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The preferred dividend is earned by this company over seven and a half times. The earnings on the common stock are at the rate of $3.42 per share in 1932 as against $2.04 for the year 1932 for the average amount of stock outstanding during these years. Dividends on the common stock have been paid regularly, the last rate being 50 cents on January 2, 1934, and payable quarterly.

There are a number of companies doing this type of business, and the above figures are merely examples of the earnings in this line of business.

The small-loan agencies probably advance over $2,500,000,000 a year. This includes all forms of lending except loans by life-insurance companies to their policyholders, and are divided as follows: Unlicensed lender and loan shark.--

$750,000,000 Pawn brokers

650,000,000 Personal finance companies-

500,000,000 Industrial banks (Morris Plan type)

350,000,000 Personal loan departments, commercial banks..

200,000,000 Credit units.--

85,000,000 Remedial loan societies-

60,000,000 Axias

50,000,000 Perhaps some of you do not know what an axia is. It is a foreign form of savings and loan proposition that originated in Austria and was brought over here. You find it amongst Jews in the large cities, such as New York and Boston. A group of foreigners will get together and form this little independent savings and loan society.

For this enormous business of making small loans the following rates are charged:

Annual interest

charge, percent Credit unions.

6 to 18 Personal-loan departments, commercial banks.

9 to 23 Industrial banks.

17 to 35 Remedial loan societies.-

12 to Axias

18 to

30 Licensed personal finance companies-

24 to 42 Commercial pawn shops-

12 to

120 Unlicensed lenders_

240 to 480 Illegal charges made by loan sharks range from..

240 to 1,000 One case found by the Atlanta Legal Aid Society showed where a borrower paid $1,550 on an original loan of $76 before the debt was finally liquidated. The loan shark does not hesitate to enforce wage claims by garnishment proceedings against the borrower. Often times a borrower must meet a doctor's bill for his wife's operation, or sickness, and is pressed by other debts. He sees advertisements which read "Money Loaned and no questions asked." He wants to borrow $50. The lender, or salary buyer, is glad to let him have the money but insists that he does not make loans. If the borrower reads the printed form handed him carefully and understands it, which he probably does not, he will discover that by signing it he agrees to sell the lender $55 of his next semimonthly wages. for $50. This is at the rate of 240 percent per annum.

Usually a tragic train of further borrowing follows to cover the original loan from the same, and often other lenders, until the victim is harried and distressed' beyond endurance.

The uniform small-loan law sponsored by the Russell Sage Foundation permits a charge of 342 percent per month, or 42 percent a

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year, on unpaid balances on loans up to $300. This law is in force in about 25 States, but in some States in the past 2 or 3 years reductions have been made by the legislatures.

I personally have prosecuted some cases in Massachusetts, and have defended cases of borrowers. I have news items here to substantiate the fact that these unlicensed lenders and loan sharks gouge the public.

There is a great deal of confusion and wide difference of opinion as to what a fair rate for small loans shall be, as indicated by the following:

Delaware, 11 percent per annum; Colorado, 1 percent per month, plus a fee of $1, permissible not over four times a year; Alabama, i percent per month; Texas, 10 percent per annum; Ohio, 3 percent per month; Missouri, 212 percent per month; New Jersey, 21/2 percent per month; New York, 3 percent per month up to $150, and 21/2 percent per month in excess of $150 and up to $300; New Hampshire, 2 percent per month—that was reduced last year by the legislature from 3 percent per month; West Virginia, 2 percent per month; Maine, 3 percent per month; Massachusetts, 3 percent per month; Oregon, 3 percent per month; Utah, 3 percent per month; Nebraska, 10 percent per annum plus a fee of 10 percent collectible every 6 months; Mississippi, 10 per cent per annum, plus charges depending upon the size of the loan; Minnesota, 1 percent per month, plus fee ranging from $1.75 to $5.75 where a chattel mortgage is taken; Wyoming, 25 percent per annum; North Carolina, 6 percent per annum.

There are about 25 States that have a uniform small-loan law, which was sponsored by the Russell Sage Foundation, and that has done a great deal to alleviate the loan-shark evil in those States. Originally in those States loan sharks were getting anywhere from 10 to 20 percent per month, and by reducing it to 312 percent through the uniform small-loan law a tremendous saving has been made to the consumer.

The CHAIRMAN. Under that law it is 312?
Mr. Gross. In some States it is 3 and' in some States it is 31/2.

The CHAIRMAN. Do you know what it is in the District of Columbia ?

Mr. GROSS. The District of Columbia has had a sad experience. Congressman Bowman 2 years ago introduced a uniform small-loan law, with rates of 3 percent up to $150, and 212 percent from $150 to $300. That bill was defeated. Congressman LaGuardia, now mayor of New York, had a great deal to do, for some reason unknown to anybody, with filibustering against the bill. I understand there is a bill pending now in Congress for the District of Columbia. It is a known fact-and I have verified that since I have been here this week—that there are loan sharks operating in the District of Columbia today, in violation of the law.

According to Leon Henderson, director of the department of remedial loans of the Russell Sage Foundation, the bulk of the highrate loan business is done in Alabama, California, Minnesota, Texas, and Washington.

It should not take a statistician or an expert accountant to see that the volume of business on the installment plan and small loans

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made to the consumer and the cost of these services are far out of proportion to the income of the consumer. The consumer's purchasing power in normal times is small when you consider the per capita income in the United States, which has been severely reduced in the past 3 or 4

years. Wages for all classes increased only some 23 percent between 1919 and 1929. Dividends to all industrialists increased some 72 percent, while the dividends on industrial and rail stocks increased 285 percent. There was a staggering increase of the incomes in the higher brackets. As Senator Wagner has pointed out:

In 1929 the value of goods produced in factories in the United States was $10,000,000,000 greater than 1923. Of this increase, 6 percent went into wages, 8 percent into salaries, 38 percent into raw material, and 48 percent into profits and other costs. Is it therefore any wonder that during the heyday of our prosperity less than one tenth of the population received one third of the national income, while three fourths of the people lived below the standards of comfort set by the United States Bureau of Labor Statistics?

At the top we find the great industrialist or financier whose earnings run into many millions of dollars yearly. At the bottom we find the tenant farmer or the day laborer with no more than a few hundred dollars of yearly cash income.

The Federal tax return for 1930 shows only 3,707,509 out of perhaps 50,000,000 income earners had incomes large enough to be reported for taxation purposes. The average American wage earner probably earns no more than $1,500 to $2,000 a year. The average farmer probably earned even less, perhaps no more than $1,000 cash income at the most.

Although the United States is a political democracy, the riches of the Nation are not shared equally among all its inhabitants. Personal incomes, or money earnings, are distributed unequally.

The inadequate income of the majority of American workers and farmers is the most important cause of the depression, since most of the spending upon which capitalism and the price system depend is done by those who have relatively small incomes. Even in 1929, 95 percent of all Americans who had any income at all received not over $2,000 a year, yet they purchased 73 percent of all the goods and services bought in the United States during this year. Added to this the high cost of credit to the consumer, means lack of consumption and not overproduction as we find the facts. One of the chief obstacles to recovery lies in the fact that the great mass of possible purchasers do not have sufficient money to buy even the necessaries of life, to say nothing of luxury goods.

According to the Consumers' Research Bulletin of April 1934, the consumers are paying the bills as evidenced by the fact that whereas industry's earnings for the first 9 months of 1933 increased 160 percent over the same period in 1932, the farmer's gross income rose only 24 percent, and pay rolls decreased 3.2 percent. The consumer's average income is now, as has been for some months evident, actually decreased relative to prices of goods and services which the consumer bought. This is going to be more true under the various N.R.A. codes. Under these codes the consumer is being forgotten, whether intentionally or otherwise.

Under the subject of consumer's credit, I have not taken into consideration the total indebtedness on first and second mortgages on

homes and the cost of this form of financing, which figures have been quoted by other witnesses, and with which your committee is familiar.

In conclusion, if the bill, Senate 3603, which creates the Home Credit Insurance Corporation, National Mortgage Associations, and the Federal Savings and Loan Insurance Corporation, will bring about a reduction in the interest and service charges on consumer credit, the act will be a benefit to the American home owner. But should this not occur, it will mean an additional burden on the consumer in several ways.

Should there be any laxity in the making of loans for purposes other than intended by this act, the United States Government will face trouble in the future. Through the Home Credit Insurance Corporation, whose stock will be owned by the United States Government, losses may arise because of such loans made by private companies engaged in extending credit to the consumer through the inability of the consumer to meet his interest and payment on the principal. In the past few years holders of first and second mortgages on homes have experienced heavy losses because of the inability of the owner to meet his obligations.

In looking over the bill as a whole I find that the consumer is not amply protected in that no interest rate is specified as to what the consumer would be charged by the private companies for loans made to him. This is a serious problem. We must understand that the normal banking rate of 6 percent per annum cannot be forced on small loan agencies and installment lending companies and other financial institutions that make small loans. The cost of investigating the borrower, the cost of recording the chattel mortgage, the cost of collection and bookkeeping require a higher rate than the 6 percent per annum which is the normal rate for bank loans. What the fair rate shall be for loans made to the home owner by the agencies mentioned in the act should be given serious consideration and named in the act so that the rate will be uniform throughout the country and known to the consumer.

The experience of the companies that insured the bonds of the private companies which were secured by second mortgages on homes in the past few years should be considered, some of the companies having been forced into receiverships because of the losses sustained.

I shall be glad to go into further detail with your committee on this subject, supplying such additional information as I have available.

I have worked out with some people in the consumer-credit field a plan whereby anywhere from 2 to 3 billion dollars can be released for purposes of creating new purchasing power and without costing the Government one penny. The plan should be welcomed by people in the consumer-credit field. You have your national associations of personal finance companies; you have your Morris Plan banks; you have your companies that finance installment sales. They should be gotten together and agree to the plan, which is very novel, to extend the loan, instead of for a short term, over a longer term. Instead of having a short-term loan for 6 months or a year, for example, they might pay $2 a week on their loan; and if that loan is extended for a period of 2 years the payment would be cut down

anywhere from 25 to 50 percent and in that way release a lot of money that could go into the purchasing of necessaries and perhaps luxuries, the payment of doctors' bill, dentists' bills, and hospital bills. Doctors, dentists, and hospitals have suffered more than anybody, because the last bill a person will pay is a doctor's bill or a dentist's bill.

That plan can be worked out by the people in the consumer credit field, and release a lot of money to create new purchasing power without the cost of one penny to the Government. That is being done at the present time in a small way by some of the personal finance companies. In some cases they have waived the interest where the borrower has lost his job and has been out of work for a long time. They have rewritten the loans, extended them over a longer period, and cut the payments down. If they are able to do it, and are willing to do it, there is no reason why a corporation like the General Motors Acceptance, which finances the purchase of automobiles and electrical appliances made by General Motors, should not do it. It does not mean any loss at all to them, because the life of an automobile is more than a year, and if the payments are extended over a 2-year period, it means smaller payments, more money available for necessities, more money available for pressing debts that are outstanding.

Senator BARKLEY. It is not contemplated by this bill that money shall be loaned to people for the payment of debts, or anything except construction.

Mr. Gross. You do contemplate consumer credit. You make arrangements with personal finance companies to make loans from $200 up to $2,000. Human nature is human nature. A person may go to these personal finance companies, or the Morris Plan Bank and want to borrow $300, with the statement that he is going to use it for repairs to his home. He may use about $100 of it for that, and the other $200 may go into luxuries. You are going to get a spending orgy if you do not watch and see that the act is properly administered.

The CHAIRMAN. Do you think that this bill will have some bearing on that situation?

Mr. Gross. It will, Senator.
The CHAIRMAN. It will be helpful, you think?

Mr. Gross. Because you are arranging for loans by personal finance companies, installment selling agencies, credit unions, and Morris Plan banks, to be able to have their loans insured by this new corporation that is being set up; so that it has a tremendous bearing on the bill, and the bill has a tremendous bearing on consumer credit. Consumer credit is part of this bill.

The CHAIRMAN. We are very much obliged to you.
We will take a recess now until 10 o'clock Monday.

(Whereupon, at 12:45 p.m., Saturday, May 19, 1934, an adjournment was taken until Monday, May 21, 1934, at 10 a.m.)

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