No Easy Terms

Easy credit, which has helped boost installment debt in the U.S. to a record $39.5 billion, is often mighty hard on the consumer. So a parade of witnesses have testified before a Senate Banking and Currency Subcommittee chaired by Illinois Democrat Paul Douglas. He and 17 other Senators are pushing a bill to require credit agencies to give buyers a complete list of financing costs to prevent lenders from cheating borrowers with exorbitant interest rates.

Car buyers, said witnesses, are among the most gullible of installment buyers. Recently, said Victor H. Nyborg, president of the Association of Better Business Bureaus, his group interviewed 225 new-car buyers, found that half, without knowing it, had agreed to buy life insurance along with their cars. One car buyer was making payments of $500 a year on his car, was charged $431 more for financing charges. Another paid an interest rate of 50% a year to finance a used car.

Last week the subcommittee called the prize witness of the hearings: William McChesney Martin, chairman of the board of governors of the Federal Reserve System. To the delight of spectators, the Fed's head confessed that he found the intricacies of automobile financing utterly confusing. Chortled Douglas: "You were president of the New York Stock Exchange, an Assistant Secretary of the Treasury, and for many years chairman of the board of governors of the Federal Reserve System. If the present practices are confusing to you, the most expert man in the country, what must they be to the average workman?" Martin agreed with the purpose of the bill, but said that it was beyond the scope of the Federal Reserve System to enforce it, as the bill provides. He recommended that it be redrafted as a criminal statute to be policed by federal regulatory agencies.

Some other witnesses violently opposed any policing of installment practices. Maintaining that "our credit system is too vital for the Government to tamper with," A. Leonidas Trotta, credit research director of the National Retail Merchants Association, argued that people expect to pay more when they receive the benefits of installment buying. Said he: "To give them too much information about financing costs would only befuddle them."

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