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could increase our rent, but in order to rent it at all. It is a stoploss operation, but I think there is much of that. In our community I know there is. There are excellent houses built previous to 1900, with hot-air furnaces in many cases, just to take that as an example, that are in the position of this house that I speak of, on valuable ground, in a desirable location in the town. They will not be rented by anybody so long as they are so ancient. In other words, it is this picture exactly. We have in the barn a perfectly good carryall that served previous to 1900. It would probably serve today to get to people uptown as well as an automobile, but no one under the sun would anticipate using that old carry-all. The house is in that same condition—not quite such a radical change, but almost the same. People will not pay reasonable rent in our part of the community for a hot-air heating plant, and they do not like coal.

Those are the things, Senator, that I think are in the background. We have the means to do it, fortunately, due to the release of some other cash. That is, this particular member of my family has the means, but if we had not had the cash available the bank, of which I happen to be a director, would never have given him a long-term

а. loan for that kind of work. We could not. If we had, we would have been hauled over the coals by the Comptroller.

The CHAIRMAN. There is no demand for houses and homes of that type, and no sales are being made?

Mr. VOORHEES. I should say they are rather limited. But, again, in our community there have been two or three. There were these two very desirable efforts to build houses which would have brought money into the community, but there was no means of financing them. I speak of that because I sat on the board of our little bank, and this is what we thought should have been done. We had the builder's paper, and we had the building-supply paper in the bank. We were reluctant to freeze up any more of our funds.

Then there is this condition: Our bank, without any question, would have negotiated that loan and put it through-because it would have helped up

The CHAIRMAN. If you had had this insurance !

Mr. VOORHEES. If we could have this insurance, with the longtime factor and the other features involved.

The CHAIRMAN. You would have financed it!

Mr. VOORHEES. I know we would, because the only thing we hesitated on at all in connection with this operation was the fact that we wanted to keep our funds liquid in the community. We are a commercial bank, with relatively small opportunity for putting our money out in the community, with the savings deposit feature. It is purely a residential community, with only a small amount of comercial business. But there is an opportunity to develop it over the coure of time for residential purposes, because it is a very desirable residential section.

The CHAIRMAN. Are there any other questions, gentlemen? If not we are very much obliged.

Mr. VOORHEES. Thank you for the opportunity.

The CHAIRMAN. There is a gentleman here from Boston, Mr. Arthur J. Gross, who wants a few minutes.



Mr. Gross. Mr. Chairman, my name is Arthur J. Gross; 1626 Commonwealth Avenue, Boston, Mass. I am an attorney.

I do not represent any interests here at all. I have written on consumer credit, and have made a thorough study of it. I have some articles here that have appeared in the Veterans of Foreign Wars publication, and other publications, on consumer credit.

Before taking up the merits and demerits of this bill I wish to state that whatever I have to say in reference to the bill is based entirely on facts and not on any prejudices. I am in sympathy with the administration in its effort to help bring the country out of the depression, and I believe that it is doing everything possible to bring about an early recovery.

The first thing I want to talk about is to go back and cover a little history in reference to a measure similar to this, known as the “ Federal Farm Loan Act." The older Members of Congress, no doubt, recall this act and joint-stock land banks that were created by the act. The joint-stock land banks were private corporations financed by private capital in the form of stock and bonds. The millions of dollars worth of stock that were sold to the public in the various joint-stock land banks which showed tremendous losses to the investor by the promoters. Unfortunately promoters took advantage of the act and organized several joint-stock land banks and either appeared personally on the board of directors or had "straw" directors who carried out the wishes of the promoters. The stocks were sold through some of the most reputable investment bankers at prices ranging from $120 to $200 per share, and the prices were increased by an unwarranted increase in the dividends to a point where the promoters unloaded the stock onto the public at high prices. After the stock was distributed the dividends were either reduced or passed entirely. Further capital was obtained by the sale of joint land-bank bonds. Although the banks were private corporations, similar to national banks, the public was led to believe that the banks were instrumentalities of the Government and some of the investment houses went so far as to make this statement to their clients in order to find a ready market for the securities. There is danger that such a reoccurrence might come in the national mortgage associations that will be created under the act as contained in Senate 3603.

What happened to the joint-stock land bank is a sad page in the history of farm credit. Instead of helping the farmer as was intended by the Federal Farm Loan Act, provide money for the farmer with first mortgages on the farm as security, the farmers found themselves with large mortgages and the inability to meet the interest and payments on the principal and before long found that their properties were foreclosed. So that instead of helping the farmer by providing funds at 6 percent instead of 10 percent to 12 percent that they were compelled to pay in the past to individuals and institutions specializing in form mortgages the farmer was injured. In addition to this the public which invested heavily in the stocks and bonds of the banks found themselves entirely wiped out. In some instances the banks were forced into receivership. In other cases where the stocks were selling for almost nothing and the bonds selling for anywhere from 20 cents to 60 cents on the dollar, the investor through no fault of his own, depending on the integrity of the banks and the fact that the Government sponsored the banks, lost millions of dollars. My personal experience in this situation was brought about by my representing investors in some of the banks. I was requested to testify before the House Committee on Banking and Currency in 1928 at the request of the late Congressman Brand, of Georgia, a member of the committee. Evidence was turned over to the Department of Justice by me in 1928, which showed corruption, inefficiency, and violations of the Federal Farm Loan Act by some of the joint-stock land banks. In some cases there were prosecutions with convictions for violation of the act. Your committee, I believe, could obtain valuable information from the Department of Justice with reference to the situation.

This is cited merely to show that there are a number of pitfalls that should be avoided in the act under consideration. This act should be so worded so as to prevent the reoccurrence of some of the things that took place under the joint-stock land banks.

I will go into the different phases of Senate 3603 after covering the most important part of the problem confronting the country, the forgotten man—the consumer.

The real forgotten man is the consumer, the head of the American home. He has received no consideration from the standpoint of his purchasing power, his rights that he is entitled to, and protection that he should be given.

This is due to the fact that he is not organized and does not maintain lobbies in Washington and in the State capitals in the same way that other interests do. The most serious problem of the consumer and, as a matter of fact, of the country as a whole is the cost to the consumer of the credit extended to him in the way of interest on small loans up to $300 and interest or service charges for the privilege of buying necessities or luxuries on the installment or partial-payment plan.

The first thing that should be considered is the fact that all business exists for the consumer, whether it is capital goods or consumer goods. Plants may be erected, machinery built and installed, but the ultimate use of the products is for the consumer.

When you deal with the consumer you are dealing with the home. The business of the home is by far the greatest industry of all. Therefore, to place the wheels of industry in motion and keep them turning, it is necessary to consider the purchasing power of the consumer and to give thought to the more equitable and fairer methods in financing the consumer.

Unfortunately, the consumer could never get ordinary bank credit, even though his credit is good as found by the Department of Commerce in its survey made in 1930, and also by those engaged in extending credit to the consumer in their reports to their stockholders. Although the credit is extended almost entirely on the character of the borrower, even though security is obtained by mortgages on automobiles and household furniture, the losses are small. As a matter of fact, in normal times it does not run much over three fourths of 1 percent, and in the past 2 or 3 years, during the most trying times in the history of our country, losses have not averaged much over 112 percent on the enormous volume of business done which runs into the billions of dollars.

During the past 20 years the American home has plunged itseli into debt to such a degree that it takes a large portion of the income to take care of the interest or carrying charges and the payment on the principal. According to the survey made by the Twentieth Century Fund, whose trustees are Edward A. Filene, Newton D. Baker, Bruce Bliven, Henry S. Dennison, John H. Fahey, Max Lowenthal, James G. McDonald, Roscoe Pound, and Owen D. Young and Evans Clark, directors, and founded by Edward A. Filene, president, William Filene's Sons Co., of Boston, Mass., three fourths of the population of the United States find the margin between their income and the necessary outgo so close as to allow little or no leeway for emergencies or even for making improvements in the family economic structure.

Senator BARKLEY. In what publication of the fund are those facts set forth?

Mr. Gross. Financing the Consumer, by Evans Clark, and other publications I have.

To take care of the needs of the consumer there has developed in this country a 10-billion-dollar business. No one knows the exact figure, but it is estimated that out of every hundred families in the United States, at least eighty make use of this business. Fifty out of the hundred may have borrowed cash from small loan agencies. According to Evans Clark in his book Financing the Consumer, in the 4 years covered in the survey of consumer credit the number of borrowers increased 192.3 percent, the amount loaned 201 percent, and the investment in the business 225.3 percent. The other 30, and most of the 50, as well, may have been given credit on some purchase made on the installment plan.

Insofar as installment selling is concerned, I have no fault to find with it provided that the consumer is given some consideration as to his ability to pay, service or interest charges are reasonable, and made known to the consumer.

Mass production, up to the start of the depression, brought about an attempt at mass distribution by our industrialists who, as we have found, are controlled by a handful of men located in our financial center. This was done, undoubtedly, to show large earnings and to be able to pay large dividends on the stock of the corporations making consumer goods. This distribution was made

. without any real thought on the part of the dealer as to the economic welfare of the consumer. All that some of them did was to get the down payment and get the consumer to sign on the dotted line for the balance. Some sellers still have the idea that the ancient legal phrase “ Caveat Emptor"_“Let the buyer beware ”-is still

” the code used in business.

Some still think the buyer is a fool and should be given no consideration. The installment house which loads onto its customer something which he cannot fairly afford is performing for him a lack of service. The following case is an actual fact and can be verified by Mr. Roy F. Bergengren, executive secretary of the Credit Union National Extension Bureau. It was the case of an elderly factory worker who had been married for 26 years and who still owed on his original furniture, although most of the furniture had long since found its way to the junk pile. In this case every article of furniture he had purchased had been added to his original contract, thereby keeping it alive. During the 26 years of his married

life he had never owned a stick of furniture, but all of it was on lease. This is true with a number of questionable furniture houses who sell on the installment plan and are known as the “Borax" houses.

Another case is that of a barber who had an excellent job in an exceptionally fine barber shop, where he received $40 a week and tips, yet this man was always hard up for money. After getting all of the facts on paper, to his great amazement he found that he had agreed to buy on the installment plan things calling for total weekly payments of $62. There are thousands of such cases.

The installment finance agencies extend credit to the amount of about 4 billion dollars annually to finance the purchase of commodities by the consumer. According to Professor Seligman in his book Economics of Installment Selling, over 6 billion dollars' worth of goods is being sold on the installment plan annually. The interest or service charges for this accommodation ranges from 15 percent to 200 percent per annum, yet the dealers or agencies are safe from conviction for usury. "Rightly or wrongly, merchants who do their business on the installment plan operate under an entirely different law from that which governs other lenders of money. This statement is made by Dr. William T. Foster, of the Pollak Foundation for Economic Research, and now a member of the Consumers' Advisory Committee under the N.R.A. The trouble is that the consumer is not told what the cost of the accommodation is in buying on the installment plan by the dealer or anyone else. The cost is almost always hidden or evaded by the seller.

To indicate what the earnings for finance companies who handle installment sales are, the following figures are interesting:

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The capital of the General Motors Acceptance Corporation, which is owned entirely by the General Motors Corporation, is $50,000,000. The dividends received by the Generals Motors Corporation on this stock are equivalent to 12 percent per annum. The earnings of the Acceptance Corporation on the capital stock are equivalent to about 16 percent. These earnings are during the period of depression. It must be remembered that the Acceptance Corporation is intended only to finance the distribution of General Motors products on the installment plan.

Commercial Investment Trust

December 31



Volume of business..
Net income.
Preferred dividend.
Common stock dividend..

$475, 884, 330
7, 474, 394

985, 399
3, 770, 736

$317, 397, 520

5, 719, 775 1, 601, 808 4, 036, 201

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