consumers simply pay it, even though there is no contractual agreement on their part to do so.

In trade discussions of this practice, retailers are quite frank to admit that they levy late-payment charges on credit customers arbitrarily. If the customer is a good one, who spends a sizable amount each month and is known to be late but faithful in payments, he may not be charged for his delay. His neighbor who buys less, however, may suffer such a charge. If consumers would simply refuse to pay this arbitrary levy, chances are it would not be pressed. Charge-account customers, say the retailers, tend to buy more, buy higher-price goods, and do less shopping around. They're the kind of profitable customers retailers like to keep.

The legal status of late-payment levies on charge accounts is open to question. It may be that, when the retailer announces the levy in billing the customer, the charge assumes some validity even though the customer has not contracted to accept it. There are other practices in connection with consumer credit contracts, however, where the law is obviously violated but where the consumer has, practically speaking, no opportunity for redress. The nature of our sales laws and the legal setup for debt collection, together with the three-way relationship between consumer, retailer and financing agency, all too often mean that, no matter how fraudulent the sale, the consumer must pay up. In Oakland, Calif., for example, a rug company recently folded up when its salesmen were indicted by a grand jury. The salesmen, it was charged, had defrauded the public by selling low-grade rayon rugs to consumers for the price of high-grade wool, and by claiming the rugs to be of that quality. Even after the salesmen had been tried and convicted, the victims of the fraud, the consumers, still were required to pay $600 to $800 on their contracts for carpeting that would be overpriced at $200, simply because neither the rug company nor the salesmen owned the contracts. As soon as the consumer had signed them, they were turned over to sales finance companies, who claimed that they bought the paper in good faith and hence had the right to collect.

Resisting the claims of a sales finance company is a costly business for an individual consumer. If debt claims arising out of proven fraud could, for instance, be argued before a small claims court, where the consumer could appear on his own behalf; and if consumer debt contracts could be so drawn that both the seller and the financing agency accept responsibility for stipulating the facts surrounding the sale then, perhaps, this kind of fraud could be minimized. But in most States the top limit of a small claims court still is $100-a sum that is quite unrealistic in light of the fact that most consumers who are in debt owe $300 or more, and the fact that the prices of goods sold on installment have risen so much in recent years. Here is where a major study is required and where practical recommendations could be made and embodied— for example, in a model law for a debt claims court, to be offered to the States. To be sure, it is hardly astute of a consumer to be taken in by the sales spiel of a fast-buck operator. A number of sellers and financing agencies oppose any legal measures to curb such activities on the grounds that consumers ought to be able to take care of themselves. But such an argument is beside the point. The philosophy of "never give a sucker an even break" is not only destructive of good human relationships but is also inconsistent with the vast and rapidly growing body of State and Federal law designed to promote fair dealing between competitive business groups. Other sellers who do agree that fair dealing is important to sound business as well as to good morals, however, take the position that fraudulent consumer credit practices are limited to the dishonest few always to be found in any field of endeavor; hence, that the problem is too minor a matter for legislative action. And anyway, they ask, how would you go about it?

An answer to both objections lies in the current practice of a number of banks, which in the past few years have set up their own home-improvement loans in competition with the Government-insured FHA title I loans. Under FHA title I loans, a consumer may borrow for a 3-to-5-year period, at an approximate 10 percent rate of interest, sums of money up to $3,500 to finance home remodeling; the FHA, in turn, insures the bank against a loss on the loan. Home-repair loans have boomed since the middle 1940's. And banks which have adopted the practice of making the loans without Government insurance have found business plentiful, even though the interest rates on such loans are generally higher, up to 16 percent in some cases.

The number of people who now borrow at 16 percent, when the same loan is available at 10 percent, may be a compliment to the sales ability of the banker.

But, even more interesting than the higher interest charged in these privateas opposed to Government-sponsored-home repair loan programs is the kind of contract usually asked by the bank from the contractor who does the job. In home-repair consumer installment loans, the contractor plays a role similar to that of the appliance dealer in the installment sale of washers, ironers, refrigerators, etc. The consumer buys the job and signs the contract calling for monthly payments. The dealer sells the paper to the bank with which he does business. Unlike typical installment contracts, however, the individual bank's private home-repair loan contracts usually require the dealer to stipulate that— Each note he offers the bank is genuine, valid, legally enforcible and actually made by the customer who signs it-not forged, or changed after it was signed. Each signer of the note was competent and of legal age.

Every condition surrounding the agreement of sale has been fully executed and satisfactorily performed.

Each note is free from all offsets (a team meaning promises of commissions or rebates), claims, counterclaims, disputes or differences between buyer and seller.

The fact that such requirements are made of home-repair dealers when the bank takes the loan without Government insurance is, of itself, evidence that most banks have been aware right along of the fast ones that were, and still are, pulled by too many installment sellers.

What the banks require of remodeling contractors should now be required of all other dealers, too. And consumers need to ask for the same sort of protection from both the lenders and the sellers with whom they do business. In short, such stipulations should be a part of all conditional sales contracts.

It is in this area that consumer credit controls are now needed. It is from this point of view, rather than the regulation W approach, that the problem should be studied and corrective legislation designed.

The announcement by Franklin National Bank of its new cash dividend draws attention to the dividend policies of other banks. Franklin's dividend rate calls for a total payment equal to 11.21 percent of its capital accounts as shown by the call report of March 14, 1957.

In contrast, the overall ratio of dividends to capital accounts is 5.12 percent for the 15 largest banks. Within this group, this ratio varies from 8.31 percent to 3.28 percent.

May 9, 1957.

NEW YORK CLEARING HOUSE ASSOCIATION-TOTAL DEPOSITS, DEPOSIT DISTRIBUTION, MERGERS, ABSORPTIONS, BANKING OFFICES; AVERAGE DAILY NET DEMAND AND TIME DEPOSITS, 1956–57; Bank PROFIT HERE EXPECTED TO RISE

M. A. SCHAPIRO & CO., INC., NEW YORK, N. Y.

July 1, 1957

BANK PROFIT HERE EXPECTED TO RISE-SCHAPIRO & Co., FORESEES 9.3 PERCENT RETURN BY BIG COMMERCIAL INSTITUTIONS THIS YEAR-INTEREST RATE NOTED— REPORT POINTS TO HIGH VOLUME OF LOANS-INCREASE IN DIVIDENDS EXPECTED Operating earnings of the major New York City commercial banks will reach record high levels in 1957, according to M. A. Schapiro & Co., Inc., bank analysts here. The securities firm predicted that the deposit institutions would earn 9.3 percent return on published equity of $2,900 million, compared with 8.7 percent on $2,800 million last year.

The bank specialists midyear study of bank operations said that the larger volume of loans outstanding and rising interest rates should lift net current operating earnings of the 15 member banks of the New York Clearing House Association to more than $270 million, a gain of 12 percent above the $241 million realized in 1956.

The survey found that gross loans of the major New York banks were running 7.6 percent ahead of the 1956 average. For the first 25 weeks of this year loans averaged $16,371 million, compared with $15,212 million for the full year last year.

"Earnings from loans are rising as old loans mature and are replaced at interest rates prevailing in today's tighter market," the study said, "Yields this year are averaging 4.3 percent, compared with 4.05 percent realized last year."

BETTER DEPOSIT TREND

The study said that a more favorable deposit trend was helping the earning power of the New York banks. Average daily net demand and time deposits of the Clearing House banks amounted to $25,450 million, a gain of 1.39 percent over the 1956 average. The survey added:

"The higher yields obtainable on United States Government and other bankeligible investments have more than offset the reduced volume of investments. Investment yields are rising, currently running at 2.4 percent, compared with 2.19 percent last year. With operating income from fees, commissions and service charges running 12 percent ahead of last year, total gross income is expected to top $1,100 million. Operating expenses of $570 million are 10 percent above 1956, with an important part of the increase due to the higher rates of interest paid on time deposits."

The bank specialists estimated that cash dividends represented a payout of 55 percent of operating earnings, as against 58.2 percent last year. Making the point that "improved earnings suggest higher dividends," the report said that already 3 of the 15 banks studied have increased their payments. First National City Bank and Bankers Trust went from $2.80 to $3 annually, and J. P. Morgan announced a 16% percent stock dividend.