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BOARO OF. GClVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
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S-454
TD THE .QARD
March 26, 1.942
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Dear Sir: '
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Enclosed is a copy of a letter written to
a federal Reserve Bank aTlswering certain 'questions .
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presented by The
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Associa~ion
of Life Insurance Presi-
1dents in connection with Regulation W.
Very truly yours,
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L. P. Bethea,
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Assistant Secretary.
Enclo-sure
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TO THE PRESIDENTS 01" ALL FEDERAL RESERV~ BANKS EXCEPT
N-E.W YORK
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S-454-a
March 26,
177
194~
Mr.
,
Assistant Vice President, \
Federal Reserve
, Bank of ___,,
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Dear Mr.
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Ref~rence is made to your letter of February 24, 1942, regarding the· questions presented by The Association of Life Insurance Presi-.
dents,
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required to register under section 3(a) of Regulation Vi. These questions
are discussed below, and a copy of this lette.r is being forwarded as an
"S" letter to all Federal Reserve Banks in order that they may be in a
position to make appropriate replies to any inquiries on the subject from
insurance companies in various parts of the country •
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1. Policy Loa.ns •..--Life insurance companies frequently make socalled "policy loans" in the amount of $1,500 or less on life insurance
policies issued by-them. It is understood that the provisions of the policies require the companies to make these loans, and to make them on the
sole security of the policy. It is perhaps arguable whether the policyholder undertakes to repay the loan at all, but it is understood that he
clearly does not undertake to repay the loan in instalments. On the basis
of this understanding, it is the view of the Board that the making of such
''policy loans" does not cause an insurance company to be "engaged in the
bu'siness" described in section 3(a) and hence does not require the company
to register.
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2. Ipstal.men'j( 'Loan§.--A great many of the loans- made by lif.e
insurance companies are repayable on an instalment basis. An insurance · ,
compa:fiy wh.ich regularly makes or accepts app'iic,ations for, instalment
loans of $1, 5-QO or less (or instalment loans se'cured by recently purchased listed articles as specified in section 2( e)(2)) is engaged in the
business of making extensions of instalment loan credit and is required
to register pursu~t to section J(a). On the other hand, if a company
doe·s not make, o:r. hold itself out as being prepared to receive applications for, any such instalment loans, it would not have to register unless
there were some other facts that brought it under the requirement.
It is understood,that there are also some insurance ccinpanies
that do not clearly fall within -either of the descriptions in the preceding paragraph. They do 'not reg1.1larly make, and do not hold themselves
out as being prepared to receive applications·for, any ,instalment loans
secured by recently purchased listed articles or any idstalment loans of $1,500 or less, but they nevertheless make one or 'two such loans in isolated instances on infrequent occasions. ·
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S-451.,.-a
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In general, and in the absence of other facts, a company would
not be uengaged in the business" unless it makes such loans with at least
some cfegree of repetition or holds itself out as being prepared to receive applications for such loans. For example, the inquiry states that
one such insurance company which doe's not hold itself out as prepared to
receive any applications :for. any such loans has made two installn.ent loans
of $1,500 or less in the past 20 years.' Assuming that these two loans
were made as isolated instances, they would not cause the company to be
"engaged j_n the busines13 11 described in section 3(a). The question whether
a particular company is "engaged in the business" by virtue of having made
certain of such loans must, of course, depend upon all the relevant facts
of the individual case •.
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3~ Advamses for TaUJs ang Ioswsmce Cna;niums ·uuder.Mor~{{age
Loans.--Frequent]y a provision of a first mortgage authorizes the holder
of the mortgage to pay' taxes and insurance premiums .on the property when
the mortgagor fails to pay them,· and provides further that the .amount of
such payments shall be a first lien on the prE>.mises and become' a part of
the sum secured by the mortgage. Li!e insurance companies from time to
time.make payments pursuant to such provisions. The fact that such advances are exempted as'a part of the first mortgage under section 6(a)
and W-128- would not prevent them fr0ll1 requiring the company to register.
However, it is the view of the Board that the payment of taxes and insurance premiums in these circtlJllstances does not cause an in,surance company
to be "engaged in the busine~" described j.n section J(a) even though
such supplemental advanc€S are repayable in instalments and are .in the
amount of $1,500 or less.
4. PartialLY
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Rep~!£
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Lo;ns.--An insta]~ent loan which is made
in good faith in excess of $1,500, and is not secured by a recently purchased liste~ article as described in section 2(e)(2), does not become
subjec-t to the regulation when the outstanding amount of the loan is re. duced to $1,500 or less. Hence; the fact that. an insurance company has'
on its books many such loans which were originally made in amount§ exceed- .
ing $1,500 but which have been paid down to $1,500 or less does not cause '
the insurance company to be "engaged in,the business" described in section 3(a).
Very truly yours,
(Signed)
L. P. Bethea
L. P. Bethea,
Assistant Secretar.y.
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