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S-7S Reg. D-8. INTERPRETATION 01' LAW OR REGULATION (Copies to be sent to all Federal reserve banks) February 5, 1938. Mr. , Vice President, Federal Reserve Bank of , Dear Mr. : This refers to your letter of January 25, 1938, and inelosures, requesting aavice as to how member banks in your district should classify for reserve purposes certain "personal loan deposits". It appears from the sample account book and note form of the National Bank, , , that the member bank makes loans to individuals through its personal loan department , taking in each case a promissory note payable at a specified date in the future, and requires the borrower to deposit with the bank a specified sum of money each month until the total of such deposits equals the principal of the loan, at which time the accumulated deposits are applied in payment of the loan and the note is canceled and surrendered. It is also understood that the borrower is furnished a book in which his monthly deposits are entered and which contains the following provision: "This book is subject to the terms of signed agreement made _________ day of and has been assjgped to National Bank as collateral". We understand that the agreement referred to in the account book is the note evidencing the personal loan, which contains a provision that upon default in making the monthly deposits the note, for the full amount thereof loss a credit for such deposits as have been made, shall become due and payable at the election of the payee. It is our understanding that the borrower is not permitted to withdraw the funds deposited under the above plan and that interest is charged by the member bank on the full amount of the personal loan until maturity. With reference to the question whether amounts deposited by the borrower constitute deposits for reserve purposes, your attention is invited to thm ruling oublished at page 538 of the Federal Reserve Bulletin for September, 1931, which held, on similar facts, that funds deposited in "special accounts" in order to provide for the repayment of personal loans are deposits within the meaning of section 19 of the -2~ S-72 Reg. D-S. Federal Reserve Act against which reserves must be maintained. This ruling was reaffirmed by the Board on July 11, 1935, in a letter to the Federal Reserve Bank of . Accordingly, reserves are required to be carried against the deposits described in your letter. Since it is understood that interest is charged on the full amount of the loan until maturity, it seems clear that the monthly deposits can not be considered as partial payments on the loan. You also ask to be advised as to how such deposits should be classified for reserve purposes. On the basis of the facts submitted, it is our view that the deposits evidenced by the book in question should be classified as "time deposits, open account" provided the particular contract made with the borrower provides that deposits shall be made during a period of not less than three months as required by footnote 2 of section 1(d) of Regulation D. If a case should arise in which the contract r-,Tith the borrower provides that deposits are to be made during a period of less than three months, we will be glad to consider the question of classification upon receipt of a full statement of the facts of the particular case. Very truly yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary. 375
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