to go along with a long-term pay-out and ten per cent decline? How do you handle that?

Mr. RABINOWITCH. Well, frankly, let me say this: I have only had that experience up until the last ten years. In the last ten years the creditor is not our problem. The creditor goes along.

Mr. WHITENER. Even small loan companies?

Mr. RABINOWITCH. Without any question. Without any question. Including some of those who are openly and overtly encouraging the outlaw bill.

I can substantiate this in writing. I can substantiate this through records of not alone our office, but many offices where these organizations refer people to organizations such as ours.

Mr. WHITENER. And most creditors will go along?

Mr. RABINOWITCH. Yes. Creditors are anxious to work with the individual basically, regardless of what anyone may say.

In the period of time that I have been in operation, I cannot think of one hundred accounts that we have not been able to secure creditors a cent. I can also demonstrate that in the city of Fresno, in the city of Bakersfield, Eureka, Stockton, we are there only at the invitation of the credit-grantors, after meetings with them where they ask us to come in to offer a solution to the individual.

Mr. WHITENER. You have made some reference to the comparing of costs and you have an exhibit relating to it, the Chapter 13 fees as compared to your experience with an approximate 15 per cent cost to the debtor?

Mr. RABINOWITCH. Our charge is only 12.

Mr. WHITENER. I believe Mr. Genosky said something about 15 per cent would be a fair figure but he gives specific cases where it has ranged up to 40 per cent for Chapter 13.

Mr. RABINOWITCH. That is true.

Mr. WHITENER. He also mentioned the difference between Chapter 13 and your operation from a creditor's standpoint, where the unsecured creditor does not have to face the issue of a secured creditor having priority under Chapter 13.

Mr. RABINOWITCH. It goes deeper than that. As a typical example, I had written to DeWitt Paul, Chairman of Beneficial Finance, on this. This is my first experience in having dealt with this. We had made arrangements with the branch office of this company to liquidate the obligation of a military man instead of at the rate of $28 a month, which he could not afford, at the rate of $14 a month. We made arrangements for five months, I believe. The sixth month we got the check back from the manager of that office saying that he will only accept $28 and will not accept any reduced payments.

Of course, I called because we had an agreement. Well, this was a new manager. In the course of the conversation he said, "I would prefer him going into Chapter 13 because I will get my full payment as a secured creditor."

I asked, "What are you secured with?"

He said, "Well, I don't know. This was an account transferred from out of state."

I said, "Well, as far as I am concerned, I am sending you the $17 you credited. I am advising our client that you are attempting to re

negotiate your situation, that it is impossible for you to meet this commitment, and I am going to take the liberty of directing a copy of this letter to DeWitt Paul, Chairman of the Board of Beneficial Finance." I have. I have not had a reply as yet, but I can almost assure you that this is simply the area of one man who feels a new broom is going to sweep clean and is not concerned with the individual consumed.

This is one instance. The one instance. This is also a sort of a sense of policy this individual picked up from another area he comes from where Chapter 13 is being used as a collection agency.

Mr. WHITENER. We have had some real problems with Chapter 13 procedures but we do have the problem that the debtor has to have his money to pay counsel and so forth.

Mr. RABINOWITCH. I don't know about the initial charges, but let me say I am not opposed to Chapter 13. I think there is a strong need for it.

Mr. WHITENER. The trouble is, we can't seem to get anybody to use it except in a few areas of the nation.

I inserted in the Congressional Record an explanation of Chapter 13 and how it works and how the lawyers could help so many people. I personally paid to have it printed and have it sent to every lawyer in my district. I don't believe there has been a Chapter 13 proceeding filed in my district since. So I don't know what we can do to get folks to try to rehabilitate themselves without a bankruptcy proceeding. Mr. RABINOWITCH. It will become worse with this computer age cause future employment is going to be dependent upon identification through credit reports.

be

Mr. WHITENER. Perhaps regulation would be better than probibition. But there again you run into this matter which I know enters the minds of the District Commissions and any other governmental group and that is you have to create new costs of government in order to regulate.

Mr. RABINOWITCH. But these are self-supporting.

Mr. WHITENER. Hardly anything is self-supporting in the

government.

Mr. RABINOWITCH. Unfortunately, in California we, as an industry, have had to make it a self-supporting one and I think it should be maintained that way throughout the area. I think industry who is attempting to earn a profit, which we constantly hope for, and hope some day we will attain, should afford the privilege of paying for this supervision, the audits and the control.

In California it is a very minor phase of its operation, but the audit bills and licensing fees are completely cost-free to the state.

Mr. WHITENER. Of course, you folks don't get in debt.

Mr. RABINOWITCH. You should see Los Angeles.

Mr. WHITENER. This is why I wonder about this budget planning. I think if we had a better system of helping people plan their budgets, we may avoid some of these unfortunate consequences. We congressmen get calls where people can't get their old mother admitted to a hospital because of a credit rating.

Mr. RABINOWITCH. May I point out something else that has not been touched on? That at the present time we eliminate the assistance to people. The approach was 15 years ago that we are dealing with the indigent.

The indigent today are being serviced by the professional credit counsellors, such as myself and others.

In the areas where there is a community counseling service, we take advantage of it by referring them there, or we refer them to a Legal Aid Society or we refer them to the OEO now, that has established this type of service.

Our average client today is no longer the indigent. He is anywhere from a $5,000 to a $10,000 income. Are we also going to deprivewhether it be a congressman or Frank Sinatra, of being able to secure a financial advisor to maintain his activities, his financial activities? We handled Sterling Hayden for a short period of time and found the fees he was paying in certain areas for services may have been too high as far as we were concerned, but they were performing a service. Are we going to deprive them of it? Are we going to deprive, for example, Willie Mays, of the opportunity of getting professional service in the handling of his funds? Isn't this what this bill will do, an outlaw bill?

We talk about the banks. I think if you will read last night's paper, the Washington Post, Riggs National is considering a computer arrangement with another firm and going into the "cashless check society" where you send your bills and your check to the bank and they take care of all of it.

I am not an attorney, but I would assume that this would also prohibit that. Where are we going with it? What is the purpose? Is it to keep the indigent down? Keep him involved to the point where he can't breathe any more? Or is it a question of attempting to close off everybody from every avenue of escape except to walk in and borrow money and live in this world of oppression in the financial world? Let's look at the consumer and consider who is behind the move to eliminate this assistance. That is all I request.

Mr. WHITENER. Thank you very much.

Mr. SISK. Thank you very much. Does my colleague from New Mexico have any questions?

Mr. WALKER. I have no questions.

you

Mr. SISK. Mr. Rabinowitch, in regard to the material which furnished, I certainly want to be sure that at least a part of it gets in the record. Without objection, I want the Code of Ethics of the American Association of Credit Counselors adopted at Indianapolis. Indiana, on March 5, 1955, to be a part of the record. (The document referred to follows:)

CODE OF ETHICS AMERICAN ASSOCIATION OF CREDIT COUNSELORS ADOPTED AT INDIANAPOLIS, INDIANA, MARCH 5TH, 1955

Resolved by the American Association of Credit Counselors in regular Annual Convention assembled, that the following Code of Ethics be and the same is hereby made a part of the By-Laws of this Association for the purpose of determining the rights of the members of this Association.

By this Code of Ethics all members of this Association are firmly bound in that all members shall

1. Furnish a clear statement of the charges, terms, and list of all accounts to be paid.

2. Amortize charges over the number of months necessary to liquidate the obligations and take no more than the amortized amount due at any time. 3. Take no fee until the debt payment program is arranged.

4. Take no account unless a written and thorough Budget Analysis indicated the term of payment can be met.

5. Make a concientious effort to follow every program to a successful conclusion.

6. Present the services on its own merits, permit no misleading advertising and avoid any encouragement of Bankruptcy.

7. Make no payments or reward of any nature for referral of potential customers.

8. Strive to preserve friendly relations between Debtor and Creditor and to re-establish credit.

9. Distribute money received for creditors promptly and to the best interest of the customer.

10. Protect in common the best interests and the dignity of Credit Counseling and be vigilant in the correction of abuses wherever found.

AMERICAN ASSOCIATION OF CREDIT COUNSELORS.

Mr. SISK. Any questions?

Mr. WHITENER. Mr. Rabinowitch, Mr. Kneipp made reference to the lack of qualifications of a person like you, a non-lawyer, to advise a client on the legality of a claim.

Mr. RABINOWITCH. This has been a double-edged sword that everybody used against all of us in the field over the years. If I was an attorney and knew the answer and reviewed every document coming in, without any question I would be practicing law. If I don't I am being accused of depriving the man of that opportunity.

All I can say is we have reviewed this in California and it is an acknowledged fact the individual coming to us recognizes his obligations and, quite frankly, if we are concerned about some illegitimate charges there are legal aid organizations and others that will help and some attorneys that will determine it. We cannot determine every obligation. If he says he owes Sears and Roebuck twelve bucks and it turns out to be $12.32 because of service charges, I don't believe the responsibility is on us to determine the legality. If there is a question, yes, we have a moral obligation to see that he gets the service and care and attention he needs, the same as if he is going to a quack or an unlicensed psychiatrist. This is why the Bar Association joined us in drafting our bill in 1957. In fact, they opposed us. They appointed Archibold Mull to appear in opposition to it and it finally resulted in certain amendments. You have a Member of Congress who in 1957 opposed me and authored an outlaw bill in California, and just the other night I had the opportunity of meeting him-it is Gus Hawkins-and he said he wanted to thank me for showing him he was wrong and there was a way of regulating the business. This was one of the greatest sources of satisfaction I ever had.

Mr. SISK. I would like to direct your attention to the draft of a bill headed "Suggested Language For a Bill Licensing and Regulating the Business of Credit Counselling and Financing Management' which was forwarded to me. Do I understand that this is in accordance with existing California law?

Mr. RABINOWITCH. There are some slight modifications strengthening certain areas and affecting the fee structure. Our fee structure in California is lower than suggested there. It is 12 percent on the first $3,000, 11 percent on the next $2,000, and 10 percent on the next $5,000. This is a straight 15 percent of the money disbursed to creditors, not on the total obligation. It is earned as we distribute the funds to the creditors. But it is almost identical to that in California in every other respect.

Mr. SISK. Without objection I will ask that this document be made a part of the record at this point.

(The document follows:)

SUGGESTED LANGUAGE FOR A BILL LICENSING AND REGULATING THE BUSINESS OF CREDIT COUNSELLING AND FINANCIAL MANAGEMENT

Section I. Definitions. For the purpose of this act:

A. A credit counsellor is a person who, for the benefit of a debtor, engages in whole or part in the business of receiving money or evidences thereof for the purpose of distributing the money or evidences thereof among creditors in payment or partial payment of obligations of the debtor.

B. This definition does not include the following activities when performed in the regular course of businesses and professions hereinafter listed when the performance of credit counselling and financial management service is performed only incidental to such businesses or professions. The provisions of this division do not apply to any of the following:

1. Persons or their authorized agents doing business under license and authority of the Superintendent of Banks of the Stafe to

or under any law of this State or of the United States relating to banks, trust companies, building or savings and loan associations, title insurance companies or underwritten title companies and escrow agents.

2. Persons or their authorized agents engaged in the business of paying to others bills, invoices, or accounts of an obligor or of selling or cashing checks, drafts, or money orders issued by a person who has been licensed under and complied with the Statutes of the State of

3. The services of a person licensed to practice law in this State, when such person renders services in the course of his practice as an attorney at law, and the fees and disbursements of such person whether paid by the debtor or other person, are not charges or costs and expenses regulated by or subject to the limitations of this chapter; provided such fees and disbursements shall not be shared, directly or indirectly with the licensee, check seller or casher.

4. Any transactions in which money or other property is paid to a "joint control agent" for dispersal or use in payment of the cost of labor, materials, services, permits, fees, or other items of expense incurred in construction of improvements upon real property.

5. A common law or statutory assignment for the benefit of creditors or the operation or liquidation of property or a business enterprise under supervision of a creditor's committee.

6. The services of a person licensed as a certified public accountant or a public accountant in this State, when such person renders services incidental to his practice as a certified public accountant or a public accountant, and the fees and disbursements of such person whether paid by the debtor or other person, are not charges or costs and expenses regulated by or subject to the limitations of this chapter; provided, such fees and disbursements shall not be shared, directly or indirectly, with the licensee, check seller, or casher.

7. Regular employees of licensees under this act when acting in the normal course of their employment:

8. Judicial officers or any person acting under authority or order of a court of this State or the United States;

9. Employers offering credit counseling services exclusively for their employees; and at no charge or expense to debtor.

10. A creditor of a debtor whose credit counselling services are rendered without any cost to the debtor.

C. "Debtor" means a person from whom monies are being accepted for disbursement to creditors and whose principal income is derived from wages, salaries, commissions, pensions or annuities.

D. “Licensee” means any person licensed by the Administrator to engage in the business of credit counselling or financial management pursuant to the provisions of this act.

E. "Administrator" means the officer designated to administer this act, or his designee.