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:', Honorable Jesse P. Wolcott, Chairman, Committee on Banking and Currency, House of Representatives, Washington, D- C. Dear Mr. Chairmans In accordance with the recommendation in the Board*s Annual Boport for 19U5 that Congress give consideration to the question of continuing by legislation the regulation of consumer Instalment credit now based on executive order, the Board is transmitting herewith a draft of a suggested bill which would effectuate this purpose. We are enclosing also a brief non-technical summary of the principal provisions of the suggested bill. It is our understanding that I am to appear before your Committee in the near future to explain more fully the purposes of the proposed legislation and to present the reasons which seem to the Board to justify its adoption* Sincerely yours, (Signed) M. S. Eccies U. S. Eccles, Chairman. Enclosures SKCjb Miss Benton M 5 194/7 Honorable Ch&rlea 'rf. To*>ey, Cosssittee on Basking and Currency, United Stated Senate, Washington, D. C, Dear ";r. Chairman: In accordance with the reeo~n^ndatloa in the Bpard*! Anim&l 'Report for 1945 that Co0gr®ss glw coa«id«ration to fJi$ question o;'" continuing by legislation the regulation of consumer inetalaant credit now l^©ed on tttMmtlft orier, the c^oard i s transmitting herewith a draft of a suggested b i l l wilch «O«Id eff&ctu&te this purpose. lit are snelos-ing also a brief ttil suaaary of the principal provisions of the suggeated bill. I ©bould be- &hni to appear before jour to explain siore fully U M purposes of tbe propoa-eti legislation and to present the reasoas which seesi to tfe@ Board to justify its adoption. Sincerely yours, • (Signed) M. S. EccSes Chairman, Enclosures SRC/rag c A BILL To regulate consumer credit, to protect interstate and foreign commerce, to protect the monetary, banking and credit structure of the nation, and for other purposes. Be it enacted by the Senate and House of Representatives »f the United States of America in Congress assembled, That the Federal Reserve Act is amended by adding the following new section 2OA between sections 20 and 21 thereof: "SECTION 20A# CONSUMER CREDIT "(a) Purposes of Section* . For the reasons hereinafter enumerated and in the light of which this section shall be interpreted and applied, the use of instalment credit is affected with a national public interest which makes it necessary to provide for appropriate regulation of such credit* "instalment credit is an important factor in financing the purchase of large volumes of goods, particularly consumers* durable goods, that move through the channels of interstate commerce. The terms and conditions on which instalment credit is available have a direct ani important effeot on changes in the amount of such credit and consequently on the volume and timing of demand for, and flow in interstate commerce of, not only oonsuners' durable goods and related components and manufacturing equipment "but also goods in general. -2- c "Because of the inherent nature of instalment credit and the purposes for which it is largely used, (l) such credit has a dangerous tendency, if unregulated, to expand unduly in certain periods and, in consequence, to contract unduly at other periods, and (2) such overexpansion and over contraction are of material importance in initiating and intensifying excessive fluctuations and dislocations in national levels of purchasing power, prices, credit and interstate commerced "Both directly and through their impact on interstate commerce and the national economy, such excessive or untimely fluctuations in instalment credit interfere with the maintenance of high and stable levels of production and employment, burden interstate and foreign commerce, interfere with the power of Congress to regulate the value of money, threaten the stability of the nation's monetary, banking and credit structure, hamper the Federal Reserve System in maintaining sound credit conditions., and are important contributing causes to emergencies which put the Federal Government to great expense and burden the national credit. "The purposes of this section are to provide appropriate regulation of instalment credit and thereby to prevent, so far as practicable by this means, excessive or untimely fluctuations of such credit and the resulting national dangers and burdens mentioned above* "(b) Definitions* - For the purposes of this section, unless the context otherwise requires, the following terms shall have the fol- o lowing meanings, but the Board of Governors of the Federal Reserve -3System (hereinafter called the Board) may in its regulations give such terms more restricted meanings, and may define technical, trade, and accounting terms in so far as such definitions are not inconsistent with the provisions of this section: "(l) 'Instalment credit1 means credit which the. obligor under' takes to repay in two or more payments, or as to which he undertakes to make two or more payments or deposits usable to liquidate the credit, or which has a similar purpose or effect: Provided, however, That it shall not include (i) any credit to finance or refinance the construction or purchase of an entire residential building or other entire structure, (ii) any credit extended to a business enterprise to finance the purchase of goods for resale, or (iii) any other credit extended to a business or agricultural enterprise for any business or agricultural purpose unless the credit is secured by or is for the purpose of purchasing or carrying consumers' durable goods. "(2) 'Credit' means any loan, advance, or discount; any in- stalment purchase or conditional sale contract; any sale of property or services or contract of such sale, either for present or future delivery, 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 which the bailee or lessee has the option of becoming the owner thereof, obligates himself to pay as .compensation a sum substantially -4- equivalent to or in excess of the value thereof, or has the right to have all or part of the payments required by such contract applied to the purchase price of such property or similar property; any option, demand, lien, pledge or similar claim against, or for the delivery of, property or money; any purchase, discount, or other acquisition of, or any 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. "(3) f Person* means any individual, partnership, association, business trust, corporation, or unincorporated organization; and, except that the criminal penalties shall not be applicable thereto, it includes I the United States, any State or subdivision thereof, and any agency of one or more such authorities. "(c) Regulations. - The Board of Governors of the Federal Reserve System is authorized from time to time by regulation to proscribe maximum maturities, minimum down payments, maximum loan values, and amounts and intervals of payments, for such kind or kinds of instalment credit as it may in the judgment of the Board be necessary to regulate in order to prevent or reduce excessive or untimely use of or fluctuations in such credit. Such regulations may classify transactions and may apply different maximum maturities', minimum down payments, maximum loan values, or amounts and intervals of payments thereto. Such regulations may contain such administrative provisions as in the judgment pf the Board are reasonably necessary in order to effectuate the purposes of this section or to prevent evasions thereof. -5- "In prescribing such regulations the Board shall consider, among other factors, (l) the level and trend of instalment credit and the various kinds thereof, (2) the effect of fluctuations in such credit upon (i) the purchasing power of consumers and (ii) the demand for and the production of consumers1 durable and other goods which move in interstate commerce, and (3) the need in the national economy for the maintenance of sound credit conditions. 11 (d) Compliance. - No person engaged in the business of ex- tending or maintaining instalment credit, or of refinancing, purchasing, selling, discounting, or lending on, any obligation arising out of cny such credit, shall extend or maintain any credit, or renew, revise, consolidate, refinance, purchase, sell, discount, or land on, any obligation, in contravention of any regulation prescribed by the Board pursuant to this section. Every person engaged in such business shall keep such records or documents in such form, and make such reports, as the Board may by regulation require. "(e) Penalties. - Any person who wilfully violates any provision of this section or any regulation thereunder the observance of which is required under the terms of this section shall be deemed guilty of a misdemeanor and upon conviction thereof sh<-:ll be fined not more than $5,000, or imprisoned not more than one yecx, or both; but no person shall be subject to imprisonment under this section for the violation of any regulation if he proves that he had no actual knowledge of such regulation. c -6"(f) Investigations, Court Orders. - (l) The Board is authorized to make such investigations as it deems necessary in order to aid in the prescribing of regulations under this section or in order to determine whether any person has violated or is about to violate any provision of this section or any regulation thereunder, and may require or permit any person to file with it a statement in writing, under oath or otherwise as the Board shall determine, as to all the facts and circumstances concerning the matter to be investigated. "(2) For the purpose of any investigation or other proceeding under this section, any member cf the Board, cr any representative thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, records, or other papers which are relevant cr material to the inquiry. Such attendance of witnesses and the pro- duction of any such papers may be required from any place in any State or in any Territory or other place subject to the jurisdiction of the United States at any designated place where such a hearing is being held or investigation is being made. "(3) In case of refusal to obey a subpena issued to, or contumacy by, any person, the Board may invoke the aid of any court of the United States within the jurisdiction of which such investigation is carried en, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of —7— books, records, or other papers. And such court may issue an order requiring such person to appear before the Board or member or officer designated by the Board, there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in a.ny such case may be served in the judicial district whereof such person is an inhabitant or wherever he may be found. No person shall be excused from attending and testifying or from producing books, records, or other papers in obedience to a subpena issued under the authority of this section on the ground that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subject to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled to testify or produce evidence, documentary or otherwise, after having claimed his privilege against self-incrimination, except that such individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying. Any person who without just cause shall fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, records, or other papers in obedience to the subpena of the Board, if in his or its power so to do, shall be guilty of a misdemeanor and upon conviction shall be subject to a fine c c -8of not more than $1,000 or to imprisonment for a term of not more than one year, or both. "(4) Whenever in the judgment of the Board any person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this section or of any regulation thereunder, the Board may make application to the properdistrict court of the United States, or the United States Courts of any Territory or other place subject to the jurisdiction of the United States, for an order enjoining such acts or practices, or for an order enforcing compliance with such provision, and upon a shoving by the Board that such person has engaged or is about to engage in any such acts or practices a permanent or temporary injunction, restraining order, or other order shall be granted without bond. "(5) The district courts of the United States and the United States courts of a.ny Territory or other place subject to the jurisdiction of the United States shall have jurisdiction of offenses and violations under this section or the regulations thereunder, and of all actions to enjoin any violation of this section or the regulations thereunder or to enforce any duty created under this section. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any action to enjoin any violation of this section or regulations thereunder or to enforce any duty created under this section may be brought in any district wherein the defendant is c -9found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or transacts business or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections 128 and 24.0 of the Judicial Code, as amended (U.S.C., title 28, sees. 225 and 3-47). "(g) Administration. - In administering this section, the Board may act through its duly designated representatives and may utilize the services of the Federal Reserve Banks and any other agencies, Federal or State, which are available and appropriate. The Board shall include in its annual report to the Congress such information, data, and reeommen» dations as it may deem advisable with regard to matters within its jurisdiction under this section." 5-28-47 c CONSUMER CREDIT BILL The bill would authorize the Board of Governors of the Federal Reserve System to regulate instalment credit. It states the purpose of the regulation to be to prevent, so far as practicable by this means, excessive or untimely fluctuations of such credit and the resulting dangers to the national economy. Within the field of instalment credit, the Board would be authorized to regulate minimum down payments, maximum loan values, and maximum maturities. This would include the authority to vary such terms from time to time and also to select and change from time to time, within prescribed statutory limits, the types of instalment credit to be covered in the regulations. In prescribing such regulations, the Board would be directed to consider the levels and trends of the various kinds of instalment credit, the economic effects of fluctuations therein, and the need for the maintenance of sound credit conditions. With certain exceptions, the bill would apply generally to both instalment sales and instalment loans, including both loans which are for the purpose of purchasing consumers' durable goods and loans for other consumption purposes. The bill would not apply to any consumer credit that is not in the instalment form, such as charge accounts and single-payment loans. It would exempt instalment credit (1) to finance the construction or purchase of an entire building, (2) to a business enterprise to finance the purchase of goods for resale (i.e., inventories), (3) for other business or agricultural purposes except credit which is for the purpose of financing, or is secured by, consumers1 durable goods. Penalties would be prescribed for violations. The Board would be authorized to require persons subject to regulation to keep appropriate records and make appropriate reports. The Board would be given authority to investigate possible violations and could obtain injunctions against violators. Under the proposed legislation, regulation would be in about the form and scope effective at present under the Board's Regulation W. Such regulation, which of course would be subject to change from time to time, would, with appropriate exceptions to provide for administrative flexibility, prescribe maximum maturities for all types of instalment credit and would in addition prescribe minimum down payments for instalment credit to finance the purchase of important categories of consumers' durable goods. Generally speaking, the instalment terms now prescribed by Regulation W, which are subject to change from time to time, call for down payments of at least one-third and maturities of not more than 15 months. c
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