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T p ,; - jóAig ÉÁÍ . Æ & $ YfaS> RESERVE SYSTEM ' > B O A R D OF G O V E R N O R S JOSEPH E. BIG JOSEPH E. Bl RN A. C. ARMSTRONG NWOOD P HARRELL, t •tu M o r r i s Pl a n Ba n k e r s A ssociation GARY M. UNDERHILL. EXECUTIVE DIRECTOR J. P, YODER. Director Public Relations CALVIN C. VANE. TREASURER ALICE G. WYKOFF, ASSISTANT TREASURER EXECU V E COM JOSEPH E. BIRNIE. C hairman GEORGE F. S. BEAL RALPH W. PITMAN THOMAS C. BOUSHALL FRANK J. SCOTT FRANK J. KENNEY T W. WALTERS FRED R. WALDRON 10 25 CO N N EC TIC UT AVE..N.W. W a s h i n g t o n 6 ,D .C . HERBERT F. KOCH GEORGE F. S. BEAL EMSLEY A. LANEY THOMAS C, BOUSHALL WALLACE D. MCLEAN EUGENE B. BROWER L. R. MERRITT ROBERT N. DUNLOP JOHN H. MURPHY BURTON E. FORSTER ERNEST A PEEL HOWARD E. GLADDING RALPH W. PITMAN W. GLASBRENNER FRANK J. SCOTT H. M. HARRIS JOHN J. SINNOTT VICTOR HOLDEN Y SEN ARTHUR B. JENKS FRED R. WALDRON FRANK J. KENNEY T. W. WALTERS October 28, 191*6 Hon* Marriner S. Eccles Chairman of the Board of Governors Federal Reserve System Washington 2$, 9* C. Viy dear Governor Eccles: I have before me a copy of your address before the New England Bank Management Conference in Boston on October 2f>. Knowing the previous official position of this Association, you will, I feel stare, pardon me if I write you this open letter in comment upon certain of your remarks in connection with Constuner Credit. You state that certain objectives could be accomplished, in your opinion, "by focusing regulation primarily on the major durable goods customarily sold^on the instalment plan. They compose the great dollar bulk of .consumer credit. 5 It has been felt for some time by the Reserve Bbard that the present regulation could be greatly improved administratively by focusing it on the major dur ables, eliminating the major part of single-payment loans and charge accounts from its scope, together with the soft goods and less impor tant durables that were included when the Regulation was originally drawn as an anti-inflationary device in war-time." The underlines in the above quotation are ny onn. I am frankly at a conqplete loss to understand such a statement emanating from a Federal Reserve official. “Total Installment Sale Credit," covering instal ment sales of automobiles, other consumer durables, as well as sale of non-durables on the instalment plan, has never amounted to more than 38% of "Total Consumer Credit." This was the peak ratio reached at the end of 191*1. The ratio of »Total Installment Sale Credit* to "Total Consumer Credit" was only at the end of this past August, the latest date for which figures were published in the October Federal Reserve Bulletin. It is further interesting to note, in accordance with the attached table of statistics, that "Total Installment Sale Credit" at the end of August was two-thirds below its own 19U1 peak, and is the only type of Consumer Credit which remains below its own 19^1 peak. "Single-Payment Loans" are now 6% greater than in 191*1« "Charge Accounts*1 are now 37% greater than in 191*1« "Service Credit" now stands 37% greater than in 191*1» Yet, it is these types of credit which the Reserve Board apparently may release first from Regulation. Why? Hon» Marriner S» Eccles October 28, 19H6 Page 2 We find ourselves completely in accord, on the other hand, with your statement that: nIt is important, of course, to bear in mind that these selective controls, relating to listed stocks and consumer credit, can at best play only a relatively minor role in assuring stability in our economic life. Likewise, monetary policy is even more limited in its influence tinder present day conditions than ever before. Overshadowing all of these aspects of Governmental policy are national, fiscal and budgetary measures, together with otter broad policies relating to business, labor and agriculture.” Will you be good enough to reconcile for our information your statement as to the relative importance of instalment sale credit in the whole consumer credit picture with the available statistics from your office, as well as to explain the emphasis placed on regulation of this type of credit, in view of its relation to 19hl outstandings in comparison with single-payment loans, charge accounts, and service credit. Gary M. Underhill Executive Director CONSUMER BANKERS ASSOCIATION PEG CCî United Press American Banker CONSUMER CREDIT STATISTICS (Estimated amounts outstanding - $000,000 omitted) Total Consumer Credit (A) 1929 1931 1933 1935 1937 1939 19U1 Total Instalment Sale Credit (B) 2,515 1,595 1,122 1,805 2,752 2,792 33% 29% 29% 33% 37% 3$% 9,899 3,7hk 38$ 1% 13% Ihfo 19U3 5,338 8lit 6,73k 903 8,131 1,122 Sources 82fo 30% Service Credit 2,125 1,1*02 776 l,0l*8 i,50U 1,1*68 1,601 1,7U9 1,381 1,081 1,292 1,1+59 1.5W* 1,761* 596 531 1*67 1*72 557 533 1,192 1,1*98 1,616 1,981 1,70k 2,UlU 687 772 837 106% 137% Federal Reserve Bulletin, October, 19U6 ^Preliminary figure as of 8/31/1*6 Charge Accounts B/A 7,637 5,528 3,905 5,1*19 7,1*67 7,981 19hï 19h6 19k6/l9kl % Single Payment Loans 610 137% October 31» 191^6* Mr, Gary M, Underhill, Executive Director, Consumer Bankers Association, Morris Plan Bankers Association, 1025 Connecticut Avenue, M* W,, Washington 6, D* C, Dear Mr, Underhills This is to acknowledge your letter of October 28 which you gave to the press« 1 am aware, of course, that your Assoc iation has strenuously opposed, even during the war, that part of the Governmentfs economic stabilisation program which called for restraints upon consumer credit, I sm grateful to you, however, for your letter because 1 agree with you that the phrase I used, to the effect that major durable goods customarily sold on the installment plan "compose the great dollar bulk of consumer credit*, needs qualification« Accordingly, I have added to the end of that sentence in the copy which will be printed in the Federal Reserve Bulletin a qualify ing clause so that it will readf "They compose the great dollar bulk of consumer credit in which the range of expansion and con traction is widest," Other components of total oonsraer credit, such as single payment loans, charge accounts and service credits, show comparatively little fluctuation. Hence, if regulation is to be continued by Congress with a view to exerting a stabilising in fluence it should logically be applied to the area in which the fluctuations are the widest, that is, to installment credit centering on major durable goods« That was the point X sought to make in ay discussion of this subject and explains why the emphasis was plaoed on this important segment of consumer credit« I enclose a chart from which you will note that installment credit has been subject to extremely wide swings whereas in the sams period single payment leans, charge accounts and service credit remained comparatively stable, though there has been some upturn in charge accounts recently, as was to be expected« FD E COPY Mr. Gary M. Underhill - 2 - I f you w ill take note o f the figures in the ta b le in the Federal Reserve B ulletin fo r October, from which your s t a t is t ic s on consumer o r edit were taken, you w i l l see« o f course, that t o t a l installment cred it in a number o f pre-war years» a fte r the worst o f the depression was over, bulked very large and amounted to more than h a lf o f t o t a l consumer cre d it in 1936* 1937, 1938, 1939, 19*40 and 19Ul. Our s t a ff people who have had experience with Regu la tion W are o f the opinion that t o fOous the regulation, i f it i s to be continued, on the area I have mentioned would produce a s ta b ilis in g e ffe c t on the general le v e l o f a l l consumer c re d it and t h is , o f course, would be one o f the primary o b je ctiv e s o f any regu la tion . As i t was drafted , in consultation with other agsnoies, including the OPA, fo r the s p e c ific war-time purpose o f aidin g, even in a minor way, in the a n ti-in fla tion a ry program, the regulation was made much more comprehensive than would have been the case had i t been drawn in peacetime as a regulatory measure. As I indicated In ay talk in Boston, i t is f e l t that the regulation can be made more workable from an adm inistrative and enforcement standpoint by centering i t on a more lim ited l i s t o f durables which are the most important items in the broader economic picture o f consumer c r e d it. Sincerely yours. M, S. S ocles, Chairman, Enclosure iH F flL E C O P Y BOARD JOSEPH E. Bl R A. C. ARMSTRONG M o r r i s Pl a n B a n k e r s A s s o c i a t i o n GARY M. UNDERHILL. EXECUTIVE DIRECTOR J. P. YODER D ire c to r Public R elations CALVIN C VANE, TREASURER ALICE G. WYKOFF. A ssista nt T re a su re r ex e c u OF G O V E R N O R S JOSEPH E. BIF LINWOOD P HARRELL TEE JOSEPH E. BIRNIE. Chairman GEORGE F. S. BEAL RALPH W. PITMAN THOMAS C. BOUSHALL FRANK J. SCOTT FRANK J. KENNEY T W. WALTERS FRED R. WALDRON 1025 C O N N EC TIC UT AVE.. N. W. W a s h i n g t o n 6 ,D .C . HERBERT F. KOCH GEORGE F. S. BEAL EMSLEY A. LANEY THOMAS C. BOUSHALL WALLACE D. MCLEAN EUGENE B. BROWER L. R. MERRITT ROBERT N. DUNLOP JOHN H. MURPHY BURTON E. FORSTER ERNEST A. PEEL HOWARD E. GLADDING RALPH W. PITMAN W. GLASBRENNER FRANK J. SCOTT H. M. HARRIS JOHN J. SINNOTT VICTOR HOLDEN F. VAN BENTHUYSEN ARTHUR B. JENKS FRED R. WALDRON FRANK J. KENNEY T. W. WALTERS November 1, 19U6 Hon. Marriner S. Eccles Chairman of the Board of Governors Federal Reserve System Washington 2£, D. C. Bear Governor Eccless Thank you very much for your letter of October 31» I gather from your remarks that the primary purpose of Regulation W has shifted in the past several months from its anti-inflationary aspects to the aspect of the control of the business cycle. In maki ng my report to our membership at Virginia Beach, certain parts thereof were "off the record" as far as the press was concerned. As I reread this particular part of the report, I find the following paragraph to Tnhich I should like to call your attention: "I cannot help but believe that had this regulation (U), as well as that one represented by the twenty-third letter of the alphabet, been based exclusively upon the period of time for repayment, rather than exclus ively in the case of one and partly in the case of the other, upon percentages of down payment, they would have both been more practically effective and less onerous to administer. Speaking only of Regulation U, there would have been no such crashing of the stock market in 1929 as took place had those stocks been sold to buyers "who were paying for them out of income over a reasonable period of time. It is a very simple example in arithmetic that the smaller the down payment the purchaser can or does make, the larger the unpaid balance Trill be and the more out of each month’s income it will take to pay it off in a given period of time. The larger the payments out of income that will be required, the smaller the total amount of the purchase will be. It is also axiomatic from the banker*s point of view that the smaller the down payment made, the faster the borrower or purchaser must be required to pay it off from a credit point of view, Regulation or no Regulation.” This may or may not be a new idea to you. seen or heard it expressed before. I do not recall ever having Even though we are on opposite sides of the fence with respect to the desirability and practicability and efficacy of the control of con sumer credit as regulatory factor in the business cycle, I should like very much to talk with you in person in a perfectly open and frank manner. There are certain problems in connection with the regulation of consumer credit from a practical point of view, in dealing with millions of individuals, which I feel have not been given sufficient consideration. Hon. Marriner S. Eccles November 1, 19l|.6 Page 2 I have a very high personal regard for the official personnel of the Federal Reserve System. Dr. E. A. Kincaid, Vice President, and Hugh Leach, President, of the Federal Reserve Bank of Richmond, have been friends of mine for a good many years. Since coming to Washington from Richmond, I have become very pleasantly acquainted with Bonnar Brown and Elliott Thurston. I have also had very pleasaryt conversations with Governor Vardaman and Governor Ransom, though I have not seen the latter for slightly more than a year, just prior to being released from the Navy. Please be assured of ny unreserved willingness and desire to give you a frank expression of the viewpoint of our members, as far as I can interpret it, at any time. Gary M. Underhill Executive Director CONSUME BANKERS ASSOCIATION PEG November 5» 1946. Mr. Gary M. Underhill, Executive Director, Consumer Bankers Association, 1025 Connecticut Avenue, Washington 6, D. C. Dear Mr. Underhill: The suggestion in your letter of November 1 in regard to having any regulation of consumer or instalment credit limited to the so-called maturity prong of the regulation was considered care fully at the time the present regulation was written and has been put forward from time to time since then by some of the registrants. However, it has not appealed to the Board or to the staff who have been familiar with the particular problems of the regulation as a feasible or workable idea. The conclusion, in which I-venture to say almost all of the Federal Reserve Banks would concur, is that elimination of a down payment would result in the writing of a far greater number of contracts for goods than would be the case if a substantial down paymaat were required, and that the end result would be innumerable defaults if the maturity period were short enough to have any real influence. You are frankly opposed, I know, to having Congress en act legislation extending some form or degree of controls over con sumer credit. If the Congress decides at least to give the matter a hearing, I imagine there will be quite a mixture of opinion from the trade in general. Some groups, like your own, are vigorously opposed while others appear to be favorable. I would be glad always to have the benefit of your views as a practical matter in dealing with such a regulation. I hope you will not hesitate also to pass them on to Ronald Ransom who, as you know, has had the special responsibility of supervising this regulation for the Board. Sincerely yours, M. S. Eccles, Chairman. ET:b
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