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Cedar Rapids Gazette (Newspaper) - January 27, 1974, Cedar Rapids, Iowa Question: How High Should Iowa Charge Account Interest Go .... ... . .    .    .    .    ...    .....    ...    ..    .....    *    *    ai..       in    tho    I    (to    I; ft vv is not By Roger Green The question is not whether the stale’s interest ceiling on retail charge accounts should be increased from the current 9 percent, according to Thomas Harkin, attorney for the Iowa Consumer league. Rather, the debate is over how much higher the ceiling should be. The Iowa supreme court last October ruled retail charge accounts fall under the state usury law limiting interest charges to 9 percent. Prior to that ruling. Iowa’s retailers had generally been charging one and one-half percent monthly on charge account purchases not paid within a 30-to 90-day grace period By federal truth-in-lending laws, that equals 18 percent annually. Want 18 Percent Iowa retailers since then have launched a drive for legislation to return the ceiling to 18 percent—a level they say is adequate to cover most, though they claim not all, extra expenses involved in credit purchases as opposed to cash-on-the-line operations. Harkin came to the forefront last week as one who hasn’t swallowed the retailers’ claims In toto when he challenged a Sears, Roebuck and Co. official to a debate on the issue. (Sears was one of the defendants in the suit on which the supreme court lowered the interest boom.) “No one is rationally saying the rate should be kept at 9 percent.” Harkin said in explaining his stance. “You can’t borrow money at 9 percent or more, turn around and extend credit at the same cast and still pay for other expenses at the same time. “I am saying the retailers have not justified the need for 18 percent and until they do so. I’m opposed. “If the cost of extending credit is only 14. or 13, or 15 percent, that's where it should be. Break Even Point “Whatever their break even point is on credit and maybe a slight amount more, maybe that would be enough.” Figuring exactly what that “break even point” is snags the situation up. The Gazette cheeked with several local retailers and financial institutions and found them unanimously convinced 18 percent is necessary'. The Iowa Retail Federation, Inc., has been a major lobbying force in the effort to push the ceiling to 18 percent. A publicity packet distributed by the federation was used by several of the retailers in explaining their positions and the others might r Ifs Your Business! Meetings this week of public, tax-spending agencies Monday 1:30 p.m.—Plats committee of the city planning commission. Sixth floor conference room, city hall. 1:30 p.m.—Otter Creek township. Trustees meeting. Alburnett fire station. 3:30 p.m.—Linn supervisors. Informal session. Room 103, courthouse. 6:30 p.m.—Hiawatha water board of trustees. City hall council chambers. 7 p.m.—Planning committee of Marion Independent school district. Board of education offices. 7:30 p.m.—Board of directors. Cedar Rapids Community school district. Board room. Educational Service center. 346 Second avenue SW Tuesday 8:30 a.m.—Cedar Rapids city council. Fourth floor council chambers, city hall. 10 a.m.—Linn supervisors. Open session. Room 103, courthouse. 1:30 p.m.—Joint meeting of urban renewal board and Oak Hill liaison committee. Fourth floor council chambers, city hall. 7:30 p.m.—Linn Health center board of directors. Lower level conference room, Linn Health center, 400 Third avenue SE. 7:30 p.m.—Linn county civil service commission. Linn courthouse. 8 p.m.—Hiawatha library board Wednesday 9 a.m.—Cedar Rapids city council. Regular meeting. Fourth floor council chambers, city hall. I p.m.—East Central Iowa area crime commission. Basement conference room. Rural Electric Co-op (REC) building. 1:30 p.m.—Cedar Rapids city planning commission. Fourth floor council chambers, city hall. 1:30 p.m.—Joint meeting of urban renewal board and Oak Hill liaison committee. Fourth floor council chambers, city hall. Thursday 1:30 p.m.—Cedar Rapids city planning commission. Fourth floor council chambers, city hall. 2:30 p.m.—Linn supervisors. Open session. Room 103, courthouse. Friday 11 a.m.—Urban renwal board Sixth floor conference room, city hall. Lecture Topic: Certainty in Uncertain Times Dr. Isabel Wood Rogers, professor of applied Christianity at the Presbyterian School of Christian Education. Richmond, Va., will give a series of lectures on “Certainty in Uncertain Times” Wednesday through Friday at Coe college. The lectures, “The Search for Certainty: The Return to Religion”; “In the Wake of Watergate: The Loss of Trust in Gov- Dr. Isabel Rogers eminent” and “Running Out of Gas: Living on a Limited Planet”, will be held at 7:30 p.m. each night in Cherry auditorium and are open to the public without charge. In addition, Dr. Rogers will conduct a workshop Thursday morning for pastors, lay leaders and interested members of the community on “The Churches and Social Responsibility in Cedar Rapids”. Dr. Rogers’ appearance at (Coe is sponsored by the Staley Distinguished Christian Scholar Lecture program, through a grant bv the Thomas F. Staley foundation. Dr. Rogers is a graduate of F I o r i d a State College for Women, the University of Virginia. the Presbyterian School of Christian Education and Duke university. She serves as elder in the First Presbyterian church of Richmond and was on a special study committee which prepared a paper on aliortion for presentation at the 1973 general assembly of the Presbyterian Church in the U. S. Inflation May Prompt New Issue of $2 Bills WASHINGTON ( U P I ) — A nickel hasn’t bought anything for a long time. Now, as the dollar buys less and less on store shelves the treasury department is considering reissuing the $2 bill There is even speculation that, as the United States is minting $1 coins, the paper dollar might disappear completely, although no such move is contemplated for the near future, the National Geographic society says. Popularity is the question confronting advocates of a revived $2 bill. The reason they were discontinued in 1966 was because too many people refused to use them — perhaps because of widespread belief the bills were unlucky. Unpopular as the scorned “deuce ’ may be, American $2 notes are as old as the nation. They first wore authorized by the Continental Congress in June. 1776. as “bills of credit for the defense of America “ About 49.000 $2 bills were circ- Tail End The last car on a freight train, the caboose, gets its name from “kabuys,” which originally meant the cook’s quarters on a ship. Freight] trainmen sometimes cook in their “cabooses,” so the change from ship to train is not far fetched. ulated. but inflation so plagued (the colonies during the Revolutionary war that nobody wanted paper money of any denomination and “not worth a Continental” became a catch-phrase. The twos weren't issued again until 1862, when they were authorized by congress during the Civil war. The bills bore the portrait of Alexander Hamilton, the treasury secretary killed by Aaron Burr in a duel. Replacing Hamilton’s likeness with that of Jefferson the following year did nothing toward making the bill more popular. Some authorities think $2 bills I came into bad repute because they were widely used to buy votes during the national election of 1880 Economically, there are advantages in the $2 bill. It costs the government as much to print ones as twos — about a penny a bill. James A. Conton, director of the Bureau of Engraving and Printing, estimates a savings of $2 1 million a year if the bureau replaces half of its $1 bills with $2 bills. One observer jokes that if the treasury department wants to revive $2 bills at their former value, it .should take account of inflation and print them as $3 bills. It wouldn’t be a first There were Continental $3 notes and New Yor k and Texas once circulated $3 bills. Preacher Rides Bicycle To Reach Flocks Sinners HOUSTON (UPI) - During World war II the Rev. Richard Irvin rode his used bicycle with coaster brakes to save fuel and track down backsliding church members. Today, the 59-year-old pedaling preacher has answered the energy call and again is hopping on his two-wheeler to ferret out sinners. “I had a bicycle on hand and when the announcement of the limitation of fuel came I bogan to ride not just for pleasure but for the visitation of my j church members and their homes,” he said. “It makes me feel better physically and it seems like I have a more healthy communication with everybody I meet along the way. There are days now that the car never leaves the garage.” On most days the slightly balding minister slips his shiny 110-speed racer out of the garage and pumps his way along the shady streets that crisscross the neighborhood where most of Oakwood United Methodist J church’s 299 members live Say Woman Hired Children To Steal PALERMO, Sicily (UPI) Police said they have solved the problem of the stolen zoo birds They charged Maria Perrone, 40, with hiring lO year-old children to climb zoo walls and steal dozens of rare birds over I the past few weeks. Police said they caught a boy handing her two ducks. as well have read from the same material — the arguments were the same from all quarters. None of the local firms contacted could provide a breakdown of costs involved in the charge account operation at their specific store. The closest thing to it was a study in which a local store participated. The study was conducted on a chain of between 15 and 20 Iowa stores. Study by Chain Expenses listed for the fiscal year ending Jan. 31, 1973, included: Cost of money ($500,000 at eight percent) $40,000. Bad debt write-off (less recovery) $30,341. Computer costs $8,090 Personnel $30,595. Postage to mail statements $9,760. Cost of statements, envelopes and return envelopes $3,294. Plastic credit cards $350. Credit applications $300. Office supplies (computer paper, etc.) $500. Total expenses $123,230. The chain listed total income from finance charges at the one and one-half percent per month figure as $52,213, showing a deficit on the credit operation of $71,017. The company estimated between 25 and 30 percent of its accounts pay on a regular 30-day basis, not incurring any interest charge. To relate the expenses solely to those accounts from which service (interest) charge revenue was gained, the company subtracted one-third the total expenses (even more than the estimated 25 to 30 percent) and showed adjusted expenses of $82,157. Still Lost With this adjustment, the loss from those accounts actually paying interest was still $29.944—even at an 18 percent interest charge! “We believe the above to be conservative in the area of expenses.’’ the company’s report adds. “It does not include any charge for time spent bv management on the credit problem.” In addition, the estimates used only figured that one-fourth the company’s computer time was devoted to credit operations when the companv savs up to one-third the computer time may be so used. Similarly, onc-half the company’s central office personnel time Ls believed devoted to credit operations while only one-third was used in the study. Plus, the coat of money (interest which the company pays to borrow money and cover the purchases) was at only 8 percent. In recent months, the figure has ranged from 9.5 to ll percent The figures indicate income at the 18 percent annual rate rovers only about 64 percent of extra expenses involved in handling those charge account purchases upon which interest is actually paid Other retailers estimated their credit operations would run a cost-to-income level .similar to that study, with most placing the figure in the 75 percent range. As Harold Wendorf, presi-dent-tre asteer of KilHan’s Co., said, “We would still not be paying for our credit operation at one and one-half percent, but we would be offsetting a good portion of it.” Accepting the retailers’ figures, the 18 percent charge would appear to be justified and. if anything, conservative. But, Harkin doesn't accept the figures at face value The problem is that casts figured for credit operations are costs interwoven with the total operation, he claims. Costs Interwoven “Ask a retailer vvhv credit is offered.” he said “The answer you’re bound to get is to increase the volume of titles. “if you increase the volume of sales, you increase the profit. By getting a profit on top of (the interest or service charge), you get a second profit.” Figures cited by retailers often include salaries of personnel on the sales floor, he said. They claim the extra salary is required because of extra time necessary to complete a credit sale “That’s baloney," Harkin claims. “They need it because of the extra business generated.” They often take Into account rent for space used by credit p e r s o ii n e I or in storing records. Normally, an area that would not otherwise be used is the location of the credit department. Harkin says. Postage casts are normally included in credit expenses, yet "everytime you get a hill, you get advertisement,” he said. The postage is serving a dual purpose. “Even if you do have credit personnel and computer time, on one hand you can say that is a (‘ast of doing credit business,’’ Harkin said. “But. at the same time, you are increasing volume and profits. Some portion of that credit cost should he covered by increasing profits.” Assess Costs Tho retailers argue tho ser-vico charge is simply that—a moans of assossing extra costs of charge account operations to charge customers. “Most retailers believe if a customer wishes to have a charge account and extended terms, he should pay for it, not the cash customers,” H. Hamilton Morse. Armstrong’s vice-president, said “Tho Penney’s Co. has said that when they start making a profit (on the interest charge), they will reduce the rate,” Blake Garske, Pen-nev’s Cedar Rapids manager, said. The retailers argue the 18 percent annual rate is a fallacy when assessed at 1.5 percent per month on a revolving credit plan. ‘‘The average customer doesn’t pay anywhere near that,” Morse said. The charge isn’t assessed for the first 70 to 90 days, depending upon the firm and then is only assessed on the unpaid balance each month. Morse said a random sample of IOO Armstrong’s revolving credit customers showed the average paid was actually ll percent rather than 18 “The big thing is. von have to get time payments before the interest starts.” Pennev’s Garske said. “We’re losing money until then." And, with a store like Penney's, “We don’t have many of those (who don't pay early enough to avoid the interest charge).” he added. “We don't have big ticket items h» re where people buy on time.” Robert Goldberg, manager of Arnold’s, estimated 60 pcr-cent cf that store's charge customers do pay some interest charge at one time or another. But, that wouldn’t be anywhere near 60 percent of the charge sales, he added “On total gross charge sales, we collect less than 3 | percent interest.” he reported. “We have to pay 9.5 percent for our money, that’s not counting any labor or supplies we put in.” “Here’s the sad thing,” says Willis Daugherty, store manager at Seifert's in downtown Cedar Rapids. “It (low' interest) is not going to hurt the chains with stores in other states.” Who’s Hurt? The smeller local business man and persons needing credit most will be hurt more. he said. Bob Zeimer, general manager at Ilten and Taege, explained that store’s predicament. The store does not handle credit for its customers directly. Prior to the supreme court ruling, it arranged Iowa retail sales contracts for lbs customers with Merchants National bank. MNB provided the customers’ loans at 12 percent. Worn all in the Ear Want to hear again? Here is the answer for those with a mild nerve loss. Fits all in the ear . . . there is nothing more to wear. There are no outside wires or buttons . . . slip it into your ear and forget it. Come in or call today . . . experience the hearing help you've always wanted 77 /ears Serving The Hard Of Hearing Acousticon Hearing Aids CROWLEY HEARING AID CENTER 822 M N.B. Bldg. 364-5816 "Since the bnnks can’t charge higher than 9 percent, they’ve cut us out of the credit business,” Zeimer said. “The low charge makes it uneconomical for them.” Ed Doyle, at Merchants National, explained the break even point for the hank at 12 percent simple interest is $800. “Because of the average size of the note (normally coming from a store such as llten and Taege), we were not even breaking even,” he said. Up to Customer Since Ilten and Taege is a good customer otherwise, the bank handled its retail Rales contracts and broke even in the long run at 12 percent, bt* reported. “There’s no way we can buy them at 9 percent,” he added So, today, the store is generally selling its merchandise on a cash only basis. “If the customer wants to buy a $400 washer* and dryer set on credit, we tell him he’ll have to come up with his own cash,” Zeimer said. “I don’t know what the impact has been, but I know we’ve lost sales on it to firms that still offer credit.” Tom Heabel, at Heabel’s, t h e Builder’s Department Store, reported that firm handled retail sales contracts on large purchases before the court ruling. “We let them arrange their own financing now,” he said. “We have had some resistance to it. They say, ‘All right. Well go somewhere else.* I know of a few incidents where they returned later, unable to find a firm that could offer credit.” The 9 percent ceiling is especially hard on smaller firms with their own credit department. “Even the 18 percent was done because of competition," Goldberg of Arnold’s said. “The losses percentagewise are larger for a smaller de-nariment.” lh* cited high fees the store pays a collection service to collect had debts as one example of higher costs for a smaller store. A large store can have its own personnel perform that service,' he said. Still Credit Failure to increase the present 9 percent ceiling will not be the end of charge account purchases, Heabel said. “That would be closing your front door,” he said. H. F Armstrong, manager of the Sears store in Lindale F’laza, said 52.3 percent of the Sears company’s total sales in 1972 were on charge accounts. Heabel said discounts for cash purchases are one likely move that store would take to encourage cash purchases rather than credit purchases in the event the law is not changed. Goldberg said Arnold s Is encouraging purchases b y Master Charge and Hank-Amcrirard under the 9 percent ceiling. Even with discount fees the store must supply the credit card firms, the cost is not as much as the losses at 9 percent, lie reported “I believe if it (9 percent) stays in effect, yon will find marginal credit customers going lo small loan institutions and paying up to 27 percent plus insurance and other costs,” Wendorf from Killian's said. "We’re scrutinizing opening accounts at the present time. We have probably opened fewer accounts, but to what degree, I don’t know ” Smulekoff’s Furniture Co. has reduced the grace period when no interest is assessed charge purchases. Now. Smulekoff’s customers are assessed the service charge 30 days after billing as opposed to the 90 days of the pre - supreme court ruling period. “The bad thing about this bill (to raise the ceiling),” according to Daugherty of Seifert's. “is that its very unpopular. “No one wanks to vote for a raise in anything when in effect we need it.” ;

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