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September 9, 1977

Consumers Regulators
and
A generation ago, indebtedness
was viewed as the mark of an imprudent person who was either lazy
or a poor manager. Today, however, instalment buying is an integral part of the American way of
life. Growing by leaps and bounds,
consumer instalment credit outstanding has risen from $4 billion in
1946to over $185 billion at mid1977. Credit has become almost
indispensable for purchasing autos,
housing, health care, and numerous other things, so that the public
has come to view credit not as a
privilege, but as a right.
Within the past decade, Congress
has responded to these changing
social and economic conditions
with a flurry of credit laws designed
to protect consumers. The key
pieces of legislation include the
Truth in Lending Act (including
Consumer Leasing and Fair Credit
BillingL the Fair Credit Reporting
Act, and the Equal Credit Opportunity Act. To implement these laws,
Congress directed the Federal Reserve Board of Governors to write
substantive and enforceable regulations. This mandate cast the Federal
ReserveSystem into an active role
in the area of consumer protection.
While the Fed is no stranger to
consumer-credit activities, its present role differs markedly from its
former involvement in this area.
Regulation W, for example, was
instituted in 1942 as a war-time
effort to help curb inflationary
pressuresand re-allocate resources

to war uses, by restricting the
amount of instalment credit available for consumer durable-goods
purchases. The Regulation required
lenders to register with the government, and limited the amount of
credit which could be offered.
Moreover, it prescribed the conditions under which credit could be
offered, dictating terms such as
minimum down payment, maximum maturity, and payment intervals. At the end of World War II,
Regulation W was rescinded amid
heated public discussion, including
the argument by some critics that it
was "economically unsound to encourage people to go deeper and
deeper into debt on increasingly
easy terms."
Consumer-credit regulations today
are based on a somewhat different
philosophy, centering around the
belief that consumers (and creditors) will make wise credit decisions
provided they have ample information and accessto credit facilities.
The Truth In Lending Act, implemented in 1969 by
Z,
was designed to boost credit
competition by providing consumers with the knowledge necessary
to shop effectively for credit. Further amendments to Regulation Z,
in the form of the Consumer Leasing and Fair Credit Billing provisions, were premised on the consumer's right to detailed credit information. Perhaps most indicative
of changing social conditions,
though, was the Equal Credit Opportunity Act, which was designed
(continued on page 2)

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IF

Opinions expressed in this newsletter do not
necessarily reflect the views of the management of the
Federal Reserve Bank of San Francisco, nor of the Board
of Governors of the Federal Reserve System.

to open the credit market to people
who had previously been denied
credit, frequently despite ability to
repay.
iEqualcredit
The Equal Credit Opportunity Act
(ECOA) was implemented by Regulation B in late 1975,as a means of
guaranteeing that credit would be
equally available to creditworthy
applicants without regard to sex or
marital status. In March of this year,
its scope was broadened to encompassother prohibited basesof
discrimination-race, color, religion, national origin, receipt of
income from public assistanceprograms, and exercising of rights under the Consumer Credit Protection Act.
The revised regulation also stipulates that a creditor who refuses to
grant a loan must inform the customerof the adverse action within
thirty days of receiving a completed
application. Furthermore, upon discovering that an application is incomplete, the creditor must make a
good-faith effort to obtain information necessaryto complete the application. The written adverseaction notice must contain a notice
of rights under the ECOA, the name
and address of the Federal agency
responsible for compliance, and a
statement of the specific reasonsfor
the adverse action (or notification
of the applicant's right to receive
such a statement).

Credit herstories
Perhaps one of the most significant
provisions of revised Regulation B

2

covers the right of married women
to establish credit histories in their
own names. Prior to June 1, 1977,
most credit accounts were kept
solely in the name of the husband,
and only he developed a credit
history. Yet most married women at
some time in their lives want individual credit, and will thus need an
independent credit history.
Therefore, a creditor henceforth
must designate new accounts to
reflect the participation of both
wife and husband. On existing accounts, a creditor must designate
joint and user
so that
credit information can be accessed
in both names of married account
holders. If the creditor is unable to
find this information in a record review, each couple must be informed in writing of their right to
have credit information reported in
the names'of both spouses.Those
who wish to have individual credit
histories must sign and mail the
notice back to the creditor. Either
spouse's signature is sufficient, and
signing the notice does not change
the liabilities of either spouse.
Enforcement of equal credit
Equal Credit Opportunity provisions are enforced by a number of
Federal agencies: At the Federal
Reserve Bank of San Francisco,
problems are handled by a Consumer Banking Affairs Unit which
acts as a consumer complaint clearinghouse. The Unit investigates
complaints regarding statechartered banks which are members of the Federal Reserve System,
and forwards other complaints to
the proper enforcement agency:

the Federal Deposit Insurance Corporation· for state-chartered nonmember banks; the Comptroller of
the Currency for nationallychartered banks; the Federal Home
Loan Bank Board for savings and
loan associations; and the Federal
Trade Commission for most other
creditors.
Yet consumers frequently are not
knowledgeable enough about their
rights to exercise them, nor are
creditors always cognizant of their
responsibilities to consumers.
Another important facet of enforcement, then, is the dissemination of information. Staff members
at various Reserve Banks handle
thousands of telephone c;:illsa
month from consumers and lenders. Copies of Federal Reserve
regulations, amendments and
proposals, and explanatory pamphlets also are provided to the public. Speakers conversant with the
Board's consumer regulations are
available to interested groups upon
request, as is an advisory service for
member banks. The advisory service is part of the " Consumer Compliance and Education Program"
instituted by the Fed this past
March. Intended to assure that
banks both understand and comply
with consumer regulations, the
program has two parts: special
compliance examinations for statechartered member banks, and an
educational/advisory service available to all Federal Reserve member
banks.

created some new problems, according to Federal Reserve Governor Philip C. Jackson,Jr., in testimony before the Consumer Affairs
Subcommittee of the House Banking Committee. "While it supports
the basic public purpose of
consumer-credit legislation, the
Board of Governors has become
increasingly concerned about the
degree of complexity and overlap
of existing laws and hopes the situation can be clarified and simplified/' he said.
Jackson listed several Federal Reserve actions designed to deal with
this problem. The Board of Governors last year established a Consumer Advisory Council representing a broad spectrum of consumer
and creditor interests. Council
study groups are now making onsite investigations of large and small
creditors, to analyze the ramifications of consumer-credit laws. In
addition, the University of Michigan is conducting a survey for the
Board to evaluate consumers' perceptions of these laws, and thus to
determine how regulations can be
made more responsive to consumer
needs. Again, the Board has issued
sample forms to assistcreditorsespecially small businesses-in
dealing with consumer-credit
lems. And the ((Consumer Compliance and Education Program" has
been set up to reduce complexity
through increased public understanding of the impact of
consumer-credit statutes and regulations.

Cost of enforcement?
Congress' attempt to make credit
more accessible to consumers has

3

Kathleen Quenneville

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BANKING DATA-TWELFTH FEDERAL
RESERVE
DISTRICT
Selected Assetsand Liabilities
Large Commercial Banks

Amount
Outstanding

Change from
year ago
Dollar
Percent

Change
from

8124/77

8/17177

Loans (gross, adjusted) and investments*
Loans (gross, adjusted)-total
Security loans
Commercial and industrial
Real estate
Consumer instalment
U.S. Treasury securities
Other securities
Deposits (less cash items)-total*
Demand deposits (adjusted)
U.S. Government deposits
Time deposits-total*
Statesand political subdivisions
Savingsdeposits
Other time
Large negotiable CD's

100,240
77,493
2,312
23,506
25,104
13,504
8,633
14,114
97,168
27,289
212
67,817
5,248
31,818
28,727
11,115

- 113
+ 110
+ 177
- 76
+ 74
+ 69
- 182
- 41
+ 110
- 68
- 79
+ 228
- 11
- 30
+ 262
+ 225

Weekly Averages
of Daily figures

Week ended

Member Bank Reserve Position
ExcessReserves(+)/Deficiency H
Borrowings
Net free(+)/Net borrowed (-)
Federal funds- Seven Large Banks
Interbank Federal fund transactions
Net purchases (+)/Net sales H
Transactions with U.S. security dealers
Net loans (+)/Net borrowings H
*Includes items not shown separately.

8124/77

+
+
+
+
+
+

+
+
+

-

+

-

+
+
+

Week ended

8/17177
+

7
223
230

+

755

+

465

+

+
+
+

+

+
+
+

563

+

798

+

-

12.72
15.96
66.33
9.30
21.98
17.73
10.61
13.40
10.41
10.25
37.46
10.32
6.80
18.23
7.88
2.45

.comparable
year-ago period

77
46
31

+

+
+
+
+
+
+

11,311
10,668
922
2,000
4,523
2,034
1,025
1,668
9,159
2,538
127
6)45
383
4,906
2,099
266

+

60
0
60

383
+

186

partnerships and corporations.

Editorial comments may be addressed to the editor (William Burke) or to the author ••••
Information on this and other publications can be obtained by calling or writing the Public
Information Section, federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120.
Phone (415) 544-21184.