Federal Reserve Board officials told representatives of the nation's major retailers yesterday they are studying suspension of part of the Truth-in-Lending law and other consumer protection measures to discourage consumer borrowing.
The actions contemplated by the Federal Reserve would allow lenders to raise the interest rate unilaterally on consumer credit, increase the monthly payments on accounts and make other changes without giving advance notice to customers.
The Federal Reserve also is looking at the possibility of temporarily setting aside state usury laws that limit the interest charged on consumer loans, officials said.
Federal Reserve officials said yesterday they had the authority to make such changes under the Credit Control Act of 1969. They said, however, they would need legislation to set aside state usury laws.
Temporarily preempting some consumer protection measures may be necessary to accomplish President Carter's goal of limiting the growth of consumer credit, Federal Reserve officials said during a meeting with several hundred representatives of retailers, credit card companies and other lenders.
The meeting was directed by Federal Reserve Board member Nancy Teeters; the Fed's general counsel, Neal L. Petersen, and Neal Butler, associate director for consumer affairs.
The Federal Reserve Board has not made a final decision on any of the steps, but all are under study by the board's staff.
The meeting came as some credit companies were announcing plans to limit borrowing.
J.C. Penney Co. announced it is raising the minimum purchase on which it will allow time payments from $19 to $200. Items costing less than $200 must be paid for on the next bill, Penney's said. The company said it also is raising the score that a customer must get on a "credit test" to qualify for a Penney's credit card and will limit solicitations for new credit cards to new stores.
In San Francisco, Wells Fargo bank announced it was freezing the credit limits for its 1.3 million Master-Card and Visa customers. Chase Manhattan Bank in New York said it is no longer accepting applications for unsecured consumer credit -- the kind limited by the Federal Reserve.
Last Friday, the Federal Reserve announced a plan to try to limit the growth of consumer borrowing. Consumer lenders must pay penalties to the Federal Reserve if they increase standing credit into a special non-interest bearing account in a Federal Reserve bank.
Lenders have said they will try to hold down credit by increasing minimum payments or by slapping additional fees on charge accounts.
Those actions, however, run into conflict with both the federal Truth-in Lending law and consumer credit laws in a majority of states, retailers complained yesterday.
A few state laws prohibit lenders from making any changes in the credit agreements that customers already have signed.
Most states permit changes but require that consumers be notified from three to six months in advance.
If consumers must be given such a lengthy warning, it will take months to accomplish the administration's goal of curtailing credit, Federal Reserve officials said yesterday.
The board is "rather reluctant to preempt state laws," Butler said. But, he added, "If they don't preempt at least some of them, the bite of the consumer credit regulations will be thrust a great deal of distance into the future."
Petersen said "a number of people" have warned that state usury ceilings will prevent creditors from increasing the interest rates on charge accounts to discourage their use.
The possibility of setting aside the state limits on interest charges "remains under review," Petersen said. "At the moment there is no inclination on our part to do so," he added.
Teeters said an attempt by the Federal Reserve to suspend the state laws almost certainly would run into legal challenges that could nullify or delay any action by the agency. Fed Chairman Paul Volcker has said it will take action by Congress to set aside state usury laws on consumer loans. Both the House and Senate have approved a similar bill removing all state limits on home mortgage interest.
Explaining the Federal Reserve's credit regulations, Teeters said the board is not likely to change some provisions that make it difficult for lenders to avoid increasing the amount they lend.
A representative of a major oil company noted that President Carter's new anti-inflation oil import fee will add 10 cents a gallon to gasoline prices, and higher state taxes will add even more.
Those taxes alone will push up the amount charged on gasoline credit cards, by about 10 percent, he said.
Too bad, replied Teeters, the gas companies still have to try to hold down the credit balances, including the extra taxes.
Teeters also ruled out any change in the way retailers calculate the limit on credit.A representative of Federated Department Stores, parent of Bloomingdale's and I. Magnin, criticized the March 14 date for determining the ceiling.
During the Christmas season, retail charge accounts grow to 40 or 50 percent more than the usual balances in mid-March, he complained. Will retailers be expected to tell customers they can't charge their Christmas presents next year? Teeters was asked.
Any date chosen is unfair to some business, Teeters replied.
She said, however, that the Fed may consider exempting fuel-oil company budget plans from the restrictions. Loans to finance utility bills are not covered now, but oil bills are covered.That discriminates against oil heat users, Federal Reserve officials admitted.