ENT

COMMITTEE ON APPROPRIATIONS

HOUSE OF REPRESENTATIVES

SEVENTY-FIFTH CONGRESS

FIRST SESSION

ON THE

INDEPENDENT OFFICES
APPROPRIATION BILL FOR 1938

H. R. 4064

SENATE AMENDMENT No. 11-COMMODITY CREDIT
CORPORATION

SENATE AMENDMENT No. 12-ELECTRIC HOME AND

FARM AUTHORITY

SENATE AMENDMENT No. 13-EXPORT-IMPORT BANK

OF WASHINGTON

DIV.

COMMITTEE ON APPROPRIATIONS

MARCELLUS C. SHEILD, Clerk

SUBCOMMITTEE ON INDEPENDENT OFFICES CLIFTON A. WOODRUM, Virginia, Chairman

SENATE AMENDMENTS NOS. 11, 12, AND 13, INDEPENDENT OFFICES APPROPRIATION BILL, 1937

HEARINGS CONDUCTED BY THE SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, HOUSE OF REPRESENTATIVES, IN CHARGE OF THE INDEPENDENT OFFICES APPROPRIATION BILL FOR THE FISCAL YEAR 1937, ON THE DAYS FOLLOWING, NAMELY:

TUESDAY, FEBRUARY 23, 1937.

ELECTRIC HOME AND FARM AUTHORITY

STATEMENTS OF MAX 0. TRUITT, SOLICITOR, RECONSTRUCTION FINANCE CORPORATION, AND TRUSTEE, ELECTRIC HOME AND FARM AUTHORITY; WILLIAM A. WEAVER, TREASURER, ELECTRIC HOME AND FARM AUTHORITY, AND THOMAS G. CORCORAN, TRUSTEE, ELECTRIC HOME AND FARM AUTHORITY

Mr. WOODRUM. Mr. Truitt, we find on page 128 of the Senate committee hearings a brief statement made by Mr. Schram with reference to a proposed appropriation for the Electric Home and Farm Authority. Suppose you give us informally a very brief statement with reference to this Electric Home and Farm Authority.

GENERAL STATEMENT

Mr. TRUITT. The Electric Home and Farm Authority is a corporation organized under the laws of the District of Columbia, which took over the old E. H. F. A., which was a Delaware corporation under T. V. A. control, and which had authority to and did act as an installment financing company. We borrow money from the banks of the country, and with that money purchase notes secured by installment-sales contracts, and so forth, from dealers throughout the United States.

Our business is organized through the utility companies. We go to the utility companies, or, rather, the utility companies come to us, and say, "We are interested in getting the benefits of your program." We then enter into a contractual arrangement with the utility company, and the utility company acts as our agent for the purpose of collecting the installments on the paper and other things of that character. We then, in turn, go out to the various dealers in the community and by another contractual arrangement enter into an agreement with them, and they actually carry on the business in that field. They sell refrigerators, milk coolers, ranges, and things of that character, including water heaters, and other domestic electrical appliances, and so forth.

CONTRACTUAL RELATIONS WITH DEALERS

Mr. HOUSTON. Is your contract only with dealers in the localities where the utility companies operate?

Mr. TRUITT. Yes, sir; with dealers anywhere, and we also deal with the cooperatives.

Mr. FITZPATRICK. Do you have a uniform price, or do you have anything to do with regulating the prices at which these appliances are sold, to see that they do not impose upon the people who purchase them?

Mr. TRUITT. We try to see that the approved list of appliances, or the appliances on which we take paper, are appliances which will give value received for the money. We see that they are appliances which do not consume too much electrical energy for the service that they give. To that extent that we go into the question.

INTEREST CHARGES

Mr. FITZPATRICK. What is the interest charge?

Mr. TRUITT. Our interest rate is approximately 5 percent. We have prepared here a table which will show the interest rates charged by the E. H. F. A. and by the large financing companies in the country.

Mr. HOUSTON. How does that interest rate compare with the rate you pay?

Mr. TRUITT. We get money for the E. H. F. A. activities all the way from three-fourths of 1 percent to 14 percent. We secure money by discounting our notes. Now, you might say there appears to be quite a spread there between the date we pay and the rate that is charged.

Mr. HOUSTON. How far does that spread go in meeting your administrative charges?

Mr. TRUITT. The spread which we get has provided all of our administrative expenses, and has restored some of the original capital which was impaired at the time we took over the old E. H. F. A. At the time we took it over, the original capital of $1,000,000 had been impaired to the extent of about $150,000. Since taking over, we have wiped out the impairment of the original capital, and, at the same time, have maintained our administrative expenses out of our income.

Mr. JOHNSON of Oklahoma. What interest rate does the consumer pay?

Mr. TRUITT. The consumer pays approximately 5 percent. That is the discount rate.

Mr. JOHNSON of Oklahoma. That seems to be an unreasonable rate, taking into consideration that the money your Authority borrows from private institutions is borrowed at a rate of from threefourths of 1 percent to 114 percent.

a

Mr. TRUITT. No, sir; it is not, because of the fact that we pay all of our administrative expenses out of that spread, and, also, set up reserve to protect the corporation against any loss by reason of the defalcation of any contract or purchaser, or other things of that character. We are actually operating on a very slight profit basis,

and we are setting up a good substantial reserve to protect us against losses.

Mr. JOHNSON of West Virginia. When did you begin operations? Mr. TRUITT. We have been operating since August 1935.

Mr. JOHNSON of West Virginia. And you have gained a net profit of $150,000 during that time?

Mr. TRUITT. Yes, sir; we have gained that much.

CONTRACT PROVISIONS

Now, answering further your question with respect to what actually comes out of the contract, let us take a contract of $160, which is an average face amount of the contracts. That amount is an average of some 18,000 or 20,000 contracts that we have purchased in the past 18 months. That figures out on the basis of 5 percent on the income charge or the financing charge.

Mr. FITZPATRICK. But you take that out of the original amount at the beginning, do you not?

Mr. TRUITT. We have our booking charge.

Mr. FITZPATRICK. In other words, they get only $152, instead of $160. They receive $152, but they pay interest on $160.

Mr. WEAVER. No, sir; only on the unpaid balance.

Mr. FITZPATRICK. Interest is paid on the unpaid balance?

Mr. TRUITT. Yes, sir.

Mr. FITZPATRICK. Out of that $160 you take a year's interest before they get the loan for whatever time or period it may be?

Mr. TRUITT. That $160 is the total amount of the contract we have. Mr. FITZPATRICK. How much does the individual receive out of the $160?

Mr. WEAVER. $160. The finance charge is added to the contract.
Mr. FITZPATRICK. There is a reduction from the $160?

Mr. WEAVER. No, sir; this $160 represents the unpaid balance.
Mr. TRUITT. They pay 5 percent on the unpaid balance.

Mr. FITZPATRICK. What is that unpaid balance?

Mr. TRUITT. $160.

Mr. FITZPATRICK. What was the original cost?

Mr. TRUITT. It might have been $175 or $200, depending on the amount of the down payment.

Mr. FITZPATRICK. There was a $160 unpaid balance.
Mr. TRUITT. Yes, sir.

Mr. FITZPATRICK. And they pay interest on that unpaid balance. Mr. TRUITT. Yes, sir. We pay the utility company which acts as the collecting agency a booking charge of $1. That is a flat payment for the life of the contract. Then we pay them 1212 cents per month for the actual monthly billing of the purchasers. They send a statement to the purchasers just as the electric light bills are sent, and we pay them for that service 1212 cents per month, or $1.50 per year. Then we have the cost of the money to the E. H. F. A. at 11⁄4 percent per annum discount, which to the average rate on the average amount of money borrowed, or $1, and we set up a reserve to provide against losses of 112 percent, or $2.40. The interest on $160 at 5 percent is $8 per annum, and the total cost, excluding the operating expense, is $5.90. The difference between $5.90 and $8 is $2.10,