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246
BOARD OF GOVERNORS
OF" THE
FEDERAL RESERVE SYSTEM
S-496
WASHINGTON
ADDRESS Cf"f"ICIAL CCRREBPCNDENCE
TD THE BCARD
May 28, 1942
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Dear 3ir:
UnC.er date of Octobo:;: 10, 1941 (S-368), the Board wrcte you
with regard to vbtaining co:..Tedivns of app1e.rent Yiolations of Regulati;)n H. It was ~;:.;:;su,"'lled tha·c :nost violations were tfw resu1t of inadvel~tence or misun..iersta.lding as to the mvan::..ng of th;:; provisions of the
regulation.
Sir~ce that time marw Registrants have :w.d an opportuni t:y to
familiarize themsel.ves with the reguio_tion and t!i.A.re rr;ay be instances
where viola.ticns n.re willful rather than tho rssu2. t of inadve::-tence or
ignorance. The Board feels that it hns :.. re;sponsibility to provide
such a progrnm of enforcement ~-s ;vill brin.~ about general complirmce
,-;ith tte requir.~;meuts of tho r.;gulntion and· in some dc,5ree ~revent will±'ul vi.ol'ltiOl:.S. To this enJ, tho Board hn.s o.pprovGd n. 1Jrogrnm of enfo":"ce::J.E:nt, ~ C)py- of an Ol1tl:1.nv of ·which is t;nclo.,EJd. Certain parts
of tha p:::-ogram ce.ll for action ty the va:d.ous Fedoral Reserve Banks,
and it is requested that your Bank proceed in accordance with this program.
After consu:a.at:i.on with reiJresente.tives of the Department of
Justi<!e it ~1ae been decided that, for t~1e p::-esent at least and. in the
absence oi' 3xcoptior.al circur.:s-cancos, violations will nut be repvrtod
to tha Departm.:mt of .Justice in the firs·i:J iustu.nce. Hmvever, in cases
where the ci!'CU'1stancas ':rarra.nt, :;:Jl'O'!eedings will be instituted, as
set forth in the: outline, to d8termi:1e ··;hetner or not the Registrant's
liccnso should oe sus:pcnJed. The Board mcy \;ish to bring some of the
cases in tb3 la-cter catagory to the att0ntion of the Dai)a.rtme:1t of
Ju::n.i:::e for possiblE- prosecution by that Depar·~me:1t. At the pre3ent
time, ho.rcv<Jr, :i.t is desil ab::;_e that every e;fol~t be made to SdCure ~om
plicnce oP. the :;Jart of' persons having obligti.tior.s 1.mder the regulr-.tion,
c.nd it is conte;:::plc.ted t:w.t crimi:::1nl action will be to.ken only in cases
involving wt:.lful u.nd aggrave.t0d v-iolations.
Ll conr.~ctior. with subdivision II (B) of the enclosed prog:cam
ting to proceedings for suspension oi' license in the case of willviolations, it is co:nte::J.pb.ted, of cou:::-se, that if acy case should
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S-496
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be discover<~d where the failure of a person subject to Regulation W to
comply with thG ragistrativn requirements of the regulation is appare!ltly willful, you will make a full report of the facts in such case to the
Board in order that it may bring the case to the attentton of the Department of Justice.
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With respect to subdivision I(A){3) of tho enclosed program
relating to solicitation of the cooperation of local supervisor-.{ agencies, it is suggast0d that your B~nk not take steps to work out e. program with such agencies Q~til the Board has reached agreement with the
Federal Deposit Insurance Corporation, the Comptroller of the Currency,
etc., with :fespect to their cooperation as mentioned under subdivision
I(A) (2). In thi-s connection, it may be mentioned that it is contemplat~d that in our contact with the National Association of Supervisors
of State Banks we will solicit their cooperation at this time only as
to banks. Howevor, it is believed that in a n~~ber of Statos the ba~
supervisory agency also superYisos and examinos other classus of lenders subject to Regulatbn :~:. We will advise you as soon as practicable
as to the agreements WG have roached. v1i th th-3 FcC'.orul Deposit Ins·..u·ance
Corporation, the Comptroller of the c~u~rency, etc., a.m1 in the meantime
you may wish to contact the oan...1.;: su:~ervisor-.r agencies and a!ly other similar age:ncies i;:1 you;r dis·~rict to ciet.;;rmi:le what londc;rs subject to Regulation W otht:r than banks co.cG under their juri.sd~.ction.
The Board desir,~;s to emphasize "0h•;~.t tile enclosed pragram of
enforcement is not intvndDd to diminish in P..ny way the aducational activitieD of your Bank with roga:cd to the requi.cements of Regulation W
through trade associations, Better :Susiness Bureaus, the pres~, by furnishing speakers to interested groups, or qy any other appropriate means.
Ver<J
truly yours,
~hi~
Chester Morrill,
Secretary •
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Enclosure
TO THE PRESIDENTS 01'' ALL F'EDEi:l.AL J.ESERVE
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BANI~S
.S-496-a
248
OUTLINE OF .El'lFORCEM.ENT PROGRAM UNDER RSGLJLATICJN W
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I.
Detection of
Viola~
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A.
Lenders:
l.
It shall be the primary res:ponsibility of the Federal fl.eserve Banks to detect violations by State member banks
throuch the usual process of examination of such banks
and through spot checks to detect violations by other
lenders not periodically examined by recognized State or
Federal supervisory agencies. Such spot-checking shall
be conducted as outlined under I-B below.
2.
The Board will undertake to obtain the cooperation of
supervisory agencies having aut.horit.y of national scope
in detecting violations by institutions under thrdr examination and supervision, such ar.:;encies including-a.
Federal Deposit Insurance Corporation
b.
Comptroller of the Currency
c.
Natiomil Housing Agency
d.
Farm Credit
A~~inistration
The Board will also undertake to obtain the cooperation
of the National Association of Supervisors of State Banh:s.
Any such cooperation will be solicited along the lines of
that which has ~een obtained with respect to violations
of the Board 1 ~~ RegulaUon U, vrith such modifications of
procedure as rna;,'· be appropri::J.te to conform to this program.
3.
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B.
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The Federal Reserve Banks will solicit the cooperation of
supervisory agencies having authority of local scope in
detecting violations by insti tutionD under their examination and supervision. Each Federal Reserve Bank, with
the Pssi.stc:J.1CC of its eounsel, 7<ill ascert&in the local
supervisor.{ agencies regularly eY.amining end str.:>ervising
those lenders subject to Hegu.l.;.:;.tion vV.
Vendors:
l.
The various Federal Reserve janl·:s vrill for the pre;3e:1t
spot check extenf;ions of credit by vendor::~, each Federal
249
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S-496-a
Reserv·:; 3ank exerc1s1ng llJS OINn discretion as to the
number of checkers or investigators i t will engage,
their qualifications and training, the size of sample
of vendors to be investigated, and the methods and
scope of investigation. The Board su[;gests, however,
that each Federal Reserve Bank make a real effort to
spot check a representative number of vendors that
may be subject to Regulation i!V. Any such investigator should be furnished with appropriate credentials by the Federal Reserve Bank he represents. The
investigator's report should follorr such form as is
suggested by the following outline:
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a.
Name of the Federal Reserve Bank.
b.
Name, address, and character of the business investigated and whether registered •
c.
Date of investigation.
d.
Name of investigator.
e.
Scope of investigation (including procedure in
spot'"'!checking, number and types of transactions
reviewed and for what calendar period, whether
there was a review of Statements of Borrower,
Statements of Transaction, and Statements of
Necessity, etc.).
f.
List of violations disclosed and as to each whether
in the investigator's opinion it vJas apparently
willful or inadvertent.
g.
A complete detailed statem"'nt of facts of each violation.
h.
Corrections, if any, obtained as a result of t.he
investigation •
i.
The attitude of the business ex,:;cuti ves toward the
regulation in general and toward the alleged vio-lation in particuJ.ar.
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Other comments of the investigator.
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II.
Treatment of Violations after Detection
Consideration will be given in this section only to violations
discovered by the Federal fteserve Banks. In negotiations with
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S-496--a
other supervisory ag0ncies, an attcJ!lflt will be made to have
their tre2tment of violations conforn generally to the treatment of violations discc:>vered lly the Federal Reserve Banko.
A.
Inadvertent viol:tti:Jns:
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B.
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a.
Take appropriate steps to bring about, if practicable under all the circwnstances, a c.:orrection
of the contract in accordance 1Nith the rE.:gulation;
b.
If the circurastlinces warrant, make further in-vesti::;ations from time to time to determine whether
other vi-::>lations occur) and
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Furnish -~he Board, -.-.·:1r.m requested to do so, with
reports shovving inadvertent violations s.nd the corrections obtdned.
Willful viqlations:
l.
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If in the opinion of the Federal R.Rserve Bank the violation was inadvertent, the R.eserve B2.nk vdll--
2.
If, in the o}>j nion of the Federal Reserve Bank, a violation was !i.pparently willful and proceedin{;s should be
instituted to determine, whether tho Rel?,iGtrant 1 s license
should be suspended, tlte Federal R.eserve bank ·dill--
a.
Prepare a full report of the facts disclosed by its
investig<-ltion;
b.
For1vard one copy of such report to the 3oard with
its recorruaendations; and
c.
Take no further action against the apparc;nt violator ur:til direc t.ed to do so hy the Doar:d.
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If the circwnstance.:, warrant, the Board Jf Governors will
direct that a hearing be held at the Federal .Eeserve .dank
to determine whether or not the Hegistrant 1 s licen~3e
should be suspended. In connection 'Nith any such direction, the Federal Reserve Bank will be furnished with
full instructions as to the conduct of the hearinG• In
general, it is contemplated that the hearln,:; will br:; conducted by a trial examiner selected for the purpose but
independent of the federal H.ef,erve Dank anu that the evi([ence of the violation wi11 be presented by counsel and
other representatives of tbe Federal Rr-;serve Bank •
@FedFRASER