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151 BOARD OF GOVERNORS OF" THE FEDERAL RESERVE SYSTEM WASHINGTON 3-583 ADDRESS OFFICIAL CORRESPONDENCE TO THE SOARD November 1;.:, 1%2 • • Dear Sir: The Board has received several inq1.1iries reg&rdine sor-tion 10(.'1)(2) of Hef;ulation W, and these inquiries are discussed below. • The first inquiry is whether a hei~ir3trant nay discount and receive payments upon an oblit.~·ation wrtl.ch prior to d:isemmting has been renewed or revised pursuent to the provj.sions of S0Ction lO(a)(?) cw as Lo have a. maturity which w0ulcl not have b•:en perni.E3Sible under the Hop-ulc1.tion in th<c~ f:Lr[·rt instance • The Don.rd i3 of the opinion th·tt :v:;ction 3( a) ( 3) would not prevent such action by tbe Registrant, since the renewal or revision is one which is expr•:1ssly authorized l:.1y the Reeulation • • • • • .. The second ~-nquiry rela.tes to the terms on which a Registrant me.y make a loe.n to e debtor- to retire bis instaJioont indebtedness to another cr.::-ditor vvhcre the maturit~,r of the lmkbt<:.;dneGs has already bL3Gn extended by the other creditor undr.:)r .seetion l0(a)(2). Tht:~ Board L:J of the opinion that the Hcgistrant may mako such a loa.n on the same terms as the obligation being retired. The obligation being retired is in conformity 'Nith sectl.on 10(a)(2); and section lO(c) permit::: a 1ender, in making a loan to rct.Lcu a regul.e,ted insttllment credit, to extend terms as liberal m' the terms of the credit being retired if tho:Jc terrrw are in conformity with the Hc";ulation. The third incruiry is vvhether a Registrant who has purchased a delinquent instalment obligation and ha:3 exercis<~d s. bon~ fide collection effort, may then revise th,:.· obligation tmder :.::ection 10(a)(2) on tbr'lns not initially f;errn..i.s::::Lble. The Board h> of the optnlon .tha.t Ulis may be done, but it should be errrphas:Lzed thHt. the change in ownership of the pEi.p0r 152 S-583 -?- does not c:hange the rer3ponsibi.1ity of the holdBr to rrw.ke every effort to collect it in accordance with its terms. Furthermore, the revision must not be made on terms lonp-er than are neeessary in good faith for the Registra.nt 1 s own protection. The theory of section 10(a)(2) is that an adjustment w.i.tl1 the customer should not be prevented if that is the only feasible way in which the credit can be collected. Any ::;uch adjustment must be the last resort (except, of course, litigc:.tion) and a meP.sure to b(-l taken only after other means 0f collection have been exhausted. • • Each of the foregoing points with respect to section 10( a) ( 2) is consistent with the principle of that section, name;'1y, that it. may be applied only for the protection of tht:! H.egistrant who holds the obligation which is in default and who is makinr, the ad,justment. If section 10( a) ( 2) is applj ed in accord;:,nc'; with the principles heroin expressed, it is not believed that any undur~ weakening of the; Hegulation will result. On the other hand, :Lf you should <;;Jncounter any evidence suggestint;:: tl1a.t Registre.nts m!?:.y be using this section improperly, we shall appreciate~ information D.S to such si tuatil"~ns <~.s well r1s :mgg(:;stions e.s to mw c:,ction, including an amendme:nt, that ;you may eonsider desirobl0; • Very truJ..Y· yours, \. . _ =- ~-':::'"'"-r --· - .. . /,.A .· ~t.-tf-H.- • 1. P. Bethea, Ass.h:tant Secretary • • TO 'I' HE PR!!.;SID.ENTS OF ALL FEDERAL RESERVE llA..l\!KS • • ..
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