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STRICTLY CONFIDENTIAL

(July 29, 19kl DRAFT)

CONFIDENTIAL
EXECUTIVE ORDER
REGULATION OF CONSUMER CREDIT

(July 29, 19i4 DRAFT)

DECLARATION OF NECESSITY AND PURPOSE
WHEREAS, a large volume of credit is being devoted to financing
and refinancing purchases of consumers1 goods and services through extensions of credit that usually are made to individuals and to a large extent
are on an instalment payment basis5 and
WEREAS, the conditions under which such credit is available have
an important influence upon the volume and timing of demand, not only for
the particular goods and services purchased on credit but also for goods
and services in general; and
TTHEFwEAS, liberal terms for such credit tend to stimulate demand
for consumers1 durable goods the production of which requires materials,
skills, and equipment needed for national defense; and
TEHEREAS, the extension of such credit in excessive volume tends
to generate inflationary developments of increasing consequence as the
limits of productive capacity are approached in more and more fields and
to hinder the accumulation of savings available for% financing the defense
program; and
YJSEREAS, the public interest requires control of the use of
instalment credit for financing and refinancing purchases of consumers1
durable goods the production of which absorbs resources needed for national




-2-

defense, in order (a) to facilitate the transfer of productive resources
to defense industries, (b) to assist in curbing unwarranted price advances
and profiteering which tend to result when the supply of such goods is
curtailed without corresponding curtailment of demand, (c) to assist in
restrainii^g general inflationary tendencies, to support or supplement
taxation imposed to restrain such tendencies, and to promote the accumulation of savings available for financing the defense program, (d) to aid
in creating a backlog of demand for consumers1 durable goods, and (e) to
restrain the development of a consumer debt structure that would repress
effective demand for goods and services in the post-defense period; and
VJKEREAS, in order to prevent evasion or avoidance of this Order
and such regulations as may be prescribed to effectuate its purposes,
means should also be available for regulating the use of other instalment
credit and other forms of credit usually extended to consumers or on
cons timers1 durable goods; and
PJBEREAS, it is appropriate that such credit be controlled and
regulated through an existing governmental agency which has primary responsibilities with respect to the determination and administration of national
credit policies.
NO?/, THEREFORE, by virtue of the authority vested in me by section 5(b) of the Act of October 6, 1917* as amended, and by virtue of all
other authority vested in me^ and in order, in the national emergency
declared by the President on May 27, 19Ul# to promote the national defense
and protect the national economy, it is hereby ordered as follows:




-3AIMIRiaiRATIQM
Section l(a). The Board of Governors of the Federal Reserve
System (hereinafter called the Board) is hereby designated as the agency
through which transfers of credit between and payments by or to banking
institutions (as defined herein pursuant to section 5(b) of the aforesaid
Act) which constitute, or arise directly or indirectly out of, any extension of credit of a type set out in section 2(a) of this Order shall
be investigated, regulated, or prohibited.
(b) The Board shall, whenever it deems such action to be necessary or appropriate, take auy lawful steps herein authorized and such other
lavirful steps as are within its power to carry out the purposes of this
Order and may, in administering this Order, utilize the services of the
Federal Reserve Banks and any other agencies, Federal or State, which are
available and appropriate.
(c) In order to facilitate the coordination of the Board1s
functions under this Order with other phases of the program for national
defense and for protecting the national economy, there shall be a
Committee consisting,of the Secretary of the Treasury, the Federal
Loan Administrator, and the Administrator of tho Office of Price Administration and Civilian Supply, or such alternate as each shall
designate, and such other members as the President shall subsequently
appoint. Tho Board shall maintain liaison with the Committee, and in
formulating policies with respect to down-payments, maturities, terms
of repayment and other such questions of general policy shall consult
with tho Committee and take into consideration any suggestions or
recommendations it may make.-




REGULATIONS
Section 2(a).

ltfhonever the 3oard shall determine that such

action is necessary or appropriate for carrying out the purposes of this
Order, the Board shall prescribe regulations with respect to transfers and
payments which constitute, or arise directly or indirectly out of, any
extension of instalment credit for the purpose of purchasing or carrying
any consumers1 durable good except a residential building in its entirety;
and the Board may in addition, to the extent deemed by it to be desirable
and feasible in order to prevent evasion of such regulations as may be so
prescribed or in order to control forms of credit the use of which might
defeat the purposes of this Order and such regulations, prescribe regulations with respect to transfers and payments which constitute, or arise
directly or indirectly out of, (1) any other extension of instalment credit,
or (2) any other extension of credit for the purpose of purchasing or car~
rying any consumers1 durable good, or (3) any other extension of credit in
the form of a loan other than a loan made for business purpbses to a business enterprise or for agricultural purposes to a person engaged in agriculture*

Such regulations may be prescribed by the Board at such times and

with such effective dates as the Board shall deem to be in accordance with
the purposes of this Order.
(b) Such regulations may from time to time, originally or by
amendment, regulate or prohibit such transfers and payments or exempt them
from regulation or prohibition and may classify them according to the nature
of the transactions or goods or persons involved or upon such other basis




-5as may reasonably differentiate such transfers and payments for the purposes
of regulations under this Order, and may be made applicable to one or more
of the classes so established; and, without limiting the generality of the
foregoing, such regulations may require transactions or persons or classes
thereof to be registered or licensed; may prescribe appropriate limitations, terms, and conditions for such registrations or licenses; may provide
for suspension of any such registration or license for violation of any
provision thereof or of any regulation, rule, or order prescribed hereunder,
may prescribe appropriate requirements as to the keeping of records and as
to the form, contents, or substantive provisions of contracts, liens, or
any relevant documents; may prohibit solicitations by banking institutions
which would aacourage evasion or avoidance of the requirements of any regulation, license, or registration under this Order; and may from time to
time make appropriate provisions with respect to —
(1) The maximum amount of credit which may be extended on, or
in connection with any purchase of, any consumers1 durable good;
(2) The maximum maturity^ miniiffiim periodic payments, and maximum
periods between payments, which may be stipulated in connection with extensions of credit;
(3) The methods of determining purchase prices or market values
or other bases for computing permissible extensions of credit or required
down-payments; and
(U) Special or different termsf conditions, or exemptions with
respect to new or used goods, minimum original cash payments, temporary




credits which are merely incidental to cash purchases, payments or deposits
usable to liquidate credits, and other adjustments or special situations.
(c) On and after the effective date of any regulation prescribed
by the Board with respect to any extension of credit of a type set out in
section 2(a), and notwithstanding the provisions of any other proclamation,
order, regulation or license under the aforesaid Act, all transfers and
payments which are in violation of such regulation shall be and hereby are
prohibited to the extent specified in such regulation*.
(d) Neither this Order nor any regulation issued thereunder shall
affect the right of any person to enforce any contract, except that after
the effective date of any such regulation every contract which is made in
connection with any extension of credit and which violates, or the performance of which would violate, any provision of such regulation (other
than a provision designated therein as being for administrative purposes)#
and every lien, pledge, sellerfs interest in a conditional sale, or other
property interest, subject to the provisions of such contract or created in
connection therewith^ shall be unenforceable by the person who extends such
credit or by any person who acquires any right of such person in such contract, provided that such disability shall not apply to any person who extends such credit, or acquires such right for value, in good faith and
without knowing or having reason to know the facts by reason of which the
making or performance of such contract was or would be such a violation.




REPORTS
Section 5«

Reports concerning the kinds, amounts, and character-

-7istics of any extensions of credit subject to this Order, concerning transfers and payments -which arise out of any such extensions of credit, or
concerning circumstances related to such extensions of credit or such
transfers or payments or to the regulation thereof, shall be filed on such
forms, under oath or otherwise, at such times and from time to time, and
by such persons, as the Board may prescribe by rule, regulation or order
as necessary or appropriate for enabling the Board to perform its functions
under this Order. The Board may require any person to furnish, under oath
or otherwise, complete information relative to any transaction "within the
scope of this Order, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody
or control of such person,
DEFKTITIQgS
Section i « For the purposes of this Order, unless the context
|
otherwise requires, the following terms shall have the folloT/ing meanings,
provided t!vit the Board raay in its regulations give such terms more restricted meanings*
(a) "Person11 has the meaning sot forth in section 50 3 ) of the
Act of October 6, 1917# as amended*
(b) "Transfers and payments" means "transfers of credit between
and payments by or to banking institutions".
(c) "Banking institution" means any person engaged primarily or
incidentally, as principal, agent, broker or otherwise, in the business of
making or holding extensions of credit^ and includes, v/ithout limitation,




-8-

any bank, any loan company, any finance company, and any retailer or other
vendor of consumers* durable goods who is so engaged.
(d) "Consumers1 durable goodn includes any good, whether new or
used, which is durable or semi-durable and is used or usable for personal,
family or household purposes, and any service connected with the acquisition
of any such good or of any interest therein,
(e) "Extension of credit" means any loan or mortgage; any instalment purchase contract, any conditional sales contract, or any sale or
contract of sale under which part or all of the price is payable subsequent
to the making of such sale or contract; any rental-purchase contract, or any
contract for the bailment or leasing of property under vrhich the bailee or
lessee either has the option of becoming the ovmer thereof or obligates
himself to pay as compensation a sum substantially equivalent to or in
excess of the value thereof; any contract creating any lien or similar claim
or property to be discharged by the payment of money; any purchase, discount,
or other acquisition of, or any extension of credit upon the security of,
any obligation or claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.
(f) An extension of credit is an extension of "instalment credit"
if the obligor undertakes to repay the credit in two or more scheduled payments or undertakes to make two or more scheduled payments or deposits usable
to liquidate the credit, or if the extension of credit has a similar purpose
or affect, or if it is for the purpose of financing a business enterprise
which makes such extensions of credit.




(g) An extension of credit is "for the purpose of purchasing or
carrying any consumers1 durable good" if it is directly or indirectly for
the purpose of financing or refinancing the purchase of any consumers1
durable good or is directly or indirectly secured by any consumers1 durable
good, or if the extension of credit has a similar purpose or effect, or if
it is for the purpose of financing a business enterprise which makes such
extensions of credit.

PENALTIES
Section 5« Whoever willfully violates or knowingly participates
in the violation of this Order or of any regulation prescribed hereunder,
shall be subject to the penalties applicable with respect to violations of
section 5C°) of the Act of October 6, 1917* as amended*

Section 6.

This Order may be amended or revoked at any time*

THE TiiHITE HOUSE,




July

, 191+1

c
0

THE -WHITE HOUSE




iSHIRGTOi
August 1, L941

Dea.r Hairinori
I have signed the Executive Order
for the reflation of consumer credit In
accordance with y^stemay1 B discussion with
yon and Leon. This is done with the under
standing . e reached in our conversation that
you would consult with Henry before taking
any action under the Order which night affect
th« fiscal aetlrities of the Treasury.
Very sincerely yours,

Franklin D. Eoossvelt

Honorable i'arriner S. Eccles,
Chair:-,an, EMMMTd of Governors of the
Federal Reserve Syste ,
?ashi;,£rton, D. C.