What Is the
For more than a decade now, retailers have been under pressure from the courts and from legislatures to reduce finance charge rates and to modify the methods used to calculate such charges.
The most recent wave of pressure can be traced to an increasing reliance on the "revolving" charge account-wherein new purchases are added to the balance, the re-quired payment is a function of the open balance, and a finance or service charge is assessed based on the balance.
Among other reasons, the increasing use of this type of account has tended to highlight the revenues that a retailer receives for extending credit. Also, since the revolving accounts have frequently replaced a 30-day charge ac-count, the introduction of a finance charge led some observers to believe that an apparently free service had been replaced by a revenue-generating one. Retailers, they believed, were reaping additional profits by "selling" a service they used to give away.
During hearings held by the National Council on Con-sumer Finance during 1970, and during hearings held by
Senator William Proxmire at approximately the same time, • another notion concerning these accounts was introduced: that the nature of the revolving account discriminated • against certain groups of consumers either by making them pay more than others for goods and services or by denying 1 them credit privileges granted to others.
A comprehensive study was recently conducted by 1 Touche Ross for the New York State Council of Retail Merchants (available from the Council at 150 State St., Albany, N.Y. 12207). The study demonstrated several key points:
— The retailer, despite highly visible and apparently sub- , stantial revenues, earns no profit on the "sale of credit services"—in fact he incurs a substantial loss. (
— Contrary to what many well-intentioned people believe, the present situation discriminates against cash cus-tomers rather than against credit users; this is so because regulations fail to permit the operation of a free market > for credit services.
— The obvious and most popular solutions for the law- »