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139 BOARD OF GOVERNORS OF" THE FEDERAL RESERVE SYSTEM S-577 WASHINGTON ADDRESS Of"F'ICIAL CORRESPONDENCE TO THE BOARD • November 3, 1942. Dear Sir: The following is a copy of a letter sent toda;:r to a Federal Reserve Bank regarding Regulation W: , • "This refers to your letter of October 20, 19h2 asking four questions in connection with sections It( e) a.-·1d 5(h) of Regulation W added by Amend1nent No. 9. The questions arise out of a c~:we where three coats are sent on approval to a customer with the understanding that the customer will select one '~oat and :return the other·s. "Your first question is whetb.er the store .should ascertain at the t:Lmc the article is c:ent out v;hether the customer expc,cts tc) pay cash, or expects to charge the coat, or exp'3cts to pay for it in instaJ~rnents. You have informed the store that lt should do E>O, and the Board agrues. "Your second q11estion is what down payment should be obtained if the coats are delivered in anticipation of an instalment sale. The answer is that the customer expects to buy only one coat, and therefore, only one coat is delivered 'in anticipation' of a .sale. Therefore, the customer is required to deposit only an <:Lmount equal to the down payment which would be rcq:uired on the most c!Xpensivo of the three coats. ·- "Your third question deals with the case where the three coats are delivered on approval and the customer states that she expects to charge the coat which she selects. While the usual practice would probably be to charge aLl three coats to the customer's account at the time of delivery and to cancel the charge on two of them when returned to tho store, sc:ctlon 5(h) only requir,~s thr.: store to charge one of them to the account for the reason discussr:;d in the preceding paragraph. However, when the customer makes her selection and decides to keep 140 S-577 -2- the coat, she states that she wishes to place the sale on an instalment basis, and you ask whether a down payment should be obtained. • • "In such a case, the customer does not carry out the anticipation contemplated b,y section 5(h) ru1d her failure to do so operates as a cancellation of the transaction there covered. Consequently, there is a new transaction, namely, a.i.1 instalment sale, which is subject to all of the provisions of the Regulation applicable to such a sale, including the requirement that a dovm payment be obtained. Of course, the original delivery on approval without a down payment would have been a violation of sections h(e), 5(a) and ll(a) j_f ther0 had been any agreement or understanding, express or implied, that the coat would eventually be sold on instaL~eLts. "Your fourth question relates to a case where the customer, mving selected one of the three coats which were delivered on approval, returns it for alteration. Your question is whether the date of sale for default purposes is the date of delivery on approval or the date on which the coat is retu..'Y'rled to the customer after alteration. This appears to be the srune kind of a case as the second case discussed in S-56), and consequently the date of sale for purposes of determining whether or not the account is in default is the date on which tne article is returned to the customer after alteration." Ver-J truly yours, ~~~- • L. P. Bethea, Assistant Secretary . . TO THE PRESIDEl"'JTS OF ALL FEDERAL R.ESEHVE BAIJICS •
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