The CHAIRMAN. Below what? The CHAIRMAN. The chart may be received. (The chart referred to was marked "Exhibit No. 522" and appears and 18, and between 19 and 20 percent come between 18 and 24. Mr. MONTGOMERY. We offer this chart for the record, at this point. When we get the next chart, however, it looks very bad again. centage basis, and then we find that there are 32 percent between 12 Dr. AYRES. Below 12. Not on an interest rate basis but on a per on p. 3359.) 124491-39-pt. 8 EXHIBIT No. 520 COMPUTED RATES OF INTEREST ON 106 INSTALLMENT TRANSACTIONS terms of the rest of what we have here. 45 percent come below 12 percent; that is a pretty good figure in we find that where it is advertised that 10 percent is charged, about is the simple relation of the amount outstanding and the charges, and Dr. AYRES. We come back again to the percentage ratio first which BASED ON MASSACHUSETTS COMMITTEE ON CONSUMER CREDIT, REPORT OF FEBRUARY 17, 1936 45 of 106 In this chart the cost of credit is shown as an annual interest rate. On this basis the actual interest rate in practically all transactions analyzed turned out to be substantially higher than the quoted rate. About one-third of these "6 percent" contracts called for actual interest rates between 12 and 18 percent. borrowers were charged at least 3 times the quoted rate of 6 percent. 7 borrowers were charged interest of more than 100 percent per annum. EXHIBIT NO. 521 CARRYING CHARGES AS PERCENTAGES OF UNPAID BALANCES IN 31 INSTALLMENT CARRYING CHARGES tween 30 and 50 percent, and 5 percent were paying between 50 and 100 percent, and here again two cases were paying actually more than 100 percent. Mr. HENDERSON. Dr. Ayres, let me see if I get this correctly. In those two cases where the interest rate was over 100 percent, have you any information as to the amount of money that was involved in Dr. AYRES. This chart shows the interest rate on these loans which were advertised at 10 percent, and we find that there were only 31 cases in the study which fell in this category, 10 percent, and only 1 of those was below 12 percent. A major line, as you see, comes upward as we get to the higher categories; 25 percent were paying between 18 and 24 percent; we skip again; 19 percent were paying be 09 BASED ON: MASSACHUSETTS COMMITTEE ON CONSUMER CREDIT, REPORT OF FEBRUARY 17, 1936 In 31 of the transactions analyzed the quoted rate of interest was 10 percent. In this, as in Exhibit 519, the credit cost is shown as the percentage of the cost of credit to the amount borrowed. How little the quoted rate signifies is shown by the fact that these "10 percent" contracts do not involve actual costs as high as some of the "6 percent" contracts shown in Exhibit 519. Mr. HENDERSON. Could you tell me on these transactions, were refrigerators and clothing included? Dr. AYRES. This study covered a series of commodities which are ordinarily sold. The most important were automobiles, furniture, efrigerators, radios, all kinds of household labor-saving devices, nen's clothing, typewriters, coal, and then it petered down to a lot of other items as well. EXHIBIT NO. D22 COMPUTED RATES OF INTEREST ON 31 INSTALLMENT TRANSACTIONS that particular transaction? I don't want to put you to too much trouble. Dr. AYRES. Let me see if I can get this dug out for you and come back to it. I have the individual case stories here. I don't remember offhand, but we will see if we can get that in a moment. BASED ON: MASSACHUSETTS COMMITTEE ON CONSUMER CREDIT, REPORT OF FEBRUARY 17, 1936 When credit cost of 31 "10 percent" contracts were computed as actual annual interest rate, only 1 approximated the quoted rate. In 13 of the 31 contracts the actual interest rate was at least 3 times the quoted rate. The CHAIRMAN. Was this table made upon the basis of 31 transactions? Dr. AYRES. This particular table was made on the basis of 31 transactions. You see, there were 506, I think it is, in the neighborhood of 500 in the total study. Then we sorted out those in the total study which fell into the category of advertising at 10 percent, and the number which fell into the category of advertising at 10 percent was 31. The CHAIRMAN. Do you think that is a large enough sample onwhich to base a conclusion as to the general practice? Dr. AYRES. No; I certainly don't, but I think it is a very important sample in showing the problem. Here was a study taken at random in 21 Massachusetts communities divided between medium-size towns and Boston; the largest number of cases came from Boston. And then that study was made in a series of established stores. The Commission did a very careful job, as far as I have been able to discover, and what they did was to take only established stores of reputation, in other words they didn't go to any of the gyp placesall that was eliminated before they started, and then they took whatever the store sold on a time basis. The CHAIRMAN. These transactions, then, as I understand your testimony, are transactions that were carried on by reputable stores in Massachusetts. Dr. AYRES. The study says "well established." The CHAIRMAN. Well, I think we can use the two phrases as synonymous. Dr. AYRES. I think they are probably expected to be synonymous The CHAIRMAN. At any rate, those who conducted the study avoided going to stores which had the reputation of exploiting the customer Dr. AYRES. That is what I understand from reading the report which was done under what was understood to be very competent auspices. The CHAIRMAN. So the study may then be interpreted as reflecting the conditions which exist in the credit trade in well-established stores? Dr. AYRES. Yes. There is one more series of charts, which I will just show you briefly, that is on 5 percent, which tells roughly the same picture except it jumps around very much, and it indicates that there is some further study needed relating to type of product, and the reason for the store giving 5 or 6 or 10 percent advertised basis of percent. The study doesn't indicate what that is, but you will see that in thi 5-percent story we find that on the basis of straight percentagethat is, the relation of the unpaid balance to the carrying chargewe get 35 percent that falls below 6 percent, then it jumps around and we find between 12 and 18 percent carrying charge, 22 percent of the cases; then it jumps again, 12 percent are between 30 and 50. Mr. MONTGOMERY. I should like to see these charts. The CHAIRMAN. All of these charts may be received. (The charts referred to were marked "Exhibits Nos. 523 and 524 and appear on pp. 3361 and 3362.) chance would lie in terms of this habitual practice. at 6, and advertised at 10, and you can't tell at all where your best lapping between the rates charged if it is advertised at 5, advertised to say on the basis of the charts as they are, because there is such overyou should look to as being the most advantageous. It is impossible EXHIBIT NO. 028 CARRYING CHARGES AS PERCENTAGES OF UNPAID BALANCES IN 40 INSTALLMENT by side and ask yourself as a consumer wishing to buy which terms The interesting thing is, however, when you put these charts side rather small sample-came between 50 and 100, and none over 100. und that 10 percent-only four cases in this case, because again it is gap in the chart, and we find that 17 percent came between 30 and 50, of the cases with 21 cases, came between 9 and 10. Then there is a Dr. AYRES. The largest percent on this 5-percent basis, 52 percent BASED ON: MASSACHUSETTS COMMITTEE ON CONSUMER CREDIT, REPORT OF FEBRUARY 17, 1936 In more than one-third of the "5 percent" contracts analyzed the percentage of the cost of credit to the amount borrowed approximated the quoted interest rate. Note the following from Exhibits 519, 521, 523: When the quoted rate was "10 percent," credit costs exceeded 30 percent on no contracts. When the quoted rate was "6 percent," credit costs exceeded 30 percent on 5.7 percent of the contracts. When the quoted rate was "5 percent," credit costs exceeded 30 percent on 15 percent of the contracts. |