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Mr. SISK. You have at the present time no additional supplements to this?

Mrs. SINATRA. No, sir. The State of Washington is included in there. Mr. SISK. We have made this a part of the record.

Mr. Rabinowitch, the committee will be glad to hear from you now. Mr. RABINOWITCH. To save the committee time, I am only going to review part of the prepared statement.

I would like to set forth at this particular time that while I am here as a representative of the American Association of Credit Counselors, our position has been and will continue to be that we will never at any time take any position to defend any of the abuses ever perpetrated on

a consumer.

You heard today testimony and statements regarding the situation in Maryland and in Washington, D.C., where indictments have been brought and people convicted.

I would like to take full credit on the question of our association being instrumental in initiating these proceedings. Our association has attempted through the Post Office Department, through the Federal Trade Commission, to establish various rules and guidelines to prevent these abuses. You have heard that the state of Rhode Island has eliminated this type of activity. This is true. But if you are also aware, it has opened up an avenue of complete fraud and deceit simply by doing

it by mail.

Our position as an association has been very simple: Regulation and very tight, stringent regulation.

I might also say we have heard comments of the American Bar Association and their position.

The act we established in California in 1957 was written in conjunction, with assistance of the California State Bar Association. Amendments and reading the bill will indicate their amendments and what they requested.

It is extremely delightful on my part to have incorporated as part of the testimony and part of the statement-and I would like to take this opportunity to read it-a copy of a wire I sent dated September 2, 1957 to the Better Business Bureaus throughout California. In that I questioned, "From your records, can you advise the number of unsatisfied complaints against licensed proraters in your area since 1957 legislation?"

Next question "Any indications of consumer dissatisfaction, any comment comparing problems prior to legislation and today the reason for query is legislative hearing re proposed regulatory act."

The answers, including the Better Business Bureaus of San Francisco, San Jose, Oakland, Stockton, Fresno, Los Angeles, San Mateo and Bakersfield, were all unanimous that there was not a problem. since 1957 in the State of California.

I would like to read a quote from the Better Business Bureau of Sacramento. Fortunately there was an individual who had just taken charge and in his letter, which is attached to my statement, it says this:

"Our files here on two such proraters operating in this area are client free. However, the files do not go as far back as the information in '57 you advised legislation was enacted in this field. Therefore, I


cannot compare today's legislation with what may have existed prior to that legislation."

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

The major problem, as I recall, was in regard to a firm who advertised nationally in various types of publications listing a Reno address which was simply a mail drop with all mail and phone calls routed to a Rhode Island office.

What I am attempting to point out is that in the states where there has been strict regulation controlling the activity, and enforcement thereof, there have been no complaints.

I have heard the comment that in Maryland and in Washington because there have been convictions of individuals in this field that this field should be eliminated. I merely ask this committee-and I may set this forth now-that I feel every regulated legitimate business has its place, whether it be the banking, the credit unions, the loan companies or what-not. But because certain loan companies in Boston, Massachusetts, were convicted of conspiracy and bribery, should they be eliminated?

I say no. I say regulate them and regulate them tightly. We are opposed to excessive fees. We are not looking for any more legislation or regulation than any other service or business, but as we are fiduciary agent and we are handling the needs of the individual and the consumer who is the backbone of this country, we must-whether we enjoy it or not-protect that consumer, and it is therefore that we ask legislation that will control every phase of our operation from a state audit that we pay for, an independent audit, and a complete


As to excessive charges, if they were made, as pointed out in California, that we return a portion of our fee, this is not true. First of all, our own outside auditor must audit and submit a report to the state. The state auditor comes in at a cost factor to us of $50 per day, which we pay, and in the event there is an overcharge, the entire fee charged on that account is refundable to the client.

As far as financial responsibility is concerned, this is one of the things that we require, and we ask that the licensee be financially sound and financially reliable and subject to any law suit or any other action that may be necessary to protect the consumer.

Over the 15 years, in the past 15 years, a study has been made by members of this industry throughout the country. We have done this with correspondence, including the National Better Business Bureau, of which I will submit letters, the local Better Business Bureaus, the Legal Aid Societies, the business firms, and through their endorsement and support have we been able to grow and deliver a service.

It has been brought out that there is a question of securing the rights or preventing the individual from losing his opportunity to file a Chapter 13 proceeding. I have certain reservations regarding Chapter 13 proceedings. Not on its purpose, not on its effectiveness, but in some areas unfortunately it has been abused by certain individuals and we are concerned with the cost factor to the individual.

We recognize and we acknowledge that the need for Chapter 13 for wage-earner proceedings must be on the books of this country when creditors will not cooperate in working extensively with the individual in establishing him free of debt. But we are concerned when it is used as a collection tool by certain credit-granting segments of this economy because, supposedly, as a secured creditor, they get a priority. They also secure a certain amount of interest while all other creditors are held back and in most instances throughout the country as statistics will show from the administrative body, do not work out effectively. In the legislation-I just want to touch on an outline of the legislation that I have recommended:

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 contract, 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 reserve.

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

I can only say this after personal knowledge, after almost 25 years in this field, that the field of consumer credit has expanded and is continuing to expand. The bankruptcy rates have increased. The economic morality of the individual is being discouraged by a certain segment of the credit industry by the encouragement of bankruptcy and the encouragement of avoiding obligations.

I also ask you to consider who in the business world has supported the Truth in Lending Bills, the Truth in Advertising bills? Who has taken the position for the consumer? If it was not individuals and members of the Association of Credit Counselors.

Have those who have opposed the "outlaw legislation" as I term itis it done in the benefit of the public interest or are they attempting to create an avenue where the individual has no escape from this happening, mounting of indebtedness.

We have been accused as an association of being opposed to the non-profit organizations being established. This is completely untrue and false. As far back as 1959 our association, through its president, Harry Katzen, offered services and continued help to any organization. In 1962 when I was president of the Association, I wrote to the AFL-CIO and a copy of the letter will be presented to you, offering our services.

Our only objection is, we refuse to allow the consumer to be held in the clutches of a certain segment of the credit industry who dominate, finance and control this.

The cost factor of the non-profit organizations throughout the country are almost identical with the charges that the ordinary professional credit counselor is charging. It is certainly not excessive, and these are figures that are taken out of the publications-quarterly reports by some of the finance companies.

In the State of New York certain bar associations attacked vociferously the outlawing of this bill in this field.

It so happened to land on Governor Harriman's desk the day an indictment was filed against a firm called Silver Shield. Strange as it may seem, the Silver Shield, as the National Better Business Bureau records will document, was owned and controlled by attorneys.

I don't believe any profession is beyond the point where certain individuals will not abuse it, but I certainly believe that ten years of complete, clear, ethical operation without one justifiable complaint in the state of California will prove that regulation will work.

In comparison with Chapter 13, our organization alone last year distributed almost one-third as much funds back to creditors as Chapter 13 did throughout the entire country. It is effective. It is a service and it works for the benefit of the consumer, and notwithstanding certain segments of the credit-oriented industry, it works to their benefit.

I would like to also present at this time the written testimony of an individual who could not appear, Mr. Charles Genosky of Minnesota, which has been submitted to the Clerk of the Committee.

I would like at this time to basically submit this material to suggest some language for a bill.

Mr. SISK. His statement will be made a part of the record at the conclusion of your testimony.

There are a number of personal letters attached here to Mr. Genosky's statement.

The question arises as to the propriety of making them a part of the record without the permission of the individuals whose signatures appear on these. I am not sure whether or not approval was sought or obtained for the use of these. Have you any comment to make on that.

Mr. RABINOWITCH. No. I would merely like to say if there is any question about their being deleted, I have no knowledge as to the permission granted, but I would like to say that letters are available from Mr. Genosky and other members of our organization both from creditors and clients at any time the committee requests them. I would say under those circumstances possibly we had better delete them from the presentation.

Mr. SISK. I think at this point we will withhold them from the record in view of the protection of the privacy of the individuals who have not necessarily given their consent.

Mr. RABINOWITCH. In conclusion all I ask is the opportunity to regulate a service but regulate it strictly and give it the teeth that it needs. In outlawing it, all you are going to attempt to do is drive it underground and withdraw from the consumer a way of coming back to a place where he can walk the streets as a human being rather than being oppressed and harassed. I would like to answer any questions any members of the committee may have.

Mr. SISK. Thank you very much, Mr. Rabinowitch. The committee appreciates your statement.

There are, I am sure, many questions the members would like to ask you. At this time I would like to recognize the gentleman from North Carolina for such questions as he may have.

Mr. WHITENER. Does your organization or members of your association engage in extending credit to your clients under any circumstances?

Mr. RABINOWITCH. No. It is forbidden by statute.

Mr. WHITENER. It depends on where you are whether it is forbidden by statute, but do any members of your organization anywhere in the United States so far as you know engage in the financing of the debt or debts of the client?

Mr. RABINOWITCH. No, none whatsoever to my knowledge.

Mr. WHITENER. All you do is seek the consent of the creditors for a pay-out arrangement and manage this, is that correct?

Mr. RABINOWITCH. Well, it is much more extensive than that, Mr. Whitener. The ultimate objective is to liquidate the man's indebtedness within his ability-

Mr. WHITENER. With his money?

Mr. RABINOWITCH. With his money, right.

Mr. WHITENER. And he sends you a certain amount periodically and then you apportion that out among his creditors who have agreed to this proposition, is that right?

Mr. RABINOWITCH. That is about as simple as you can define it. I wish it was that simple.

Mr. WHITENER. What do you do about the accounts of creditors who do not want to go along? Suppose ninety per cent of them want

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