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of the laws to nonlawyers. Statutes create classifications

Headnote 10
Headnote 11 many

which do not deny equal protection; it is only "invidious discrimination" which offends the Constitution.15 The business of debt adjusting gives rise to a relationship

the Kansas Legislature was free lawyers a denial of equal protection to decide for itself that Headnote 7 legislation was needed to deal with the business of debt adjusting. Unquestionably, there are arguments showing that the business of debt adjusting has social utility, but such arguments are properly addressed to the legislature, not to us. We refuse to sit as a "superlegislature to weigh the wisdom of legislation,"" and we emphatically refuse to go back to the time when courts used the Due Process Clause "to strike down state laws, regulatory of business and industrial conditions, because they *[372 US 732]

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85 L ed 1305, 61 S Ct 862, 133-ALR 1500 (1941). Ten years later, in Breard v Alexandria, 341 US 622, 631, 632, 95 L ed 1233, 1242, 71 S Ct 920, 35 ALR2d 335 (1951), this Court again commented on the infirmity of Adams.

11. Day-Brite Lighting, Inc. v Missouri, 342 US 421, 423, 96 L ed 469, 472, 72 S Ct 405 (1952).

12. Williamson v Lee Optical of Okla., Inc. 348 US 483, 488, 99 L ed 563, 572, 75 S Ct 461 (1955).

13. "The Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics." Lochner v New York, 198 US 45, 74, 75, 49 L ed 937, 948, 949, 25 S Ct 539 (1905) (Holmes, J., dissenting).

14. See Daniel v Family Secur. Life Ins.

of trust in which the debt Headnote 12 adjuster will, in a situa

tion of insolvency, be marshalling assets in the manner of a proceeding in bankruptcy. The debt adjuster's client may need advice as to the legality of the various claims against him, remedies existing under state laws governing debtor-creditor relationships, or provisions of the Bankruptcy Actadvice which a nonlawyer cannot lawfully give him. If the State of Kansas wants to limit debt adjusting to lawyers, the Equal Protection [372 US 733]


*Clause does not forbid it. We also find no merit in the con-Headnote 13 tention that the Fourteenth Amendment is violated by the failure of the Kansas statute's title to be as specific as appellee thinks it ought to be under the Kansas Constitution.


Co. 336 US 220, 224, 93 L ed 632, 636. 69
S Ct 550, 10 ALR2d 945 (1949); Secretary
of Agriculture v Central Roig Refining
Co. 338 US 604, 618, 94 L ed 381, 392, 70
S Ct 403 (1950).

15. See Williamson v Lee Optical of Okla., Inc. 348 US 483, 488, 489, 99 L ed 563, 572, 573, 75 S Ct 461 (1955); Lindsley v Natural Carbonic Gas Co. 220 US 61, 78, 79, 55 L ed 369, 377, 31 S Ct 337 (1911).

16. Massachusetts and Virginia prohibit debt pooling by laymen by declaring it to constitute the practice of law. Mass Gen Laws Ann (1958) c. 221, § 46C; Va Code Ann (1958) § 54-44.1. The Massachusetts statute was upheld in Home Budget Service, Inc. v Boston Bar Asso. 335 Mass 228, 139 NE2d 387 (1957).

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372 US 726, 10 L ed 2d 93, 83 S Ct 1028, 95 ALR2d 1317

Mr. Justice Harlan concurs in the judgment on the ground that this state measure bears a rational relation to a constitutionally permis

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sible objective. See Williamson v Lee Optical of Okla., Inc. 348 US 483, 491, 99 L ed 563, 574, 75 S Ct 461.

(The prepared statement of Mr. Rabinowitch follows:) Congressman Sisk, Members of the Committee

My name is Morris Rabinowitch, of California, representing the American Association of Credit Counselors and speaking to the two bills, HR8929 and HR9806, which are now before this Committee.

It is my intention, on behalf of the members of the Association and affiliated members throughout the United States to clarify our position in the current discussions regarding credit counselling and financial management. Neither I nor the Association has nor do we at any time intend to defend, excuse or alibi for any abuses that may have occurred, whether it be in the District of Columbia or any other community. Our purpose in being here today is to request strict regulatory legislation and enforcement thereof in the field of credit counselling for the protection and benefit of the consumer.

While we in the field of credit counselling are no more anxious than any other business or service to have government regulation, we have long recognized the necessity for such regulation. We know that, acting as fiduciaries as we do, we must have regulation and enforcement beyond that which the industry itself can provide. It is for this reason that the American Association of Credit Counsellors has, openly, actively and continuously, worked for such legislation and the enforcement thereof.

As far back as the early 1950's, a number of us who had pioneered in the field became alarmed at certain abuses, of the kind that have been alleged in the District of Columbia. We recognized the need for fixed standards of professional conduct in the interest of the consumer and the creditor.

Although at the time we were well aware that adverse publicity would reflect on the innocent as well as the guilty, nevertheless, in strategic areas across the country, we set about to bring offences to light, to expose them to the glare of publicity, and to use the resultant publicity in our efforts to obtain regulatory legislation.

In Chicago, where abuses to consumers were extreme, Mr. Price Patton headed a campaign to unearth instances of malpractice, bring them to the attention of civic leaders and public officials and, eventually, to sponsor and finally obtain regulatory legislation in Illinois. We are proud that the administrative body of the State of Illinois adopted a code for acceptance or rejection of advertising which was developed by our Association, in conjunction with the Better Business Bureau of Chicago. In June of 1967, a survey made by the Illinois Advisory Board on Financial Planning showed not only that the results of financial counselling services were beneficial, but that in communities where no such service was in existence, it is actively needed and desired. Copies of this survey are here provided.

In the State of Oregon, prior to the enactment of regulatory legislation, there was a serious case of defalcation by one individual. Again, it was a member of the Association, Mr. Lewis Finney, who came forward to lead the fight for constructive legislation. Since the enactment of this legislation in the state of Oregon, we have been unable to find any instances of abuses in that state. In Michigan, Mr. Morris Purdy, one of our senior members, together with others in the American Association of Credit Counsellors, was finally successful in his efforts to obtain regulatory legislation which has since worked effectively in the interest of the consumer.

I am very proud of the results we have had in California, where in 1957 legislation was enacted that has served as a model for other states. Since the enactment of this legislation, not one instance of malpractice has been proved in California. To substantiate this, I am providing copies of my wire to the California Better Business Bureaus in the major population centers and the replies thereto. I would like to point out the unanimity of the replies in stating that there have been no reports of abuses. I would also like to quote two paragraphs from one letter of reply which points up the difference regulation makes by

comparing the situation in California to that in another state which is unregulated:

"Our files here on two such firms operating in this area are complaint free, however the files do not go as far back in information as 1957, when you advised legislation was enacted in this field. Therefore I cannot compare today's situation with what may have existed prior to that legislation.

"I do know, however, that because there was a lack of such state legislation in Nevada, our office in Reno had many complaints about debt prorating services. However, those complaints were mainly against one or two proraters and were not evenly spread amongst all those in that field of business."

Financial counselling services have developed in response to demand. At the present time in this country, consumer credit is being extended at the rate of one-half billion dollars a month. In 1946, credit extended to consumers amounted to only 6 billion. By 1967 it amounts to a figure in excess of 97 billion. $11.6 billion is absorbed annually in interest charges on this consumer indebtedness alone. This does not include interest on home mortgages.

There has also been a serious lag in education in consumer credit living to keep pace with the rapid expansion of consumer credit extension. It has been estimated that 30% of families in California are unable to meet the monthly obligations they have incurred. Throughout the past decade there has been a tremendous increase in wageearners' bankruptcies and home foreclosures, even in these times of prosperity. Federal Reserve Board figures indicate that 32% of families are spending more than they earn. Thus, the need is to help such families work out plans to pay off their obligations, and educate them in learning to live within their incomes. For the professional in financial counselling does not just help "pay the bills," he advises, counsels, and-as one national magazine puts it "Is part father, part psychiatrist, part accountant and even the 'economic confessor' to his clients."

In 1965, a survey indicated that in that year professional credit counsellors interviewed 189,150 families. Of this number, 58.800 were counseled without fee. This number included two categories of consumer-debtors: those whose problems could be solved with some advice and a few telephone calls to creditors on their behalf. The remainder were those so hopelessly mired down in debt that they could not be helped by credit counselling services. One hundred and thirty thousand family financial programs were instituted by counsellors, which means that 130,000 families are being returned to good credit standing as a result of being taught principles of sound financial management.

It cannot be overemphasized that the primary and continuing responsibility of the credit counsellor is to relieve the consumer of the burden of indebtedness and teach him to live within his means.

It should be noted that the small business man has long had available to him similar services to those we offer the individual. Boards of Trade, Wholesale Credit Managers Associations, and so on, do for the business man just what we do-give him the opportunity to rehabilitate himself and liquidate his obligations in an orderly way.

Now, recognizing that a need has been created and a service developed to fill that need, why should there be opposition to regulatory legislation for the protection of the consumer using such services? Where there is such opposition, three questions should be asked: Who opposes it? Why? Whose interest is served by such opposition?

There is a segment of the financial community which specializes in high rate loans. There is a tendency on their part to prefer that the consumer-debtor resort to Chapter Thirteen as a solution for his difficulties, rather than use the services of credit counsellors.

In 1956, for instance, I visited an individual who is a representative of one of the national loan companies. At that time, he was disturbed and upset because I had taken issue publicly with certain credit grantors, feeling as I did that they were concerned more with the quantity of credit they could extend than they were with the quality of it. I felt this was a danger to the debtor and the creditor, as well as to the economy itself.

This individual told me that I was fanning the flames of Communism and giving them material to use in their criticism of capitalistic Practices. He also contended that there was no danger of delinquencies as a result of overextended credit. Ten years later, this same person is lamenting the tremendous increase in personal bankrupticies, but he attributes this to every other cause but his own industry's practices, still denying that overextension of credit is the root cause of the problem.

Oddly enough, in the publication of which this man is an editor, an article appeared which estimated that 78.6% of the personal indebtedness in this country is made up of personal loans owed to financial institutions.

As credit counsellors, we deplore the practices of those who have abandoned all morality in regard to the consumer and who employ every possible technique available to prevent the consumer-debtor from becoming debt-free. The same individual who spoke so sharply to me is an avowed advocate of Chapter XIII proceedings for the consumer-debtor as a lowcost means of getting relief. I have figures with me, of which I have made copies available to you, to show that Chapter XIII costs-as an average are over twice as much as would be the cost of professional counselling.

This study made of Chapter XIII proceedings in Northern California uses the actual case numbers for ready verification of the facts shown here. Exhibit "A" shows the cost of Chapter XIII to the consumer ranging from 17.6% to 35.5% of the total indebtedness, as against an absolute maximum in California of 12% for credit counselling. Exhibit "B" is a dollars and cents breakdown showing savings in actual dollars-said savings to the debtor would have ranged from $212 to $292. as per the exhibit. It was as a result of this survey that I wrote to President Johnson as long ago as February of 1964, protesting the exorbitant cost to the debtor of Chapter XIII.

In the matter of nonprofit counselling services, it has been wrongly asserted that our industry opposes such services, fearing competition. Actually, the reverse is true. We are well aware that credit counselling services should be available to the public from a variety of sources. As far back as 1959, through the efforts of our then president, Mr. Henry Kasson, we began a program of offering services, assistance, and printed materials to be distributed to consumer-oriented organizations.

On August 27, 1962, when I was president of the Association, replying to a letter from Paul Mendenhall, of the AFL-CIO, I extended an offer to assist them and any organization attempting to establish such services with any means at our command. This letter is submitted herewith in a collection of correspondence, articles and other documents which clearly show that our organization has been functioning in an active way to promote the entire field of credit counsellingalong regulated lines.

It is not only in the matter of regulatory legislation that we have been active, incidentally. There have consistently been two opposite points of view with regard to "truth in lending," and "truth in advertising" laws. I believe you will find that the American Association of Credit Counsellors has provided the only support such legislation has received from the business and financial communities (of course, with the exception of the credit unions). We have without exception held that the consumer has the right and should have the opportunity to determine his purchases of goods and services on the basis of complete, accurate information.

We do feel that, profit or non-profit, any individual handling public funds should be bonded, licensed, have a sound background of training and experience in the extension of consumer credit, and be financially sound. Most importantly, we would insist that their purpose be sincerely and primarily to help the consumer relieve himself of debt.

In California, our personal experience with the establishing of nonprofit credit counselling has been quite beneficial to us in that, first, we are relieved of the responsibility and expense of counselling the indigent consumer, and, second, consumers are alerted to the existence and availability of our services. You now have before you two proposed bills. One would abolish credit counselling service to the consumer unless it is dominated and controlled by creditors. The other is a regulatory bill. Returning to my contention that sound regulation eliminates malpractice, let me state unequivocally that to destroy or outlaw a sound, needed and growing service because of the dishonesty or incompetence of a few is an emotional, rather than a realistic approach. In any field, whether it be law, banking, the clergy, medicine, or philanthropy, there will be instances where isolated individuals exploit the confidence placed in them.

Over the past fifteen years a program of study has included: the testimony at various state legislative sessions; correspondence with Legal Aid Societies; correspondence of Better Business Bureaus; consultations with attorneys, credit unions and judicial offices. This has enabled us to put together a set of standards which we are convinced will eliminate any current abuses and prevent future ones. These standards have been incorporated in the proposed regulatory

act which has been submitted to you. Let me abstract from it the following points:

Suggestions for regulation of credit counselling:

1. Investigation of licensee, officers, etc., prior to issuing license.

2. Bonding of licensee.

3. Audit by the department administering said license, at the cost of the licensee. 4. Control and approval of advertising by the administrative authority. 5. Establishing of a maximum rate of charge.

6. Allowing no charge unless the licensee has been able to secure the approval and consent from the majority of creditors, both in number and amount of indebtedness.

7. Allowing the fee to be taken only on proportionate amount as said funds are distributed to creditors.

8. Preventing the licensee from taking any contracts, note, etc., which has any blank space when signed by consumer-debtor.

9. Preventing any licensee from taking any negotiable instruments for his unearned fee.

10. Preventing licensee from taking any notes, wage assignments or security to secure the licensee's unearned charges.

11. Preventing the licensee from taking a confession of judgment or power of attorney to cover judgment.

12. Providing that all contracts and forms must be approved by the administrative body.

13. The contract must list every obligation to be adjusted and disclose total of obligations.

14. The application must show that the payments required for the liquidation of the obligations must be within the ability of the individual to pay. 15. The rate and amount of licensee's fee must be disclosed.

16. The approximate number of installments necessary to pay obligations in full must be disclosed.

17. A copy of the contract must be given to the consumer-debtor.

18. The contract, even though signed at the time of application, should not become effective until the applicant has made payment to licensee for distribution to creditors.

19. Receipts must be written for each payment.

20. At least every six months, the licensee shall render an accounting to the consumer-debtor, which shall show the total amount received, total paid to his creditors, the amount of charges deducted, and any amount held in


21. Licensee must also render an accounting within seven days after written request.

Some of the points selected here for regulation may seem trival. However, our experience has shown us the importance of having every aspect clearly covered in the regulatory provisions. And wherever there has been a choice serving between serving the interest of the consumer and imposing additional restrictions on the licensee, we have always acted in the interest of the consumer.

Let me repeat, in ten years of working under regulatory legislation, there has been to my knowledge not one instance of a substantiated complaint in the State of California.

May I urge that you give this proposed regulatory legislation your careful consideration, with a view to making additions which might be incorporated to further strengthen its provisions.

Thank you for the opportunity to appear before you. I am ready and willing to answer any questions you may have now and in the future.

Mr. SISK. Without objection the other material which you have enumerated will be furnished to the committee and will be made a part of the files and that portion made a part of the record which we feel the record can contain.

Mrs. Sinatra, a question has been raised. Has there been any addi tional information or updating of the July Labor Department Report! Mrs. SINATRA. This is the latest one and it has all the state legislative enactments in 1967, so it is current.

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