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r X J O S l A H W I L L I A M BAILEY, M. C . , CHAIRMAN CHARLES L . MC NARY, O R E O . MORRIS SHEPPAR9, TEX. HIRAM W . J O H N S O N , C A L I F . H A T T I E W . CARAWAY, A R K . ARTHUR H . V A N D E N B E R G , M I C H . B E N N E T T C H A M P C L A R K , MO* WALLACE H . WHITE, J R . , MAINE JOHN H . OVERTON, LA. ERNEST W . GIBSON, VT. T H E O D O R E G . BILBO, M I S S . W . W A R R E N BARBOUR, N , J* V I C DONAHEY, OHIO J O S E P H F . G U F F E Y , PA* ANCIS T . MALONEY, CONN. " N G E L . RADCLIFFE, MD. ;DE PEPPER,FLA. L E E , OKLA. LISTER HILL, ALA. J A M E S M* M E A D , N . Y . A . HAND J A M E S , C L E R K ROGER WILLIAMSON, ASST. CLERK *7#trtUeb Jbenale COMMITTEE: ON C O M M E R C E i'&y 29, 1939. j Qt r^ v 0 Uarriner S* Eccles, Chairman, Federal Reserve Board, Federal Reserve Building Y/ashington, D. C * Dear lir. Eccles: This is to inform you that hearings m i l b e conducted on the attached bill by the Senate Banking and Currency Conrdttee on Ltay 31 and June 1 of this "reek at 10:30 A» K# In viev; of your interest in small business loans, I nest cordially invite you to attend the hearings and to make any comment you desire. Any arrangements as to tine nay be made ivith the Committee clerk. V/ith kindest personal regards, I an Sincerely yours, y/V Jas. 1'. Head 76THCONGRESS O 1ST SESSION ^ A O Z T 5 O 4 0 I N T H E S E N A T E OF T H E U N I T E D STATES MAY 8,1939 Mr. MEAD introduced the following bill; which was read twice and referred to the Committee on Banking and Currency A BILL To provide for the insurance of loans to business, and for other purposes. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Insured Business Loans 4 Act of 1939." SEC. 2. When used in this Act, unless the context other- 5 6 wise requires— 7 8 (a) "Corporation" means the Reconstruction Einance Corporation. 9 (b) "Bank" means any "insured bank" as defined in 10 section 12B 11 amended. (c) (8) of the Federal Reserve Act, as 2 1 2 (c) Governors of the Federal lleserve System. 3 4 "Federal Reserve Board" means the Board of (d) "Loan" means any loan, extension of credit, or renewal thereof. 5 (e) "Person" means an individual, a corporation, a 6 partnership, an association, a joint-stock company, a business 7 trust, or an unincorporated organization. 8 SEC. 3. (a) Subject to the provisions of this Act, the 9 Corporation, upon application, is authorized to insure any 10 bank against the whole or any part of the loss or losses, in H respect of principal or interest or both, which such bank may 12 sustain in excess of an amount equal to 10 per centum of the 13 principal amount of any loan which such bank may make to 14 any person for any business purpose, and for the purposes of 15 this Act the Corporation is authorized to determine what 16 constitutes a business purpose. 17 poration shall charge a premium of not less than one-fourth 18 of 1 per centum nor more than 1 per centum per annum of 19 the unpaid balance of such loan: Provided, That the CJor- 20 poration in its discretion may charge a higher premium, or For such insurance the Cor- 21 may refuse to grant insurance altogether on loans of any 22 bank which in the judgment of the Corporation pursues a 23 policy of insuring only the more doubtful of its loans eligible 24 for insurance. 25 The Corporation shall from time to time fix the premium rates to be charged for the insurance of loans 1 which rates ma)' be adjusted in accordance with appropriate 2 classifications based, among other things, upon the nature of 3 the loans and the character of the risks involved, and the 4 premium rates for which the Corporation undertakes to insure 5 any particular loan shall not be increased during the life 6 of such loan. ^ (b) No loan shall be insured by the Corporation (1) if ® the aggregate principal amount of the borrower's insured 9 indebtedness exceeds $1,000,000; (2) if the loan is made for a period less than one year or more than ten years; (3) if H the loan bears interest (exclusive of premium charge for insurance and service charge) at a rate exceeding 4 per centum of the principal amount of the unpaid balance of the loan outstanding: Provided, That the Corporation by regulation shall have power to decrease or increase the permissible rate of interest if and to the extent that it finds such ^ decrease or increase is necessary to insure the adequate use, • j Q ^ ^ or deter the excessive use, of the insurance facilities provided 20 in this Act; (4) if the loan provides for a service charge, fee, or commission aggregating during the life of the loan more 21 than one-fourth of 1 per centum of the principal amount of 22 no such loan; (5) if the loan is made to any person, of which an officer, director, or security holder owning more than 10 2i per centum of any class of its stock is, or has been within 25 the preceding twelve months, a director of the bank making 4 1 such loan; or (6) if the loan is made in contravention of 2 any rule or regulation which the Corporation shall prescribe 3 as necessary or appropriate to carry out the purposes of this 4 Act or to prevent the abuse of the credit facilities herein 5 provided. 6 (c) Nothing in this Act shall prevent the Corporation 7 in appropriate cases insuring loans which are subordinated 8 to short-term indebtedness incurred in the ordinary course 9 of business. 1° (d) The Corporation shall have power to insert in H the insurance contract covering any loan insured under this 12 Act such terms and conditions as it may deem necessary or 13 appropriate to carry out the purposes of this Act or to prevent the abuse of the credit facilities herein provided. 15 SEC. 4. (a) It shall be the duty of any bank having 16 a loan insured by the Corporation, and of any assignee of such loan, to make such reports on the condition of such loan I® as the Corporation may require. In the event of any de- 19 fault on any loan insured by the Corporation, the bank or 20 its assignee shall promptly notify the Corporation and take 21 such steps for the protection of such loan as the Corporation 22 may require. 23 been continued for sixty days, such bank or its assignee 24 (upon making a good and sufficient assignment of such loan 25 to the Corporation) shall be entitled to demand from the At any time after any such default shall have 5. 1 Corporation, and the Corporation shall pay, the full, amount 2 of insurance due on account of such loan. Thereupon the 3 Corporation shall be fully subrogated ! to the rights of the 4 bank or its assignee or both in respect of such loan, but 5 shall remit to the bank or its assignee;or the borrower as 6 their interests may appear any moneys collected in excess 7 of the insurance paid and the cost of collection. 8 (b) Subject to the provisions of this Act and the terms 9 of the insurance contract, the insurance on any loan shall 10 inure to the benefit of any assignee to whom such loan 11 shall have been assigned, or of any purchaser to whom the 12 obligation evidencing such loan shall have been transferred. 13 SEC. 5. (a) Upon the endorsement of any bank, which 14 shall be deemed a waiver of demand, notice, and protest 15 by such bank as to its own endorsement exclusively, and 16 subject to such regulations as may be prescribed by the 17 Federal Reserve Board, any loan insured under this Act 18 shall be eligible for rediscount by the Federal Reserve bank 19 for the Federal Reserve district in which such bank is 20 located, and for purposes of rediscount sti.cli loan shall be 21 valued at not less than the full amount of the insurance 22 payable by the Corporation in respect of such loan. Such 23 loan shall be eligible for rediscount whether or not the bank 24 offering the loan for rediscount is a member bank of the 25 Federal Reserve System and whether or not such bank, 6 1 acquired the loan from the borrower or acquired it by trans- 2 fer from another person. 3 (b) Every Federal Reserve bank shall have power to 4 buy and sell, at home or abroad, obligations evidencing 5 loans insured under this Act, such purchases and sales to 6 be made in accordance with such rules and regulations as 7 the Federal Reserve Board shall prescribe. 76TH. CONGRESS 1 S T SESSION S. A BILL To provide for the insurance of loans to business, and for other purposes. B y M r . MEAD MAY 8,1930 Read twice and referred to the Committee Banking and Currency on