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62 BOARD OF GOVERNORS OF' THE FEDERAL RESERVE SYSTEM S-545 WASHINGTON ADDRESS DF"F"ICIAL CORRESPONDENCE TO THE BOARD August Jl, 1942 Dear Sir: 19/~2, The following is an excerpt from a letter dated Au[.,'11St 11, sent to a l"ederal Reserve Bunk regarding Regulation W: "This refers to your letters of June 1 and July 30, 19/~2, regarding the question whether, under Regulation W, a Registrant may purchase or discount an instalment obligation arj.sing from the sale of an automobile on terms more liberal than those prescribed in the Regulation, if the obligation arose out of a bona fide transuetion between two individuals not engaged in the business descdbed in tho Rogulation and who were consequently not subject to its r'3quirem<mts. As your letter of June 1 indicates, the question is one with respect to which there may be reasonable differences of op11non. As you know, ho;vever, section /.. provides that 1 each instalment eale shall comply 1 with the specified requirements applicable to tl1e described .9bli_lliions, and section 3(a) describes the nerson§_ who must ob:o;erve these requirements. A person not 'engaged in the business' mey extend credit; without COlaplying with section /+ only because he is exempt from section 3(a). Such exemption, however, is personal to the person making the casual transaction and it does not change the status of the pa.per or. cru·ry over to a. subsequr-mt purchaser t:u.:reof. It is the Board's view, therefore., that the fact that the credit 111.ras originally grar,ted by- a person who enjoyed such a personal exemption under section J(a) docs not alter the requirements that apply to the obli,gation and that must be followed by a Registr·ant who subsequently purchases or discounts the obligation. 11 S-545 -2- "On previous oc!casions when this question has been presented t.o it, the Board has referred to the second paragraph of W-57 as showing, according to the foregoing reasoning, that the H.egistrant may not purchase or disconnt the obligation if, at that time, it shows 1 on its face' arry failure to comply with section 4 or if the Registrant knew of any fact by reason of which it failed to comp~ with that section." Ve~J truly yours, \....__ ..... ~~L. P. Bethea., Assistant Secretary. TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS 63
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