By Steve Cocheo, executive editor
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The late William Proxmire, U.S. Senator from Wisconsin and past chairman of the Senate Banking Committee, made a name as a scourge of government waste. But among the legacies he left to banking was the Truth in Lending Act, implemented by Regulation Z. The act was signed by the President in May 1968, Reg Z’s first incarnation was published in October of that year, and the new law became effective July 1, 1969.

The law that became one of bankers’ continuing compliance duties took some time to gestate, being before Congress in some form since 1960. In a June 1967 Washington column, Banking opined:

“Truth may yet be the death of ‘Truth-in-Lending.’ As the Senate Banking and Currency Committee delves deeper and deeper into S.5, the interest disclosure bill, truth seems harder and harder to find. Nowhere is it pure and simple.

“Indeed, the bill’s glib and appealing title may turn out to be more damning than blessing. It is not by any means unassailable.

“Quite the contrary, the all-goodness-and-gracious title is vulnerable—aside from the fact that the strained slogan has nothing to do with rate disclosure, which is what the bill is all about. It invited attack, and got it.

“ … Would it not be more accurate as ‘Lies in Lending’ or ‘Approximate Truth in Lending?’

The article noted that the Proxmire version of truth in lending backed what we now call the “A.P.R.”—annual percentage rate. Earlier such legislation backed by former Senator Paul Douglas of Illinois (see Then & Now, September, p. 90) called for disclosure of simple interest rates, which encompassed fewer charges. Proxmire, Banking stated, represented “a determined but more compromising sponsor” than Douglas.

Among vocal opponents to the legislation was Sen. Wallace Bennett (R.-Utah), father of current Sen. Robert Bennett, a senior member of today’s Senate Banking Committee. When he questioned witnesses from Massachusetts, then the only state with its own truth in lending law, he demonstrated his belief that the proposal would yield, at best, approximate truth in lending.

ABA supported full disclosure of finance charges in connection with consumer loans, but insisted on state legislation rather than federal law.

“The annual percentage rate formula is virtually incomprehensible as it is defined and intended to be applied,” ABA stated.

The Federal Reserve, arbiter of truth in lending to this day, “to which S. 5 would assign the task of regulation and enforcement, with obvious reluctance agreed to undertake the former responsibility but gave strong reasons why it should not be asked to carry out the latter,” Banking reported.

The Fed witness, Vice-Chairman J.L. Robertson, widely respected as a regulatory expert, endorsed disclosure, but noted that it would be no panacea for “the myriad abuses practiced,” Banking reported. He recommended that either the Justice Department or the Federal Trade Commission serve as the enforcement agency. In the end, as passed, the law gave nine different federal agencies, the Fed among them, aspects of enforcement.

The initial draft regulations released in October 1968, according to the December 1968 Banking, covered three key points: interest rate disclosure; right of rescission; and standards for advertising consumer credit.

What followed wasn’t pretty. “During its first 10 years, Truth in Lending caused great confusion,” understates ABA’s eighth edition of the Quick Reference Guide to Banking Regulations. “No model forms were provided in the law, so each lender made up its own disclosure. Consumers were faced with a multitude of different forms when shopping for loans. Lenders also were confused. The Federal Reserve issued several hundred staff interpretation letters to answer questions concerning Regulation Z. Many Truth in Lending lawsuits were filed during this time period.”

In 1980, Congress enacted the Truth in Lending Simplification and Reform Act. Among the requirements was Fed issuance of model forms. Years of further regulatory additions and editing followed, with several amendments pending even at this writing.

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