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CONFIDENTIAL EXECDTIVl ORDER Draft #19 July 2, DECLARATION OF N1CESSITT AND HJEPOS1 , 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 basis; and WH35KEAS, the conditions under which such credit is available to consumers 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 1HEKEAS, liberal instalment credit terms tend to stimulate demand for durable goods the production of which requires materials, skills, and equipment needed for national defense; and WHEREAS, the extension of credit to consumers 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 fIBEREAS, the public interest requires control of the use of instaliaent credit for financing and refinancing purchases of consumers1 durable goods the production of which absorbs resources needed for national defense, in order (a) to facilitate the transfer of productive resources to defense industries, (b) to assist in curbing unwarranted price advances - 2 and profiteering which tend to result when the supply of a commodity is curtailed without corresponding curtailment of demand, (c) to assist in restraining 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 1HEREAS, in order to prevent evasion or avoidance of this Order and such regulations as may be prescribed to effectuate its purposes, means should be available for regulating the use of other instalment credit and other forms of credit usually extended to consumers• NOW, 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, 1941, to promote the national defense and protect the national economy, it is hereby ordered as follows: 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(to) of the aforesaid Act) which constitute, or arise directly or indirectly out of, any extension - 3of 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 any lawful steps herein authorized and such other lawful steps as are within its po?*er 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) The Board shall, so far as practicable, coordinate the performance of its functions under this Order with other phases of the program for national defense and for protecting the national economy• To that end the Board shall maintain liaison with the Administrator of the Office of Price Administration and Civilian Supply, who may from time to time make recommendations to the Board with respect to .questions of policy arising under the Order• The Board shall also maintain liaison with such other departments and agencies of the Federal Government and with such other public or private agencies and persons as the Board may deem necessary or appropriate to carry out the purposes of this Order* RS3DLATI01© Section 2(a)* Whenever the Board shall deteraiine that such ac- tion 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; 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 carrying any consumers1 durable good, or (3) siiy other extension of credit in the form of a loan other than a loan made for business purposes 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 as may reasonably differentiate such transfers and payments for the purposes of regulation 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, terns, 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 ai$r regulation, rule, or order prescribed hereunder; - 5may 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 encourage evasion or avoidance of the requirements of any regulation, license, or registration under this order; and may from time to time make appropriate provision with respect to — (1) The maximum amount of credit which may be extended on,or in connection with, any purchase of a consumers1 durable good; (2) The maximum maturity, minimum 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 (4) Special or different terms, conditions, or exemptions with respect to nev? 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 idiich 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, seller*s 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 3. Reports concerning the kinds, amounts, and characteristics 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 - 7 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* DEFINITIONS Section 4. For the purposes of this Order, unless the context otherwise requires, the following terms shall have the following meanings, provided that the Board may in its regulations give such terms more restricted meanings: (a) "Person" has the meaning set forth in section 5(b) 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 bank, any loan company, any sales finance company, and any dealer, store or other vendor or other person, engaged primarily or incidentally, as principal, agent, broker or otherwise, in the business of extending credit or of purchasing, discounting, holding, or otherwise dealing in obligations arising out of extensions of credit. (d) "Consumers1 durable good" 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. - 8(e) "Extension of credit11 means any loan or mortgages any instalment purchase contract, any conditional sales contract, or any sale of goods or contract therefor 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 goods under which the bailee or lessee either has the option of becoming the owner of the goods or obligates himself to pay as compensation a sum substantially equivalent to or in excess of the value of the goods; any contract creating ax^ lien or similar claim on personal property to be discharged by the payment of money; aay purchase, discount, or other acquisition of, or any extension of credit upon the security of, any obligation arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect. (f) Jn 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 effect, or if it is for the purpose of financing a business enterprise which makes such extensions of credits (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* - 9 PENALTIES Section 5. Whoever willfully violates or knowingly participates in the violation of this Order or of any regulation or license prescribed or issued hereunder, shall be subject to the penalties applicable with respect to violations of section 5(b) of the Act of October 6, 1917, as amended. AMENDMENT Section 6. This Order may be amended or revoked at any time.
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