructed on how to declare bank- period 2030 to 2035, another 3 billion will be ruptcy to even the balance with allegedly oppres- added, because, by that time, there will be so many sive creditors. There is so much we consumer edu- that the growth rate of 1.7 percent will contribute cators do not teach which would help consumers a population equal to that to which it has grown maximize their position. We fail the consumer by until today. I am not predicting; I am merely contrast with what many of our counterparts in expostulating what to me seems incredible, yet it schools of commerce teach students regarding the is the working of compounding. methods by which business can maximize its posi- The difficulties people have with credit concepts tion in dealing with consumers. help keep discussions about credit and interest In commercial credit the assumption of equality rates lively, particularly when emotion is allowed of the respective parties may be more appropriate. to replace, compete, or collaborate with the cold But in consumer credit, except for the "deadbeat" workings of mathematics. (Note, for example, the and the "professional borrower," the balance is in impressive advertisements of savings institutions favor of the creditor. with daily rates. But more significant and potentially deceptive are the illusory facts quoted in My fifth and final observation is that credit is connection with life insurance and retirement pro- difficult for most people to understand. My major grams. The tendency here is to quote the total professor, Dr. Margaret G. Reid, once observed accumulations, but not the annual rate. The re- that most people are limited in their number con- verse is true on the credit side.First mortgage cepts to the number of digits on both hands. Per- lenders prefer to quote the annual rate, but not the centages require even more ability for they are total cost.) relative rather than absolute numbers. There are The aforementioned observations and general- those who believe consumers understand dollars izations indicate that credit has survived all of rather than percentages, and have argued there- recorded history and will continue to be present in fore that credit rates should be so expressed. None all cultures. Its forms and manifestations are a of these same people are heard advocating dollar product of the social and legal institutions. Fur- rather than percent disclosure on savings accounts. thermore, these observations indicate that credit Perhaps they assume that the wealthier savings involves concepts beyond the sophistication of a public can understand percentages, but the poorer large segment of the population, a high proportion credit public can understand only dollars. Yet of whom are credit users. these two publics often contain the same people, Today, there is a growing number of civic. so I question the logic of the dollar advocates. leaders who feel the need to re-examine the con- MORSE-23 sumer credit web that is being spun.Although tract was extended to 36 and even 42 months. based on traditional legal concepts which may be The use of easy credit terms to stimulate sales quite inappropriate to today's practices, credit is manifestly outmoded the traditional concept that used by a public unfamiliar with credit law. Credit installment sales credit should be limited to the is extended by mail to consumers who never meet car's equity. At this point, sales financing de- creditors.Methods of assessing charges are so veloped more credit than merely enough to cover complicated that the creditor or his clerks often the value of the goods financed. cannot explain its terms to the consumer. There was another reason for the growth of There exists a "credit-ability" gap at the very installment credit. Higher rates could be charged heart of the credit transaction, where the credit is for financing tne purchasing of goods than for generated. Those who should be most knowledge- lending cash to consumers so they could pay cash able are least informed.Terminology has de- prices. To a consumer who wants to buy more veloped and phrases are used that inhibit efficient than his cash will permit, it makes little difference communication. Many common consumer credit whether he obtains a loan with which to make a methods are not even mentioned in college-level cash purchase or obtains financing from the seller personal finance texts nor discussed in the schools. of the goods. Legally, however, there has been a The traditionally taught I = Prt formula, intro- world of difference. duced in the grades, is considered unworkable for The cash borrower obtains a loan from a lender revolving credit and treacherous if applied to in- and pays interest. The buyer on credit obtains stallment credit. Thus, the concept of a mutual credit from a vendor and pays not interest but a agreement built on mutual understanding between time-price differential which has not been con- parties of equal bargaining power and equal in- sidered interest in the eyes of the iaw. Throughout formation is a myth today. history interest has been limited to a non-usurious Today's style of credit is of modern creation. rate, no such restrictions were applied to the time- For a better understanding of consumer credit price differential. Hence, sales financing, less sub- today, let us consider recent developments. ject to legal restraints, was more lucrative and, , more important, naturally synchronized with the MODERN CONSUMER CREDIT sales effort of the seller. In some cases the dealer would finance the credit sale, but more frequently Installment contract cruOit ,:losely parallels the the note would be discounted at the bank or sold introduction of the automobile and mass pzuduc- to a sales finance company. tion. These developments required mass distribu- Furthermore, it was not possible for many con- tion which in turn required mass financing. Banks sumers to obtain a bank loan in sufficient amounts were reluctant to lend on cars, soin the 1920's to buy durables. Banks were reluctant to make sales finance companies rapidly developed to buy large loans not secured by real property, and their finance contracts from auto dealers who had nego- unwillingness to finance such mobile and destruct- tiated directly with consumers. This is the origin ible property as an automobile brought into exis- of General Motors Acceptance Corporation, Com- tence the previously mentioned sales finance commercial Investment Trust, and other credit ad- panies, such as GMAC and CIT. Other lenders, juncts to large corporations which found the mar- such as the credit unions and consumer finance riage of sales and credit profitable. Furthermore, companies, then called small loan or consumer installment sales methods, which worked so suc- loan companies, generally made loans under $300. cessfully in financing cars, were adapted to finance This was not enough to buy large durables. the sale of consumer durables such as household Cash lending has frequently been suspect and appliances. suffers from total exposure. The rate of interest There are two significant points in the history paid for funds to lend are obvious. So when this of auto installment credit. The first was in the rate is compared with the rate charged consumers, summer of 1951 when the number ofcredit sales the mark-up is no longer a trade secret and often exceeded the number of cash sales for cars. The subject to ridicule. On the other hand, a retailer second was in 1955 when the length of the con- with a 100 percent mark-up built into his cash 24-MORSE price can include an even higher mark-up in his easily be misinterpreted as a 6 percent rate, where- time-price without suffering exposure. Also, regu- as it is more nearly double that rate on the credit lation of interest charges has been easier in the actually used by the consumer. Essentially, it is case of cash loans, since the amount of the loan is because the add-on rate is applied to the beginning based on dollar facts, whereas the amount in sales balance and not to the actual amount of credit; credit depends on the validity of the cash price. therefore for an installment contract, the real rate For example, a $20 charge for a $100 ioan is is about double the add-on rate. (See Rasmussen meaningful, but $20 for a $100 divan may actually paper, p. 104.) be a charge of $70 to finance a $50 divan. Cash The add-on form of rate quotation was success- lending has been subject to usury legislation and fully employed in installment sales credit. Despite restrictions often so unrealistic that the credit Federal Trade Commission action in 1940 against needs of many people could be met only through General Motors and in 1941 against Ford Motor illegitimate lending or installment buying. Company to prohibit their use in advertisements of When such illegitimate cash lending became 6 percent, and despite codes of ethics not to use notoriously flagrant, it attracted the attention of percent for dollar add-ons, such practices pre- reformers and industry spokesmen alike. After the vailed to the competitive disadvantage of those turn of the century, consumer credit reforms were who quoted a nondeceptive rate. By 1963, most advocated. As early as 1909 Massachusetts passed consumer finance companies had retreated from the first consumer credit union law in the U.S., and use of rates on unpaid balances and stated and in 1937 the U.S. Congress passed the Federal computed their rates on an add-on basis. Credit Unidn Act to enable consumer groups re- Banks were the last to enter into the general siding in those states without state laws to form consumer credit field, yet they now hold the largest credit unions under a Federal Charter. volume of such credit. Whereas the banks had In 1911 the first effective Small Loan Law was been content to finance sales indirectly by buying enacted, followed in 1916 with the drafting of a the finance contracts from dealers and paying the Uniform Small Loan Law which set a high stan- dealer a kickback, gradually banks became more dard for cash lending. Both the credit union rate of aggressive in extending credit to consumers. The 1 percent per month (12 percent per annum) on credit unions and small loan companies had the unpaid balance and the small loan act of 31/2 proved the consumer could be trusted and that it percent per month (42 percent per annum) ex- was profitable to lend to him. The opportunity ceeded the general usury rates. These creditors for banks to function under sales finance dollar- provided loan services that were licensed, regu- add-on rates made direct lending attractive. A lated, and free of ambiguity as to loan terms. For 1963 report of bank operations in several states example, the rate was applied to the unpaid bal- in the northwest reported charges averaging 141/2 ance, that is, the money actually out on loan. No percent. This is well above the much advertised other charges, such as itrurance, investigation "low bank rate" concept. Also by recent inter- fee, or credit reports were permitted. These extra pretation national banks may charge whatever charges had often served as a subterfuge for the rate competing lenders are authorized by states to creditor to collect additional revenue from the charge, which may be as high as 300 percent. debtor. As the restrictions in cash lending were relaxed, This hard rule of making only one charge was sales finance c ame under greater regulation. Often cracked in 1955 when Kansas, one of the few re- this was at the initiative of the industry to legalize maining states to adopt a small loan law, allowed rates at a level which might otherwise be held illegal extra charges for credit life insurance. By 1963, as usurious if the time-price-differential doctrine almost all states permitted selling insurance. In should be challenged successfully in the courts. addition, ,:aring the 1950's, the rate based on the unpaid balance began to collapse in favor of a REVOLVING CREDIT more attractive dollar-add-on rate based on the iginal unpaid balance. For reasons to be given A different form of credit is now on the rise. at papers which follow, a $6 add-on rate may This is revolving credit, so called because the con- MORSE-25 sumer who is extended a line of credit can charge surance companies and banks. E. B. Weiss, writ- up to the maximum amount, then continue to ing in a recent issue of Advertising Age, says charge as payments are made, with a service banks must move into conglomerate mergers, pos- charge on the amount being tumbled. Another sibly into manufacturing and merchandise retailing. name for this form of credit is "open-end," for at All these changes reflect a fight for survival, the time the agreement is negotiated neither party dictated by compedtive pressures, waged in a sea knows nor can predict the activity of an account of outdated legislation. While this goes on, the or the exact time and amount of charges or pay- consumer's need for information basic to making ments. This contrasts with "closed-end" or "con- prudent use of credit is neglected and even ex- tract" credit for which all the termsthe amount ploited. of credit, the time and the amount of payments, The need for legislative reform has been recog- and the rateare determinant from the contract. nized. In his paper, Leslie Dix will report on the When revolving credit was introduced, it ap- progress of the Uniform Consumer Credit Code. pealed to retailers.It helped reduce sales resis- The need for informative labeling of consumer tance to consumers short on cash, facilitated mak- credit was recognized by then-Professor Paul ing additional credit purchases without writing and Douglas many years before he introduced such rewriting contracts, and helped iamilies to level legislation as a Senator in 1960. Although it is out peaks in expenditures for seasonal items, each still before the Congress, it has been adopted by of which would have been too small to finance in- most Canadianprovinces,Massachusetts and dependently. The 18 percent charge provided an some other states, and the Department of Defense. incentive for the slow-paying 30-day-free charge- This legislative proposal has enjoyed the full sup- account customer to pay up. With the 300 percent port of the American Home Economics Associa- to 450 percent mark-up on this money-service, tion. AHEA recognized the growing importance plus the customary mark-up on the additional of consumer credit back in 1957 when it pub- sales which credit induced, retailers could afford to lished in the Journal of Home Economics a series lower the barriers to credit.Sears started using of articles which were reprinted and widely circu- revolving credit in 1953, yet by 1959 it was only lated by the Household Finance Corporation.(1 ) 13 percent of total volume. Spiegel pursued revolving credit aggressively and in 1961 was re- CREDIT AND THE ECONOMY ported to attribute 40 percent of net profit to credit charges. Most stores now offer revolving credit. A few figures may help demonstrate the im- Banks on the West Coast, in the Northeast, an(' portance of credit and underscore the claim that in Chicago have been attracted to revolving credit today's consumer credit is largely a post-World and have applied it to cash lending through credit War II phenomenon (see Table 1, next page): cards and check-credit plans. As recently as May The federal debt growth from $38 billion in of 1966, the Wall Street Journal carried a story 1936 to $230 billion in 1946 reflects the deficit headlined "Trickle of Banks to National Charge- spending of World War II.Its growth since Plan. Business May Become a Flood This Week." 1946, however, is meager in relation to other Only last March (1967) did the Federal Reserve debts. From 1946 the greatest growth has been in Board establish a task group to study this new consumer debt together with state and local gov- development. In August, Representative Wright ernment debt. This reflects the need to build Patman introduced legislation to curb banks from schools and house .the growing families, to furnish issuing unsolicited credit cards, a practice he and equip houses, and to build cars and roads to termed to be a "dangerously unsafe and unsound transport the expanding population. Corporation banking practice." debt expanded with the growing gross national More dramatic and more significant, but less product.All these debts continue to increase. apparent, is the growth of conglomerate mergers Despite the popular pastime of ridiculing the fed- which affect the credit industry. Finance com- eral government for its debt, this debt has gown panies own insurancecompanies,mail-order the least. Debt in the private sector has expanded houses, and retail chains. Credit unions own in- the most. For example, if the federal debt had 26MORSE

TABLE 1. Net Debt and Gross National Product (in billions of dollars)

YEAR NET DEBT GNP

INDIVIDUAL AND NON-CORPORATE State & Commercial Total Federal Local Corporate Farm Mortgage & Financial Consumer

1956 180 38 16 76 9 24 11 6 83 1946 397 230 14 94 8 33 12 8 209 1956 708 225 43 232 20 121 24 43 419 1966 1345 279 101 497 42 279 52 95 743 SOURCE: Economic Report of the President, February 1968, Tables 8-1 and 8-58. grown as fast as consumer debt, it would be roughly cannot be expected to exercise responsible and 10 times its present size. The consumer debt is not prudent use of it.Without consumer control only big, but disturbing to the economy. The through responsible and informed choice, thevery September 1967 Consumer Reports dramatically essence of free enterprise is lost. traced the growth pattern of consumer installment Future developments in consumer credit may debt with a chart captioned "Wild waves of well write the future of our economy. May each of growth on the rising sea of installment debt have us as citizens, students, and teachers give our been economic storm signals." attention to this area so we may help direct and All signs indicate a growing concern for the shape its future. We can help write history; letus harnessing of this tremendous force which is capa- do it intelligently. ble of nourishing an expanding economy and developing a viable society, but which is also capable of bringing misery into the homes of REFERENCE families and causing chronic illnessfor the 1. Brew, Margaret L., "Trends in Consumer Credit," economy. Vol. 49, No. 4, p. 274; Emma Holmes, "Who Uses Consumer Credit?," Vol. 49, No. 5, p. 340; and I am certain of one thing. Unless consumer Robert W. Johnson, "What Cost Consumer Credit?," credit is made meaningful to the consumer, he Vol. 49, No. 6, p. 415. WHAT IS ELECTRONIC DATAPROCESSING?

CLAUDE RICE

Electronic data processing is the treatment of words. Unfortunately, Babbage was too far ahead data by the use of electronic equipment.Since of his time, and the mechanical techniques for even a Tadio newscast treatsdata electronically, building his analytical engine were not available. however,this definitionis much too general. It was not until over 100 years after Babbage's Therefore, let us define data as factual material work that such a machine was first completed. or statistics used as abasis for discussion, de- This machine, which was the first large-scale gen- cision, calculating, or measuring, and processing eral purpose digital computer, was designed by as the action whichmakes such data usable for a Howard Aiken at Harvard University and built by specified purpose. the International Business Machine Corporation. The first successful digital computer wasbuilt It was called the "automatic sequencecontrolled by a French mathematician, BlaisePascal, in calculator," or more commonly, the Mark I. Elec- 1642.It was a mechanical contraption with tromechanical in nature, the machine used relays wheels on which the decimal digits 0 through9 and mechanical counters. It had a storage capacity were inscribed. Thewheels rotated on an axle of 132 words, and took 3 seconds to add 2 num- by means of gears and ratchets. This machine was bers, or 60 seconds to divide them. Instructions the forerunner of the adding machine. were not storedinternally, but were fed to the The ancestor of the modem digital stored- machine by punched paper tape. program computer wasintroduced in 1812 by a A latec invention made possiblegreat ad- British mathematician, Charles Babbage.His vances in speed through the useof vacuum tubes machine was called a "difference engine" because to replace the relays of MarkI.The ENIAC it was designed to calculate values of apoly- (Electronic Numerical Integrator and Calculator), nominal by starting from the constanthigh-order designed by J. P. Echert and J. M. Mauchly, was difference and accumulating intermediate differ- completed at the University of Pennsylvania in ences back to the valueof the function itself. 1946. Many tables used in navigation and astronomy It was also in 1946 that John VonNewmam, involve polynominal functions, and in Babbage's in a classic proposal for computerdesign, sug- time the tables were derived by the handcalcula- gested the important concept of placing the pro- tions of large teams of mathematicians. gram instruction in storagewith the data being Babbage completed a small model of his dif- processed. His concet included nearly all the ference engine that could calculate with six-digit features of present-day computers, together with accuracy, then he prcliosedand designed a much the des:gn of circuits for the use of thebinary more elaborate machine thatwould handle up to number system for storage and arithmetic.A sixth-order differences with an accuracy of 20 machine built on these principals,called the digits. The initial stages of his work hadthe EDVAC (ElectronicDiscrete Variable Auto- financial backing of the British government, but matic Computer) began operation in 1952.A it was discontinued for various reasons af'.,the direct descendant of ENIAC and EDVAC was expenditure of about $75,000. Babbage also en- the UNIVAC I, which appeared on themarket in visioned a far more complex machine called an 1951. "analytical engine." This design was to be capable Since 1951 there has been a continuingadvance of obeying many instructions, both arithmeticand in the design and components of computers,and logical, and was to include a storagc of 1,000 particularly in the development and use of tran-

27 28RICE sistors in place of vacuum tubes, larger storage information. The storage capacity runs from 1,000 capacity and greatly increased speeds, and further characters to hundreds of thousands of characters. diversification of instructions and programming In addition to the storage capacity of the com- techniques. puter itself, disc and tape attachments permit rapid access to an almost unlimited aiii&iiif of informa- KINDS OF DATA PROCESSING tion. The real value of the modern computer and At this point we should make a distinction be- the major factor in its usefulness (and the basis tween data processing and electronic data pro- for the science-fiction stories about the machine cessing computers. Electronic data processing re- doing our thinking for us)lie in its ability to fers only to the use of the electronic computer follow a program and to take alternative avenues and not to the electromechanical tabulating equip- through that program. It selects the alternative ment that business enterprises have used for the avenues based upon variation in the information last 30 to 40 years. available or upon the results of its own calcula- In processing data, the punched card and the tions. code used to record alphabetical and numerical The type of choice of alternates or decisions that information are the same as those developed by a computer is capable of performing is extremely Herman Hollerith for recording the census of simple. The decision is always "Yes" or "No." 1890.Today's standard punched card isthe There are no other selections possible. peculiar size that it is because of the size of the To illustrate, let's consider the process of open- dollar bill of Hollerith's time. At that time the ing the door of a hotel room. Assume that you government had available many file cabinets ex- have been given the correct key and are ready to actly the size of the old-fashioned dollar bills. insert the key in the lock. When you try to in- Because the cabinets were readily available for sert the key, it either fits or it doesn't. If it doesn't future needs the card size was fixed to their fit, you attempt to turn the key over and try again. measurements. If it still doesn't fit, you call the room clerk. Mr. Hollerith's code is still the standard of the If it does fit, you try to turn the key to the right. data processing industry and probably will con- If that fails, you try to turn It to the left.If tinue to be so. While the punched cards are that fails, you check the number marked on the rapidly becoming obsolete as media for storing key and find you have the wrong key and call the and processing information, they are still the most room clerk. convenient means for providing that initial in- If the door unlocks, then you push to open. If formation with which the computers work. that fails, you pull to open. If that fails, you A great number of us tend to associate the old check for another catch and try that.If there IBM tabulating machines with electronic data is no.other catch, you call the room clerk. processing. However, in the business community The computer can make these same types of the small computer is taking over the jobs for- checksandtake preprogrammedactionas merly done by such card tabulating equipment, directed. referred to as Unit Record Equipment. An important point to remember is that the The general definition for this older equipment cornputer will not think up any solutions. It must gives us a clue to one of the basic differences behave been supplied with each test to be made and tween the older systems and modern computers. must be provided with a route to take after the As the words Unit Record indicate, this type test is made. Every question it asks calls for a of equipment handled one record at a time. "yea" or "nay" answer, and the next step must Even though there were procedures by which two be specified for each of the alternatives. or three records could be considered simultane- By combining a series of these simple "yea" or ously, the primary concept dealt with one card at "nay" decisions, an almost unlimited number of a time. alternatives can be probed. Only 10 consecutive In contrast, the modern computer has the ability tests will probe 210 possibilities or 1,024 alterna- to store, review, and process large amounts of tives. This vast number of alternatives, coupled RICE-29 with the rapidity with which the decisions can be stantly available to any interested person. The made, account for the real value of the computer. availability of this information to all parties in- The slowest of the business computers now in use volved would prevent most overextension of will go through the routine of 10 separate levels credit. The analysis of each individual's financial in less than 1/100th of a second and the faster condition would help many realize their situation computers in less than 1/1,000th of a second. before it became critical. The "credit drunk" could promptly be identified. We are a long way from making such a system APPLICATIONS TO CONSUMER CREDIT work, but the difficulties are in our social and How can the computer assist in the problems of legal impediments and not in the technical limi- individual family financial management? In the tation of our data processing systems. same way it canhelp in industryby making Currently, a new use of computers in the solu- more informationavailabletothose making tion of family financial problems is one that Ihave decisions. been instrumental in designing. This is alibrary At present, little or no progress is beingmade of computer programs to help debt-riddenindi- in this area. Some local credit bureaus areusing viduals allocate their pay checks among creditors. computers to help keep records up to date on The system was originally designed for useby personal credit files. The value of these services wage-earner trustees operatingunder Chapter is limited by the limited source informationavail- XIII of the Bankruptcy Act but is equallysuitable able. This is not the fault of the electronic equip- for use by consumer credit counselingservices, ment, but rather of the informationcollection, or commercial pro-rata services, and attorneys. "input system." In this program the computer acceptsinitial Much too often, families do not realize how instruction as to who is owed, what amounts are much debt they are incurring. Creditors who ex- to be paid to each, how muchthe debtor is to pay, tend excessive credit often do not have all of the what is to happen if he pays too little, and so on. useful facts, not because they don't want it, but Once this information is recorded, the onlyother because the information is not readily available. information needed is how much money isde- As soon as the consumer finance industry or posited to the bank account. a government agencyrequires a central clearing- The service is now available and is beingutilized house of all credit extension, the computer will be by small offices such as the Trustee of theFederal ready to provide an immediate answer to the in- Court in Madison, Wisconsin. The cost ofservice telligent inquiries. would have been prohibitive had theTrustee tried To illustrate,let us assume that a state es- to install and program his own system,for in tablishes a credit recording office in much the same addition to the actual cost of equipment andits fashion as we now have recorders for deeds and maintenance, there are operators' salaries, pro- mortgages and that each credit extensioncalling gramming and testing expenditures, and soforth. for payments more than 30 days ahead isrequired Machine acquisition cost, whether it be pur- to be reported. The report wouldhave to in- chase or rental, commences as soon as theequip- chid6 Me following: ment is installed, and writing andtesting adequate programs requires a longlead time which in most Name Social security number instances is longer and more expensive thanis Date credit extended anticipated. The answer ior the small user is a Amount of each payment rental or joint use of equipment, or"package" Frequency of each payment Weekly Monthly programs. This permitssmall users to have the Semimonthly Other speed and capacity of sophisticated equipmentand Date full payment is due programs. Name of credit extender Most business enterprises are becomingin- Brief description of basis for debt creasingly aware of the possibilities of electronic This information could be stored byelectronic data processing. Those not already utilizing it are data processing equipment and be almostin- searching in this direction. However, computers are not magic machines that automatically solve might be unsuccessful: (1) the design of thesys- problems. In a data processing system, things tem may be incomplete and inadequate, and (2) don't happen automatically; they are caused to an adequately designed system may be operated happen. Somebody has to think out every possible in a manner different from that for which it was situation, and then provide for it. designed. The most common error made in the No one should attempt to make use of elec- system design is to overlook the exceptions to the tronic processing without a careful study of how rule of the system. This inability to design into such equipment can be used and what advantages a system the method of handling exceptions can P are to be gained. I repeat: the computer itself is be crippling, and if a broad and flexible program is not magic; it is only a link in the chain of equip- not provided, more time and energy can be spent ment, personnel, and procedures designed to in resolving exceptions than is saved by the system achieve a result. handling the general rule. The systems operations Moreover, electronic data processing equipment can best be managed by the early education, ac- is only one part of an overall system which in- ceptance, and cooperation of operating personnel. I cludes actual programming of the equipment_ Such Electronic data processing and computers are a program cannot exceed the capability of the here to stay. They are the tools that serve the people designing it. In this area, experience has people who operate them and in this way play an no substitute. increasingly important role in the consumer credit There are two major reasons why a system industry.

, UNIVERSAL CREDIT CARDS

BILL W. DIXON

Today we are in the midst of a financial revolu- paper of all types: monthly bills, sales receipts, tion that has been described as creatingthe checks, deposit acknowledgments, insurance pre- "checkless-cashless society." Some bankers feel mium notices, etc. In 1967, for example, over that the words checkless and cashless do notfully 17 billion checks were written. By 1975, unless convey the dramatic changesthat are now being our system of transferring money changes, more designed to shape all our financiallives, and than 25 billion checks will be written. The cost to they prefer to describe the financial future as a business and consumers of clearing this mountain "paperless society." What role, if any, willuni- of paper is estimated at 31/2 billion dollars an- versal credit cards play in this financial future? nually. In addition to this expense, there will be physical limitations (not enough people and machines that are fast enough) within our banking EVOLUTION OF A UNIVERSAL system for handling this anticipated volume of CREDIT CARD paper. Most families know credit cards throughthe Recognizing the increasing paper flow, banks capable efforts of national oil companies and entered the credit card field in the 1950's and, with major retailersprimarily department stores. In the maturing of advanced data processing tech- some instances, the retailershave grouped to- niques, their credit cards have proliferated by the gether and the customer carries a single card millions in recent years. Although traditionally that can be used with a limited numberof dif- banking is slow to change, most bankers recognize ferent merchants. These cards cost nothing to the need for a single i.e., univerial credit acquire and usually offer the customer a"free" card. Such a card could be used to charge all period in which to pay his bill at no extracharge. types of expenses, from gas and oil to major pur- In most instances, an optional extended payment chases such as furniture and clothing. It could plan is available ranging in cost from one to one also be used to purchase these articles wherever and one-half percent per month. in the world the customer happened to be at any During the post-World-War-II period, the so- time. The customer. would, of course, receive one called travel and entertainment (T & E)cards consolidated monthly bill. But such a card would became very popular. These include the cards of haile only a limited effect on reducing paper flow American Express, Diners Club, Carte Blanche, and consumer expense since most consumer pur- and the Air Travel Card. To acquire one ofthese chases are still made with some form of cash cards, the customer, usually a business person, payment. pays an annual membershipfee of $10 or $12. The American Bankers Association has guided This type of expenditure is generally paidin full the considerations concerning a universal credit during the free period but now can be extended at card.However, developments in banking are a service charge rateof one or one and one-half moving rapidly, and rather than restrict future percent per month. planning to a universal credit cazd, many bankers It has become increasingly clear to bankers and feel that an all-purpose identilkation cardwill other financial experts, postal authorities, regula- evolve.This card will be used for many pur- tory authorities, equipment manufacturers,and poses such as instant and accuratecustomer communications firms that our private and busi- identification, cash buying, charge purchasing, ness lives are rapidly beingsubmerged by a sea of installment borrowing, and check cashing.

31 .1=11.11,,S1110...... +-w-.

CONSUMER CREDIT IN TRANSITION credit mutually with the customer, as has been done for corporations for years. The customer Banking has already taken steps toward the can activate the line of credit at any time merely identification card concept which many believe by negotiating a regular bank check which, when will open the door to a paperless financial society. received by the bank, is cleared through the in- Some of the developments aren't readily recog- stallment loan department rather than through the nized by consumers, while otherssuch as bank bookkeeping department.Again, the charge is credit card planshave been launched with a typically one percent per month. great deal of success. Most banks in the state of Wisconsin charge One of these transitional steps is a significant a similar rate for all regular consumer installment achievement of the American Bankers Associa- personal loans. The rate is frequently quoted in tion, the development and implementation of a terms of add-on interest, $6 per $100 per year, machine-readable numbering system called Mag- rather than the effective rate (cost to customer) netic Ink Character Recognition.This system, of almost 12 percent per year which is equal to called MICR, has until now enabled banks to approximately 1 percent per month. Thus, the continue processing the ever-growing volume of attractive convenience and privacy of borrowing checks with efficiency. through the use of a check does not normally cost Another step in this evolution has been the the customer any more than a traditional bank introduction of bank-sponsored payroll account- installment loan. This type of revolving credit is ing plans. The bank performs all the payroll ac- becoming increasingly popular and may even- counting functions for the employer and on pay- tually replace consumer personal loans as we now day simply credits the employee's checking ac- know them. count for the net amount of his pay. This type of There isat present a revolving credit plan service reduces the number of checks flowing known as Bankardchek. This program requires through our economy. Also, it is frequently pos- that the customer maintain a checking account sible for a customer to authorize his bank to auto- which differs in that the bank, for a fee, supplies matically charge his checking account each month the customer with a quantity of guaranteed checks, to pay recurring bills such as loan payments, similar to travelers' checks. When the checks clear mortgage payments, utility bils, insurance premi- through the customer's checking account, they ums, etc. These automatic payments (transfer of create an overdraft, and, again, the bank credits funds) not only reduce the flow of paper, but open the customer's checking account, creating a loan. a whole new area for banking in family budgeting The cost of this type of revolving credit, which and counseling. incidentally requires a plastic check identification During the -eriod of transition, however, spe- card, is one percent per month plus an annual cifically in tit:, '..rst wave of bank-sponsored charge membership fee. card plans which reached its crest during the 1950's, some severe financial losses resulted in BANK CARD RELATIONSHIPS several important instances.Perhaps as a competitive consequence, other banks in the 1950's Bank charge card programs vary widey in began developing variations of what has been scope. Most, however, are family-oriented cards called overdraft or check credit revolving credit which a customer can use to shop at a wide variety plans.Usually an overdraft borrowing arrange- of merchants. At the First Wisconsin National ment requires that a customer maintain a check- Bank, for example, the charge card is honored at ing account that he can automatically overdraw, more than 10,000 business places faroughout at which point the bank will credit his checking Wisconsin. In addition, if a customer wishes, he account in increments of generally $100. The can present his card at any participating bank and customer generally pays a revolving credit charge obtain a cash advance up to $250 in a single day. of one percent per month on this overdraft loan. In the last several years, bank-sponsored charge Other banks do not require the maintenance of card plans have been established in most important a checking account and instead establish a line of retail marketing areas throughout le nation. As a result of the increasing number of charge tend or revolve his account balance, he may do card plans in some areas, banks have started to so at a monthly cost ranging from one to one and establish charge card interrelationships. Thus, it one-half percent. As an example, at the First is possible for a Chicago resident holding a Mid- Wisconsin Bank the iztorest charge to the cus- west Bank Card to shop in several different stores tomer is cr.c percent per month. However, because in different states without having to reestablish of me economic characteristics of the retail charge his credit. The Bank of America, the grandfatha account business, the traditional department store of charge card plans, has introduced a fLanchise rate of one and one-half percent per month is plan in different parts of the consiry. Thus, a realistic and still represents an equitable charge to Bank of America cardholder ,:an shop in Cali- the customer. I won't get into the economics of fornia, Boston, Philadelphia, and in other parts this logic except to mention that the average of the country. Asdmatter of fact, a Bank- credit sales transaction is about $15, which means Americard is alsc good in Europe. that First Wisconsin processes a staggering num- Another nample of these interrelationships is ber of transactions annually. Attendant operating found in Literbank Card, Inc. Hopefully, in 1968, a expenses are much greater in processing this type chary card customer of First Wisconsin National of business than in the conventional installment Barak, a member of Interbank, will be able to shop loan department. in Michigan, New York State, Arizona, Washing- First Wisconsin entered this charge account ton, California, and the city of Pittsburgh. Inter- banking area for a wide variety of reasons, one bank Card anticipates continued discussions with of which is that it can be a profitable and proper other regional and national bank-sponsored charge retail banking service. Just as important is the card plans with the eventual goal of establishing a invaluable experience in making a transition to nationwide clearing system to facilitate the inter- the cashless-checkless society, for dealing with change of charge card sales drafts. thousands of merchants and literally hundreds of Most bankers agree that customers will even- thousands of consumers requires the development tually demand a universal bank-oriented charge of retail banking and retail marketing skills of a card which he will be free to use for all of his much vaster scope than we, ever dreamed. In my purchases wherever he may be. When such a opinion, charge account banking and the develop- system does develop, it will probably be oneof ment of national interchange capabilities between the last steps in banking's current period of transi- systems is probably the most significant impetus tion and will result in the introduction of the toward the checkless-cashless society that we all identification card concept which should even- will experience during the period of transition. tually replace the bank credit card as it exists today. REVOLVING CREDIT USAGE Let us explore some of the controversy sur- COST OF CHARGE CARDS rounding bank charge card plans.Most cus- What do bank charge cards cost the consumer tomers view charge card plans as a consolidation and retailer? Most banks charge the merchant of recurring indebtedness rather than as another two and one-half to five percent. This fee ispaid layer of consumer debt. to compensate the bank for the credit andcollec- Interbank Card, Inc., when it becomes operation function which it assumed for the merchant. tional, will have more than five million charge The merchant, under most bank plans, receives cards oiltstanding.In the First Wisconsin Na- immediate credit for the proceeds of his sale and tional Bank system, almost one million charge :hus can more effectively utilize his working cards have been issued to residents of Wisconsin. capital. In 1968 one out of every liree families will have Most plans offer the customer the option of received a First Wisconsin Charge Card. As evi- paying his charge account in full within 25 days dence of its consumer acceptance, the plan is without a charge of any kind. There is no charge operating at volume levels not expected until for the card either. If the customer elects to ex- 1970. 77-

There has been a great deal of controversy in a system can be a great help in financial control certain areas of the country and in Congress, in and budgeting for the family. addition to some comment from regulatory Let us consider a few specificsabout the authorities, about the mass mailing of millions of "typical charge card user" of thesurveys. He is unsolicited cards by banks launching their charge most frequently in his 20's or 30's and hasan card programs. Some banks deserve the criticism income ranging from $8,000 to $12,000per year. they are receiving. Thesesame banks in many The primary wage earner is generally employedin instatk.c..5 have incurred substantial fraud and a professional or managerial capacity and fre- credit lossesc a result of generally unsound quently is a college graduateor has had some practices. formal education or vocational training.The lady Other banks have mailed unsolicited charge of the household tends touse her card a bit more cards only to established customers. Admittedly, frequently than her husband.' mistakes have occurred througherrors in judgment The First Wisconsin survey showed that family this is inevitable when anew banking function units with incomes of $4,000or less were not of this scope is launched. At the First Wisconsin generally interested in charge cards. Thesame National Bank, since March 1966 when thepro- lack of interest in bank charge cardswas found gram was launched, losses have been underone in the higher income family unit which, typically, percent of the total volume processed, about makes up the older segments ofour population. half the rate projected.It is hoped that this Interestingly, more than 60 percent ofthose favorable loss ratio can be maintained, because families applying to First Wisconsin fora charge bad debt losses represent not onlyan economic card had never had a banking relationship with waste but also have pmfound adverse human the bank. And yet thisgroup represents an ad- implications. ditional market for other banking services, such There are those who feel that charge cardpro- as home mortgages, installment loans, and check- grams are not the function of a bank. Bankswere ing and savings accounts. criticized in the 1930's for settingup programs What does the future hold for revolving credit? for installment lending; in the 1940's theywere By 1975, 60 percent of the population of 224 criticized for entering the homemortgage business. million will be under 35 years ofage. Young If banks had not entered the charge card field and people will be filling management ranks thatare supplied a financial service customerswant, the now reserved for individuals with 20 to 25 years void would have again been filled bya non- of experience. This group will havea different banking corporation that does not have thequasi- attitude toward life generally. They havenever public accountability that banking has. known a depression. They come from families where one or both parents have always worked. WHO ARE CHARGE CARD USERS? They have lived in comfortable homes withone or two cars and all the latestelectrical con- Recently, the First Wisconsin National Bank veniences; they have always known about jets and completed two rather interesting marketingsur- space flights; they have always known and not veys which tell us a lot about a typical charge feared computers; and they have always lived in card user. The surveys indicated that the Bank's and accepted an economy dominated by checks charge card had its greatest impacton those family and credit cards. units that are "on the go." Theywere young, This young modern market won't postpone pur- well educated, with moderate-to-high income. chases as their parents did, and at an earlier time Families in this group tended to be larger than of life they wiii want to take advantage of all of average, with children under 18.These young the good tiVngs our standard of living has created. families appreciated the convenience and flexi- It is anticipated that this group will financea bility of credit card shopping sincea single charge substantial portion of their purchases on revolving card was accepted atmore than 10,000 retail credit and that revolving credit outstandings will stores and each month brought only one statement grow at a sharply accelerated rate in the years from the bank. payable with a single check. Such ahead. DIXON-35

SUMMARY In spite of the objections concerning the negative aspects of credit, the economic facts of life Those specialists who teach and counselabout are that the amount ofcredit outstanding will credit, as well as those of us who extendall types continue to grow and that it is this very credit of credit, have some rather profoundresponsi- mechanism that is responsible, to a large degree, bilities as we move rapidly toward thecheckless- for our ever-increasing standard of living.Most cashless society and the use of auniversal identi- families are, and will continue to be, the best With assis- fication card. managers of their personal finances. It is agreed that some of theamoral policies tance from professional organizations such asthe pursued by certain credit grantors must stop.On American Home Economics Association and the other hand, the consumer has tobe taught through the financial management techniques that how to use Credit properly sothat he avoids the will become available as a by-product of the tremendous psychological and financialproblems checkless-cashless society, families could well con- that come about through the misuse of credit.An tinue to be skilled money managers in thefuture. The universal credit card or, as it hasbeen ever-increasingrateof personalbankruptcies doesn't permanently solve a consumer'sfinancial renamed, the personal identification card, hasim- problems. A bankrupt person usually getsinto portant implications for all of us.I am confident financial trouble .more than once andneeds the that for the most part the results of this new type of guidance and control that should come financial concept will be of positive value toall from education, experience, and thefinancial com- concerned. acknowledge the munity itself.Even with the great growth in In closing, I would like to revolving credit anticipated, credit grantorsshould excellent assistance of the staff of theAmerican remarks. not expect to incur substantialcredit losses. Bankers Association in preparing my AN ELECTRONIC CASH AND CREDIT SYSTEM

ROBERT H. WHITBY

Some nf the significant recent developments in instantaneouslytransmittedto thecustomer's the world of money and credit center on bank bank to determine automatically whether the credit cards and banking and credit applications customer has sufficient cash or credit balances in of electronic data processing computers. Let us his account to cover the transaction. Assuming consider these developments as important build- everything is verified, the computer at the cus- ing blocks for the future as we think ahead 15 or tomer's bank will deduct the transaction amount 21) years. from the customer's account and will electronically Many people are already calling it the "check- transfer a like amount to the store's bank. There less-cashless society." Others callit the "push- another computer will credit the store's account button economy," while still others refer to itas and send a signal back to the terminal device to the "paperless society." These labels may all be indicate the completion of the transaction. From correct, for by 1985, money, checks, and credit start to finish, the whole process might take 5 to cards as we know them today could well be ob- 10 seconds. solete mediums of exchange for most consumer This simple, foolproof feat might then be re- transactions. peated a few minutes later by the same house- Instead of paying for groceries at the super- wife at a department store, a gas station, or even market checkout counter by cash, the housewife at home using a telephone equipped with a special of the future will simply hand the store clerk a c ard-reading feature. unique "funds identificationcard," which she Terminal devices designed to receive funds alone can use. This card will be similar to the identification cards will be found at points of credit cards we know today, except that it will be sale in most stores and in most service outlets. machine-readable and nonforgeable, bcaring a "Touch-Tone" telephones, with an optional bank- special customer identification number (like a by-phone feature, will be universally available. social security number) which stays with the Several hundred million transactions of the type holder for life, no matter where he goes or what described will be made daily, facilitating L:eater business he is in. economy, security,and convenience than are The clerk of the future, before ringing -up the realized today through the use of cash, checks, amount of purchase, will insert this identification and credit cards. The complete automation of card into an electronic apparatus which "reads" the funds transfer system will mean the adoption the card and establishes immediately and auto- of an entirely new philosophy of money and mone- matically an electrGaic communication to the tary exchange and new service structures for bank- customer's bank account and the store's bank ac- ing, credit, and retailing. count. At this point, the bank's own electronic A host of technical challenges and problems systems will be activated, searching electronically come to mind when one considers the sophisticated in computerized central files for the deposit or equipment necessary to make this new electronic credit balance of both the customer and the store. system work: Meanwhile, the clerk at the point of the sale Designing an identifying card that is both non- will enter the amount of the transaction into the forgeable and machine-readable and that can be system by activating special keys on the terminal Mass-produced inexpensively. device, much the same way that sales are rung Producing an inexpensive terminal device which up today on cash registers. These data will be can read the card, permit variable data to be

36 WHITBY-37 keyed in, produce receipts if necessary, and ad- Retail Credit. The electronic cash and credit vise the clerk if a card is not backed by sufficient system will almost certainly get the banks par- bank funds. ticipating in,if not completely taking over, the Designing a communications network, linking business of extending consumer credit for retail points of sale with banks, capable of automatically charge sales, largely taking this function out of the and instantaneously locating all the banks of the hands of retail merchants. This evolution is al- payor and payee. ready apparent in the various bank charge sys- Designing computerizedcentral information tems already in operation. files that are instantly accessible in order to pro- By 1985, it is likely that bank credit cards will vide current funds balance data and permit auto- have become machine readable and that the bank matic credits and debits. credit card itself will be the funds identification Designing an audit-trail feature which will auto- card everyone will carry. This card could be used matically record all transactions as they occur so for either a cash purchase, a 30-day charge pur- that monthly t_ ansaction statements can be pre- chase, or a revolving charge purchase at the pared and errors traced. discretion of the user and in accordance with As difficult as these problems might appear, established bank lines of credit. At the time of present computer technology is sufficientlyad- purchase, the customer would indicate which type vanced that none of these requirements is in- of payment he prefers, and this preference would surmountable.In fact,itisthe nontechnical be keyed in by the clerk along with the transaction problems, the problems involving people, that are data. For a cash-transfer purchase, the customer posing the biggest hindrances to the evolution of might automatically receive a discount, say one- the cashless society. These nontechnical con- half of one percent; for a one-month charge, the siderations will also have the greatest impact on sale would be transacted at parity; and for a re- the banking industry, the credit industry, and volving credit purchase, a monthly intcrest pre- the consumer over the next two decades. mium could automatically be calculated and deducted by the bank's computer. IMPLICATIONS FOR BANKING Such a system would gee retail merchants out of the money-changing and credit-granting busi- Let us explore just a few of the implications ness, would give the housewife a better appre- of the electronic system, looking at its potential ad- ciation for the time value of money, and would vantages, the structural changes it will bring about, give the bank a valuable new source of interest and some of the obvious problems it raises. Per- revenues, based on consumer credit. haps the most importart implications are in Central Files. A necessary component of the banking. system described is that each participating bank Check Processing. It should be apparent that should have access to a computerized central in- the new system will get the banks out of the formation file in which the cash and credit trans- check-processing business. This can come none action records of each customer are stored. Once too soon for the banks, which are nowburdened these files are operable, a variety of potential uses with processing over 17 billion checks per year: comes to mind. For example, installmentand By 1975 this could reach 25 billion checks a mortgage loan processing could be tamed over to year, and it is estimated that by 1985about 50 bil- a bank's computers which would then analyzethe lion checks per year will choke the banking sys- customer's credit and account history, establish tem if the check is not replaced by some equally credit limits, and finally define the repayment acceptable medium of exchange such as the elec- terms best suited to the customer's asset position tronic system we have discussed. The elimination and cash-flow. A more elaborate system could of check processing will also mean the replace- even provide, when necessary, an automatic, comment of thousands of check-processing personnel puterized inquiry of other central information files and equipment, resulting in certain economic dis- located in other banks or in other credit bureaus location, but should also result in dramatic long- that are "on-line" (electronically connected) to term savings. the total system. 38WHITBY

New Services. A wide variety of new banking number of local credit bureaus and credit-report- services for commercial clients will also be posing organizations. Computerized information re- sible. One obvious service might be an automatic trieval systems will be installed by the more pro- payroll system in which all the employees of a gressive credit organizations. (Banks might even company would be electronically paid once a venture into thisarea, using their equipment, month. Another service might be an automatic know-how, and central information files as a base billing and payment system in which utility bills, from which to grow.) At any rate, the trend will interest charges, and principal payments on re- be toward larger bureaus with regional and even volving loans and installment loans would be national affiliations to provide thorough credit electronically deducted from all customers in the history checks at computer speeds with no re- bank who owed, and paid once a month to all dundancy of effort or file space. commercial clients of the bank who had appro- Today, as many as 25 small credit bureaus priate receivables. serve some metropolitan areas, each providing Other, more elaborate services such as in- fragmentary,non-standardized information on ventory control, sales reporting, and marketing some small percentage of the community's total analysis are also possible. At the time of purchase, population. However, computerized credit infor- a machine-readable tag from a piece of merchan- mation networks of the future will employ stan- dise could be inserted in the terminal device along dardized credit report formats and will draw from with the customer's card, or code numbers identi- relatively complete information files on virtually fying the merchandise could be keyed in by the all residents of a given area. The capacity of these clerk. The system's computers could simultane- files will be supplemented by the facility to ac- ously make deductions from inventory records, quire information automatically over communica- make additions to a commissions account for the tions lines from the files of other bureaus in other salesman ringing up the sale, and assemble market- cities when necessary (as in the case of an indi- ing data such as time of day, week, or month vidual who moves from one city to another, re- when certain kinds of' merchandise move. Demo- quiring a check of credit activity at the previous graphic profiles of recent customers (age, sex, and address). income) could be made available to the merchants. New Services. A variety of new services might Purchase orders for new stock could be generated be offered by the computerized credit bureau of automatically by the computer system, once the the future. Instead of merely providing the sub- inventory records indicated that the reorder point scribing inquirer with a credit history of the credit had been reached. applicant, the bureaus could easily get into the The list of potential services which a totally business of providing computerized credit anal- computerized transaction system would make yses.Subscribing credit grantors would provide possible is almost endless.It is clear that the the bureau with the quantitative degrees of credit banks have much to gain from such a system. risk it preferred to allow. (These criteria could This fact explains why it is the banks that are be changed from time to time to reflect seasonal exercising most of the leadership in building to- liquidity pressures, etc.)Using the subscriber's morrow's transaction system. evaluation criteria, the bureau's computers would then electronically credit-score each applicant IMPLICATIONS FOR CREDIT REPORTING after searching its own credit file and also em- ploying other data provided at the time of credit The emergence of a cashlesssociety also application. Determination of the most desirable promises to have a dramatic impact on the credit- credit limit and repayment terms for each appli- reporting industry and the credit-granting indus- cant could also be accomplished electronically by try. Let us consider briefiy how this new system the bureau as a service to its subscribers. could affect today's credit-reporting industry, par- Updating of Information. The ability to update ticularly the credit bureaus: credit history files promptly and completely will Fewer Credit Bureaus. The most important de- be a significant benefit of a computerized infor- velopment will be a large-scale reduction in the mation system. If installment payments lag, or WHITBY-39 Associated Credit Bureaus of America. The if payment defaults occur,this information can operating be made available automatically tothe credit plan is to have a nationwide system bureaus by bureau over data networks.Re-evaluations of with 27 computerized regional credit 1972, all linked to one another withfile-processing limits and repayment termscould be automatically generated at the subscriber's request. equipment. National Systems. The precedingdiscussion might frighten the small creditbureau manager, IMPLICATIONS FOR CREDIT GRANTING and rightly so. It appears that evenlarge bureaus using hand-re- Let us now consider what changes the cashless (which are still tied to systems society might 1,2 expected to bring to thecredit- trieved files and containing scrapsof unorganized granting industry.Perhaps the most significant credit history)might suddenly find themselves banks will Within the changes center around the new role without a useful service to perform. come to play in thecredit-granting industry, as next few months, giantstrides will be taken in the computer infor- discussed earlier. Many of today's credit grantors direction of national systems of can be expected to losebusiness to the banks, mation networks, capable ofsupplying credit in- Other credit seconds on almost any somegladly,otherspainfully. formation in a matter of grantors will grow with the system, some even indiiiidual in the country to bankersand other credit information taking leadership in its development. credit grantors. Some of the Fewer Retail Store Grantors. Most retail stores being automated enterprises or credit bureaus now will probably be relieved to turntheir credit op- will shortly be operational on aregional or na- erations over to a bank-sponsored systemsince tional basis. The major effortsunder way include: few retailstore credit departments areprofit Project "CB 360" in Dallasand Houston. The makers. Since both large and smallmerchants America, Inc., In- Associated Credit Bureaus of will be able to offer credit byhonoring the uni- Corp., and the ternational Business Machines versal funds card, the promotionalvalue some credit bureaus of Dallas andGreater Houston are merchants now ascribe to having their owncharge developing computerizedciedit operations in both cards will probably be lost. In fact, asthe system cities through a jOint effort. becomes accepted by the spendingpublic, mer- Computer Reporting Systems,Inc., Los An- chants refusing to honor the universalcard and geles. This 'organizaiion isorganizing a computer insisting upon the use of their owncards will interchange system with. 42 localcredit bureaus in probably fall into disfavor with their customers. Southern .California, .Arizona,and Nevada. Fewer "T & E" Grantors. Other credit grantors, Credit Bnreaus, Jac.,8alem, Oregon, which such as travel and entertainmentcredit card or- owns the San Franciscoand the San Jose credit ganizations, could experience seriousdeclines in bureaus in -California, as well asanother 38 membership as the universal card gains acceptance bureaus in Oregon; Washington, andIdaho. This and popularity among hotels,specialty shops, res- organization is planning a computertie-in with taurants, oil companies, andairlines. If the busi- the Credit Reporting. Systems groupin Southern nessman can usehis universal card wherever he California to create a PacifiC Coastnetwork which goes, why should he pay a$12 yearly membership should ultiMately connect with theDallas-Houston charge for a special cardwhich wouldn't be network. necessary? It is hard to predict whatwill happen Credit Data Corporation withcomputerized to these travel credit andservice companies. !t is credit bureaus in Los Angeles,San Francisco, and probable that unless clever new waysof serving Detroit. It is entering the New York areawith the members can be introduced, fewbusinessmen in idea of implementing a nationalreporting .system. 1985 will see much value inpaying $12 for Hooper-Holmes Bureau, Inc., ofMorristown, "another credit card." credit-granting New Jersey.This 674ear-old specialist inde- More Large Granters. Ancillary organizations such as Household Finance,Gen- rogatory information forinsurance and other in- General Motors dustries is arranging for a computerinterConnec- eral Electric Credit Corporation, Acceptance Corporation, andCommercial Credit tion of its national network ofoffices in 50 states. 40-WHITBY

Corporation can be expected to take an increas- tions Satellite Corporation), with the government ingly active role in the credit world of tomorrow. as a joint partner, should not be excluded. There are several indications that these credit and Regulation and Administration. Another area loan organizations are developing sophisticated of implications for us to consider has to do with and scientific credit management techniques and the impact of the cashless society on the adminis- are paving the way for eventual participation. trative and regulatory functions of the federal gov- within an integrated computer credit system. For ernment. A few of the areas where the business example, General Electric Credit Corporation has of running the country might be affected by the been experimenting with several computerized system described are: techniques for credit-scoring. Household Finance The Treasury Department, in which the office is installing a computer network linking 1,000 of Comptroller of the Currency has control over branch offices across the country with an eventual Federal Bank regulations. The new system will capacity of handling 150,000 transactions daily. require revisions and expansions of existing regu- The new system's central information files will con- lations. The Internal Revenue Service, another tain the credit records of some two million cus- branch of Treasury, will be concerned for many tomers. reasons, including revenue forecasting and tax- payer identification. SOCIAL AND OTHER IMPLICATIONS The Federal Reserve System, which will be significantly involved.Federal Reserve float is The cashless society will bring with it many eliminated from the present check-clearing proce- legal, sacial, and attitudinal changes that have dures, and the check-clearing burden itself is much more of a dramatic impact than the institu- eliminated.The structural and organizational tional changes already described. changes required in the Federal Reserve System Ownership of the System. There is, for ex- to accommodate such a completely new system ample, the question of ownership and control over are staggering. the electronic cash and credit system: Will it be Other government agencies such as the Federal owned by the banks? Who will control it? Many Communications Commission, the Bureau of the bankers think it should be owned by the banks Budget, the Post Office Department, and the De- since they perceive it as a logical extension of partment of Labor, which will all be involved in their other fiduciary responsibilities. the management of the system or will directly And what about the credit bureaus, the credit- benefit from its use. granting companies, or the retailers? Each sector Legislation. Certain legal questions pertaining has a. strong vested interest in the way things are to banking laws, examination and audit require- being done today. It is unlikely that these groups ments, and limitaticrs on credit disclosures come will sit idly by while the banks or the government to mind. There are many areas in which existing take over the system without maintaining their laws will have to be amplified or amended to vested interest through at least a partial ownership accommodate the system's development. There or control. are, for example: Even the computer hardware companies might Restrictions on the percentage of a bank's be lured by the attraction of having ownership capitalization which may be invested in electronic and control, especially since they will be so in- data processing equipment; timately involved in the system's development and Legal restrictions upon the amounts and kinds operation. The same can be said for the communi- of credit information which banks, retail mer- cations companies such as AT&T that will pro- chants, and credit institutions are allowed to fur- vide and service the data links. nish about their customers; And of course the federal government will in- Other legal complications pertaining to anti- evitably have a strong controlling influence over trust and fair-trade laws which might come to the the system, regardless of who has control at local surface. Questions of ownership and control can levels. The possibility of an ownership and con- be expected to precipitate certain antitrust ques- trol structure like that of COMSAT (Communica- tions, particularly since there probably will not WHITBY-41 be locally competitive systems offering competitiVe Another area of general resistance will be services, but, tatiid,atgtfl#1 iopaiiy integrated among the managers of smaller banks, retail systems. In the area of fait-trade practices, several stores, and credit bilreaus who fear thtit installa- issues might arise such as equitable fate structures tion oihe electronic tystem might cosi theta for data transmission, for computer inquiries, and their identity, hese fears ore not entirely tm . for purchases of peripheral computer services. justified, but ift general the little participant had Human Acceptance. Of all the complex ad- as much or more to gairifrom the system as dum justments which will have to be made before the the large one. For the price of an on-site teilninal cashless society can become fully operational, device and a telephone line, the small country some of the most difficult must occur in the areas bank, the small general store, and the sinall pOn- of human behavior, attitudes, and -work patterns. munity credit bureau cari have access to all the Unless there are distinctive "gains" involved in the informational and systems resoUrces of lie largest replacement of one habitual pattern of activity of the Oil-line participants. with another, individuals and groups will nattnally Invasion of Privacy. The last, most serious be reluctart to make changes. When other specific St1441 probleni 414 the new ,system raises is that sources of resistance such as regional parochial- ofcontroi, netof the systeinseJf bUt of people. ism or fear of direct competition Hein new types Although there are viable, cOnyincing arpments of economic units are combined with a general to be made for integrating the ftinetions of bank- resistance to change, the process of winning ac- ing, retailing, and credit tillOngh electronic net- ceptance for the proposed transfer system may be works, one of natural results (and advantages) very difficult. of doing this will be id COnsolidate information Consider the problems of finding, training, and about individuals, thereby broadening information maintaining qualified people to operate the gystem. coverage. But unless proper controls over this There are already serious shortages of critical-skill potentially huge source of personal information workers in computer-oriented occupations such as are set up, confusion over the authority to use systems analysts, programmers, and even key- information will undoubtedly result, and possibil- punch operators. There is also the difficult task of ities for unscrupulous use of data might arise. updating management's skills in computer usage. Even if we assume that the security safeguards The system will never get off the ground until in existence now can be kept intact and that im- those managers responsible for making the re- proper conunercial use of information will be im- quired investments are also capable of understand- possible, there still remains the question of posing and using the system effectively. sible governmental use of the collected personal People's present transaction habits may also in- data. It is conceivable, for example, that deter- hibit a rapid acceptance of the system. For ex- ministic applications of governmental standards ample: some people really like having their can- could affect opportunities for individuals to qualify celed checks returned to them and wouldn't feel for government or civilian jobs, hold elective or as happy about the whole thing if all they re- appointive office, or enter advanced publicly owned ceived was one computerized "where-got, where- schools.It is possible, of course, to conjure up gone" statementat theend of the month. an Orwellian world of complete governmental sur- Other people enjoystretchingtheir personal veillance and control, all made possible by what liquidity to the extreme and try to live a little on started out to be an efficient way of transacting Federal Reserve float during the last couple of business. days before pay day. This current privilege, which However, I do not believe that we need have is caused by inefficiencies inherent in the present any fears about the world of 1984 when we con- check-clearing procedure, would be sacrificed. sider the automated system. In the first place, the People would have to learn that the use of individual's right to privacy has always been of money costs something; the new system would such importance to the makers and interpreters of probably reward cash transfers at the time of sale law that the present restrictions upon usage of with a slight discount and would penalize ex- personal information will never be relaxed, nor tended payments with credit fees. will the system of checks and balances which 42-WHITBY controls the relative power of interested govern- of computerized credit files, and the establishment mental groups ever change to the extent that one of customer files in retail organizations have not group or agency could dominate control of the triggered a rash of speculation that Big Brother system. The other more basic reason is that the is upori us. I can foresee, therefore, no reason for information that would be available within the believing that the simple connection of these files proposed system is exactly the same information through on-line data links will do so either. that is being collected now. All this information In conclusion, let me say that whatever the could be gathered (most of it legally) by anyone implications electronic systems hold for the future, or any agency today that wanted to do so. we can each contribute to the building of an The internal reorganization of banks' files to efficient cashless society as we learn more about build central information files, the development and work with credit as it is used today. , _

SOME REFLECTIONS ON AN INTRODUCTORY COURSE INECONOMICS AND CONSUMER CREDIT

ROBERT J. LAMPMAN

Today's economists give considerable attention this, he needs considerable insight into what the to predicting consumer behavior butlittle thought behavioral patterns of both demanders and sup- to offering guidance to those who wouldlike to pliers of credit are. (On this point he can learn a be either scientific or artistic in managing their good deal from the home economist.) His policy households. aim is to develop a system offering a reasonable Similarly, the main drift of economics has been range of choices, a range that giveslatitude for away from the study of howthe individual busi- differing preferences and judgments by individual ness firm might be bettermanaged and toward lenders and borrowers. Consumer credit special- developing an apparatus for predicting business ists may go beyond that to study the goals of and behavior. The applied and practical matters of likely consequences of choices by individual bor- guiding choices of individual homemakers and rowers and to indicate adesirable pattern of business managers have come to be thought of as behavior. falling in the realm of home economics on the one Economists and home economists, then, tend hand and commerce or business administration to operate at different levels of generality,but they on the other. often are concerned with the same subject matter. Economists tend to concentrate their advice- I suggest that, to the extent that they both do good giving at a level of systematic relationships among jobs, they will teach many of the same things. large numbers of households and firms and to talk The home economist, by starting from the specific about broad rules and conditions underwhich case, can lead the student orcounselee to a broad- business and consumer choices should be made. er understanding of the credit system.The econo- An economist now feels easier talking about anti- mist, by starting from the generalized system of trust legislation or tariffs than abouthow a man- credit, can help the individual, in his role as citi- ager ought to price his product.He would rather zen, pursue the publicinterest, and, in his role as talk about regulation of consumer markets, e.g., consumer and producer, pursue hisprivate in- the rise of resale price maintenancelegislation, terest as it applies to consumer credit. than how a housewife ought to allocate herfood Economists hope that their discipline is not an biJget. esoteric study useful only to a few professionals, Thus, the economist has, by preference, elected but that it offers something useful to all. to operate in what appears to be arelatively detached role and has viewed the householdeither THE INTRODUCTORY COURSE as a subject for impassivestudy of an objective IN ECONOMICS character or as the beneficiary of policy changes made at the industry or economy wide level.He In an introductory course in economics we is likely to say that broad systematicrelations professors present a considerable amount of his- among groups or sectors are moreinteresting to torical and descriptive material. This requires de- him than are the peculiar problems of aparticular scribing the leading institutions in the American sector of the economic scene. economy, including the banking system.However, In the area of credit the economist has concen- we seldom devotemuch time to specific problems trated his efforts on comprehending how the over- such as how the consumer handles credit. all credit system works, how supplies arerelated What,then,is the introductory economics to demands, and how the workingof that system course about? Theunique thing an elementary can be improved bygovernmental policy. To do course offers is a special wayof thinking, a dis-

_ tinctive way of defining and approaching issues, equalize the benefit from the last dollar we ex- a way that can be applied tc personal as well as to pend in pursuit of each goal. business and public affairs. It is a way of thinking The observation to make here is that in making thatis two-sided, double-edged, and counter- choices there isusually no cost-free solution. bOqnced. Merely by taking time to enjoy one thing we Let me suggest what meaning this way of think- forego an opportunity to do something else. By ing has for consumer credit by reference to a set enjoying something today, via borrowing, we fore- of key concepts. go the chance to have a greater quantity of it A credit transaction is a two-sided affair involv- tomorrow. In a credit transaction there is a two- ing both demand and supply. It is important to sided exchange of sacrifice tomorrow for pleasure see that the demander can benefit from rivalry on today and vice versa. the supply side and suffer from rivalry on the (Economists try to impress on their new stu- demand side. In this sense a competitive market dents that everything has a cost. This is a splendid for credit is quite unlike a football ganzz between notion not taught in history, English, etc. What a two teams. The goal is not victory but agreement. student learns in economics is "You can't always The transaction is double-edged in the sense that get there from here.") the person, who is a demander today may be a Another key pair of concepts is that of income seller tomorrow, or even simultaneously.It is and expenditure. A person determines his income, counter-balancing in the sense that a third party to a certain extent, by his expenditure. His wel- may be influenced to take an action by a trans- fare may be improved either by an increase in action not involving him directly. Thus, if a great income or by better allocation of expenditures. At many people suddenly enter the supply side of the some point both may come simultaneously. The credit market, it may be associated with a fall-off reallypoor personfaces what Wesley Clair in demand for some consumer goods and hence re- Mitchell called "the high cost of being poor," that duce a manufacturer's demand for credit. is, a poor man is always in crisis because he has The simplest kind of observation we can make few choices open to him. Counterbalancing effects here is that students need to be encouraged to see of income and expenditure are indicated by the that credit, namely the use of money for a speci- two following statements: One person's income is fied period of time, is a service specifiable in terms determined by another's expenditure. The validity of price and quantity and that its price is deter- of one group's effort to save is determined by mined by supply and demand within a particular another's willingness to borrow. market. Beyond that we can point out that the To illustrate, the effect of a government deficit is price of credit is not always easy to calculate and counterbalanced by a net surplus in the household may include things other than a money payment. and business sectors. Some of these income- Another key concept somewhat like the de- expenditure relationships are shown in Table mand-supply formulation is that of benefit-cost 1. (/) analysis, which is central to the economist's ap- TABLE 1. Gross National Product and Relation proach to life. Here the idea is to specify the goal of Disposable Personal Income and or benefit one wants to achieve, array the several Personal Saving, 1966 possible methods of achieving the goal, and finally (in billions of dollars) to select the least costly method. For example, the goal might be to live, starting this year, in Gross national product 743 housing of a certain quality. The alternatives are Disposable personal income 509 to rent or to borrow money and buy a home. Less: Personal consumption expenditures 466 As one begins to ponder the goal, the double- Consumer interest payments 12 43 edge appears. The "cost" of reaching the goal is Personal transfer payments to foreigners 1 to forego the alternative method and alternative Equals: Personal saving 30 goals. This is what economists call the opportunity cost. We can work toward a happy solution if Total expenditure by all parties was $743 billion, we include other goals in the problem and seek to which, after deductions for capital consumption, LAMPMAN-45 certain taxes, and undistributed corporateprofits, the sector. This helps to place household debt in yielded disposable personal income of$509 bil- perspective. (4) lion. Out of this income and with the useof bor- We get a still better view of consumer debt in rowed funds, persons consumed$466 billion worth Table 3, which presents some very rough estimates of goods and services. Incomeless consumption, of the balance sheet of the household sector in some of which wasfinanced by borrowing, 1967(5). The total debt owed by the household equaled saving of $30 billion.Incidentally, we sector is $332 billion, which is only15 percent note that the $12 billionof consumer credit in- as large as the net worth ofthe household sector. terest looms pretty bigalongside the $30 billion (The latter, which amounts to about $2 trillion, is savings figure. equal to the net worth of the national economy Flow-of-funds estimates are thathouseholds in less the amount by which the net worthof the 1966 did gross saving (here defined toinclude governmeat sector exceeds the debt of thatsector.) capital consumption) of $114 billion anddid gross It is notable that consumers as a group arethe investment in consumer durables of$70 billion nation's largest lenders and show a strong net and in housing of $23 billion.Households thus creditor position. They own about 35 percentof had a $21 billion surplus ofsaving over invest- all debt and owe only 15 percent of totaldebt ment. These savings wereused to buy claims on issued by all sectors. businesses, including financialinstitutions, of $19 billion and on governments in theamount of $2 TABLE 3. Balance Sheet, Household billion(2). These claims are net ofincreased obli- Sector, 1967 gations to pay for consumer durablesand housing. (in trillions of dollars) The body of consumers, whichalways grows in ASSETS LIABILITIES numbers and usually in incomeand never dies, is always supplying savings to thedeficit sectors. (3) Tangibles 1.000 Consumer credit 0 095 It is interesting to note thatthere is usually a Intangibles 1.300 Mortgage credit 0 227 counterbalancing effect between businessand gov- Debts of other deficit gets smaller, the sectors 0.700 ernment. If the business Equities of government deficit gets larger.That relationship business 0.600 Net worth 1.978

was not at workin 1967, however. TOTAL 2.300 TOTAL 2.300 Discussion of saving and investmentbrings us of assets and naturally enough to the key concept counterbalanc- sheets.The The balance sheet suggests other liabilities and change in balance ing considerations that are significant parts ofthe household sector's balance sheet asshown in Table in debt owed, but thinking of economics. For instance, what is one 2 reflects a $15 billion increase house- the net worth of man's liability is another's asset. When also a much greater increase in holds run a surplus and other sectors rundeficits, growth of debt will accompany growthof net TABLE 2. Change of BalanceSheet, Household Sector, 1965-1966* worth. (in billions of dollars) Easy judgments about the health of the economy are not warranted bylooking at only part of the CHANGE OF ASSETS CHANGE OF LIABILITIES balance sheet of one sector. Indeed, one needs to relate debt to assets and then to relate assets,in 5 Consumer durables 70 Consumer credit turn, to the capacity of the nation toproduce and Fixed investment 23 Mortgage credit 10 thereby contribute to consumer well-being.Fur- Gross claims on business thermore, one should relate the debt ofindividual and government consumers, as distinct fromthe entire household sectors 36 Net worth 114 sector we have been talkingabout, to their assets, TOTAL 129 TOTAL 129 income, and capacity to pay. Thisbrings us back to the consumer creditspecialist and the home * Note: No adjustment is mach Fordepreciation or other economist. change in value of assets. 46LAMPMAN

SUMMARY AND CONCLUSIONS try quite different approaches, without regard to cost. This is one of the distinctions between people Economics teaching can communicate a sys- who are prudent and people who are romantic. tematic pattern of two-sided, double-edged, coun- While life would be dull without some non-econo- terbalanced thinking. This pattern is illustrated mizing, it would be chaos with only that. by such concepts as demand-supply, benefit-cost, The work of those of us who teach the intro- income-expenditure, saving-investment, and assets- chictory course in economics is closely related to liabilities. To the extent that a student incorpo- that of consumer credit specialists. There is cer- rates this pattern in thinking about his work, his tainly plenty for all to do. By working together consumption, and his citizenship, he gains some- as generalists and specialists, we can help to make thing of value. life more interesting and worthwhile for others. Of course we shouldn't conclude that this is the only pattern of value. In the original Greek defini- REFERENCES tion of economics, managing a household was 1. Federal Reserve Bulletin. September 1967. p. 1643. either a science or an art.Perhaps the management of the household, and other things as well, is 2.Ibid., p. 1644. a matter of science and art, and any attempt to tie 3. See The Two Faces of Debt. Federal Reserve Bank decision-making too closely to careful calculation of Chicago, October 1963. of benefits and costs and balance sheets will be 4. Federal Reserve Bulletin, op. cit., p. 1644. self-defeating. We are not all alike, and, fortu- 5. This table is an updating, by the roughest of methods, nately, a changing society has need for many of balance sheets for earlier years in my book Top different types of people. Some people will be Wealth Holders' Share of National Wealth, Princeton University Press, for the National Bureau of Eco- careful economizers, and some will be willing to nomic Research. 1962.

_ .11.1111...... -

-, CONSUMER CREDIT ANDTHE LAW

BARBARA A. CURRAN

In the absence of any specialexceptions, the I. CURRENT REGULATION OFCREDIT laws governing consumer credittransactions, such TRANSACTIONS as small loansand retail installment sales contracts, are the same as thoseapplicable to credit Consumer credit transactions, as I use the term under transactions generally. Laws regulatingthe credit here, include a wide variety of arrangements dealings between a commercial buyer and a com- which credit is extended to consumers.Small mercial seller assume an equalityof bargaining loans repayable on an installment basis,whether loan power between thebuyer and seller, an equivalent made by banks, credit unions, savings and competency to bargain, and anopportunity for associations, small loan companies, or consumer each party to make alternativearrangements. finance companies, are included withinthe mean- These factors are not usually presentin the same ing of the term. credit ex- degree in a credit transactioninvolving a con- In addition, the term encompasses of sumer and a commercialextender of credit. tended by a seller in connection with the sale appliances, furniture, Regulations governing commercialcredit trans- goods such as automobiles, and also actions cannot appropriately beapplied to con- jewelry, and other personal property, services sumer credittransactions.For example,the credit extended by a person performing doctor, maximum interest permitted under manygeneral such as a home improvement contrctor, a interest and usury statutes isinsufficient to pro- or a dentist. Forthe purpose of this discussion, vide an adequate return on a small consumerloan consumer credit transactionswill not include for ex- that is repayable in monthlyinstallments. Con- loans secured by real property, such as, sequently, statutes have beenenacted in most ample, home mortgage loans. just states specially regulating consumercredit trans- Consumer credit transactions such as those actions, and thereby removing themfrom the mentioned are regulated by statute, andeach occurring application of laws regulating commercialcredit separate state regulates all transactions Statutes understandably transactions. within its boundaries. However, differences in In general, consumer groups,representatives of vary from state to state. be the credit industry, and academicians agreethat regulation from one state to another tend to the charac- the need for, and the purpose of, consumercredit primarily in the degree rather than in credit con- regulation should be evaluatedseparately from ter of the regulation. For example, regulated in commercial credit transactions. Theproblem lies tracts for the sale of automobiles are regulating the not in acknowledging thepropriety of differential most states. However, not all states ceiling on the treatment of consumer creditand commercial credit sale of automobiles establish a credit, but in determining in what respects con- amount of finance charges. The moresignificant different sumer credit shouldbe treated differently from differences are found in regulation of within the commercial credit. classes of credit transactions occurring The purpose of this paper is (1)toediscuss how same jurisdiction. Thislatter difference will be the next section ofthis consumer credittransactions are currently being discussed furtherin regulated, (2) to examine the effectivenessof that paper. credit regulation, and (3) to suggest what we may expect The basic premise on which all consumer legislation is based is that a consumer credit ar- by way of developments in consumercredit trans- private exchange actions in the near future. rangement is the subject of a

_ 48CURRAN

between two parties.As such, a presumption extending certain types of credit. For example, exists in favor of permitting the parties to the ex- only licensed and supervised lenders may make change to bargain for and agree upon whatever loans under small loan laws. The theory is that terms they find mutually satisfactory. borrowers will be more fully protected from un- In general, it is assumed that parties to a credit scrupulous lenders if lending is limited to a small transaction know what they are doing and that, group of licensees who operate under the close if the exchange is acceptable to each of the parties supervision of a state administrative agency. Ob- to the bargain, it is immaterial, as far as the law taining a license requires showing that itisin is concerned, that a third person might think that the best interests of the community that a par- one party to the mcchange has made an imprudent ticular lender be able to make loans under the bargain. Under this view, statutory restrictions small loan law. are not imposed on arrangements unless it ap- 2. The creditor is often required to disclose certain pears necessary because factors other than usual information about the credit obligation to the differences between parties to a bargain are mate- consumer at the time that negotiations are taking rially affecting the process ot eachang^ place, or at least in the contract that the consumer Existing regulation of consumer c, -Asac- signs. For example, in most states the creditor tions is aimed at what is a primary r the must state the specific amount of finance charges consumer credit exchange, namely m- at the time that the consumer becomes obligated mercial creditor possesses a bargai,..ig zage under the contract. over the consumer in most cases. Thi. .:ztage, 3. Restrictions may be imposed by statute on the which invariably permits the creditor to dictate provisions that the creditor may include in the most of the terms of the crcdit arrangement, is contract. The creditor prepares the formal con- created not only by the creditor's greater economic tractual document that is presented to the con- resources, but also by his experience with and sumer for his signature and includes provisions knowledge of consumer credit matters. that will place him (the creditor) in the best pos- In addition, the creditor's position is enhanced sible position to enforce and protect his interests by the fact that acceptance or rejection of a par- under the contract. Statutory restrictions on con- ticular credit extension is not as significant for tractual provisions are intended to establish some the creditor who has a volume of credit business linfitations on the ability of the creditor to _shape as for the individual consumer applying for credit the contract in his favor where the corresponding extensiun.In most credit negotiations between detriment to the consumer is or may be sub- consumer and creditor, the consumer's choices stantial. For example, a provision permitting the are limited to questions of the total amount of creditor to declare the full debt due at any time, credit that he can obtain, the amount of each in- even though the consumer has not defaulted in stallment payment that he is to make, and the date payments, is prohibited. on which payments are to begin. This is partly due Another provision often prohibited in sales to restrictions imposed on the consumer's choice contracts is one by which the consumer agrees not by the creditor but also can be attributed to the to assert against the seller, or the person to whom fact that these are the only matters that the con- the seller transfers the credit contract, any claims sumer is interested in pursuing with the creditor. he may have against the seller arising out of the Other terms of the arrangement are generally left original sales transaction. In addition to prohibit- to the creditor's decision. Much consumer credit ing certzin provisions, statutes may specifya legislation on the books todayisintended to range within which the creditor mv act. For ex- eliminate, or at least mollify the impact of, the ample, statutes regulating rates of finance charge more flagrant abuses of consumers made possible permit the creditor to make any charge he wants by unscrupulous creditors who use inequality of as long as it does not exceed the maximum speci- bargaining power to exploit an unfair advantage. fied in the statute. ) Consur.:er Credit Statutes. Consumer credit is 4. Statutes may restrict the legal remedies by regulated by statute in four basic ways: which creditors may enforce their rights against 1. Some potential creditors are excluded from consumers or may limit the defenses which they CURRAN-49 may have to claims asserted by consumers.For of differentials in bargaining power. The fact of example, if a seller transfers a retail installment the matter is that existing legislation does not do sales contract to a Fa les finance company, the this. The regulations are not applied, acros_ the consumer, after he receives notice ofthe transfer, board, to all types of consumer credit arrange- must make his installment payments to the sales ments. Statutes within each state vary for different finance company instead of to the original sPlier. classes of arrangements even though, from the If the sales finance company qualifies as a holder point of view of the consumer, those arrangements in due course, the consumer cannot assert any are functionally the same. As a result,the value claims he has against the seller, such as a television that couid be achieved from a systematic applica- set breaking down, against the salesfinance com- tion of similar legislative controls to all consumer pany. This means that the consumerhas to con- credit arrangements is lost. tinue to make payments to the sales finance com- II addition, regulation of specific arrangements pany even though he cannot getthe seller to fix is often inadequate. Statutory provisions regulat- the television set. The only remedy the consumer ing one aspect of any arrangement, without sup- has is to pursue the original seller and not his plementary provisions relating to other aspects of transferee. In such a case, statutes in some states the same arrangement, are of limited usefulness. permit a consumer, under certain circumstances, to For example, some sales credit statutes require the assert a claim against the sales finance company. creditor to disclose certain information to the An example of a creditor's remedy arising out consumer prior to consummation of the contract. of a sales contract is the deficiency judgment. If a Such a provision is of dubious value by itself. Dis- creditor repossesses an automobile for nonpay- closure provisions merely provide the consumer ment and then sells it, and if the amount he re- with information about some contract terms. covers on the sale is not sufficient toover the There is no reason to believe that this information, amount of the debt owed at the time of the rein and of itself, is going to increase the consumer's possession, the creditor may then go to the court power to change or otherwise negotiate about con- and obtain a judgment against the consumer for tract terms other than those which are customarily the amount still owed. This is known as a de- treated as the subject of negotiation. A statutory ficiency judgment. In most states, the creditor may disclosure requirement should be accompanied by then garnish the debtor's wages for the amount of regulationofcontract provisionsrelating to the deficiency (that is, obtain a court order in- matters that are not the subject of consumer- structing the debtor's employer to turn over a creditor negotiation. certain percentage of the debtor's wages to the We can gain a better insight into the impact creditor until the deficiency is paid). of consumer credit laws by looking at the way in In recent years, although there has been a great which those laws have evolved. deal of discussion about eliminating the deficiency The first legislation affecting consumer credit judgment, there has been very little action. If the was in the nature of small loan laws, based on deficiency judgment were eliminated, then the the Uniform Small Loan Law sponsored by the creditor repossessing an automobile must accept Russell Sage Foundation in the second decade of the car in full satisfaction of the debt and cannot the twentieth century. The purpose of the Uni- thereafter proceed against the debtor in a court form Act was to encourage legitimate lenders to action for a deficiency judgment. In California, make small loans to wage earners by increasing the deficiency judgment has been eliminated in the the amount of interest that such ienders could case of retail installment sales contractsfor the charge. At the same time, the legitimacy of opera- purchase of goods other than automobiles. tion was to be controlled by prohibiting any lender who did not hold a license under the small loan II. IMPACT OF CURRENT REGULATION law from making such loans and providing for extensive state supervision of the activities of the It would svm that the aforementioned pro- licensed lenders. The objective of the law was to visions would insure a fair and decent exchange substitmte legitimate lending for that of the un- between the creditor and the consumer in spite scrupulous loan shark who, up until that time, 50-CURRAN had been the only available source of credit for the restrictions of interest and usury statutesit is nor wage earner. considered a loan of money. The seller is merely The small loan laws relaxed the stringent re- charging a different price for goods for which he quirements of what was essentially a price-fixing receives payment immediately than he would if he statute for creditors participating in the consumer were to receive payment at some future time. loan market. However, only a limited number Historically creditors extending sales credit were of lenders were permitted to take advantage of the subject to no special restrictions on their credit new higher rates authorized. In effect, these laws arrangements, nor were there any restrictions on initiated what has become characteristic of the participation in the market. consumer loan market, namely, the stratification Retail installment sales credit contracts were of competition. By permitting only certain lenders virtually unregulated until after World War II. to charge the high rates authorized by the small In the case of consumer loans, the pressure for loan law,legislaturesrestricted competition in legislation came from those potential lenders who that segment of the market. were excluded from participating in the consumer Between the time of the enactment of the first loan market by the licensing provisions of small small loan laws and the 1950's, major legislation loan laws and by the low maximums authorized relating to consumer credit transactions dealt with under the interest and usury statutes. If there was the maximum interest permitted for installment any resistance to new consumer loan legislation, loans to consumers. As banks and other financial it probably came from lenders already in the institutions became increasingly interested in par- market who might have feared the effects on their ticipating in the consumer loan market, restric- business of additional competition. In any event, tions of general interest and usury statutes which the situation in the case of retail installment sales permitted a return insufficient for small installment credit was quite different.Since anyone could loans became onerous. engage in extension of sales credit and since there Primarily because of pressure from lenders who were no restrictions on contractual provisions or wanted to participate in the consumer loan market, on the amount of finance charges authorized, there consumer loan legislation was passed during this was no pressure from any-segment,of the industry period. The legislation dealt primarily with regu- for legislation of any type. lation of maximum interest and permitted various It was only after abuses became notorious and classes of lenders to charge rates higher than those pressure was exerted by consumers, consumer authorized by the general interest and usury groups, and those members of the industry who statutes for small installment loans. Such legisla- recognized that the vitality and health of the tion broadened the market for consumer loans market were threatened that legislation regulating by permitting a greater variety of lenders to en- retail installment sales credit arrangements was gage in this type of lending. enacted. To theextent that greater participation of The vast bulk of retail installment sales legisla- financial institutions resulted in greater competition has been enacted within the last 10 years. tion for consumers' business, the legislation could Primary emphasis in such legislation is on dis- have meant lower costs for the consumer, The closure. In any statute regulating retail installment problem was that maximum interest controls were sales credit arrangements, there is always a pro- not usually relaxed simply by permitting new vision requiring the seller to include certain in- classes of lenders to charge the higher rates au- formation in the contract itself. thorized under the small loan laws. Instead, con- With regard to information disclosed, emphasis trols were relaxed for each new class of lender has been placed on informing the consumer of by authorizing a special rate for that new class. the amount that he is paying for credit as well as Thus, stratification of competition was perpet- for other charges. Presumably, the theory is that uated in the consumer loan market, and general if the consumer knows he is entering a retail in- competition was inhibited by the statutes. stallment sales obligation and is aware of the Retail Installment Sales Credit. Retail install- terms of that arrangement, particularly with regard ment sales credit has never been subject to the to cost, then he will then be able to make an in-

- CURRAN-51

the problem for telligent appraisal anddecision to undertake a vision does not, of course, solve particular creditor. those consumers who becauseof special dis- particular obligation with a lack of In addition, after he hassigned the contract, he abilities such as language difficulties or education cannot understand the termsof the ar- will have a documentthat clearly spells out the rangement they have enteredinto. nature of the liabilityhe has incurred including Regulation of Rates. Regulation of ratesunder his rights and duties. Hewill know what his rights retail installment sales acts has,of course, been as well as hisobligations are under thecontract. requirements are resisted by creditors wilt)traditionally have not How effective such disclosure laws. Never- in achieving either of theabove objectives, let been subject to interest and usury theless, many automobile retailinstallment sales alone both, is questionable. finance charges for the In the first place, the contractis usually so acts do establish maximum probably credit sale of cars. A numberof statutes regulat- long and complex that the consumer other goods also will not read it, and even if hedoes, he probably ing retail installment sales of the resistance of will not understand a large partof it. One solu- have such limitations. However, been to require that some membersof the credit industry to ratelimits tion to this dilemma has One must recognize certain provisions be spelled outin the contract is not entirely without reason. letters to make sure that the seller can alwaysadjust the basic cash in bold face type or capital Therefore, regulation that the consumer sees them.Of course, the price of the article sold. of sales finance charges is morecomplex than question of which provisionsshould be so em- all con- regulation of interest rates forloans since in the phasized is a difficult one, In one sense, value of credit ex- tractual provisions are important tothe consumer latter case the basic dollar because they affect his rights andduties. More- tended is readily ascertainable. other provisions information, such as the cost ofcredit, Statutory provisions relating to over, some of the finance may be important tothe consumer prior to the in the contract besides the amount obligation, whereas other charge are generally relatedto provisions by time he undertakes the remedies or information, such as acts which mustbe performed which the creditor enhances his own restricts remedies that the consumerwould other- to preserve rights underthe contract, may be more wise have had under the contract.Generally important thereafter. prohibitions or Viewing the contract as an instrumentfor dis- speaking, however, in most states provisions are closing information to the consumerbefore he restrictions relating to contractual problems. The modest in substance and scope. becomes obligated also presents that consumers often thinks of the arrangement as One practical problem consumer generally their own rights time that the seller hands face is how to enforce or pursue pretty well settled by the the issue re- him the contract to sign. Itis unlikely that he is under the contract. In many cases, the document over solves itself into an economic oneof balancing the going to take the time to read claim against the amount to carefully before he signs it,particularly under the cost of pursuing the be realized by pursuing theclaim. For example, pressures surroundingthe closing of a sale. with this problem is the it may not be economicallyprudent to pursue a One way of dealing creditor through the courts approach used in Massachusetts.Under a recently $100 claim against a door-to-door re:- when the cost of doing so mayfar exceed the $100. _enacted_ statute applying only to lia*lieeii paid tail installment credit sales,the consumer is per- Dia feceiffisr-veisr-lftlfe iittentiori by proper to helping the consumerrecognize when he has a mitted to cancel out the arrangement facilitating his ability within an approximate meritorious claim and then notice to the seller's office Suggestions have been made 24-hour period after the time signs the con- to pursue that claim. the responsi- in the contract inform the that the state agencies could assume tract. Various legends complaints and pursu- consumer of theright to cancel, andpresumably bility of hearing consumer behalf of the consumer. the consumer who is interested canread over the ing those complaints on could be charged with document and reflect about theobligation he has In addition, such agencies responsibilities. Some limited incurred after the pressure ofthe salesman's general educational advances have been made in thisdirection, such as presence is removed.This kind of statutory pro- 52-CURRAN the Consumer Fraud Bureau of the State's At- Lending Act, which is a federal act, would have torney's Office in Illinois. to be passed by each individual state. The significance of the Commissioners' Code lies in the fact III. NEW DEVELOPMENTS that the entire subject of consumer credit is dealt with in an integrated and systematic manner in Consumer credit legislation now on the books one act. represents the aggregation of discrete statutes en- Finally, the increase in consumer credit activity acted over a 50-year period. In each case, the in the state legislatures since the latter part of the enactment of legislation was a response to a 1950's is significant. Each year consumer credit specific problem, whetheritwas broadening bills are introduced in state legislatures, and some participation of creditors in the market or con- legislation is passed. The fact that this legislation trolling creditors who engaged in unconscionable often results in accretions to existing laws that, in activities. some cases, are of dubious value is not what is The many existing statutes are not integrated important. What is important is that legislators with each other. Consumer credit arrangements a: .; becoming increasingly aware of the fact that are classified for purposes ofregulation along existing credit legislation is not what it should lines that relate to whether the credit extended be. There are, of course, other indicators of the arises out of a sale or out of a loan and, in addi- climate of change, not the least of which are tion, in the case of loans, what kind of credit in- national conferences in which the whole matter of stitution is involved. Retail installment sales credit consumer credit is examined. and loan credit are regulated under separate There is no question about the general dissatis- statutes. Consumer loans are regulated under a faction with the laws governing consumer credit variety of statutes, each one applicable to a dif- transactions and the parties who participate in ferent kind of credit institution. For example, those transactions.Dissatisfactionisexpressed credit union loans are regulated under one statute, not only by consumer groups but also by members loans by small loan lenders under another. Loans of the credit industry and of administrative agen- by banks are regulated under still a third type of cies charged with implementing and supervising statute. If there are problems with existing legisla- consumer credit laws. If there is agreement, it is tion and if that legislation is not adequate to meet on the fact that existing laws are unsatisfactory. the need, it is generally because th- regulation of However, there is little agreement on the manner in consumer credit has traditionally been viewed as which those laws should be revised. And this the regulation of specific kinds of arrangements, disagreement is not just between groups, but also and not as the regulation of the market as a whole. among persons within those groups. There now exists a climate for change and this However, the crucial question is what the con- can be seen in several ways. First, the activity in sumer credit market should be.It is not only the the Senate Subcommittee on Banking and Credit, technicians and specialists in the field who should culminating in a passage of S.5 (the Proxmire address themselves to this issue. In the long run, Truth-in-Lending Act) is significant not only be- the laws, when applied, will attempt to shape and cause of the provisions of the statute itself but _Mg. Oe n ureoiJke. mnsumer_credit_market because the Act, and particularly the hearings pre- and consequently consumer credit transactions. ceding it, have given new national exposure to The question really is:In what kind of market- consumer credit problems and legislation affecting place, under what kinds of conditions, and with those problems. what kinds of consequences are consumer credit Sec,,ad, a major effort is being made by the arrangements to be created? The question of how National Conference of Commissioners on Uni- laws can be used to implement and promote this form State Laws to create a Uniform Consumer kind of marketplace is only secondary. At best, Credit Code. The Uniform Code, still in draft laws are only an aid to achieving specified objec- stage, could be a very major change and, ulti- tivesthe objectives will not emerge from the mately, an improvement in laws currently on the laws. We can learn from the past as we look ahead books. The Uniform Law, unlike the Truth-in- to developments in consumer credit legislation. THE IMPORTANCE OF CREDITIN OUR COMPETITIVE ECONOMY AND THE ROLE OF THE FEDERAL TRADECOMMISSION

MARY GARDINER JONES

Ours is a debt economy. During the last decade, and pension programs, has reduced the individu- thefederalgovernment'sdebthasvirtually al's need or incentive for savings. Thus more of the doubled. State and local government debt trebled consumer's disposable income is available to satisfy in the same period. Corporate debt has also inhis immediate wants and desires. Although this creased by somewhat over half, but consumer income is probably not sufficient for cashpul- debt has increased by far the largest percentage. chases, it is sufficient to cover increased interest Eliminating home mortgages, consumer debt in- and carrying payments. curred for such things as automobile loans, con- Prior to this post-war about-face, the individ- sumer goods, repair andhome improvement loans, ual's borrowing habits had been strongly curtailed charge accounts, andrevolvingfundsalmost and kept in check by the Protestant ethic, which trebled in this period.( / ) tended to make excessive individual debt immoral. This substantial increase in consumer credit can It is imperative that we recognize thatthe old be attributed to several major factors.In the "conditioned borrower," the buyer who was con- first place, the extension of credit has become an ditioned by the Protestant ethic not to incur ex- important factor in the growth of our economy. cessive debt, has now been replaced by a new Retailers have discovered that the extension of borrower, conditioned in reverse to desire con- credit to consumers can, by itself, be a profitable sumer credit.Yet at the same ti.c.with the disap- source of revenue as well as a potentcompetitive pearance of the Protestant ethic i3 abasic societal weapon by which to expand salesand market device to impose controls (albeit negative) on the shares. For instance, retailers can borrow from use of credit, society facesthe imperative of banks at rates of approximately 6 percent and can developing other techniques to ensure that the lend to customers at interest rates ranging around use of credit by consumers is atleast rational 18 percent. While this threefold markup is not and informed. all net income, it illustrates the profitpotential available to some companies. Thus theextension CONSUMER DEBT AND of credit plays an important role in thecompeti- THE NATIONAL ECONOMY tive process not only among loan andfinance companies but as a tool for the sale of merchandise.(2) Consumer credit is an important factor in our --.------In_the_second_place,_the. cnosnniees_21titude to- overalLnationat....pacigs_ _dirgga...tOw.ard_til_c___ ward credit has changed substantially, and the in- achievement of our full employment goals. How- curring of individual debt has achieved for many ever, the level and rate ofindividual consumer consumers a relatively newrespectability(3). To credit is not as readily or quickly responsive to this must be added the situation of low-income manipulation of various financial and monetary consumers, encompassingabout 20 percent of our controls as other forms of corporate or govern- population, for whom credit is the only means of mental debt. Hence the volume of consumerdebt satisfying even their most basic wants. can, under somecircumstances, present potential Finally, the enhanced personal financial security difficulties for the managers of our economy. which most of us enjoy today, as a result of high Excessive consumer credit can be a potential employment levels together witb the development contributor to economic instability and can compli- of social security and unemployment andhealth cate the task of stemming adownward spiral of the

53 54-JONES economy, or even of stabilizing or promoting the most instances far exceed the face amount of the growth of our economy. While consumer credit debt. can stimulate the economy, it can also render more To this must be added the realistic inability of difficult the national goal of achieving full em- the lower-income groups even to consider going ployment. Thus as consumer credit achieves a to the courts for recourse and, more important, to significant relationship to gross national product risk taking any measures of self-help, blith as which it has todayany slowing up or decline in refusing to pay for the allegedly defective or other- gross national product can be reinforced by the wise unsatisfactory goods. No low-income con- existing high volume of consumer credit.Since sumer could afforri to defend the lawsuit Which over 75 percent of consumer credit has a duration would inevitably follow upon his refusal to pay, of more than a year, any decline in gross national and indeed his refusal to pay might be used in product cannot be met by an immediate response support of a garnishment action which might well in reducing consumer credit; hence, outstanding result in his losing his job. consumer credit will bite deeper into the amount The essential need today, therefore, is for the of disposable income retained by a family and development of adequate regulations to protect will tend to enhance any slowing down of the consumers against fraud and deception in the field economy.It becomes doubly important, thereof credit transactions and to ensure that con- fore, that consumer credit at any one time has been sumers have sufficient information about the cost rationally incurred and that an excessive portion to them of credit to enable them to function of the income of individual consumers is not too rationally in the marketplace. rigidly committed to debt repayment. In light of the state of today's credit market, For the low-income consumer with no choice as there is little the consumer can do to educate to whether to purchase on cash or on credit, full himself either as to the absolute cost of credit to information about the cost of credit to him is him or as to the relative cost of various credit essential to enable him to select that credit source alternatives open to him. Thus, while education which is for him the "best buy." The medium- is frequently an effective, and indeed in many income consumer needs adequate credit informa- instances a preferable alternative to government tion not only to select the best credit source. It is regulation of business practices, this alternative is also needed to enable the consumer to determine not really available today with respect to credit the cost to him of making the purchase on credit, transactions. The basic need is for clarification and and thus to make a rational decision about disclosure of the actual terms of credit being whether or not to consummate the transaction on offered; and until this is available, consumer edu- a cash or credit basis. As President Johnson cation on the rational use of credit is fruitless(4). stated so succinctly in his message to Congress in By the same token it is equally essential that if February of 1967, "As a matter of fair play to the fraud and deception in the field of credit transac- consumer, the cost of credit should be disclosed tions are to be successfully attacked, the con- fully, simply, and clearly." sumer cannot be expected to assume this burden The increasing role which consumer credg plays_ A morous _meg:Tint_ p rogr_a_m____demn_ed in our economy creates another problem, namely to eliminate these practices must be mounted so the need to make certain that consumers are not that the honest retailer and loan company can deceived or defrauded in their credit transactions. compete in the field of credit and the ;onsumer Today,bothmiddle- andlower-income-level can have access to a sufficient number of credit groups are increasingly making use of credit in sources without fear of being defrauded. connection with relatively small size dollar-wise transactions.Yet if they find themselvesde- ROLE OF THE FEDERAL frauded, deceived, or otherwise victimized in the TRADE COMMISSION courseofthesetransactions, the low dollar amounts involved hardly warrant or indeed justify Let us now consider the role of the Federal the vindication of their rights at law. The amount Trade Commission in the field of credit regulation. of lawyers' fees and litigation expenses would in In general the Commission's efforts in the past JONES-55 have been directed primarily toward theelimina- position of mail fraud charges against the same tion of deceptive practices in the creditcollection companies by the Post Office Department. One of industry and only secondarily toward theelim- its investigations was- disposed of by a consent ination of deceptions and the encouragementof order in which the respondent agreed not to repre- debts of its clients, more completedisclosure of information in trans- sent that it would consolidate actions involving actual extensions ofcredit. furnish financial assistance, or arrange forsuch The Commission's early efforts inthe credit col- assistance in the payment of such debts (6). It was lection area, going back to the early1950's and further agreed not to represent that their clients delay before, were directed toward a varietyof decevtive would be assured that their creditors would practices engaged in both by creditorsand by or forbear from suit. companies specializing in the preparation andsale The misrepresentation of interest rates was of debt collection forms tocreditors or in the attacked by the Commission as a violationof collection of debts and location of absentdebtors Section 5 of the Federal Trade CommissionAct on behalf of creditors.The primary deceptions as early as 1936.In that year the Commission involved misrepresentations to thedebtor that filed a series of complaints against themajor auto-, legal action had already been instituted onthe motive companies charging that their so-called debt, that the debt had been referred to govern.- 6 percent financing plans were beingdeceptively mental authorities, that the debtor's creditwould advertised (7).The Commission alleged, and was be ruined', or that the debt had beentransferred oustained by the courts, that a representation to to an independent holder in due course,thereby tfoepublic that financing for automotive purchases rendering ineffectiveany defensesthe debtor at a 6 percent interest rate could beobtained was might have had against the original creditor.(5) a representation that a6 percent simple interest The importance to the consumer of Commission per annum was beingcharged and that this rep- action against these deceptions is increasingwith resentation was false since in fact the actual inter- the growing use of credit by lower-income groups. est rate being charged was 11/2 percentmonthly, These groups are the most likely to be intimidated thus constituting an annual interest rate ofbe- by threats of legal or governmental actionand tween 11 and 12 percent are most helpless to take anyself-help measures or The Commission's concern with misrepresenta- to invoke the usual remediesavailable to persons tion of interest rates in the field ofautomotive who are unfairly accused of owing money orwho financing was activated again in 1950 at which may have legitimate set offclaims against the time it held hearings on the subject. TheCom- the money owed. mission followed these hearings in 1951 with While in the past the Commission has sought to promulgation of trade practice conference rules on eliminate these deceptions on a case-by-case basis, the retail installment sale and financingof motor in 1965 the Commission promulgated its Guides vehicles(8). These rules required separate itemiza- Against Deceptive Debt Collection with a view to tion and disclosure of the following costs: (1)de- attacking the problem on a broader basis. These livered price and amounts credited as or guides summarize the various debt collection prac- down payments; (2) time balanceawed plus tkës -by The COinintssioti --as --deceptive: amountand-due 'date' ofeach installment;--43)-cost-- --- However, the case-by-case attack against theend- of insurance, if any; (4) finance charge;(5) all less variety of collection devices used bycreditors other charges. and collection agencies will undoubtedlycontinue They also prohibited the execution of contracts as long as creditors andcollection agencies con- signed in blank and any misrepresentationswith tinue to seek to collect payment of allegeddebts respect to the financing chargesrequired by out- by deception and coercion. side financing institutions, such as the coverage More recently the Commission has also been of insurance, the finance rates beingcharged, and concerned with deceptions practiced in the new the like. (9) and growing field of debt consolidation ordebt The Commission's action was accompaniedby pooling.In some instances,the Commission a wave of state lawsenacted to regulate these same placed its investigations on suspense pendingdis- practices. In order to avoid overlappingjurisdic- 56-JON ES tion, the Commission announced that its trade loan company for alleged misrepresentations in practice rules applied only to interstate transac- its advertisements of the terms and co. This of tions and that it would not take action even in loans which it was offering(14). these instances if the State also having jurisdiction aminer found that the responder. over the transaction had an adequate disc .sure sented the interest rates at wi.kh its s could law.('10) be secured insofar as its advertising claims con- stituted a representation that such loans were available at a 6 percent rate of interest when in RETAIL INSTALLMENT TRANSACTIONS fact the actual rates allegedly charged by respondent ranged from 8 percent compound interest Over the years, the Commission has brought a (computed annually on the entire amount owed), few cases attacking alleged misrepresentations in- up to 18 percent simple interest (computed at a volving financing charges to be made or financing monthlyrate of 1I/2percent on the unpaid terms available(11). However, it was not until balance). 1965 that the Commission focused specific atten- The hearing examiner also found that the re- tion on the problem of credit abuses in the gen- spondent had engaged in deceptive advertising eral field of retail installment transactions.In because it had failed to disclose in its advertis- that year Senator Magnuson wrote to the Com- ing certain material terms and conditions imposed mission and suggested that, as part of the war on the loan, such as the amount of the finance against poverty, the Commission undertake a con- charge, service fees, closing fees, and the like. centrated effort in the District of Columbia to The subsequent disclosure of these charges to the eradicate deceptive trade practices which victimize debtor at the time of the execution of the loan the poor. The Commission responded immedi- contract was held not to have cured the original ately and listed among the practices which it deception in the advertising. This case is now on would investigate "the misrepresentation of credit appeal and pending before the Commission. or finance charges or arrangements." In December 1966, as a result of these investigations, several complaints charging various decep- PROPOSED GUIDES ON CREDIT tive credit practices were filed against companies TRANSACTIONS operating in the District, as well as against companies outside the District engaged in interstate In addition to the complaints which the Com- commerce. The bulk of these complaints involved mission has brought against alleged credit abuses retail sellers of merchandise. Some of the decep- in the area of retail installment sales (15), the tions challenged in these complaints were: (1) the Commission has also prepared a set of compre- execution of retail credit installment contracts in hensive Guides Relating to Retail Credit Transac- blank or the insertion or alteration of terms in tions. These guides are designed to furnish guid- these contracts after their execution; (2) the ance to the business community about practices ---f-ailure-to material-termsof- -the- eon-- which- the Commission-regards-as -actionable- de-- tract, including the fact that the contract might be ceptions in this field. They were first published factored to third parties; and (3) misrepresenta- for public comment in December 1966. The tions respecting the nature of the document being analysis of the comments received from the public signed and the failure to furnish the purchaser with has been completed, and the Commission is now a copy of the contract.(12) in a position either to issue these guides in final One complaint, brought against a retailer and a form or to expand or modify them in the light finance company, charged that the two were of these comments and reissue them in their affiliated and that the finance company was de- revised form for additional comment. ceiving the public in holding itself out as a holder Let us consider briefly the areas covered by in due courseoftheretailer'scommercial these proposed guides in their present form and paper(13).Another complaint issued by the the extent to which they differ from truth-in-lend- Commission at this time was directed against a ing legislation. JONES-57

Guide I.The first of the Commission's pro- and charges which they are offering in connection posed guides deals with the advertising of cash and with the extension of credit on the sale of mer- credit prices for merchandise. The guide prohibits chandise. This guide is limited to- retail install- the advertising simply of a total price and a dollar ment credit transactions which aredefined to installment amount (e.g., $295, or pay $17.88 a exclude charge account transactions, purchases month) where the total installment payments will involving automobiles, andcredittransactions exceed the total price advertised unless the adver- directly involving loan companies. The purpose tiser in addition discloses the higher credit price of these disclosure requirements is to make cer- or the number of installments required. tain that a consumer, at the time of making his Guide I also prohibits the advertising of a price purchase, is fully apprised of what the credit is simply in terms of the amount of the weekly or actually costing him both in absolute terms and in monthly installment required(e.g.,"pay only relation to the cost of similar credit charged by $2.88 weekly") unless in addition the advertiser other retailers or available to him at other lending discloses the total number of payments required or finance institutions. and the total amount for which the purchaser will This is the only one of the Commission's guides be liable. which overlaps in any way the pending truth-in- The purpose of this guide is first to ensure that lending proposals in Congress. Both the Commis- the purchaser is enabled to know the different sion's Guide II and S.5, the truth-in-lending bill costs to him of financing the purchase on credit as enacted by the Senate, require that the follow- or paying for it in cash. Second, and of greater irg items of information be disclosed: (1) the significance to low-income consurners having no cash price of the item; (2) amounts credited as real alternative except to purchase on credit, this down payments and/or trade-ins; (3) the unpaid guide will enable these purchasers to compare both cash balance owed by the purchaser before the the pnrchase price and the credit terms being of- addition of finance and cther charges; (4) other fered by other advertisers or sellers of the same charges, individually itemized, which are to be merchandise. It will also readily enable the pur- paid by the purchaser; (5) total amount for which chaser to spot quickly the unscrupulous merchan- the purchaser will te indebted; (6) number and diser who, through the device of pricing his mer- amount of each installment payment; (7) pur- chandise in terms of an undisclosed number of low chaser's liability in case of default. weekly installment payments, is in fact getting While in the main the information the Com- away with offering a television set for amounts mission requires to be disclosed is largely identical which can and have ranged anywhere from three to that required by the pending legislation, Guide to six times as much as the normal retail price for II differs in one important respect from the legis- comparable merchandise. lation. The Commission's guide does not contain This problem el credit absorption into the re- any requirement with respect to the manner in tail price presents difficulties which may in part which the interest rate charge is to be expressed. also be solved by compellingsa retailer. to disclose The Commission was of the opinion that Cengress_ the total price to be paid by the purchaser for the had far more information and expertise than the merchandise. Moreover, the type of disclosures Commission on this particular question and that required by this Guide I should be of benefit to therefore it shOuld, at this time, omit any refer- those retailers who want to offer credit terms which ence to this factor so as to eliniipate any possible are more favorable than those offered by their conflict later between the Commission's guides competitors but who can in no way counter or and legislationwhich might ultimately be enacted. better an advertised price which is quoted, for example, simply in terms of a low weekly install- Guides III and IV. These guides attempt to ment payment. deal with possible abuses in the practice, on the part of many retailers, of factoring their com- Guide II. The second guide, as presently pro- mercial Opus to loan institutions. The guides posed, deals with the disclosures which should be also attempt to prevent retailers from avoiding made by sellers of merchandise of credit terms liahility for defective merchandise or front taking 58JONES responsibility ff-r other claims relating to delivery contracts in such a way that payment will not be of goods under installment contracts by trans- completed under any one contract ahead of any ferring the debt to a third party. Since frequently other, regardless of the time the merchandise was a refusal to pay under these contracts maybe the purchased. Again, no comparable abuses are cov- only realistic sanctionshort of bringing a law- ered by the pending truth-in-lending proposals suitwhich a defrauded consumer has against now before Congress. an unscrupulous merchant,it is clear that some Thus the Commission's retail credit transaction dfort must be made to prevent the use of this guides are concerned primarily with those abuses practice for that purpose. inadvertising and sales practice involving the Guide III requires that the purchaser be in- extension of credit which fall most heavily on the formed that the retail installment contract may be low-income consumer. With his limited means and transferred to a third party against whom defenses his almost total lack of awareness of the legal to payment of the debt may not beavailable. It intricacies of credit buying, the low-income con- is the premise of this provision that, in view of the sumer is in no position, financial or otherwise, to efforts of many of the more unscrupulous mer- assert and defend his rights even where he is aware chants to pose as friend or counselor to their cus- that he has been the victim of fraud and decep- tomers, a required disclosure of the fact that the tion. The Commission'sguides,particularly debt could be transferred and payment made to Guide I directed to advertising practices, should a total stranger might serve tomake the customer go a long way toward makingthe advertising of more wary of the transactionthan he miglgt other- credit terms more informative, reflecting the avail- wise be. ability of competitive sources either for merchan- Guide IV requires a seller with notice of a claim dise or for credit. under a retail installment contract who desires It should be emphasized, of course, that the to transfer that contract to a third party todis- Commission is excluded from asserting any juris- close the fact of such claim to the transferee. diction over banks; hence its proposed guides are Again, the objective of this guide is to prevent a expressly limited to retail sellers. The practical merchant from deliberately transferring an in- bounds of the Commission's enforcement jurisdic- stallment contract in order to avoid legitimate tion under these guides islimited primarily to claims against payment which a customer may companies operating in the District of Columbia have. and to those few retail establishments operating Here again, the current truth-in-lending pro- in interstate commerce. In many instances, there- posals do not touch this practice, although the fore,these guides willat best functionasa practice is receiving attention in the current pro- standard of credit practices which it is hoped can posed revisions of the Uniform Consumer Credit serve as guides to local enforcementagencies of Code now under discussion by the states. the types of practices which should be proceeded Finally, the Commission's proposed guides con- against eiven appropriate common law or statutory tain several provisions designed to eliminate the authority. abuses- which have-grown upagain primarily-in The Commission's guides do not in. any essen-. sales to low-income consumersof pyramiding tial way duplicate or even constitute a substitute retail installment contracts on top of each other for the provisions of the variOus truth-in-lending and making a default in any payment under one bills which are pending before Congress. These contract t,iporate as a default on all merchandise legislative proposals are much broader in scope covered by all contratts OtitStlinding with that than the Commission's guides in the area of credit retailer(16).Thus the guides seek to prevent disclosure and do not cover other abuses in the retailers from designatinMetpl-MIMise secUring field of retail credit transactions. Even in the area one contract assecnriiy ffit different con#40 eredit disclosures, it is obvious that the truth- they reqqtre a retailer to Rasa titIP tO the mer- in-lending proposals are broadly designed to affect chandise once Toll payment is madegng,01410 tt all persons who are regularly engaged in the busi- all of glese vij probi it rogoets tr.om ness of extending credit, both retailers andlending ritptgligA pyments over the1 d nut4tgiiditig IrtStitttilolls anq hence will have a much wider JONES-59 impact on all consumers who need this informa- REFERENCES tion in order to be as informed as possible in their 1.Economic Report of Ihe President, 1967; Supple- manifold credit transactions. ment to Banking and Monetary Statistics, Section 16, Concnmer Credit Board of Governors, Federal Reserve System 1965-1966 Annual Report of the CEA; Wall Street Journal, July 5, 1967; Washington STUDY OF RETAIL CREDIT PRACTICES Post, May 7, 1967. See generally, Comment, "Con- sumer Frauds," 114; University of Pennsylvania Law The Federal Trade Commission is currently en- Review 395, 41 1, 1966. gaged in one other project in the area of credit 2. Not all companies earn direct profits on their credit transactions. They have discovered that the exten- transactions which we should note briefly. The sion of credit can frequently substantially increase Commission's staff is making an in-depth study of their sales volume and consequent profit earned on these transactions. See generally, Welshans, M. T., the credit and mark-up practices of some 165 re- "Using Credit for Profit Making," Harvard Business taliers and finance companies in the District of Review, Vol. 45, 1967, p. 141. Columbia to ascertain just what proportion of 3. The possession of credit cards as a status symbol, the continual advertising barrage of "buy-now-pay-later" business is done in the District on the basis of inducements, and even the encouragement given to installment sales, the number and value of con- debt obligations by our tax system illustrate the new respectability, legitimacy, and even desirability at- tracts transferred to finance companies, the retail tached by our society today to credit transactions. and wholesale prices of selected items of mer- See generally, Dickinson, W. B., "Personal Debt in a chandise, and the gross margins of these retailers. Consumer Economy," 11 Editorial Research Re- ports, No.10, 1965, p. 821. Such a study should enable the Commission to 4. Morse, R. L. D., Truth in Lending, Council on Con- make important correlations among different types sumer Information, Pamphlet No. 17, 1966, pp. 10- of retailers as to the amount of credit business 11. done, together with their loss ratio and profit 5. For some recent Court decisions involving these debt collection practices, see: Federal Trade Commission margins and other similar information. v. Wm. H. Wise Co., 53 FTC 408, aff'd per curiam, 246 F.2d 702 (D.C. Cir. 1957), cert. den., 355 U.S. 856, 1 957; United States Association of Credit Bu- CONCLUSION reaus, Inc. v. Federal Trade Commission, 299 F.2d 212 (7th Cir. 1962 ); Rushing v. Federal Trade Com- mission, 320 F.2d 280 (5th Cir. 1963); International It is apparent that there are many agencies in A rt Co. v. Federal Trade Commission, 109 F.2d 393 both federal and state governments engaged in (7th Cir.1940).See also, States Credit Control Board, Docket 8661, 1965-1967 CCH Trade Reg. efforts to increase the consumer's access to credit Rep. Transfer Binder 17,789, 1967. sources, to stimulate flow of credit information, 6. Budget Counsellors, inc. Docket C-748, May 27, and to stamp out frauds and deceptions connected 1964. with the sale of merchandise on credit. Because 7. General Motors Corp., 1939, 30 FTC 34, aff'd., 114 of the pervasive nature of credit transactions in F.2d 33 (2nd Cir. 1940); Ford Motor Co., 1939, 30 FTC 49, afi'd., 120 F.2d 175 (4th Cir. 1941). Simul- our economy and the manifold diversity of the taneously, identical complaints were issued against needs of consumers in this aspect of the market- Nash Motors Co., Docket No. 3000, Chrysler Corp., Docket No. 3002, Graham-Paige Motors Corp., place, no one agency or program can be regarded Docket No. 3003, Hudson Motor Car Co., Docket as the ultimate solution. No. 3004, Reo Motor Car Co., Docket No. 3006, and Packard Motor Car Co., Docket No. 3007. All In the final analysis, the ultimate solution to the of these cases terminated in identical consent orders problems of credit availability, the rational use prohibiting the use of the term 6 percent unless it was made clear that it did not refer to, or indicate, of credit, and the elimination of deceptions in a 6 percent (or other amount) per annum simple the marketplace remains essentially in the hands interest on unpaid balances. of business and the consumer. Government's func- 8. RuleRelating to Sale and Financing of Motor tion in this area must be to strengthen the hand Vehicles, 1951. 16 C. F. R. §197.2. of both business and consumers to resolve these 9. Ibid., §§197.3-197.5. problems. 10. "The Consumer in the MarketplaceA Survey of the Law of Informed Buying." Notre Dame Law, Every agency must take whatever steps Vol. 43, 1963, pp. 576-598. available to strengthen the ability of the honest 11. A udiograph Potomac Corp., Docket No. 8401, No- businessman to compete more fairly and to assist vember 27,1961(consent order); Lester Carr, Docket No. 7283, March 26, 1959; Bob Wilson, inc., the consumer to function more effectively in the Docket No. 7913, December 2,1960 (consent m arketpl ace. order ). 60JONES

12. Empeco Corp., Docket No. 8702, 1967, stipuWed hearing examiner's Initial Decision, May 31, 1967, order, pars. 5-11; Allied Enterprizes, Docke: o. now pending on appeal before the Commission. 8722, 1967, default order, pars. 4-5; Custom Sleep 15. Other complaints, not necessarily involving D.C. Shoppes, Ltd., Docket No. 8709, 1967, conwnt order, companies, have been issued recently involving de- pars. 10 and 11; Allswz industries of North Caro- ception in the extension of credit.See: - American lina, Docket No. 8738, 1967, case pending before Foods, Inc., Docket No. C-745, May 13, 1964; hearing examiner, proposed order, par. 14. World Wide Television Corp., Docket No. 8595, 13. Thermochernical Products, inc., Wolmart Discount October 12, 1964, aff'd., 352 F.2d 303 (3rd Cir. Corporation, et al., Docket No. 8725, January 1967, 1965). complaint filed. 16. See, for example, Williams v. Walker Thomas Furni- 14. Consolidated Mortgage Company, Docket No. 8723, ture Co., 350 F.2d 445 (D.C. Cir. 1965). THE SEARCH FOR UNIFORM CREDIT LEGISLATION

CYRIL J. JEDLICKA

Consumer credit has become a major factor in ing this interest in the workings of consumer credit our economy and affects thelives of each one of and installment lending is the practice of certain us. Mass production and mass distributionof our abuses by a small minority of both lenders and products would not be possible without the use of retailers and also by some consumers. There are mass consumer credit. The tremendous growth of always fringe operators who take advantage of credit outstanding from a few billion dollars at the their customers. And it is extremely difficult to end of World W ar II to the present total of over write laws to (:over every contingency. 95 billion dollars shows the dependence of our This situation of abusive practices is further economy on this consumer financing.Budgeting complicated by the fact that each of the 50 states through installment buying has become a way of has legislation to control consumer credit to some life for millions of our citizens. Former luxuries degree, thereby creating a confusion of laws. Some are now commonplace purchases forthe average states have very lax and inadequate laws on this man through the convenience ofinstallment subject which lead to ways of evasion. As condi- buying. tions have changed over the years, many of these Installment buying, if properly used, is really an laws have been amended piecemeal, making them enforced savings plan with the consumer using the difficult to understand. It is generally agreed, and article purchased while he is still paying for it. studies show, that some revisions are needed. In most cases, the usable life of the article extends Uniformity in the laws of the various states would much longer than the payment plan. As an ex- be most desirable. The consumer credit industry ample, a new car purchased on a three-year term would welcome means to curtail the operations of usually has a value of approximately 40 percent credit grantors who take advantage of customers. of the original cost at the end of three years and a But drastic laws are not the entire answer to this usable life of three to five years longer. Without problem. There is a point at which laws may be- installment buying few of our families would be come so strict that they make lendingunprofitable able to own homes, fumittire, and appliances, or and ultimately dry up the sources of credit. We the many other necessities and conveniences they must not unduly penalize the masses in an effort now enjoy. to correct abuses practiced by a few. Much of If this overall picture is so favorable, why has the publicity would lead us to believe that abuses the credit industry in the last few years received are the general practice rather thanthe occasional such sharp criticism from the press and feature exception. The millions of people who have used writers? What prompted the directives from the consumer credit to better theireconomic condi- Federal Trade Commission and the Department tions are forgotten. Forgotten also are the 99 of Defense? Why the interest of the federal gov- percent of the users who pay over $4 billion ernment as evidenced by the newly appointed monthly on their consumer installment obligations Consumer Advisory Council? Why in the "in- as agreed and continue to enjoy thebenefits of depth" study by the National Conference of Com- this privilege of installment buying. These benefits missioners on Uniform State Laws on possible are taken for granted and notpublicized. uniform credit legislation? Why the rash of new Consumer credit, like any other good thing, consumer laws at the state level and thedrive for can be abused. The user mustbe educated in the uniform disclosure by Congress? proper use of consumer credit.He must be There is no doubt that one of the factors creat- taught that too much consumer credit at one time

61 62-JEDLICKA will lead to financial problems. Secondary schools APPRAISAL OF STATE CREDIT LAWS and colleges should offer courses in the variotis skills needed by a consumer, but it is unfortunate Against such a background the National Con- that the lending industry and other, businesses have ference of Commissioners on Uniform State Laws not taken the lead to implement sucheducation initiated a study over three years ago by setting for their customers. Considerable interest is now up a Committee on Retail Installment Sales, Consumer Credit, Small Loans and Usury. The being shown in consumer education by various project is as broad as the title of the Committee agencies of our national government. This is not indicates. This special Committee is headed by only desirable but also essential in the years ahead Alfred A. Buerger, a Buffalo attorney, and con- regardless of the trends of legislation. sists of a committee of commissioners assisted by The overloading of obligations is one of the a paid staff of legal, economic, and social experts. more common abuses ofinstallment and consumer A credit industry advisory committee has been lending. It is one that is not easily rectified by set up to assist the Committee in its study, and legislation. Lenders and ketailers are commonly other advisers represent public interests and state accused of being responsible for overloading the supervisory officials. consumer. In a few cases this is nodoubt true, The purpose of this study is to re-examine and but in the majority, of transactions this does not reappraise state consumer credit laws and to pro- apply. Competition, long terms, inadequate credit pose a Uniform Consumer Credit Code .that reporting, overselling, and enticing advertising are might be enacted by state legislatures.Such a all factors in these credit decisions. ,However, very code would replace all existing state laws that few lenders or retailers are knowingly going to regulate consumer credit. overload the consumer to the point where he can- Because the membership of the special Com- not pay and thus become a loss account. mittee, itsstaff, and advisers combines a wide In my. experience and opinion, responsibility for range of interest and many different points ofview, the overloading in a majority of cases must fall every effort has been made in the hearingsand primarily on the consumer. 'Inadequate credit in- studies to enable each to express his views and' formation is the rule rather than the exception, for opinions. In addition, a sincere effort has been instead of supplying a full list of obligations owed, made to learn and understand the operating prob- credit applicants offer only a few, and usually they lems of all the industry members, loan companies, are the most satisfactory ones. A trueevaluation banks, judges, attorneys, etc., as well as to listen of the total debt load is hard to obtain with some to all possible complaints and possible unfair obligations missing. In installment sales some of practices. this may properly be blamed on the dealer or his While this has taken a tremendous amount of salesmen, but the same situation exists in the time, it was deemed essential that all understand direct loan field.. Too many debtors treat credit as the problems before attempting to write the code. a game of wits and deliberately withhold informa- After two years of sessions, the drafters wrote the tion in applying for credit. first draft, of a proposed law which was reviewed Unfortunately,die 'credit-reportingservices, and then rewritten several times to incorporate while doing a good overall job, are not equipped to the changes and necessary corrections.Great learn of every credit source. If a debtor Owes loan progress has been made, and the last revision, companies, retailers, or others and does not list known as NCCUSL Second Tentative Draft these obligations, our present reporting systems Working Draft No. 4, is approaching final form may not uncover them in a credit check. If these although much work remains to be done before items were disclosed, many troublesome credit completion. advances would not be made. Possibly through As presently written, this Code provides that all education consumers will learn their practical debt consumer credit legislation shall becombined into limits and not overextend themselves. Credit-re- one overall consumer credit code.The Code porting agencies; in turn, are constantly striving to makes two major classifications based on loan increase their coverage toward a 100 percent goal. credit and sale credit: (1) consumer installment JEDLICKA-63 loans, which would also include revolving loans closure of interest and other costs of consumer and check credit, and second mortgages on homes; loans and consumer purchases on some uniform and (2) consumer installment sales, which would basis so as to enable the consumer to compare include credit sales of. automobiles, other goods costs before entering into a contract. This objec- and services, and revolving sale credit. tive is most desirable, and both business and bank- Installment financing under credit cards, home ing endorse the principle of full disclosure without repair financing, and insurance premium financ- reservation. Many believe, however, that this is ing would be covered in one or both of the two a matter for state rather than federal legislation. major categories of loans and credit sales.All Most states already have some credit disclosure forms of. consumer credit are to be regulated as laws on their books, but the real problem in this nearly alike as possible. The Code is designed issue is the Method of disclosure. to coveralltransactions with individuals for Testimony by bankers and many other knowl- "personal family or household purposes" and for edgeable witnesses points out 4hat disclosure in "farm purposes." terms of simple annual interest is unworkable in a The maximum rate for installment sales now substantial number of consumer credit transac- under consideration is an add-on rate of $18 per tions. Even with rate charts this will prove burden- $100 per year for the first $300 of the unpaid some and costly to lenders and retailers alike. balance of the sale; $12 per $100 per year from From my own personal experience I am convinced $300 to $1,000; and $8 per $100 per year that the consumer wants to know what the cost for the remainder. These rates would be com- will be in dollars. He knows and can decide how puted on the original principal balance for the many dollars the merchandise or money is worth full term of the contract without regard to install- to him.The consumer buys more and more ment payments. This schedule of rates is actually processed and packaged food from the super- a ceiling on possible charges above which the rate market. He knows this costs him more than bulk cannot go.Competition would be allowed to food, but it is worth the additional cost to him. A operate to produce an effective rate below the hypothetical percentage rate is not helpfulrather ceiling. it is confusing to the average consumer. Why There would also be default and deferment burden business with additional costs to give the charges provided, and rebates for prepayments in consumer something he does not understand or full when charges have been made on an add-on does not want? In turn, the additional cost is basis.Such rebates would be computed on the passed along to the consumer. Rule of 78, which is presently used by most After considerable study, the National Con- financial institutions. ference of Commissioners decided (tentatively) to Loan finance charges for consumer loans other providc. in their Code for disclosure in terms of than regulated loans and revolving loan credit dollars per year per hundred. The majority will provide a maximum permissible charge, how- opinion of this group believed this to be more ever calculated, not in excess of 18 percent per informati-1 and understandable.Pressures for year calculated on the unpaid balances of the disclosure on the simple annual rate - continue, principal according to the United States rule. however, and I am informed that at the annual Maximum permissible charges on regulated loans meeting of the Commissioners in August 1967, a are the same as charges permitted on installment tentative decision was reached to revise the Code sales. Maximum charges on revolving loans and to require annual percentage disclosure to con- revolving credit sales and credit cards are 2 percent form to perding federal legislation. This is some- monthly on thefirst$500 and11/2percent what surprising and disheartening.- monthly on over that amount. Representative Leona K. Sullivan, Chairman of the House Subcommittee on Consumer Affairs, DISCLOSURE OF COSTS has introduced a disclosure bill in the House. Mrs. Sullivan says about S.5, Senator William Prox- For several years, the Senate of the United mire's Truth-in-Lending bill, "It does have some States has endeavored to pass a bill requiring dis- good things in it, but it is not as strong as we 64-JEDLICKA

would like to see it.Our bill will not be that ments for installment sales when the unpaid bal- simple. We plan to have more things in it." Some ance does not exceed $500 and limits the right of of the provisions of her proposed bill areso strong sales finance companies and banks to takean in- as to be considered "punitive toward the industry." stallment buyer's contract free of the buyer's de- , The consumer loan and time sales industry is be- fenses against the seller. ginning to wonder what will remain in the law (s) All of these changes will present problems to i. to protect the creditor. creditors, many of whom believe weare going too It has been said that our present consumer laws far in making such changes.Certain types of are slanted in favor of the creditor. Based on sug- credit will be affected and will be less available gestions such as those mentioned above andsug- than previously. Only time will tell the merit of gestions made to the NCCUSL,some of which are the changes. incorporated in the latest draft of the Code,many The tentative draft of " -:',CUSL provides for proposed laws are slanted heavily in favor of the a, Consumer Credit M ..strator to enforce the delinquent consumer. Would nota middle ground Code. This may be a Iiewly created state office be more effective? or an existing state office, such as a Banking De- Inadequate protection for the creditor willre- partment. In some states, possibly more than one sult in one of two choices. Because of the in- office would be concerned in this enforcement. The creased hazards, thereby increasing credit losses, Code gives wide authority to examine books and either credit will be less available to largeseg- records when violations are suspected, to issue ments of our population or it will cost more if cease and desist orders against violators, and to available. Such results certainly would not be obtain injunctions if necessary. The Administra- "helping the consumer." It is hoped that changes tors may make rules and regulations, bring law- made in present legislation will be considered in suits on behalf of debtors to enforce their legal the light of long-range benefit to theconsumer and rights and bring lawsuits to enjoin fraudor un- ta our economy. conscionable conduct which relates to the granting of credit or the collection of delinquent debts. OTHER PROVISIONS OF THE CODE Of course, many problems are inherent in these various changes. One would be the question of the Let us consider some other aspects of the study jurisdiction of a state officer to enforce the Code of the National Conference of Commissionerson where national banks and other federally incor- Uniform State Laws. Provisions in the proposed porated lenders are involved.Such a question Code provide restrictions on advertising. Ifa rate might require resolution by federal legislation, or is mentioned in an advertisement, the dollar federal officials to enforce the Code when federal amount of the charge, the term, and the amount institutions are concerned. of the payment must als be included. Limita- The present draft prohibits unconscionable and tions are also placed on insurance sold inconnec- fraudulent conduct. The Administrator may bring tion with loans and sales. Many of these parts of a civil action to restrain a creditor from following the Code are still being rewritten. a course of unconscionable conduct in making or Considerable attention is being paid to creditors' collecting loans or sales. This may be done only collection remedies, as it is felt that many abuses after the creditor has failed to give assurance after arise from the present laws on these subjects. The written notice of the charges made. present version prohibits wage assignments for Certain dollar amounts in this proposed Code installment sales, limits wage assignments for loans are subject to escalation, and at stated periods the to wages exceeding $100 per week, and exempts Administrator is charged with responsibility for wages from garnishment up to $100 a week.It raising these figures in accordance with a schedule also prohibits attorney fees unless paid toan out- based on the U.S. Bureau of Labor Statistics Price side attorney not employed by the same firm and Index for Urban Wage Earners and Clerical limits the amount to 10 percent of the unpaid Workers. If the Index rises, the figures in the balance at time of default. Code designated for escalation will be raised 10 Other major changes prohibit deficiency judg- percent for each 10 percent rise in the Index. JEDLICKA-65

MEETING FAMILY NEEDS industry, as presently run and operated, useful and beneficial to them. . In addition to the other provisions, the proposed Too many of the leaders in reform groups are Code provides for supervision of ,non-profit con- not well versed in the actual workings of the sumer credit counseling agencies. There are many credit industry.They have never had an ac- such agencies now operating in various urban quaintance with the man on the strcet and do not centers and all seem to be doing an outstanding know his day-to-day aspirations and troubles. Too job in counseling families and individuals in their often action is taken without a complete study financial affairs. In Most distress cases, a budget and knowledge of all the facts and ramifications. is worked out, and, through the cooperation of Recently the President annoUnced the appoint- the individual and his creditors, the-debts are paid ment of his new Consumer Advisory Council. The off over a period of time. The cost of such services 12 members of the Council are all outstandidg men is small and in many cases free. and women and extremely capable in their respec- However, one of the most frustrating problems tive fields. But I would have much more con- isthat concerning the needs of low-income fidence in this Council if it included in its mem- families.These familia8 face a choice of either bership one or two members from the banking and doing without the kinds of purchases that others loan fields in order to utilize the know-how of enjoy, or being exploited by low-quality merchan- someone in the industry under study. disers who specialize in financing high-risk cus- All of us, I am sure, are impressed with the tomers. Disclosure of the terms of credit will not background and integrity of the National Con- suffice for this group and legislation is of doubtful ference of Commissioners on Uniform State Laws: value. If their small credit is dried up they must The many uniform laws they have sponsored is turn to other sources, such as peddlers or loan proof of their ability and farsightedness. They sharks. are currently making .an in-depth study of the The installment loan business is one involving whole industry and have utilized the best thinking many details in making and servicing the transac- and knowledge of leaders in every phase of the tion. As a result, costs are relatively high. A small industry. They are carrently writing a law to loan costs as much as a large one (interest for use cover the whole industry, and they aremaking of funds excluded). Small loans with their higher every effort to solve the Oroblems and prevent all risks are not attractive to lenders. Who will take possible abuses. The NCCUSL should have a care of this class of borrower? Until the causes chance to complete its job before other laws are of poverty are removed, the problems still remain. passed. As I have mentioned previously, many groups There are many points about the Uniform are working to solve the problems of the consumer. Code that are impossible to take up herepoints Financing is only one phase of the problem. Gov- involving hundreds of compromises by all con- ernment on every level is working to protect the cerned.I feel privileged to have been able to consumer, sometimes known by the name "voter." represent a small part of the consumer and bank- This current trend of "protecting the consumer" ing industry in the long study. A great deal of in my opinion is being overdone. The great ma- work remains to be done, and even after comple- jority of our people do not need protection in tion, it will take years for a majority of the states the area of consumer financing, and they find this to enact the Code into law.

; WHAT IS BEYOND TRUTH-IN-LENDING AND OTHER CREDIT ISSUES

LESLIE V. DIX

The purpose of my discussion is tourge a point stead of consumerism goingaway, "...it will gain of view which maintains that because of the sheer momentum...7 and that "an affluent society of size of the consumer debt and its rapidrate of sophisticated consumersand this is thefunda- growth, an overhaul inour credit laws and regu- mental characteristic of tomorrow'smarketsis latory machinery is indicated. The present stat- just beginning to demandnew standards....The utory base can neither support suchan important mounting dialogue concerns thosegrey areas be- task nor provide theconsumer the necessary safe- tween fraud and the golden rulebetween what is guards to insure the wise and equitableuse of legallypermissible and what ismorally and credit in these latter years of the 20th century. ethically wrong...." Changesinconsumer legislation,including Obviously, consumer credit, inextricablywoven credit, are being sought byan increasingly in- into the fabric of the marketplace,is very much formed public that demands improvement in the a part of what Mr. Weiss is portraying. Having marketplace, improvement in the quality of the made this case suggestinga nearing emergency, goods and services available to theconsumer. I trust the remarks that followwarrant your Some elements in our societyare still resisting thoughtful consideration. these drives for reform and attempt to labelargu- ment for credit regulation as mere "consumerism" CREDIT REGULATIONS NOT UNIFORM sponsored by those persons of the "bleeding heart" variety. Today's credit is regulated bya fragmented I do not agree with this and would callto your statutory hodgepodge which revealsno particu- attention the February 1967 issue of Fortune lar uniformity among the several states. Because which features an articleon the history of the credit laws have been developedon an ad hoc truth-in-packaging law entitled "Industty Still basis, designed to take care of problemsas they Has Something to Learn about Congress."It is relate to the lender of money and the borrower in a case study in how not to deal with consumers. straitened circumstances, the legal underpinning The author states that "Industry's strategic mistake for our burgeoning economic activity hasnot kept in battling truth in packagingwas to adopt an pace with the phenomenal growth witnessed in attitude of intransigent opposition." Need forsuch consumer credit in the last half century or less. a law was denied, the right of the government to We are all familiar with the benefits of the interfere was challenged, andevery attempt was federal truth-in-lending bill.Similar legislation made to kill the bill. is being introduced in legislaturesacross the Mr. E. B. Weiss, vice-president of the adver- country. The success now being experienced in tising firm of Doyle Dane Bernbach Inc., inhis Massachusetts under its truth-in-lending law and pamphlet A Critique of Consumerismstates per- the monumental legislative project underway in tinently, "The current consumerism furormust not the National Conference of Commissionerson be viewed as simply an irritantand especiallynot Uniform State Laws in drafting the Uniform Con- as a temporary irritant. To the contrary, it must sumer Credit Code dramatize the changes coming be recognized as the first stirrings ofa long-term with respect to consumer law, regulation, and social revolution that will profoundly changemar- administration. keting in all its aspects..." (The emphases be- However, the "cashless society" that many of long to Mr. Weiss.) He also maintains that inour economists forecast now appears to be tech-

66 nically feasible through universal credit cards and tor-debtor interests and eliminate many of the computerized debt record-keeping, so the needs for bases for injustices anciently devised as protection a uniform consumer creditlegal and regulatory for the creditor in common law when credit was structure should be considered. uncommonly granted. The present draft falls short One other prefatory comment is in order: Ac- of this goal. cording to the Bureau of the Census, about 20 percent of our citizens (one in five) have moved SOUND ADMINISTRATION IMPORTANT every year for the past 10 years. Inthat 10-year period, some 6.3 million moved intrastate, 2 mil- In addition to full disclosure, or truth-in-lend- lion moved to contiguous states, and some 4.3 ing as it has come to be called, consumer credit million moved to non-contiguous states. With the legislation, federal or state, shouid provide for present lack of uniformity in ourcredit laws sound administration on a par with administration among states, the differences in rates,lending of monetary activities of the country. This state- practices, and creditors' remedies must be very ment is made in anticipation of an almoSt cashless confusing to the consumer. Moreover, the inter- society in which it will become as important to state creditor must find it expensive to copewith regulate and monitor the credit industry as it is such a varied scene. the monetary. The point of all this is that without a uniform A consumer credit commission formed to ad- law for states, a strong case can be made for minister the nation's consumer credit should have consumer credit regulation at thefederal level the authority, among other things, to (1) issue because of the strong interstate commerce features procedures and rules of practice to govern adjudi- characterizing most businesses.If one were to cative proceedings for the commission and such define consumer credit in interstate commerce as hearing examiners as it may appoint; (2) initiate including (1) credit financed in whole or in part and conduct investigative proceedings to determine by funds that pass in commerce from commercial the existence of unlawful credit practices; (3) sources to the creditor: (2)credit granted to a issue stipulations to cease and desist; and (4) have debtor domiciled in a state different from the a consent order procedure andother powers and creditor; (3) credit granted by those maintaining features characteristic of regulatory commissions. places of business in more than one state; (4) In looking at the problem of attempting to credit granted by creditors that finance goods or balance the creditor-debtor remedies, the holder- services which are in interstate commerce; or (5) in-due-course doctrine, with respect to consumer creditors that offer credit by advertisements ap- financing, should be changed to prohibit the seller pearing in interstate commerce; such definition from accepting a negotiable instrument as evi- wouid embrace most of the consumer creditin- dence of the obligation of the debtor. In other dustry. words, a transferee of the seller's rights should be But there has been progress of a kind at the subject to all claims and defenses of the debtor state level: the National Conferenceof Commis- against the seller arising out of.the sale, notwith- sioners of Uniform State Laws has been drafting standing an agreement to the contrary. a Uniform ConsumerCredit Code (a project in The holder-in-due-course principle comes from which I have participated). The code is designed the law merchant and is most appropriate for to govern consumer credit transactionsin those transactions between businessmen. However, this states that will ultimately adopt the Codeif it is should no longer apply to consumer transactions. finally certified through the legislatures for action. The sales finance company that routinely accepts Because the evidence reviewed to date suggests a paper from a sellershould stand in the shoes of that consumer credit laws have been weighted in the seller when it comes to the consumer's com- favor of the creditor and drawn for the most part plaint and accept this responsibility as a cost of to still allow sharp practice againstthe debtor by doing business. the unscrupulous, the promise of any remedial The previously mentioned Uniform Consumer action is most encouraging. The hope, of course, Credit Code draft does water down the holder-in- is for a uniform law which will balance the credi- due-course doctrine as it is used against consum- 68-DIX

ers. But it fails in that the holder in due course cern. The small loan lender has been subjected to escapes any penalties for collecting illegally high licensing and strict regulation for manyyears. interest. Moreover, the draft fails to recognize the He is now a ielatively small part of the totalcon- often close relationship, sometimes amounting to sumer credit business in the country. Since retail a partnership, de facto or otherwise, between the credit financing has become the larger, from the seller and the holder. Although defenses against standpoint of dollar volume, why should not the the seller could now be used against the holder, retailer be licensed to sell on credit -and toearn the holder in due course is told he can execute an the income that 18 percent per annum, and higher, illegal promissory note. brings him? Why should not the sharp operator What is wrong here is that the consumer must who sells merchandise on credit be kept out of the generally initiate the action against the seller or the credit business for repeated infractions of the holder. It should be the other way around. Let law? It seems that it should be possible for the the creditor and his sales finance company prove regulatory authorities to say, after due process they have a legitimate claim against the buyer. has been observed, "of course you may continue He should have his day in court, or before a hear- in the cash business if you wish, butyour license ing examiner, and an officer of the government to sell on credit is revoked for cause." In addition, should be there to protect his rights. the licensing feature would provide asource of revenue to bear the cost of regulating the credit UNIFORM CODE PROPOSES industry. RESTRICTIONS Consideration should be given to granting the consumer credit administrator or commission, The Uniform Consumer Credit Code draft pro- whatever form the regulatory authority might take, poses some restrictions on deficiency judgments the power to bring an action against the creditor and prohibits garnishment before judgment. Great- in(1) enforcing consumer creditsales, con- er restrictions are needed on the use of the de- sumer leases, or consumer loans, the terms of ficiencT judgment, the abolition of the garnish- which are unconscionable; (2) for engaging in ment as a means of collectiOn, and the prohibition fraudulent conduct in inducing debtors to enter of confessions of judgment. into consumer credit sales; or (3) for engaging ina In states where these practices have been out- course of an unconscionable or fraudulent con- lawed or severely restricted, there has been no duct in the collection of debt. comparable restriction in consumer credit. To the There is much to be done in the whole area of contrary, the extension of consumer credit is consumer credit regulation; but in addition to growing everywhere.Abolition ofthesean- urging the need for uniform legislation, be it fed- cient crutches for collection will make creditors eral or state, I would ,also suggest that any study more selective in the granting -of credit or in ob- project include the following: (1) examination of taining adequate down payment or security for the the varied relations between creditor and debtor credit granted. Where the practice of confession prior to execution of debt contract; (2) proposals of judgment is still allowed, it is subject to abuses, for improving the tone and appeal of inducements particularly against the ignorant and the poor. to borrow; and (3) development of a model credit On the debtor's side equity demands the allow- contract to be used throughout the country, and ance to recover excess charges made against him; including the terms of disclosure, the debtor'sas and if it is found that the debtor has paid, or well as the creditor's remedies, and the composi- agreed to pay, an excess charge, knowingly or tion of language governing the use of the contract, unknowingly, the respondent should be ordered including its recordation. to restore the excess charge to the debtor and pay a civil penalty. This punitive feature could also DEPARTMENT OF DEFENSE DIRECTIVE include, in addition to maximum civil penalties, the revocation of the license to engage in consumer A few words about the Department of Defense credit. Directive on truth in lending or personal com- The last statement suggests another area of con- mercial affairs seem appropriate. DIX-69

When I served as Director for Civil Affairs in in full disclosures by lenders and sellers dealing the U.S. Department of Defense, I had a part with members of the Armed Forces. Thus, those in developing the directive now in force. TheDe- who sell or loan to military personnel are "ex- partment recognized the necessity for thosewho pected to subscribe to the standards of fairness and sell or lend to the military to make full disclosure to make full disclosure before the loan or credit before the loan, credit agreement, or contract was agreement or contract is executed." An annex to made. Although a majority of those business firms thi6 portion of the directiv, lists 10 standards of and individuals dealing with military personnel fairness involved in fair and just dealings with have traditionally displayed a sense of fairness and servicemen. The requirements for stating the costs integrity, those merchants not honoring a high of credit in terms of an annual percentage rate standard of ethics, especially in the moneylending are generally those put before theCongress in the or automobile financingbusinesses, caused the form of truth-in-lending legislation. The program Dvartment suious concern regardingitsre- has proved successful and has be a urged for ex- sponsibility toward the protection of the welfare tension beyond military personnel to include all of the men in service. federal employees. In facing this problem, it was also paramount I hope these remarks have pointed some ways that a uniform approach assuring equal applica- toward improving the quality of the marketplace tion by all services be developed. Consequently, in order that free enterprise can flourish under the Department published a directive which pre- rules that are uniform and fair to the consumer scribes, among other things, standards of fairness as well as the creditor. REVOLVING CREDIT PLANS AND THE LAW

BRONSON C. LA FOLLETTE

The American family today with its material consumer debt stood at $86 billion, one-third the standard of living is in an enviable position in size of the federal debt. As a share of disposable contrast to the families of any other country or income, consumer credit rose from 10 percent in in comparison to its own situation in the past. 1950 to 19 percent in 1966. This is true not only with regard to what is While many families use credit wisely, toomany technically termed a family's "standard of living," must wage a continuous uphill battle to keep ahead a phrase which many social scientists use to mean of their debts. Although most of them do not go tht, Ananner of living that is earnestly desired and bankrupt, last year 9 out of 10 bankruptcies- worked for, whether realized or not; it is also 170,000were incurred by families and indi- true with respect to the "level of living" and "level viduals. The number of persons whoare over- of consumption," concepts used in scientific termi- extended cannot be accurately measured, but the nology to mean the plane of living actually bankruptcy statistics suggest a growing problem realized and the plane of living actually achieved. that cannot be ignored. During the first half of the present century, Americans more than doubled their scale of living INTELLIGENT DECISIONS NECESSARY in real terms. The great rise in the level of consumption of the American family from 1900 to For wary or affluent consumers, as wellas the 1950 resulted from a fivefold increase in the real unsophisticatedrndeconomicallydespairing, national product of the United States. Since popu- present-day practices make it almost impossible to lation only doubled in this period, the quantity of make intelligent decisions about credit. Various commodities available per person in this country methods of stating consumer credit costs confuse, increased by two and one-half times. confound, and often mask the true financing cost. Since this great gain in material welfare was In an ideal credit transaction, the debtor is told achieved with an increase of only 80 percent in the accUrate cost of credit, and the chargesare total man-hours of labor input, as compared with stated as an annual rate. More frequently, how- the 100 percent growth in population, there re- ever, instead of this ideal situation, the following sulted a saving of effort, a lightening of toil, and practices are employed: (1) the price of credit is an increase in leisure, an important component of given as a simple monthly rate thaton a true our higher level of living. annual basis amounts to 12 times the monthly Along with a higher level of living, a greater rate; (2) the borrower is quoted an add-on figure dependency on consumer credit has emerged. The or discount percentage rate (that is, he is quoted seemingly rosy picture of today's family is colored a rate on the original amount of credit rather than by the availability of consumer credit in today's on the periodic declining balance; the true in- market, credit advertised by such slogans as "buy terest rate is approximately twice the rate that now, pay later," "no money down," "consolidate is quoted or discount rate); (3) the consumer is your bills," or "instant credit." quoted an add-on or discount rate plus numerous In 1945 consumer debt was less than $6 billion, extra fees, such as insurance (in this case, the one-fortieth the size of the federal debt. High true annual rate is considerably more than twice incomes during the war years, combined with the quoted rate); or (4) no rate is quotedthe shortages of consumer goods, had led consumers borrower is only told the amount down and the to reduce their debt to a very low level. In 1966, amount due each month.

70 LA FOLLETTE-71

Today, buy-now-pay-later is the most accepted less of the amount he owes at any time, or a per- way to travel, dine, andshop. People fail to un- centage of the actual balance outstanding on his derstand that consumer credit is promoted heavily bill at the end of each month. New purchases through advertising, not as a way of selling more 'nay be made at any time solong as 'the total goods and services but as a commodity in itself. obligation remains within the limit. Debt is promoted skillfully and sold with no more Another payment plan often seen is the brack- ethical restraints than those that apply to cold eted form. Each month a credit service charge is cures, weight reducers, andcigarettes. added, for instance one percent or one and one- Today, retailers have found it necessary to offer half percent of the amount carried over unpaid some type of easycredit plan in order to help from the total billed last month. No charge is pay for theirproduct. One of these plans is the made on the new entries for purchase since the revolving charge account. The rapidly spreading last billing. "revolving" and "optional revolving" accounts in- The optional account is even more simple. It troduce the two-or-more-payment principle ofthe actually is a regular open or 30-day charge ac- installment account and also retain important count to which the customer has requested to have features of the 30-day charge accounts. They pick the option added. That is, he may pay the whole up the service charge,traditionally a part of in- balance within 15 or 20 days of receipt of his bill stallment buying or borrowing, but usually apply (when there will be no credit service charge), or it differently. he may pay any portion of it that is convenient. Revolving credit is one kind of consumer credit Then on any amount not paid by the time the next that most people are familiar with, whether or not bill is made out (which would be after the 15-to- they make a practice of buying on time. People 20-day period following the first bill) a charge of who buy at all regularly in most department stores one percent or one and one-half percentis added. or from, big mail orderhouses usually open charge As in other revolving credit, this charge would not accounts. It's convenient to pay thebill once a be applied to purchases or additions in the then month and there is usually no credit charge if the current month; rather, it would be applied to the billis paid within 30 days.Every customer, sum left unpaid from the lastbilling. Obviously, whether he pays cash over the counter or uses a the faster the revolving and optional accounts are charge account foots the cost of 30-day credit as paid out, the smaller the credit service charge part of the overhead built intothe price of the will be. goods. With revolving charge accounts, the customer BUYER USUALLY HOLDS TITLE signs an agreement at the beginning, which becomes the continuing basic contractunderlying al Unless otherwise stated, legal title to commodi- use made of the account.He is assigned a top ties purchased on revolving plans passes to the dollar limit and usually agrees to pay within30 buyer at the time of purchase. Where specifi- days any amount that he might charge overthis cally provided, perhaps when the item is furniture, agreed-upon limit, for there may be times when a an electrical appliance, or someother costly prod- purchase runs the ac. aunt slightly above the maxi-' uct, title may remain with the store until the item mum as set by the parties.To avoid intentional is paid for in full.However, there are many misuse, the original agreement often willprovide different sets of rules for juggling revolving credit. that if such coverage is not paid in the30-day Different stores use different rules. A revolving period, the whole balance on the accountbecomes charge account can cost considerably more at one due immediately and the usual monthly payment store than another, though both seem tobe charg- privilege ends. ing 18 percent annual interest. There is a wide variety of revolving charge ac- Unfortunately, credit devices often exist which counts, and the customer's creditlimit may be encourage default and givecreditors rights to $60, $100, $300, or even $5,000, in somein- repossess. These may be written intosales con- stances. He may even agree to repaymonthly tracts in an obscure form calculated to confuse. either a fixed fraction of this total "limit,"regard- "Balloon payment" provisions set low initial pay- 72LA FOLLETTE ments and large final payments. As the final pay- vidual consumers do have an existing legal remedy ment approaches, default is likely. The creditor in Wisconsin, but the time, effort, and legal cost repossesses the item, keeps the payments, and involved is usually much greater than their actual may even get a deficiency judgment for the unpaid loss. contract price. A consumer's lack of economic sophistication Another confusing device is to let the buyer and knowledge of legal rights can lead to his being purchase a series of items on credit as long as taken advantage of with outrageous credit charges. the total debt does not exceed a certain limit. Courts of equity should seek to protect the rights Some contracts are written so that as long as any involved. Until recently, most courts have been portion of the total debt remains unpaid, the reluctant to interfere with deficiency judgments; creditor may repossess all items purchased under they have upheld repossession and attachment the contract. Thus, a debtor may have purchased rights on contracts which might well have been a $100 television set, a $150 sofa, and a $20 found unenforceable because of insufficient legal toaster, and over a period of months have paid resources to contest them. But now courts tend to $255. But if he defaults before completing his find such contracts unenforceable.This is es- toaster payments, the seller has the right to re- pecially important since such a determination by possess all three items. the courts represents the only contact the mban poor have with courts of civil law. The courts, NO EFFECTIVE LEGISLATION therefore, can be viewed as institutions of redress, rather than of oppression. The problem that exists with revolving charge Although the courts can help the consumer in accounts, as well as other means of obtaining some Ways, there is still a dire need to fully in- credit, is that they are often complicated and not form the consumer concerning various facets of understandable to the ordinary layman. Lack of revolving charge accounts. The consumer should expertise on the part of the person who buys on be told that revolving accounts, offered at the credit gives the unscrupulous businessman a pow- prevailing rate of one and one-half percent a erful advantage. A specific problem with revolv- month, actually come to 18 percent a year. With ing charge accounts is that they have escaped any this knowledge, the buyer might prefer to borrow effective legislation. money elsewhere at a lower rate of interest to pay On the federal level, the Senate truth-in-lend- off his account. Unless the billing system is un- ing bill fails to provide any remedy to protect derstood thoroughly, charge accounts cannot be shoppers who use revolving charge accounts and used economically. But the essential facts are not bank credit cards. Under the bill, revolving credit always obtained today. as applied to most department store accounts and As Chairman of the President's Consumer Ad- most of the new revolving bank credit cards would visory Council, I plan to fully assess the con- continue to be labeled, as it usually is now, with sumer's position in this segment of the market- a deceptively low monthly percentage figure. place. Every concernedspecialist,including In Wisconsin there is considerable uncertainty members of the American Home Economics As- as to whether Wisconsin's usury laws apply to sociation, should do his share to insure that con- service charges of retail merchants. The question sumer credit adequately serves the needs of sound can be finally resolved only by the courts. Indi- family financial management. PROFILE OF THE PROBLEM USER OF CREDIT-THE BANKRUPT

SUZANNE MATSEN

You have probably heard the saying "Money required forms are Petition; Statement of Affairs, isn't everything, but it's way ahead of whatever a true statement of residence,employment, etc.; is in second place." I don't think anyone believes and Schedule of Assets and Liabilities, a listing of in that saying more than the bankrupt. all possessions and debts. Bankruptcy is a social as well as financial ail- These three forms are filed with the Clerk of a ment. We have heard a lotabout the business United States District Court for a fee of $50. The community losing hard-earned money because of Court, which I will refer to as Bankruptcy .Court, bankruptcy.What we haven't heard so much declares the petitioner bankrupt, and notifies each about is the bankrupt himself. The bankrupt of his listed creditors of this fact. Each creditor individual or family also lose a lot of money; and, is asked to file a claim for the amount owed him, perhaps more important, they loseself-respect and is informed of the hearing at which he may and dignity.Is there a more glaring admission of question the bankrupt. family financial failure than bankruptcy? Six months are allowed for claims to be sub- Bankruptcy dates back to Biblical times; for mitted to the Court. If a claim is not submitted, instance, Deuteronomy 15 refers to thegranting the creditor may not receive any money from of a release from debt itself. The wordbank- assets which the petitioner might have available ruptcy originated centuries ago inItaly, where for distribution. bankers conducted business from benchesin the The Referee in Bankruptcy presides at the hear- Italian exchange. Wnen one of the bankers would ing which is held in a regular courtroom within become insolvent, his bench was brokenand he 30 days of filing. The Referee questions the peti- was called banco rotto or"broken bench." These tioner thout his financial situation and creditors words evolved into the English "bankrupt."(l) who are present inay ask pertinent questions. The subject of this discussion is non-business At the end of the hearing, which usually lasts bankruptcy, sometimes referred to as consumer 10 to 15 minutes, the Referee appoints a trustee or personal bankruptcy.Non-business bankruptcy to handle disbursement of any assets .such as in- is the discharge of an individual'sdebts through come tax refunds to creditors. Ifthere are no legal procedure specified in the FederalBank- assets, a trustee may not be appointed. ruptcy Act(2). In addition to thisfederal legisla- Six months after filing, the debts of the bank- tion, each state makes its own regulations per- rupt are officially discharged. While he no longer taining to exemptions, and to wagegarnishment has a legal obligation to repay the debts, the and attachment.(3) moral obligation does remain. He may reinstate In very simplified form, a bankruptcy occurs a debt at any time afterthe hearing simply by this way: A person is unable to pay hisbills, he making an unconditional promise in writing to the becomes insolvent. A friend, a fellow worker, an creditor. employer, or an attorney may then suggestthe Not all debts are dischargeable. Government possibility of bankruptcy. taxes, debts not listed on the Scheduleprepared Once the bankruptcy is decided upon,three by the bankrupt, and debts for goods obtained forms must be filled out. This is usuallydone by fraudulently are examples. Also, certain exemp- an attorney with thehelp, of course, of the petitions are allowed under state law. In New York tioner.Attorney fees for handling a bankruptcy State, for instance, wearing apparel, household usually run between $150 and$250. The three goods not valued over $1,000, and tools of the

73 74-MATSEN trade, may not be sold in order to obtainmoney been regular child support payments of about $75 to distribute to creditors.In Oregon, television per month. sets are exempted. Both the petitioner and his spouse hadcom- Non-business bankruptcy has been increasing pleted the 12th grade. He wasa machine oper- yearly. During the 1966 fiscal year, over 175,000 ator or semi-skilled employee. He hadnever non-business bankruptcy cases were initiated in before filed for bankruptcy. Oneor more of his the United 51ates. This comes to about 9 bank- creditors had threatened to garnishee hiswages ruptcies for every 10,000 people. Over 90 per- during the six months prior to the study, butthe cent of all bankruptcies filed in 1966 were non- creditor had not actually initiated the garnishment business in nature.(4, 5) proceedings. The petitioner attempted to solve his finan- PROFILE OF A BANKRUPT cial problems by several methods before filinga petition. He tried two of the following solutions: Who are the people who must turn to bank- contacting his creditors; attempting to refinance ruptcy to solve financial crises? What are they contracts; or consulting a debt consolidation like? In an attempt to answer these questions, I agent or agency. will draw mainly on results of my own study, con- The petitioner'shighest debtlevel was ducted in 1966 in Portland, Oregon(6). Where reached one to two years prior to bankruptcy. my findings do not appear to be consistent with He attributed this to overpurchasingor medical results from other studies, I will also review the expense. When asked to specify the direct in- other findings, since studies have been conducted fluences causing him to file bankruptcy, hegave within the past few years in Seattle; Flint, Michi- two answers which included general overload of gan; in the state of Oregon; and in Sacramento, debt, threatened garnishment,or unemployment. California. (7, 8, 9, 10) The petitioner said he was generally happy It is unfortunate that results of the comprehen- in his marriage but that financial problems had sive study recently completed by the Brookings adversely affected the happiness of his marriage Institution in Washington, D.C. are not available. to a great extent. Indications are, however, that the profiles of the The petitioner and his wife shared responsi- 409 personal bankrupts interviewed in that study bility for deciding which bills should be paid and do not differ greatly from those in the studies men- for the actual bill payment. tioned in this discussion. Because it is the husband and father wbo usu- Let us now consider a profile of the personal ally acts as the family representative in financial bankruptcy petitioner. As we consider this gen- matters, the great majority of petitioners in my eral description, which is a composite of peti- study were male.However, in non-community tioners in my 1966 study, let us remember that property states, the wife may also file.This is no one person and no one case was average. done so that she cannot be held responsible for The petitioner was about 28 to 30 years old the same debts. When both spouses file, the court and married. His wife was somewhat younger, often administers them as one case, but theyare about 25. He had married once, and had been counted as two in official records.It has been married for about four years. His household in- estimated by Edward Reed that about 15 percent cluded four members, two of whom were children. of personal bankruptcy filings in 1965 in Oregon His family was in the child-bearing stage of the were duplicates. (9) family life cycle.His wife was not employed outside the home during 1965, the year prior to the study.However, if she was employed, she OTHER STUDIES worked full time for two to six months and contributed approximately $650 to the family income. Almost three-fourthsof thepetitionersin The petitioner made no regular support pay- my study were 15 to 34 years of age, while ments to persons outside the home. However, if only one-fourth of the total population in Or- he did make such payments, they would have egon in 1960 was in this at; bracket(11 ). Na- MATSEN-75 tionally, 1960 Census Bureau figures indicated GARNISHMENT AND BANKRUPTCY that the median age of all males over 20 was 40 years. The bankruptcy petitioners appear, on Garnishment and threat thereof has been the the whole, to be quite young. Bankruptcy attor- subject of much debate, past and present. Is gar- neys interviewed by Dr. Reedindicated that peti- nishment the triggering cause of bankruptcy? If tioners seemed to be getting younger each year.(9) it is, will doing away with garnishment eliminate Three of every four petitioners (75 percent) in family financial problems? These questions are my study were married at thetime of the inter- yet to be answered. view. In the Flint, Michigan study 94 percent of In my study I found that three out of five peti- the petitioners were marrieda much higher tioners had had at least one wage garnishment proportion(8). About one in five (20 percent) threatened, and that only one out of five had were either separated ordivorced in my study. actually had wages garnished in the six months In 1960, only about one in ten adults in Oregon prior to filing. In the Seattle study about two out was in these categories(//).However, other of five had had wages garnished(7). It logically studies support the conclusion that a general follows that states allowing a high percent of history of family instabilityisan identifiable a wage earner's pay to be garnished have ahigher characteristics.(7, 8, 10, 12) proportion of personal bankruptcy cases than Of those petitioners married at the time of my other states.(3) study, two out of four had been married less than five years, and three out of four less than ten SOCIAL CHARACTERISTICS years.It follows that about 70 percent of the bankrupt families were in the child-bearing or The remainder of this discussion is based on my child-rearing stages of the family life cycle. We own study. Unfortunately, there are nosimilar are all aware of the costsinvolved in the early studies with which to compare these results. The years of married life. questions. and answers were subjective, but they Family size in my sample was similar to the may give some insight into familyfinancial man- 1963 total United States family size; that is, four agement practices. members per family(13). Other research has found Petitioners were asked how they had tried to petitioner families to be significantly larger than resolve their money problems before they filed the norm. The Seattle and Flint studies concluded bankruptcy. A very small number said they hadn't that petitioner families were larger than average, tried anything, feeling it was just no use. The and that this could be a contributing factor to most frequent answer was "We went to seeMr. X family insolvency leading to bankruptcy.(7, 8) (a creditor) but he couldn't help us." The least About half of the petitioners and spouses had popular solution was selling some of the goods graduated from high school. About 10 percent they had purchased; perhaps this couldn't work had attended one or more years of college. The because the goods were necessities or wouldn't Flint, Michigan study did not indicate such a bring enough money if sold. Others tried debt high educational level. The difference in com- consolidation firms, prorators, and fding Chap- munity population is probably the reason for this ter XIII bankruptcy. There was someindication difference. that petitioners with higher educational levels While almost nine out of ten petitioners in my tried more ways of solving their financial prob- study were employed at the time of .the interview, lems; it could be they were just more willing to over half of them indicated aperiod of unemploy- talk about them. ment during 1965. This is probably a moresig- The petitioners were then asked why they had nificant characteristic than studies indicate. so much debt. One out of fourrecognized the About one petitioner in ten had filed for bank- purchase of too many consumer goods, only some ruptcy before (one can file no oftenerthan every of which were necessary. Those who mentioned six years). This number of repeaters is some- medical expenses usually referred either to the what higher than the Seattle and Oregon studies cost of having a baby, or to illness oraccident of indicated.(7, 9) some family member. 76-MATSEN

In the Oregon studies, both Dr. Reed and I secured creditor holds a contract for goodsor found that in about 12 percent of personal bank- services purchased, with other assets listedas ruptcy cases the petitioner had been in business security in case of non-payment. For instance, during the six years prior to filing.(6, 9) when installment credit is used to buy a washing A surprising number of petitioners cited their machine, one's automobile might be usedas col- spouses as the reason for high debt levels: "I gave lateral. Unsecured credit includes such thingsas my wife money to pay the bills, and she didn't," utilities and medical expenses for whichone is or "I cosigned on a loan for my ex-wife and she normally billed at the end of the month, and didn't pay up." regular charge accounts.) Most of the petitioners said it was a combina- Less than half (45 percent) of the total debt tion of factors that caused them to file bankruptcy. was owed to a very small portion (4 percent) of If it were possible to delve into the past, I believe secured creditors. The remaining 55 percent of we would find that most petitioners carried install- the debt was owed to unsecured creditors who ment obligations that left them no room to maneu- comprised the great majority of total creditors. ver. Then, when an unplanned expense came up It is also interesting to note that about one-fourtft an auto accident, a broken arm, or in some of the debt was no longer due the original credi- cases the arrival of a babythey could not handle tor, but was due a collection agency who had taken the additional costs. over the delinquent account. The petitioners were asked whether they thought The median petitioner owed substantial debt in their money problems could have been prevented several creditor classifications: automobile;auto in any way; and if so, how? I fully expected repair and garage; appliances; medical; and utili- answers indicating insufficient income. However, ties. The highest percentage of his total debtwas three out of four said their financial problems due automobile creditors and the second high- could have been avoided by better financial man- est was due hospitals and doctors for medical agement or by avoidance of credit. Those who expenses. said they could not have prevented the financial Debts in most cases were equal to,or more crises gave answers such. as insufficient income, than, the previous year's income. The fact that, accident, business slump, etc. The high propor- in a majority of cases, over half of the total debt tion indicating that they could have avoided bank- was helki by a relatively small number of creditors ruptcy might mean that they actually did have holding secured contracts indicates the large role some knowledge of financial management, but credit plays in the financial life of families in debt. didn't know how to apply it, or that they didn't It is not clear from present studies whatpro- have th e self-discipline to deny themselvessome portion of petitioners have poverty level incomes, of their wants. that is, income of under $3,000 peryear, but There is some indication that families had estimates range from about 10 to 40 percent of greater debt where both husband and wife had all petitioners. However, in my studywe found responsibility for paying the bills.Perhaps this that the higher the family income, the higher the is tied in with the fact that there are fewer defined family debt. Debt was also related to theage of roles in families today. the petitioner, the size of his family, and the stage in his family life cycle. Family income appeared to be highest when FINANCIAL CHARACTERISTICS the spouse worked part time outside the home. On the other hand, family debt tended totie The financial characteristics of the median peti- highest when the spouse was employed full time. tioner in my study showed that he hadan income High income and high debt appeared to be char- of $4,000 to $5,000 during the year prior to filing acteristic of petitioners who shared responsibility bankruptcy. He owed about $4800 to 16or 20 for bill payment with their spouse. Low income creditors. and low debt seemed to be characteristic of fami- Debts and creditors were classified according lies where the husband alone was responsible for to whether they were secured or unsecured. (A bill payment. Petitioners who mostly agreed with their spouses 4. Table of Bankruptcy Statistics.Washingtnn, Administrative Office of the-United States Courts, in regard to expenditures tended to have higher 1966, 42 pp. debt levels than those who indicated general dis- 5. &port on 1966 Nonbusiness Bankruptcies by State.. agreement. Huber, in his study of over-extended Washington,D.C.:National Consumer Finance families, suggested similar implications.(/ 4) Association, 1966, 5 pp. 6. Matsen, S. Suzanne.SelectedCharacteristics of From my observations and interviews with Personal Bankruptcy Petitioners in Portland, Ore- bankruptcy petitioners, I would make the follow- gon.Unpublished thesis, Oregon State University, 1966. ing conclusions. 7. Brosky, John J. A Study of Personal Bankruptcy Petitioners, on the whole, are not trying to in the Seattle Metropolitan Area.Seattle, Wash- "take" anyone. They are in the Bankruptcy Court ington: Retail Credit Association of Seattle and Seattle Consumer Credit Association, 1965, 75 pp. because there is no other way out of their financial 8. Dolphin, Robert J. An Analysis of Economic and dilemma. Crucial problems for the bankrupt seem Personal Factors Leading to Consumer Bankruptcy. Occasional Paper No. 15. East Lansing: Michigan to be a lack of any orientation toward the future, State University, Bureau of Business and Economic and the inability to identify financial danger sig- Research, 1965. nals and know what to do about them. 9. Reed, Edward W. Personal Bankruptcies in Ore- gon. Eugene, Oregon: University of Oregon, 1967, Educators and persons interested in the well- 117 pp. being of the family all have a great challenge. In 10. Herrman, Robert 0. Causal Factors in Consumer today's sophisticated society, we don't wait for Bankruptcy: A Case Study. Occasional Paper Series No. 6. Davis, California: University of California, those who can't keep up. Education for the finan- Institute of Governmental Affairs, 1965, 41 pp. cial aspect of family life is of greatest importance. 11. U.S. Census Population: 1960. Volume I, Parts 1, I look forward to the day when there are no per- 24, and 39. Washington, D. C.: U.S. Government sonal bankruptcies, not because garnishment will Printing Office, 1961. 12. Brunner,George Allen.Personal Bankruptcies: have been eliminated, but because all individuals Trends and Characteristics.Bureau of Business and families know how to successfully manage Monograph No. R-124. Columbus, Ohio: Ohio their money and their credit. State University, 1965, 122 pp. 13. Income in 1964 of Families and Persons in the United States. U.S. Bureau of the Census, Current Population Reports, September 24, 1965, pp. 8-14. REFERENCES (Ser. P-60, No. 47.) 1.Misbach, Grant L. Personal Bankruptcy in the 14. Huber, Milton J. "A Profile of the Overextended United States and Utah. Salt Lake City: University Family."Consumer Finance News, May 1965, of Utah, 1964, 44 pp. pp. 1-5. 2.Udell, Gilman G. Bankruptcy Laws of the United 15. Twinem, Linn K. "Reduce Unnecessary Personal States. Washington, D.C.: U.S. Government Print- Bankruptcies: Amend the Bankruptcy Act." Legal ing Office, 1964. Aid Briefcase, June 1966. 3. Handbook on Assignment and Garnishmentof 16. "Trends in Divorce and Family Disruption." Health, Wages. New York: Consumer Clearing House, Inc., Education, and Welfare Indicators, August 1963, 1966, pp. 185-87. pp. v-vi. A NEIGHBORHOOD LAWYER'S APPROACHTO THE PROBLEMS OF CONSUMER CREDIT

J. KIRKWOOD 'WHITE

Various groups within our society adopt dif- consumers, are confronted with the wholerange ferent means to draw publia attention to their of inequalities in our current system ofthe sale problems. In the summer of 1967a few residents of goods. Thereare a number of crucial issues of urban ghettoes chose violence asa vehicle for in consumer credit law involving these low-income broadcasting grievances. They were trying tosay consumers. For example, no retail installment something about the conditions under which they sales legislation exists in the District of Columbia live. to protect buyers of consumer goods other than In the many cities where rioting occurred, there automobiles.Therefore, I will relatemy com- was much looting of stores. Many looters who ments to the framework of legal protections that were interviewed by news media are said to have I would like to see Congress enact in its capacity expressed anger against store owners for abusive as the creator of law for the District. credit practices and shoddy merchandise. Weare aware that looting of stores often accompanies LEGAL PROTECTION NECESSARY social and civil disorder and it is safe tosay that the motive of most looters was acquisitive rather When I first began workingas a neighborhood than punitive. But we do get another clearmes- lawyer, I was amazed by the obvious intention sage from the rioters and looters: that the resident of certainmerchants in low-income areas of of the urban slum is tired of being cheated in Washington to prey upon the lack of education, the marketplace. He knows he is being sold sophistication, and business experience of their merchandise at inflated prices and excessive credit customers. Recent arrivals from the rural South costs. are the most susceptible to deceptive practices. Fortunately, most victimized consumers do not Unfortunately, these same peopleare often the resort to arson and looting.Nevertheless, we most forgiving of merchant rapaciousness. should not lose sight of the fact that thecry "burn, For example, a man with a wage attachment baby, burn!" is being directed at the slummer- came to my office at the request of his employer chants. The injustices are now obvious and it who had taken a special interest in his case. (The remains to be seen how responsible businessmen, client himself was not very concerned about the city officials, and state legislatures will respond attachment because he did not want to make to the outcry for reform. trouble for anyone.) I asked him who was attach- In Washington, D.C., a voteless but politically ing his salary, and he indicated that itwas a local conscious city, the former District Commissioners clothing company. He recalled being in thestore responded to the threat of violence by callingupon around Christmas time about six years ago. At the Washington Metropolitan Board of Trade and that time he expressed interest ina suit of clothes the Better Business Bureau to conduct a study for his son, put $5 down on the purchase, but of retail sales and credit practices in low-income later decided against buying the suit and never areas of the city.It is unfortunate that reform returned to the store. in some places only follows the threat of violence; I checked the court records on this case and but at least a start has been made in our capital discovered that one year after he had been in the city. store a court judgment was entered against him As a neighborhood lawyer in Washington, I by default. Over the years several efforts had have daily contact with poor residents who, as been made to attach his wages but because of

78 his marginal training and skills he had worked including the enforcement of court judgments; only a short period of time for successive em- and ployers. The price of the suit of clothes had been 6.Private and public remedies to enforce com- $55. When court costs and interest from the date pliance with statutes and regulations govern- of judgment to the date of attachment (a period ing consumer credit transactions. of six years) were added to the sales price, the amount of money t&be collected from the client's In all of these areas, the laws of consumer credit salary came to $132. The collection attorney need reform. Some states have enacted reforms stood fast by the bill of sale and refused to drop in piecemeal fashion, starting with regulation of the suit.I filed a motion to vacate the default loan sharks and small loan companies.This judgment and argued that the man had never approach leaves gaps in legal protection. been served with process thereby rendering the Another approachisan omnibus consumer judgment void. The court granted my motion credit regulatory bill. The National Conference of Commissioners on Uniform State Laws iscur-. and the money that had been withheld from his rently at work on a Uniform Consumer Credit salary was returned. Code which will regulate both loan and purchase This case illustrates several difficulties: credit from disclosure to contract enforcement. 1.The goods were over-priced in the first place; An omnibus bill passed by Congress could close 2.The suit was probably not intended to last the gaps in the District of Columbia. more than one school year; Suchabillcouldalsohandle problems 3. A member of the Bar took this case to court that arise with the debt consolidation business. to collect on "contract" for which absolutely In my opinion, this business is fraudulent and no value had beeri received by the purchaser; should be banned. Debt consolidators offer to 4. The court granted judgment although it was help people get out of debt, without harrassment quite clear that the defendant had never been by creditors, through one monthly payment to the personally served with the complaint; debt consolidation company. If this were a bona fide offer of financial counseling and assistance 5.The individual who was victimized was afraid to do anything about it on his own for fear for a fee, I would have no quarrel with the business. But what in fact. happens is that the con- that this would cause trouble for him. solidator takes his fee out of the debtor's first With respect to such cases, neighborhood law- payments, does not pay creditors, and the debtor yers must be concerned with legal protections continues to be harrassed. The creditors tell the for the poor man as an economic entity. These debtor that they will deal only with him so he legal protections are not conceived as methods to resumes his own payments and drops the con- insulate the poor, or to create a special market solidator. In the meanwhile, the consolidator gets place for the disadvantaged; rather, they can be a fee for doing nothing. A bill toban the debt used to develop an environment of independence consolidation business in the District of Columbia within which the poor, as they gain education has been introduced in Congress. This bill has and affluence, can receive fair treatment when the support of major business groups and the they buy merchandise and services. The follow- District Government. ing protections must be available in every step of a consumer transaction: 1.Restrictions on advertising to prevent con- ADVERTISING sumer deception; False, misleading, and deceptive advertising of 2.Disclosure of price, quality, and credit costs consumer goods and services can be enjoined by of goods for sale; the Federal Trade Commission under federal 3.Prohibition of 'unconscionable and deceptive legislation. While the FTC has full autherity to contract terms; act within the District of Columbia, it is an agency 4.Protection in case of default and repossession; with nationwide responsibilities and is not equipped 5.Regulation of collection and court processes to deal with purely local cases of consumer decep- 80-WHITE tion.Consequently, enforcement of existing laws category would include taxes, fees for recording against these practices in Washington has not been a security interest, and the cost of insurance. effective.In order tb remedy this situation, Con- It is essential for the consumer to know both gress should authorize the government of the the dollar cost of the finance charge and the finance District of Columbia to define and prohibit false, charge expressed as an annual percentage rate. misleading, and deceptive advertisements relating The critical issue in the federal truth-in-lending to quality, .quantity, price, finance charge or rate, legislation is the requirement that all creditors or other terms relative to the sale of consumer state an annual percentage rate of finance charge goods and services. based on the actuarial method. This method re- With this authority, the District Government quires disclosure of a rate of finance charge would be abletostop unfair and deceptive which takes into account the fact th a:.install- salespractices,such as the "bait-and-switch" ment transactions are paid back over a period technique, that lead low-income consumers to of time.Except forcredit unions, the per- purchase over-priced, low-quality merchandise. centage figures presently disclosed by financial In particular,effectivepolicing of salepro- institutions do not take into account there- cedures should stop the sale of used and repayment terms of installment transactions and, possessed merchandise as brand-new. Theoreti- accordingly, the rates disclosed understate the cally, this practice is already illegal as a fraudulent true cost of credit to the consumer. sale.But, as most neighborhood lawyers know, Critics of truth-in-lending acknowledge the need it takes months of interrogatories, motions, and for dollar disclosure, but argue that the actual a favorable jury to establish a good case of con- rate is difficult to determine and is 'of no use sumer fraud entitling the client to a recission of to the consumer. The recent Congressional truth- the contract and punitive and compensatory dam- in-lending hearings indicate that simplified methods ages. for annual rate disclosure under the actuarial As a general comment, I firmly believe that method can be used, and tables can be devised consumer protection laws that do not include to permit the creditor to disclose the finance vigorous enforcement provisions are useless. The charge on an annual percentage basis without low-income consumer is in no position to go to difficult mathematical computations. The argu- court on his own to effect his rights. Neighbor- ment that annual rate disclosure is useless to con- hood law offices can help but cannot carry the sumers reflects a cynical view of the consumer's whole job of keeping the merchants honest. mental abilities. The argument in favor of rate disclosure can be simply stated: Consumers can DISCLOSURE make intelligent credit choices if they are presented with rate figures calculated on a uniform From the point of view of the buyer, the most basis.If a man's savings earn 41/2 percent at important phase of a consumer credit transaction the bank and the same bank tells him that on is the negotiation stage in which the seller offers his 12-month consumer loan he will pay interest goods and services and the buyer decides whether at the rate of 6 percent (add-oa), he is being to buy. In order to make intelligent use of his -deceived because the comparable rate is approxi- financial resources, a prospective buyer needs to mately 11.5 percent. know several facts before he makes his purchase. The opponents of truth-in-lending also argue First, he needs a full description of the goods and that percentage rate disclosure will mislead the their cash price. Next, if he is financing his pur- poor consumer. They contend that he is only in- chase, he needs to know the terms of credit interested in how much money he must put down, cluding the amount of any required down pay- and how much he must pay each week or month. ment, the amount and number of periodic pay- To the wage earner these facts are cert6n1y ments, the finance charge expressed in dollars essential, but as a neighborhood lawyer, I have yet and as an annual percentage rate, and, finally, to speak with a client who is totally unaware the costs of all incidental charges, individually of percentage rates. I make it a practice to figure itemized and described. The incidental charge out for each client what he is paying on a credit WHITE-81

transaction in terms of the actuarial rate. The Both clients decided to keep the sets and an- usual response is one of amazement and anger other salesman brought contracts to their homes that this rate was not disclosedinitially.Op- for signature.The only figure listed was the ponents also argue that if the true rate were price, $195. The salesman said the clients could disclosed the poor could get no credit. I do not pay $16 per month. No mention was made of understand this argument, giventhe fact that a finance charge or additional fees.Three days merchants want to make money and that con- later both clients received payment books from a sumers, whether poor or rich, need tobuy goods local finance company with 24 monthly payment and services. slips at $16.50 eacha total of $396. Neither Another problem area of credit disclosure is the client added up the slips until after making several problem of absorptIon of credit costs by mer- payments. Then both clients (they do not know chants. Cash buyers are offered one price and each other) added up the payments they had time buyers are offered a substantially higher made and decided to pay only a total of $195. price. Theoretically, no finance charges are im- Within several weeks the finance company filed posed on the time buyer. Because a time price suit for the balance due and judgment for default does not permit a buyer to compare costs,all was obtained.Wage garnishment proceedings sellers should be required to disclose the actual were initiated and both clients, neither of whom cash pricethe price of goods and services which had received notice of the law suits until so are offered for sale by theseller to cash buyers advised by their employers, came to the neigh- in the ordinary course of business. The amount borhood law office. by which a price quoted to a credit buyer exceeds The cases are still in litigation. The issues are this cash price is deemed to be a finance charge. misrepresentation, fraud, void contract, lack of Also, enforcing a retail installment contractwhich holder-in-due-course status, and violation of a a buyer signs before all of theblanks are filled in Federal Trade Commission cease and desist order. should be restricted. All of this could have been avoided by full dis- Under certain circumstances, legislation should closure both in advertising and in the contract permit a buyer to cancel a contract for the pur- of the price of the television set and the costs of chase of consumer goods. The right to cancel a credit purchase. As it was, the exorbitantfi- should remain open if the seller fails to provide nance charges were completely hidden untilthe the buyer with a completely filled-in copy ofthe installment contract and note were signed. In ac- contract.Initial disclosure must also include a cordance with present law, the finance company notice to the buyer of his rights concerning pre- in these cases sits comfortably behind the legal payment, redemption of repossessed property,and doctrine that a holder of a note negotiated in the fact that the seller has no right tounlawfully the ordinary course of business is free from de- enter a buyer's premises or use force orbreach of fenses that the buyer has against the seller. peace in order to repossessgoods purchased under the contract. I am currently handling two cases that illustrate REGULATION OF CONTRACT TERMS the need for regulation of consumer advertising to prevent deception and the need for fulldisclosure The buyer must be protected against unfair of contract terms. Both clients heard a radio ad- contract clauses. The trend in recent state con- vertisement offering a special reduced price of sumer credit legislationisto prohibit certain $98 on a name-brand television set with a 10-day "small-print" contract clauses: waiver of buyer's free home demonstration. The clients calledthe rights under existing laws, balloon installments, store and the sets were delivered, butthey were disclaimer of warranties, confession of judgment, not the sets that were advertised.The salesman clauses granting the seller a power of attorney for disparaged the advertised sets and told the clients collection and repossession, clauses waiving a that the delivered sets, although listing at$195, buyer's defenses aga;nst an assignee, clauses waiv- would give better service. The salesman requested ing the buyer's right of action for illegalities in col- a non-refundable $25 "delivery"fee. lection and repossession, and clauses permitting ^

82--WHITE

acceleration of contract forreasons other than a to be able to negotiate their installment contracts default in payment or performance by the buyer. to finance companies without limitation. In order In addition, legislation must providea solution to provide a viable market for consumerpaper, to a problem which was recently before the United the doctrine assures finance companies thatcon- States Court of Appeals for the District of Colum- sumer notes can be enforced against obligors, bia in the case of Williamsv. Walker Thomas free and clear from all defenses and rights ofac- Furniture Company. This case involvesan add- tion against sellers. on type of purchase contract under which the It is no secret that transfers ofconsumer paper buyer added furniture purchases to her contract between retail merchants and finance companies and made one monthly payment. The contract are often not arms-length business transactions. provided for an aliocation of the monthly payment Sometimes, a retail seller anda finance company to all of the outstanding unpaid balances for will have identicalowners, officers, and directors. furniture purchased. The furniture store retained In view of this close business relationship,it is un- a security interest in all of the goods sold. likely that such a financecompany would be The buyer defaulted and the store repossessed unaware of the seller's illegal retail practices. all of the furniture the buyer had purchasedover Accordingly, it is unfair t) retail buyersto permit a period of two years, even though The balance finance companies to hide behind theholder-in- due on her contract was only $100on a total bill due-course doctrine. of $1500. The Court of Appeals held that this To protect buyers against the holder-in-due- type of installment contract was unconscionable. course doctrine legislation should declareas Under this contract, the sellerwas not required to void and unenforceableany instrument pay- apply current payments to past purchases in order able to order or to bearer which,when nego- to release the seller's security intereston these tiated, will cut off, as against third parties,any purchases. The result was that with the buyer right of actionor defense the buyer may have barely in default, the seller couldrepossess a against the seller. This would end thepractice whole house full of furniture. of certain retail merchants who require theexecu- In order to meet this problem, new legislation tion of a note by the buyer in additionto a retail could provide that consumer goods whichare installment contract. Defenses and rights of action the subject of a retail installment contract shall which the buyer may have against the seller would serve as security only for the obligation arising out be good against the holder ofa retail installment of the sale of those goods. Newly acquired goods sales contract. cannot be made to secure any past or future obli- In arriving at this proposal, I rejectedan alterna- gation of the buyer to the seller, or to the seller's tive solution which would provide thatanyone assignee. who takes a retail installment salesnote cannot The television purchase cases mentioned above enforce it as a holder in duecourse, unless the in connection with the disclosure of contract retail installment contract is accompanied by the terms also identify another problem; namely, the buyer's certification that he has received the goods holder-in-due-course principle under which de- purchased and that they appear to conformto the fenses and actions against a seller are cut off contract. Under this alternative solution, the buy- by negotiation of the installment contract and note er'scertificate, once signed,entitles a finance toa third party, usually a finance company. company or other holder to the privileged status Under this doctrine, the buyer hasa financial that it now enjoys as a holder in duecourse. obligation to the holder of the note, whether or I do not believe that the prohibition ofconsumer not the contract with the seller was fraudulent, notes payable to order or bearer would limita or the goods not what they were represented to seller's ability to obtain financing, since the in- be by the seller. stallment contract itself is assignable. With this In Jny opinion, the holder-in-due-course prin- provision, the risk of a seller's insolvency,or his ciple makes no sense in the consumer sales field. unlawful sales practices, shifts from the buyer The theory behind the doctrine is that merchants to the finance company, which is in a better posi- who cannot carry their credit customers ought tion to bear the risk.

1 WHITE-83

DEFAULT AND REPOSSESSION saying that he would be late with his fifth payment and a secretary gave him an oral extension of The major strength of the common law is its four days. On the fourth day he went out to adaptability to changes in the way people live and get into his car to make the payment and found deal with one another. The law of contracts is thathad been taken way.He calledthe flexible enough to permit the adaptation of com- finance company and was told that if he paid a mercial legal documents to prevailing business $50 repossession cost, a $12.50 storage fee, and practices and the needs of society. The conditional a $14 late fee he could regain possession of his sales contract and time purchase grew up in re- car. He got so mad that. the told the finance sponse to the desire of wage earners o purchase company to forget it. goods necessary for their homes before accumulat- The company did not forget it.It went to ing the required cash price. The conditional sales court two or three months later and obtained a contract gives the seller a security interest in the default judgment in the amount of $1900. Shortly goods sold, entitling him to retake the property in after repossession, the same car appeared on the the case of the buyer's default, to dispose of it, same used car lot for sale at $2600. Apparently, and apply the balance to the contract price. the ret .-11 sales market for used cars was soft on The current system of repossession after default the day that the finance company sold the car to fails to give reasonable protection to the buyer's that lot because it brought only $200. equity in rapidly depreciating consumer goods. This case illustrates the problem of unregulated Apart from automobiles, most consumer goods or poorly regulated resale of repossessed property depreciate in value immediately after their sale in the District of Columbia. To remedy this and give little return following repossession. Often problem, the Didrict Government should be the defaulting buyer is faced with liability for authorized to issue rules and regulations governing a deficiency that equals, or possiblyexceeds, the the procedures for resale. To induce the secured amount of the unpaid balance at the time of party to notify the buyer of his intention, to re- default.Also, the buyer has nothing to show possess, legislation should permit the secured party for the money he laid out for the goods that were to apply the proceeds of repossessed property repossessed. In this regard, the common law has to the payment of actual and reasonable expenses not kept up with the times. incurred in the repossession and sale thereof only Legislation can provide a simple solution to if the securedi gives the buyer at least 14 this problem. The secured seller may elect one days prior notice of his intention to repossess. of two remedies if the buyer defaults. He can In no case should a secured party proceed to either retake the property or sue on the contract sell repossessed goods unless he has notified the for the balance due. If he repossesses the prop- buyer, immediately after repossession, that he erty, he is prohibited from obtaining a deficiency has 15 days within which to redeem the goods judgment. This provision would curtail the resale by paying the amount of the contract in full. A of repossessed property and would, thereby, cut seller who disposes of repossessed goods without into the seller's profit, but it should have no effect this 15-day notice would be liablP, for conversion. on his ability to collect thebalance due under a Such legislation should also prohibit a secured contract of sale. The average defaulting buyer is party from using force or engaging in a breach of much more likely to settle up on his debts if he peace in order to repossess property from the is permitted to retain what he is paying for. buyer. I recently undertook to represent a man who In legislation on repossession it may be ad- exemplifies the buyer's frustration at repossession. visable to prohibit private sale of repossessed Several months ago the client purchased a used property and to authorize a public official to make 1966 automobile for $2700. He paid $400 down such sales in order to prevent fraud in reposses- and traded in a 1962 automobile valued at $200, sion and resale. The purpose of such a provision which left a balance of $2100. He made four would be to eliminate the type of non-competitive monthly payments on time and then missed work resale practices presently followed in most juris- for three days. He called the finance company dictions.Sale by a public official would also 1 84-WHITE obviate the need to charge excessive costs against My first concern relates to co-signers on con- the buyer for milking the property and preparing sumer credit contracts. Many poor people do not it for resale. have sufficient creditworthiness to obtain goods on their signature alone. They must therefore PAYMENT AND COLLECTION provide the seller with a co-signer. Since the need for co-signers is a fact of life, I do not question After a buyer signs a contract and receives the seller's right to request one. At the same time, his goods, he needs legal protection until the many people who act as co-signers are not aware obligation is paid off.I have seen many cases of the liability that attaches to a signature. The where the buyer made payments to a seller principal obligor may default and the seller may for several months and later received a bill from seek to collect from the co-signer. a collection agency which did not take into ac- This is a problem of disclosure. Sellers should count these payni-nts. be required to include in all conditional sales con- This problem often arises when the seller goes tracts a statement explaining to the co-signer out of business and assigns his accounts and that if the principal obligor defaults, the co-signer installment contracts to a collection agency. The will be liable for the amount due. It might also buyer may have a difficult time proving payments be advisable to require the seller to exhaust his to the seller when the seller denies he has received remedies against the principal obligor before seek- them. To meet this problem, legislation should ing to collect from the co-signer. I have noticed provide that unless the buyer has written notice that in the case of a husband and wife who co-sign of actual or intended assignment of a retail install- for goods and then separate, when the husband ment contract, he may pay or tender any amount works for the federal government where his salary due thereunder to the person last known to be cannot be reached, sellers will often sue the wife entitled to payment, and such payment should be first if she works in private industry where her binding upon any subsequent assignee. In addi- salary can be subject to garnishment. For obvious tion, legislation should require the person receiv- reasons, this collection tactic is grossly unfair. ing cash payments to give the buyer a complete Another problem requiring reform relates to written receipt. the collection of delinquent accounts by collection To protect the buyer against bad bookkeeping agencies. Many collection agencies in the District practices of sellers District legislation should follow of Columbia use collection tactics which, in my the new Massachusetts consumer credit sales act. opinion, grossly exceed reasonable limits. I do not This act requires the seller or his assignee to send deify that a collection agent has the right to use the buyer, upon request and within six months certain "scare" tactics to obtain payment from after the execution of a retail installment contract, recalcitrant debtors. A reasom3le scare tactic a statement of account listing the amounts paid would include advising the debtor that court ac- by the buyer, refunds, late fees, and the amount tion can and will be taken if the account is not due on the date of the report, including the num- paid off within a reasonable period. The collector ber and amount of installments not due but still can state that court action may result in a wage to be paid. There should also be a provision garnishment. On the other hand, I believe that it on payment in full before maturity which in- is an invasion of privacy for a collector to exert cludes a refund of unearned finance and insurance pressure on a debtor on the job, or by contacting charges. his supervisor. With respect to collection charges, legislation The major employer, of low-income workers in should prohibit all such charges, except for a Washington is the federal government. The per- reasonable attorney fee not to exceed 10 percent sonnel rules of the government include a require- of the unpaid balance and court costs. Although ment that all employees make reasonable efforts existing state legislation in the consumer credit to pay just debts, or be subject to possible adverse field does not deal with the process of collecting personnel action. While creditors know that they delinquent consumer credit accounts, an omnibus cannot attach a federal employee's salary, they also consumer credit bill should reform the law. know that significant pressure can be brought hAr-n....re,p.,.

WHITE-85

through the debtor's personnel office. Thus,they This type of enforcement procedurewould be deluge personnel offices with telephone callsand necessary where the localenforcement agency is letters which often cause an employee tolose his either unable or unwilling to seek injunctions. With respect to private remedies, legislation job.Perhaps legislation could be enacted that would prohibit collection throughchannels other should bar a seller or his assignee from the recov- than direct approaches to the debtor.In any case, ery of any sort offinance charge (delinquency, im- collection tactics merit the attentionof attorneys collection, extension, or refinance charge) installment con- and others interested in fair treatmentof debtors. posed in connection with a retail trct or extension agreementwhich violates the provisions regarding disclosure, maximumfinance ENFORCEMENT OF charges, and prohibited contract clauses. Inaddi- CREDIT LEGISLATION tion, the buyer should be given the right to recover Consumer credit legislation should followPresi- from the seller, or any person who acquires a con- dent Theodore Roosevelt's advice to"walk softly tract with knowledge of non-compliance, a sum charge im- and carry a big stick." Without strictand effective equal to the amount of any finance the enforcement procedures, consumercredit legisla- posed by the contract, plus 10 percent of tion is worthless. We all know that the only way principal amount of the debt. to get some people to stop violatingthe law is to For illegalities in connection with repossession, hit them where it hurts: in the pocketbook. legislation should subject the secured party to a A Washington 'merchant who sells mattresses penalty in the amount of 50 percent of thefair was placed under aFederal Trade Commission market value of the goods at the timeof repos- Consent Order in 1966 which forbids himfrom session.If the secured party in a repossessioa representing his mattresses as custom-builtand fails to comply resale procedures andmisapplies specially designed for orthopedic purposes.I the proceeds, he should be liable to thebuyer for later learned from two clients thatthis merchant any loss for suchnon-compliance, or a penalty of was still engagedin forbidden sales practices $500, whichever sum is larger. It shouldfurther during 1967- I called the merchant toobtain a be prmided that these remedies are inaddition to partial refund of the exorbitant sales priceof the any remedies the buyer maybe entitled to ur.der mattresses and I referred to theFTC Consent existing law, including an action for actualdam- Order. The merchant offered the excusethat it ages as a result of aviolation of the act. was taking him quite sometime to change his To achieve public enforcement,legislation sales procedures. He said that he was notterribly should authorize the government of theDistrict concerned about the FTC because he hadmerely of Columbia to create a new officeof consumer signed a consent order. Apparently, he did not protection. That office should have theauthority really consent to stop the illegal practices.When to receive complaints, holdhearings, and issue I could not get satisfaction for myclients over subpoenas. The strongest remedy should be con- the telephone, I wrote him a letter and sent a copy tained in a provision authorizinginjunctions re- violations of to the FTC. The merchant called meand strongly straining persons from engaging in criticized me for what I had done. This mayhave the legislation and regulations issuedthereunder, been a tactical error on my partbecause I did not or engaging in a courseof unconscionable or get any money for the clients. fraudulent conduct in connection with themaking Effective enforcement of consumer creditlegis- or enforcing of retailinstallment contracts. This lation requires both public and privateremedies. injunctive power should be available in the caseof of an The injured buyer must be givenaffirmative reme- actual or threatened violations, or of conduct dies in court to collect damages. Local govern- unconscionable or fraudulent nature. Aneffective ment authorities must beauthorized to enforce enforcement provision should establish acivil legislation by injunction against illegalpractices penalty not exceeding $5000 for any personwho and through civil monetary penalties.In addition, engages in a course ofrepeated and willful viola- thereunder. it makes sense to authorize injuredprivate parties tion of the act or regulations issued to bring actions to enjoinillegal sales practices. To promote consumer education,legislation 86-WH1TE could authorize the District government to con- unaffected relationship between the store and the duct studies,investigations, and research into customer. The picture is one of economic bliss retail installment sales and to conduct programs Laboring Smith with eight children pays a dollar to educate the general public on their rights down and a dollar a week to get blankets for the and duties under the legislation.The District kids from Friendly Sam's, the local general store. could be further authorized to assist merchants Sam knows Smith personally and will wait till to understand -the bill and to issue rules and guide- the cows come home for his money. lines respecting disclosure and the format of con- Unfortunately, this picture is out of date in sumer contracts. With this kind of enforcement our increasingly impersonal and bureaucratic ur- authority,the District Government should be ban society. In the big city, the sales game is able to provide the consumer with adequate pro- played according to different rules.Laboring tection and at the same time insure all merchants Smith oversells his creditworthiness and Friendly fair and equal treatment. Sam doubles the price of his blankets. We know that by the law of averages Smith's and Sam's CONCLUSION little deceptions will sometimes balance out. Nev- ertheless, because urban dwellers march to an There is much opposition to strong consumer impersonal tune, we must develop impersonal credit reform. Many people hate to see compli. rules to achieve our still very personal American cated legislation interfering with the simple and goal of equal justice and fair play.

.N, PROBLEM USERS OF CONSUMER CREDIT AS SEEN BY A CASEWORKER

FAITH S. GOLDBERG

I am a caseworker in the areas of financial ing, money, indebtedness, and joint responsibility counseling, money management, family lndget- for financial management. ing, and debt adjustment in conjunction with In casework, we are dealing with the socio- family and marital counseling. My employer, psychological aspects of credit addiction. Accord- The Family Service of St. Paul, has a professional ing to Dorothy L. Book, Boston College School of staff of 25 social workers, and of this number, 5 Social Work, emotional, social, and economic specialize in money management and financial p:oblems cannot be separated. In practice, there problems. Our agency is among more than 300 are some problems of insufficient incomeand such agencies in the United States offering service money mismanagement, but there are moreprob- in debt counseling and budgeting. lems of indebtedness. Indebtedness constitutes one of the more fre- Since indebtedness is subject to such a wide quent problems encountered in Family Service, variety of causes outside the individual's control, particularly in association with other types of statistics could give a very misleading picture of family disturbances. Because of these multiple its frequency. For example, current employment associations, it is difficult to estimate exactly what and similar economic trends greatly affect fre- percentageof casework does involve money quency of indebtedness. However, we havebeen management. impressed with how often indebtedness has been Who refers families to our social agency? It an aggravating factor in familyrelationships and may be on the advice of anemployer who be- a symptom of underlying emotional factorsin the comes aware of the financialproblems of an individual's or family's makeup. The latter situa- employee through garnishments or pressures from tion will be more frequently encountered in case- creditors. It could be a minister, a friend, or rela- work than transient external circumstances which tive. Attorneys, credit unions, and creditors may foster indebtedness. advise families to seek help when payments be- In Family Service we meet all degrees of finan- come delinquent. cial involvement. Even a relatively small debt Generally, we refer families and individuals may be magnified by theclient's anxiety about it. with no income, or less than minimal earnings On the other hand, there are those who show no for subsistence, to their local County Welfare apparent concern over great debtproblems. At Department for financial relief or supplementa- the other extreme, hoarding assets to anexcessive tion. But what of the families that have an in- degree may be equally indicative of a fundamental come but have gotteninto financial difficulty in disturbance in the individual. relation to budgeting, buymanship, or credit? Our For our purposes, indebtedness may be defined goal is to help them get out of debt and, atthe as a state of financialdecompensation which, for same time, teach them tohandle their finances a particular family,requires professional help for and gain an understanding of their "needs" as its stabilization. The degree of indebtedness may opposed to their "wants." vary according to the totalmaterial, personality, In Family Service we counsel individuals, con- assets, and liabilities of the family and mustbe duct joint interviews with husband andwife or judged accordingly. The causes may range from total families, or organize group counseling for temporary external circumstancesoutside of indi- husbands and wives. These groups consist of three vidual control, to the most serious personality or four couples discussingthe meaning of budget- disturbances.Accordingly, the case study and

\ diagnosis should merit whatever amount of detail lomaniac individual may precipitate himself into necessary to give a clear picture of the causative great debt rapidly during a period in which finan- factors involved. cial or material gains temporarily gratify his delusions of grandeur or power. LOOKING FOR HELP In the case of paranoid states, indebtedness may represent a means by which the individual The sequence of events which bringsa family obtains revenge against fancied persecution; .or it or individual to a social agency may often be may occasionally represent a premonitory symp- these: (1) personal sources of funds have been tom at a time when he is striving for affection and exhausted; (2) commercial loan organizations security by buying large quantities of gifts for may have been used; (3) if the debts are too others. At times, indebtedness may be incurred great, more debts have been incurred; (4) gar- in depressed individuals where withdrawal from nishments or the threat of job loss results. These normal activities induces accumulation of obliga- measures have not corrected the basic causes of tions he could ordinarily handle. This picture the indebtedness. When one sees the names of frequently arises also in the schizophrenic state, many loan companies among the creditors, the where withdrawal from reality is a paramount indebtedness problem is apt to be serious since feature. Indebtedness is also frequent in patho- it usually indicates personal loss of control over logic personalities and in alcoholics, according the problem. As Dickens put it, "One man who to what extent immediate gratification of wants can't pay asks another who can't pay to certify is satisfied by financial means. that he can pay." On a numerical basis, we will more frequently Indebtedness is less serious where an individual find some variety of a neurosis to be fundamen- voluntarily realizes that he is decompensating tally active in indebtedness. Because of the neu- financially and seeks professional help as a pre- rotic's greater ability to deal with reality, his ventive measure. When the problems are studied indebtedness occurs in a More subtle and often in detail, we frequently find the indebtedness to insidious manner than exists in the aforemen- be only one expression of a family or personality tioned psychotic types. disorder which must be evaluated in order to treat When an entire family is included in the picture, the symptom properly. It's like a physical illness the ramifications of the effects of indebtedness in which a cough in itself may be a symptom of become far more formidable because of the emo- a cold, bronchitis, pneumonia, or tuberculosis. tional factors affecting their collective sense of Similarly, we may find indebtedness to be only security. Economic deprivation is a very potent a superficial symptom of almost any known per- threat to the correct channeling of emotional sonality disorder, and it is reasonable to expect maturity. that in our culture where financial status is a sym- Thus for an individual, indebtedness may rep- bol for security, this would often be the case. resent a compromise fulfillment of needs which Accordingly, we may find indebtedness when the may arise within himself or come from pressures total efficiency of the individual is impaired from in his environment. For example: internal or external pressures. 1. Indebtedness can involve the substitution of INDEBTEDNESS AS A DEFENSE a tangible source of anxiety for an intangible source, i.e., an individual with so-called free-float- The function of indebtedness as a defense ing anxiety arising spontaneously. In an obses- mechanism will be found to vary according to sional neurosis, excessive buying may be added the nature of the personality disorder. In a men- to the list of other rituals. tally deficient individual, we easily see how indebtedness can be incurred by his lack of judg- 2. Indebtedness may serve punitive needs for con- ment, his greater susceptibility to high pressure scious or unconscious guilt feelings and may also ads or salesmen, and the possibility of his being operate as an indirect method of dominating or used by other individuals for their gain. A mega- punishing a mate. GOLDBERG-89

3. Indebtedness can be compensatory to inferi- capacity to grasp or cooperate in obtaining insight, ority feelings in which material possessions func- the caseworker can give assistance in a supportive tion to support the ego. capacity as long as the results warrant its con- tinuance. A guiding and parental type of support 4.It can satisfy narcissistic needs by excessive may be the maximum type of service possible for expenditures for clothing, cars, etc. some families. Itis possible that many caseworkers would 5. It can be an expression of emotionally imma- balk at the clinical aspects of managing indebted- ture needs for immediate gratification of instinc- ness.It involves no small amount of work and tive wants. patience to placate creditors and to set up budgets and records of debt adjustments. If intensive in- The last example above is an extremely com- sight treatment is not feasible, the counselor-client mon cause of indebtedness, especially in the relationship may still be workable as long as pathologic personality group. This kind of in- progress is made on the symptoms. The level of debtedness is associated with a varying degree effect upon theclient may still be parental, of lack of consideration for the consequences of although the ideal treatment would be in the the debt and produces no apparent guilt feelings. direction of resolving causative factors wherever It is marked by lack of ability to profit by experi- possible. When this can be done, or even approxi- ence.Repetition of indebtedness is the usual mated successfully, vie usually find that the effort pattern.If these traits are too deep seated and emended was more than justified. The results are present to a flagrant degree, they are difficult to reflected in a family's stabilization and the case- manage; however, there are cases in which suffi- worker's pride in a job well done. cient balancing factors are present to make treatment possible. MONEY AND THE FAMILY :In outline of the practical as TREATING INDEBTEDNESS The following well as psychological significance of money in the From the examples above we can see that family. Caseworkers have found it important to factors involved in indebtedness may be very com- keep these points in mind: plex or very simple as in the case of temporary 1. Primary Significance of Money causes.The treatment of indebtedness varies A. Meeting basic necessities according to evaluation of the fundamental cause 1. The fundamental need for money centers or causes. However, vie will assume thatthe about its use in meeting the basic necessities majority of serious indebtedness necessitating proof life. fessional help requires intensive study. 2. Money is a fact of life which everyone, at The average counseling procedure should insome time, must deal with and develop a clude a complete survey of the individuals and set of responses to. 3. In our society we buy, rather than make, a circumstances concerned and an estimate of the living. The medium through which we ex- dynamics behind the indebtedness. Setting up the change one service for another is money. mechanics of the budget, debt adjustment, or wage B. Purchasing an environment assignment should offer a tangible opportunity for 1 .In our society the financial status of an establishing rapport between the caseworker and individualis a significant determinant of client while a study of the total situation is being what environment he is to interact with and made. The caseworker may add special services what the nature of his relationship shall be of the agency as necessary. to that environment. 2. From constructive use of the environment Ideally, the counseling caseworker should aim we obtain social satisfactions which meet, to toward helping the individual to gain insight con- some degree, our need for a sense of per- cerning the causes of his indebtedness. The task sonal significance and productivity. should be, and usually is, more than a financial 3. Sharp changes in the amount of money avail- accounting.However,ifthe clients lack the able (increases or decreases) can result in 90GOLDBERG altering the quantity and quality of such 3. We may use money as a way of punishing experiences available to us, thereby under- ourselves for certain guilt feelings. mining characteristic patterns of behavior 4. We also may use money as compensation and balance. for inferiority feelings. B. Skills demanded for family money management II. Secondary Significance of Money as an Expression 1.Postponement of immediate gratificationis of Personality an important aspect of money management, A. Dependency yet it depends upon certain ego strengths. 1. The status of adulthood in our culture re- 2. The ability to set long-term goals is a neces- quires relative independence and the ability earning one's sity for adequate money management. A to assume responsibility for strong ego, life experiences, and a value own living. system that reinforces the ego's aElities are 2. When an adult is in need of financial help, also necessary. he is no longer in command of his situation, 3. In every family, decisions must be made and, at the point of crisis when a person about how available money shall be used to faces his own helplessness, he is open and meet the demands of the individual mem- vulnerable to disaster. bers. A priority of value on individual and 3. How we spend our money is an expression family needs must be established. of a way of life. When a person's free use of his money is controlled, there is a feeling IV. The Caseworker and Money that his way of life is also being controlled A. Families with low income are low-status fami- and manipulated. lies. Having them as clients reflects negatively B. Identity on the worker. I. In a culture that values_accomplishment B. We now live in a society where it is easier and those who cannot achieve self-respect through more acceptable for people to discuss theinti- work may soon come to feel that there is mate details of their sexual life than for them something wrong with them, not only as to discuss specific details of their finances. Which workers but as husbands and fathers. of us would be comfortable about revealing 2. The recipient of income is a producer of the details of his finances, salary, savings, or goods of value. poverty? 3. We are rarely convinced of our own value. C. From the point of view of social functioning, Most often the feeling of self-confidence we the symptomatology expressed throughfaulty have is merely a reflection of ourselves in money management is far more ominousand other's eyes. That reflectionis often ex- sociallydisablingthansymptomatalogyex- pressed through the monetary value assigned pressed through sexuality. to our activity and the products of ourlabor. D. People in need evoke uncomfortable and angry 4. Money, as much as any other single factof feeling in all of us; they touch too closely upon life, determines our relationship to people our own dependency needs. and things in our environment, our position V. Significance of Work in Adult Functioning in the status and prestige system in which A. As adults, all of us have a need to create, to we live, our concept of ourselves, our per- contribute to the world around us. Our work sonal worth, and the value of things we do should meet this need in part. and produce. B. In our culture, various jobs, as well asvarious 5. Whether a man's failure is the result of his incomes, are assigned status meaning. Thus the own shortcomings or due tocircumstances kind of work we do, as well as the money we beyond his control, he views his lack of receive from it, bears on our sense of ourselves. accomplishment as the community does, iii C. Our sense of our own worth and valuehas a terms of personal failure. direct bearing on ihe way we perform a job.If III. Money Management we do not value our job, wewill not value our A. Significance of money management as an ex- performance on it. pression of personality 1. Feeling uncomfortable in a vague wayis always more difficult for the individual to FAMILY STABILITY tolerate than is feeling uncomfortable about a specific problem.Therefore, anxiety about A California judge has said that moneytroubles money can often be an expressionof broader produce more family breakups than anyother and less-focused anxiety. single cause. A family either controlsits money, 2. Families may use money as a methodof con- family or indi- trol, domination, or punishment ofcertain or money controls the family. No members. vidual who cannot control finances is secure. One GOLDBERG-91 of the biggest problems in most households is a husband with the irrational butunconscious search for the one magic deal which will produce unlimited dol- debtuncontrolled debt. lars,security, self-esteem, and a solution for all his Overindebtedness has become the most impor- probems; tant family financial problem both in its extent a partner who is searching for excitement tomitigate and the depth of the damage that it does. The feelings of emptiness and inner deadness. Here, there is damage is disruption of family life, job loss, and often a need to set up and resolve larger and increasingly marital discord. Many families plan payments to precarious problems within himself; the hilt of their income and an interruption such an individual having an unconsciousunresolved need as illness, unexpectedmedical costs, or a tempo- to please and to gain approval from a mother or father rary layoff from employment can createdisaster. figure, often long since gone. This need is sometimes Some families have always been in debt, adding transferred to a wife or husband. to loans when the balance is almost paid. They the person who is totally unfamiliar with leisure. To spend most of their lives paying interest for the this. individual, life is work and work is life. There has privilege of borrowing ahead to buy something been no experience with anything else. Learning about they feel they must have now. different activities can be most painstaking and difficult Families who come to a social agency usu- for him. ally see their financial problems arising from: (1) housing costs, (2) medical bills, (3) debts, These foregoing psychological implications may (4)budgeting, and (5)food expenses.Our be the basic personality problems of a husband Agency sees the problems really divided into who is always in financial entanglements even (1) personality factors and handling of money, though he is considered financially successful. We and (2) dearth of income, with an overlapping try to help such individuals recognize and under- between these two. Often families with adequate stand the psychological implications of their ten- or better-than-averageincome have as much trou- dencies, how their behavior affects other mem- ble managing their money as poorer ones because bers of their family, and how they can change in of the role that emotion plays in the use of money. order to build a happier and more balanced In most families, we have found that one parent foundation for the total family life. has the dominant role of handling the money and In some cases we may deal with the personality making financial decisions. This parent may or and partner who cannot buy anything for herself may not have the best "moneysense." without feeling guilty, or without asking herself Recognizing the interrelationships and inter- first whether everyone else in the family has that actions of different personality factors between same thing, or an equivalent.This behavior shows spouses, we may find one of anynumber of be- a combination ofdifficulties in relating to oneself problems causing havioral patterns: and to others. The pattern of this symiN.om may vary from person to person. one partner with a chronic questfor power, prestige, Very often we find poor self-esteem, a compulsi.,-; and money attempting to mitigate underlying (and un- need to be liked, and greatdifficulty in self- conscious) feelings of inadequacy and personal worth- assertion as the main reasons. The symptoms may lessness. This individual feels that he or she really owns not disappear until theproblems have been re- nothing at all and is stuck with his feelings of personal impoverishment regardless of how much he actually solved, and this may require psychotherapy or a amasses; referral to a psychiatrist. On the other hand, one spousesearching for an individual with self-hate andpunishment needs security may have the impulse tobuy material who uses pressures and entanglements to impose a state of unrelenting emotional pain on himself; things far faster than the breadwinner can earn the weekly wage. This is closelyrelated to another an individual with poorjudgment who sees himself characteristic trait, the impulse to buymaterial as limitless in effort, energy,and time; things for one's children, showeringthem with a partner with the need formaintaining emotional gifts, toys, and clothing. This is a formof com- "dilutes" distance from himself and from his family. He pensation for the buyer's deprivedchildhood and his relationships through a constant preoccupationwith business worries or other outside interests and hobbies; goes back to his orher own personality problem. 92-GOLDBERG

The need for material things, for which families both the theory and practice of money manage- go into debt, can affect family life to the extent ment. The value of money is considered from two that the husband must take on an extra job or the points of viewsource of funds and the use of wife must go to work to supplement his salary fundsand also in relation to other values in our and be able to meet commitments on payments. society:aesthetic, social, psychological, and reli- This may result in deterioration of family rela- gious. The key to success is to understand per- tionships. When the husband has pressure put sonal wants, values, and goals. Some families on him to work extra hours, he loses his "place" and individuals have to be helped to distinguish in the family as a parent and the wife assumes between wants, goals, and needs. more responsibility for thechildren and their dis- In setting up a debt adjustment plan, the case- cipline. If the wife does take employment in addi- workersfirst calculate the adequate minimum tion to the role of mother and homemaker, she budget which will give proper nutrition and meet may build up resentment against herhusband's the essential needs of the particular family. Our supposed inadequacies. home economics consultant helps to set up appro- Social agencies give both specific and general priate budgeting standards. The budget is then help in financial counseling. We try to help fam- subtracted from the family income to determine the ilies recognize what money means to the total balance available to apply to the debts. A reason- family and to each individual, emotionally and able estimate of 13 to 15 percent of the take-home materially. We help them to see when money is pay after taxes is considered the amount of limit used as a means of control by one partner over for indebtedness, but many families far exceed this the other, or when parents use money to lavish limit. The balance of their available money is then material things on their children to win their prorated as equitably as possible according to the loyalty, love, and respect. size of the individual debts outstanding. Some- We help them to see that indebtedness may stem times a wage assignment is advisable to ensure from the need to "keep up with the Joneses," to an equitable distribution of the family'sfunds. have as nice a car, boat, or television set without Generally, families accepted for debt adjustment realizing the limits of one's earnings and future service are those who have enough income in earning power. When the expectations of over- addition to the basic household budget so that spending exceed the income and running basic prorated payments can be made to each creditor budget, we generally find poor communication and debts can be paid within a two-year period. between parents, and conflicts result.This in- The budget is reviewed periodically with the fam- evitably not only affects the relationship between ily to consider necessary and reasonable adjust- parents but it builds tension in the parent-child ments. relationships as well. The husband and wife must both show some indication, at the time of application for help, that they will work together on learning to handle A COOPERATIVE EFFORT their finances. Both must be wining to live on a marginal budget and show that they aresincere Recognizing the many implications of finances in paying their debts and are not just seeking and indebtedness in families and working toward protection from their creditors. Either husband or a solution that will bring a feelingof unity, accom- wife or both are expected to consult with their plishment, harmony, and security, social agencies caseworker a minimum of once a month or, more and social workers have, for many years, been ideally, every pay period. counseling in money management and debt re- The success or failure of a money management duction. Sometimes it seems like a losing battle and debt adjustment program is based on clear when we learn that in the past decade installment diagnostic thinking of the socio-psychological as- debts have doubled, reaching an all-time high not pects involved, with theexpectation that the only in dollars but in percentage of income. families who seek help will become financially Through joint interviews, family interviews, or rehabilitated and able to function more adequately discussion group meetings, caseworkers approach and independently. _

THE PRIMROSE PATH FROM EASY CREDIT TO BANKRUPTCY

JACK N. EISENDRATH

for dis- Recently the AdvertisingFederation of America 'are presented to the bankruptcy courts chairman issued a news release statementopposing the in- charge each year. John Kearney, former troduction of consumer education programs to of the Illinois Committee for FairPractices, said, what the Federation said was analready over- "The human suffering that is caused, thebreakup crowded curriculum of thenation's senior and of families, the breakdown of individualmorale, of life are junior high schools. TheFederation contended the deprivation of the very necessities that the movement byprofessional consumer traceable, in many instances, to so-called easy- payment plans, which wind upbeing very difficult groups would"unfairly influence our school chit- suspicion in their indeed." dren and create doubt and 500 minds as to the integrity of thecountry's business American consumers carry an estimated practices." It went on million credit cards and plates, withoutstanding firms and their advertising be about $900 to say debt on credit cards estimated to million. In 1966, 168,000 gasolinecredit cards Neither government, professional consumergroups, existed in nearly 40 percent of the422,000 house- nor people inadvertising have any right to further holds in the Milwaukee area. Onebank in Mil- complicate an already criticalsituation in our waukee had 700,000 credit cardsin 360,000 schools for the purpose of spreadingpropaganda, households in Milwaukee. It isestimated that thereby distracting the attentionof the students in August 1967 there were over1,000 banks in from the serious purpose ofgaining a proper the country issuing credit cards. education. Recently, a 19-year-old girl came to myoffice Available facts do noi support the concernof asking for help with her finances.A large part credit cards, the Advertising Federation ofAmerica. Nation- of her debt was a result of use of of over ally, the total of bankruptcies rosefrom 18,510 in including one bank credit card charge 1948, when total consumer credit was$141/2 $500. She stated that the girls wholived in her which one billion, to 208,329 bankruptcies forthe fiscal year rooming house had a contest to see We wonder ending June 30, 1967, when consumercredit was could acquire the most credit cards. about $95 billion. This is an increaseof almost what pressures were later used to recover on 700 percent in less than 20 years,far greater the .debts incurred, and whatheadaches and who discov- than the increase in population. In1948 install- heartaches were suffered by the girls hard pay" credit ment loans were 6 percentof disposable income; ered that this was an "easy buy, in 1967 installment loans were13.9 percent of adventure. the candidates disposable income. It is well known that many of It is relevant to this discussion tonote that for 'the burgeoning bankruptcystatistics live from dollar of income all bankruptcies are multiplyingrapidly at a paycheck to paycheck, with each installment time when employment isat an all-time high, spoken for well in advance. Often the the weekly pay- and personal income hasincreased steadily.It payments are almost equal to bankruptcies have check, with not enough left overfor proper food is significant, also, that personal family. When the increased at a steady pace.Today, for the first and shelter for the debtor's off at the factory due to re- time, consumer or wage-earnerbankruptcies are wage earner is laid wife is pregnant, almost 92 percent of the total. tooling, or when the working illness occurs, the "house of It is estimated that about $11/2billion in debts or an unexpected

93 94-EISENDRATH credit cards" collapses and buries the family in pany or credit union, or co-sign for the purchase a helpless mire of installment payments. of an appliance or furniture. After bankruptcy, if these men are to continue to work together without ill feeling, the bankrupt has no way out BANKRUPTCY NO ESCAPE but to reaffirm this debt. After all these unfore- seen and apparently inescapable pressures, the In some circles bankruptcy has become as bankrupt easily finds himself in debt up to the fashionable and automatic as a new station wagon. tune of several thousand dollars. The question is whether bankruptcy serves its Another obstacle which prevents bankruptcy intended purpose today. Too often the bankrupt, from becoming a source of relief is the increasing after filing his court papers and obligating himself use of fraud actions against the bankrupt inthe for $300 or more in court costs and fees, finds State Court after bankruptcy has been completed he is following a mirage. in Federal Court. Before the impact of installment credit and The average debtor seeks a loan because be loans in the United States, it was possible in a is in serious financial distress and owes 15 to 20 bankruptcy to discharge one's debts and make a creditors. The lender asks him to list all his fresh start. outstanding debts, ostensibly to aid the lender Today however, in many cases, at the time of in deciding whether to make the loan. The debtor bankruptcy the bankrupt still owes a large balance who has not earned his Doctor of Philosophy on his automobile. He isunwilling or unable to degree, or graduated from the "Accredited School return the automobile and discharge thebalance of Memory Training," cannot remember his 20 due on the automobile, so he reaffirms his obliga- creditors and the amounts owed to each. As a tion for monthly payments. result he lists some of the creditors and balances Often there is a large balance due on the bank- which come to his mind at the moment, 'and rupt family's automatic washing machine,refrig- innocently presents this as his complete list. Then erator, freezer, or color television set. The con- the debtor, who failed to reveal all his debts when venience of the appliance has become a necessity he applied for the loan, may be sued after a and the dealer is in position to solicit and pressure bankruptcy for the full balance due the offended reaffirmation of his credit contract.In some in- creditor, and the bankrupt suddenly finds himself stances, the merchant has been known toreaffirm with a large debt to repay, plus court costs and on condition that thebuyer make an additional attorney fees after suit in the State Court. credit purchase in recognition of the dealer's At a recent Bar Association Seminar in Wiscon- generosity. sin, a bank attorney advising lawyers on how to After several such reaffirmed debts, the bank- handle collections, said that 9 out of 10borrowers rupt is soon over his pocketbook in debt before fail to reveal all their debts for fear thatthey one can say, "Yourfriendly finance company will not get the loan they need so badly, and stands ready to serve you 24 hours a day." One thus become subject to fraud suits.In a com- finance company in a largemidwestern city munity in Milwaukee, because of the large num- boasted that it had secured a reaffirmation of all ber of court actions, some financecompanies its loans in cases of bankruptcy since the first have found it efficient to mimeograph forms tobe of the year.Such success occurred because of used after bankruptcy for suits -for fraud. the company's careful training program for per- The foregoing is not meant to excuse thebor- sonnel on how to persuade a bankrupt to reaffirm rower for fraudulent statements,but to raise the his debt.This is part of the company's policy question of accepted commercial lendingpolicies that continued friendliness with the finance com- which anticipate fraud, and develop procedures pany is very muchdesired. in advance tc meet expected fraud. Thebank- There are many bankrupts who, in order to rupt who isaced with a fraud suit will often secure a loan before bankruptcy, arerequired to reaffirm that debt too, even though he mayhave have a co-signer. They then ask friends, who a proper defense to along and expensive court work with them, to co-sign at the finance coin- action. EISENDRATI1-95

EFFECTS OF BANKRUPTCY with a co-signer?If a bankruptcy does occur, the lender eagerly turns to the co-signer who is a When numerous debts are reaffirmed, the bank- good credit risk, and the disturbed co-signer rupt and his family face a bleak future of being faces an unhappy future of unexpected debt. forced into family strife about money matters, and subsequent family disintegration.It is esti- CHECKING THE PROBLEM mated that almost 20 percent of bankrupts are repeaters who will seek entrance into the court Eagerness to load the wage earner with mer- again for a new bankruptcy after the statutory chandise should not be an excuse for permitting waiting period of six years has expired. In many no-money-down sales. Different kinds of solutions cases, debtors resort to badcheck writing to are possible. Credit buying and lending can be meet installment payments, and thecriminal war- restricted by laws which require an adequate rant becomes the next obstaclefacing the fr may down payment on all installment sales. Extension breadwinner.It has been estimated that every of credit and loans to poor risks can be regulated. day in America 300,000 bad checks are written. In fraud actions sellers and lenders should not be These are some of the factors that make con- indulged by the courts when they offer excuses sumer credit and bankruptcyinvolvement a se- for not knowing about an existing large indebted- rious social concern that requires a long, hard ness.Surely our computerized modern society examination. Careless extension of easy credit to can devise some type of centralexchange in mesmerized buyers, carefully planned advertising which debts can be assessed before further credit campaigns for easy loans, a fast telephonecall, is extended. or a simple postcard invitedebt and demand na- From the examination of available statistics, tional attention to a rapidly expanding socialevil. it would appear that if the rapid rise of bank- Some people berate the wage earnerbankrupt ruptcy is to be checked, individual stateswould as possessing a new low moralfiber, eager to file do well to abolish, or severely limit wage garnish- bankruptcy at the drop of a pencil, with no respect ment. In this way courts would not be used for for the merchant's investment or the funds of the easy collection methods whichrelieve merchants finance company. While this castigation of the and lenders of careful credit practices. Where debtor gathers momentum, one forgets the full- garnishment laws are concerned many states are page repeated advertisementsof the merchants, sorely deficient in allowing exemptions of wages extravagantly describing how easy itis to pur- which are not adequate for family subsistence. chase a glorious, unforgettable color television set Under such pressure it is natural that the wage at a new "everyone-can-afford-low-low-pricewith earner, whose first obligation shouldbe to his no money down and36 months to pay." These family, will seek relief in the Bankruptcy Court. impressive advertisements make no mention of the In Wisconsin garnishment is so easy that a 18 percent or more interest that will be added creditor can tie up a man's wages even before the to the quoted price. Court enters a judgment and makes a determina- Is the alleged moral descent of thebankrupt tion that a debt is owing. Attempts to change related to the friendly finance company's repeated this law have been fiercely fought by the commer- letters to its list of borrowers which askwhere cial lobby.The county of Milwaukee has about they have been for the past few months and urge 13,000 garnishments a year, or an average of 50 them to come in for a fast loan? A localdepart- per day, every day the courts are open.Consider ment store, member of a nationalchain, instructs the disaster to the large number of wage-earner its clerks in the collection office to call customers families who are caught inthis financial tidal who have not had credit purchasesfor some wave. months, and invite them in to make use oftheir In a 1965 study of bankruptcy in theFlint, charge account. Michigan area by Robert Dolphin, Jr., 75 percent How is the so-called moral decadence ofthe of the bankrupts indicated thatgarnishment, or debtor related to the too-easy loan made to poor- the threat of garnishment, caused them tofile credit-risk debtor without adequate security, but bankruptcy. Statistics show that the states where 96-EISENDRATH garnishment is easy have many hundrA percent of the debt balance may be paid over three years. more bankruptcies than states where wage-earner The debts are then discharged in full at the end of garnishment is prohibited or made difficult. three years. If the Plan has been properly com- plied with under such a proposal, a debtor could USING CHAPTER XIII pay 80 percent, 50 percent, or 20 percent, or any percentage of the balance due, and secure dis- For the person who is having serious debt charge of debts in full.Creditors who are un- difficulties, one alternative to bankruptcy is the secured must be treated alike for payment under use of Chapter XIII in Federal Court. Under the Plan. Secured creditors may be dealt with this proceeding a wage earner can petition the on an individual basis inside or outside the Plan. Court to accept a Plan for payment of his debts To be confirmed, the Plan must be accepted by over a three-year period. He must be insolvent or a majority of creditors in number and amount of unable to pay his debts as they mature. The proven and allowed debts due unsecured creditors. wage earner is called a debtor rather than a Once the majority accepts, the remaining creditors bankrupt. must abide by the Plan, though they may have In bankruptcy there is an original filing fee of opposed the Plan. All secured creditors included $50 and an attorney fee of approximately $250 in the Plan must agree to accept. Most creditors required in most cases before the papers are will accept any reasonable Plan, inasmuch as the filed. Obviously, most depressed debtors will need creditor then saves excessive collection energy and to go further into debt to get such fees. Under expense. Chapter XIII the only cash requirement is a $15 For the duration of the Plan the Court retains filing fee. The rest of the fees, which are more exclusive jurisdiction of the debtor and his prop- costly than bankruptcy fees, consist of approxi- erty. Under this rule, when the Plan is filed, the mately 10 percent of the amount pai4 to creditors Court can immediately restrain creditors from by the Tratee, who is appointed by the Court, garnishments, court action, and harassment, which and the regular attorney fee allowed by the Court. can be a lifesaver to the debtor. While the Plan These fees are not required in advance, but are is in operation the Court has jurisdiction to in- taken out of wage deductions paid regularly crease or decrease payments by the debtor, if during the Plan. conditions warrant. The Court, at the time of While the expense of such a Plan is greater filing, can reject executory contracts which might than the cost of bankruptcy, there are several interfere with the financial stability of the family. saving aspects. First, when a Chapter XIII Plan During the operation of the Plan the debtor is begins, creditors can no longer add interest to prohibited from entering into new contracts and the principal due. Also, not every debtor can use making unnecessary purchases or loans without a Chapter XIII proceeding. approval of the Court. To determine whether a debtor iseligible, Under a United States Supreme Court decision, the husband and wife meet with the attorney and a debtor who has been bankrupt may file aChap- work out a practical family budget. Living ex- ter XIII proceedings even if the six years have penses are subtracted from income. For a feasible not elapsed since he filed bankruptcy. Nearly Plan, sufficient money must be left over to pay 50 percent of those who file under Chapter XIII the debts, exclusive of real estate debts, over a in the Wisconsin area have been bankrupt and three-year period. This is called an extension of do file under Chapter XIII before six years have debt payment. For example, if debts total $2,000, elapsed.This fact emphasizes the failure of a wage earner would need $15 pr week to pay bankruptcy to solve the debtor's needs. the Trustee in order to be relieved of his debts at the end of three years. LIVING WITH THE PLAN The law also provides that if a debtor does not have enough to pay his debts in full over three Experience has proven that if a Plan is to be years, he may propose under certaincircumstances successful, payments into it must be made through a composition of debts under which a percentage payroll deduction by the employer. Once the em- EISENDRATH-97 ployee is under the Plan he may become much Plan, an attorney who is willing to do his part more efficient, because the worryand strain of to add to the rehabilitation of a debtor who needs garnishment and harassment has been removed. support and understanding help, and a debtor who However, it is evident that requiring a debtor has some willingness to learn and practice the to remain for three years under awage-assignment essentials of the intelligent use of money and Plan to a Trustee is a strict discipline that oftenis credit. To rehabilitate a family that has lost its more than the debtor canendure. For this and way in the financial mazes of moderncredit living other reasons, Chapter XIII proceedings are not takes more than proposing a Plan to the Federal guaranteed of success. Court.The intricate and devious commercial In a Wisconsin jurisdiction it is estimatedthat pathways in our life demand that a system of about 50 percent of the Plans fail before com- family financial counseling be developed, with pletion. Nationally, about 40 percent of Chapter public or private sponsorship, in all of our urban XIII Plans are completed. In the UnitedStates centers. during 1966 a total 3f $18,826,318 was paid to For those who have completely lost their way creditors in 10,529 Chapter XIII cases success- and enter the courts, one suggested plan is for fully concluded.Let us remember, however, the Federal Court to institute a program of coun- that many millions more are paid tocreditors in seling for Chapter XIII debtors as an adjunct cases which aredismissed before they are con- to the Court and the Chapter XIII plan.In state cluded. In 1966 a total of 28,261 ChapterXiII divorce courts where marital harmony has become cases were filed in theUnited States. It will take bankrupt, the divorce counselor of the court is an three years to know how many of thesewill be accepted assistant to the legal machinery to aid concluded. . ". in strengthening the family. In the federal crhn- While Chapter XIII does not solve theproblem inal area the high-level guidance of the Federal of high-pressure loans and overbuying, aChapter Probation Department gives important assistance XIII Plan does correct some of thefailures of to the Court. This assistance is necessaryto help bankruptcy where there might be numerous re- the law violator become a worthwhilemember affirmations of debt because a debtordesires to of society again. With well over a millionfamily keep merchandise, or wishes to protectco-signers members_and many more millions of creditors or where creditors startfraud action.Chapter annually being affected by bankruptcy and Chap- XIII also preserves the feeling ofself-respect ter XIII proceedings, here is alogical area for that some debtors lose in filing bankruptcy.Chap- careful and searching social planning to solve ter XIII enables the debtor tofeel he is facing difficult social needs. his creditors and not just avoidingobligations. With care and wisdom -we can turn thegrowing (A comment should be made hereabout pending area of financial failure into oneof solid strength federal legislation which would makeChapter in modern family living. The success of afamily- XIII compulsory should the CourtReferee decide oriented society depends on a healthy, freefunc- bankruptcy is not feasible for a debtor.There tioning family unit, and good mental health can- is much responsible opposition to suchlegislation, not exist for children and parentsin a family that especially with the reasoning thatChapter XIII is always living on the brink offinancial disaster. must be voluntary tosucceed, and cannot be The full mental resources of suchfamilies must be successful as a forced program.) available to help seek a workable solutionfor the Chapter XIII's suci...;$ sful implementation re- seemingly unsolvable issues in the tense anddis- quires a sympathetic Referee who believesin the turbed cities of today.

- 11.

- SOURCES OF CREDIT

BARBARA HIGGINS

The purpose of comparing credit sources, their developments. The use of the credit card in the procedures, and their policies, is to determine last few years is but one evidence of the changes which one best meets the need of the consumer taking place, and we will probably see many more at a particular time and for a particular purpose. in the near future. Some borrowers may find only one or two sources open to them while others might have a choice SALES CREDIT of several sources. When a choice is possible, the borrower should consider (1) the amount of Retail or sales credit is extended to consumers money he needs; (2) when he needs it;(3) by department stores, furniture and appliance length of time he needs it; (4) what payment stores, and by automobile dealers. Certain chain arrangement he can follow; and, most important, stores, discount houses, and supermarkets also (5) where he can get the lowest interest rate. offer credit plans to their customers. These plans There are several ways of classifying credit carry many different labels and have many varia- sources. The Federal Reserve Board calls one tions. group installment credit and includes in this group what is called automobile paper, other consumer Charge accounts allow a customer to purchase goods paper, repair and modernization loans, goods or services with a promise to pay the full revolving charge accounts, and personal loans amount at a specified future date, usually within repaid in installments. The second group is called 30 days. He gives his signature in receipt for the noninstallment credit. This group includes single- goods and later pays with cash or a check. payment loans and charge accounts, tiicept for This type of account is referred to as a regular, the revolving and service credit which is credit or 30-day, account. Normally there is no charge, extended by doctors, dentists, utility companies, as such, to the customer using this type of account. and similar groups. . Budget charge accounts require that only a por- Another way of classifying credit is to call one tion of the bill be paid each month for a set period, type sales credit, that is, where the consumer re- possibly three, six, or twelve months. Some ac- ceives a product and promises to pay later. A counts require a regular monthly payment regard- second type would be called loan credit with the less of the amount charged to the account; others consumer borrowing cash, usually from a financial determine the payments to be made according to institution, and promising to repay the loan at the amount of the obligation outstanding.Or- a later date. dinarily, there is an interest charge or credit fee For our purposes we will use the sales credit with the rate stated on a monthly basis. loan credit grouping, as that probably represents the consumer's usual way of thinking. Option charge accounts operate like the 30-day Our discussion here will give only general account if the bill is paid within a certain number information about the more common types of of days. If the billis nnt paid as agreed, the credit used by the consumer, since many varia- account is changed to a deferred payment plan tions exist.State laws differ and localities differ and interest is charged on the amount outstanding. in policy and customs.Likewise, in our fast- Payment may be extended over a period of moving age and in the expanding field of con- months, but a portion of the amount owed is sup- sumer credit, we see many innovations and new posed to be paid each month.

/1" HIGGINS-99

purchase Revolving credit accounts allow the customer Installment plans are a form of credit bring the balance in which a predetermined amountis paid periodi- to make new purchases and to the article and owed up to a maximum amount if he meetscertain cally until the purchase price of paid. This type payment conditions. With thisplan the customer the carrying charges have been priced items than can make newpurchases before he has paid in of credit is used for higher The plan may would normally be purchased on acharge account full for his previous purchases. household ap- require either specific monthly payments orthat plan, e.g., automobiles, furniture, a percentage of theprincipal be paid each month. pliances, and equipment. Whenever the payments reduce the amountdue Installment plans involve a contractual agree- contract, lease, or below the maximum amount allowed,the buyer ment. A conditional sales always neces- can make newpurchases up to the maximum. chattel mortgage contract is almost An interest charge, stated as amonthly rate, is sary. In turn, thepurchaser signs a promissory As added to the balance owed atthe end of each note which states themonthly payments. security, the seller retains title to thegoods and month. has the right to repossess if paymentsbecome Charge account banking is a planwhereby re- delinquent. tailers in an area offer charge accountservices In installment buying, the customer pays an particular bank assum- interest or finance charge which isadded to the to their customers with a purchased. A down ing all risks and costs. The customer maybuy on price of the article being required, shows that credit in several stores andreceive one bill at payment, which is usually in the purchase the end of the month. Thebank pays the store, the buyer has a genuine interest and the customer pays the bankafter 30 days. and eliminates some of therisk of non-payment. lessens the amount of In effect, the bank makes the loan tothe customer. A larger down payment usually paid by the credit extended, lowers therisks involved, and A charge for each sale is be paid, all retailer, and the customer pays a feefor using lowers the total finance charges to advantageous to the pur- the service. Budget accountsallowing the cus- of which prove to be tomer to pay over a periodof several months chaser. offered with an additional fee for Some families use installmentplans because are sometimes amounts are easier this arrangement. periodic payments of smaller than saving ahead to paycash for the more Credit cards are mentioned herebecause they expensive items.Meeting an obligation on a represent a source of credit1in retail stores as weekly or monthly basis has anelement of force, well as other places. They are avariation of and certain people thinkit helps them to meet charge accounts and may beissued either for a their obligations. However,it is important that specific purpose or as a general purposecard. they also compare the interestcharges to make Credit cards make it possible for the consumerto sure they knowhow much buying on creditis charge for services at restaurants,hotels, motels, actually costing. airlines, telephone companies,and gasoline and The conditional sales contractis commonly auto service stations. used in insollment buying.Title of the goods In the credit card system,merchants bill the remains with the seller until hehas received paybills the credit card company, which, in turn, ment in full. If payments are notmade as agreed, customer. There is a feefor most general purpose and the customer usually do not the seller can repossess the goods cards, but specific purpose ones can be heldresponsible for the deficient amount. involve any extra costs. The repossessed goods aresupposed to be sold There tends to be no limit on theamount that and any money over theunpaid balance and ex- can be charged.However, the card can bewith- penses involved inthe selling returned to the drawn if the buyer does not pay.Credit cards are They are useful customer. This can be arather confusing and looked upon as a convenience. work to the to those who want arecord of expenses, and involved process and not likely to especially useful to those who travel. customer's advantage.

_ -

100HIGGINS

If the sale of the repossessed goods does not ing ftel payment on the due date. The installment cover the unpaid balance, the seller can bring repayment loan is for longer periods, usually a judgment against the customer for the unpaid 3 to 24 months, and requires periodic payments. amount. The customer would then owe the un- Loans of either type may be unsecured with paid balance on goods he no longerowns. only the borrower's signature guaranteeingrepay- The chattel mortgage contract is similar to the ment. Some loans may have a co-signer, a third conditional sales contract in that the seller holds party who endorses the promissory note and title until the final payment is made. In default of thus gives the bank two persons guaranteeing payments he can sell the goods and apply the payment.Even with a co-signer no tangible proceeds to the amount still owed. In many asset need be pledged.If the loan is a secured states the mortgage is filed as a matter of public loan, collateral would be deposited at the bank record.This protects the seller against anyone or pledged as security, to insure repayment of taking a lien on his interest in the property. the loan. The bailment lease is used infrequently.Title The amount that can be borrowed fromcom- of the property remains with the seller until the mercial banks varies among banks and is usually last payment is made. It is then purchased for determined by the purpose of the loan and the a small sum, although this is usually waived by credit record of the applicant. Banks have rather the seller. In essence, the customer pays for the high minimum credit requirements because they use of the property until the payments are com- are lending money entrusted to them by their .. pleted.If the customer defaults, the seller takes depositors. However, those who qualify for bank back the goods and keeps the previous payments loans will find the interest charges lower than as rent for the property rather than as payment those from most other lending agencies. for the property. This discussion of installment buying should be Industrial banks formerly specialized in making sufficient to convince one of the importance of loans to industrial wage earners.They have reading and understanding the terms ofany in- now expanded their services, making more loans stallment contract. The buyer should makesure to individuals, offering savings and checking ac- all blanks are completed, and he should read and count services, and performing functions similar understand the contract before signing it.The to the commercial banks.Originally they were contract should contain the following amounts, known as Morris 'Plan Banks but most of them listed separately and not together in a lumpsum: have dropped this name and now call themselves industrial banks. Unaer their plan for loan repay- Price of item, excludingAmount to be financed ment, the borrower makes regular payments in extras Amount of weekly or a non-interest-bearing account, ar..tnged so the All extras, itemized monthly payments borrower will have enough on deposit to repay the loan when the maturity date is reached. Trade-in allowance, if anyNumber of payments Down payment Amount of extra financing Sales finance companies might be labeled an Cost of insurances if any costs, if any indirect source of credit because they buy installment credit paper from retail merchants for cash. The sales finance company takes title to the LOAN CREDIT property and collects the payments. These companies offer different plans. In the Commercial banks make direct loans tocon- full recourse plan, if the buyer fails to pay, the sumers and purchase installment credit contracts seller is responsible to the finance company for the from automobile and appliance dealers. Acom- unpaid balance. With the limited recourse plan, mercial bank personal loan may be a term or the seller is responsible for the first few months, single-payment loan, or an installment repayment after which his responsibility is reduced or elimi- loan. The term loan is a short-term loan, usually nated. In any case, if the buyer defaults, the for 30 to 180 days, with a promissory note requir- finance company repossesses the property for HIGGINS-101 resale in order to cover the unpaid balanceof operation. Policies and regulations differ in vari- the loan. This type of credit is usedmainly for ous states. financing automobiles and household appliances, Loans are made on the basis of character, but it may extend to other types of purchases. number of shares held, second mortgages, chattel mortgages, other securities, and with co-signers. Savings and loan associations and savingsbanks Credit unions operate with low overhead costs usually make loans up to the amountthat the because of officer-donated services and employer- borrower has on deposit. The share account, or donated facilities and equipment. Because credit passbook account as it may be called in asavings investigation costs arc low, interest charges on bank, is accepted as security when a short-term loans are comparatively low. loan is wanted. These loans are often used when the interest charged on the loan is less than the Insurance loans are available to life insurance amount of dividend or interestearned in the policyholders directly from the insurance com- particular period of time. The loan isusually pany after policies have beenin force long enough available at a preferred interest rate since itis to accumulate cash value. A policy mayalso be secured by the borrower's deposits. It is used to used as security for a loan at a commercial bank. save interest, or whenthe borrower does not wish This applies to all kinds of life insurance except to disturb the principal ofhis account. term. Some savings banks make personal loanswith An insurance policy is used, in essence, as col- or without collateral. lateral for a loan. The amount of the loan can One of the main purposes of bothsavings and equal the cash value of the policy, and theinterest loan associations and savings banks isthe financ- rate is usually lower than the rate aborrower can ing of home ownership and homeimprovements. get on loans from other sources. Their mortgage loans are usually theamortized, From the lender's viewpoint, there is no risk monthly payment, first-mortgage type,although involved. Should the borrower fail to pay the they make second mortgages. A home owner loan, the lender's money can be collected as long may mortgage his home toobtain money for other as the principal andinterest do not exceed the consumer purposes. cash value of the policy. Insurance companies encourage but cannotde- Credit unions are mutual voluntary cooperative mand that loans be repaid.If the loan is not groups organized forthe dual purpose of pro- repaid, the obligation is deducted front theface moting savings and making loans to their mem- value of the policy, leaving less for thebenefi- bers. The credit union may be a particular group ciaries. of employees or may be made up ofchurch, fra- Loans on insurance policies are convenient to ternal order, racial, or community groups.All arrange, usuallyavailable on short notice, and borrowers must be members of the creditunion. can be obtainedwhen money is not otherwise Membership is obtained by buying, for asmall available.Ineffect,the loan represents the sum, at least oneshare of stock. The purchase savings accumulated in the policy bythe borrower of additional shares of stockestablishes a savings' and is his own money. But the companyconsiders account for the member, and hisdeposits are used it must charge interest to the policyholderin order as capital to lend toborrowers. Profits of a credit, tocover the expenseof making the loan and to union are paid out to the shareholders inthe form offset interest it could otherwise beearning on of dividends. the money. The credit union is managed by a boardof directors or by trustees elected by thesharehold- Consumer finance companies ,c,,r small loan Officers are appointed by the board.All companies specialize in making ;mailloans to ers. might not serve withoutcompensation. people whom other lending agemies Credit unions are chartered under federal or consider a good risk. The general conceptis that state laws, and all of themfollow the same funda- people use the services of a finance company to mental plan; but they are not entirelyuniform in tide them over a financial emergency;therefore,

, 102-HIGGINS many of the loans are for a few hundred dollars, gation.If the loan is not repaid, the property is often under $500. These companies came into sold, any surplus is given to the borrower, and any existence as an effort to curb illegal moneylenders loss is accepted by the society. Interest rates are or "loan sharks."People without assets who comparable to those of banks and credit unions. could not meet the requirements of other lending agencies would turn to individual moneylenders Pawnbrokers might not be considered part of who charged extremely high rates. the consumer credit industry, but they do provide Most states now have small loan laws which an immediate source of money. Most of their regulate the maximum loan allowed and themax- customers are from low-income groups who are imum interest rate to be charged by these com- often unable to borrow elsewhere. With pawn- panies. Usually the law permits varying rates on brokers, no note is signed, but personal property different size loansthat is, a higher rate on the is left with the pawnbroker as security. The prop- smaller loan. erty is appraised, and the loan averages one-fourth Small loan and finance companies have higher to one-half of its resale value. The loan is avail- maximum rates than other lending institutions, but able immediately.Property can usually be re- it should be remembered that they meet a specific deemed within a year by paying the loan plus need. These companies will make loans to per- interest in one lump sum. If the loan is not paid, sons not considered a good risk by other lenders, the lender has the right to sell the property; they make loans in small amounts, and their rates however, the borrower has the right to any sur- are all-inclusive; that is, they do not include any plus, if there is any. fees, fines, or handling charges. The amount of Interest rates are rather high; but, of course, the payment is usually the same for each month if the property is not called for, there is no in- of the loan and includes interest on the unpaid terest charge and the borrower receives only the balance. A promissory note or agreement is original amount of the loan. Most pawnshops signed by a borrower for the amount owed in- operate under special state legislation but with cluding the interest charges. very little supervision. If a borrower defaults in his payments, a company tries to get him to pay something or to re- Illegal lenders- operate outside the law and arrange the payments to take care of his obliga- charge whatever they can get. Naturally this is in tions. It is, of course, to the interest of the com- excess of the maximum permitted for ordinary pany to keep losses at a minimum. loans.The borrowers are unfortunate persons In former years finance companies loaned who have no other source of credit. The rates money only when the loan was secured by a co- are so high that often after making a number of signer or by a chattel mortgage giving the com- payments the borrower might still owe more pany the right to repossess the property. Because than the amount of the original loan. repossessing property presented numerous complications and costs, companies are now offering OTHER CREDIT ARRANGEMENTS loans secured only by the borrower's signature. However, in certain instances chattel mortgages Home loans for buying, building, or remodeling are used with the borrower's assets as security. are offered by banks, savings and loan associa- Sometimes the borrower is asked to sign a wage tions, and by some credit unions. The property is or salary assignment which would allow the lender pledged to the lender as security in the form of to collect from the borrower's employer if pay- a mortgage until the payments have been made in ments are not made as agreed. full. The rate of interest and the duration of the loan depend upon the condition of the property, Remedial loan societies are non-profit organi- type of lending agency, and the risks involved. zations. Limited in number, they are being re- Agencies of the federal government, such as the placed by commercial banks, credit unions, and Federal Housing Administration and the Veterans consumer finance companies. They usually make Administration, will guarantee loans if the prop- loans on personal property without credit investi- erty meets certain requirements. HIGGINS---103 the col- In general, these loan arrangementsrequire a Educational loans are available from from educational lower down payment thandoes the so-called "con- lege or school a student attends, community organiza- ventional mortgage." funds of service clubs and governments, and The home buyer mightwell compare the plans tions, from state and the federal which offer a government guaranteewith the from banks, credit unions, andfinance companies. plans which do not. If he can managethe larger The size of the loan, the interestrates, and the considerably, but in gen- down payment and the shorterrepayment period terms of repayment vary liberal repayment of the conventional mortgage,it will be to his eral, loans for education have financial advantage. terms and low interest rates. COST AS A GUIDELINE FOR USING CREDIT

ALBIE RASMUSSEN

Many financial problems of families could be ingful, and useful asa basis for comparison- avoided if consumers wereas shrewd in shopping shopping at all lending institutions. The pricetag for the best buy when financing their purchases to which I refer is the unit price of creditthe as in shopping for the best buy when purchasing true annual interest rate. merchandise. Perhaps my concern forconsumers Consumers also need to know the dollarcost is the result of an installment credit plan in which of credit to weigh the advantage of immediateuse my husband and I were involved during the first of goods against the disadvantage ofextra cost year of our marriage. when buying on time. Our automobile dealer's On the way home from workone evening, my installment contract should have disclosedthe husband steered our oldcar into the nearest dollar cost for financing the $225 loan. Hadwe automotive dealership because ofa broken piston. been wise shoppers of credit,we would have Even though he was a skilled mechanic and could reasoned as follows: have repaired the car, other factors, suchas badly worn tires, entered into our decision to trade. 1.'The cash price is $225. Above all, we needed reliable transportation be- 2.If we buy on time, the price is 12 monthly cause my husband's odd working hours did not payments of $22.50 each month, or $270. coincide with the bus schedule. 3. The difference between cash and credit is The car we selected was an excellent buy, but $270$225, or $45, the finance charge. it had one serious 'drawback: the pricewas $225 more than we had saved toward a car purchase. 4. We need a car now, but is there another place The alternative offered by the dealerwas an in- to borrow $225 for less than $45? stallment plan consisting of payments of $22.50 Unfortunately, our only concernwas to fit the for 12 months.After searching for othercars $22.50 monthly payment intoour budget. Match- at other dealerships, we decided thiswas the best ing payment terms to cash flow isnecessary, but automobile for the cash price and signed the it should not be the only criterion in making installment contract. decisions related. to the use of credit. Too often Like so many otherconsumers, we shopped this is the case. extensively for the best buy in merchandise;yet Consumers should do more long-range plan- we did not consider even one alternative to the ning while matching payment terms to their in- dealer's credit plan. Like mostconsumers we comes and other expenses. By paying high rates were psychologically attuned to the myth that all of interest without considering the effecton say- lenders traditionally charge six percent interest. ings, families decrease the amount ofmoney We did not consider borrowingon our life in- available for future needs and wants. surance policies, nor investigate the possibility of borrowing from any othersource. We accepted THE FINANCE CHARGE the car and credit plan as a package. Had the dealer quoted the true annual interest Consumers need to know which costs are in- rate of approximately 36 percent we would have cluded in the finance charges so that theyare been shocked into seekingan alternative to his not paying for services they do not need or want. credit plan. The point is thatconsumers need a Therefore, the contract must be itemized.If it price tag on credit which is informative,mean- does not disclose all costs for which the borrower

104 RASMUSSEN-105 is charged, the borrower should demand that the COMPUTING THE RATE charges be itemized.There are two types of charges : Computing the interest rate in an installment contract is much more complicated than finding 1.Those that are ancillary and would be paid the dollar cost of credit. The formula (r=I÷Pt) whether the purchase were for cash or on with which seventh-graders are familiar applies to credit; one-payment loans and not to installment loans. Even when the interest rate or dollar cost per 2. Those that would not be made if the purchase $100 is quoted as an add-on rate, such as low were for cash. bank-rate financing of $5 or $6 on new cars, con- Differee; don between the two types of charges sumers are generally unaware of the true annual is the first step in computing dollar cost of credit. rate.Cost-comparison shopping of installment The Department of Defense (July 1966 Directive creditis more difficult than other comparison Number 1344.7 to creditors of military person- shopping because most consumers do not realize nel) distinguishes between these extra charges as that their use of money declines with each pay- ancillary charges ahd finance charges. ment to the creditor. In effect, the rate they pay Ancillary charges are those from which the on an installment loan is roughly twice the rate seller or lender receives no benefit, and which that they believe they are paying. would be paid if this were a cash purchase, such The confusion stems from a peculiarity of in- as taxes, auto license, filing fees, or recording stallment credit quotations. The cost quoted by fees paid to public officials, and so forth. most lenders applies to the beginning balance Finance charges are those which benefit the borrowed, not to the average balance used by the seller or creditor, and which would not be made borrower. To clarify this point, a distinction if this were a cash purchase. These are official might be made between the terms borrowed, in fees for filing or recording a credit instrument, reference to the beginningbalance, and being used, charges for investigating creditworthiness of the in reference to the declining balanCe in installment borrower, insurance premiums(life,disability, contracts. health, accident, other), and all other charges for Consumers tend to be so appreciative of the extending credit including the interest charged. convenience of paying in installments, rather than Military personnel are adequately provided with in a lump sum, that they do not analyze the cost sufficient insurance coverage so that they need not of installment credit objectively in relation to the carry additional insurance coverage for credit out- amount of money being used. At the same time standing. However, although this decision is made they do not comprehend the abstract concept of for servicemen, other consumers will need to de- the true annual interest rate, since they are more cide whether they need and want such extra accustomed to thinking about concrete objects services. If the services are wanted, their costs can as they shop for goods. be considered as an ancillary charge. However, if the consumer does not need or want these services Rule of 78th's or Sum of the Digits. I would but receives them, then obviously they are costs like to share with you a demonstration I have of obtaining financing. developed to translate an abstraction into con- It is important in my judgment that the concrete form. I found it useful in teaching at both sumer's choice be an objective one uninfluenced by the creditor's interest in profiting from the the secondary-school and college level.It can sale of these extras.Therefore, I would recom- be illustrated easily on a flannelboard. mend that the non-profit position of the creditor Let us use a saddle club's rented pasture instead be preserved in order to insure his objectivity in of the total sum of money we borrow or rent. offering the extras as an adjunct to credit. The The club pays $225 cash to use the whole pasture creditor, in turn, should carry sufficient insurance for one year. to protect his interest or to be relieved of col- First, let us consider this the same as a one- lecting from the bereaved or the ill. payment loan on which we pay simple annual

\ 106RASMUSSEN interest, since we are allowed to graze our horses FIGURE 1.Illustrating a One-Payment Loan on the entire 12-acre pasturefor the entire 12 H = Horse months. This is illustrated in Figure 1. Now let us pretend this is an installment con- H We pay H H H tract. We borrow $225 for 12 months. H back $18.75 each month. In renting the pasture H Mr. Green wants us to let him have t.e pasture H back for his own use in equal monthly installments I H of 1/12th th.:-; pasture, or one acre.He divides H H the pasture with a fence into one-acreplots. Each H H month he takes back one acre forhis use, so our horses must graze on one less acre of pasture, as shown in Figure 2. FIGURE 2.Illustrating an Installment Contract (Each month's decline in acreage available for H = Horse the hLses can be shown on the flannelboard. Step 1. At the beginning of an installment plan we Figure 2 illustrates the first two and the last steps. use the entire pasture or entire amountof money: However, the flannelboard demonstration should include all twelve steps. Use greenflannel with H H H 1 2 3 white strips to divide the board into12 large squares. Place a white horseinto each square. H H H 4 Show the loss of pasture by crowdingthe horses 6 5 into the remaining area.) H H H Our horses have been allowed to graze on an 7 8 9 :Iverage of roughlyone-half the pasture each H H H 12 11 10 month. We --Id the number of acres usedduring _ - the first month, which was 12, andthe number 1. That Step 2. At the beginning of the secondmonth we of acres used the last month, which was give back 1/12 of the pasture or money.This month gives us a total of 13. To get the average, we we use only11112 of what we borrowed or rented: divide the total of 13 by 2 because weadded only 2 numbers. That gives us an averageof 61/2 acres H H H used monthly.Since we paid rent to use the 2 3 entire 12 acres of pasture, but werealloweJ to H H H use only abouthalf of it, our rate of rent was 6 5 4 almost doubled. H H H W: could use the long form tofigure this. We 7 8 9

would simply add the number of acres we were H H H allowed to use each month. That wouldbe 12, 12 11 10 11, 10, 9, 8, 7, 6, 5, 4, 1, 2, and I addedtogether, making 78. Since we used 12 numbers, wewould Step 11: At the beginning ofthe 11th month we are using only2112 of the pasture or money we divide the total by 12 to get an average of61/2. rented or borrowed: The fact is we are privileged to use only ap- H H -I-1 H H H proximately one-half the pasture, making our H H H H H H rent twice the rate we would payif we could use 11 12 the entire pasture for one year. Isubmit this as proof by demonstration of the old ruleof thumb H H H buying is Step. 12: At the beginning of H H that the true interest rate in installment the 12th month we have been 12 almost twice as high as in simpleinterest. forcedtocrowdall of our H H the consumer horses into 1/12 of the pasture: H H Another way to demonstrate that H H H does not have the full use of thebeginning balance RASMUSSEN-I07

month, $206.25 throughout the contract periodis to picture a That is, we had $225 for the first 144 blocks, that is for the second month, etc., or atotal of $1,462.50 year's time as a composite of in Figure 3, an 12 units in each of 12 months. for the 12 months, or, as shown Installment credit contractsrequire monthly average use of $121.88 amonth. the average payments or the releaseof one block each month. A shorter method of arriving at and last months' So the consumer has the useof 12 blocks, then debt for the year is to add the first divide the 11, then 10, 9, 8, 7, 6, 5,4, 3, 2, and 1 block, indebtedness ($225 + $18.75) and blocks. In the case of our car total by 2, which equals$121.88. This proof, or a total of 78 78ths or Sum of purchase, my husband and I hadthe use for the referred to as the Rule of the year of not $225but 78/144 X $225 = $121.88. Digits is shown in Figure 3.

FIGURE 3.Rule of78ths or Sum of Digits

During Month,Portion of Loan: AMOUNI BORROWED:$225 for 12 months $225 4- 12 = $18.75 repaidmonthly Repaid and 1 block = $18.75 Being Used: No Longer Used: Part Mo.Number of $18.75's borrowerused 4 Amount Part Amount 12 $ 225.00 12/144 0 $ 0 1 11 206.25 11/144 1/144 18.75 2 10 187.50 10/144 2/144 37.50 3 168.75 9/144 3/144 56.25 4 9 8 150.00 8/144 4/144 75.00 5 131.25 7/144 5/144 93.75 6 7 6/144 6/144 112.50 7 6 112.50 7/144 131.25 a 5 93.75 5/144 This portion was 4/144 8/144 150.00 9 repaid by borrower 4 75.00 who no longer has 56.25 3/144 9/144 168.75 10 use of it. 3 2 37.50 2/144 10/144 187.50 11 1/144 11/144 206.25 12 1 18.75 Sum of the digits= 78 $1462.50 78/144 66/144 $1237.50

NI/ Sum of the digits in dollars $1462 50 $121.88 (Average amount _ _ borrower used) Number of Payments 12 EXPLANATION OF DIAGRAM:

1 block = $18.75 12 X 12 = 144 (total number ofblocks or entire amount for entire time) 144 (total) - 78 (used by borrower) =66 returned to lender in payments 78/144 X $225 = $121.88 average amountborrower had use of each month Formula for Sum of Digits:N (N + 1) 2 In example above:N = 12 blocks 12 X 13 156 or 78 blocks used byborrower 2 2

University of Missouri, Council onConsumer SOURCE: Morse, Richard L. D. ConsumerCredit Computations. Columbia, Missouri: information. Pamphlet No. 18, pp. 41-44. , 108RASMUSSEN

Add-on Rate. Let us return to the example of which I will refer to as the DoD Table,was first the car my husband and I purchased. Since the issued by the Department of Defense foruse by finance charge on the $225 loan was $45, it creditors of military personnel in compliance with would have been quoted by the dealer (had he Directive Number 1344.7, effective July 1966. quoted a cost) as a $20 add-on. This means The DoD Table was first made availableto he would add $20 for financing to each $100 members of the armed forces in July 1966. It is borrowed. The finance charge or dollar cost is now available to all consumers in a Department found by the following procedure: of Defense pamphlet, through the Kansas Home STEP 1: $20 FC/$100 Economics Association, and appears in the Ap- sTEp 2: $225 ± $100 = 2.25 units to be financed. pendix of this publication with Forms I and II STEP 3: 2.25 units X $20 FC/$100 = $45 total on applicability of the DoD Table. (1,2,3) finance charge. The DoD Table covers rates from 5 percent to A $20 add-on quotation might mislead a bor- 36 percent for periods up to 60 months. The rower to believe he is paying 20 percent interest, table is not as precise as the more detailedac- when in fact he would be paying almost double tuarial tables but it has an acceptable degree of that rate. tolerance. The rate intervals are such that the table can be read to the nearest ih of 1 percent Constant-Ratio Formula. By applying the con- at the lower rate, and to the nearest 11/2 percent stant-ratio formula to the example, an approxi- at the higher rate. mate annual rate of 371/2 percent (almost double The DoD Table can be used in level payment 20 percent) is derived: installment contracts which comprise 95 percent 2 (dollar cost of credit) (Number of of cases. With modification as shown in Forms payments in a year) Rate I and II in the Appendix, it can be used to find (amount borrowed) (total number of payments + 1) the interest rate in the 5 percent of cases where payments are irregular. 2 ($45) X (12)._ .3767 or approxi- The DoD Table relates these figures: $225 x (13) mately 371/2% For years, the constant-ratio formula has been The number of payments recommended as the tool with which consumers The finance charge and amount financed,ex- could most easily compute the approximate rate pressed as finance charge per $100or charged in installment credit contracts. Creditors FC/$100 in Massachusetts are required by recently enacted Annual percentage rate truth-in-lending legislation to disclose the annual rate according to the constant-ratio formula. To use the DoD Table, read into the table two figures. Then read out the third figure. Thepro- Actuarial Rate.. The actuarial method ismore cedure for finding the annual rate is shown above precise than the constant-ratio formula and is the table (page 175).(Note that the FC/$100 commonly used to compute installment payments can be found by moving the decimal two places in real estate mortgages. All creditorsare required to the left in amount financed and then dividing to use actuarial tables in most provinces in Can- into the finance charge. In this example the $250 ada, and the method would prevail under Senator would be 2.50, then: $38 ± 2.50= $15.20, the William Proxmire's truth-in-lending bill S.5or FC/$100.) Leonor Sullivan's consumer credit protection act Let us again take the example of the car my H.R. 11601, both now pending in Congress. husband and I purchased. Using the DoD Table, In testimony as a witness in behalf of S.5 and the annual percentage rate on the $225 loan, on H.R. 11601, Joseph W. Barr, Under Secretary of which the finance charge was $45 for twelve the U.S. Treasury Department, demonstrated how months, is found by the following procedure: a one-page condensed version of actuarial tables STEP 1: To find the FC/$100 the decimal is moved two could easily be used for computing approximate places to the left in amount to be financed. Therefore $225 appears as 2.25 $100 units. The annual percentage rates.The one-page table, finance charge of $45 ÷ 2.25 = $20 FC/$100. RASMUSSEN-109

STEP 2: Follow down the leftcolumn of the table to the SUMMARY line for 12 months.Follow across thisline until you find the two numbers betweenwhich the finance charge of $20 falls. In thisexample By using a personal example of a poor "buy" $20 falls between $19.66 and $21.46. Reading in credit, I have illustrated that consumers need up between the twocolumns of figures you will see that the annual percentagerate is approxi- a price tag on credit aswell as on goods and mately 36 percent. services. Furthermore, consumers need to con- Note that the rate is lower than the 371/2 percent sider the total cost of credit to weigh the advan- calculated with the constant-ratio formula. The dis- actuarial rate of 36 percent is more precise. tage of immediate use of goods against the The constant-ratio formula tends to overstate advantage of extra cost when buying on time. the rate. Consumers also need to know which costs are The DoD Table can be used to find the finance included in the finance charge so that they are charge if the rate is known. For example, had we not paying for services they do not need or want. gone to a small-loan company,they might have Since the corm-lensed actuarial rate table issued quoted the rate as 3 percent a month on the de- by the Department of Defense is available, con- clining balance. At 3 percent a month, the annual sumers who take advantage of it caneasily find rate is 36 percent. To find thefinance charge the cost of credit. Hopefully, then, the emphasis on the $225 loan for12 months read in two in consumer credit education will shift from teach- figures and read out the third on the DoD Table. ing techniques of computing rates and dollar costs to teaching skill and competence in shoppingfor STEP 1: The reading line is opposite 12 payments. the best buy in credit. STEP 2: Read across to find theFC/$100 which corresponds to the 36 percent at the top of the In my judgment, the demand for consumer table.This is the average of two amounts education will not decrease with enactment of ($19.66 + $21.46) 4- 2 = $20.56. state and federal legislation requiring disclosure STEP 3: Find the number of $100units in $225. $225 4- $100 = 2.25 units. of finance charges and annual rates. On the con- STEP 4: $20.56 x 2.25 units =$46.26 approximate trary, the demand will increase. As was the case finance charge. with us as we shopped for the best buy in a car, Note: This answer differs from the actual finance many consumers do not see theneed for shopping charge of $45 since the DoD Table is condensed and not as precise as more detailed for the best buy in credit. However, if creditors actuarial tables. arerequired todiscloseratesthat may be Now let us assume that my husband and I higher than consumers expect to pay, consumers were members of a credit union whichoffered will be asking the reason for the discrepancy. to lend us the $225 for 12 months at 1 percent a Home economists must be prepared to answer month (actually 12 percent annual rate) on the questions raised by better-informed consumers At 1percent a month the who appreciate the significanceof the tools declining balance. It is a challenge to annual rate is 12 percent. needed to shop for credit. provide the leadership in teaching consumers to STEP 1: The reading line is opposite 12 payments. be more sophisticated in using credit. STEP 2: Read across to find theFC/$100 which corresponds to the 12 percent at the top of the table. This is the average of the two amounts ($6.34 + $6.90) 4- 2 = $6.62. REFERENCES STEP 3: The number of units is 2.25. 1. CreditMaster or Servant. 1966.Superintendent of STEP 4: $6.62 X 2.25 units =$14.90 approximate Documents, U.S. Government Printing Office,Wash- finance charge. ington, D.C. 20402. 25 cents. 2. Consumer Credit Calculator.1967. Kansas Home Thus far the discussion has been limited to Economics Association, Department of FamilyEci- level-payment and regular installment contracts. nomics, Kansas State University, Manhattan66502. The same procedure with modification is used 15 cents each, two or more copies, 10 cents. when payments are irregular. Forms I and II in 3. Both the DoD Table and Forms I and II wereorigi- nally presented as part of this paper. Because oftheir the Appendix can be used to handle any irregular general application to other credit computations,they cases. However, only 5 percent of allinstallment have been placed in the Appendix for easyreference. contracts are irregular. See pp. 175-177.

\ CONTRACTS AS A GUIDE IN USING CREDIT

JOSEPHINE H. STAAB

A lawyer addressing a class once said, "Ifcon- the device or devices used for obtaining a security sumers spent as much time studying the credit interest in the personal property of the borrower contracts they sign as they do comparing models of money, or the buyer of merchandise, have im- and styles of the merchandise they buy,con- portant legal implications. sumers would make wiser decisions." His remark stirred my curiosity about contracts coveringcon- Installment Loan Contracts. The number and sumer credit transactions. These are some of my type of legal instruments used in a consumer findings as a layman. installment loan contract are determined by the The laws governing consumer credittransac- nature of the security interest specified to insure tions vary from state to state. In order to limit repayment of a loan. The promissory notemay this presentation, I have chosen to illustratespe- be used independently or in combination witha cific points with a sampling of contracts used in chattel mortgage. If the promissorynote is used Wisconsin by nationwide and local financial in- independently, the security interest for the loan stitutions. My observations are further limited to is provided by the confession of judgment clause an analysis of the information printed on the legal within the note. This legal form is called a cog- forms used in consumer installment credit trans- novit note. (See Note A at the end of this paper.) actions. In fact, my comments will be restricted Would rational decision-making be enhanced if to those documents which are subject to regula- the consumer understood that in signing acog- tion by specific statutes of the State of Wisconsin. novit note he is The ideal approach to the subject ofconsumer Authorizing a stranger to appear in courtas credit contracts would call attention to those char- his personal representative without being informed acteristics of the contract which facilitate intelli- of the action to confess, or certify, that the indebt- gent consumer decision-making as well as those edness reported by the lender is the debt of the which tend to impair such action. However, I consumer? shall discuss here some aspects of the contract Agreeing to pay court costs and attorneys' fees that consumers are least likely to be informed in addition to the amt-lunt owedon the note? about or to comprehend in terms of legal mean- Forfeiting his right to challenge the accuracy ing and implications. of the evidence used in the proceedings by re- Let us examine briefly three aspects of the leasing the lender and the attorney from any consumer installment contract: (1) the composi- errors in the proceedings? tion of the contract; (2) the format of the con- Signing away his right to appeal the judgment tract; and (3) the content as it relates to the even though serious errors occurred in the pro- expressed rights of sellers and buyers. ceedings? If the promissory note and the chattel mortgage COMPOSITION OF CONTRACTS are used in combination as security for a loan, each instrument has printed on it a cross-reference Because the laws regulating the lending of to the other. The chattel mortgage describes each money are different from those regulating the item of personal property mortgaged and rein- sale of merchandise on credit, I shall separate the forces the security interest obtained by the promis- discussion of installment loan contracts from that sory note, which is in fact a cognovit note, except on installment retail sales contracts. In each case for loans governed by the Small Loan Law. I shall

110 STAAB-111

replacetrghts Int, and proceeds of all or any part refer to 14110/10ns of using two legalinstruments of the foregoing ("Collateral"). to secure a loan inbthet .eCtions Of this paper. The iegal form labeledConditional Sales Con- tract uses a cross-refete1104 system for face and Motor Vehicle Retail Salesinsfailineni Con- back of page to doilne the securityinterta which tracts.As a result of the implementationof Article 9 (Secured Transactions) of theUniform states: Commercial Code, the legal instrument usedfor a Undersigned seller hereby sells, and4*Ni-sighed credit contract may be buyer or buyers, jointly and severally WOO pup motor vehicle installment chase(s), subject to the terms inrif Conditionsset an innovation of recentdate. New terminology, forth below and upon the reVcrse side hereof, which has no common caw or statutory rootstying the following property, delivery and accepthnce it to any particular legal form, wasintroduced by of which in good order are hereby acknowledged by buyer, viz: the Uniform Commercial Code.Since the con- ; sumer may be unaware ofthi§ development, two One of the 11 provisions bitthe reverse side of the three motor vehicle installmentetealt con- states: tracts used as examples in thisdiscussion reflect pr the purpOste pf securing paynientOf the obli- the influence of the Uniform CommercialCode as gation herettnder, seBer i-eseryes title, andShall have a security interest insqitf Prtitierty OM said adopted by Wisconsin. obligntion is fully paid in cash. One instrument, labeled Retailinstallment Se- provide some iiiteresfing curity Agreement and Statement ofTransaction, These ihree cOntratts terininology used, cross-reference between the front examples Of the variation in uses a system of dura- the security and in the definttiO a the character and and back of the page to incorporate seller in interest definition. On the front pageisthe tion of the security inierest gra:tiled the a motor vehicleinstallment credit contract: following: 1. The Conditional Sales Contract limitsthe char- EXHIBIT "A" THIS WRITING, INCLUDING acter and duration of the securityinterest to "said ON BACK HEREOF, CONSTITUTESTHE ENTIRE AGREEMENT BETWEEN THE PAR- property until said obligation isfully paid in cash." TIES HERETO, THERE BEINGNO WAR- 2. The Retail Installment SecurityAgreement and RANTIES 'OR REPRESENTATIONSOF FIT- Statement of Transaction expands thedefinition of NESS OR MERCHANTABILITYWHICH security interest by the inclusion ofspecific de- OF EXTEND BEYOND THE DESCRIPTION tails. It specifies that the security interestincludes THE VEHICLE ON THE FACEHEREOF. "the vehicle and all equipment at any timeadded In Exhibit A on the back of the page, oneof thereto." It expands the duration of thesecurity the 12 provisions explicitly stated asgoverning interest by specifying that thesecurity interest the contract is the following: exists "until all sums due and to growdue here- Title to and a security interest in thevehicle under shall be fully paid in cash bythe Buyer and and all equipment at any time addedthereto shall Buyer has performed all conditionshereunder." remain and vest in the Seller until all sumsdue Sale and Se- and to grow due hereunder shallbe fully paid in 3. The Motor -Vehicle Installment cash by the Buyer and Buyer hasperformed all curity Agreement combines in a singleparagraph conditions hereunder. the purpose of the contract and thedefinition of security interest. One instrument, labeled MotorVehicle Install- the character and duration of the Agreement, has a para- In addition, the choice of words andword order ment Sale and Security for the graph on the face page, whichdefines the security within the paragraph makes it difficult non-legally-educated person to understandthe as follows: ofall legal meaning of the paragraph. To securepayment and performance perfor- Debtor's obligations inthis Agreement, and all For instance, "To secure payment and Debtor's future debts, obligations, andliabilities mance of all Debtor'sobligations in this Agree- of whatever nature to SecuredParty or Secured ment" is an explicit statement of purposein one Party's assignee ("Obligations"),Debtor grants sense, but thewords this Agreethent have two to Secured Party a securityinterest in the goods separate connotations which arespatially sepa- described above and all accessions to,and spare and repair parts, special tools and equipmentand rated on the face page of the document. First one reads "The undersigned Seller (Se- ticipate effectively in a consumer credit install- cured Party )sells and the undersigned Buyer ment transaction. (Debtor) purchases at the price and on the terms If the paper on which the contract is written of this Agreement, and acknowledges receipt of, is nontransparent, if the content of the document the following goods:". The connotation of this is printed in a size of type that is large enough Agreement appears torefer to the price and to read easily, if the language used to express all financing agreement reached on the goods pur- the terms and conditions governing theagreement chased. is nonambiguous yet understandable, and if the Then one reads "BUYER ACKNOWLEDGES RE- document can be examined independentlyto CEIPT OF AN EXACT AND COMPLETE COPY OF THIS ascertain what is printed on the facepage as well AGREEMOT WHICH INCLUDES ALL OF THE PRO- as the reverse of that page, then the format of VISIONS ON THE REVERSE SIDE." There are 10 sepa- the contract contributes to a full disclosure of its rate categories of provisions on the reverse side content. Such a format is an invitation to read under the label ADDITIONAL SECURITY AGREE- the contract and to givesome thought to its mean- MENT PROVISIONS.The second connotation of ing. The use of the information provided by such this Agreement is explicit. a document then becomes the personal responsi- Between the initial statement of purpose cited bility of the consumer. above and the definition of security interest, these Some recent changes in the format of contracts words are inserted: "and all Debtor's future debts, used in consumer installment credit transactions obligations, and liabilities of whatever nature to do not eIntribute to and even impair the capacity Secured Party or Secured Party's assignee ('Obli- of the individual to comprehend the substance of gations')." Does the word Obligations in paren- the contract.Pastel-colored ink used on rather theses imply that the capitalized word in this sheer paper lessens the contrast between the particular position in the sentence differs inits printed word and the background. Sheerpaper scope of coverage from the word obligations writ- permits print to show through on the opposite ten in lower-case letters and used twice in the side of the page, thus interfering with the read-

statement prior to the capitalized word?,Could ability of the contract. It is possible thata color- the security interest in the motor vehicle pur- blind person could not see, much less read, the chased on this installment sales agreement be ex- information printed in pastel ink. tended without limitation to future transactions of The size of the type used to print the informa- any type made with the Secured Party or his tion on the reverse side of a legal document, and assignee?Would separate contractsfor each the space between each line of print within a credit transaction be eliminated if the buyer signed paragraph, are often so small that the eye needs this new type of document? the assistance of either a pacer or a magnifying The character of the security interest is defined glass to read the material correctly and in its en- in detail with respect to the goods included and tirety. Yet the information contained in that part the proceeds of all or any part of the foregoing of the contract defines some of the most important "(Collateral) ." However, no explicit statement of terms and conditions governing the contract. Do the duration of the security interest is apparent in the size of the type and the placement of terms the paragraph. From a layman's point of view and conditions on the back of the page tend to is it not essential that the contract specify either create an erroneous impression about the legal how and when "this Agreement" shall be ful- significance of the content of this section of the filled, or how and when the security interest in document? the "Collateral" shall be terminated, or both? Modern technology has devised sophisticated yet tantalizing prepackaged sets of instruments for FORMAT OF CONTRACTS use in consumer installment credit transactions. Theoretically, stacking a set of papers with carbon The format of a contract may contribute to a between each sheet so that data written on the first consumer's ability to understand the legal mean- page are duplicated on all other pages in the set ing of the document, as well as his ability to par- is efficient because the same data are recorded STAAB-113 on several sheets of paperin one operation. In lieve that if each payment is made in full as practice, it's efficient too if each sheet in the promised on or before the date the payment is bundle is identical to the legal instrument on the due, that the holder of the installment credit con- first page. However, it is disconcerting for a contract cannot legally invoke the acceleration clause sumer to discover that the titleand content of the against the borrower? How many borrowers think pages within, the bundle are not the same asthe he can? Both answers are correct. It may seem first page of the set. In this case modern tech- incredible, but the answer depends on how the nology may be a factor contributing to a con- word default is defined in a particular contract. sumer's confusion and inisundcrstanding. Default may mean nonpayment of an install- The format of some of the installment loan ment when due, or it may mean a host of other contracts and some of the retail salesinstallment things. Notes B, C, and D at the end of this paper contracts makes it legally possible to usethese illustrate the multitude and variety of meanings instruments to write a balloon contract. This may of default and offer some definitions as they not be the intent, but the wordsprinted on the appear on promissory notes, on chattel mortgages, contract are these: and on motor vehicle retail sales installment con- Final payment equal in arty case to unpaid tracts.These definitions are from the contracts principal and interest which are regulated by the statutes of Wisconsin. The Final Installment Shall Cover Any Unpaid Let's look at the range in definitions of default. Balance of Said Loan It can mean "If the holder shall deem the debt Consecutive monthly installmentsof $..... insecure." However, insecure is not defined and commencing on 19_ _,and eachsuccessive apparently may be defined at the discretion of the month thereafter with a final installment of $_-____ necessary to complete the total sumdue here- holder of the contract. under. "In the event of a breach of any said warran- The final installment payable hereunder shall ties," is one of the definitions of default given on equal the amount of the time balance remaining a chattel mortgage. The word warrantiesrefers due. .. to those made by the consumer about the personal Equal morthly installments of $___ each (and property mortgaged. This, however, is likely to be a final unequal installmentof $ .) an unfamiliar use of warranties to most consumers. .and an equal amount at consecutive monthly intervals thereafter until paid in full "Default shall exist hereunder" refers to any (except that the final installment shall be the one of 12 categories of specific events,including amount necessary to pay in full theunpaid Time the one reading "if the Buyer shall die" on a motor Balance) subject to the following modification: vehicle retail sales installment contract. (If none, write "NONE") The definition of default is very important because the expressed rights ofthe holder of the CONTENT AND EXPRESSED RIGHTS contract, in the event the contract ismatured OF SELLERS AND BUYERS through acceleration, are enumerated. The rights The burden of responsibility for understanding and remedies of the holder are described in a all aspects of each legal document signedby the variety of ways depending on the type of instru- consumer in any installmentcredit transaction ment. Here are some examples: rests with the consumer. Lackof knowledge of Default in paying any installment may be dis- the legal concepts used in contracts iswidespread. cussed with any present or future employer (a remedy on a note) Some of the difficulties inherent in narrowingthe Foreclosure of the mortgage (a remedy on a chat- legal knowledge gap between borrowersand tel mortgage) lenders, and between buyers and sellers, stemfrom Repossession as stated in these words on a retail the terminology used and the lack ofconsistency installment sales contract: "seller or any sheriff immediate in the definition of terms. or other officer of the law may take defined possession of said property without demand, in- The acceleration clause is frequently cluding any equipment or accessoriesthereto; as the clause wNchprovides that default in one and for this purpose seller may enter upon the payment makes all remaining paymentsdue and premises where said property may be and remove payable immediately. How many borrowersbe- same." 1 14STAAB

The diversity in definitions of the word default, in Wisconsin may demonstrate how much there as well as the diversity in the "remedies" avail- is to learn about contracts ifconsumers are to able to the holder of the contract, have particular become informed, intelligent decision-makers in significance if two forms of legal instrumentsare consumer credit transactions. Do you understand used in the same contract. The collectivemean- the contracts used in your state? Who is helping ings of default and the collective "remedies" avail- consumers to develop an understanding of these able to the holder of a note secured bya chattel important legal documents? Theseare questions mortgage may result in an impressive and compre- which I hope will challenge all whoarc concerned hensive definition of both the word default and with consumer credit transactions. the remedies expressed as rights of the lender. I began this discussionon the basis of a state- From the consumer's point of view isit not ment made by a lawyer, and I shall close with equally important to know what rights remainas advice given by the National Foundation for Con- buyer's or borrower's rights? Expressed another sumer Credit in their publication Using Credit way, should consumers understand what legal Intelligently: "No consumer need sign anythiag rights they are signing away as wellas which he does not understand. To be careful isnot a rights they are retaining in each contract they sign you distrust your merchantor lender. He sign? will recognize it as your good business judgment." The accoletntion clause is one aspect of the credit coMract commonly referred to in most textbooks, bulletins, and pamphlets dealing withcon- NOTE A sumer installment credit.If a consumer is to The Confession of Judgment Clause achieve understanding of the terminoloey used in Used in a Cognovit Note different types of legal instruments to accelerate the maturity of the contract, he may needmore To secure the payment of this note, the undersigned authorizes irrevocably any attorney of any court of than the brief unsophisticated definition generally record to appear for the undersigned in such court interm given. time or vacation at any time after thisnote is due either In some of the emerging legal devices stimu- through lapse of time or acceleration,as herein provided, lated by the adoption of the Uniform Commercial and confess a judgment against the undersignedor any Code, there seem to be innovations, some of of them (if more than one), without process, in favor of which are in the expressed rights of the Secured the holder hereof, for such amountas may be due on this note, together with statutory costs and statutory Party. Two very provocative ones are these: attorners fees, and to waive and release allerrors whith AUTHORITY OF SECURED PARTY TO may intervene in any such proceedings, and consent to PERFORM FOR DEBTOR. If Debtor fails to immediate execution upon such judgment. The under- act as required by this Agreement or the Obliga- signed hereby ratifies and confirms all that said attorney tions, Secured Party is authorized, in Debtor's may do by virtue hereof. name or otherwise, to take any such action including without limitation signing Debtor's name NOTE B or paying any amount so required, and the cost shall be one of the obligations secured by this Definitions of Non-Payment and of Default Agreement and shall be payable by Debtor upon on Loan Contracts demand with interest at the rate of twelve percent per year from the date of payment by DEFINITION 1: Secured Party. The non-payment of any installment of this note at NON-LIABILITY OF SECURED PARTY. the time and place specified herein shall, at the option Secured Party has no duty to protect, insure or of the Bank, render the entire unpaid balance of this realizeupon theCollateral.Debtor released note, less any unearned interest or service charges, due Secured Party from any liability for any act or and payable forthwith, without any notice whatsoever, omission relating to the Obligations, the Col- which unpaid balance shall bear interest at the rate of lateral or this agrcement, except Secured Party's twelve percent per annum from the due date thereof. wilful misconduct. This note may be prepaid in full or in part; and, upon prepayment in full, the undersigned may receive a partial This very limited analysis of the information refund of interest, service charges and credit insurance printed on consumer installment credit contracts premium, as required by law. STAAB-115

DEFINITION 2: ditions hereof, the commencement of bankruptcy, insolvency,receivership, arrangement, wage-earner's plan, upon non-payment of any payment at its maturity, all creditor's action, or any similar proceeding affecting the remaining payments shall, at the option of the holder Mortgagor, or if the Mortgagee deems the Property or hereof, without notice, become immediately due and payable, and the holder may then elect either (a) to debt insecure, ir. any such event, the Mortgagee may enter the premises of the Mortgagor and take immedi- waive the default charge, or (b) to give credit or refund ate possession of the Property and remove the same. of discount as is provided if all unpaid payments were prepaid on the date of such acceleration of maturity and collect the default charge. ...If the holder shall deem 11,TrV1-'rINV1J-TIL the debt insecure, this note shall, at the option of the holder, without notice, become immediately due and Definitions of Default on Motor Vehicle Retail payable in full. Sales Installment Credit Contracts

DEFINITION 3: DEFINITION 1: Default in paying any installment shah, at the option DEFAULT. Upon the occurrence of one or more of the of the holder hereof and without notice or demand, following events of default: render the total sum remaining unpaid hereunder at Nonperformance: Debtor fails to pay wheu due once due and payable. any of the Obligations, or to perform, or rectify breach of any warranty or other undertaking by DEFINITION 4: Debtor in this Agreement or the Obligations; Default in paying any installment may be discussed Inability to Perform: Debtor, or a surety for any of the Obligations dies, ceases to exist, becomes with any present or future employer and shall, at the insolvent or the subject of bankruptcy or insol- option of the holder hereof and without notice or de- vency proceedings; mand, render the total sum remaining unpaid hereunder Misrepresentation: Any Warranty or representa- at once due and payable. tion made to induce Secured Party to extend credit to Debtor, under this Agreement or otherwise, is false in any material respect when made; NOTE C or Definitions of Default on Chattel Mortgage Insecurity: Any other event which causes Secured Party, in good faith, to deeth itself insecure; to Secure an Installment Loan all of the Obligations shall, at the option of Secured Two-part definition on same page of chattel mortgage: Party and without any notice or demand, become im- Mortgagors may possess said property until default in mediately payable; and Secured Party shall have all paying any installment on said note or notes secured rights and remedies for default provided by the Wis- hereby. At any time when such default shall exist the consin Uniform Commercial Code, as well as any other entire indebtedness secured hereby shall be due and pay- applicable law and the Obligations. With respect to' able either by acceleration of maturity 'for default as such rights and remedies: provided in such note or notes or otherwise, this mort- (a) Assembling Collateral.Secured Party may gage may be foreclosed, .. . . require Debtor to assemble the Collateral and to In the event any representations by the Mortgagor be make it available to Secured Party at any con- false or if there shall occur a breach of any said war- venient place designated by Secured Party. (b) Notice of Disposition. Written notice, when ranties, default in the payment of the note secured required by law, sent to any address of Debtor in hereby, or any renewal or extension thereof, or of any this Agreement at least 10 calendar days (count- other present or future indebtedness of the Mortgagor to ing the day of sending) before the date of a pro- the Mortgagee, breach of any other terms or conditions posed disposition of the Collateral is reasonable hereof, the commencement of bankruptcy, insolvency, notice. (c) ExpensesandApplicationof Proceeds. receivership, arrangement, wage-earner's plan, creditors' Debtor shall reimburse Secured Party for any action, or any similar proceeding affecting the Mort- expense incurred by Secured Party in protecting gagor, or if the Mortgageedeems the Property or the or enforcingitsrights under this A.greement, debt insecure, in any such event, the Mortgagee may includingwithoutlimitation, reasonable attor- enter the premises of the Mortgagor and maytake neys' fees and legal expenses and all expenses of taking possession, holding, preparing for disposi- immediate possession of the Property and remove the tion, and disposing of the Collateral. After de- same. duction of such expenses, Secured Party may * ** * * apply the proceeds of disposition to the Obliga- Definition on installment loan secured by the chattel tions in such order and amounts as it elects. (d) Waiver. Secured Party may permit Debtor to mortgage: remedy and default without waiving the default In the event of a breach of any of said warranties, so remedied, and Secured Party maywaive any default in payment of the note secured hereby, or of default without waiving any other subsequent or any renewal thereof, breach of anyother terms or con- prior default by Debtor. 116STAAB

DEFINITION 2: ing the vehicle from point of repossession to Seller's place of storage, Seller may use Buyer's license plates. Default shall exist hereunder (1) if the Buyer shall fail to pay any part of the purchase price when due, DEFINITION 3: (2) if the Bvyer shall or shall attempt to (a) remove or allow removal of the vehicle from the county where In the event buyer defaults in any payment due here- the Buyer now resides, (b) sell, encumber or otherwise under, or fails to comply with any of the termsor con- dispose of this contract or any interest therein or the ditionF hereof, or a proceeding in bankruptcy, receiver- vehicle or any interest therein, (c) conceal, hire out or ship or insolvency instituted against the buyeror his let the vehicle, (d) carry passengers in the vehicle for property, or the seller deems the property in danger of hire, (e) misuse or abuse the vehicle, or (f) use or allow misuse or confiscation, or in the event either that the the use of the vehicle in connection with any under- buyer fails for any reason to comply with paragraph taking prohibited by law, (3) if bankruptcy or insolvency 3(a), above, or that said required car insurance (whether proceedings shall be instituted by or against the Buyer, or procured by the seller or by the buyer) is cancelled by (4) if the vehicle shall be attached, levied upon, seized the insurer prior to expiration thereof, the seller shall in any legal proceeding, or held by virtue of any lien or have the right, at his or its election, to declare the un- distress, or (5) if the Buyer shall make any assignment paid balance, together with any other amount for which for the benefit of creditors, (6) if the Buyer shall fail to the buyer shall have become obligated hereunder, to be pay promptly all taxes and assessments upon the vehicle immediately due and payable.Further, in any such or the use thereof, or (7) if the operator's license of the event, seller or any sheriff or other officer of the law Buyer or the registration certificate issued for the vehicle may take immediate possession of said property without shall be suspended or revoked, or (8) if the Buyer shall demand, including any equipment or accessories thereto; die, or (9) if the vehicle is damaged or permitted to re- and for this purpose seller may enter upon the premises main in a damaged condition for one month after the where said property may be and remove same. Seller occurrence of accident causing said damage, or (10) if may take possession of any other property in the here- the holder with reasonable cause determines that its inter- inbefore described motor vehicle at time of repossession, est in the vehicle be in jeopardy, (11) if Buyer Should wherever such other property may be therein, and hold fail to keep the vehicle suitably insured, or (12) if Buyer same temporarily for buyer without liability on the part is presently employed by Seller and shall for any reason of seller. Such repossession shall not affect seller's right, whatsoever be no longer employed by Seller. In the event hereby confirmed, to retainall payments made prior of default by Buyer hereunder the entire unpaid balance thereto by the buyer hereunder. of the time sale price shall, at the option of the Seller, In the event of repossession of said property the seller become immediately due and payable; provided however, shall have the rights and remedies provided and per- that Buyer may redeem a repossessed vehicle by timely mitted by law including the right to apply the proceeds tender of an amount complying with Article 9-506 of the of disposition to the reasonable expenses of retaking, Wisconsin Uniform Commercial Code. Upon default holding, preparing for sale, selling and the like, reason- Buyer agrees upon demand to deliver the vehicle to the able attorneys' fees, legal expenses incurred, and satisfaction of indebtedness. Any surplus shall be paid to Seller, or the Seller may with or without legal process, the buyer or as otherwise required by law. The buyer and with or without previous notice or demand for per- shall be liable for any deficiency. formance, enter any premises wherein the vehicle may The requirement of reasonable notification of the time be, and take possession of the same, together with any- and place of any public or private sale or other intended thing therein. Thereafter the Seller may, if permitted by disposition shall be met if notice thereof is mailed, post- law, retain the vehicle as its property or may sell same age prepaid, to the buyer and any other person entitled pursuant to the law as of Wisconsin, whereupon the Buyer thereto ten (10) days prior to such sale or other dis- agrees to pay any deficiency upon demand. While remov- position of the property. BUDGET GUIDES

FAITH CLARK*

The idea of making a budget comes to many the low-cost plan in establishing money allow- families only after they are so far in debt that ances for food. they have trouble meeting the monthly install- The food plans are revised from time to time ments. In their requests for budgeting help, these as knowledge of nutrition, food habits, food sup- familiesand othersoften ask just what per- plies, and food costs change. The Department of centage of their income they should spend for Agriculture uses the National Research Council's food, rent, clothing, and other budget categories, recommended dietary allowances as standards of and perhaps even how much credit they should nutritional adequacy. Also considered are food be able to carry. habits, tastes, and expenditures of families at dif- Because there is no formula to give these fami- ferent income levels as shown by food consump- lies, this discussion will be on budget guides that tion surveys. Data from the 1965-66 food con- are availabletheir makeup, uses, and limita- sumption survey will be used to revise the current tions.It will also touch on some research in plans, which are based on the 1955 survey. progress in the U.S. Department of Agriculture The cost of food in the USDA food plans is that will provide data useful to those concerned updated every three months, using prices collected with budgets in social welfare programs. by the Bureau of Labor Statistics. The costs are published quarterly in Family Economics Review PREPARED BUDGETS and are available alsoas a separate mimeo- graphed sheet. Once a year food costs for each "Prepared," "constructed," or "standard" bud- of the four regions of the United States are calcu- gets have been developed by many agencies and lated by the Consumer and Food Economics Re- groups in situations where the question "How searchDivision of the Agricultural Research much does it cost a family to live?" has been Service, USDA. These appear in the March issue asked. We will discuss only a few of these budgets. of Family Economics Review which publishes new or additional information about the food budgets U.S. Department of Agriculture Food Budgets. from time to time. The U.S. Department of Agriculture provides the estimated cost of food at home at several cost Budgets of the Bureau of LaborStatistics. The levels in its food plans. Costs are based on low- U.S. Bureau of Labor Statistics publishes a City cost, moderate-cost, and liberal food plans which Worker's Family Budget which gives estimated suggest amounts of food in 11 food groups that living costs for a family of four, made up of an together provide a nutritionally adequate diet. employed husband, a wife not employed full time Plans and costs are given for men and women outside the home, a boy of 13, and a girl of 8. and boys and girls of different ages. A food Cost estimates for the current budget at autumn budget for any family can be made by adding 1966 prices are given for each of 39 metropolitan together the costs for persons in that family, using areas, for nonmetropolitan areas with population the food plan cost level best suited to the family's from 2500 to 50,000, and for urban United income and needs. Many welfare agencies use States as a whole. With this Budget the Bureau * Prepared in collaboration with Emma G. Holmes, Re- publishes a scale for estimating budget costs for search Family Economist, Consumer and Food Eco- nomicsResearchDivision,AgriculturalResearch families of different sizes, ages, and types. Service, U.S. Department of Agriculture. The City Worker's Family Budget provides for

117 118-CLARK a moderate standard of living in terms of stan- tired Couple's Budget do not show how the dards prevailing in the 1960's. The quantities and "average" city worker's family, or the "average" qualities of goods and services used in the budget retired couple spend their money. They do not are based, where possible, on standards of ade- show how families should spend their money. quacy as defined by scientists and experts and They are not based on family income. Do they translated to reflect actual buying practices of have any value, then, as a budget guide for an families.Where scientific standards were not individual family? They may possibly be used as available, the budget items were based on analy- a general reference for the family that needs guid- ses of the consumption and spending of budget- ance in setting up a budget. They give an idea type families, as shown primarily by da'a from of the many budget items to be considered and the 1960-61 Survv of Consumer Expenditures. their relative importance. They may also help A new Bureau of Labor Statistics Retired families who are moving to a new city to estimate Couple's Budget, also based on autumn 1966 differences in living costs. rices, is to be released some time in the future. It will represent a moderate sta.uiard of living for Other Prepared Budgets. The Family Budget

a self-supporting husband and wife a"- -C or Standard of the Community Council of Greater over, not employed, but in reasonably .th New York is another well-known prepared budget. and able to take care of themselves The standard of living it represents corresponds The Bureau is also developing ly., to that of the City Worker's Family Budget.It ing standards that are lower and higher he provides a measure of the cost of living in New

moderate standard of the City Worket _amity York City for self-supporting families of any size Budget. Cost estimates for these two bli:igets will and composition. The list of goods and services be based on spring 1967 prices. Of these two needed to maintain the standard is priced each budgets, the lower-st-adadtd budgcl might be con- year. Like the City Worker's Family Budget, the sklered "minimum adequate." It will provide for Family Budget Standard is not a blueprint for health, efficiency, and social well-being, but will individual family spending.It is used (1) to be lower than the standard of the City Worker's assess income adequacy and family use of money; Family Budget in content and manner of living (2) as a basis for establishing fee scales for ser- where this is possible without endangering the vices of welfare and health agencies and to deter- family's physical health or self-respect as mem- mine eligibility for free services; and (3) to help bers of their community. This lower standard in counseling families on money management. budget is expected to be similar to the standards Another type of prepared budget is the budget often considered appropriate as goals for assis- used to determine the amount of grants or allot- tance and income-maintenance programs. ments needy families are allowed by welfare agen- The higher standard budget willreflect the cies.This type of budget varies widely from standard associated with the so-called "American community to community. standard of living." It is expected to be appropriate for determining the ability of self-supporting OTHER BUDGET GUIDES families to pay for fee .services, and for determining the eligibility of students for scholarships. Average Expenditures of Groups of Families. The City Worker's Family Budget and the Re- Families who are planning their first budget need tired Couple's Budget are useful for evaluating to keep a record of their expenditures for a while the general adequacy of the incomes of groups in order to have a guide for setting allowances of families in terms of current standards. They for budget categories. An alternative is to study are also useful in measuring differences in living the expenditures of other families instead of taking costs among cities and areas, and among different time to study their own. This may be quite help- types of families. They provide guides for social ful if they choose families similar in size, income, and legislz tive programs dealing with wages, and other characteristics to their own, and if they prices, credit, public assistance, and taxes. allow for differences in goals and preferences. The City Worker's Family Budget and the Re- Data on average expenditures of groups of CLARK-119 families are available from the Consumer Ex- thr6ugh its own goals, needs, and wants, and penditure Survey of 1960-61, conducted by the make a workable plan. They include suggest d U.S. Department of Agriculture and Bureau of forms to use in setting up the budget and record- Labor Statistics. The Survey gives information ing expenditures. A third guide is the more com- on dollar expenditures for the budget items, and plete Helping Families Manage Their Finances, on spending patternsthat is, the percentage of mentioned above, which is meant for use by teach- each family-living dollar devoted to each budget ers and other leaders in working with families. item. In addition to these, the Federal Extension Another guide isthe revised edition of a Service of the U.S. Department of Agriculture has teacher-leader publication, Helping Families Man- prepared for low-income families Managing Your age Their Finances, now in press. Thispublica- Money...A Family Plan. General budgeting tion includes several tables based on the 1960-61 guides are available also from many State Exten- Consumer Expenditure Survey showing how vari- sion offices, financial institutions, and business ous groups of families spend their money. Itgives sources. average expenditures and spending patterns of urban, rural nonfarm, and farm families of dif- CREDIT IN BUDGET GUIDES ferent sizes and types and incomes, with heads of different ages and education, and living in dif- The budget guides mentioned thus far offer no ferent regions. Families can use the average for "rule of thumb" to tell families how much credit families with characteristics similar to their own they can safely carry, for the same reason that as a place to start. They will findit helpful to they give no formula for dividing income among know how the "average" _family spends t.o get the budget categories; that is, there is no magic some idea of what they may need to allow for rule that fits all cases. The guides do, however, various items in their own budgets. give some information about consumer credit that In another approach to budgets, Changing may help families decide whether they will use it Times magazine offers a computer print-out from anu in what way.For example, A Guide to the 1960-61 Consumer Expenditure Study show- Budgeting for the Family mentioned above in- ing average expenditures of families with char- cludes a reminder that credit does cost money acteristics similar to those of the family ordering and that this cost deserves careful consideration, it. The family sends with its order information the same as any other budget item. It lists some about its income, place of residence, size, infor- common installment credit rates for loans of dif- mation about the head of the family, home tenure, ferent types and from different sources, and tells and number of earners. It receives a table show- how to determine roughly how much the credit ing average amounts that similar families spent charges on individual purchases will amount to. for 18 budget items including food, clothing, fuel, These budget guides also remind families to household operation, insurance, and so on. A make payments on installment debts a definite similar computer service has been offered by a part of the spending plan, whether the payments bank in Pittsburgh. are for purchases made in the past or for those anticipated during the budget period. They sug- General Guidance Materials. Tne U.S. Depart- gest a review of the spending plan from time to ment of Agriculture has prepared threebudget time to check actual expenditures against planned guides in addition to the food budgets. For be- expenditures and to revise the plan as wants and ginning families there is A Guide to Budgeting circumstances change. Such a review is particu- for the Young Couple. For those a little farther larly needed when the family is considering an along in the family cycle A Guide to Budgeting installment purchase that was not planned for for the Family is offered. These materials offer when the budget was set up. simple stcp-by-step directions for planning and Since a budget, to be useful, needs to be flexible carrying out a spending plan. They give no set enough to make some allowance for the unex- formulas for dividing the income among budget pected, consideration should be given to the fact items. Instead they try to help the family think that installment debt makes for a certain amount

I-J

-- of inflexibility. The more money a family has ing budgets will be available for men and women committed to installment payments, the iess lee- and boys and girls of different ages. way it has for making budget adjustments when income is cut by unemployment, illness, loss of the SUMMARY wife's job, or any other emergency requiring a large expenditure. At such times the family with The budget guides available for familyuse are large credit commitments has the added worry of just thatguides rather than instant formulas. keeping up these credit contracts and of what will They may remind the family of factors tocon- happen if it does not. sider in making a spending plan, suggest steps to take in setting up and carrying out a budget, point RELATED RESEARCH out how the "average" family distributes its income, give some general guidelines for using The U.S. Department of Agriculture has no credit, and recommend places to go for personal budgets for farm families comparable to the counseling on special money problems. Bureau of Labor Statistics City Worker's Family Budget guides assume that for most families Budget and the Retired Couple's Budget. How- the budget most likely to work isone they have ever, in progress are estimates of income needed set up themselves. The decisions about how in- to provide equivalent levels of living to farm, rural come is to be allocated, what purchases are to nonfarm, and urban families. The estimates are be made with credit, and what responsibility each expected to be especially useful in reviewing the person has in carrying out the plan are, in the relative poverty yardstick for farm families now final analysis, their own. being used by the Office of Economic Opportunity. These estimates will also provide a means of REFERENCES adapting the Bureau of Labor Statistics budgets for city families to farm and rural nonfarm fami- 1.Budget guides prepared by the Consumer and Food lies. They will not provide a comparable list of Economics Research Division, U.S. Department of Agriculture.(Some of these are availablefree, goods and services needed by rural families but others are for sale only. Order each by title and will indicate the distribution of income among the number from the source under which itis listed. major types of outlays. Include Zip Code with return address.) The Department of Agriculture has developed a.Single copies of the following are available free preliminary estimates of the cost of rearing a farm from the Office of Information, U.S. Department child to age 18 in the North Central and Southern of Agriculture, Washington, D.C. 20250: Food for Families with School Children, HG Regions, at the three spending levels associated No.13 with the food plans.Revised estimates for the Food Guide for Older Folks, HG No.17 farm child and cstimates for urban and rural non- Food for the Young Couple, HG No.85 farm children are also being prepared. Costs will Family Food Budgeting...For Good Meals be given for children in different sizes of families and Good Nutrition, HG No.94 as well as the average family, and for the major A Guide to Budgeting for the Young Couple, HG budget categories as well as the total budget. No.98 Also in progress at the Department of Agricul- A Guide to Budgeting for the Family, HG No.108 b.Single copies of the following are available free trre are clothing budgets. Within the next year, from the Consumer and Food Economics Re- the Department expects to have clothing budgets search Division, U.S. Department of Agriculture, Federal Center Building, Hyattsville, Maryland for farm, rural nonfarm, and urban families in the 20782: North Central and Southern regions. These cloth- Sample Menus and Food Lists for One Week ing budgets will represent the same levels as the Based on the USDA Economy Food Plan, food plans and the consumption patterns shown CA 62-20 Family Economics Review, ARS 62-5. (A quar- by the 1960-61 Consumer Expenditure Survey terly publication.Includes the cost estimates that is, they will represent the practices of families for the USDA food plans and other information related to budgeting. Mailing list limited whose average food consumption is at the level to extension workers, college and high school of the food plans. Like the food plans, the cloth- teachers, and other professional workers.) CLARK-121

c. The following are for sale by theSuperintendent Three Standards of Urban Living for a Retired of Documents, U.S. Government Printing Office, Couple; Cost Estimates for Spring 1967 Washington, D.C. 20402: Average Prices for Selected Cities and Techniques Food for the Family With Young Children, HG and Specifications for Standard Budget Pricing No.5, 10 cents. Revised Scale of Equivalent Income or Budget Costs Family Food Plans and Food Costs, HERR No.20. (A technical publication for teachers and adult 3. A Family Budget Standard. 1963. Budget Standard leaders.) 35 cents. Service, Research Department, Community Council Helping Families Manage Their Finances, HERR of Greater New York, 225 Park Avenue South, New No.21, 40 cents. York, New York 10003, $3.00. (The Annual Price 2. Bureau of Labor Statistics Budgets. Summariesof Survey, giving October 1967 costs for the Budget the budgets and budget materials listed below are Standard, ic available for $2.50.) disttibuted free when they become available.Send 4. "Check Up on Your Family Spending," Changing a list of the summaries youwish to the Bureau of Times, April 1967, pp. 48, 49.(April issue available Labor Statistics, U.S. Department of Labor, Wash- for 50 cents from Changing Times, 1729 H Street, ington, D.C. 20212: N.W., Washington, D.C. 20006.) City Worker's Family Budget for Moderate Standard 5. Managing Your Money . . . A Fanuly Plan. Federal of Living; Cost Estimates for Autumn 1966 Extension Service, U.S. Department of Agriculture. Retired Couple's Budget for a Moderate Standard of 1964.(Available from Superintendent of Docu- Living;-Cost Estimates for Autumn 1966 ments, U.S. Government Printing Office, Washing- Three Standards of Urban Living for a 4-Person Family; Cost Estimates for Spring 1967 ton, D.C. 20402, 10 cents.) THE OBSTINATE AUDIENCE: TEACHING THROUGH MASS MEDIA

FAITP PRIOR

A legendary ad-man of the 1920's used to say, 2. They can convey brief segments of subject in- "Every copywriter should have this slogan pasted formation and build up the habit of receiving up where he can see it:THEY DON'T WANT TO information as well as entertainment from the READ IT." media. The same slogan ought to be branded on every Of these two goals, I should like to talk more educator who approaches the usual channels of specifically about the second, reaching the "unin- the mass media to teach the public aboutcredit: volved" audience with information which they THEY DON'T WANT TO HEAR IT. have not solicited, and may perhaps reject(1). I As educators, you and I were brought up to worry more about the casualviewers, listeners, believe that for every subject there is a "teachable and readers. An audience which "attends" a tele- moment," and that for each person the teachable vision classroom would probably also attend spe- moment arrives when he has arelevant problem. cial interest groups, short courses, even classes I am inclined to disbelieve that rulewhen the for academic credit; the use of the media simply subject is money. makes participation more convenient for them Sit down next to a stranger for a two-hour and for us. plane trip and you may end up knowing that his But teaching (and "teaching" may be too for- wife doesn't understand him and that hisfriend mal a word) via the media can reach an audi- in Miami Beach likes gin and milk for anightcap. ence not likely to deliberately exposethemselves But the chances are you won't learn that hestill to a learning situation.In its use we have to owes $2500 on his newconvertible and that he somehow "make a bridge between the genteel has been overdrawn at the bank fourtimes in the culture of college education and the vulgar anti- past six months. He has aproblem ;at least one), culture of the mass media and the street"(2 ). To but I doubt that he is at a "teachablemoment." make this "bridge" we must face some facts. A young housewife finds it sociallyacceptable Those of us who teach were largely brought up to admit that she can't cookand that housework on the morality of difficulty.What was self- is never done; but her inability to manage money indulgent must be wickedor at least suspect. is more personal, more painful,and therefore Thrift, self-denial, and make-do were our shield more concealed. and buckler against the rainy day that someone Obviously, the reason we have turned to the kept seeing in our futures. mass media forteaching of any kind isthat But the people we would like to reach today through radio, television, and newspapers we can with the whole gamut of information about man- extend our professional presence throughother- agement are not, for the most part, our con- wise impossible distances of time andgeography, temporaries. and to strata of potential audiences wecould Over three-fourths of today's population had never hope to lure into aclassroom or meeting. no adult experience withthe stock market crash, Repeated exposures to mass media can do two prohibition, or a world without Social Security. things: Two-thirds had no experience with World War II. I. They can help people becomemotivated to Almost 95 percent missed World War I, and over learn more abma a subject through othereduca- half the present population were children, or not tional means, including television'sclassroom- yet born, when Sputnik I burst on theworld 10 type programs; and years ago.If we approach this audience, who

122 PRIOR-123 have shared so few of our experiences, with our more meaningfully and provocatively they talk, personal dogma about credit (or almost anything the more often they are asked back. else), the chances are we'll end up talking toour- Apart from a handful of people in our audi- selves and a few of our peers who stick around ence with a professional interest in the subject for old times' sake. (who would probably choose an abacusover a In addition to this Costae le of time, during color television for entertainment), we mightas these past affluent years, the image of the "eco- well start with the assumption that we are aiming nomic man" has dimmed considerably. to bring information about credit to people for Beatrice Paolucci, in a guest editorial in Focus, whom the subject of credit has all the natural said: "In the past, the assumption has been that appeal of 6 months of unpaid bills. if families were given information...they would Beyond this common characteristic, we need use this information to make rational choices, to know something about whom we hope to Teach that is, choose to maximize outcomes. Goingon with what information.Writer-critic Cleveland this assumption, educators saw their roleas one Amory, in May 1967 in Atlanta, told American of making information available for decision- Women in Radio and Television, "Educational making." But now, Dr. Paolucci goeson to say, television has at least one cardinal virtue. It does choices are "more a matter of changing values and not operate on the incredible theory that either goals than selection of the 'best' alternative."(3) everything must be for everybody or for nobody." We have been conditioned, mostly through the The cave man, we were taught, inscribedon media of the marketplace I might add, to respond the walls of his cave, drawings of the animals he to the message which has, not the most logic, but hoped to drag back at the end of the hunt. We the most appeal. The media know all about this need to form a similar picture of the audience we kind of appeal; it has been their stock in trade. are hunting. How much do they earn? How do As teachers, it has not been ours. they spend it?What are their real problems? What do they think their problems are? How old are they? What kind of econoc:I experiences USING MEDIA TO TEACH have they had? (Remember, for `:- mu a depression is only a bogeyman created by puritanical When I was in college, my physiology professor parents.) was ill one day and we had the head of the de- And let's not be unaware of our competition as partment as a substitute. The department head "performers." It may be a hungry family or a has since gone on to become a university presi- leaky washing machine. We've got to be pretty dent, but what I remember solely from that lec- good to compete with "The Secret Storm," a ture was the handsome diagrams he put on the neighborhood kaffee-klatsch, or even "buy it today board, using both hands simultaneously to do the at your local dealer's." two unlike sides of the drawing. Educational and economic levels still line up A couple of years ago I was chairman of a somewhat with the teacher's choice of media: meeting at which I had to introduce this one- there is still a certain prestige in print, a certain time department head. I recalled the ambidex- glamor in electronics. While it is probably neither trous episode, to which he replied, "I used to possible nor desirable to aim toward a discrete think that education was 90 percent information category, a teacher can play the art patron as well and 10 percent showmanship. Over the years I as theaqist by selecting media with whichto have come to reverse my percentages." appeal to varying audiences. If you are not suc- The would-be teacher-showman must be will- cessful in building a faithfulaudience, you'll ing to sacrifice the professional lectern for a pro- know. fessional air of sociability. Through the media Bernard Baruch said that a political leader we become not teachers in a classroom (all too must keep looking over his shoulder all the time many of our potential audience are justifiably to see if the boys are still there. If they aren't suspicious of classrooms), but guests in people's still there, he is no longer a political leader. The homes. Guests do not lecture, they talk.The same thing is true for teachers, especially for 124-PRIOR teachers in the never-never land of the mass had were the ones whose opinions I still remem- media. ber along with, and oftea better than, their sub- Silence from the public is a danger signal. Only ject matter.) when we hear regularly and spontaneously from a Controversy makes people get things clearer in whole cross-section of people can we be sure we're their own minds.It builds readership. And it's doing something right.In the classroom, the more fun. teacher is aware of legs being recrossed, at times even a gentle snoring, but the performerin the TEACHING THROUGH RADIO mass media doesn't hear theclicking of "Off" AND TELEVISION buttons, the turning of newspaper pages. r I use the term performer advisedly. The teacher Radio is limited as a real teaching medium, but must be willing to become a personality, know- it can stir up seeds of interest and is a useful able, believable, and visible. tool for communicating items quickly. My prac- I have said that the successful performer hears tice is to do a weekly radio tape cut down from from audiences regularly.The audience should a weekly newspaper column; I don't expect it to also hear from the performer with regularity. do much except to hold an audience and perhaps Unfortunately, this means commitment; a weekly get a point or two across in a personalized way. appearance here, a monthly appearance there, Personalization is important. Listen to an old press deadlines to meet. However, building your tape, a month or so after you've made and for- own personal audience is basic to effectivework gotten it; is it spontaneous and fresh, or tired and in the media. pedantic? Don't be afraid to ham it up a little. _, This last sentence brings us to television. TEACHING THROUGH PRINT "Use more visuals!" we are told.For the moment, forget the charts and graphs and think Let us now consider newspapers as a teaching about yourself. You are the "visual" the audi- medium. ence sees first, last, and most. If you're over 30, Marshall McLuhan says that the world of print sneaking a look at yourself in the monitor can is deadand goes on writing book after book to be pretty traumatic. prove it. The world of print is not dead, but it The best television advice I ever got was to buy certainly contains some pretty cadaverous pieces some professional television makeup and learn to of prose embalmed in the name of education. use it.Get somebody to work with you off air If you have something worth writing about, but on camera to find out how much eye makeup find a way to give it immediacy. Read. Don't you can stand. In the flesh you may looklike a always read for depth and understanding; learn fallen woman, but on television it will be reassur- to skim all kinds of unlikely sources, they'll pro- ing to both you and the audience to look as vide leaven for your loaf. though all that book-learning hasn't done you a Find some fresh words. Read Rudolph Flesch bit of harm. And if you're a man with an early and use of him what you remember. Ignore the five o'clock shadow, television without makeup will limitations of vocabulary studies. Explain a word put you right into the cast of ' Trie Untouchables." if you must, but use it ifit's the one you want. There's nothing like just the right pointed word PREPARING MATERIAL with which to jab people in their round little generalities. Essentially the same material can be used in Relax your style.Kid your subject a little, all of the media. Sometimes I do a column and sometimes. View it with alarm.Raise contro- then adapt it for television and radio. Sometimes versial issues (judiciously exposing at least some I start with the television script. This intermedia of both sides if the confines of your job require exchange gets a good deal of mileage out of the it). (Speaking of controversy, I understand that same basic piece of work and reachesdifferent "activist" is a naughty word in some circles, but audiences. personally I believe that the best teachers I ever It was a discovery to me to find that there PRIOR-125 seems to be little, if any, overlap of audiences. If credit as the teaching of anything else. Those of people miss a story one place, they catch it in us who teach about credit just have to work a another. When minor overlap occurs, it simply little harder because, as we all know, "they don't serves to emphasize the information. Audiences, want to hear it." one finds, like junior high students, smply don't At the end of my paper are examples of ways get things the first time around. in which I use the public media in a small state I would like to share a "secret weapon" or two. with a minimal staff.These are not slick or One is that I have a family of three teenagers, a polished examvles, and they appear iust as they condition that makes it virtually impossible to get were used.I hoped, in_ the television tape, to out of touch with the times.If I weren't thus make just two points; to do this I was willing for blessed, I'd try to find a proxy family to give me the audience to know that credit cards make buy- the same insights. ing too easy for me, too. We used a little humor, The' second "weapon" is an approach that more and a little irreverence, so that people would and more hitherto academically respectable peo- bear with us.The column and the radio script ple are discovering. My 15-year-old daughter tame directly from the television material. who is not the hardest working academician in r h'ave found formats that I am comfortable the world (except on projects such as how many with arid that seem to work for me. The same quarts of oatg to feed a Morgan foal) came home tOges may not work for you, because the format last fall delighted with her new high school French yost evolve for media work should be very per- teacher. "I haven't listened in French class for sonalty yours, something that works for both you three years," she said, "but this year I have to, and the audience, and for which you can face because the teacher says funny things in French years of deadlines. and I don't want to miss them!" (Italics mine.) And lest any of us be tempted to think only in According to Printer's Ink, one advertising conventional lines, here,is a story about our jani- agency has made the same discovery about humor tor. We have had, for the last year or so, a most in copy directed to physicians, who probably re- accommodating and pleasant man working in our ceive more promotional material than any other office building. One Saturday morning I came professional group. This departure from staid to the office and found him going through my advertising uses humor in the approach, while wastebasket, meticulously and without embarrass- the body of the copy remains informative. Medi- ment. Beside him was a growing stack of papers cine is a life and death business, but the agency which, he assured me, he was going to take home has acknowledged that doctors are people. and read. Arthur Schlesinger, Jr., writing about Marshall "I told my wife," he said,"that I'd never McLuhan's book, The Medium Is the Massage, learned so much as during the time I've been says: "The print culture, fighting a rearguard working in the home economics building. Why, action, is doing its' best to absorb the electronic just cleaning Mrs. Prior's office is an eiAlcation culture, to force the new media to do the work of in itself!" the old....How to precipitate our official cul- I hope that the time will come when we will ture, so hopelessly enslaved inthe Gutenberg do a good enough job in the classroom that stu- galaxy, into an awareness of the new environ- dents will not have to get their practical education ment?" Humor, in McLuhan's view, provides from wastebaskets. our most appealing tool. REFERENCES Arnold Gingrich, publisher of Esquire, wrote in 1.For an excellent description of a coordinated pro- Advertising Age: "Words will always count, and gram using the mass media to reach professionals for training and to extend professional presenv; o orga- computers are marvelous, but they kissnot, nized groups (and incidentally to casual commercial- neither do they cook....You can get a com- station viewers) see "Coordinated Mass Media" by Edward Metzen and Mary Johnson in Extension puter to say 'I love you,' but you can't program Service Review, July 1967. it into saying it with feeling." 2.Denney, Reuel. The Astonished Muse. New York: Two secret weapons. Laughter and feeling. Grosset and Dunlap, Universal Library, 1964, p. vi. All of this is as applicable to the teaching of (Supplementary material on next page.) 126PRIOR EXAMPLES OF USE OF PUBLIC MEDIA In spite of our unprecedented prosperity over the past 20 years, personal bankruptcies have skyrocketed. Just 1. A Newspaper Column over 11,000in1945, more than163,000 in 1965 almost 16 times as many. DOLLARS AND DECISIONS This is a great period for buying con.eniancc, and by Faith Prior one of the conveniences we buy is that cf not carrying Extension Family Economist cash. Not only does this elimir ate the feeling of funds University of Vermont dwindling from the pocket, but we tend to reckon prices without including the cost of credit.It can be sizeable Been to Any Good Bankruptcies Lately? an average of 12 percent on a new car, 18 percent on a revolving charge account.It'sdifficult, almost impos- I ran into a friend downtown shopping the other day sible, tofind the true annual interest rate on credit and since neither of us could buy a pair of shoesshe charges, as itisan almost universal practice to keep because the clerks keep telling her that her feet are too the buyer's mind focused on the "small monthly pay- big, and I because I'm still hoping that one shoe buyer ment" rather than the actual cost of buying on time. might have stocked some shoes not designed for teen- A curious business, and one which is, at long last, agers wearing miniskirts and casting shadows three quar- being held up to scrutiny in high places. ters of an inch widewe sat down and had a cup of Yet the credit card industry is only 17 years old. coffee and decided to forget about the shopping anyway. On a February evening in 1950 a credit specialist "I feel good," she said, biting into a fresh glazed named McNamara was working late in his New York doughnut."I feel good because today I canceled 14 office, had dinner in a strange restaurant, and found he charge accounts-14, imagineand from now on I'm had misplaced his wallet.Faced with an evening of going to have the feeling that when I'm spending money, washing pots and pans, he phoned his wife who arrived it's real money and that there's a limit to it. I'm through from Long Island two hours later with the money. Next carryingcredit cardswith me it'slike drawing the day, over lunch with his lawyer, the idea for the Diner's devil for a bridge partnerit's just too darned tempting Club was born. to cheat." In the credit card industry, McNamara's dinner is Just for fun I counted up the number of cards I carry irreverently referred to as The First Supper. myself. And credit has been dining high on the hog ever since. Eleven. I wouldn't have believed it. 2. A Weekly Radio Column (3 minutes) All the way from the one I use at the gas station to the one I am supposed tobe clutching when they This is Faith Prior, with Dollars and Decisions. stretcher me ;alto the hospital's emergency entrance. I ran into a friend downtown shopping the other day A Dr. ?An Battles has started using a new medical and since neither of us could buy a pair of shoesshe termthe credq card syndrometo describe the symp- because the clerks keep telling her that her feet are too toms suffered by certain holders of too many credit big and I because I'm still hoping that one shoe buyer cards. One of his patients, a lawyer, had for several might have stocked some shoes not designed for teen- years suffered pain over the left hip and down the leg. agers wearing miniskirtswe sat down and had coffee The doctor found that the man's wallet had grown fat and decided to forget about the shopping. with credit cards, and that removal of the wallet from "I feel good" shesaid, bitinginto a fresh glazed the hip pocket brought relief from the symptoms; rein- doughnut."I feel good because today I canceled 14 sertion reproduced them. charge accounts-14, imagine! From now on I'm going Some of us find excess credit more like a pain in the to have the feeling that when I'm spending money it's neck. real money, and that there's a limit to it." We Americans are using them at a rate that increases Just for fun I counted up the number of credit cards everrday, as businesses find ways to make credit attrac- I carry myself.Eleven.All the way from the one I tive and available. hand over at the gas station to the one I am supposed When we were youngstersyou and me and my to be clutching when they stretcher me into the hos- friend whose feet are too bigowing money was a very pital's emergency entrance. worrisome thing. A mortgage on thefamily home, One doctor is using a new medical termthe credit maybe, but anything else was a sign of irresponsibility card syndrome. A patient of his, a lawyer, had for except in the most dire crisis. several years suffered pain over the hip anci down the Thrift was the key word, the very rock on which the leg. The doctor found that the man's wallet had grown American production economy was built. fat with credit cards, and that removal of the wallet The fact is that we built a production economy so from the hip pocket brought relief from the symptoms; well that the next necessity was to build a means by reinsertion brought them back. which the people could buy new productsinever- Some of us find excess credit more like a pain in the increasing quantity and variety. neck. The answer was credit. When we were youngsters, owing money was a very ^

PRIOR-127 worrisome thing.A mortgage on the family home, FAITH: Nohonest to goodness physical symptoms; a maybe, but anything else was a sign of irresponsibility, Dr. John Battles reports that a patient, a lawyer, except in the most dire crisis. Thrift was the key word, had for several years suffered pain over the left the very rock on which America's production economy hip and down the leg. The doctor found that the was built. man's wallet had grown fat with credit cards, and The fact is that we built a production economy so well that removal of the wallet from his left hip pocket that the next necessity was to build a means by which brought relief from the symptoms; reinsertion re- people could buy the new products in ever-increasing produced the symptoms. quantity and variety. Maybe it would be a good thing if ladies who carry The answer was credit. credit cards in their purses got a little twinge once Bankruptcies have skyrocketed in the past 20 years- in a while. 16 times as many in 1965 as in 1945, in spite of our TONY: Are we really using credit at the really great unprecedented prosperity. rate of acceleration that I hear about? This is a great period for buying convenience, and FAITH: We are. And our whole outlook on the use one of the conveniences we arebuying is that of not of credit, and the rolethat credit plays in the carrying cash. Not only does this keep us from feeling economy, has changed. When I was growing up it the money dwindling in the pocket, but we tend to reckon was a very bad thing to owe money foranything prices without including the cost of credit. a home mortgage possibly excluded.When the And we Americans are using credit at a rate that in- adults in the family owed money, they couldn't creases every day, as businessesfind ways to make it sleep at night, and there were long conferences more attractive and more available. around the dining room table about how the debt Yet the credit card industry is only 17 years old. could be paid off. On a February evening in 1950 a credit specialist This was part of the Puritan ethicthis thrift that named McNamara was working late in his New York had built up the capital for production in this coun- office, had dinner in a strange restaurant, and found that try, the production which was the basis for our he had misplaced his wallet. Faced with an evening of becoming a production economy. washing pots and pans, he phoned hi,: wife, who arrived from Long Island two hours later w:th the money. Next TONY: And now this production capital isn't needed? day, over lunch with his lawyer, t1%; idea for the Diner's FAITH: Now we're experiencing the results of the shift Club was born. toward emphasis on consumer spending to absorb In the credit card industry, McNamara's dinner is the results of all that production. What do you do irreverently referred to as The First Supper. if the buying public says, "Yes, I'd like to have some And credit has been dining high on the hog ever since. of your productand yoursand yoursbut I only This is Faith Prior, at the University of Vermont. have just so much money, so I can't buy it all?" You say, "I'll make it possible for you to buy without actually having the money in hand." 3. A Television Program TONY: And that's where credit comes in . ACROSS THE FENCE FAITH: Right.I remember back in basic economics The Extension Service, University of Vermont having a hard time accepting the, fact that for the purposes of buying, having $100 of money, plus Subject: Credit $100 of credit, was the equivalent of having $200. Participants: Mrs. Faith Prior, Extension Family Econo- People who have grown up since World War II mist, and Tony Adams. have no trouble at all with that concept. Video: Faith comparing credit cards in wallet TONY: Do you think credit is too available? FAITH: Somewhere, for every family, there's a point TONY: So I winI have eight credit cards, and you of balance. I was talking with a teacher the other have six. day, a woman who %kirks with young people every FAITH: Or maybe that means that you lose .... day, and she said "I teach young people that the TONY: In any casebetween us we've got 14 credit use of credit in any form is wrong.I have never cards. had a chatge account in my life, and I think we FAITH: More credit than money, as a matter of fact. have a moralispopsiOlity to teach young people Which is about the situation for most Americans to stay away froth credit." these days. Did you know that there is actually a TONY: What do you think about that point of view? new medical termthe "credit cardsyndrooe" FAITH: I think she's teaching abnitt 25 years toolate. being used to describe the symptom being suffered Creditthe broad, generous availability ofcreciit by a patient? is a fact, and it isn't going to go away because you TONY: You mean he can't sleep at night because he's sticji. your head in the sand. We're living in a credit in debt? worldand yottfig people have to be taught how 128PRIOR

to live in it.Just as they have to be taught high- be summed up in one word: status. He adds that way safety .n this automotive world .... "only the needy carry cash," and ironically, "the man who flourishes a bankroll is not only con- TONY: I understand there are more personal bank- sidered a boor, but his integrity and character may ruptcies every year...would you say that's true? be suspect." FAITH: We can see how true it is... overthe past TONY: So there's no point in lighting my cigar with 20 years this is the way personal bankruptcies have a twenty-dollar bill to impress you? risen, in spite of the fact that this is a period of FAITH: Not any morejust flash your credit cards! unprecedentedprosperity.Theriseof personal bankruptcies and rise in credit sales causes con- But perhaps we ought to meniion that as credit cards become more and more common, they lose cern that we have notand are still notteaching their value as status symbolsso don't throw away families the management of credit. your money yet. TONY: Can you put your finger on some of the rea- TONY: "Credit card" seems to te one of those words sons why people get into credit troubles? This is that's always been part of the vocabularyyet I a period of high employment, good earnings, lots know that it hasn't. Was it one more of the out- of ability to pay now, and in the futureand yet growths of World War II? we have this fantastic climb in bankruptcies .... FAITH: Even more recent than that. The story goes FAITH: This is also a great period for buying service that in February 1950, in New York, a commercial and buying convenience...and when we buy the creditspecialist named McNamara was working convenience of not carrying much money, and of late and had dinner in a strange restaurant. When being able to make purchases we don't anticipate, he came to pay the bill, he fonnd la at he had mis- we lose one sense of spending real money. I use placed his wallet. Faced with an evening washing an oil company credit card, for example. and an the pots and pans, he calledhis wife on Long average month's bill is around $50.NN nen I sit Island, and two hours later she arrived with the down to write them a cher:k, I always think. "I can't money. Next day, over lunch with his lawyer, the have spent that much on gas, etc."but there are idea for the Diner's Club was born. In the credit the slips I've signed, and I've had no feeling at all card industry, McNamara's dinner isirreverently that I was spending money. Add a few more credit referred to as The First Supper. cards or charge accounts, and my cash income is all TONY: And so out of that meal grows a whole new committed before I ever get it. way of doing business ... . The other place where families get into credit trouble is in the matter of interest charges. When we FArTH: And a whole new complex subject for ordinary buy on installment credit, we're really borrowing people. We'll talk another time about credit, but money, and there is a charge for the use of that meanwhile we might just urge people to visualize money. The average cost of financing a car is 12%, money in their wallet being paid out each time the usual charge on a revolving charge account is they buy on credit, and see if they can't build up 18%. Because interest isn't quoted in annual terms, a little twinge of discomfort ...because we know we tend to think not about the total cost, but just that the heart lies very close to the pocketbook. the monthly payment to be met. TONY: And that puts itaccording to your diagnosis The author of Buy Now, Pay Later says the reason of the credit card syndromeinto the hip pocket, for the success of the all-purpose credit card can doesn't it? 1 TEACHING INTHE CLASSRCOM

SALLY R. CAMPBELL

Contrary to common opinion, theability to way of organizingsubject matter under key ideas manage personalfinancial matters, including the that we can develop with students ofdifferent use of credit, is notnecessarily related to intelli- ages, abilities, and backgrounds. gence or income level.Financial problems take a variety of forms.They concern people in all 1.Consumer credit permits the use of future income brackets and can be as serious forthe income to satisfy present needs and wants. well-educated as for the uneducated. The following questions can help teachersde- Let me cite one example. Few historians ques- velop this key idea in the classroom: Whatis tion the intellectual achievementsof Thomas consumer credit? Who usesit? Why do people Jefferson. Yet, President Jefferson died justthis use it? How does the useof credit relate to the side of bankrup:.:..y, and it took his grandson alife- life cycle? What are the advantagesand disad- time to repay the family debts.Jefferson was vantages of using credit? Helpstudents apply neither ignorant nor poor, but he wasunskilled these advantages and disadvantages to aspecific in handling personal financial matters.We know situation. Use case studies to teach them that an also that he received little or no educationin the advantage in one situation may be a disadvantage use of money. in another, depending on needs, income, costof Education in personal economics is the key to credit, and financial circumstances. helping students develop skill in using creditand What does the use of credit do to futurein- managing financial affairs.However, educating come? Help students understand that the pur- the consumer in the use of money andcredit is chasing power of future income isreduced by the no small task. Tobegin with, all consumers are amount required to pay debts. If astudent buys different. The right economic decision for one a stereo on time andplans to pay for it at $5 per may be completely wrong foranother, and the month, his future spending power isreduced by choices are infinite. $5 monthly until he has paid the entirebill. In this discussion we are concernedprimarily What does the use of credit do to futureneeds with credit in money managementeducation. and wants? Students can learn that usingcredit Credit is a powerful financial tool, and, aswith for durable goods or purchases oflasting value, other tools, its effectiveness depends onthe skill such as a car, a washing machine, or apiece of of the user. Today, many high schooland college furniture, eliminates future needs for theseitems students are frequent users of credit. Tomorrow, for as long as they last. On the otherhand, using as wage earners andheads of families, they will credit to meet recurring needs, such as groceries face even more cash or creditchoices. Let us or a meal in a restaurant,reduces future spending concentrate on what these consumersneed to power without eliminatingtomorrow's require- know if they are to use creditintelligently. ments.

KEY IDEAS ABOUT CREDIT 2. The ability to obtain credit is based onthe creditor's trust in the debtor's ability and will- At this point I would like to suggest somebasic ingness to repay. understandings on consumer credit. Some people may prefer to call them concepts orgeneraliza- The development of this key idea can beginin tions.Whatever term we use, this is merely a very elementary fashion.Ask students what they

129

- 130-CAMPBELL would have to know about an individual lytage afford the prices and fit the monthly payment they would lend himmoney or a valuable pos- into his budget. session. They will answer with requirements similar to those of the credit -tr; the individual should 4. The economic principle of opportunity costs be trustworthy and responsible and must return applies to the use of credit as it does to other the money or item with reasonable promptness. purchases. They might impose certain conditions on how the Perhaps no other idea is more important in money or item will be used, when it isto be making effective choices in the use ofmoney or returned, what will be done if there is loss or credit.It means considering each purchase not damage. only in terms of price, but also in terms of other With this groundwork, related ideas can be things one might buy for the same price.In developed. How does one establish a credit other words, should the consumer spend $36 in rating? A quote in Forbes magazine offers one credit charges to buy a dishwasher on time,or suggestion: "The surest way to establish your could he get more satisfaction by spending that credit is to work yourself into a position of not $36 for something else? By applying the prin- needing any." You might discuss with students ciple of opportunity costs to each purchase, credit how to go about obtaining credit before they've or cash, the consumer can make choices that will had an opportunity to show their creditworthiness. bring the greatest satisfaction to the family for How do creditors judge a consumer's ability the amount being spent. and willingness to pay debts? What forms of security do creditors require? What can creditors 5. Comparison shopping is the key to finding tlo when customers fail to meet their responsibili- the credit and the credit terms to meet in- ties? What should debtors do if they are unable dividual needs. to make payments on schedule? Once established, Consumers can decide. when and how touse how does one protect his credit rating? credit on the basis of their own financial situation and by applying the principle of opportunity 3. Credit is a service for which consumers pay. costs. Once they decide to use credit, shopping Discuss the cost of granting credit such as skills become important. those involved in opening accounts, collections, How can teachers help students learn to shop credit losses, and overhead. To help students for credit just as they shop for groceries, clothes, understand this aspect of credit, ask them vo and other purchases?Let's consider what the investigate (1) different ways of figuring and consumer needs to know in order to shop intel- stating credit charges; (2) why the cost of credit ligently for credit. varies from creditor to creditor; and (3) how First, the consumer has to know where to costs of granting credit are covered when there shop. Teachers might discuss the various sources is no specific credit charge, as with charge ac- of credit, services provided, charges, and credit counts. rating or security required. In relating the cost of credit to the individual, The consumer then needs to know the different emphasize the importance of knowing the total forms of credit.Surveys, discussions, a guest dollar cost as well as the amount of the monthly speaker, or field trip can help students learn more payment. Too often, consumers think only in about retail credit and cash loans. They should terms of what they can afford to pay each month. learn the characteristics of the more common It is equally important to know the total cost and forms of credit. For instance, how does a charge how it is affected by the amount paid each month account differ from revolving credit? How does as well as the length of time required to repay. an installment purchase differ? What credit card Generally, the lower the monthly payment and the plans are commonly available in the area? How longer the repayment period, the greater the total does one compare with another? What types of cost will be. cash loans can consumers obtain? What should Finally, in considering credit costs, the con- be considered when comparing retail credit with sumer-student needs to decide whether he can a cash loan?

rA) CAMPBELL-13 1 The credit shopper also needs to know and How long would the individual be required to understand the terms stated in credit contracts, save in advance? Does the individual have the how to figure the total dollar cost of credit, and self-discipline required to save regularly? Would how to evaluate the services offered in connection he be able to do without the item while saving? with credit. Would the satisfaction of having the purchase Teachers will be doing students a real service while paying for it be worth thz. cost of the credit? if they help them develop necessary shopping skills, both for credit and for other purchases. 7.The use of credit brings responsibilities. They can, in a sense, put money in their pockets Teachers might begin here with the idea of by teaching them to become buyers.not just the consumer's responsibility to himself and his spenders. family when using credit.It is,afterall, the individual who must decide on the basis of op- 6. Credit can be a form of saving. portunity costs, when, how, and if the use of Economists define saving as withholding money credit provides the best way to deal with a specific from current spending.Within the framework financial need.It is the same person who must of personal money management, savings can be decide how much credit he can use safely and defined as anything that increases the financial repay comfortably. well-being of the individual or family. When credit Studying a contract is one way to show students is used to pay for durable goods, a home, or even thelegal responsibilities of both debtors and an education, it improves the individual's financial creditors. Do students understand the terms that position. To help students understand how they appear on credit agreementsterms such as de- can use credit as a saving device, ask them to fault, chattel mortgage, foreclosure, acceleration, compare the economic aspects of: principal, interest, rebate, or proceeds? Do they know the regulations and restrictions on creditors saving in advance and paying cash for a with respect to rate computation, collection of specific item charges, and refinancing? versus Students dan learn what to look for in a credit saving after buying by using credit and mak- contract, the necessity of reading and understanding installment payments. ing any written agreement before signing it, the consequences of failing to meet the terms of a It is surprising to note how much the two contract. A point deserving some emphasis is methods have in common: (1) both the advance the importance of the consumer's providing com- savings and the installment payments come out plete and honest information on credit application of current income and reduce the amount avail- forms.Creditors cannot make sound decisions able for current living expenses; (2) in both cases, on granting credit without reliable information the individual is improving his financial situation, on the applicant's financial situation. either by building up cash savings or by reducing Taking consumer responsibilities a step further, indebtedness; (3) in both cases, the money is it may be important to show students what impact flowing into the economy via financial institutions; consumer use of credit has on the economy. Ac- (4) both saving in advance and using credit cording to an essay in Time, July 2, 1965, credit offer the consumer a way to reach a goal or is at the very heart of our economic system.It meet a specific need. permits both business and consumers to expand. There are two basic differences in the two Consumercreditincreasesthepurchasing methods: (1) using credit services costs money, power of individuals and families, particularly for whereas savings, if temporarily invested, can earn "big-ticket" items. This, in turn, helps create the money; (2) saving in advance means delaying demand that supports mass production and dis- purchase, while using credit makes it possible to tribution. One result is lower prkes on mass- buy immediately. produ;:ed items. The consumer's decision to use The following questions can help students or not to use credit can also contribute to or choose between these two methods of saving: help check inflation depending on the economic 01..1.1-..-

132CAMPBELL

climate. This is notto ithply that the consumer 9. Misused creditcan bring financial difficulties. bears the whole responsibilityfor theeconomy it merely illustrates thatconsumer behavior makes We have only to lookat the demand for debt an important difference. counseling and consider therise in personal bankruptcies to know that creditproblems exist. 8. Credit can helpconsumers raise their level According to surveys andcounselors who work of living. with debt-troubled families,the root of most finan- While credit doesnot increase income, it does cial difficulties lies largelyin lack of education permit the consumerto plan and project his buy- in the use ofmoney and credit. Manyconsumers do not have the understanding, ing beyond the purchasingpower of a single pay- the skill, and, in some cases, the self-discipline check. Howmany of us here today could walkin to use credit effec- and put down the cash fora new car? How many tively. To helpyoung people understand thecon- could write a check tocover the cost of carpeting sequences of misusing credit and helpthem avoid a home or buyingnew living room furniture? financial problems, teachersmight try some of the following ideas with students: How many couldmeet a major financialemer- gency with cash funds? Study two or three differentcontracts. Installment credit is the most practical, con- Investigate and discuss theresults of failing to venient, and perhaps theonly way manycon- meet credit obligations. sumers can pay for large-ticket items and meet Draw up criteria fur the emergencies. wise use of credit. Discuss how individuals To develop this idea withstudents, teachers and families can decide can try the problem-solving approach. on the amount of credit theycan use safely and Draw up repay comfortably, without sacrificing a financial outline of severalfamilies. Include other needs. information on income,expenses and obligations, Outline steps creditorscan take to prevent customers from overextending debts outstanding,place in the life cycle,cash themselves. savings, and assets. Askstudents to decide under Investigate and reporton debt counseling ser- what circumstances eachfamily coulduse credit viceswho sponsors them,how they work, the to advantage forany of the following: furniture, cost involved, how to evaluatethem. a car, a family vacation, medicalbills, a financial Study and reporton personal bankruptcyits emergency, a washing machine. Askthem to con- extent, causes, practices, andconsequences. sider the alternativesto using credit, thecost The key ideas of credit, the importance or basic understandings I have or unimportance of discussed offerone way to organize what meeting the need immediately. can be taught on consumer credit.These and other key Another student assignmentcould be to draw ideas can be developed up a long-range family financial in any number ofways, plan illustrating depending on the studentsand the teaching situa- how credit,over a period of time,can serve as tion. a budgeting tool. Only one thing is certain.If we do our jobs Recently I read that lessthan a centuryago, wellif we accept the average our responsibility to educate person had 72 "wants." Of the 72, individuals and families 16 were considered in the use ofmoney necessities. Today, thewants and creditwe will beworking toward both the number 464, with 92 ofthem consideredneces- prevention and the solution of sities.It might be interesting financial problems. for students to We can contributeto the constructive compare the wants and necessities of use of today with consumer credit, to the economiccompetence and those of the past andto consider the part credit well-being ofconsumers, and to a strongerna- has played in achievingour current level of living. tional economy. TEACHING THROUGH EXTENSION

ERNA K. CARMICHAEL

Extension home economists have been far too about these subjects. A college graduate in Mil- timid in teaching families about money manage- waukee said, "I can't believe I'm paying 30 per- ment. Perhaps they have not been aware of the cent interest on our refrigerator. I assumed I was great need for teaching families how to avoid paying a fair 'going rate.' " financial problems. Families with such problems often do a good job of hiding their situations and USING TOOLS putting on a good front, at least for a while. But when the situation seems hopeless, credit sources Teachers of credit should learn all they can are exhausted, money arguments seem to be end- about the subject, especially the rules and regula- less, or when a family is afraid to answer the tions in their particular states. They should pre- door for fear itis another bill collector, often sent a topic in a well-organized manner, using then is the only time they seek help. a blackboard and any other visuals possible. Vis- Who in a community can help with financial uals should be adapted to the realities of the lives prohlwns? Who can help families avoid financial of those who are being taught. problems? A knowledgeable friend or minister, In our Extension office we have developed a a banker, lawyer, credit union adviser, or coun- money management workbook to be used in our selor in a labor union can help. How many people workshops, and we have plans for another one know that Extension home economists can help? to be used with less sophisticated clientele. An- They have been teaching consumer buymanship other tool we have used in our workshops is and money management for years. humorous cartoons blown up to poster size. Extension home economists are adult edu- Another teaching approach is role-playing with cators. They are equipped to offer classes on a few single props to illustrate the tactics used money management to all segments of the popu- by salesmen to upgrade the consumer's selection. lation: the poor, the near poor, middle-income "It's only $3 a week more" has convinced many families, and even the rich although they can a shopper to buy the super deluxe model rather afford to hire someone to manage their money, than the medium- or lower-priced model he orig- if necessary. inally intended to buy. The salesman doesn't An adult educator must adapt his subject mat- always e-plain that the number of payments are ter to a wide range of individualsto the unedu- greater for the deluxe model; he is more interested cated, to high school graduates, and even to col.: in seeing his sales go up. lege graduates. To be able to show families at Students must be taught to wade through the all levels how to use all of their resources, yes, innumerable methods of quoting interest rates, and even credit, so that they can reach some of their they must be able to determine the true annual goals, can be one of the most rewarding experi- interest rates. But how does one teach the con- ences a teacher can have. stant-ratio formula to a group that can't do even Teaching credit to adults or high school and fourth-grade arithmetic? college graduates can be easy because it can be This was my problem when I was asked to teach at very rudimentary levels. The iustructor may money management to a group of school drop- think the class knows all about sources of credit, outs training to be mechanics under the Man- rates,garnishments, deficiency judgments, and power Develorment Training Program.These bankruptcies, but many have only a hazy idea, boys would soon be employed on their first jobs,

133 134CARMICHAEL earning $3 to $5 an hour. They needed the rate of various lending agencies, and they would lesson on credit badly, because they had already accept them as facts. had traumatic money experiences. They knew We explored all the sources of credit and listed what it was like to be hounded by bill collectors, them on the blackboard. A discussion followedon to see the furniture store reclaim the famiiy's the variety of ways to quote interest ratesto make washing machine or television set, to see Dad them sound low. Then, I told them the truean- lose his job because of frequent wage garnish- nual interest rates at lending institutions in Mil- ments. They even had strong feelings about pay- waukee, as follows. ing for a car they no longer possessed. Credit unions 12% Bank car loans 9-27% Other bank loans 7% and up TEACHING GOES BOTH WAYS Revolving charge accounts 18% Clothing or furniture stores (credit) 18% bu _id be much more I didn't need to show these boys horribleexam- Small loan companies 12-30% ples of ill use of credit; they told me. Classroom Loan sharks Sky-high rates discussions were lively and heated. Itwas very Insurance companies (if avaitable) 5% evident that these young men wanted to know The boys got the message. Onewas overheard why credit costs so much, how repayment plans telling another classmate, "Mrs. Carmichaelsays are figured, and how much credit is too much. if you can't borrow money from the bankor the In our discussions it was brought out thata credit union, forget it." consumer must pay extra for the privilege of Hopefully, some day the true annual interest using merchandise today and paying for it later. rate will appear on installment contracts and price If a person always buys on credit, he alwayspays tags so that the method of quoting interest rates more for his goods. These are the hard, cold facts won't be so confusing. the boys needed to understand. This same method of credit education has been They learned that if, after considering these used successfully in teaching several financially dis- statements, they still wanted to use credit, they tressed families in a program sponsored by the could shop for the cheapest true annual interest labor union and management ofa large cor- rate. I couldn't teach them how to use the con- poration in Milwaukee. Many of these workers stant-ratio formula; this is difficult to comprehend. had little or no formal education. Yet they needed to know that the "quoted rate" is Credit can be taught. My message to adult not always what it seems to be. I chose a bold educators is: You must make the story of credit maneuver. In previous group discussions I had meaningful to the students you are teaching. Read demonstrated, in logical steps, how to make wise and appreciate the work of researchers andspe- decisions buying food, clothing, and shelter. Since cialists, but have confidence in your own teaching we had developed great rappi A, I felt I could ability. Then you must teach credit. Your clien- make statements about the true annual interest tele needs this information today! DECISIONS, DOLLARS, AND THE DISADVANTAGED

ALICE M. STEWART

In this discussion on teaching money manage- overcome, the other twowould automatically lx; ment to the disadvantaged,the decisions men- taken care of. tioned in the title are oursour decisions ashome There is so much that is inherent in these three economists. The dollars are those ofthe disadvan- barriers that a fourth can be added. taged.Hopefully, at some point, we may see This concerns what Dr. Jean Cooper, assistant the importance of a close workingrelationship professor in home economics education at Cornell, between the two. has aptly termed "reverse culturaldeprivation." Home economists have much tooffer both Understanding the cultural differences of the dis- directly and indirectly for the benefit ofthe dis- advantageda little of their history and thecir- advantaged. How, how much, when, andwhere cumstances leading up to their presentsocio- are entirelydifferent questions, all yet to be economic status--would seem essential if we are answered. truly going to make a contribution. Overcoming Home economists began concertedefforts for reverse cultural deprivation cangive ample sup- the low-income family in the earlier1960's, and port for changing the fiatthree barriers.This- have made progress, though a bit moreslowly than could provide a gateway instead of a barrier. the Wall we might like tobelieve. An editorial in a July 1967 issue of For purposes of discussion, thedisadvantaged Street Journal used the lead sentence: "Ittakes may be those personswith inadequate incomes or more than goodintentions and a raft of educa- marginal incomes who lack the basicskills, knowl- tion courses to teach. -in the slums"(2).This edge, and experience necessary to getthe most for sentence is just as true if you takeoff the preposi- their money. This definition is verybroad and tional phrase "in the slums." After all, notall of can be applied to awide range of people. our disadvantaged arein the slums. The article As previously stated, some decisions mustbe goes on to say thatteachers "need a knack that made before home economists canteach money doesn't come with a certificate." Theknack re- management to the disadvantaged.Let us con- ferred to is the ability to communicate, or,in the sider communication as our firstbasis for deci- words of a populai. commercial,"Without it, you're sion. not with it." teaching money One of the best articles oncommunicating with Home economists interested in low-income families was written byNaomi Brill management to the disadvantaged mustnot be of language for a low-income workshop inNebraska( / ). She' found hiding behind pseudo-barriers disadvantaged. very clearly givesthree barriers to communicating and trying to find the level of the For material to be interesting, it mustbe presented with low-income families: have to be , in an interesting manner; it doesn't Difference in values. writtfm like a comic book or at thelowest grade Basic feelings or preconceived notionsabout level possible. If we seek to findand know our how people should behave, think,and feel. own level intrying to reach the disadvantaged, then we may not have to worryabout theirs. allow Inability to accept people as they areto Tied closely to our ability tocommunicate is make deci- them to be whatever they are and to what we are presently concerned withcommuni- sions, however unwise they may seem tobe. cating to the disadvantagedhow to manage It would seem that once thethird barrier is money. Our nextdecision then becomes how we

135 136-STEWART feel about money and money management, regard- Should we try to help them starve a little less? less of whose itis. Then we must decide how Perhaps our decision must be to learn enough we feel about the disadvantaged and their money, about families to determine what we can do and regardless of source, or how theymanage it. what we cannot do,being honest with our- Schneiderman tells us that "It is essentially untrue selves, with the disadvantaged, and with other for anyone to say that they do not have strong, professions. well-developed feelings and attitudes towardmoney It may not always be the disadvantaged people and what it represents"(3).We generallY ac- who need help most. It may be the programs that cept money as a medium of exchange and as serve them. Does not part of our responsibility an economic fact of life, but its true significtince lie in the formulation of programs and program is rarely ever clearl:&fined in our minds. We policies for this group? cannot live without it, and many people have Making the right decisions and finding the difficulty trying to live with it. proper role is a very involved and even compli- As a medium of exchange, money is alsoa cated process. Trying to reach families who may determinant.It determines our environment and or may not be seeking our services makes the task our relationship to it.It determines where we even more complicated. live and with whom, the kinds of friends and Dr. Louise Richards summarizes consumer neighbors we have, and the circumstances sur- practices of the poor as follows(4): rounding us. Money determines our worth and dignity. It affects our personality development and Low-income families do buy necessities first and attitudes toward self and others. luxuries iast. We learn quite early to have the highest regard Low-income shoppers are not wide ranging in for the American tradition of the self-made man. their search for good buys. We regard people who cannot measure up to this tradition as being inferior. This American tradi- Low-income families do not budget their in- tion served to build our country, but it is totally comes or plan their purchases. unrealistic and inadequate as a basis for providing How, then, will we teach these families to manage for many of our disadvantaged families. their dollars? How one manages his money reveals much about him, and often this revelation can create fear. Research has shown that it is easier to get TEACHING EXPERIENCES VARY families to discuss the personal details of their lives than it is to get them to discuss their finances. _Teaching money management to groups of dis- The higher the income, the more reluctant one is advantaged individuals can really be an adventure to discuss his finances. because of the wide differences in individuals and Not all disadvantaged families are totally de- groups and the way they relate to one another pendent, but all of them are financially insecure. and in the variety of experiences from onecom- They must of necessity look to others for the munity to another.These are people who may or amelioration of their socioeconomic plight. This may not know what we have read about their is where we home economists are needed most values. The teacher who can accept them for what but only if we can communicate, have the right they are is in for many surprises. understanding of money, and are interested in the The position and intelligence of the disad- disadvantaged. vantaged student must be respected.Listening We must decide where our responsibility begins and really hearing what disadvantaged students and ends in trying to teach money management are saying to each other and to you can pay to families: bigger dividends than your simply asking them a Should we try to help them adjust to their low what they would like to learn. level of income? The variety of topics that can be discussed in money management classesisalmost endless. Should we teach them how to buy on credit? However, the topics must cover realistic experi- STEWART-137 ences and representattainable goals.The ex- notafford when "the Avon lady came by" periences must represent something in the every- needs help from her peers. What could she do? day lives of the group. What would you do if you were in her place? One woman asked how she could know if her Cancel the order completely? Not be at home bill (an installment debt) was paid up. Thefol- when the Avon lady deliveredthe products? lowing lessons resulted: The first was "Ways to Ask the Avon lady to take payment in small Pay Your Bills." In this lesson (actuallytwo) installments? Take one of the items that didn't students learned the advantages and disadvan- cost much and let the others go back? In the tages of using various tools to paybills.They mother's case, the last alternative seemed to be learned that paying bills can cost money. Buying the most acceptable. The wrecked budget then money orders at a check-cashing storecosts from only had a small dent in it. 10 to 25 cenZs more than at the post office or Had the situation been a real emergency, more at a bank. They listed allthe places that they than likely the spending plan would have been could buy money orders conveniently andthen wrecked because there is often so little left for assigned themselves different places tocheck for emergencies. However, all would not have been comparisons. The lesson did not involvelarge lost.The disadvantaged must be taught the amounts of money. Simple though it was,it was importance of making reasonable adjustments and of immediate value to, them. how to use agencies that offer help in time of need The same lesson did not work in adiffer- or in emergencysituations. The importance and ent community because thevarious sources of value of planning must be demonstrated. money orders were notavailable. The cost of travel would offset any savings. Out of this question also grew a lesson on where to gofor help. USING CASE HISTORIES In this case, this woman had actuallyoverpaid her bill, and everyone in the grouplearned from In each of the cases above, discussions were her experiences with the Bureau ofConsumer based on personal experiences. In instances where Frauds and Protection. one does not have anopportunity for personal Another woman commented that she never discussions with groups and in teaching situations had enough money to spend. The comment was where there are also men who would not enjoy just enough to get us started on plannedspending the former approach, the case history may prove (heaven forbid that we should call itbudgeting). to be of value. The teacherwill have to select Disadvantaged students can learn to make a the case history, or combination of several case spending plan just as everyone else does. Some histories, to meet the situation as she' seesit. of those with whom I have worked havebeen The relevant points can be picked by the group, very good recordkeepers. They have separated and the teacher can take her cue fromthere. fixed from flexible expenditures though theyused For example, a case history of a youngcouple different terminology. Their problems stemfrom who had migrated from the South andgradually allocating a specified amount for a flexible expense purchased more and more on credit brought much and sticking to it. Plans look good on paper,but sympathy from one group of adults. Thesolutions handling cash in the midst of temptation and want to this couple's problemdid not take the form of is an altogether different story. Here iswhere the what the young couple might do. Instead,they sharing of experiences can really bebeneficial, and were more in the formcf "what I wish someone every tool can be broughtinto play. The use of had told me when I was younger." Thesolutions envelopes, coin purses, or any workablemethod could have been taken one step further to"what to separate the money forflexible spending can I must do now because no one told mewhen I make what you are discussing realistic. was younger." The wrecked spending plan can begrounds for Lessons on payroll deductions may be veryval- another lessona lesson in choice-makingand uable to the disadvantaged who earn all or part alternatives. The mother who comes toclass al- of their incomes. All too often thedisadvantaged most in tears because she spent$10 she could do not realize that their deductions mayactually 138-STEWAkT be purchasing something for them.They need to in crisis situations withno other choices open to be taught about Social Securitybenefits and how them. Their one choice isusually the merchant to obtain tilt= when eligible. Payrolldeductions who is charging the highest interestrate possible for health and hospital insurance,workmen's for credit. Many are bilked in thisway. compensation, and union benefitscan all be under- Quite often the disadvantagedpay more also stood through money management teaching. because of their ignorance of certainbasic facts Richards' summary indicated thatfew low- and their rightsas citizens.I am reminded of income families have life insurance (4),However, the woman in the movie "ThePoor.pay More" the families under considerationwere inthe who had purchaseda set of encyclopedias from $3,000 income bracket. Many experienceswith a door-to-door salesman because he toldher that the disadvantaged whoare not receiving public the Board of Education hadsent him. He also assistance reveal a large number and varietyof told her that her child wouldnot pass unless she life insurance policies. Thereare also those who bought a set of encyclopediasfrom him. express a desire to purchase insurance atsome This is an example ofa crisis decision, and there future date. More often than not, insurancecover- is nothing that we, with all ofour knowledge of age is not understood, and it often seems that just money management, can do about it. The truth- saying "Metropolitan"or "Jr:. In Hancock" (to in-lending bill will not help suchpeople. The mention two) suffices.In many instances, this decision to buy on creditwas made and nobody is another form of door-to-door sellingin pre- went shopping for credit. (More helpfulreading dominantly low-income neighborhoods aboutwhich on this subject can be found in "Installment Cedit more needs to be said and done. Problems Among Public WelfareRecipients," by Teaching the disadvantaged about lifeinsur- Milton J. Huber.(5) ance can be difficult becam- there isso much In trying to teachmoney management to per- to understand. Quite often the difficulty lies in sons in different financial situations, the bestcon- our trying to teach too much. A simple lessonon tribution may be in teaching themto understand types of insurance policies and the differences the transaction: whatan installment Contract is, in cost of similar benefits broughtan interesting what it means, what itsays, how it should be comment from an adult male student. Here- filled out, and what happens legallywhen pay- marked, "Gee, I never knew therewas any other ments are in default. Repossession andgarnish- way to pay for your insurance except that 25 cents ment or wage assignment should be taughtto per week." this group. The tremendous social value that life insurance It is unrealistic tosay "don't buy on credit" can have for many of the disadvantaged must also today. However, creditcan be taken too much for be recognized and respected. Thewoman who granted. The salesman's spoken wordbecomes tells you that she cannot dropor adjust the $28 law in prospect of a sale. The interestedcustomer, per month that she is paying for life insurance unarmed with a working knowledgeof the true can be very serious. Despite this, we cannot deny *situation, is easyprey. the need to teach about both health andlife The disadvantaged family whocan use credit insurances. with some discretion deservesto be taught as much as they can possibly understand about credit THE POOR PAY MORE transactions. They, like all other families, should understand contracts and their legal rightswhen The use of credit looms large in the livesof they buy on credit. They should be taughtthe many of the disadvantaged. Many of them find sources of cash and sales credit and the differences themselves in financial straits because of it. That in each. They should be taught to evaluate their the poor pay more is a well-established fact.They capacity to use credit so that theymay use it pay more for shoddy merchandise, and they pay as an asset. more for using the costliest sources of credit. There are many more areas ofmoney manage- Why many of the disadvantagedpay more is not ment that can and should be taught to the dis- clearly understood. Many of them find themselves advantaged. We have said nothing aboutthat STEWART-139 wage earner whose old-agebenefits are going to REFERENCES need supplementation. We have not saidnearly 1.Brill,Naomi."Communicating with Low-Income enough about starting a young couple or young Families."Journal of Home Economics, October 1966, p. 631. single person out on the right foot. Wecould go 2. Pinkerton, W. Stewart. "Slum Teachers."Wall Street on and on. Journal, July 25, 1967. Teaching money management to thedisadvan- 3. Schneiderman, Leonard. "The Practical andCultural Significance of Money." Public Weifare, July 1965. taged can be a rewarding adventure.And it can 4. Richards, Louise G. "ConsumerPractices of the pay big dividends for everyminute of time and Poor." Welfare in Review, November 1965, p. 1. interest invested by home economists. 5. Journal of Consumer Aflairs, Summer1967, p. 89. FINANCIAL MANAGEMENT COUNSELING

MARY FEELEY

"Nothing astonishes manas much as common One aspect of this economic theory has been sense and plain dealing." Emerson said this over defined and 'translated into the principle of The a hundred years ago. Consumer, His Budget, and Opportunity Costs. A decade or two ago this statement could have This principle has been expressed inmany ways well applied to the management of the family's since the first man said, "You paysyour money income. In those daysmoney management called and you takes your choice." But ifawareness of for t,,od common sense and plain dealing; thrift this concept of selectivity ismore fully appreciated in itself was sufficient for the familyto prosper. by families, they can avoida period of trial and As one homemaker remarked, "Itwas a cinch error in attempting to work out their financial to manage the family income 20 yearsago com- plans. pared to all the ramifications involved in personal Other economic theoriesThe Consumer and money management today." Price Determination, The Consumer and Inflation, The forces of increased taxes, inflation, and The Consumer and Bargain Pricesare also trans- consumer credit have changed the concepts of lated in such a way that a more objective teaching personal money management from "budgeting" technique is developing for money management. into a broader economic concept. How bestto No longer is the emphasis placed on the impor- protect family savings from continuing inflation tance of detailed bockkeeping techniques. erosion puts increased responsibility on theman- I am not suggesting that the little details ofa ager of the family's finances.Since our past budget should be thrown out and concepts alone record shows the 1940 dollar at 43 cents today, taught. Even though the emphasis today is on what will be the prognosis of the purchasingpower economic theory, the basic principles of manage- of the dollar 10 or 15 years from now? It is a ment cannot be discarded. Establishing what one question of concern to all of us. Understanding wants from money has to be followed up with an how federal income taxes and state, city, and individualized plan for obtaining it and using it. county taxes apply to a family financial plan re- Whether it is a simple arrangement, workable quires more than common sense and plain dealing. without pencil and paper, or whether a notebook And careful use of consumer credit calls for an works, a plan for executing goals for money is understanding of the mechanics of borrowing,sav- a necessity. On the other hand, understanding ing, and investing. concepts without developing a plan to control It's apparent that these forces and other in- money will accomplish little. fluencing factors require educational programs A trend has begun in banking institutions to to provide better understanding of economic and take over the bookkeeping and budgeting opera- financial matters.Curricula in consumer eco- tion for checking account depositors. The de- nomics are presenthig some basic terminology of positors receive a monthly statement that provides economic theories and principles that can be detailed information on the distribution of income related to everyday living. A few yearsago and expenditures so the family can evaluate its Gwen J. Bymers, in the April 1962 Journal of own financial pattern. However, even with this Home Economics, said: "The broad concern of advanced system of bookkeeping, important deci- economic theory is how consumer preferences are sions on where the income should go still have translated into production decisions thatwill to be made by the family. maximize consumer satisfaction." Recently I taught a college course entitled

140 FEELEY-141 Economics of the Household. The above con- ing what bill to pay next, what bill to postpone cepts as well as concepts pertaining to the in- until next month, and where to get the next loan. dividual's responsibility as a consumer were de- Pc^ple of all ages and all income levels can be- veloped. These latter concepts included under- come mentaliy paralyzed by bills, payments, debts, standing the relationship of the individual and and loans. They cannot vi'aalize the whole pic- the family to the national economy, the interrela- ture because their focus is limited to the immediate tionship of money income and personal achieve- problem. The self-discipline needed to control ments, the family's values and goals, and the spending on items that have only momentary value economic climate of communities and how they is lacking. Consumer credit is used to satisfy these affect the family's status. immediate needs, but the consumer is then frus- In presenting the concepts I was interestee; trated as his income is spent month after month to note that the top third of the class was able in payment of these small bills. to understand concepts and translate them into The ability to build and maneuver family assets everyday living without further details; the middle and to work on a balance of fixed and variable third could get value from the concepts provided investments calls for an understanding of eco- they could be related to specific situations; and the nomic concepts outside the scope of knowledge lowest third needed down-to-earth budget patterns of most consumers. Information about individual to see how these concepts could relate to day-to- rights as they apply to Social Security laws, in- day living. come tax, estate tax, inheritance tax, and other Probably one of the most valuable contributions regulations affecting the family should be made to the new approach in family money management easily available. When counseling individuals it is the translation of expenditures into fixed and is possible that a combination of a little account- variables. As recently as a decade ago the setting ing, a little economics, and a little banking might up of a financial plan always began with the make a more successful family money manager. major items of food, clothing, and shelter. They After five years with a large savings bank, it are still major expenditures for a family, but has been gratifying to me to start my own personal some of them are conceivably flexible. Today it counseling service. People want an objective point is accepted that the most realistic way to look of view on their finances and need encouragement at the demands on your in, me is in two parts, to talk over their situations. or two big blocks: fixed expenses and variable The first actual step in counseling is to list or flexible expenses. carefully all the facts and information necessary Fixed expenses are housing, basic utilities, in- to the solution of the problem. From experience stallment contracts, loans, and insurance pre- I have learned that passing judgment on how miumsthe steady commitments. In my teaching clients are spending their money never helps them I add savings under fixed expenses. These might to understand how they can spend it more wisely. be in the form of cash savings, insurance, or sound They don't come to be judged, they come for investments. The temptation is great for some to assistance. Criticism on the counselor's part can consider savings as w1-1 is ivft over from the put clients on the defensive, and thus defeat the grocery bill. purpose of the visit. As the plan of how they spend their income formulates, many clients tend to give only their UNDERSTANDING MANAGEMENT outstanding debts and fixed commitments. They completely forget the daily living costs and the Adults today, and some students, have not been extras that often can be the cause of their par- sufficiently aware of the sources that can provide ticular problem.Before any suggested plan is a deeper understanding of personal money man- formalized, the discussion in many cases leads to agement.Therefore,itisunderstandable that the important question, "What do you want from a surprising number of efficient, intelligent, ra- your income?" The variety of answers is as wide tional people are wandering around in a fog of as the variety of people who come for financial debts and loans of their own contriving, wonder- counseling. 142-FEELEY

To many who receive counseling, the concept not the amount of money, but how it should be of money management is not clear, because they distributed. have long lost sight of moneyas a resource for reaching goals and reflecting values.It is difficult NO SET PATTERN to communicate the benefits of sound financial planning if they are enmeshed in the day-to-day Each adult who comes tome for consultation problems of living. sees the management of money through his own Recently a minister and his wife asked fora eyes.Money management canmean different workable plan for the minister's yearly income. things to different people at different times in They were moving to another location where their lives. The various cycles in people's lives the wife did not plan to work in order to supple- are so important, and so immediately pertinent ment the family income. This couple hadn't been to budget counseling, that the counselor must thinking of money as a resource, but as something have sufficient concern to revise a budget that with which to pay bills and to borrow when de- might have worked a yearor two ago, even though mands on their income became too high. What the client's income may still remain thesame. The they really wanted was a plan for security within young teen, the newlywed, the retired coupleall the framework of the minister's income. Incor- need a different approach to what their income respondence from the minister's wife a few months can do for them. ago, she indicated they were working out their To a homemaker raising a familya money situation, and could hope in another year to start management plan may mean just measuring the a systematic savings plan. household costs to match her husband's salary. Many adults today are still going by percentage In counseling a couple under these circumstances formulas for their own so-called financial plans. frequently notice that they discuss these vari- They use the national averages to establish the ous expenses together. They wonder if the answer family's spending. These national averagesare is simply cutting back in the household budget. useful, but they do not apply in the same way as The budget may be flexible and stretchable, but they did at the turn of the century. These averages too often, as the long list of expenditures are should be considered as merely one ofmany tools accounted for, the budget has nomore stretch left. to be used in working out up-to-date plans. As What they have to be made aware of is that the a family's own plans are revealed, percentages of non-essentials are getting them into trouble, not income for fixed and flexible expenditures will the essentials. automatically develop, depending, of course,on In counseling I continually stress the wisdom of the family's goals and income status. using credit. It is a necessity these days, and it is It is important to relate values and goals to important to be able to judge a family's individual income, but in personal counseling it's frequently capacity for making use of it. There was a time apparent that the husband and wife do not see when the man who bragged that he operated eye-to-eye on their goals. Recently a man came strictly on a cash basis earned a certain admira- in for counseling whose salary from two jobswas tion from his neighbors who were struggling to $17,000. He wanted to save, his wife wanted keep up with monthly payments. But in this to spend. He knew a high percentage of his in- credit-conscious age the same man can run into come was spent for clothing the family and other major difficulties. household expenses, but his wife'sanswer to the As an example of the unrealistic all-cash opera- problem was to demand more money. tion, I cite the dilemma of the man who just re- Clothing percentage figures could help clarify cently wrote me that he was in the embarrassing this situation to some extent, but this family also position of not being able to identify himself if he needed a better plan for living. Therewas no easy wanted to pay for purchases by check. He had answer to their problem; but when both husband no credit standing, good or bad, though in actual and wife agreed to make an appointment to see fact he could afford to pay for whatever he wanted. me together, there was evidence that they could The problem was that he had lived on a cash progress through compromise. Their problem was basis for the past 15 years.

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Although each personal counseling situation is The third category can be illustrated by describing unique within itself, a few categories of the overall a couple who came in for help in evaluating their aspects of counseling are evolving. Many people fixed and variable investments (stocks, insurance, think of counseling only in terms of debt-counsel- mutual funds, retirement pension) in relation to ing, but those who have asked for my help want a specific plan building toward-a $200 monthly types of counseling that I would classify mainly income five years from now. Could the assets in as follows: stocks and mutual funds be transferred to real estate holdings? As the pros and cons of these I. Preventive counseling: who should handle the two types of investment were discussed, it was income and how; how can the family income apparent that ownership of property represented be better distributed. stability to this couple, especially the husband. He 2. Money management plans for those thinking was wise enough to have already started to apply ahead: engaged couples, young married couples a considerable amount of thinking to his plan wanting to buy a home, and retirement couples. and anticipated additional research. 3. Evaluation of assets: discussion of the propor- Personal counseling, as I see it, is a two-pronged tion between fixed and variable investments. operation. First, the counselor asks clients what 4. Built-in discipline controller: a plan for paying they want to do. The point here is that the coun- off indebtedness. selor can't begin by telling them what to do. An example of the last category is the case of The only approach is to find out what they do a single, mature woman who washeavily in debt want, and try to help them obtain it.In the old due to poor financial judgment. The problem for days budgeting was like the "good" guys and the her had to be tackled head-on, with careful analyz- "bad" guys in a Western movie: setting it up one ing of these goals: way made it a good budgetthe rightbudget; setting it up the other way made it a wrong budget. To help her reduce her total debt of $5,000 The fact that two different budgets on the same To meet with her each month in order to dis- income can both be right is the philosophy that is cuss how she could handle monthly payments pervading the modem attitude in both teaching To make the best adjustment between the max- and personal counseling.The double-barreled imum amount available for debt payments and approach of concepts, plus mechanics, is probably the amount expected by creditors the most successful theory the teaching profession To review her fixed maintenance expenses so is developing for educating the American family she could avoid any additional current debt. to live within its income.

a, , -

MEANS AND ENDS

RUTH L. BONDE

I should like to discuss what home economists that other important avenues to improvement that can do to extend knowledge about consumer might be explored with profitare being omitted. credit. Stated another way, whatare our responsibilities to the future? Whether weare extension CHANGE: THE FAMILY ECONOMY specialists, administrators, high school teachers, or professors, we are educators. This role requires The aspects of consumer creditthat have that we recognize the changes taking place inour been considered at this workshop remainto be society, understand the forces making for change, placed in the setting of changes that havecome have an image of where change is leadingus, and about in the level and standard of livingof the adjust tb these trends or seek to modify them. nation's families. A more valid and consistent More specifically, we have certain responsibilities understanding of consumer credit and its place in uniquely ours. family finances becomes possibleas we consider First, the body of knowledge thatwe use must some of the forces that affect the use of money be broadened. This is critically important ifwe income and the direction of change in the family's recognize the limitations of current dataon which economic position. we structure so much of our teaching. Second, One of the criticisms of home economics is that new and better ways of transmitting knowledge its work is oriented to the welfare of thepoor on on all levels of comprehension must be found if the assumption that only the poorare concerned we really believe that increased knowledge is the with Maximizing returns fromresources used. basis for development and humanprogress. This is a false assumption. It isa fact that fami- Our special concern, of course, is to communi- lies in the highest income brackets also find them- cate the knowledge that will have impacton the selves in financial difficulty. Thuswe must focus lives of people, helping them to achieve optimum our interests on a broad spectrum of families, welfare through the use of availableresources, their way of life, and their needs. public and private, and that willserve them in How does the American family fare? In 1965 establishing a value systemon which to base king- the median income of all families was approxi- term goals and direct the choices they make in mately $6900(1). By itself this figure has little ordinary day-to-day living. meaning. Knowing that it representsan increase The central focus in this discussion is change. of $300 over the previous year's incomeor that Optimum progress occurs when the integral parts $20,000 has been predicted as theaverage annual family income in the year 2000 of any movement are coordinated andmove for- may be of some comfort, but it tells little about the well-being of ward together toward acommon goal. First we families. What do these dollars buy in the market- will, look at the changes that have marked the place? economic position of the family in recentyears. Between 1950 and 1960 the income ofall Then we will consider some directions for change families and individuals after taxes increased 52 which hopefully will be usedas the basis for percent, while consumer prices increased 23 per- constructive debate on how the workwe do can cent. This represents a gain of 23 percent inpur- reach its highest potential. The discussion will be chasing power(2). But the gains are not equal for limited to research, curriculum change, profes- all consumer units. Between 1947 and 1965 the' sional education, and .communication, knowing percentage gain in real income for white families

144

\ t .s BONDE-145 was about 61 percent, but for nonwhite families sumers, i.e., families and individuals, an average it was about 74 percent.(3) income of $7747, $1841 of which was paid out The quality of family life depends largely on in income tax,leaving $5906 for other pur- how people use their growing incomes in the mar- poses( 7). Disbursements for current consumption ketplace. What goods and services do they con- averaged $5390, ranging by income class from sume? Higher incomes spread over the population a low of $1307 to $14,745 for families whose will mean for the poor more of the goods and incomes were $15,000 or over. Savings, as mea- services generally defined as necessities. For the sured by a net change in assets and liabilities, higher income group it will mean more travel, varied with income. Below the $5,000 level the leisure and recreational activities, and additional average family drew on past savings or went into consumer durables, such as two or perhaps three debt. Beyond the $5,000 level families increased cars, two boats, a house in the city and one in savings from an average of $18 to $4774 for those the country. And so we must look at expenditure whose incomes were $15,000 or more. patterns if we will understand the changes taking In those years, all but about 4 percent of the place and be aware that variations in such patterns families with incomes of $5,000 to $15,000 par- are based upon available resources, the cost of ticipated in Social Security and pension plans, and goods and services, and needs and wants. for those whose incomes were from $3,000 to Data show that over time the relationship be- $7500, payable deductions for such plans were tween nioney income and expenditures has re- the major part of outlays for personal insurance. mained relatively constant(4). In 1960 to 1961, Certainly the impact of Social Security cannot be for example, the expenditures of urban and rural underestimated in viewing changes in the financial nonfarm families amounted to 91 percent of the security of families since the depression period. after-tax income. For farm families expenditures When we talk about credit extension, this change amounted to 81 percent(5). Though there has must be kept in mind, for it understandably influ- been consistency in this relationship over the ences the financial decisions people make.It years, there have been periods, such as in the might be well to note that even at lowest income early1930's, when expendituresoutdistanced levels some money was allocated to gifts and money income by a substantial margin for a large contributions. segment of the population. Although each family's pattern of expenditure We know, too, that in any one year there are for current consumption is unique, patterns of individuals and families, other than those at the aggregate expenditure are useful in appraising our lowest end of the income scale, whose annual way of satisfying needs. The same Bureau of expenditures exceed their annual income by sub- Labor Statistics study for 1960-1961 shows food stantial amounts. This is because decisions re- and housing to be the major items of expenditure, garding spending, saving, or borrowing are gen- housing exceeding food expenditure by almost erally made on the basis of expectations regarding 5 percentage points and accounting for more money income and needs over a period of time, than half of the total (8).Though at various income rather than on the basis of current income(6). levels the proportion allocated to food ranged Thus it follows that in national data, expenditures from a high of 31 percent to a low of 19 percent, are better indicators of the level of living than is in no case did it exceed the proportion going to annual money income. That is, consumption is housing. Transportation took 15 percent of the correlated with anticipated income rather than family's income, and clothing 11 percent, on the with current income. This fact substantially affects average. Medical care took between 8 and 10 per- the whole approach to money management. cent of the disbursements of families whose incomes were under $3,000, butabout 6 percent HOW MONEY IS USED for others. The fact that the lower-income groups contain a high proportion of aged people accounts How has money income been used? In a study for this difference. of the U.S. Bureau of Labor Statistics for 1960- Does this pattern of expenditure denote any 1961, aggregate figures show for all urban con- change or improvement in recent years? The

...... 1.1...... , .. urban family spentmore for every category of the older family, goods and services in we may make grave errors. Let 1960-1961 than 1 0years us see what some of thesereasons are. earlier, and the relationshipamong the several 1. Current expenditures tendto understate con- categories of expenditureshifted(9). There was sumption when a stock of goodsis being usedup, a relative decrease in the proportionspent for and overstate consumption what is considered the when a stock of dur- basic three: food, clothing, ables is being increased. Such and shelter. The decrease things as furniture, is from 57 percent of automobiles, washing machines,and other equip- total expenditures in 1950to 53 percent in 1960. ment which provide income in kindare accumu- Those items that accountedfor smaller percent- lated by young families ages in 1960-1961 were food, clothing, anticipating useover the house years. When families reach theage of retirement, furnishing and equipment, andrecreation. Those their interest in adding durables taking a larger share drops, the nature were shelter, fuel, utilities, of their wants changes, and household operations, medical tlkir incomesmay be and personalcare, substantially reduced. Wenote that expenditures automobile purchases andoperation, and educa- in 1960-1961 for furniture, tion. The major change equipment, and trans- in this categoryyap the portation took just decline in food expenditures over a fourth (25.8 percent) of from 30 percent to the total amount for consumption 24 percent(10). We all know of uban families that the demand for with the head under 25 food is very inelastic. years of age. This is in contrast to about a seventh (14.6 percent) The major increase in for those expenditures over the families whose headwas 65 to 74 years of age.(13) years from 1950 to 1960was in housing. Both the value of homes and the 2. The structure of familyconsumption is in- mortgage debt increasingly altered by the inclusion creased with advances in of services ren- rates for mortgage in- dered directly by the terest and property insurance. government for which there However, a decline is no direct payment(14). Too in the relative importance frequently we think of home furnishings of government services and equipment,as well as recreational expendi- as benefits only to the tures, is surprising. Because of broader poor. Income maintenance programs do provide coverage, support for millions so classified, but increased rates, and earnings all families based on higher in- stand to improve their consumption comes, the proportion of the total by virtue of amount allo- the broad services rendered bythe government, cated to personal insurancefor Social Security and especially through medical services,education, other retirement payments,increased from 31 to 54 percent in the 10-year health, housing, and highwayprograms. In fact, period.Concurrently, middle- and high-income familiesmay be the outlays for private insurancedropped from 69 percent to 46 percent(11 ). major beneficiaries under theseprograms.In If we maymeasure education, for example, public improvement by what is sometimes elementary and called dis- secondary education which is cretionary spending, i.e., spending available to every- for goods and one represents an annual government expenditure services beyond the basic essentials, the overall of well over $450 picture is one of substantial per pupil(15), but it is widely gain. Today automo- recognized that middle- and biles, television sets, air upper-income groups conditioners, and dish- gain more from this subsidythan do others. washers are owned bya larger proportion of families than at any other time. Higher education isnow within the reach of increasing numbers of the disadvantaged,but the problem of equality of opportunityremains. Fore- LEVEL OF CONSUMPTION gone earnings enter into the decision of how long a poor child may continue in school. Families may be considerably Lower- better off than income familiesmay have to choose income over aggregate expenditure figures show,because ex- extended education. penditure data do not accurately measure the level 3. The work ofwomen who remain in the home of consumption(12). There are several reasons for is seldom viewed interms of foregone earnings this. Unless we consider these or reasons when dis- in terms of their contributionto the real income cussing the extent of poverty or trying to assist of the family (16). What doesit mean to have with budgeting problems of either the youngor 35 million women devoting fulltime to home- BONDE-147 making? What does it mean to have 25 million rate. This, of course, represents a major source women in the labor force, three-fifths of whom of income for millions of families. are married and living with their husbands? It is We cannot leave the consideration of the rela- clear that the full-time homemaker contributes to tionship between income and consumption with- the consumption level of the family through home out noting that there are certain major items of responsibilitiescare of children, food processing, family expenditure which may add relatively little dressmaking, etc. To some extent this service is or nothing to its well-being. Such costs may not lost to the family when the homemaker takes a job be given adequate weight in the family budgeting to increase the money income of the family(17). process or in an appraisal of a family financial There is evidence, however, that some working situation.These are expenditures which might wives may carry as much responsibility for home better be classified as costs of production, or production as before; that is, in effect they carry "additions to the stock of tools used to provide two jobs. Husbands may share increasingly in the other goods." (21 ) housework. In either case the family's consump- How, for example,. is the family automobile tion level may be affected.Since 70 percent of used?Is it essential for use in earning a living? the women who are employed are wives of men As cities are extended and distance between home who earn between $3,000 and $10,000, it may and work increases, the cost of transportation be said that unpaid services are a more significant rises.The outlay for automobile purchases and addition to family well-being in families at the operation, according to the 1960-1961 Bureau lower end of the income scale(18). At the upper of Labor Statistics Survey, took, on the average, end of the income scale, housework, including $721(22). If other expenditures for transporta- the care of children,isstill allocated to paid tion are added, the figure rises to $824, or almost service. . 15 percent of the average total current consump-

4. Other contributions to consumption are in tion amount. . the form of food and fuel from the land (a source What purpose is served by the books you buy? especially significant for farm families), the ser- And is membership in a club a family consump- vices of owner-occupied houses, and the services tion expenditure or should it be considered part of other consumer durables. The significance of of the cost of maintaining a job?It should be food from the farm can be illustrated by the de- clear that all consumption expenditures required cisions made by the Social Security Administra- for earning a living reduce the family's consumption in developing the index of poverty. It was tion by an equivalent amount. assumed that "the farm family in 1963 would Prices in the marketplace, of course, will affect obtain 40 percent of its food requirement from how families use their money. The Consumer the home farm" (19). The widow whose only in- Price Index increased by 23 percent between 1950 come is from Social Security payments and a and 1960, but the year-by-year change was not small return on savings may be rather well off regular nor was the rate of increase consistent for if she lives in her own mortgage-free home and all items. is capable of caring for herself.If, in addition, The most marked annual increase came with she has a small garden, she may find her later the outbreak of the Korean conflict. The price of years quite rewarding. Yet in certain classifica- services increased over the 10 years by 38 per- tions she would be considered among the poverty cent, commodity prices by 16 percent, and durable group. goods by 7 percent(23). The major increase was 5. Social welfare expenditures as a percent of in the price of services with an average rate of gross national product have increased oVer the increase since 1947 of about 31/2 percent, double years from 2.4 percent in 1889-1890 to11.9 per- the rate of increase for retail commodities(24). In cent in 1964-1965 (20). Historically it is interest- such relationships any shift of substantial magni- ing to note that in the depression period social tude will alter the pattern of consumption among welfare expenditures rose to over 9 percent and families and will have a different impact on vari- dropped back to 4 percent in 1944-1945. Since ous income and age groups. For example, older then they have been rising steadily to the present families will be less interested in lower prices for 148BONDE durables than in higher prices for services. Also, 5. Home ownershipas a value seems well estab- where people live may dictate prices people pay. lished, so mortgage payments will probablycon- Caplovitz'.book, The Poor Pay More, raised tinue to demand a substantial place in the family's questions about the level 'of prices paid for hous- economy. ing by familieslivingin the slums of New 6. Education will continueon a high priority York(25). We have seen how families,upon list, but costs will be borne increasinglyby the retirement with reduced incomes, try to maximize government. their income by seeking low-cost communities. The demand and cost for services will probably continue at an increasing rate. The Consumer LOOKING AHEAD Price Index for medical service alone increased from 122 in 1965 to 131 in April 1967, and Now we must ask, "What of the future?" A older people whose requirements for servicesare marked rise in disposable income will depend high constitute an increased proportionof our upon the nation's economic growth and the main- population. tenance of a high level of employmefit. We must As far as taxes are concerned, they willun- not lose sight of what we all know: to have more doubtedly increase for Social Security. Andtaxes requires man to work longer, harder, and more at all levels will probably advanceas the public efficient. The "fruits of economic progress" can demands and gets further "free services." be wasted through luxury, war, or an unrestricted Finally, "demand-creating inventions" and tech- growth in population(26). Suggesting what the nological developments should continue to tempt futare will bring is hazardous, but let us try. the consumer's last dollaras well as the one he The ratio of savings to personal income may borrowed. We can surmise that the public willcon- not change significantly, but there is some indi- tinue to respond to aggressive salesmanship.(27) cation that it may drop due to the anticipated Within this framework it is likely that the wide- high rate of family formation expected in the near spread use of credit will continue. The attitude future. When the vast number of youth reach toward the use of credit has changed fromone of marriageable age and establish homes, they will disdain to cute of general acceptance. At theturn want what their parents' homes provided, but they of the century those who borrowed for personal will not be willing to wait to accumulate funds for consumption were considered improvident. This purchases. Their alternative is to borrow from is not so today. The case for credituse is clearly the future, spreading costs over a longer period of stated: time. This they can be expected to do. Through the widespread use of credit, families For these young people, a sense of security in have acquired financial resources with which to the use of credit is based upon these crucial supplement current money income and to build factors: an equity for the future. It has enabled them to acquire consumption goods, particularly houses 1. An increasingly high level of education should and heavy durables, sooner than would be pos- mean higher incomes, higher rates of full-time sible with current income and to spread their steady employment, increased purchasing power. costs over a longer period of time. It also has an 2. There is no indication that women expect to important stabilizing effect on consumer demand withdraw from gainful employment to return to and hence the overall level of economic activity.(28) housekeeping. Young married women will work The changed viewtoward credit andits until the first pregnancy, then return to earning "democratization" in no way negates the need for after children are in school. family financial planning or saving. In fact, the 3. As Social Security benefits are both increased use of* credit makes planning more essential and and extended, a minimum level of future security more difficult because commitments are made for seems assured.(One-third of the nation's hos- extended periods. Confidence in judgments for pital bills currently are paid by the federal gov- the short term is generally greater than for the ernment.) distant future.Substantial unpredicted changes 4. Young people assume little responsibility for can alter one's fortunes over time, goals change, aged parents. and needs and wants are often fickle. Restricting BONDE-149 consumption in a market as stimulating as ours We know relatively little about many aspects of isdifficult.Yet concern for both the national the problems of consumer credit or the larger field economy and the family's economy requires that of investigation, family economics. In general, people save. social science and research in family economics To the extent that the individual understands and welfare economics has lagged far behind re- the relationship between his decisions to save or search in the sciences.This arises from the spend and the national economy and its operation, "capacity of science to isolate a problem, set it the greater our progress. The lesson is difficult within an investigative framework which allows to learn. Saving may turn out to be a function of for the exclusion of any primary concern for age because the wants of young people tend to human involvement, and then apply various ap- continually outreach their means for satisfying propriate methods until an acceptable solution of them. Age and a waning capacity for human pro- the problem is arrived at or its possibilities ex- ductivity make one aware of the earning power hausted"(31).Some problems of researchin of saved funds and the security which comes social science lend themselves to the same kind of from having saved. mathematical analysis characteristic of research I should now like to turn to some areas of in science. The need for valid methodology in the responsibilitythat need attention from home social sciences is still a stumbling block and is economists. itself an area of needed research. On the other hand, family economists may find difficulty in CHANGE: RESEARCH divorcing themselves from humanistic concerns, and there is some question about whether or not The concern with matters at hand has demon- they should do this. strated the continuing need for probing to find The amount of available data, both qualitative answers to many questions on which (a) tobuild and quantitative, both macro and micro,relevant the subject matter we teach; (b) to serve as a to family economics is stupendous.This wealth basis for judging public policy, especially as it of data is largely unmined. This suggests that in bears on family welfare; and (c) to provide infor- the hidden volumes are answers to innumerable mation for those who seek reliable data as the queries regarding consumer credit and other eco- basis for business decisions. Knowledge in any nomic problems. Data need to be analyzed, rela- field is a matter of slow accretion, so it follows tionships ferreted out, and findings published for that someone must assume the obligation for appraisal.And a subjective observation: do I extending knowledge. (29) detect a reluctance upon the part of home econo- Pertinent to this is Boulding's warning of the mists to be critical of one another's work, to feel continuous discrepancy between "folk images of free to discuss and debate issues fundamental to the world" and "scientific images"(30). The for- progress? How can ideas be sharpened without of man's mer rise out of the generalizations criticism?I submit the belief that more critical experiences, whereas scientific images arise from evaluation of each other's work would lead to the "organized expansion of knowledge." Bould- better methodology and better research. ing says: The fundamental difference ...is that the folk knowledge is derived essentially from empirical CHANGE: EDUCATION PROCESS inference and casual observation whereas scientific knowledge is derived from theoreticalmodels according to the mathematical logic and carefully The continuing cry for the extension of knowl- organized observation guided by inventions which edge through more and better research brings us extend the power of the senses. to the matter of education, especially onthe This concept of differences between folkknowl- college level. edge and scientific knowledge is especiallyim- Not everyone in the profession agrees with my portant for those of us who workdirectly with ideas regarding professional education. However, families trying to replace folk knowledgewith I think a good case can be made for professional the scientific. training in the fifth year of college based upon a four-year program of general education with CHANGE: THE CURRICULUM an area of specialization. For undergraduate majors in homeeconomics a Do we need to be concerned about the whole rigorous course in principles of economics should matter of progression of learning on the various be minimum, with furthercourses in economics levels starting from grade school through college advisable. But the students would also needthe and into adult classes? Is there todaya tendency opportunity to explore other subjects in the social to treat the subject of consumer creditas we sciences, in the sciences, and in the humanities. have treated basic nutrition? A college student Major requirements so extensiveas to negate a commenting on her experiences inan elementary student's exploration of related areasare a detri- nutrition course complained that therewas little ment to the student's total scholarship. As for in the course that was challenging becauseshe students' knowledge of consumer creditper se, the "had had" the "Basic Four" foodgroups almost subject is but a branch ofa sturdy tree, namely every year since entering school. family economics, which must be nurtured through Have students likewise "had"consumer credit? the roots of economic principles and theory. Eco- Do we understand the capacities of studentsat nomic theory is fundamental toany substantial various levels to grasp facts, ideas, and attitudes? work beyond the elementary level. Do we understand how learning takesplace? If the assumption is that the graduateprogram (Does anyone?) Do we provide instructionand educates specialists, then certainly training in depth materials appropriate to the level of comprehen- is essential. At this juncture, the student who,as sion and need? Do we tend to teach,on all levels, an undergraduate, was introduced to allied subject how to calculate the rate of credit and whereto matter will have an appreciation of the interre- go for credit, never quite coming to grips with latedness of knowledge and will know where to very fundamental concepts, principles, and theo- turn to find answers. ries which provide the structure for analysis of One factor in the dearth of research might be new and more complex problems?"Learning a lack of capacity to analyze problems. Are stu- should not only take us somewhere; it should dents on the undergraduate and graduate levels, allow us later to go further easily"(32). The dis- or even in high school and elementary school, tance between simple interest and the permanent given appropriate introduction to and adequate income hypothesis, for example, allowsroom for opportunity for, learning the process of analysis? many, both students and scholars. An analytical capacity is not genetically deter- Have vie made maximum use of what is being mined, but is achieved over time throughappro- offered through other departments inour institu- priate nurturing within our educational complex. tions, and have we been willing toso alter our With large classes, a multitude of peripheral de- own programs as to make possible the inclusion mands, and limited time, the responsibility for of courses of value to the general student body? instruction of this nature may notseem feasible. To what extent has team teaching been used to This may be a costly error. unite home economics with other studiesor dis- Then a question must be raised as to the ade- ciplines? What are our objectives? quacy of textbooks, their level of sophistication, The time is long overdue when, as economists, and relevance to current knowledge. we should feel a deep responsibility for econo- The specialist in family economics,consump- mizing both the time of our students and the pub- tion economics, or home management in educa- lic's money. tion, welfare, journalism,or business must be competent in economics, competent to deal with current problems and concepts.This specialist CHANGE: COMMUNICATION must be a continuing scholar whose interests are both broad and deep, alert to the changing value The American Home Economics Association's system and its impact on the lives of people. The Workshop on Consumer Credit came into being task of our colleges and universities ismonu- .because many leaders recognize that there isa mental. great disparity between what we assume we are

4 BONDE-151 teaching and the attitudes and behavior of the claims for unlimited expansion, and it seems to general public in regard to common economic be, then itis professional groups which might problems, specifically consumer credit. The gen- well take some leadership to see that the software eral ignorance of and disinterest in many aspects of is appropriate and that mechanized instruction is consumer credit seem irreconcilable with a sophis- worth the price.Just like credit, "education and ticated, relatively well-educated society. But the welfare are becoming commercially profitable and facts are clear. Most people resist the kind of that, firially, is why the industry is here"(35). Per- reasoning required for decision-making. Compre- haps we need a conference with representatives hending economic theory isdifficult; reasoning of industry to seek out the potentials of new tech- from economic theory is more demanding. Folk niques for reaching the masses with information knowledge is comforting and gives a secure base, within a consistent, conceptual framework. In any a little island to stand on and from which to de- event, our job is to find the way to reach the fend attitudes. Change may be painful. masses with material of quality and value. How can the gap between the professional and the non-professional be bridged? Let us consider one answer. SUMMARY AND CONCLUSIONS Today there is something called "the education business." Some of those in the education business Change has demanded that home economists are IBM, Xerox, RCA, General Electric, West- be aware of trends affecting change in levels and inghouse, Litton, CBS, to name but a few who standard of living and that they find ways and are developing ways to teach and learn through means to serve better the well-being of families. technology. Hardware is a rather recent addition To this end groups of leaders might well be to the educator's vocabulary. There is little doubt organized on state, regional, or national levels to that this business will grow, adding products arid consider the following: services for all levels and for all fields of education. It is reported that a computerized system is 1. Coordinatedprogramsofinstructionextending being developed that will provide an individual- through all levels of education. ized program for each child. One company has 2.Special research needs and techniques for research in the social sciences, with an emphasis on family, designed a junior college,others operate Job consumption economics, and credit. Corps centers. (33 ) 3. Recommendations for graduate education in terms It is clear that no new theories of learning have of its quality and content in the hope that graduates evolved from the immense investment in the hard- will be better equipped for intellectualleadership ware and its promotion. What is needed is what is and continuing research activity and that the length called software, or curricular materials. Whether of time for obtaining the PhD degree might be reduce d while improving the end product. The validity or not we are currently teaching the "right" things, of a "teaching degree" beyond the MS might be that is what will be spewed by tile machines to a considered. large universe. We understand the danger when 4. Preparation of a compilation of research findings re- we look at the size of the television audience and lating to consumer credit, comparable to that of Rob- note how much time is spent urging the public to ert Ferber's "Research on Household Behavior."(36) smoke the "best" cigarette. Contrast this with the 5. The possibility of instituting experimental programs size of an average classroom of students.An in high schools to determine how the student's analytical abilities in the area of family economics might official of Xerox is reported to have said of people be improved. Consumer credit could be the vehicle in education, "[They] don't seem to be interested used. in the why question. Something which can pro- 6. The entire matter of hardware and software in the duce garbage more quickly is not necessarily a educational program, formal and informal. service"(34). And is it possible that the hardware will dehumanize instruction and creative Change is inevitable, history is irreversible. In thinking and that constructive analysis will be the words of Gunnar Myrdal, "The future is con- lost to mechanized efficiency? tinually our own choice There is no blind destiny If the "education business" is certain of its ruling history."(37) 152BONDE

REFERENCES 17. See "The Economics of Housework" by Colin Clark, Bulletin of the Oxford University institute of Sta- 1. Current Population Reports. "Income in 1965 of tistics, May 1958, p. 210. Families and Persons in the United States." Wash- 18. 1965 Handbook on Women Workers. Washington, ington, D.C.: U.S. Bureau of the Census, Series D.C.: U.S. Department of Labor, p. 30. P-60, No. 51, 1967, p. 1. 19. Orshansky, Mollie. "Who's Who Among the Poor." 2. SurveyofConsumerExpenditures1960-1961. Social Security Bulletin, Jut), 1965, p. 9. Part I: Workers, Wealth, and Family Living Stan- 20. Merriam, Ida C."Social Welfare Expenditures, dards by Helen Lama le.Washington, D.C.: U.S. 1958-1959."Social SecurityBulletin, November Bureau of Labor Statistics, BLS Report No. 238-1, 1960.Expenditures include housing, social insur- December 1963, p. 676. ance, public aid, health and medical insurance, 3. In current lollars of March 1965, the median income education, veterans' programs, and other welfare. for white :milks was $7170; for nonwhite, $3971; 21. See Kuznets, op. cit., pp. 224-234, for a discussion for farm families, $4122; and for nonfarm families, of the distinction between consumption and capital $7060.See Current Population Reports, op. cit., formation. p. 18. 22. Survey of Consumer Expenditures 1960-1961, op. 4. Historical Statistics of the United States, Colonial cit., p. 680. Times to 1957. Washington, D.C.: U.S. Bureau of the Censur, 1960, p. 181. 23. Survey of Consumer Expenditures 1960-1961. Part II: The Impact of Rising Prices on Younger or Older 5. Consumer Expenditure and lncome.Washington, Citizens by Helen LaiLiale. Washington, D.C.: U.S. D.C.: U.S. Bureau of Labor Statistics, BLS Report Bureau of Labor Stat2stics, BLS Report No. 238-2, No. 237-93, 1965, p. 1. December 1963, p. 1. 6. Reid, Margaret C. Standards of Living. November 24. Economic Report of the President.Washington, 1964(preliminarydraft).Anticipated long-term D.C.: Government Printing Office, January 1967, income is described as normal income; deviation is pp. 93-94.Services include: (1) rents and utility kirown as transitory income. rates; (2) labor intensive services; and (3) financial 7. This section is based on Contrasts in Spending by charges. Charges for medical services accounted for Urban Families. Washington, D.C.: U.S. Bureau 22 percent of the change in 1966. of Labor Statistics, BLS Report No. 238-8, Febru- 25. Caplovitz, David. The Poor Pay More. New York: ary 1965. The Free Press of Glencoe, 1961., 8. Consumer Expenditure and income.Washington, 26. Boulding, Kenneth. Principles of Economic Policy. D.C.: U.S. Bureau of Labor Statistics, BLS Report Englewood Cliffs, New Jersey: Prentice-Hall, Inc., No. 237-38, July 1964, Table 11-6. 1958, pp. 42-44. Contrasts in Spending by Urban Families, op. cit. 27. See John Kenneth Galbraith, The New Industrial 10. Engel's law indicates that the proportion allocated State. Boston: Houghton Mifflin Co., Inc., 1967. to food decreases with an increase in total con- 28. Survey of Consumer Expenditures 1960-1961, Part I, sumption. op. cit., p. 679. 11. Survey of Con, un er Expenditures 1960-1961, op. 29. For an excellent review of research needs see "Con- cit., Table 3, p. 680. sumption Patterns and Trends," a paper presented 12. In this connectionit is important to realize that by Margaret G. Reid at a sem;nar on Research poverty is relative and that no income level, e.g., Needs in Consumer Economics, University of Cali- $3,000, can define poverty status.Necessities are fornia, September 10, 1964. socially defined. 30. Boulding, Kenneth. The Meaning of the Twentieth 13. Consumer Expenditure and Income. BLS Report Century. Evanston, Illinois: Harper and Row, 1964, No. 237-38, op. cit., Supplement 2, Part A, Table p. 56. 12-6, p. 11. 31. Prior, Moody. Science and the Humanities. Evans- 14. Kuznets, Simon. Modern Economic Growth. New ton, Illinois: Northwestern University Press, 1962, Haven: Yale University Press, 1966, p. 265. Kuznets p. 62. suggests their inclusion would effect a rise of "no 32. Bruner, Jerome S. The Process of Education. Cam- more than 10 percentage points." bridge, Massachusetts: Harvard University Press, 15. Statistical Abstract of the United States. Washing- 1962, p. 17. ton, D.C.: U.S. Bureau of the Census, 1966, p. 119. 33. Schrag, Peter. "Kids, Computers and Corporations." Saturday Review, May 20, 1967, p. 78. 16. Becker, G. S. A Theory of the Allocation of Time. New York: IBM Watson Research Center, Research 34. Schrag, ibid., pp. 94, 96. Paper RC-1149, March 20, 1964. Becker suggests 35. Schrag, ibid., p. 96. that with changes in the length of the work week "the allocation and efficiency of non-working time 36. American Economic Review, March 1962, pp. 19-63. may be more important to economic welfare than 37. Beyond the Welfare State. New Haven, Connecti- working time." cut: Yale University Press, 1960, p. 226. THE SQUARE TOMATO, OR, A LOOK AT THE FUTURE

HELEN G. HURD

In a recent issue of Time, there appears the to simple annual interest rates. I have only stud- following statement which is the basis for my pop ied the color, the size, the convenience, the plea- title: sure, and have bought for the joy of owning as many of the benefits of this affluent society I could The day is approaching"closer than you think," afford on the installment plan. says [John] Deere's Research and Development Chief Gordon Millarwhen farmers will culti- I submit to you that the coming generations vate the soil with inaudible sound waves, work may not be as ingenuous or as materialistic as the fields by computer-controlled programs, use tele- generations of the past who created the affluent vision to monitor their remote-controlled ma- American society. Marshall Fishwick, editor of chines.Another phenomenon in the not too American Studies in Transition, in a faicinating distant future is square tomatoes, which, after all, could be more easily packaged by machine--and article entitled "Folklore, Fake lore and Pop lore" fit better in sandwiches.(/) tells us that even our well-known American character Paul Bunyan owed much of his fame to a My assignment here was to speak on the topic free-lance advertising man hired by the Red River A Look to the Future. But no one in his right Lumber Company to sell their products. mind would presume to predict what is going to happen. I believe it was Horace Walpole who When other ad men and promoters joined in, Paul said that "the wisest prophets make sure of the came to symbolize the cult of bigness and power in a booming chauvinistic democracy. He mir- event first." If we cannot make sure of the fu- rored a bumpti Itimistic nineteenth-century ture, we can at least look at. some of the research robber baronthe ....lective state of mind of peo- for trends. ple whose primary task was the physical mastery I am going to describe some of the trends, of nature. Bunyan was company fakelore in a changes, and influences in some institutions other business civilization, the most likely to succeed. than the family. As home economists at a work- But this kind of world is being repudiated to- shop on credit, you are principally interested in the day.The young are,according to Fishwick, family, assuming they will be the purchasing agent and credit user in the generation to come. But I "moving into realms their parents will never enter. of suspect the future generation is not going to use The young have always clone this, credit with the same abandon as in the past. course; only to return and occupy the stable, conservative positions they once decried. Here Credit is not an unmixed blessing. You have discussed some "problem users of is the big difference: The generation which has credit" in this workshop. I myself became a prob- just moved out may never come back."(2 ) They are neither silent nor invisible. The nine- lem user when I discovered that-the annual interest rate on a $100 small loan at 21/2 percent per teenth century epigrams that once governed the family, Children are seen and not heard, Silence month on the unpaid balance is 31 percent and is golden, and so forth, are anathema to them. that a 4 percent new auto loan is actually almost double, or 7.4 percent. Someday we may even They speak out and sing out in the ancient bardic teach school children to learn the actual dollar tradition. cost of credit. But, of course, we don't evaluate Music and songs are the new youth's primary tools things in dollars and cents alone. I have never and means of expression. They shape songs to fit converted the figures given in the advertisements substance; form follows function.(3) 154HURD

(In scientific biology, when form follows func- the environment that surrounds the family of the tion, we call it thesquare tomatoeasier to pack, future. fits better in a sandwich.) dynunetry and structural perfection are consid- EDUCATIONAL TRENDS ered, but remain secondary to what has to be said.... The drive is away from the generalsense What are the signs in the changing educational of hypocrisy in diverse areas of lifea separation scene? It is apparenton all sides that education from older values.... Nostalgia and oversenti- mentality have lost their place.(4) is far behind in its obligationto teach all the children and to provide themarmor against the If, in the old days, function followed form, stresses they are bound to encounter. Weare then in the days tocome, form will follow func- not making anywhere near the investment in hu- tion. Ethics will emphasize the pragmatic, the man capital that we are in war, narcotics, prisons, functional, the rational; or shall we say, behavior and in other substitutes for the creativelife. will be more pragmatic,more functional, more In the cybernetic age, the curriculum will have rational. I say this with no fear of contradiction: to stress the problem-solving method. Teachers everything points to it; at least everything I have will teach children to teach themselves. Thecur- read points to it. ricula of all schools, from elementary throughcol- Our technology has created an enormous out- lege, will have to include instruction inand em- put of goods with obsolescence built in to insure phasisonphilosophy,psychology,teaching continuous purchasing, and along with our desire methods, learning processes and methods ofstudy, for things, we still have remnants ofa value sys- information retrieval and theuse of libraries, tem of an older day when thrift wag a virtue, and cybernetics, science of research (zetetics),ad- you didn't buy anything you didn't have the cash vanced reading and vocabulary buildingand the to pay for. It is hard to convincesome people science of problem solving (heuristics) .(5) even today that one's credit rating is a better Here is a dictionary definition of cybernetics: indication of their affluence than is their income. But our "poplore" in modem advertising The study of human control functions and of the has mechanical and electric systems designed tore- done a pretty good job in creating theillusion place them, involving the application of statistical that the rich life is the life of things, ofproperty, mechanics to communications engineering. of two cars in every garage, all bought on time. There is much more to be said about therevo- This is our culture andwe pride ourselves on lution in education; let this suffice to indicate that our affluence, our wealth, and we boast that ours if we expect to survive theage of cybernetics, our is the biggest and the besta bombastic optimism children must be taught to livemore creatively that moved the adman poplorist to create Paul and to use their learning to that end. Bunyan. But the hands are not playing out so well. OCCUPATIONAL TRENDS Our young people are in rebellion; thereis a report that God is dead; we are caught in tragic Another institution impinges closelyon family political dilemmas both at home and abroad,all life: the economic or occupational. Who willearn of which keep us constantlyon the brink of dis- the living and how? aster. We stand with Japanas being the highest For this, I refer to anew book by Donald M. among the nations in psychogenic death rate. Our Michael, The Next Generation(6). He deals with price for achievement is inhibition,ulcers, high three major trends: the macro- (or large)econ- blood pressure, suicide, drugs, alcoholism.We omy, technologic innovation, and the rationaliza- read about things we don't understandcyber- tion of society, withan overriding concern for the netics, laser, heuristics, zetetics---and there isno effects of automation. comfort in them. In following current trends toward the future, But change is all aboutus. All of our institu- Michael focuses repeatedlyon a three-part social tions are re-evaluating, andour norms are chang- system comprised of professionals, technicians, ing. Let me mentiona few, as we think about and the unskilled: HURD-155

1. The professional is characterizedas: and the lower-class approach, in whichthey will needing a longer and more rigorous educa- learn by doing, playing down theacademic. tion which intensifies at an earlier age than We have learned that theupper middle-class now volunteer in these jobs tends to be patronizing becoming more fully and more intellectually in spite of himself. The middle-class BoyScout identified with his work role leader is at a loss with slum boys until helearns having less leisure time to identify with their culture.Also, many up- wardly mobile people tend to turn their backson being called upon for more stressful decisions the culture from which they havecome and be- as automation siphons out the routine ones come more hostile toward it than anyone else. that lent assurance to his prestige feelings They do not wish to be identified witha culture requiringconstantre-educationto keep they have left behind. abreast of changing demands. Yet, people who can relate to both culturesare hard to find. 2. The technician is required in increasingnum- The indigenous non-professional, bers to supplement the automated equipment in mature, in good health, with a high school edu- constantly monitoring and organizing the increased cation and with some in-service trainingmay be output of professional publications: the doorway to more effective casework.The secret is not only in the quantity but in the his work will be skilled and interesting, but worker's ability to relate to both cultures. not highly demanding or all-consuming While we are on the subject of multi-cultural he will be retriined for several job changes people, I read an interesting proposal recentlyto during his lifetime train peacekeepers and peacemakers.The thesis his more relaxed education, shorter work was that within the next generation the world hours, and comfortable salary will make him will need a trans-national peace-keepingand the chief participant in the burgeoningrecre- peace-creating agency tocope with outrightvio- ation market. Society is therefore calledupon lence and help meet some of the desperateneed for the difficult job of developing hisdispo- for food, economic development, anda share in sition to spend leisure time andmoney in a political power, needs which, whenunmet among manner that gains him satisfaction. many of the world's people, often lead towar. The American ancestors of thisnew group of 3. The unskilledare disturbingly portrayed as an workers are the Sea Bees, the Peace Corps,Red increasingly distinct group during thenext genera- Cross disaster workers. Thereare others in other tion.Only limited progress out of this group is countries.These people should be multi-lingual, envisioned for the Negro populationperhaps the and multi-cultural.Their loyalties to their home only manifestly negative prediction inthe book. societies should be softened, and their Some predict that a large and loyalties permanent class of to one another, and insome sense "to the world," unemployables is now being created. strengthened. If this trichotomy in the occupational struc- The idea, first envisioned bya woman, is that ii ture does take place, it will have quitean impact should be started by private organizations.Ulti- on family life, perhaps dividing it into three mately, on condition that the United Nations distinct life styles,more distinct than now exists achieves a universal membership, the U.N.should among lower, middle, and upper classes. be responsible for such a school and forthe But another development in occupationsin- peacekeepers it trains. A Peacekeepers Academy would train men and women for two terests us here: the rise of the indigenousnon- years to enter the new peacekeeper profession... . They professional worker in the community,drawn should be trained in basic police skills, including from the disadvantagedgroups, who has success- the careful use of limitedweaponry in necessary fully moved to amore stable life.I refer to the circumstances; in civil engineering, both in make- casework aides, the parent educationaides, the shift style and at more "professional" levels; in homemaker, the youthcorps leaders. public health and basic medicine; in teaching This group and community organizing; and in grassroots will be characterized by spontaneity, pragmatism, diplomacy and mediation.(7) ....*011

156-HURD

What a wonderful opportunity fora young man security of their children. The parents of creative or woman to be creativeto be active in creating children show less agreement between themselves. the future, rather than rebelling against the fact. In short, creativity seems to thrive in a challeng- I have spent some time on these occupational ing atmosphere, far removed from the "dead futures, not because they are any more valuable hand ofthe past" and "smother-love" and than many others that could be described, but "father bother." because they typify new kinds of work that the Before I attempt to categorize the family in the future will requin. cybernetic age, there are some clues to be derived from the U.S. Census.Robert Parke, Jr., and FAMILY TRENDS Paul C. Glick have reviewed recent statisticson marriage and the family, and they are willing to There is very little of the past in all this. "Today make some predictions about what the future and tomorrow threaten; in a sense there is no holds(8): past."But there will still be our institutions law, religion, education, work, the family.All 1.Teenage marriages are on the downgrade. will be affected, but all will survive.It is in- Fifteen years ago, 23 percent of women married teresting to note the cycles that the family in before they were 18, but by 1966 only 15 percent our culture has lived through.Family sociolo- of these youngsters are married. gists describe the colonial rural family as a pro- 2. Catching a husband is going to be a little ducing unit, authoritarian in nature, impelled by more difficult than it has been in the past.In the the need to survive a ruthless nature, and living 1960's, there will be only 93 boys in the main by their own hands out of the earth.This family marrying ages (20 to 24 for boys) for every was surrounded by a host of traditional taboos 100 girls in their main marrying ages (18 to 22). with regard to sex, the status of women, the nature 3.Marriages will be more stable in the future. of children, and was held together by the all- Since a number of census studies have shown the powerful father image. close connection between low income and the As economic conditions became better, the disruption of marriage, rising incomes in the family changed toi a consuming unit, more demo- future should lead to more stable marriages. cratic in nature, less intimidated by the traditional taboos, but more conforming to the demands of 4. There will be fewer widows.The lessening what Thorsten Veblen called conspicuous con- age difference between husbands and wives will sumption.There was more freedom for women increase the chance thEboth marriage partners and children, and an artificial togetherness was will survive into old at,. invoked to hold the family together. Instead of the A new ideology will permeate the family of family's being father-dominated, "momism" was the futureone of independence and creativity. recognized; and indeed, this family was child- Being relieved of the rigors of producing every- dominated. We are in the last stages of this era, thing they owned, wore, or ate, the family of thank heaven. the immediate past went on a mammoth spend- According to a study reported in the February ing spree. They bought everything, whether they 1966 Journal of Marriage and the Family, it is had the money to pay for it or not. An obliging not necessary to have a serene family life with credit and installment system made this possible. a great deal of togetherness.The study showed The have-nots rose up in rebellion, for the differ- that creative children are products of homes where ences were too obvious.If things could not be there is a good deal of open, and not a!ways obtained one way, another way could be found. calm,- expression of strong feeling.The children The family in the age of cybernetics is less con- are more creative vieten the fathers place less cerned with keeping up with the Joneses.Its emphasis on moral and religious unity andcom- members have other things to interest them.If panionship.The mothers of creative children the father is a professional, he will have limited show less concern for the family's place in the time to worry about other people. A few mothers community and more concern for the emotional are professionals, but most are technicians be-

ft' ,

, HURD--157 cause of the leisure involved.Housekeeping in The concept of a society where creativity is an the functional home is reduced to a minimum; ethic is a challenging one. We would be less than gadgets are replaced by an entire built-in modular human if we settled for a "fun society" of irre- operation.Houses are cleaned by laser beam, sponsible sex, gambling, and free spending. Yet, food is cooked instantly. Even shopping is being the alienation of many who will be simply moni- done by television and computer. tors of the machine makes it questionable whether If the mother and father are technicians, they we can continue to base oursociety on the work have much leisure time, and they have been taught ethic of the past. to use it.All family members have avocations The irony of it is, as many have pointed out, that satisfy their creative interests.The homes that the habits and way of life that have created are divisible into separate quarters,and the to- the new leisure have left us unprepared to enjoy getherness of a previous age is as forgotten as it or even accept it.The persistence of the work the Edsel. ethic and our failure to appreciate "the finer things These are the people who will read about our of life" are a present barrier.But as we see time in textbooks, only there won't be any text- the work ethic changing and as the new media books.They will see and hear the sights and bring music, art, poetry, sports, history, geog- sounds as preserved invideo-stereo. I can raphy, science, and the rest of the world directly imagine how amused they will be at the picture into our lives as experiences, perhaps the medium of a family gathered around the television with will be the message, and we will be stimulated to its strange assortment of sex and homicide. But participate in the next development in manthe the children will probably be spending the week- application of his creative powers to problems of end surfing at Sunset Beach, Hawaii, supervised truth, beauty, community, and personal peace. by professional airline and recreation aides. As an innovator and inventor, man is supreme. Who remembers the family gathered around But he has let his innovations and inventions the nickelodeon in the light of the oil lamp? Who master him.I hope the future gives him the remembers the family gathered around the tele- opportunity to master the art of living.It seems vision?These are the tales of long, long ago. to me that this is his only hope of survival in the Batman is as dead as Darling Nellie Gray. cybernetic age of functionalism, rationalism, prag- Well, it is time to stop these speculations.It matismand the square tomato. has been said that in the twentieth century an optimist is someone who thinks the future is un- REFERENCES certain. I am an optimist. Just because there is 1. August 18, 1967, p. 83. 2. Fishivick, Marshall."Folklore, Fakelore and Pop- considerable consensus about trends in the future lore." Saturday Review, August 26, 1967, p. 20. does not make them a certainty. 3. Korall, Burt. "Of Times That Are A-Changin'." Sat- There is nothing inevitable in history.We urday Review, August 26, 1967, p. 76. may draw inferences as to where certain trends 4. Ibid. 5. For this listing I am indebted to a letter in the August may lead, but the ultimate answer lies in man 12, 1967, issue of Saturday Review, p. 21, signed by himself.His intimate relation to the natural Gilbert Lorenz, Urbana, Illinois. world created a way of life, a set of ideologies, 6. Michael, Donald M. The Next Generation: The Prospects Ahead for the Youth of Today and To- and an ontology that has served until now. His morrow. New York: Random House, 1965, and intimate relationship with his technology through Vintage Books, 1965. (As reviewed in Trans-Action, April 1967.) cybernetics must of necessity result in a new view 7. Waskow, Arthur I. "The Education of Peacemakers." of himself and his world, a new view being forged Saturday Review, August 12, 1967, p. 12 even now. 8. As reported in Trans-Action, September 1967. PANEL: WE TAKE THIS HOME

GWEN J. BYMERS (MODERATOR), SARAH MANNING, MYRNA P.CRABTREE, BETTY E. HAWTHORNE, NATHALIED. PRESTON, ELOISE COFER.

At the close of the Workshopon Consumer Credit going to start out by caningon Sarah Manning in Family Financial Management, several home to say what she wants to about the highlights of economists were asked to commenton ideas pre- this conference. sented during the week. The material presented here is from the tape recording of their remarks. SARAH MANNING: The whole idea of the checkless, cashlessso- GWEN J. BYMERS: ciety (or as the Wall Street Journalputs it, the The title of this panel may strike someoneas "less check society") really does exciteme. I presumptuous. "We Take This Home"how thought it might be interestingto take another could this panel assume whatanyone will take look at that. home from this Workshop on Consumer Credit? Imagine that you are going togo buy a car on The title was chosen for tworeasons: (1) that it credit and that you have to havesome kind of would act as a reminder thatwe have a respon- contractual arrangement. In thisnew society how sibility to carry out some kind of follow-uppro- would you go about doing that? Youwould go gram when we go home; and (2) the idea that it to the deab!r, order the car, ordersome transfer would give us some flexibility in theway the of money for the down payment, authorize it,and summary of the Workshop would be handled. then arrange the credit.With whom doyou All the participants on the panel volunteered. arrange that credit? With the same financial in- They represent diverse professional assignments, stitution that you transferredyour money from? and there is only one in thegroup whose work Or to? Someone checks your credit andgets a is involved with teachingmoney management lot of information in order to know whetheryou directly. are good or not. We are not going to present thissummary in Aren't we really going to need uniform credit a paper-by-paper or session-by-session appraisal. codes in order to do this? Not only do thecodes Rather, the participants will commenton the con- need to be uniform fromone state to another, but ference in general, drawingon the ideas that were how about rates? And then if I havevast re- stimulated by our several discussionsat the end sources and I'm a good credit risk and Jo Staab of each day of the Workshop. down there is just a lousy credit risk, dowe then What happened as we tried to jellour discus- have a differential !II the rate tocover the risk? sions into a frameworkso that everybody would Because she's such a poor credit risk, how do have a clutch of ideas to talk about hasbeen we scale? We are going to start to have quitea something that was not intentional but I thinkit different base for credit rates and creditcodes was fun.There were many excellentpapers under the new system. delivered at this Workshop,some that will be par- Also I can see, because theconsumer and ticularly dog-eared becausewe are going to refer consumer credit are very dynamic parts ofour to them so often in our files for basic information national economy, that as longas someone is and fact. If these are not mentioned in thedis- checking on my credit, theycan also check on cussion following, this is not becausewe deemed the economy andlet'ssee, are we getting too them less important, but becausewe thought it many people buying carsthis year, or this would be interesting tosee what each of us in the month? Or maybe we ought toencourage some- panel received as a new or big idea. Andso I am body to buy a bettercar. Who is going to be

158 PANEL-159 dictating this decision? And how many other "I just hate to break a 10 dollar bill or a 20 dollar people are going to get into it? bill because it goes so fast." There are some interesting implications here. Many of us are prettysophisticated about With whom are we going to be making credit money. But there are people to whom money is arrangements? Here at the Workshop was the not nearly as abstract a concept as it is with us. first time I heard a banker admit publicly that We handle it mostly through checks and that is there is the matter of control. So far all of the pretty abstract, but there are lots of people who things I have read and heard on the checkless, don't use checks, who have to have that money cashless society have been presented by bankers, in their hands.. They need so much to have it in and there has been a strong presumption that the their hands that they put it in envelopes or sep- banking industry is the one that is going to be aratelittle pouches, moneybags of some kind, handling this.I keep wondering about all our just so that they can say, "Well, I have 10 dollars other financial institutions and whether they are here and I have 5 dollars there for this."It is a going to just sit back and say, "Sure we will let very concrete kind of thing. the bankers handle all the credit and the money." As we move farther into this checkless society, The federal government so far has been printing cashless society, we are going to have more ab- the money. What about those arrangements? stractions. Somehow we are going to have to help Who is going to be controlling them? these people see money when they no longer have Along with these problems of who is going to the cash in their hands. Someone asked earlier control the paper flow, and how far the control in the conference, "Won't we have an alternative is going to go, and the kind of uniformity we are to have cash in the new system?" But consider, if going to need, and what kind of diversity within there is less of it around, we will have less oppor- the uniformity we are going to need, and how tunity to have that alternative, just as some of us we are going to determine this, there is another are using it less now. very practical question.That isthat we no Someone also mentioned the loss of the sense longer are handling money. of money-getting along with our sense of spending Last spring I wrote to a bank in Chicago and it.This will be a definite problem as well as made a suggestion. They were kind enough to questions on guaranteed annual wage, negative write back and say that it was very interesting and income tax, and how or whether we should tie the they would refer it to another person, etc., and personal level of consumption to a personal level maybe they will. Those who advocate this new of production. At least in concept, we have tied system keep saying, "Well, owe a month you will our level of consumption to our level of produc- get a statement of where you spent your money, tion by money. As the tie-in gets to be more and and this will help you with budgeting." But after more an accounting procedure, well, "Why should you have already made the decisions and spent it, they account to my account more than they ac- it is gcing to be a little difficult to budget. Right count to her account," and "What about my level now we all have so many credit cards that what I of consumption versus her level of consumption?" was suggesting to the bank was a credit register. Thus we put more and more of a distance between That is, if they applied the regular check book the idea of producing and the idea of consuming register idea and made a place for credit cards, We will have some work to do in this area. and then a place to register charges on credit cards, that maybe it would help some people MYRNA P. CRABTREE: keep track of how far they are getting into debt. One of our conference speakers reminded us This certainly is no solution. Many of us don't that we need to be concerned with human values keep our check registers, so I don't know whether as we talk about financial management and con- we would keep credit card registers either. But sumer credit. we must deviseand home economists can help I am prefacing my remarks with this thought industry out there, I thinksome simple ap- because, as I have heard some of the questions, I proaches to budgeting without money. Today we know how impersonal we can be about financial have dollar bills, and how many of you have said, management. However, I hope that we recognize ,

160-PANEL that feelings are also facts and that unlesswe 1.The holder in due course. Iwas well aware work in relation to feelings (as Faith Prior pointed that if an installment sales contractwas trans- out, laughter and feeling were important in her ferred to a sales financecompany, you paid the approach), we will find ourselves working ina sales finance company.But I was not really vacuum. fully aware of the complete lack of redress that Getting a little moreon the objective side, one the debtor has against the original selleror against of the significant points that has been underscored the finance company that now holds the contract. for me at this Workshop is that, because credit "Vounow have to go back to the original seller has become such an important aspect ofour com- without really as much on your sideas you might petitive economy and permeates the practices of have had if he were still your creditor. all segments of American society, therefore the 2.Deficiency judgments. Ifa creditor repos- development of uniform laws and the function of sesses for incomplete payment he not only can Federal Trade Commission guidelines area must. take your goods, but if he doesn't reclaim the full Another vital point made was that only when amount that is still owed when he tries to resell, the consumer has the right to disclosure of terms he also has a chance for judgment againstyou. and all necessary information about credit trans- I don't think this is always necessarilywrong, but actions at the point of sale will fair play become as a citizen I haven't really been aware of this a reality. completely. The rich resources of this Workshop have deep- 3.Confession of judgment. This isa clause ened my commitment to taking a responsible role included in many installment contracts that I in the promotion of fair play in thearena of con- would guess not many peopleare always aware of. sumer credit to help maintain integrity and pro- Specifically, it permits the creditorto garnishee vide realistic education for today's and tomor- wages without a court order because the debtor row's citizens. previously has given this authority. The Workshop discussion on contract content, BETTY E. HAWTHORNE: as wellas on the terms that are parts of This Workshop to me has been both informa- many contracts, made me think of what we as tive and challenging. And I would add that I am educators are doing about reading and learn- probably taking home more than anyone else ing in the educational process. We have had men- who came because I had more to gain. tioned here the idea of generalizations whichcer- I've long had an interest in economics,par- tainly have a very real place in education. We ticularly in family and consumer economics. As hear around our campuses a great deal of empha- an undergraduate I elected a number of courses sis on increased reading speed. There is alsoem- 11 economics and business law because I found phasis on comprehension but much of it isa them stimulating and interesting. Then, as a gradu- generalized kind of comprehension.It seems to ate student in nutrition, I broadened my education me that there is a very real need to read slowly with a number of courses in family and consumer and to read critically at certain times. Andwe economics. Although I have never operated in this need to know when to make a differentiation area specifically, I have found that in teaching between the ways in which we should read. nutrition, as I did for many years, any informa- Much of what I have learned here at the tion on consumer and family economics which I Workshop has increased my personal understand- could draw on enhanced the course a great deal. ing, but it also has increased my commitment But certainly most of my concern, or much of as an educator and as a home economist. Most of it, has been as an informed citizen. the thoughts that I have had during these days There were a number of specifics that we pan- regarding education in general are very well ex- elists talked about in our after-day sessions.I pressed in Ruth Bonde's paper. particularly wanted to bring up three or four ideas I would like to summarize my ideas in this that stood out during the week, not because they way. I think that educators in a university have are new, but because, although I may have known a real responsibility, not only for the professional them once, they have been pretty obscure. education in family economics, but to train people PANEL-161 to help specifically with the solution of these values, or what it realli costs the family to main- problems in whichever field they may become tain itself. educators. We also have an increasing respon- In her paper on budget guides, Faith Clark sibility in terms of general education, not only to identified several standards for assisting those our home economics students, but also to making persons or agencies that help families make de- education in family economics generally available. cisions about the distribution of their incomes. It certainly is an area that is of significance to These standards provide equitable and valid data every university student. This education is im- for such use. The standard established by the portant if we are to have an intelligent citizenry Bureau of Labor Statistics for the city worker's that can eventually improve the marketplace of family and the one for the retired couple may be credit. adapted to a particular area and priced locally We also have a concern in universities for con- to determine costs. The Budget Standard Service tinuing education of the professional; we have a of the Community Council of Greater New York need for re-education of our home economists to which Dr. Clark referred in her paper has pro- who need to reenter professional areas, and we vided an indispensable tool to help those of us have a responsibility for lifetime education of in the New York area who counsel families on citizens. We should do this either directly or as money management. They are also valuable in we influencethe other professionals who are the establishment of equitable fee scales and the educating. assessment of income adequacy. In taking home the material from this Work- I would suggest that Dr. Clark's paper and shop, I believe we can make an impact upon our the publications listed at the end of it be studied own states if we operate not only independently as carefully. These can help you to adapt the city university college administrators, as college educa- worker's family budget and establish budget stan- tors, as extensionists, as high school teachers, as dards for use with your students and clients, thus health and welfare or business people, but co- providing the base upon which you may evaluate operatively through our own state home economics or gauge budgetary needs of families in your own associations.It seems to me that we need not sections of the country. This then provides the only to bring together our talents for the great- objective data to work with, without consideration est strength, but that through our associations we for the many other elements that bear upon a will be better able to tap all the talents which are family's handling of money. essential. The business community and all of the What does money mean to a family? What is related professions together are important in bring- the emotional or psychological impact of too ing an understanding of consumer credit to the little money? Why should there be problems when greatest number of people. This is how to de- there is apparently sufficient money to fulfill a velop the informed citizenry needed to improve family's needs and desires? the marketplace of consumer credit. Faith Goldberg's splendid analysis of the many psychological reasons for money management NATHALIE D. PRESTON: problems and indebtedness provides us with in- Home economists have been called "budget ex= sight into areas that must be studied by all home perts," and certainly, by virtue of our concern economists who are concerned about the family for the well-being of families, helping them to in a money world (despite the checkless and manage their money properly makes for their cashless society, it is still a money world). well-being. This insight permitsobjectivity and under- We have also heard that bankers and lawyers standing in fulfilling our roles as budget coun- frequently assist clients or families in the alloca- selors to the people or agencies we serve. We tion of income for purposes other than items of deal with the tangible aspects of clients' problems living, primarily in areas relating to indebtedness without threatening them in areas too painful to and support. Evidence seems to indicate that in acknowledge. We are thus helpful in handling making such adjustments in family income, little the overt manifestations of a client's difficulty, and if any consideration is given to family needs, by easing it, allow the more deepseated problem to be resolved by a member of the appropriate tion is that in order forus to use any of our credit discipline. systems, we are going to have to have better train- One further point in dealing with those who ing for our agents and for those whoare working come for help in managing their incomes. We with people in the decision-makingprocess. We must be alert to where they are in the life cycle. talk a lot about that at the college level, butvery I am sure you are all aware of the varying needsat often we don't have agents whoare adequate in each point of the life cycle, butwe must not this particular respect. overlook the importance of proper guidancere- Another nugget from the presentationswas the garding the use of credit and in establishing goals admonition to capitalize on the experiences of the to those who are on their first jobs, to the newly- people with whom we work in building thecur- married, to parents during the years ofyoung and riculum for our teaching.Certainly, we need to growing families with the need to plan for the listen and understand what our clienteleare saying costs of education later on, and to those in the and to explore more deeply their attitudes, ambi- later years planning toward retirement. tions, fears, and potentials, rather than assuming These are some of the elements in dealing with that we know what they think. Erna Carmichael money management that are frequently part of my brought this out especially well. experience. However, all home economistsmust I am reminded of the story a home economist in be cognizant of the relationship of the family in- Washington, D.C. told about helping the doorman come to the family's value.- its needs,consumer in her apartment building buy thecar she was credit, and the cost of living. Wemust remember turning in on a new car. She took him to the dealer that we are dealing with peopleas well as with and got a good deal for him. Coming home they figures and contracts, people likeyou and me who were discussing what he was going to do with his have hopes, fears, and feelings. car, and he said, "I will take care of that." He then sold his car piece by piece, and got more from that ELOISE COFER: automobile than she got for her trade-in.The In considering this Workshop,one of the things home economist pointed out that here wasa man that is very evident is thatwe have moved a long with a very low income who knew how to operate way from the Greek city-state society that sep- in an entirely different society than she did.I arates so clearly the economy of the home from think we can learn a lot from this. the economy of the marketplace. Yetwe do need In this regard, many of our speakers have im- to move even closer to our concepts andour ar- plied that there is as wide a variety of patterns of rangement for business in the marketplaceas con- learning and accumulating money as there is of sumers and as citizens. In dealing with this prob- using credit to spend it. It is the knowledge and lem of teaching about credit I wouldsay "aye" understanding of these facets of getting, as well to what Betty Hawthorne said about the necessity as spending, that will help us in teaching the for preparing at the college level those students credit story. who will be employed in services suchas the Another important tool is Faith Prior's concept Extension Service to teach the citizen at the county and grass-roots level. of "one message, many channels," and it can be One of the things that was quite important in used in every phase of our teaching. Too often our discussion this week was the concept that it we spend too much of our time developing a isn't necessary touse a difficult formula for the variety of ideas in teaching a subject, rather than average adult and the youthful consumer in order developing one idea well and then channeling it for them to figure the terms of credit and theim- to various audiences. Creating awareness is the provement of income that they may have from first step in the communication process, which savings. But we would hope that, throughour our media people tell us is the equivalent to programs and our increasing knowledge, we can education. develop a more sophisticatedconsumer, one who Many of you are aware that the Extension will be able to use his creditmore knowledgeably. Service has a long-term program called "Focus on Another thing we should take into considera- Families." We feel that it is going to be very im- PANEL-163 portant for us to try to find ihevarious ways in lic education from your state, or a person in social which the credit story will fit into the fivephases work in your state. Therefore, I am sure when of awareness, family stability, consumer compe- you go back home, you notonly will find these tence, housing, health, andcommunity resource people very receptive to the things that you are development. Certainly the information given here coming home with, but you will probably find will be a guide to a framework forteaching and them more than willing to cooperate with you in will help us identify problems in our ownstates. whatever way their agency or organization can in promoting some kind of follow-up. GWEN J. BYMERS: And now I would like to repeat what somebody I had one idea that I wanted tocommunicate said as we were discussing this the other night: when I was talking earlier, and I will claimthe "The follow-up isn't going to happen 'bing' on last word now. Many of you here are not accom- this conference; it is going to be here, there, con- panied by your extension state leader, thedean of tinuing." And this will be our payoff in the long your home economicsschool, the director of pub- run. APPENDIX

Regional and State Follow-Up on Consumer Credit 166 Workbook on Consumer Credit 167 Consumer Credit Bibliography 173 Department of Defense Table for Computing Approximate Annual Per- centage Rate to: Level Monthly Payment Plans 175 Applicability of DoD Table to Irregular Installment Payment Contracts: Illustrating Use of Form I 176 Illustrating Use of Form II 177 Roster of Workshop Participants 178 REGIONAL AND STATE FOLLOW-UP ON CONSUMER CREDIT As part of their follow-up on the national Workshop on Consumer Credit in Family Financial Management, most participants planned regional and state activities. Meetings scheduled or held as of the date this Proceedings went to press are listed below. Persons wishing information on follow-up activities may write to the American Home Economics Association, or to participants living in the geographic area oi iaterest (see Roster of Workshop Participants page 178).

STATE FOLLOW-UP * DATE** LOCATION Alabama Workshop_ March 21-22 _Tuscaloosa Arizona_ State Meeting April 27-28______Chandler Arkansas State Meeting March 8-9 Little Rock California_ Workshop. January 24______._.Berkeley Workshop...... ______January 18______Los Angeles Workshop_...... ______March 7 Fresno Workshop May 25 North Central District Colorado..... ______Workshop January 8-11 Denver Distriii of Columbia Workshop March 2______Washington, D.C. Illinois. Workshop ___-__March 16__...... ______Macomb WorP.lop. April 24______De Kalb Workshop______October 24 ______Carbondale Workshop. October 26______Chicago Area Workshop_____Fall_ Springfield Area Indiana. State Meeting April 26-27_ Indianapolis Iowa _Workshop_ April 26-27 Ames Kansas State Meeting April 1_ Wichita Kentucky_ State Meeting______April 5-6__ .....______Louisville Louisiana______Workshop______February 16-17 _Alexandria Maryland_ Workshop May 4 _Silver Spring Minnesota Workshop_ January 9______...._Mahnomen Workshop January 4-5___St. Paul Missouri...... ______Workshop. June 17-21_ Columbia Montana .State Meeting February 9-10____Missoula Workshop July 22-26 Missoula Nebraska. State Meeting______April 26-27______Lincoln Nevada Workshop February 24. Reno Workshop______August 5-16 Las Vegas New Hampshire______State Meeting May 17-18 Bedford New Mexico State Meeting April 26-27 Albuquerque Workshop______August 12-16 Las Cruces North Dakota______State Meeting______March 14-15_ Grand Forks Ohio_ .State Meeting March 28-30_ .Dayton Oklahoma Workshop April 20 Oklahoma City Oregon .StateMeeting April 6 Bend Pennsylvania State Meeting May 3-4. _Pittsburgh Rhode Island______Workshop_ February 12_ Providence South Dakota Workshop April 9-20_... ______Mitchell Tennessee Workshop June 5 Memphis Workshop _ ...... _November______...... Knoxville Workshop .Spring 1969 _Knoxville Texas_ Workshop January 26-27_ _Fort Worth Virginia State Meeting March 13-16 Richmond Wisconsin_ State Meeting May 3-5_...... Crosse Workshop June 10-12__LaMadison Wyoming State Meeting .April 27 _Riverton

*Follow-up listed as "State Meeting" indicates regular meetings of state home economics associations at which consumer credit is featured as a program topic. ** 1968 unless otherwise indicated.

166 Reprinted from JOURNAL OF HOME ECONOMICS ,Volume 60, 1, January 1968, pp. 47-52

WORKBOOK ON CONSUMER CREDIT

PREPARED BY RICHARD L. D. MOPSE

CREDIT is based on mutual trust andunderstanding, involving rights and responsibilities of the contracting parties. For the contract tobe enforce- ablethat is, to be recognized by a courtof lawit must be written within the context of the prevailing law.Prevailing law varies by states. Each state has its own laws and regulationsgoverning credit. Even though the laws of two states may beidentical, they may be quite different in effect because state courts render different interpretations inlight of their state con- stitutions or prior court decisions. Hence, itis most difficult for one not trained in the study of law to read statutesand interpret them reliably. As preparation for the AHEA Workshop onConsumer Credit in Family Financial Management, the planning committeeurged all the invited participants to familiarize themselves withtheir state laws by talking with such authorities as officers of local and statebar associations, the state attorney general, other state alias such as the commissionerof insurancu, and officers of banks, credit unions, and finance companies.The committee believed that the background information thus acquired wouldmake the Workshop experience more meaningful for the participants.In addition, these contacts could offer opportunities for establishing relationshipswith individuals who could assist in the follow-up regional or stateworkshops. The workbook presented in capsule form onthe following pages was prepared by Richard L. D. Morse of Kansas StateUniversity, a member of the planning committee, for distribution at theConsumer Credit Workshop. Dr. Morse has given permission for theworkbook, or any part of it, to be reproduced for use in follow-up activities. The jouRNALalso extends permission to reproduce any part of the followingfive pages.

CREDIT POSSIBLE REPERCUSSIONS Wage Assignment Repossession Garnishment Holder in DueCourse Confession of Judgment Usury REVOLVING CREDIT Cost Comparisons Monthly Payments Revolving Credit Sequence No-Charge Period Revolving Credit Systems Credit Life or A & H Insurance Minimum Balance Equivalent Annual Percentage Rate CONTRACT CREDIT ACTIVITIES AND QUESTIONS

167 168WORKBOOK

CREDIT-POSSIBLE Wage Assignment REPERCUSSIONS CREDIT is extended with the expectation of its being A CONSUMER CREDIT transaction involvesan agree- repaid. The borrower may give greaterassurance of this ment. It specifies the rights and responsibilities of the by assigning to the creditor the right to attach hiswages in the event he defaults in his payments. This procedure creditors and the obligors. To protect suchagree- is called wage assignment. ments a legal environment has developed. It reflects the unequal bargaining power of the parties. Is wage assignment permitted in your state? Creditors are totally involved and legal talentis at- Yes_ No_ tracted to the creditors' inteiests by highereconomic rewards. On the other hand,consumers are less in- Is there a limit on the amount of wages whichcan be attached? Yes_ No_ clined to scrutinize credit laws. Most haveno occasion to learn about the legal remedies that creditorscan Is the law uniform for all creditors,or are some credi- impose on the relatively fewconsumers who default. tors able to obtain wage assignments while others are Hence, most consumeri are obliviousto the legal denied this? Yes_ No_ framework and tend to assume that those whoare caught up in legal entanglementswere either foolish If yes, what is the pattern inyour state? Comments: or snared into unconscionable transactions by unscrupulous creditors. What other limits or limitationsor requirements re- What follows is intended toopen the door to an strict wage assignments in your state? area of law that needs consideration by consumers who are not already personally involved and whocan give it objective study. Furthermore, since this isa matter which varies greatly among states, it is most No:rE: Wage assignment differs fromwage garnishment appropriate to institute inquiry at the local and state in that the assignment is by level. That is where the action is. a voluntary contractual arrangement whereas garnishment has the This can prove to be a new and interesting adven- force of law behind it and usually requirescourt ture. We trust that you will find it so. action.

Garnishment

CREDITORS unable to collect from a debtormay turn to the Under what circumstances may a court make a judgment courts for assistance in some states. With a court order the resulting in garnishment without the defendant's (con- creditor can go to the debtor's employer and "tap"the sumer's) first appearing in court? debtor's flow of wages even if the financepapers do not include a wage assignment. By court order the debtor's If the creditor holds a "confession of judgment" previously employer is required to make paymentto the creditor, signed by the debtor, may the court judgment be rendered directly or via the court. without prior notification of the wage earner? Yes_ No_ Employers are sometimes harsh with employees whose In regard to employees of state agencies, does your .4,7,- wages are garnisheed. The employer may consider it in- permit their wages or salaries to be garnisheed? Yes___ dicativeoffinancialirresponsibility.Furthermore,the No_ garnishment results in added expense for the payroll depart- Can municipal or county employees' wages or salaries be ment, requiring separate payments for the employee's credi- garnisheed? Yes_ No_ tors. The reaction of some employers is to dismiss the employee immediately or after repeated garnishments. Since the livelihood of most families depends ona regular paycheck, the loss of income through garnishmentmay Is the garnishment ofwafres allowed in your state? Yes_ No_ cause great hardship to the creditor's family. The law, therefore, may place a limit as to the amount orpropor- In most states garnishment is restricted to situations when tion of wages which may be garnisheed. Is the amount or a court judgment on the debt has been obtained. Some proportion of wages that may be garnisheed limited in states, however, permit a formal garnishmentupon initia- your state? Yes__ No_ If yes, what is the limit? tion of the lawsuit by the creditor and prior to judgment If the amount of wages or salaries left after garnishment by the court. In your stateisgarnishment possible? Yes_ No_ is insufficient to provide a minimum level of living, will social welfare in your state or county providean allowance If yes, what, if any, restrictionsare placed on the credi- sufficient to remedy the deficiency? Yes._ No___ tor so that he may not collect "debts" not owed him Comments: which the presumed debtor might contest? WORKBOOK-169

Confession of Judgment Repossession THE CONSUMER-OBLICOR may give his creditor, when ANOTHER METHOD of assuring the creditor that the credit signing a note or a contract, power to confess judgment extended will be repaid or replaced is to allow the credi- for him should he default. The creditor then can obtain tor to take direct action. Thus, if the borrower fails to a judgment ( a decision by the court) by going to court make payments as scheduled in the contract, the seller is and admitting debt for the debtor. That is, by signing a given by terms of the contract the right to repossess the contract containing a confession of judgment clause, the goods. debtor waives his right to appoint his own attorney, to Does your state law provide that the consumer be any judicial process, to trial by jury, and "confesses" he notified prior to repossession? Yes_ No_ owes the moneys claimed by the creditor. He is without Does your state law allow the creditor the "right" to legal defense in legal action instituted by the creditor to enter the premises of the debtor for the purposes of collect the debt. taking physical possession of the security without judicial process and without being subject to action in trespass? Yes_ No_ Is confession of judgment permitted in your state? Does your state law allow the debtor to move such Yes_ No_ ProPertY Within the state? Yes_ No_ What types of creditors, if any, are specifically pro- Out of the state? Yes_ No_ hibited from using this process in your state' Out of the country? Yes_ No_ Is the debtor obligated to continue payments even Comments regarding other modifications in use of though the goods have been repossessed? Yes_ No_ confession of judgment. Comments-

Holder in Due Course Usury OFrErr THE SELLER does not have adequate capital to HISTORICALLY, one of the most persistent evils has been finance all of his customers. To replenish his finances he that of usuryan excessive interest charge. Most states sells his credit "paper" to a finantial institution. The con- have a maximum rate that may be charged. Then, by sumer then makes payments to this financial institution. special legislation specific creditors are authorized to This procedure enables the retailer to concentrate on charge rates higher than this maximum. sales, leaving the banks and finance companies to con- The American Bankers Association expressed fear that centrate on servicing credit. In this type of situation the disclosure of the true annual rate on consumer credit, if financial institution becomes the holder of the paper and stated as a percent per annum, might trigger courts to will be paid in due course. Thus, he is referred to as declare some bank loans to be usurious. As a result, the "holder in due course." Proxmire Truth in Lending bill, as passed by the Senate, Now, if the item purchased is defectivethat is, if delays until 1972 the disclosure of the rate as a per- the car is faulty, the repaired roof leaks, termites re- centage and allows the rate to be expressed in dollars appear, or the furnace does not workcan the debtor per hundred per year of the average unpaid balance. It stop payment until the deficiency iscorrected? If he is hoped that by 1972 states will modernize the legal could stop payments, the bank or finance company would ceiling on rates sufficiently to cover the high bank rates. suffer for errors or defects for which they were not re- Representative Sullivan's Truth in Lending bill ex- sponsible. On the other hand, the consumer may no tends the time to July 1, 1968. It also establishes 18 longer be able to contact the original sellerespecially in percent as the maximum legal rate, thereby proposing a the case of a house-to-house seller who has left town. federal usury rate. Would the claim of the bank or finance company for The maximum interest rate that may be charged with- continued payments, even for faulty services, be en- out being declared usurious is established by states. forceable in court? Yes_ No_ What are the usury rates in your stateP Your aged mother or young newly married daughter (Does this represent a percent-me of the average un- calls to tell you that she has just signed a contract paid balance or of the original nalance? with a door-to-door salesman. After he had gone she At this rate the credit needs of most consumers could realized that she had been oversold; yet she had not be met so special legislation has been enacted in signed a contract. What recourse would your state law most states to allow certain types of creditors to charge permit such "foolish"consumers? Must she pay? at higher rates. What classes or types of creditors in Yes_ No_ your state can legally charge more than the usury rate? Does your state law provide for cancellation of contracts signed away from the place of business within 24 hours? Yes_ No_; within 48 hours? Yes_ What do you think would be a realistic usury rate? No_; within 72 hours? Yes_ No_ 170-WORKBOOK REVOLVING Cost Comparisons A REVOLVING credit billing sequence has been prepared for you to CREDIT take to three stores or banks with open-end credit plans to figure costs. Use of the same schedule of charges-payments-returns will MOST STORES and an increasing number of facilitate detection of differences in credit systems. Recognition of banks offer "open-end" credit. The consumer these differences will help to cultivate a better appreciation of applies for credit privileges; the creditor sets various trade practices and to evaluate their service to customers. the maximum amount of credit the consumer See the form below and fill in spaces marked by a $ sign. can use; and within this limit the consumer For further definition of the plan of each store, complete the uses credit, agreeing to: next sections for specific points. Repay monthly-usually in amounts of Nom: In making this assignment it is assumed that: 1/5 or 1/10 outstanding credit balance. Consumers expect to pay for credit services. Consumers expect Pay a "small monthly service charge" usu- costs to vary with the amount and time credit is used. Con- ally at 1% percent-figured on an un- sumers should be provided sufficient information to figure out these costs and how they would vary if other use is made of the paid balance." credit services. This seems quite simple. But studies of Those extending credit want consumers to know what costs to many stores show that even among those us- expect so that they can use credit wisely and confidently. Most ing the same rate, cost varies considerably retailers and bankers want the public to understand their busi- because of the different balances used. ness. They will be pleased to explain their business practices. l Revolving Credit Sequence (Post the service charges and complete the balances)

SERVICE DATES OPENING PAYMENTS RETURNS PURCHASES UNPAID CHARGES CLOSING BALANCE BALANCES @ % BALANCE

Jan.4 $0.00 $ 10.00 $ 10.00 7 20.00 30.00 9 $ 10.00 20.00 . Statement 10.00 30.00 $ $ Jan. 10 $ 12 ...... $ 80.00 $ Feb. 1 40.00 $ 3 $ 20.00 $ 9 $ 30.00 $

Statement 20.00 30.00 120.00 Feb. 10 12 $ 60.00 $ 14 $ 40.00 $ 16 ...... $ 40.00 $ Mar. 2 20.00 $ 9 50.00 $

Statement 80.00 40.00 90.00 Mar. 10 $ 14 $ 10.00 $ 18 ...... $ 10.00 $

Statement 10.00 10.00 Apr. 10 14 $ 10.00 $ 18 1 $ 10.00 $

Statement 10.30 /0.00 May 10 14 I 10.00 $ 18 ...... $ 10.00 $

Statement 10.00 10.00 $ $ June 10 $ 60.00+ 1 0.00

TOTAL $190.00 $ 80.00 $270.00 + S.C. Creditor Charges figured by Address Information obtained by Type of business_ Dat WORKBOOK-171

Revolving Credit Systems Minimum Balance SERVICE CHARGES are customarily advertised at PA per- A MINIMUM balance is often required either to initiate cent of the unpaid balance. There are many variations, an account or to maintain one. however. Six basic systems are described to assist in Is there a minimum amount of credit the customer identifying the system in use. Check one: must use before revolving account privileges are ex- (1) Service charge is based on the final unpaid tended? Yes_ No_ balance of the previous month. The closing If yes, what is the minimum? $ balance for this month is the unpaid balance Is there a minimum dollar balance that must be main- plus the service charge and becomes the open- tained? That is, if the balance gets down to a mini- ing balance of the current month. mum, must it be paid in full? Yes_ No_ What is (2) Service charge is based on this month's open- the amount? $ ing balance and is added to the current month's statement. (3) Same as (2) but no charges if opening balance is paid in full by _10 days, _15days, _20 days, _29 days from billing date. No-Charge Period (4) Same as (3) but no charge if both payments "The Free Ride" and returns exceed the opening balance and PURCHASES made during the current billing period usually credited before _10 days, _15 days, ___20 can be charged at no additional expense. This is the days, _29 days from billing date. traditional 30-day charge with payment due before the (5) Service charge is based on this month's open- 10th or 15th of the next month. Some consumers have ing balance reduced by whatever payments abused this privilege and allowed their accounts to be- are made during the month. come delinquent, often without payment to the store for (6) Same as (5) with the value of returned pur- the extended credit. Many stores have met this situation chases considered. by placing their customers "automatically" on a credit (7) Other system. Explain- plan involving a service charge monthly on the unpaid balance. NorE: All except (1) base the service charge on the How many days beyond the end-of-the-month billing month's opening balance. In addition, all except date will credit be extended (or non-payment officially (1) and (2) credit payments and/or returns tolerated) before a service charge will be imposed? Circle made during the month as though they had been one: received as of the first of the month. 10 days 15 days month Identify the system also by circling the balance used 2 months 3 months other in figuring ihe service charges on the "revolving credit sequence" work problem. If charges Other than 13.1 percent monthly are made, Credit Life or A & H Insurance please show on the work problem and explain IS THE REVOLVING credit unpaid balance incured so that in the event of death, disability, accident.ill health, or other contingency, the balance will be paidup? Monthly Payments Yes No MONTHLY PAYMENTS may be either fixed in amount de- If yes, spite the reduction in the unpaid balances, or they may (1) Which of these risks are insured2 be flexible with the amount dependent on the size of the outstanding unpaid balance. (2) How is the premium figured and what is the rate? Are payments fixed? Yes_ No._. If yes, what determines the amount of payment or length o; ' .ne in which payments are to be made? Equivalent Annual Are payments flexible? Yes__ No_. If yes, what is Percentage Rate the approximate relationship between payments and ALTHOUGH the rate is quoted on a monthly basis, it the unpaid balance? Usually a chart is supplied which could be quoted as an annual rate. Translation of rates is shows the size of ,-ayment in relation to the current common. For example, a car traveling at ow-mile a balance. Is the payment: minute is going 60 miles per hour; a 6% home loan 5% (1/20) of the current unpaid balance? with monthly payments costs IA per month; or a 4% 10% (1/10) of the current unpaid balance? savings account compounded quarterly pays 1% a quarter. 20% (1/5 ) of the current unpaid balance? What, in your opinion, is the equivalent annual rate of Other? the monthly rate of % used by the creditor? 172WORKBOOK CONTRACT CREDIT How TO FIGURE true annual percentage rates without ciation has published a simplified calculator foruse getting bogged down in difficult formulas is one of by educators andconsumers. Called the Consumer the problems of consumer credit. Most major itemsare Credit Calculator, the new guide is preparedin a financed by using contractcredit. Some creditors, double-fold notebook size. The Calculator has the De- typically in home financing, start with the annual rate partment of Defense Rate Table on one side. On the and use tables to figure what the monthly payments will other side are explanations and forms for figuring annual be to repay the credit extended. Most others give the percentage rates and for applying the table to irregular repayment terms but not the annual rate. For example, installment payment contracts. assume you are to buy a $3400 car and are allowed Copies of the Consumer Credit Calculator are avail- $1400 trade-in on your present car, the remainder to be able from the Consumer Interest Committee, Kansas paid in 36 monthly payments of $63.90. What is the Home Economics Association, c/o Department of Family annual percentage rate? Economics, Justin Hall, Kansas State University, Man- Since the AHEA Workshop, the consumer interest hattan, Kansas 66502. Single copies are 15 cents eacb committee of the Kansas State Home Economics Asso- and in quantity 10 cents each. ACTIVITIES AND QUESTIONS THE FOLLOWING ACIIVITIES and questiors for review were suggested by the planning committee to help Workshop participants "tune in" on consumer credit practices in their states. These questions can be good "thought leaders" for follow-up workshops and for classroom teaching situations. Talk to a banker, aconsumer finance company man- rate the credit needs of most consumers could not be ager, Ind a credit manager of a retail store. Ask them met; consequently, special legislation has been en- who regulates their credit activities. Whatare the acted in most states to allow certain types of creditors regulations? What annual interest rate do they to charge at higher rates. What classes or types of charge? What extra charges, suchas insurance pre- creditors in your state can legally charge more than miums, investigation, or service charges, musta the usury rate? What do you think would be a real- debtor pay? What happens if paymentsare not made istic usury rate? on schedule? The privilege of bankruptcy is provided by the Fed- Ask the consumer financecompany, the banker, and eral Bankruptcy Act. If possible, visit or call your credit union manager who meets the credit needs of Federal Court and find out the provisions for declar- the people they cannot serve. To whom do theyre- ing straight bankruptcy or for using the Wage Earner fer people for credit counseling? Plan. What is the cost to the debtor? Is the Wage What is the federally proposed Truth in Lending Earner Plan widely used in your state? bill? Some states have passed Truth in Lending laws. Has your state legislature considered Truthin "Debt pooling" is a service some debtors become in- Lending legislation? Whatare the important provi- volved with, particularly if they have used credit sions of the proposed legislation? What action has excessively. Debt pooling is also referred to as "debt been taken? adjustors," "debt brol.ers," "debt consolidators," or "pro raters." Is debt pooling possible in your state? Garnishment or wage assignment is the withholding How does it operate? of wages for the payment of debts. Whatare the laws of your state regarding garnishment? Canan em- A few states provide for the canceling of contracts ployee be discharged if hiswages are garnisheed? made away from a place of business, such as credit What percentage or dollar limitation ofwages is sales made by door-to-door salesmen. Has your state exempt from garnishment? How many wage assign- passed or proposed "Buyer's Rtht to Cancel" legis- ments can be executed concurrently? An attorney lation, referred to as the coo)ing-off period? If so, or court clerk can answer these questions for you. what are the provisions of the law? The maximum interest rate thatmay be charged Take note of the credit advertising you see on televi- without being declared usurious is established by sion, hear on radio, read in the newspaper. Is it mis- states. What is the usury rate in your state? At this leading? Does it give all the needed facts? .410111NoMmalowillf.-...,..,-..,

Reprinted from JOURNAL OF HOME ECONOMICS Volume 60, No. 1, January 1968, pp. 53-54 CONSUMER CREDIT BIBLIOGRAPHY This listing represents the wide variety of books, articles, booklets, leaflets, and other printed materials selected by the planning committee for display at the AFIEA Workshop on Consumer Credit in Family Financial Manage- ment held October 9 to 12, 1967 in Madison, Wisconsin. The publications marked with an asterisk (" ) were distributed to the participants in Work- shop packets. BOOKS TROELSTRUP, A. W. Consumer Problems and Personal Finance. New York:McGraw-Hill Book Company, BLACK, HILLEL. Buy Now, Pay Later. New York: William 1965. Morrow & Company, 1961. (Also av ailable in paper- WILHELMS, FRED T., HEIMERL, RAMON P., and JELLEY, back) HERBERT M. Consumer Economics. New York: McGraw- BONDE, Rum, GUTHMANN, HARRY, and HOWARD, BION. Hill Book Company, Gregg Division, 1966. The Individual, Marriage and the Family. Evanston, Ill.: WILSON, W. HARMON, and EYSTER, ELVIN S. Consumer Northwestern University Bookstore, 1967. Economic Problems. New Rochelle, N.Y.: Southwestern BnumEn, GEORGE ALLEN. Personal Bankruptcies: Trends Publishing Company, 1966, pp. 343-383. and Characteristics. Columbus, Ohio: Bureau of Business Research, Ohio State University, 1965. ARTICLES, BOOKLETS, LEAFLETS, CAPLOVITZ, DAVID. The Poor Pay More. New York: The Free Press of Glencoe, Inc., 1963. (Also available in AND OTHER PRINTED MATERIAL paperback) (In this listing, prices are given where available.) CHAPMAN, JOHN M., and SIIAY, ROBERT P. The Consumer AMEIUCAN HOME ECONOMICS ASSOCIATION. Publications in Finance Industry: Its Costs and Regulation. New York: the area of family economics, home management, and Columbia University Press, 1967. home economics education were exhibited at the Work- CoREN, JEROME B., and HANSON, ARTHUR W. Personal shop. A publications list is available free from AHEA 'Finance. Homewood, Ill.: Richard D. Irwin, Inc., 1954. headquarters, 1600 Twentieth Street, N.W., Washington, COLE, ROBERT H., and HANCOCK, ROBERT S. Consumer and D.C. 20009. CommercialCreditManagement.Revisededition. .CANOYER, HELEN G. For the Consumer-What Break- Homewood, Ill.: Richard D. Irwin, Inc., 1964. throughs? J. HOME EcoN. 58 (Sept. 1966), pp. 523-527. CRAIG, HAZEL THOMPSON. Thresholds to Adult Living. CHAPMAN, JOHN M., and JONES, FREDERICK W. Finance Peoria, Chas. A. Bennett Co., Inc., 1962. Companies: How and Where They Obtain Their Funds, CURRAN, BARBARA A. Trends in Consumer Credit Legisla- 1959. Graduate School of Business, Columbia Univer- tion. Chicago, Ill.: University of Chicago Press, 1965. sity, New York, N.Y. 10027, $2. EDWARDS, GLoss, and BIDDLE, VIRGINIA. How to Spend 'Check List-Materials for the Teacher. Joint Council of More, Owe Less and Live Better. New York: Pyramid Economic Education, 1212 Avenue of the Americas, New Publications, Inc., 1963. York, N.Y. 10036. FrrzsimmoNs, CLEO. Consumer Buying for Better Living. CHEYNEY, WILIJAM J. Using Our Credit Intelligently. Re- New York: John Wiley & Sons, Inc., 1961. vised 1967. National Foundation for Consumer Credit, CORDON, LELAND J., and LEE, STEWART M. Economics for 1411 K Street, N.W., Washington, D.C. 20005. Consumers. Fifth edition. New York: American Book Consumer Beware! A Guide to Installment Buying. Revised Co., 1967. 1966. American Federation of Labor and Congress of JUSTER, F. THOMAS. Household Capital Formation and Industrial Organizations, 815 Sixteenth Street, N.W., Financing 1897-1962. National Bureau of Economic Washington, D.C. 20006. Research Publication. New York: Columbia University Consumer Credit Annual 1967. National Foundation for Press, 1966. Consumer Credit, 1411 IC Street, N.W., Washington, KATONA, GEORGE. The Powerful Consumer. New York: D.C. 20005. McGraw-Hill Book Company, 1960. Consumer Instalment Credit. Federal Reserve Bull., March MCCRACKEN, PAUL W., MAO, JAMES C. T., and FRICKE, 1967. Publications Service, Federal Reserve Board, Wash- CEDRIC V. Consumer Installment Credit and Public ington, D.C. 20551, 70 cents. Policy. Ann Arbor, Mich.: Bureau of Business Research, COOPERATIVE EXTENSION SERVICE. Recent bulletins and leaf- University of Michigan, 1965. lets on consumer credit [displayed at the Workshop] are available throug,h Extension offices in Alabama, Cali- MICHELMAN, IRVING S. Consumer Finance: A Case History fornia,Colorado,Hawaii,Iowa,Kansas,Kentucky, in American Business. New York: Frederick Fell, Inc., Michigan, Minnesota, Missouri, Montana, New Mexico, 1966. New York, Nevada, Ohio, Pennsylvania, Washington, MORS, WALLACE P. Consumer Credit Finance Charges. Na- West Virginia, Wisconsin, and Wyoming. tional Bureau of Economic Research Publication. New *COX, KEITH K., and VAN FENSTERMAKER, J. The Impact York: Columbia University Press, 1965. of Consumer Knowledge on Installment Credit. Business PHILLIPS, E. BRYANT, and LANE, SYLVIA. Personal Finance. Perspectives, 1966. Business Research Bureau, Southern New York: John Wiley & Sons, Inc., 1963. Addendum, Illinois University, Carbondale, III. 62903. 1966, pp. 53-84. COX, REAVIS. Consumer's Credit and Wealth, 1965. National RAINES, MARGARET. Managing Livingtime.Peoria,Ill.: Foundation for Consumer Credit, 1411 K Street, N.W., Chas. A. Ber.nett Co., Inc., 1964. Washington, D.C. 20005. Sikirru, PAUL E. Consumer Credit Costs 1949-1959. National Debt: Public and Private, 1966. Chamber of Commerce of Bureau of Economic Research publication. Princeton, the United States, 1615 H Street, N.W., Washington, N.J.: Princeton University Press, 1964. D.C. 20006, $1. ToyER, AURELIA. Get Your Money's Worth. New York: Debt Counselling. AFL-CIO Community Service Activities, Holt, Rinehart & Winston, Inc., 1965. 815 Sixteenth Street, N.W., Washington, D.C. 20006.

173 DOLPHIN, ROBERT, JR. An Analysis of Economic and Per- REAGAN, BARBARA. Consumer Economics Research and the sonal Factors Leading to Consumer Bankruptcy, 1965. Definition of Poverty. J. HOME ECON. 59 (Apr. 1967), Bureau of Business and Economic Research, Michigan pp. 290-294. State University, East Lansing, Mich. 48823. *Sales Financing and Better Living, 1964. American Indus- *Economics and the Consumer, 1966. Joint Council of Eco- trial Bankers Association, 1629 K Street, N.W., Wash- nomic Education, 1212 Avenue of the Americas, New ington, D.C. 20006. York, N.Y. 10036, 75 cents. SAND, MICHAEL A., and WEISBERG, JOEL. Translating Sym- *Facts You Should Know About Borrowing. Association of pathy for Deceived Consumers into Effective Programs Better Business Bureaus, Chrysler Building, New York, forProtection. Univ. Pennsylvania Law Rev., [3400 N.Y. 10017, 10 cents. Chestnut Street, Philadelphia, Penna. 19104] Jan. 1966, *Facts You Should Know About Credit. Association of pp. 395-450, $2.50. Better Business Bureaus, Chrysler Building, New York, SCHOENBERG, Junrrx, STRODER, NATALIE C., and WEISS, N.Y. 10017, 10 cents. GERTRUDE S. Size and Composition of Consumer Saving. Family Economics Review, Sept. 1966 and 1967. Consumer Federal Reserve Bull, Jan. 1967. Publication Service, and Food Economics Research Division, U.S. Depart- Federal Reserve Board, Washington, D.C., 70 cents. ment of Agriculture, Federal Center Building, Hyatts- &um, PAUL. Cost of Providing Consumer Credit, 1962. ville, Md. 20782, single copies free. National Bureau of Economic Research, 261 Madison *Finance Facts Yearbook 1967. National Consumer Finance Avenue, New York, N.Y. 10016, 50 cents. Association, 1000 Sixteenth Street, N.W., Washington, U.S. DEPARTMENT OF AGRICULTURE. Consumer's Quick D.C. 20036. Credit Guide, 1964. Superintendent of Documents, U.S. Free and Inexpensive Materials for Teaching Family Finance Government Printing Office, Washington, D.C. 20402, (annotated). National Committee for Educationin Family Finance, 277 Park Avenue, New York, N.Y. 5 cents each; $2.50 per hundred. (Also in Spanish) U.S. DEPARTMENT OF AGRICULTURE. Helping Families Man- 10017, 25 cents. age Their Finances. Home Economics Research Report *Guides Against Debt Collection Deception, June 30, 1965. No. 21. Superintendent of Documents, U.S. Government Federal Trade Commission, Washington, D.C. 20580. Printing Office, Washington, D.C. 20402, 40 cents. (Re- *How Much Do You Pay for the Money You Borrow? Na- vision available early in 1968) tional Shawmut Bank of Boston, 40 Water Street, Boston, Mass. 02106. *U.S. DEPARTMENT OF AGRICULTURE. WI In You Use Credit, How to Use Consumer Credit Wisely. International Con- 1965. Superintendent of Documents, U.S. Government sumer Credit Association, 375 Jackson Avenue, St. Louis, Printing Office, Washington, D.C. 20402, 10 cents. Mo. 63130, 50 cents. U.S. DEPARTMENT OF COMMERCE. Do You Know Your JENNINGS, ROBERT M. Table Simplifies Calculation of Ap- Economic ABC's? series: "Do you Know Your Eco- proximate Real Interest Rate. J. HOME ECON. 58 (June omie ABC'S?" 20 cents; "Profits and the American 1966), pp. 480-482. Economy," 25 cents; "U.S. Economic Growth," 25 cents. JOHNSON, ROBERT W. Methods of Stating Consumer Finance A discount of 25% is allowed on orders for 100 or more Charges, 1961. Graduate School of Business, Columbia copies of any one booklet. Superintendent of Documents, University, New York, N.Y. 10027. U.S. Government PrintingOffice, Washington, D.C. JusTEB, F. Mows, and SHAY, ROBERT P. Consumer Sensi- 20402. Also available from any U.S. Department of tivity to Finance Rates: An Empirical and Analytical Commerce field office. Investigation, 1964. National Bureau of Economic Re- U.S. DEPARTMENT OF COMMERCE. Marketing Information search, 261 Madison Avenue, New York, N.Y. 10036, Guide. An annotated bibliography of current govern- $2.50. mentalandnongovernmentalmaterials.Published °MAYER, MARTIN. Understanding and Using Economics, monthly. Superintendent of Documents, U.S. Govern- 1966. Better Homes and Gardens, Meredith Publishing ment Printing Office, Washington, D.C. 20402. Also Company, Des Moines, Iowa 50303, 50 cents. available from any U.S. Department of Commerce field MARGOLIUS, SIDNEY. A Guide to Consumer Credit, 1963. office. Single copy 15 cents, annual subscription $2. Public Affairs Committee, 22 East 38th Street, New U.S. DEPARTMENT OF COMMERCE, OFFICE OF BUSINESS ECO- York, N.Y. 10016, 25 cents. NOMICS. National Income and Production, Survey of *Mind Your Money leaflets: When You Spend, When You Current Business, Aug. 1967. Superintendent of Docu- Shop, and When You Use Credit, 1966. MoneyS Manage- ments, U.S. Government Printing Office, Washington, ment Institute, Household Finance Corporation, Pru- D.C. 20402. Also available from any U.S. Department dential Plaza, Chicago, Ill. 60601, set of leaflets 15 cents. of Commerce field office. Single copy 45 cents, annual Money Management Library (12 booklets). Money Man- subscription $6. agement Institute, Household Finance Corporation, Pru- U.S. DEPARTMENT OF DEFENSE. CreditMaster orServant, dential Plaza, Chicago, Ill. 60601, $3. 1966. Superintendent of Documents, U.S. Government MORSE, RICHARD L. D. Consumer Credit Computations, Printing Office, Washington, D.C. 20402, 25 cents. 1966. Council on Consumer Information, 15 Gwynn U.S. DEPARTMENT OF LABOR. State Laws Prohibiting or Hall, University of Missouri, Columbia, Mo. 65201, 50 Regulating the Business of Debt Pooling, 1967. U.S. De- cents. partment of Labor, Bureau of Labor Standards, Wash- °MORSE, RicEAnn L. D. Shopping for Credit, 1966. Council ington, D.C. 20210. on Consumer Information, 15 Gwynn Hall, University U.S. DEPARTMENT OF LABOR. State Provisions Exempting of Missouri, Columbia, Mo. 65201, 50 cents. Wages From Garnishment. U.S. Department of Labor, MORSE, RICHARD L. D. Truth in Lending, 1966. Council on Bureau of Labor Standards, Washington, D.C. 20210. Consumer Information, 15 Gwynn Hall, University of (Not availablebeing revised) Missouri, Columbia, Mo. 65201, 50 cents. NEAL, CHARLES V., JR. A Guide for Family Financial Coun- U.S. SENATE. Revolving Credit Prooisions of Truth in Lend- seling,1962. Council on Consumer Information, 15 ing, MK. Hearing on S 5 before the Committee on Gwynn Hall, University of Missouri, Columbia, Mo. Banlr.z,,,. and Currency, 90th Congress. U.S. Govern- 65201, 50 cents. ment Printing Oa*. Washington, D.C. 20402. A New Look at Budgeting. Nadonal Research Bureau, Inc., Use Credit WiselyDon't Let It Use Yziu! National Re- Education Department, 424 North Third Street, Bur- search Bureau, Inc., Educational Department, 424 North Engton, Iowa 52601, 20 cents. Third Steet, Burlington, Iowa 52601, 20 cents. "NICHOLS,-DOROTHY M. The Two Faces of Debt. Federal *Using Credit Wisely, 1960. CUNA International, Inc., 1617 Reserve Bank of Chicago, P.O. Box 834, Chicago, Ill. Sherman avenue, BOX 431, Madison, Wisc. b3701. 60690. WELSHANS, MERLE J. Using Credit for Profit Making. Har- Proceedings of the Bank Credit Cards Conference, March vard Bus. Rey. 45 ( Jan.-Feb., 1967), pp. 141-156. Re- 29, 1967. Chicago Association of Commerce and Indus- prints available from Reprint Service, Harvard Business try, 30 West Monroe Street, Chicago, Ill. 60603. Review, Soldiers Field, Boston, Mass. 02163, $1. 174 , APPROXiMATE AUAL PERCENTAGE DEFARTMENT OF DEFENSE TABLE FOR RATE FOR LEVEL MONY COMPUTING -. - y /'. EXAMPLE: Finance chargeTotal amount to be financed = $250 $38 settingAlternate the method: decimal Findtwo places the number to the leftof $100 (2.50 units PANT PLANS units). Then, $38 in the amount to be financed by 2.50 = $15.20. I Number of monthly payments =24 - Step 2-Follow down the left-hand column of the table to the line for 24 months. . StepSoLuTioN: 1-Divide the finance charge by the total amount to be financed and multiply chargeFollow ofacross $15.20 this fails. line untilIn this you example find the $15.20 two numbecs between whichfalls the between finance $14.66 and $15.80. is,by $38$100. + This$250 gives x $100 the =finance $15.20. charge per $100 of amount to or s be financed. That Approzlt aTh2I1 z*t. centageReading rate up is between14%. the two columns of figures;you will see that the annual per- I Xml onth1is : __t. 132 O4O .59 $0.44 .88.66 O.48 .72 n6 1.04O.S2 .78 $0.56 1.13 .84 $0.60 1.2. .91 $0.65 1.29 .97 *0.72. 1.06 ..42 $O.?9 1.591.19 (F.MIc. th.rgs30.88 p.r1.32. .76 30.96 1.922.4).1.44 $1.04 2O1.7 $100 of b.1ano. to b tinsno.d) $2 $1.22.261.69 2.hj3,041.2 $L29 2.S91.94 $1.42 2.852.13 $1.58 3.182.3 $1.75 4.412.633.52 $1.924.ö42. $2.O /..205.263.14 $2.25 P6.8553.j9 $2.42 3.64 $2.6 3.95 h.332.e7.295.eo 3.]2 7.936.fl4.'fl 45 1.19 .99:i 1q321.10 6s6: ?z7: 1.571.31 1.691.41 1,821.51. 1,91.62 2.131.7 2.391.99 2.642.20 2.89 3.152.& 3.402.83 3.65 3.913.25 4.293.5?5.02 4.003.99 .61 6.215.91 6.81.5.82 7.46.34 8,02 t:!8.6v.37 9.39$O1 1O.O 879 11,22 957 6 1.44 2.79 3,08 338 3.6 3.97 51 ': 10.77 11.83 12. - 10 79 1.92.191g991.791.59 2.642.1.22.201.98 .76 2.52.902.1i2.171.931,65 2.892,622.362.091.823.15 2,832.52.261.983./4.3.2.2 3.052.742.432.133.663.35 3i262.932.iO2.273.923.59 4.303.5?3.212.852493.96 4.004.83.4.41.3.603.19 4.88443.983.535.33 4.854.365.845.353.87 4.44.6.365.25.28 4.556:885.13 4j444?5.51 7?1h 4.77.926.fl7.245.905.23 722i.966.485.75 1o. 9.75b.438.918.087.26 10.007.129.888.958.03 12.011.1.8610.847.819.38. 10.701h.O12,93U,S19.60 1.2214.0012.79U.5810.399.20 16.4015.0613.7712.47U.189.9 17.8716.4315.0013.5812.17 10.6618.06)h.414.9213.36 21.619.7117.963.6.2714.5723. I U12 2.59239 2.87 3q393.]4 4.665.03 5225.63 ,.23 .18 6.46.84 7.44690 u74 13.93 16.3215.1 17.69lb.45 17.7219.06 20.79 22.8821.26 25.00 I, 1514i3 2.992.793.20 .i.o 3.763.5.43.313.09 4.123.883.6, 4.484.22 :t.95 4.84,64.27 4,904.595.525.23. 5,244.915.58 6.49c.765.39 .13 7.276.866s26.0.4 7446.698.067.60 8.848.347.847.34 9.639.087.998.53 10.43 9.839.28.64 10.59 9.949.30 12.0211.3310.66 9.96 13.2312.4611.710.95 14.8513.9912.2813.13 13.216.4815.5236.57 17.0634.9718.1216.0 174719.7818,62 18.9321.4520.19 23.13204.21.76 1j326.1625.2523.7522.27 27.8226.1624.52 30.4228.6026.9 2.26 I ::; 1817i619 4.013.3.60 4.433.98 4.864.614.37 5.4.755.29 5.725. .14 0.15 .B4 5.916.586.2k 7.236.86 '.698.528.10 8.988.52 10.379.9.86 lOdg10.74 11.012.23U.&3 12.5211.87U.13.17 13.4112.72 15.5414.70 17.410.581;.71 19.3818.4117.41. 21.3320.2619.19 23.3022.1220.95 25.2824.00 .n 27.2925.89 29.83W28.28 32.882.5031.18 37.8$35.9934.32 - '., 2423222120 5.4.4.624.414.21 .23 4.84.664.;5.565.335.3.1 6.36405.85.605.55.0 6.916.646.36.t05.56 .83 b.607.4874E%6.89606.0]. 7.417.096.786.46 8.7.937.597.266.92 9.479.098.357.977.608.72 10.62.0499.779.368.94 11.77].3010.8410.37 9.909.44 22.9312.42Uj931.9010.88 14.W12.9712.41U.85U.30 15.2814.6624.0513.4412.84 1.46ic.eo15.1414.4813. 17.b516.2315.5234.01.4.16.4 17.0916.3119.4518.6617.88 20.0919.2118.3321.8720.8 22.3321.3420.3624.32 2o.8ô23.5022.43.2024.60 28O9 25j.i824.4930.5329.3126.88 27.8826.5833.1831.8429.19 28.6935.8534.40p.9631.5330.10 39.2337.6436.0534.4832.9131.36 43.3641.5839.8138.0636.32 4.60 47.5443,641.7039.78 I 5.43 6.02.5.79 6.60 7.1 7.77 8:95 11.04 12.24 13.45 14.67 15.89 17.33 18.37 21.W20.24 22.77 25.33 29.0327.91 36.c2 L0.8 £9.52 ' p.9202726 5.646005.84 7.156.06.4?6.24 7.607.37.106.$5 7.737.46$428.00 9.258.660.3&8.07 9.969.6+9.329.008.68e:, 10.&?104 9.99.299.4 W,22U.3510.9710.609.4 12.74123111.891i.J4 15.0916.611A4313.66134.812.71 13.9?16.591.0615.0134.49 15.18.1117.5316.9516.3835. 16.5119:6317.7517.13 17.8021.1719.14lè.47 4* 19,0922.7221.921p620.532.9.äl 24 25.0/24.2822.6421i4 28.2427.26.4025.4924.82i.fj 30.4228.3727.326&31.45 :34.7130.5533.5631.282.42 314638.013b.7534.2433.00 ,49 41.3638.6039.9737.23 41.744.ls43.*440.2638.78 47.384S.?44.0942.4650.7249.05 4.95L.1556.165..2952.4448.fl0.60 59.6357i5553.5251.5t . 37353334 7.707.08t:6.667.49748687 i.387.84i.616.536.30 .0'7 9.377.59.118.68.58.6].8.10 10.2094.09.659.378.Z 3.1.0510.1510.45103 9.859.55 11.091147U2510.9210.28.0.60 12.7412.40U.?011.3631,01.2.05 14.0313.61.13.2612.8822.49U.7313.t712.21 15.7531..8934.451L0213.s9 17.4917.011.5716.53lb.05 19.2518.1817.65174218.?]. 21.20.1.319.8519.2718.69 22.8122.'?20.9020.2623.4521.53 24.&123.2321.6525.3023.02 .54 2.6824.9423.4627.172o.4224.19 Z7.522e.IC)30.0129.1828.3 31.9629.1633,8532.9031.0230.09 3b.6934.5833.53 .49 43.7140.5339.3538.1837.0235.6 45.7444.4343.1441,6440.5639,2 _ 46.97 49.8248.3945.5644.1512.75 52.4150.6649.3247.7946.2653.97 54.0952.4059,2457.5155.80 65.6863.1561.8359.935$.04 72.2510.2367.9865.8763.76370 I 38 6.328.117.91 9.228.998.76 10.13 9.879.62 11.0610.483.C'.76 11.9511.3513.65 3..8732.22244 13.0913.1923.41. 15.1914.0014.41. 17.0616.6216.19 18.9518.4617.90 20.8620.219.78 22.7922.2021.61 24,7324.09 26.7026,00 2 35.7534.00 39.8938.823775 45.2944.0942.90 48.3747.0549.6) 54.3.652.7151,26 58.7057.1255. 64,4762,7260.97 £9.5771.53(1.62 78.747 - 42444341. 9.379.168.748.538,95 30.10.159.929.699.45 1143,26410.6911.3510.38 11.6031.32l2Jd.12.2511.87 13.4?12.5623.7733.1612.25 24.5114.1813.8513.5213.20 15.5535.202.4.8514.5014.24 17.5317.1316.7425.57L35 19.2618.8217.5019.70 21.9021.4120.9119.44 24.1323.5823.032J%22,4921.40 2.96 24.7125.1724,5723,382l.,77 27.9927.3326,ti826.25.3828.b5 30.2329.5228.128.1027.4030.94 29:4433,2o31.7230,930.10 33.fl35.0734,2236.7875. 40.5$fl.6741.5539,60X..38.63 44.2243.1342.0540.4o.42/..32 50.1546.5051.3848.9347.73. 56.4253.7152.3 5.06 61.5560.0658.5757.09 61.90£L766c.163.5160.30 75,2273,4071.6069.8068.0166.24 75.5081.5379.5177.5073.5183.57 96.11.i9.8587.6085.3683.1.480.94 J 491.8475150 10,4210.2].10.009.589,79 11.5511.3230.0510.62 .Q9 12.1*12.732.44U.11.66 13.0413.5613.2813.0012.72 15.0014.69114Q14.08 jSj35.1714.8416.1615 16.2617.3315.91 .62 9 37.19.3018.7121I 21.9321,4821.04v.6920.15 22.6023.892290 3.39 26.8926.3325.7825.3.24.68 2748 294328,9028.1926.96 31,2929'29.31 0. 33.8231.66 36.3735.5934.8136.03 a? 40.2439.3738.5037.64 45.501.4.5163.5242.54 49.7548.6447.5350.87 ..99 s.8552.6157.6056.3455.09 63.3161.9260.5359.1557.78 67.596.0766.5663.05 73.3771.7070.0568,4075.0 78.8877.01.82,5880.72 65.1989.7487.67 %3I 98.9696.67 - .1 .4 55545352 21.4*31.0510.8410.6333.26 12.4912.2632.0211.79 13.9933.2113,7313.4722.95 24.6914.42.26.13 16.54159215.62 17.1317.163.6.8336.50 i9.'2.8.4118.053.7.69 39.50 20.6920.2919.89 l.ö9 23.7323.2822,8322.38 225.402.40 4.90 29.1328.0027.45 8.'6 30.6431.8731.2550.02 34.6533.3033.9 36.7336,0037.46 J4 40.3139.5238,72 44.6443.742.87 A640 £9.5148.5047.5051.5450.52 57.685.545c.3954.2653.32 63.9662.6763.460.12 70.3668.9366.1164.707.52 73.7572:20%.8$75.31 78.4183.5281.8180.10?6. 91.9990.0988.1986.3184.44 102.38100.25 133.02 110.5 96.3396.01 106.29105.94 The values in this table have been computed6058575659 by the actuarial or annuity 12.5412,3332.3111.9031.69 i2.7313.9213.6813.4433.2032.97 15.3015.0414.78142.4.25 16.7016.414.122A425.55 17.7917.4817.1716.819.10 12.843.8,5016.1719.52_20.L19.3f 20.58 20.213.9.519.49 22.7021.4923.1022.2921.9 24.1926.0125.5524.64 5.10 meiiod which conforms to the United States28.9628.4527.9427.1.326.90 Rule. 31.9631.3930.229.69 34.9934,3633.7432.49 38.0637.3736,35.33 1.1.1740.4236,20 IJ..3243.514143. 49.1248.211.6.445.53 J5.66 54.6153.5852.56 62.3261.1559.99 69.1467.04 '76.1174.66 SOURCE: U.S. Department of Defense81.6283.21 90.4588.71 99.6897.75 106.85211.03 120,22 2.6& -r -. __7-_- 176-FORM I APPLICABILITY OF DoD TABLE TO IRREGULAR INSTALLMENT PAYMENT CONTRACTS ILLUSTRATING USE OF FORM I

Use this form in connection with Department of Defense Rate Table for level payment contracts that are irregular only because of deferment or of odd final payment that is not more than twice as great as a regular payment.

TYPE A-ODD FINAL PAYMENT, NO DE- TYPE D-SINGLE PAYMENT: The purchase FERMENT: A TV purchased for $395 plus of $250 of merchandise is to be financed by a finance charge of $39.50...to be financed by single payment of $257.50 in 3 months, 21 days. 17 payments of $24 each plus final payment IRREGULAR TYPES of $26.50. PROBLEMS RESTATED A TYPE B-EQUALPAYMENTS PLUS DEFER- Amount to be MENT: Personal loan arranged for $200. financed $395.00$200.00$195.50$250.00 Finance charge $39.50 $16.00 $12.30 $7.50 Finance charge is $16...to be 12 equal payments of $18 each.First payment due in 3 No. of contract payments 18 12 11 1 months, 24 days. Regular TYPE C-ODD FINAL PAYMENT PLUS DE- payments $24.00 $18.00 $20.00$257.50 FERMENT: $195.50 appliance financed with Final payment, if odd $26.50 $7.80 10 payments of $20 each and final paymentof First payment $7.80. Finance charge is $12.30. First pay- due in 1 mo 3 mo 3 mo ment is due in 21 days. 24 da 21 da 21 da

FORM I Step 1 Move decimal 2 places to the left in amount to be financed to find $100 units 3.95 2.00 1.96 2.50 Divide into finance charge to obtain FC/$100 $10.00 $8.00 $6.28 $3.00

Step 2 Number of contract payments Adjustment for deferred first payment: Double the time by which first payment 4 mo 4 mo exceeds a full payment period 48 da -18 da 42 da Round to nearest number of periods and add +6 -1 +5 To obtain adjusted number of payments 18 10 6

Step 3 Read down left column of DoD Table to number of payments 18 18 10 6 Read across to locate FC/$100 $10.00 $8.00 $6.28 $3.00 Read up to fund rate 12% 10% 131/2% 10%

SOURCE: Family Economics Department, Kansas State University, 1967. FORM 11-177 i APPLICABILITY OF THE DoD TABLE TO IRREGULAR INSTALLMENT PAYMENT CONTRACTS ILLUSTRATING USE OF FORM H

All irregular cases not covered by Form I are cember 1, 1967, he purchases a $346.00 Christ- covered by Form II which permits breaking com- mas holiday tour arranging these payments to plicated contracts into manageable components. match his anticipated bonuses: It covers: (1) Skipped payments with e-rm pay- Sub-schedule: ments, odd payments, or odd final payments. (2) Balloon payment.(3) A composite of single #1-3 payments of $20 each, beginning at 1 payments. (4) Additional purchases. Each case month, 5 days (Jan. 6, 1968) must be treated individually. #2-8 payments of $20 each, beginning at 7 months, 5 days (July 6, 1968) The case of "skipped payments with odd final payment" has been selected to show how a prob- #3-7 payments of $20 each, beginning at 18 lem is broken into sub-schedules each consisting months, 5 days (June 6, 1969) of a deferred series of regular payments. #4-1 payment of $30 due -at 25 months, 5 days (Jan. 6, 1970) Suppose a salesman knows he will be receiving delayed bonuses from previous sales. On De- Total payments $390Finance Charge $44.00

FORM H

Step 1 Find FC/ $100 using instructionson DoD Table. ($44.00 4- 3.46 units = $12.72) Step 2 Find the number of payment equivalents:

Sub-Schedule Instructions #1 #2 #3 #4 6 mo 17 mo 24 mo (a) Time firstpayment exceeds one full period +5 da +5 da +5 da +5 da (b) Double time difference and round to nearest month 0 +12 +34 +48

(d) Adjusted number of payments (b + c) 3 20 41 49 (e) Amount of each payment $ 20 $ 20 $ 20 $30 (f)Total amount actual payments (c X e) $ 60 + $ 160 + $ 140 + $30 = $ 390 (g) Total of adj. pmts. (u) weighted by total actual pmts. (f), (d X f) $180 + $3200 +$5740 + $1470 = $10,590

Number of payment equivalents is the number of times total actual paymentsare in the weighted total; obtained by dividing (f) into (g): $10,590 $390 = 27.2 = 27

Step 3 Read down left column of DoD Table to 27, number of payments. Read across to find FC/$100. $12.72 Read up to find the rate.11%

SOURCE: Family Economics Department, Kansas State University, 1967. t ROSTER OF WORKSHOP PARTICIPANTS*

Agee, Miss Imogene, Instructor of Family Economics and Brown, Miss Frances E., Associate Professor, Home Home Management, Southwest Missouri State College, Economics, Murray State University, Murray, Ken- Springfield 65804 tucky 42071 Alexander, Miss Alice Mae, Home Management Spe- Bryan, Miss Elizabeth, Extension Economist in Home cialist, University of Missouri, Columbia 65201 Management, Cooperative Extension Service, Auburn Anderson, Mrs. Elinor A., Extension Home Management University, Auburn, Alabama 36830 Specialist, Kansas State University, Manhattan 66502 Budolfson, Miss Marie, Professor of Consumer Eco- Ayer, Mrs. Priscilla, Home Economics Teacher, Red nomics and Management, Iowa State University, Ames Gate Farm, Milton Mills, New Hampshire 03852 50010 Burgess, Miss Constance, Home Management Specialist, University of California, Berkeley 94720 Barney, Miss Helen S., Home Economics Consultant, Nutrition Section. Children's Bureau, U.S. Depart- Burnette, Dr. Louise, Chairman, Department of Home ment of Health, r.ducation, and Welfare, Washington, Economics, University of Mississippi, University 38677 D.C. 20201 Burnette, Miss Vera, Assistant Professor, Home Man- Beasley, Mrs. Mary Catherine, Assistant Professor of agement, The University of Tennessee, Martin 38237 Home Economics, University of Alabama, Tuscaloosa Busquets, Dr. Carmen P., Acting Leader, Home Eco- 35401 nomics, Box AR, Rio Piedras, Puerto Rico 00928 Bell, Miss Helen E., Home Management Specialist, Co- Bymers, Dr. Gwen J., Professor, Household Economics operative Extension, Human Development Building and Management, New York State College of Home South, The Pennsylvania State University, University Economics, Cornell University, Ithaca 14850 Park 16802 Berdahl, Mrs. Ella Mae, Home Adviser, Farmers Home Calaway, Dr. Helen M., Associate Professor, Home Eco- Administration, U.S. Department of Agriculture, Wash- nomics, Bowling Green StateUniversity, Bowling ington, D.C. 20250 Green, Ohio 43402 *Campbell, Mrs. Sally R., Assistant Director, Money Blackwell, Mrs. Dorothy, Home Management Specialist, Management Institute, Household Finance Corpora- P.O. Box 1008, Stillwater, Oklahoma 74074 tion. Home address: 790 Foxdale, Winnetka, Illinois Bland,Mrs. Mary Ann, EditorialAssistant, Money 60093 Management Institute, Household Finance Corpora- Capps, Mrs. Betty, Home Economics Specialist, Colorado tion, Prudential Plaza, Chicago, Illinois 60601 State Department of Public Welfare, Denver 80203 *Bonde, Miss ^Ruth L., Chairman, Department of Home Carlson, Mrs. Jean, Home Management Specialist of Economics, Northwestern University, Fisk Hall, Evans- Kansas State University, Extension Area Office, Box ton, Illinois 60201 190, Hiawatha 66434 Bowman, Miss Mary Nell, Assistant Professor, Home *Carmichael, Mrs. Erna K., Consumer Marketing Spe- Economics, Kansas State College, Pittsburg 66762 cialist, Milwaukee County Extension, 9035A Water- Boyd, Dr. Fannie Lee, Associate Professor of Education, town Plank Road, Milwaukee, Wisconsin 53226 University of Georgia, Baldwin Hall, Athens 30602 *Clark, Dr. Faith, Director, Consumer and Food Eco- Brannan, Dr. Betty Jean, Assistant Director, Home Eco- nomics Research Division, Agricultural Research Ser- nomics Programs, Florida Agricultural Extension Ser- vice,U.S. Department of Agriculture, Hyattsville, vice, University of Florida, Gainesville 32601 Maryland 20781 Brennan, Dr. Margaret Jane, itofessor of Home Eco- Clark, Miss Lucille A., Extension Specialist, Housing and nomics, Western Michigan University, Kalamazoo Household Equipment, 623A West University, Still- 49007 water, Oklahoma 74074 Brick ler, Miss Velda V., Consumer Interests Specialist, Clewell, Dr. Geraldine, Chairman, Home Economics Marketing Division, Business and Defense Services Department, Mankato State College, Mankato, Minne- Administration, U.S. Department of Commerce, Wash- sota 56001 ington, D.C. 20230 *Cofer, Dr. Eloise,Assistant Director of Extension, Brooks, Mrs. Mildred, Home Economics Consultant, North Carolina State University, Box 5097, Raleigh Public Assistance Division, D.C. Department of Public 27607 Welfare, Washington, D.C. 20011 Collins, Mrs. Lenora W., Assistant Chief, Bureau of Brooks, Dr. Thomas M., Professor and Head, Depart- Home Economics and Family Improvement, Cook ment of Family Economics and Management, Univer- County Department of Public Aid, 318 West Adams sity of Connecticut, Storrs 06268 Street, Chicago, Illinois 60606 Cosper, Mrs. Wilma, Chairman, Home Economics De- partment, Western Carolina College, Cullowhee, North * Speakers are indicated with an asterisk (*). Carolina 28723

178 PARTICIPANTS-179

Coulson, Miss Zoe, Associate Director of Foods and Evans, Mrs. Agnes L., Regional Supervisor, Vocational Cookery, The Institute, Good Housekeeping Magazine, Home Economics, 1408 Highland Avenue, 203 Park 959 Eighth Avenue, New York City 10019 Century Building, Jackson, Tennessee 38301 *Crabtree, Dr. Myrna P., Director, Home Economics Education, Department of Education,Division of *Feeley, Miss Mary, Columnist and Money Management Vocational Education, Trenton, New Jersey 08611 Consultant, 54 West 40th Street, New York City 10018 Crandall, Dr. Elizabeth W., Professor and Chairman, Fetterman, Dr. Elsie, Family Economics and Manage- Department of Home Management, University of ment Specialist, Cooperative Extension Service, Uni- Rhode Island, Kingston 02881 versity of Connecticut, Storrs 06268 Craven, Miss Ruby, State Extension Home Economics Finlayson, Mrs. Terry, Director, Consumer Information Leader, Clemson University, Clemson, South Carolina Service, Sears, - Roebuck and Company, 925 South 29631 Homan Avenue, Chicago, Illinois 60607 Crow, Dr. Jane, Professor and Chairman, Housing and Finn, Dr. Audrey M., Assistant Professor, Ball State Management Areas, School of Home Economics, Uni- University, Muncie, Indiana 47304 versity of North Carolina, Greensboro 27412 Franklin, Mrs. Ruth Ann, Home Economics Teacher, *Curran, Miss Barbara A., Research Attorney, Ameri- Del Norte High School, 5323 Montgomery Boulevard, can Bar Foundation, 155 East 60th Street, Chicago, N.E., Albuquerque, New Mexico 87110 Illinois 60637 Frias de Ramirez, Mrs. Judith, Consumer Marketing Curry, Mrs. Mabel, Assistant Professor, Department of Specialist, Agricultural Extension Service, 405 Alcides Home Economics, University of North Dakota, Grand Reyes, Rio Piedras, Puerto Rico 00923 Forks 53201 Fuller, Miss Amelia H., Home Management Specialist, P.O. Box 435, Blacksburg, Virginia 24060 Dailey, Miss Hilda, State Extension Specialist, Home Management, West Virginia University, Morgantown Gandy, Miss Frances, Secondary Supervisor, Home Eco- 26506 nomics Board of Education, Memphis City Schools, 2597 Avery, Memphis, Tennessee 38112 Davis, Mrs. Helen- J., Teacher, Home Economics, Bart- lett High School, Bartlett, Tennessee 38005 Gauthier, Dr. Louise E., President-elect, American Home Economics Association, Professor, School of Home Dennis, Mrs. Jane A., Assistant Professor, Home Eco- Economics, UniversityofSouthwestern Louisiana, nomics Department, University of Louisville, Louis- Lafayette 70501 ville, Kentucky 40208 Gentry, Dr. Louise, Assigant Dean for Resident Edu- DeVivo, Miss Anita, Staff Editor, Publications, American cation, College of Human Development, The Pennsyl- Home Economics Association, 1600 Twentieth Street, vania State University, University Park 16802 N.W., Washington, D.C. 20009 Genua, Miss Virginia T., Home Economics Teacher, Dimock, Miss Constance L., Home Economics Super- William E. Tolman Senior High School, Pawtucket, visor, Board of Education, Bridgeport, Connecticut Rhode Island 02860 06611 Gibbs, Dr. Mary, Director, Center' for Education in *Dix, Mr. Leslie V., Director for Legislative Affairs, Family Finance and Professor of Home Economics, President's Committee on Consumer Interests, Execu- Indiana State University, Terre Haute 47801 tive Office Building, Room 102, Washington, D.C. Gill, Miss Kathryn, Chief, Home Economics Education, 20506 State Board of Vocational, Technical, and Adult Edu- *Dixon, Mr. Bill W., Assistant Vice-President, First Wis- cation, 137 East Wilson Street, Madison, Wisconsin consin National Bank of Milwaukee, 743 North Water 53703 Street, Milwaukee, Wisconsin 53201 Glass, Mrs. W. L. D., Consultant- for Vocational Home- Driver, Miss Carolyn C., Assistant Professor, Depart- making Education, State Department of Education, ment of Home Economics, Madison College, Harrison- Texas College, Tyler 75701 burg, Virginia 22801 Goetz, Dr. Helen, Associate Professor, School of Home Dunn, Dr. Marie S., Head, Department of Economics, Economics, University of Alabama, University, Ala- Northwestern State College of Louisiana, Natchitoches bama 35486 71457 *Goldberg, Mrs. Faith S., Caseworker in Financial Coun- seling, Family Service, 104 Wilder Building, St. Paul, Eder, Mrs. Margaret S., Assistant Professor, Family Minnesota 55102 fconomics-Home Management, University of Hawaii, Gore, Mrs. Blanche A., Associate Professor, Home Eco- Honolulu 96822 nomics Department, University of Houston, Houston, *Eisendrath, Mr. Jack N., Attorney, Eisendrath and Texas 77004 Roffa, 161 West Wisconsin Avenue, Milwaukee, Wis- Gorman, Dr. Anna M., Associate Professor, Home Eco- consin 53203 nomics Education, University of Kentucky. Lexington Engebretson, Dr. Carol L., Associate Professor of Home 40506 Economics, School of Home Economics, Louisiana Graham, Mrs. Alice Millett, Dean, School of Home Eco- State University, Baton Rouge 70803 nomics, Louisiana Polytechnic Institute, Ruston 71270 180PARTICIPANTS

Greenhouse, Dr. Phyllis, Chairman, Department of He:n. Holmes, Dr. Emma G., Consumer Economics, Agricultural,Mechanical, and Normal and Food Economics College, Pine Bluff, Arkansas Research Division, U.S.Department of Agriculture, 71601 Federal Center Building, Gross, Mrs. Leonora H., Hyattsville, Maryland 20781 State President, California Hook, MiO Nancy C., Home Economics Association,3127 Delaware Ave- Assistant Professor, Department nue, Stockton 95204 of Home Management,Macdonald Institute, University of Guelph, Guelph, Ontario,Canada Guthrie, Miss Gersilda, DistrictExtension Specialist, Howe, Mrs. Letty, Teacher Home Management, P.O. Box307, Colby, Kansas Educator, Northwest Naza- 67701 rene College, Nampa, Idaho 83651 Hunt, Mrs. Myrtle E., Supervisorof Adult Home Eco- nomics, 830 34th Street South,St. Petersburg, Florida Halchin, Dr. Li lla C., Director;Home Economics De- 33712 partment, Mansfield State College,Mansfield, Penn- sylvania 16933 *Hurd, Helen G., ProfessorEmeritus of Sociology, Rut- gers University. Home address:416 Grant Avenue, Hallaway, Miss Joann, AssociateProfessor and Chair- Highland P'_.0k, New Jersey man, Home Management Department, 08904 School of Home Hurley, Dr. Patricia, Professor Economics, Stout StateUniversity, Menomonie, Wis- and Chairman, Depart- consin 54751 ment of Home Economics, EastCarolina University, Hanson, Dr. Doris E., Executive Greenville, North Carolina 27834 Director, American Hurt, Miss Clatie, Consultant, Home Economics Association,1600 Twentieth Street, Homemaking Education, N.W., Washington, D.C. 20009 Texas Education Agency, Box822, Crockett 75835 Harris, Dr. Phoebe T., Head, Hurt, Dr. Mary Lee, Specialistin Research, Division of Department of Home Eco- Comprehensive and Vocational nomics, Mississippi StateUniversity, State College Research, Office of 39762 Education, U.S. Departmentof Health, Education, and Welfare, Washington, D.C. 20202 Harrison, Mrs. Grace F.,Consultant, Home and Family, Programs for Adults, ConnecticutState Department Ilett, Miss Phyllis, AssociateProfessor of Home Manage- of Education, Hartford 06101 ment, Equipment, and FamilyEconomics, College of *Hawthorne, Dr. Betty E., Dean ofHome Economics, Home Economics, Universityof Tennessee, Knoxville Oregon State University, Corvallis97331 37916 Hendrickson, Mrs. Mary R., AssistantProfessor, Depart- *Jedlicka, Mr. Cyril J.., Senior ment of Home Economics, FresnoState College, Vice-President, City Na- tional Bank and Trust Company,Kansas City, Mis- Fresno, California 93726 souri 64106 Hertzendorf, Mrs. Ann, Lecturer,Department of Agri- Johnson, Dr_ Lydia M., Chairman, cultural Economics, Universityof California, Davis Home Economics De- 95616 partment, Western Illinois University,Macomb 61455 Johnson, Miss Mary L., Family Heuer, Miss Leone A., Director, Economics Specialist, Money Management Extension Division, University ofMissouri, Columbia Institute, Household FinanceCorporation, Prudential 65201 Plaza, Chicago, Illinois 60601 Johnson, Miss Nedra, DistrictSupervisor, State Depart- *Higgins, Miss Barbara, FamilyEconomics Specialist, ment, Vocational Home Economics,P.O. Box 53277, University of Massachusetts ExtensionService, Am- State Capital Station, Oklahoma herst 01002 City, Oklahoma 73105 Jones, Dr. Agnes A., Chairman,Home Economics De- Hissong, Mrs. Celia S., HomeManagement Specialist, partment, Wisconsin State University,Stevens Point Louisiana Cooperative ExtensionService, Louisiana 54481 State University, Baton Rouge 70803 *Jones, Commissioner MaryGardiner, Federal Trade Hoffman, Dr. Adeline M., Professorand Head of Textiles Commission, Washington, D.C.20580 and Clothing, Departmentof Home Economics,Uni- Jordahl, Mrs. Edna K., versity of Iowa, Iowa City Extension Specialist in Home 52240 Management, University ofMinnesota, St. Paul 55101 Hogan, Miss Gaynelle, ExtensionConsumer Education Specialist, Cooperative ExtensionService, Virginia Ketchum, Miss Lucile, ExtensionSpecialist in Home Polytechnic Institute, Blacksburg24061 Management, Michigan State University,East Lansing 48823 Hogan, Miss Janice, ResidentFaculty, Department of Home Economics, Arizona StateUniversity, Tempe Kittrell, Dr. Flemmie P., Head,Home Economics De- 85281 partment, Howard University, Washington,D.C. 20001 Knoll, Dr. Marjorie M., Hog len, Mrs. Jewel,President-elect, MissouriHome Professor, Family Economics Economics Association, 1009Dougherty Ferry Road, and Home Management, HumanDevelopment Build- St. Louis, Missouri 63122 ing, The Pennsylvania StateUniversity, University Park 16802 Holder, Miss Mary E., Associate Professor, Department Knowles, Miss Esther, Associate of Home Economics, Universityof New Hampshire, Professor, Department Durham 03820 of Home Economics, Universityof Vermont, Burling- ton 05401 PARTICIPANTS-181

*La Follette, Mr. Bronson C., Attorney General of Wis- McCormick, Miss Evelyn W., Associate Professor, Home consin, Madison 53702 Management and Economics, Montana State Univer- *Lampman, Dr. Robert J., Professor of Economics, Uni- sity, Bozeman 59715 versity of Wisconsin, Madison 53706 Mcl lnay, Mrs. Carolyn, Instructor, Home Management, Lancaster, Mrs. Reta R., Assistant Professor, Home Man- College of Home Economics, University of Maryland,

agement and Family Economics, HomeEconomics College Park 20740 ! Department, Eastern Michigan University, Ypsilanti McNichols, Sister Mary Diona, Instructor, Rosary Col- 48197 lege, 7900 West Division Street, River Forest, Illinois Lauscher, Mrs. Florence, Supervisor, Home Economics, 60305 State Department of Public Instruction, 126 Langdon Metzen, Dr. Edward J., Associate Professor of Home Street, Madison, Wisconsin 53703 Economics and Agricultural Economics and Chair- Law, Miss Eloise, Teacher Educator, State University man, Home Management andFamily Economics, College, Plattsburgh, New York 12901 School of Home Economics, University of Missouri, Lee, Dr. Anne M., Chairman, Home Economics Depart- Columbia 65201 ment, Indiana State University, Terre Haute 47807 Meyer, Mrs. Wanda, Specialist in HomeManagement, Leopold, Mrs. Clara N., State Extension Specialist, Home Texas A&M University Extension Service,College Management and Family Economics, Cooperative Ex- Station 77841 tension Service, University of Nebraska, Lincoln 68503 Miller, Miss Arlene, Home EconomistSocial Worker, Lewis, Mrs. Vanetta, Associate Professor, Home Eco- Inner City Development Project, 5501 West Morgan nomics, Home Economics Department, University of Avenue, Milwaukee, Wisconsin 53220 Montana, Missoula 59801 Lloyd, Miss Florence, Associate Professor, School of Miller, Miss Helen G., Extension Home Management Home Economics, Ohio State University, Columbus Specialist, University of Wyoming, Laramie 82070 43210 Miller, Miss Irene, Coordinator of Home Economics, Lohr, Dr. Helen, Professor of Home Economics, Central 5225 West Vliet Street, Milwaukee, Wisconsin 53208 Michigan University, Mount Pleasant 48858 Minot, Miss Marion E., Assistant Professor, Home Eco- Lotwin, Miss Gertrude, Home Economics Consultant, nomics Education, New York State College of Home New Jersey Division of Public Welfare, 129 East Han- Economics, Cornell University, Ithaca 14850 over Street, Trenton 08625 Minter, Miss Elkin M., Extension Specialist, Home Man- Loughlin, Mrs. Catherine C., Family Economics Spe- agement, Home Economics Two, PurdueUniversity, cialist, School of Home Economics, University of Lafayette, Indiana 47906 Nevada, Reno 89507 *Mitchell, The Honorable George W., Member, Board Lyman, Miss Evelyn, Extension Home Management of Governors of the Federal Reserve System, Wash- Specialist, University of Rhode Island, Kingston 02881 ington, D.C. 20551 Lynch, Mrs. Jeanette, Assistant Professor, Family Eco- Mitchell, Miss Stella L., Home Management Specialist, nomics and Home Management, The Pennsylvania Home Economics Division, Federal Extension Service, State University, University Park 16802 U.S. Department of Agriculture, Washington, D.C. Mandigo, Mrs. Helen J., Home Service Supervisor,Balti- 20250 more Gas and Electric Company,Baltimore, Maryland Mitchell, Miss Vervil L., Home Management and Family 21203 Economics Specialist, Florida Agricultural Extension *Manning, Dr. Sarah, Associate Professor, Department Service, University of rerida, Gainesville 32601 of Home Management and Family Economics, Purdue Moore, Mrs. Alvertia,Extension Family Economics University, West Lafayette, Indiana 47906 Specialist, Old Extension Building, South Dakota State Martin, Dr. Esther A., Associate Professor, Management, University, Brookings 57006 Housing, and Family Development, College of Home Moos, Mrs. Madeline E., Home Management Specialist, Economics, Virginia Polytechnic Institute, Blacksburg Extension Service, Colorado State University, Fort 24061 Collins 80521 *Matsen, Miss Suzanne, Assistant Professor, Consumer *Morgan, Dr. James N., Program Director, Survey Re- Education, New York State Cooperative Extension, search Center, University of Michigan, AnnArbor Cornell University, Ithaca 14850 48104 Matthews, Miss Nancy, Program Specialist, Home Eco- Morrow, Miss Alice Mills, Instructor, Department of nomics Education, State Department of Education, Consumer Sciences and Housing, Old Main, Colorado 3650 Piedmont Road, Huntington, West Virginia 25704 State University, Fort Collins 80521 McAllester, Mrs. Esther T., Chairman, Home Economics Department, West Virginia Wesleyan College, Buck- *Morse, Dr. Richard L. D., Professor and Head, De- hannon 26201 partment of Family Economics, Kansas State Univer- sity, Manhattan 66502 McCandless, Miss Barbara, Associate Professor of Family Economics, College of Home Economics, South Da- Mulvey, Miss Alice R., Director of Home Economics, kota State University, Brookings 57006 School Department, Cranston, Rhode Island 02910 182PARTICIPANTS

Nadi, Mrs. Evelyn R., Home Management Specialist, *Rice, Mr._Claude, Mtorney, Rice, Grover, Nugent and Coo liefative Extension Service, University of Mary- Baskui tItiron Building, /Wisp City, Kansas 66101 land, College Park 20740 Rider, Mrs. Louise P., key Teacher, Home Economics, Neufeld, Mrs. Dorothy IL,, bisttpixtension Specialist, University of Connecticut, Storrs 06268 Home Management, Box 203, Ioial gansas 66749 Russeli Miss Ruthannit, Haiti SOURNAi OF 140ME ECO- Nissen, Miss Harriet J., Extension Home Economist, Post NOMICS, American Home Economics AssUciation, 16b0 Office Building, Milford, New Hampshire 03055 Twentieth Street, N.W., WasliingiON D.C. 20009 Nyman, Miss Edith, Head, Department of Household Economics and Management, Utah State University, Logan 84321 Schomaker, Dr, Peggy K., Assiittifil Prokssofi EcOnomicsi University of Malitti, Orono 04473 Olson, MissCeraldine,Extension Specialist, Family Schramm, Sister M. Alban, 0.8.n Chalrintgl, pepiirt- Economics, 1781 Neil Avenue, Columbus, Ohio 43210 ment of Home Economics, Mount Marty College, Yankton, South Dakota 57078 Payne, Mrs. Betty, Chairnian, Department of Home Sellers, Miss Beulah, Director, School ot liotitne Eco- Economics, University of Da9ton, Dayton, Ohio 45406 nomics, Ohio University, AthenS 45701. Plonk, Dr. Martha A., Associate Professor and Acting Sherwood, Mrs. Ruth F., Chairman, General Home co- Head of Home Management Department, School of n(?rnics pelCartment,. Garland lUnior College, Andover, Home Economics, Oregon State University, Corvallis Ma§sachusetts 914/q 97331 Sjolander, Miss Ilargaret, tie#4 of Edtne EcOnomics Department, University of Northern Iowa, Cedar Palls Potter, Mrs. Gretchen L., Assistant Professor, Depart- 5060 ment of Home Economics, Universityof Idaho, 4 Moscow 83843 Smith, Mrs. Lois M., oliet Home Economics Occupa- Powers, Mrs. Mary, County Extension Agent, Home tionS1 Division ,Of Yocalional and Technical Educa- Economics, Courthouse, Winamac, Indiana 46996 tion, 403 ttlitOrgal Building, Springfield, Illinois 62706 Poyner, Miss Edna, Program Assistant, American Home Economics Association, 1600 Twentieth Street, N.W., Speece, Mrs. Winifred, Women's Director, WNAX Radio, Washington, D.C. 20009 Yankton, South Dakota 57078 Prentiss, Mrs. Marian G., Assistant Program Leader, Spencer, Mrs. Mary, Public Relations Consultant, Ameri- Agriculture ExtensionService, University of Cali- can Home Economics Association, 1600 Twentieth fornia, Riverside 92506 Street, N.W., Washington, D.C. 20009 *Preston, Mrs. Nathalie D., Supervisor, Homemaker *Staab, Dr. Josephine H., Professor, Home Management Service and Home Economics Consultant, Brooklyn and Family Living, University of Wisconsin, Madison Bureau of Social Service and Children's Aid Society, 53706 285 Schermerhorn Street, Brooklyn, New York 11217 Stedman, Dr. Louise A., Director, School of Home Eco- Prevey, Dr. Esther E., Director, Department of Family nomics, University of Minnesota, St. Paul 55101 Life Education, Kansas City Public Schools, 1211 Stephens, Miss Dorothy N., State Home Economics McGee Street, Kansas City, Missouri 64106 Leader, Box 300, Boise, Idaho 83701 Price, Dr. Dorothy Z., Assistant Professor, College of *Stewart, Miss Alice M., Extension Specialist in Con- Home Economics, Washington State University, Pull- sumer Education, Cooperative Extension Service, 11 man 99163 Park Place, Room 1013, New York City 10007 *Prior, Mrs. Faith, Extension Family Economist, Exten- Stiles, Mrs. Lucille E., President, Illinois Home Eco- sion Service, University of Vermont, Burlington 05401 nomics Association, Home Economics Department Chairman, Maine Township High School West, 1755 South Wolf Road, Des Plaines, Illinois 60018 *Rasmussen, Mrs. Albie, Assistant Professor, Depart- Stinson, Miss Corinne, Extension Specialistin Home ment of Family Economics, Kansas State University, Management, Home Economics Building, University Manhattan 66502 of Arizona, Tucson 85721 Reagan, Dr. Barbara B., Professor, Southern Methodist Swayne, Miss Janet E., Assistant Professor, Department University, Dallas, Texas 75225 of Home Economics, Northern Illinois University, Redeker, Miss Norma L, District Home Management DeKalb 60115 Specialist, 20 29th Court, Hutchinson, Kansas 67501 Rees, Dr. Jane L., Professor and Chairman, Department of Home Economics, Miami University, Oxford, Ohio Taittonen, Miss Edith, Director, Home Economics Ser- 45056 vice, Community Service Society, 105 East 22nd Street, Restemayer, Mrs. Lois, Home Management Specialist, New York City 10010 Extension Service, North Dakota State University, Tengel, Miss Patricia M., Assistant Professor, Family Fargo 27106 Economics and Home Management, Department of Reynolds, Mrs. Helen, Head, Home Economics Depart- Business and Resource Management, Carnegie-Mellon ment, Heidelberg College, Tiffin, Ohio 44883 University, Pittsburgh, Pennsylvania 15213 PARTICIPANTS-183

Thal, Dr. Helen M., Assistant Director, Educational *Whitby, Mr. Robert H., Staff Consultant, Booz, Allen & Division, Institute of Life Insurance, 277 Park Ave- Hamilton, Inc., Management Consultants, 135 South nue, New York City 10017 La Salle, Chicago, Illinois 60603 Thomas, Miss Jean E., Extension Home Economist, 1508 *White, Mr. J. Kirkwood, Staff Attorney, Neighborhood Washington Street, Columbia, South Carolina 29201 Legal Services Project, 1200 U Street, S.E., Washing- Thrift, Miss Pinkie E., Dean, College of Home Eco- ton, D.C. 20020 nomics, Southern University, Baton Rouge, Louisiana Williams, Miss Edith, District Supervisor, Vocational 70803 Home Economks Education, Box 168, Walterboro, Turner, Mrs. Ruth, Assistant State Supervisor, Indiana South Carolina 29488 State University, Terre Haute 47801 Williams, Mrs. Florence B., Home Economics Teacher, 26 Tally Ho Circle, Newark, Delaware 19711 Van Norden, Mrs. Florence, Associate Home Economics teaderi Home Economics House, College of Agricul- Wilson, Miss Eleanor L., Program Leader, 4-H, Federal ture and Envlronmental Science, Rutgers University, Extension Service, U.S. Department of Agriculture, New Brunswick, New Jersey 08903 Washington, D.C. 20250 Vaughn, Dr. Janet L., Assistant Professor, Home Man- Wilson, Mrs. Gayle R., President, Texas Home Eco- agementFamily Economics Department, School of nomics Association, Route 9, Box 101, Fort Worth, Home Economics, Purdue University, Lafayette, Indi- Texas 76106 ana 47907 Wilson, Mrs. Sara, Extension Agent, Extension Service, Post Office Building, Machias, Maine 04654 Walker, Dr. Florence S., Associate Professor, Family Wolf, Dr. Ilse H., Professor, Family Economics and EconomicsManagement Department, School of Home Home Management, Tech Station, Texas Technological Economics, University of Nebraska, Lincoln 68503 College, Lubbock 79409 Warren, Dr. Jean, Professor (Retired), New York State Wolgamot, Mrs. Irene H., Assistant to Director, Con- College of Home Economics,CornellUniversity. Home address: 133 Warren Road, Ithaca, New York sumer and Food Economics Research Division, Agri- 14850 cultural Research Service, U.S. Department of Agri- culture, Federal Center, Hyattsville, Maryland 20781 Warren, Miss Mary, Chairman, School of Home Eco- nomics, University of Oklahoma, Norman 73069 Wortman, Mrs. Enid, President, Iowa Home Economics Association, 273 Momingside Avenue, Council Bluffs Watts, Mrs. Katherine, Home Economics Department, 51501 Louisiana State University, Baton Rouge 70803 Westby, Miss Maxine, Assistant to the Director, Ameri- Youmans, Dr. Rita L., Associate Dean: School of Home can Home Economics Association, 1600 Twentieth Economics, University of Wisconsin, Madison 53706 Street, N.W., Washington, D.C. 20009 *Young, Miss Louise A., Extension Home Management Whetstone, Miss Esther, Coordinator, Consumer Edu- Specialist, School of Home Economics, University of cational Services, Iowa State University, Ames 50010 Wisconsin, Madison 53706