The Consumer Credit Protection Act, passed into law by Congress, required creditors to provide clear and adequate information about the cost of borrowing and enacted protection regarding wage garnishment and loan sharking.
The Consumer Credit Protection Act was signed into law by President Lyndon B. Johnson on May 29, 1968. The law had the longest legislative history of any consumer bill. It was introduced each year in the U.S. Senate beginning in 1960 but failed to receive committee approval for eight years. Despite the long struggle to get it passed, the final legislation was stronger than the original version.
Consumer protection began early in the history of the United States, primarily as governmental regulation of economic activities. The Interstate Commerce Act of 1887 was the first federal legislation that regulated an industry. Legislation in the early twentieth century focused on the safety, purity, and advertising claims of foods, drugs, and cosmetics. The Federal Trade Commission was set up in 1914 to maintain free and fair competition and to protect consumers against unfair or misleading business practices.
After World War II, Americans were eager to buy new products. Because they had come to trust producers and believed themselves to be protected by government oversight, they had little concern about the quality or safety of products. Goods were produced as quickly as possible to satisfy demand. Advertising gained a new level of sophistication by playing to the psychological needs of individuals. In 1957, these tactics were exposed in a book called The Hidden Persuaders
The idea of truth in lending originated with Senator Paul H. Douglas, who believed that lenders deceived borrowers about the true annual rate of interest. The practice of charging interest on the original amount of the loan, rather than on the declining balance as an installment loan was paid off, resulted in a true annual rate that was sometimes as high as twice the stated rate. Consumers, who generally were not knowledgeable in financial matters and were unaware of the methods of interest calculation, were paying a high cost for credit. They were unable to compare the costs of borrowing from various lenders because there was no requirement of standard, accurate, and understandable disclosures of the actual cost of borrowing.
In 1960, Douglas introduced a truth-in-lending bill in the Senate. In addition to requiring disclosure of the dollar amounts of the loan, the down payment, charges not related to the financing, and the total financing charges, the bill also required finance costs to be disclosed as an annual interest rate, based on the unpaid balance of the loan. Retailers, banks, and loan companies objected to the annual percentage rate (APR) disclosure requirement.
First, the industry argued that consumers were accustomed to the monthly rates currently reported and would find the change confusing. Second, many sellers believed that the reporting of a much higher “true” annual rate of interest would result in reduced consumer purchases. Some argued that this would seriously hurt the economy. Other objections included the contention that the law would not do any good, since the cost of merchandise could simply be increased to hide the cost of credit, and that regulations in this area were the responsibility of the states, not of the federal government. In addition, it was feared that it would be costly and difficult to train retail personnel in the new credit procedures necessary to comply with the requirements.
Consumer protection supporters and activists were primarily liberal Democrats, and consumer protection bills were initially considered part of a liberal agenda. Voting in committees was mostly partisan. This slowed consumer legislation in Congress. Business organizations also lobbied against most consumer legislation. Interference from the federal government was considered to be unnecessary and an infringement on their rights.
In 1960, John F. Kennedy
In the version of the bill proposed in 1964, revolving credit arrangements, such as retail store credit accounts, were exempted from the annual percentage rate disclosure. The bill gained more acceptance, but it died because of strong opposition by the chair of the Senate Committee on Banking and Currency, Senator A. Willis Robertson. In the 1966 election, senators Douglas and Robertson lost their bids for reelection, so they were no longer on that committee in 1967 when Senator William Proxmire reintroduced the bill. Proxmire was more willing than Douglas had been to bargain and compromise. The bill was debated in the Financial Institutions Subcommittee of the Committee on Banking and Currency. The bill cleared the subcommittee and the committee, then was passed by the Senate by a 92-0 vote.
Congress’s attitude toward consumer bills was changing dramatically as a tide of consumer activism grew in the United States. The National Traffic and Motor Vehicle Safety Act
Leonor Kretzer Sullivan, an eight-term Democratic congressmember on the Consumer Affairs Subcommittee of the House Committee on Banking and Currency, authored the House version of the truth-in-lending bill. After battling unsuccessfully to strengthen the bill in the committee, she fought vigorously on the House floor, where several amendments were added, making the bill stronger than the Senate version. The APR disclosure exemption for revolving credit was dropped. Restrictions were included on wage garnishment, whereby an individual’s earnings are withheld from his or her paycheck for repayment of debt. Loan sharking was made a federal offense, with severe penalties when interest rates were charged in excess of the usury levels in each state. The bill also established a Consumer Finance Commission to study the consumer finance industry. Publicity and strong public support for the bill resulted in the stronger House version clearing the conference committee.
The main section of the bill is Title I, the Truth in Lending Act, which requires, before credit is extended, disclosure of the APR and all finance charges, as dollar amounts, along with other loan terms and conditions. Advertisements that included certain financing terms required further elaboration. Specifically, any advertisement that included the down payment, the amount of each payment, the number of payments, the period of repayment, the dollar amount of any finance charge, or a statement that there was no charge for credit also had to disclose the cash price or the amount of the loan; the amount of down payment or a statement that none was required; the number, amount, and frequency of payments; the annual percentage rate; and the deferred payment price or the total dollar amount of the payments.
Additionally, the bill provided for the right of the consumer to cancel a consumer credit agreement within three days if a second mortgage was taken on the consumer’s residence. The Federal Reserve Board was required to draft regulations that implemented the law. Regulation Z was issued on February 10, 1969. Regulations were to be enforced by nine different federal agencies, including the Federal Trade Commission, the Federal Reserve Board, the National Credit Union Administration, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, the Interstate Commerce Commission, the Civil Aeronautics Board, and the Agriculture Department.
In 1960, when Senator Douglas first introduced truth-in-lending legislation, there was little support for consumer issues in Congress. The powerful business community and the credit industry were opposed to the bill. Politics, partisanship, and special interests stalled the bill for many years. The refusal of Douglas to publicly question the ethics of members of Congress with special interests or to question banks’ opposition to the bill helped enable the fight to go on for years without much publicity.
Growing consumer support for protective legislation was in part the result of the consumer protection activities of Ralph Nader
The Consumer Credit Protection Act was intended to protect often-vulnerable consumers from the hidden costs of borrowing or buying on credit. The concern of business that customers would buy fewer goods and borrow smaller amounts when they became aware of the true annual cost of borrowing apparently was unfounded, although it is impossible to say what consumer behavior would have been in the absence of the law. Continued use of credit in the early 1980’s, with its high inflation and high interest rates, seemed to indicate that consumers were willing to use credit at almost any cost. When inflation was high, consumers learned that delaying their purchases resulted in a higher cost of goods, leading them to purchase immediately even at high interest rates. They continued to use credit even when the APR rose above 20 percent.
The original truth-in-lending bill was intended to introduce competition to the area of consumer credit. Douglas had hoped that with comparable APR information, consumers would be able to shop for the best rates. One of the results of the legislation appeared to be that some businesses ceased to advertise their credit terms and rates. Whether this was a result of the truth-in-lending act or the tight supply of money soon after the law was enacted is difficult to ascertain. The main purpose of the bill would not have been realized if creditors gave little or no information in attempts to avoid violating the law.
In 1971, the act was expanded to include a restriction on credit card issuers that they could not send unsolicited credit cards to consumers. A $50 limit was put on a credit cardholder’s liability if there was unauthorized use of the card (for example, in case of a lost or stolen card). If the issuer was notified before any unauthorized use occurred, the cardholder was not liable for any charges. The Truth-in-Lending Simplification and Reform Act
Further legislation covered other areas of concern. The Fair Credit Reporting Act (1970)
Consumer outcries and the pressure put on Congress to act in the interest of its constituents, the consumers, led to this flood of legislation that followed the Consumer Credit Protection Act of 1968. It brought much more regulation to business than was previously envisioned. The cost of the regulation and the resulting benefit to consumers are difficult to measure. The impact clearly has been an increase in consumer rights and a better-informed buying public.
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Blackburn, John D., Elliot I. Klayman, and Martin H. Malin. The Legal Environment of Business. 5th ed. Burr Ridge, Ill.: Irwin, 1994. A chapter on debtor-creditor relations in this college textbook for business students describes the laws that apply to consumer protection. Includes cases to illustrate the application of the law and the opinion of the courts on those cases. -
Burda, Joan M. An Overview of Federal Consumer Law. Chicago: American Bar Association, 1998. Practical guide prepared by the American Bar Association. -
Eiler, Andrew. The Consumer Protection Manual. New York: Facts On File, 1984. Describes the laws that protect consumers and gives specific advice to consumers so that they can demand the rights they have under those laws. Gives detailed information about the legal system. This is a how-to book with sample letters to help consumers put their complaints into writing to achieve results. -
Faber, Doris. Enough! The Revolt of the American Consumer. New York: Farrar, Straus and Giroux, 1972. This well-written book gives a fascinating history of the consumer movement. Much of the book is based on interviews. Suggests additional readings that provides detailed background. -
Nadel, Mark V. The Politics of Consumer Protection. Indianapolis, Ind.: Bobbs-Merrill, 1971. Part of a policy analysis series that describes and analyzes public policies generated by national, state, and local governments. Examines consumer politics, participants in policy decisions, and the role of the press and consumer activists in influencing policy decisions. -
National Consumer Law Center. http://www.consumer law.org./ A valuable advocacy Web site that provides resources dealing with legal issues and consumer protection. Also includes downloadable pamphlets, links to other consumer-related Web sites, and more. Highly recommended. -
Renuart, Elizabeth, and Kathleen E. Keest. Truth in Lending. 5th ed. Boston: National Consumer Law Center, 2003. More than one thousand pages and a CD-ROM provide consumers information on all aspects of the Consumer Credit Protection Act of 1968 and consumer protection in general. Recommended as an updated resource. -
“The Truth About Credit Is Coming.” Consumer Reports, August, 1968, 428-431. A report from Consumers Union, an organization that tests and reports on consumer products and consumer issues. This article informs consumers about the law and how it will affect them.
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