Rate Aspects of Instalment Legislation

Abstract

A realistic approach to the problem of instalment credit charges requires concentration on conditions as they are. It should not mark off sectors of the field with boundaries determined by theoretical concepts; nor should it ignore all but a few outstanding agencies, such as the largest finance companies and the largest merchandise distributors. It should embrace the whole field. To draw an accurate statistical picture of such a large field, however, is impossible with the meagre materials at present available. We do not know how large is the whole; we do not know the size even of any of the constituent parts. We do not know the dollar volume of instalment sales, the volume of instalment credit outstanding at any one time, nor the average rates charged for that credit. Fortunately, we do not need to know any of these things in order to appraise the social worth of present methods of instalment business conduct. Large numbers of case studies, distributed over many states and many commodities, show clearly the nature of the problem. We assume at the outset-considerable evidence to the contrary notwithstandingthat the consumer is interested in the price he pays for anything, whether that price is for merchandise or for credit granted in connection with the sale of merchandise, and that he would make comparisons of credit costs if the necessary information were provided in sufficiently plain terms. Does the consumer in fact get that information? In search of an answer, let us consider what we found in one Mid-Western state.1 In the sixty stores visited, there were at least twenty-four plans in operation. These twenty-four plans, grouped according to the methods of stating the credit charge, fall into eight broad classifications: (i) a flat dollars and cents charge, with the system for determining that charge undisclosed; (2) a discount from the advertised or list price for cash payment, granted in some stores only if the customer demands it; (3) a flat percentage levied on the *A.B., 190I, A.M., I904, Harvard; Ph.D., i9II, Columbia; LL.D., 1913, Colorado College, I916, Western Reserve. Director, Pollak Foundation for Economic Research, since 1920; Member, Consumers' Advisory Board, N. R. A. President, Reed College, 1910-1920. Author of numerous works, including (with Waddill Catchings) Money; Profits; Business without a Buyer; The Road to Plenty; Progress and Plenty. Contributor to periodicals. t S.B., 1928 M.B.A., 193I, Harvard. Associate Director, Pollak Foundation for Economic Research. Author, State Regulation of Instalment Selling and Financing, a debate handbook. Contributor to periodicals. 'For the method of the study, and the complete table of rates, see LeBaron R. Foster, Instalment Credit Costs and the Consumer, (Jan. 1935) J. Bus. U. OF CHI. 27-45.