TABLE II-ESTIMATED SHARE OF CONSUMER CREDIT OUTSTANDING AS OF DEC. 31, 1967, HELD BY LENDERS SUBJECT TO THE JURISDICTION OF THE FEDERAL TRADE COMMISSION UNDER THE TRUTH IN LENDING BILL

Source: Federal Reserve Bulletin A-48 (April 1968) for data on types of credit of all lenders (col. 2); consu mer credi held by lenders subject to FTC based on table I and estimates of FTC Office of Program Review.

(1) The Finance Industry-Finance companies account for $23 billion in consumer credit, or a majority of the $43 billion total consumer credit held by creditors within the Commission's reach under the Act. These companies can be classified on the basis of the principal types of receivables on their books. Sales finance companies buy installment paper which arises from retail sales of automobiles, other consumer goods, or from outlays for residential and repair loans. By contrast, personal finance companies specialize principally in making personal cash loans. However, subsidiaries of sales finance companies, formed largely through mergers, also make personal loans. At the close of 1967, sales finance companies had $2.8 billion in personal loans outstanding and personal (consumer) finance companies held $5.5 billion.

The Commission's truth in lending mandate in the finance industry covers significant firms operating in a large and critical market. In the sales finance company sector, there are 1,200 companies with gross loans of $16 billion in 1965, according to the most recent Federal Reserve Board survey of Finance Companies, Mid-1965, reprinted from the Federal Reserve Bulletin 536 (April, 1967). General Motors Acceptance Corp. is the nation's largest captive sales finance company with total capital funds of $1.1 billion at the end of 1967. C.I.T. Financial Corp. is the largest independent sales finance company with total capital funds of $828 million at the close of 1967. (A sales finance independent does not get any of financing from a parent manufacturing or retail company; a captive does get such financing.)

The Act states that Congress finds "the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit." Sales finance companies with $25 million and more in gross loans outstanding in 1965 accounted for about 93 percent of the total gross loans reported in the aforesaid Federal Reserve survey. The five largest captive sales companies ranked by total capital funds at the end of 1967 are: (1) General Motors Acceptance Corp. ($1.1 billion); (2) Ford Motor Credit Co. ($322 million); (3) Sears Roebuck Acceptance Corp. ($266 million); (4) General Electric Credit Corp. ($245 million); and (5) Chrysler Financial Corp. ($230 million). Due largely to the merger trend, about 25 percent of the small sales finance companies in 1960 had become subsidiaries of other sales finance companies by 1965 or had gone out of business.

In the personal finance industry sector in 1965 there were 2,500 personal finance companies with gross loans of $9 billion. Personal finance companies with $25 million and over in gross loans in 1965 held 80 percent of the total gross loans. The five largest personal finance companies in 1967 rank as follows based on total indicated capital funds: (1) Beneficial Finance Co. ($506 million); (2) Household Finance Corp. ($420 million); (3) Seaboard Finance Co. ($137 million), (4) Liberty Loan Corp. ($115 million); and (5) General Finance Corp. ($74 million).

The economic dimensions of the Commission's responsibilities under the Act is a universe or "regulatory market" of 3700 finance companies (with tens of thousands of retail branches) that hold $23 billion in consumer credit, and the hundreds of thousands of retail outlets (and service credit companies) that account for an additional $20 billion of consumer credit. These industries account for the Commission's relevant $43 billion consumer credit field.

(2) Retail Outlets.-The Commission's truth in lending assignment under the Act blankets much of the nation's retail trade industries, which sector in 1963 (the last census year) consisted of 1.7 million establishments with total sales amounting to $244 billion. The Commission's mandate reaches some 4000 department stores which had 1963 sales of $20.5 billion.

Department stores held $6.8 billion in consumer credit in 1967, of which about $5.5 billion represented installment credit on consumer goods and $1.3 billion was in noninstallment credit (charge accounts). Credit sales in the department store industry represent close to 60 percent of department store sales. Standard & Poor's reports that a significant shift from charge account to installment credit selling has been in process in the department store field during the 1960s. Leading department stores with annual sales in excess of one billion dollars are Federated Department Stores, Allied Stores, and May Department Stores.

The Commission's consumer credit role encompasses the related mail order field which is dominated by two major concerns-Sears, Roebuck which had sales of $194 million in 1967 and Montgomery Ward with 1967 sales totaling $166 million. The credit business of Sears accounts for about 57 percent of its sales, that of Montgomery Ward around 47 percent. Gamble-Skogmo obtains some 20 percent of its sales from mail order catalog stores as a result of its 1964 acquisition of Aldens. Another important mail order company-Spiegel-is a subsidiary of Beneficial Finance Co., which is the nation's largest personal finance company.

Another major retail holder of consumer credit within the Commission's scope are furniture stores which held $3.9 billion in installment credit on consumer goods at the end of 1967. The 1963 Census of Business reports that there were 55,000 furniture, home furniture stores (SIC 571) with total sales of $6.8 billion. There are as many as 5000 companies making furniture, led by Kroehler Manufacturing Co. with sales of $104.8 million in 1967 and Basset Furniture Industries with sales volume of $90.6 million.

Other retail outlets account for $7.2 billion in consumer credit, which divides into $1.9 billion of installment credit on consumer goods and $5.3 billion on noninstallment credit (charge accounts). This category of "other retail stores" represents the following types of retail trade: jewelry stores; lumber, building, hardware dealers; apparel stores; automobile tire and accessory stores; and all other retailers. Using the 1963 Census of Business, these retail outlets combined account for about 250,000 establishments with annual sales of $33 billion.

Auto dealers hold a significant $506 million in consumer installment credit (auto paper). At the close of 1967 there were about 28,550 auto dealers handling the passenger cars of domestic manufacturers as follows: General Motors, 12,800; Ford, 7100; Chrysler, 6300; and American Motors, 2300. Installment sales in 1967 accounted for about 68 percent of total auto sales. The Commission must cover the credit disclosure practices of these auto dealers as well as the thousands of used car and imported car dealers.

(3) Oil Companies-Credit Cards.-The Commission's truth in lending terrain includes credit cards consisting largely of oil company receivables arising from consumers' use of gasoline credit cards. Most of the major oil companies, such as Texaco, Shell Oil and Gulf Oil, have some type of credit card program. About 70 million oil company credit cards are in existence, involving an estimated $1 billion in consumer credit outstanding.

Some petroleum companies appear to have agreements with other oil companies to honor the other's credit card in certain geographical areas. Major oil companies have also been extending the services their credit cards offer by signing up hotels, motels and restaurants to honor their credit cards. Since such credit card systems may result in certain monopolistic and deceptive practices, there is a real need for surveillance of the structure, operation, cost disclosure, and competitive implications of credit card programs of oil companies and other involved industries.

(4) Service Credit Companies.-The Commission's jurisdictional area extends to service credit companies which held nearly $4 billion in consumer credit at

the end of 1967. Service credit consists of the amount owed by individuals to professional practitioners and service establishments. The main component of service credit is that owed to hospitals and doctors. Other types of consumer service credit are the amounts owed to colleges and credit for funeral and legal services. Service credit also includes credit for automobile repairs and for television repair services.

Establising a Bureau of Truth in Lending

The Commission's budget request for $2.6 million to administer truth in lending will provide the means for reasonably effective enforcement of the Act. There will be established within the Commission a Bureau of Truth in Lending with a 200-man staff. The enforcement program will be designed to cover the industries accounting for the $43 billion consumer credit field under the enforcement authority of the FTC-a universe of at least a quarter million companies—using scientific sampling procedures. The requested $2.6 million represents only 6/100 of 1% of the $43 billion credit universe.

The bureau will concentrate thoroughly and continuously on the credit costs practices of the major finance companies and the large retail outlets, while spotchecking the hundreds of thousands of retailers and thousands of finance companies that constitute the Commission's responsibility under the Act. Investigations of outside complaints on credit cost deceptions will supplement the bureau's internally-generated and planned actions. Emphasis will also be given to a consumer education program.

The main objectives of the bureau will be to achieve true credit cost disclosure by lenders and to provide a meaningful basis for informed credit shopping by consumers. The funds for effective Commission enforcement of the Act should facilitate price competition in credit. To accomplish these ends, the bureau will use the means of guidance, education, and litigation.

The inspection staff will call on finance companies and retail stores in large metropolitan areas and other locations across the nation, and check into credit advertisements, installment contracts and billing statements. These inspections will educate and assist retailers extending credit to get their credit advertising and credit instruments into compliance with the Act. In instances where business cooperation proves unsuccessful and violations stand, the matters will be referred for formal Commission action. The bureau's inspection program will also be directed towards counseling those retailers who deal closely on credit with low income people.

The bureau's professional staff, including economists, credit and business analysts, accountants, and statistical specialists in scientific sampling procedures. will prepare periodic reports for the Commission and for publication that turn the spotlight of publicity on truth in lending conditions in industries and in the economy.

It is anticipated that in order to carry out the clear intent of this Act, the new bureau will be concerned with practices which are closely related to, but not actually covered by it, as, for example, those of debt consolidators. This is considered essential to the development of reports to Congress dealing with the adequacy of the present Act in affording protection from deception in the field of consumer credit.

CONTINUED PLANNING

Included in the foregoing discussion are references in general terms to the plans for bureau operations. Admittedly, these are in very general terms, due to lack of experience in this enforcement program. On the one hand, we know that the Act applies to all finance companies; on the other, we can identify all of the Department Stores in this country, but we do not as yet know which ones are selling goods on credit, even presuming that most are. Presently, we are talking with Dun and Bradstreet to determine what information they can furnish from their data bank that will be of assistance to FTC in planning for this enforcement program.

It is intended that the work of the bureau be computerized-including each examination of each business. We will be enabled, by means of the information fed into our data bank, to make informed determinations with respect, for example, to subject areas warranting greater or lesser attention, by type or size of business, geographic location, etc. The computer, too, will furnish much of the data required for studies of the credit industry.

Subject to changes dictated by experience, it is planned that the bureau will operate through three divisions: Division of Field Inspection, Division of Programming and Studies, and Division of Enforcement and Compliance.

The Division of Field Inspection, comprising approximately one-half the personnel allocated to the bureau, will be staffed by non-lawyers, the majority of them stationed in the field, examining the credit practices of individual businesses. The initial thrust of their activity will be to sit down with a businessman, determine compliance with the law and regulation, and attempt to informally assist him in making necessary revisions in his practices-reporting to Headquarters so that pertinent data relating to each interview can be incorporated into the computer bank referred to above. There will be a planned system of call-backs to determine whether recommended changes actually have been made to the extent manpower is available. The field staff will also be available for talks to industry associations and consumer groups explaining the regulations, responding to questions, and helping to educate the businessman and the public.

The Division of Programming and Studies, while much smaller, will constitute the major planning arm of the program. It is this division which will plan the business segments in the geographical areas to be inspected by the field examiners, receive and review their reports, continually evaluate the results and direct changes in emphasis on inspections, conduct studies of the effectiveness of the Act and the Commission's program in implementation thereof, prepare reports to the Commission and the Congress as appropriate, and develop broad based educational programs.

As indicated, the principal effort of the Bureau will be to administer the law with a minimum of legal proceedings. It is believed that the regulation will spell out requirements so clearly that compliance therewith is simple and obivous, and that the vast majority of the businessmen will comply when they are educated to the requirements of the law. Thus, with primary emphasis on education during the early stages of administration, the Division of Enforcement and Compliance, composed of attorneys, is intended to be the smallest of the divisions, and increased in size only as circumstances require.