if and when we amend the Federal law specifically to allow evasion of the Federal ursury statute, then the State courts and the State legislatures will tend to go in that direction.

In my remarks about the Financial Institutions Act of 1957, I am not impugning either the motives or the competence of the Senate Banking Committee, or any Member of the Senate, or any Member of the House. The fact is that this is an extremely long and complicated bill. The bill is 252 pages long, and it rewrites all Federal statutes pertaining to financial institutions, including the National Bank Act, the Federal Deposit Insurance Act, the Federal Reserve Act, the Federal Home Loan Bank Act, the Federal Credit Union Act, and miscellaneous other provisions. It contains scores, if not hundreds of substantive changes in the law and these changes are frequently very subtle; they contain many hidden meanings which are not easy to discover. The bill was written in the first instance by an advisory committee, composed largely of bankers. To date, almost no witnesses other than bankers and people having banking connections have appeared before the committees to explain what the provisions of the bill mean. The witnesses who testified before the Senate Banking Committee were almost all bankers or from banker associations, plus of course, some of the top officials of the executive agencies and the Federal Reserve Board.

HOW THE BILL GOT PASSED

This result is no criticism of the Banking Committees of either the Senator or the House. It is, however, a commentary on what I think is a very dangerous practice. This is the practice of delegating functions of Government to commissions or committees of private citizens. This practice has been growing in popularity in the executive branch, and the Congress has on more than one occasion delegated to such commissions its legislative duties. There is a great temptation in this, because of the immensity of some of the tasks legislative committees have to undertake, because of the great pressure of work which falls on all the Members of Congress, and because so many fields in which we try to legislate are so complex we naturally feel the need for experts. I realize, too, that this new process of turning Government functions over to private commissions is currently enjoying considerable public approval. This results in part from the fact that some of the recent commissions have widely advertised their supposed virtues and accomplishments.

But in my experience the legislative results of these commissions have not been good. They have recommended and gotten passed some things that were good; but in almost every instance their recommendations have also resulted in passage of other things that would not have been passed if they had been examined and studied in the usual way, so that the legislative committees really understood what was being recommended.

It is almost necessarily true that the private experts have a private, selfish interest in the field in which they are expert. Of course, many private citizens have given their time and their expertness unselfishÎy to the public interest through some of these commissions. But it seems that in almost every instance there are some members of these

commissions who feel so sure that they know what is best for the country that they will try to get their program adopted through subterfuge, where subterfuge seems expedient.

HOW GOVERNMENT WITNESSES HAVE TESTIFIED

Furthermore, I could add that the Government witnesses who have come before the Banking Committees to explain the present bill have not been too helpful, and are, perhaps, themselves too busy to learn what the provisions of the bill means. For example, Hon. Ray M. Gidney, Comptroller of the Currency, testified before the House Banking Committee on July 23, but the Members could never have guessed from his testimony that section 35 of the bill, which I have already referred to, is anything of consequence at all, or does any more than continue existing law. So there may be no question whether I overstate the case, I might call the Members' attention to the verbatim portions of the transcript covering questions raised by Representative Anderson of Montana on the usury question and Mr. Gidney's answers:

Representative ANDERSON. Similarly, I am not prepared to accept your statement that we should abandon control over usury for national banks.

Mr. GIDNEY. Oh, we do not propose to abandon control over usury. There is no such suggestion.

Representative ANDERSON. The portion of your presentation pertaining to section 35 I interpreted as meaning a considerable relaxation in the maximum rate of interest to be charged. You propose to relieve them of the Federal limitations. Mr. GIDNEY. Oh, yes.

Representative ANDERSON. That is in here, and your presentation indicated that you thought that you should step out of the picture if they competed with State banks, and let them simply go under the State law.

Mr. GIDNEY. Could I say there that, as far back as my memory goes, national banks have been allowed to have the rates permitted by State laws, and that goes back to 1903. That is true in my State. And, if there is no State statute, they are limited.

But they have always been allowed the rates allowed by State laws, so that this, I think, doesn't really change the situation. This was not our particular proposal. I think those who seek it want to be sure to make it clear.

Representative ANDERSON. It is your feeling, then, that there will be no change in the actual practice in any instance?

Mr. GIDNEY. That is the way I understand it, sir.

Mr. ANDERSON. That all national banks will continue to operate as they are

now.

Mr. GIDNEY. That is substantially the case, and they will be allowed what State banks are allowed, and I think they generally are now.

Some of the bankers, I believe, think they need to be a little more certain of that.

Representative ANDERSON. Thank you, Mr. Gidney. I have several questions, and I will take up as many as I have time for in the 5 minutes, and the others on the next go around.

HOW THE COMPTROLLER EXAMINES NATIONAL BANKS

Here it might be well to keep in mind that as Comptroller, Mr. Gidney is responsible for making the periodic examinations of all the national banks. In this he examines the national banks to see that all of their operations are in compliance with Federal law, and, according to his testimony, he also examines to see if the national banks are in compliance with the State laws in which these banks operate. Indeed, Mr. Gidney does this latter part of the job so well that he has recommended another provision in the bill which would prohibit State au

thorities from examining the national banks, although this provision has caused protest from the authorities in the few States which appear to have strong usury laws.

Perhaps the national banks need some form of relief to bail them out of the penalties that they could conceivably have to pay as a result of violating the usury statute. This I don't know; it would have to be considered. But the matter has never been presented in these terms, nor in any terms except that the law really is not being changed. There has been no mention of the Daniel decision; there has been no mention that the national banks are engaged in usurious practices, and there has been no mention that they are now in a position of having to abandon these practices. The bill which has been introduced simply puts forward a loophole which would give a specific exemption to these usurious practices, except, of course, where State law specifically and clearly prohibits them.

THE STORY IN MORE DETAIL

The magazine article which I have referred to follows. This article appeared in Harper's magazine last September; I commend it to the Members' reading. I have deleted certain lengthy sections which, while interesting, are not essential to the main line of the story.

BALLARD VERSUS THE INSTALLMENT GOLIATHS-AN OBSCURE ALABAMA TRUCKDRIVER HAS STARTED A FIGHT AGAINST HIGH INTEREST RATES WHICH MAY EVENTUALLY SAVE MONEY FOR MILLIONS OF PEOPLE WHO BUY ON TIME

(By Ruth and Edward Brecher)

On the morning of May 19, 1953, an Alabama truckdriver named Sam Ballard parked his $17,000 tractor-trailer right on the outskirts of Montgomery, Ala., and hitched a ride into town. When he returned his rig was gone. The circumstances surrounding its disappearance raise issues which touch millions of Americansprobably including you-who have never heard of Sam Ballard.

He was proud of his rig. He had purchased it just 1 year before, trading in an older tractor-trailer combination for $3,350 and adding a $2,000 downpayment in cash. Thereafter he had met his first 10 monthly installments of $680 each as they fell due, so that his payments on the $17,000 rig now totaled $12,150.

But Ballard had had bad luck in April, and had therefore asked the First National Bank of Birmingham for an extension on the $680 payment due April 30. The bank had given him 12 days' leeway. Ballard was thus 7 or 8 days overdue on his payment when he parked his rig outside Montgomery on May 19.

But he was hopeful. The Florida truck terminals were filled with citrus fruit awaiting transport north. Ballard, when he stopped over briefly in Montgomery to consult his lawyer about the past-due payment, was on his way to Florida to pick up a load which would enable him to pay off.

It didn't work out that way. Instead, the sheriff of Montgomery County— acting under a medieval "writ of detinue" obtained by the bank whose payment was past due- jimmied the ignition lock and drove Ballard's rig away. The rig was later sold, and the $12,150 Ballard had paid in was forfeited.

Goods purchased on the installment plan are often, of course, subject to repossession in this or similar ways. The amounts paid in are often forfeited; the bank or finance company or dealer pockets the profit on the sale of the repossessed goods; and it often can, if it chooses, bring suit for the balance remaining unpaid. So far there was nothing unusual in this story.

But Sam Ballard-unlike most victims of repossession-didn't take it lying down. The result was the case of Ballard v. The First National Bank of Birmingham, the first of a series of important legal cases which may well revolutionize the legal rights of millions of families throughout the United States who buy on the installment plan.

NOT QUITE USURY

The typical installment purchase is arranged in accordance with a ritual as strictly patterned as a quadrille or minuet. When you buy a car, for example,

the dealer first jots down the cash price to which you have agreed. He then subtracts your downpayment and the allowance for the old car you are turning in, and adds insurance and miscellaneous fees. Next he adds a finance charge calculated on the basis of a rate card supplied by the bank or finance company. The total he divides into 12, 24, or even 36 monthly installments which you are to pay to the lending agency that puts up the money. All these figures, and the name of the lending agency, are then inserted into the blanks of a "CSC" or conditional sales contract supplied by the lending agency. The bank or finance com pany accepts the CSC and gives the dealer his money. You drive off with your

new car.

It may seem obvious to you that the bank or finance company has lent you the money to pay for the car-but don't jump to any such conclusion. The apparent lender insists that he really hasn't lent anything at all; he has merely purchased the conditional sales contract or CSC from the dealer (not the borrower) at a discount.

Why do dealers and lenders bother to dance this legal minuet? Two answers suggest themselves. First, every State in the Union has a usury statute setting the maximum legal interest rate on loans; a similar Federal statute forbids usury by the national banks. By casting the transaction in the form of a CSC rather than a loan, the lender usually escapes the usury prohibition. The CSC may specify a finance charge which works out at 20 percent, 40 percent, or even 60 percent simple interest per year on the unpaid balance; nevertheless, the prevailing legal theory holds that no interest whatever is being paid. Instead, it is alleged, the dealer has merely set a time price which is higher than the cash price he originally quoted-and surely in a free economy a dealer has a right to charge whatever he pleases for his goods.

In Sam Ballard's case, the finance charge was comparatively low-a little more than 11 percent simple interest on Ballard's unpaid balance. Alabama law, however, specifies a maximum rate of 8 percent. Had the Ballard transaction been a loan instead of a CSC, it presumably would have violated the usury law. The second obvious reason for dancing the CSC minuet is to make available certain highly convenient methods of collection and repossession. The First National Bank's CSC form, for example, provided-in complex legal terminology and very fine type-that if Ballard failed to make one payment on the due date, the bank could declare the entire balance due and payable. It authorized the dealer, the bank, or their agents to enter onto Ballard's property, with or without force, and with or without process of law, and to take immediate possession of the $17,000 rig wherever it might be found. Even employing the county sheriff and securing the writ of detinue was unnecessary under the CSC; a bank employee or agent might equally well have jimmied the ignition lock and driven off.

Once the rig was repossessed, moreover, the CSC specified that all rights of the buyer were to cease and terminate immediately. Ballard agreed when he signed the CSC to waive any right of action or claim of any kind growing out of a repossession. The CSC specified that all moneys paid on the purchase price * * * shall belong to the seller or assigns. And finally, the CSC left Ballard still legally liable for the entire unpaid balance, including interest, even though he had already lost both the $17,000 rig and the $12,150 he had paid in.

Not all CSC's, of course, contain all of these onerous provisions. But some go even further. The freedom to put almost any provisions in a CSC, plus immunity from the usury statutes, is enough to explain the popularity of CSC's among dealers and lending agencies.

This popularity can be gaged from recent Federal Reserve Board statistics. United States commercial banks at the beginning of 1956 held about $5 billion of automobile financing paper, of which only about $2 billion was in the form of direct loans to customers. The remaining $3 billion was largely in the form of CSC's. Finance companies held an additional $8 billion or so of automobile paper, most of it CSC's. And a large volume of CSC credit was also outstanding on furniture, refrigerators, television sets, and all the other items Americans buy on the installment plan. In permitting the CSC to flourish, to the tune of many billions of dollars, outside the purview of the usury laws and the laws governing orderly and peaceful collection of debts, our legislatures and courts have been swallowing the camel while straining at a gnat.

But change may be on the way, thanks to Sam Ballard, his lawyers, and some of his fellow truckers.

SHARECROPPERS OF THE ROAD

The seizure of Sam Ballard's rig was not an isolated event, but rather one episode in a complex chain of circumstances involving more than 40 owner-drivers like Ballard, and involving also the company for which they drove, the Baggett Transportation Co., of Birmingham, Ala.

Baggett Transportation held a carrier certificate from the Interstate Commerce Commission; the owner-driver lacked such certificates. They were, therefore, lease operators, moving goods over the highways under the authority of Baggett's ICC rights. Lease operators of this kind have been aptly described as the sharecroppers of the American transportation industry. There are tens of thousands of them.

A typical Baggett lease operator like Ballard, for example, bought his rig from Baggett or an affiliated company and simultaneously leased the rig—and his own services as driver-back to Baggett. The purchase was financed by Baggett's bank, and the bank sometimes kicked back to Baggett or its affiliate one-sixth of the finance charge. This was the old company-store system with a new twist.

Two issues of importance to all installment purchasers were raised by the repossession: The rate of interest, and the terms and conditions written into the CSC. The drivers' lawyers raised the usury issue in a whole series of cases, both State and Federal, involving not only Ballard but several other drivers as well. The Ballard case was heard by an Alabama State court. Though the financing of Ballard's rig was ostensibly through a CSC, the lawyers argued, the court should look through the form to the fact, and recognize the transaction for what it actually was-a loan by the bank to Ballard. If so, the usury statute would apply and the interest Ballard had paid would be applicable on the principal of the debt. Ballard would thus be entitled to have his truck back. This case Ballard lost, both in the lower court and on appeal to the Alabama Supreme Court. Next, a fellow driver of Ballard's refused to make his last payment on a Baggett CSC, alleging that the interest was usurious. Baggett sued; the case was heard twice in two State courts; both times the driver lost.

There remained one more string to the driver's legal bow-the Federal courts. A Federal statute prohibits usury by national banks. This statute the drivers invoked in the case of Daniel and Dilliard v. The First National Bank of Birmingham. They lost once more in the Federal district court.

Here, obviously, was a point at which lawyers and clients alike might well have paused, assessed the situation, and decided to call it quits. After five successive defeats, why bump your head against the stone wall of the CSC a sixth time? Harassing the largest bank in your home State is hardly the safest way to win friends and influence people. A further appeal would be costly, and the time available was limited. The course dictated by prudence was clear.

But prudence bowed to the Alabamans' desire for what they considered justice. The wife of one of the lawyers, who doubles as office secretary, sat down at her typewriter and by working nights and weekends managed to hammer out the necessary legal documents-some 300 mimeograph stencils-in time to meet the deadline. The appeal in the Daniel and Dillard cases was heard in October 1955-and on November 25, the stone wall of the CSC at long last cracked.

The United States Circuit Court of Appeals for the Fifth Circuit, in an epochmaking 2-to-1 decision, decided in favor of the truck drivers and of installment purchasers generally. Usurious contracts, the court majority noted, are condemned by public policy, both State and National. This policy should not be defeated merely by the shrewd drafting of a conditional-sales contract. The court then quoted from a much earlier case a vigorous attack on the so-called paper-bag theory of usury:

"No disguise of language can prevail for covering up usury or glossing over a usurious contract. The theory that a contract will be usurious or not, according to the kind of paper bag it is put in, or according to the more or less ingenious phrases made use of in negotiating it, is altogether erroneous. The law intends that a search for usury shall penetrate to the substance."

And the court concluded that despite superficial adherence to the CSC ritual, "the real transaction was a sale at a cash price accompanied by a loan or extension of credit to which the bank was privy throughout. Any other result * * would leave that vast number of persons who purchase equipment and vehicles on credit, the financing of which is prearranged between the dealer and the bank