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FEDERAL RESERVE BANK
OF NEW YORK
Circular No. 2 2 8 6 T
October 1, 1941 J
CONSUMER CREDIT
INTERPRETATIONS OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM REGARDING REGULATION W
To all Banking Institutions, and Others Concerned,
in the Second Federal Reserve District:
Supplementing our Circular No. 2272, dated September 10,1941, and our Circular No. 2278, dated September 19, 1941, there are transmitted to you herewith
interpretations made by the Board of Governors of the Federal Keserve System
regarding Kegulation "W from September 19, 1941, to September 30, 1941,
inclusive.
A number of inquiries received by the Board have involved the question as
to whether or not particular articles are included among the articles listed in the
Supplement to the regulation. The contents of the Board's interpretations made
during the period from. September 19, 1941, to September 30, 1941, inclusive, in
response to such inquiries have been consolidated and are set forth under the
caption '' Status of Specific Articles'' on page 4. All other interpretations made
by the Board during that period are reproduced in full. The catch line inserted
immediately preceding each interpretation is not a part thereof as issued by the
Board and should not be regarded as affecting the construction of the interpretation.
Interpretation W-84 regarding the ''statement of transaction" required
under sections 4(f) and 5(c) (1) of the regulation is of particular interest at this
time in view of the fact that the provisions of the regulation requiring such statement become effective October 1,1941.
Additional copies of this circular will be furnished upon request.
SFEOUL,
President.
INTERPRETATIONS OF BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
REGARDING REGULATION W WHICH RELATES TO CONSUMER CREDIT
[For interpretations W-l to W-44 inclusive, and W-45 to W-71 inclusive, see Circular No. 2272
and Circular No. 2278, respectively]
W-72 Transfer of equity in listed article by one purchaser to another
Inquiries have been received regarding cases in which the original instalment purchaser of
an automobile or other listed article arranges the transfer of his equity to another purchaser,
the transfer of the equity being arranged directly between the parties and not by or through any
dealer or other Registrant, and the Registrant holding the obligation is in effect asked to recognize
or approve the transfer.
The Board is of the opinion that such a transfer of the automobile or other listed article subject
to the original debt and lien may be made without restriction under the regulation provided the
original purchaser (who is not a Registrant) remains liable on the contract and there is no
change in the contract except the addition of the signature of the new purchaser.
However, if the original purchaser is released from his obligation under the contract, or if
the terms of the contract are altered except by including the subsequent purchaser, or if a new
contract is entered into between the Registrant and the subsequent purchaser, the same requirements would apply as if the Registrant were making an ordinary instalment sale of the listed article.
In such event, if the listed article involved was, for example, an automobile and the subsequent
purchaser agreed to pay $600 for the automobile, the Registrant could not extend credit to him in
excess of $400.
It may be noted, of course, that under section 8(a) of the regulation the requirements stated in
the preceding paragraph would not apply to action taken by the Registrant in good faith (1) with
respect to any obligation of a member of the armed forces of the United States incurred prior to his
induction into the service, or (2) for the Registrant's own protection in connection with any obligation which is in default and the subject of bona fide collection effort by the Registrant.
W-73
Warmer drawer in electric range not a heating surface
[See "Status of Specific Articles", page 4]
W-74 Refrigerators not "seasonal goods"
Refrigerators are not "seasonal goods" within the meaning of section 4(d) or 5(c)(3).
W-75 Inclusion of certain taxes and fees in purchase price of automobile
Taxes and fees payable as prerequisite to obtaining license plates in name of purchaser of
automobile or motorcycle may be included in purchase price of automobile or motorcycle under
section 4(f)(2) and under Parts 2, 3(a), and 3(b) of Supplement.
W-76 "Bona fide cash purchase price" of automobile sold at discount
If a new automobile is sold at a discount, and the "bona fide cash purchase price" is therefore
less than the sum of items 1 through 4 of Part 3(a) of the Supplement, the maximum credit value
is limited to 66^3 per cent of the "bona fide cash purchase price".
W-77 Trade-in allowance on old automobile not fully paid for
An inquiry which may be stated as follows has been received under section 8(f) of RegulationW :
"A purchaser buys an automobile costing $600 and tenders his old car, which is worth $200,
as the required down payment. Purchaser owed a finance company $100 on the old car, which
was part of its unpaid purchase price, but the purchaser was able to make arrangements with
the finance company whereby the automobile was released as collateral to this loan and there
was substituted therefor miscellaneous collateral other than listed articles and he was able to
obtain a clear title for the purpose of making a trade-in. Assuming in each case that the Registrant involved knows or has reason to know of the $100 transaction: (1) May a finance company,
other than the one which extended credit on the old car, lend 66^3 per cent of the purchase
price of the new car when the loan is secured by the new car? (2) May the finance company
which extended credit on the old car make a separate loan to the same individual equal to %
of the purchase price of the new car when the collateral for the loan is the new car? (3) May
a finance company make two loans to the purchaser, one secured by the new car equal to 2/z of
its purchase price, the other secured by miscellaneous collateral other than listed articles, to
pay the $100 which the purchaser owes the other finance company?"
Section 8(f) in effect prohibits extensions of instalment sale credit under section 4, or of secured
instalment loan credit under section 5(a), in any case in which "the Registrant making such extension of instalment credit knows or has reason to know that there is, or that there is to be, any other
extension of credit in connection with the purchase of the listed article which would bring the total
amount of credit extended in connection with such purchase beyond the maximum credit value of
such article."
The down payment in the present case is represented by the old car, which is not sufficient for
this purpose unless taken at its full value without regard to the amounts still owed by the customer
for its purchase. The down payment therefore includes the $100 of credit which is outstanding for
the purchase of the old car, and the result is that this $100 brings the total credit in connection with
the transaction beyond the maximum credit value of the new car. Accordingly, when, as stated in
the question, the Registrant knows or has reason to know of these facts, the extension of credit is
prohibited in each of the three cases presented in the question.
W-78
Ice refrigerators
[See "Status of Specific Articles", page 4]
W-79 Meaning of "bona fide cash purchase price" in section 6(b)
The phrase "bona fide cash purchase price" in section 6(b) means the bona fide cash purchase
price of the article and accessories purchased, including any sales taxes thereon and any bona fide
delivery and installation charges.
W-80
Special lease of automobile to contractor working for War Department with option
in Government to take title at any time
An inquiry has been received regarding the applicability of Regulation W to a special type of
lease contract covering an automobile. The lessor is a dealer in automobiles and the lessee is a contractor who has a cost-plus-a-fixed-fee contract with the War Department. The lease calls for
monthly payments of 10% of the purchase price of the automobile and provides that when 10 payments have been made title to the automobile will vest in the Government with the option in the
Government at any time to pay the unpaid balance and take title to the automobile. The contract
further provides that the automobile may be transferred to another construction project and in that
event the lessor must enter into a new lease agreement with the holder of the construction contract
at the new location, payments made under the first lease being credited to the second lease. The
contract does not provide any means whereby the lessee can acquire title to the automobile.
The Board is of the opinion that in such circumstances the lease is not subject to the requirements of the Regulation.
W-81
Coin-operated phonograph not a listed article
[See "Status of Specific Articles", page 4]
W-82 Prefabricated fireplaces
[See "Status of Specific Articles", page 4]
W-83 Purchase of 24-month note made after September 1, 1941 pursuant to commitment
made prior thereto
Section 3(a)(2)(B) permits purchase or discount of 24-month note if note was signed after
September 1 pursuant to pre-September commitment.
Similarly, where contractor and home owner have made pre-September contract for repairs to
be financed by a bank, bank may finance the repairs on terms provided in contract even though
request for financing is not presented to bank until after September 1.
W-84 Contents of "statement of transaction"
The Board has received several questions regarding the application of sections 4 (f) and 5 (c)
(1) of Regulation W, which become effective October 1, 1941, and relate to the "statement of
transaction" required in connection with extension of instalment sale credit or instalment loan
credit. The answers are given below:
1. It is not necessary that all of the information required by section 4 (f) or 5 (c) (1) be
included on a single sheet of paper, but if parts of the information appear on two or more sheets it
is necessary that these sheets be attached together, and that copies of all of them be given to the
obligor together. The statement referred to in these sections, and the copy required to be given the
customer, need not be identical in form.
2. It is not necessary that the particular terminology used in the regulation ("bona fide cash
purchase price," "deferred balance", and "time balance") be used in the statement of transaction,
as long as the statement contains the required information. When the contract is in the form of a
lease agreement, such terminology as is applicable to a lease, giving the corresponding information,
may be used.
3. The bona fide cash purchase price of a particular article and accessories, including relevant
taxes, may be shown as a total without being itemized into various parts. Although section
4 (f) (2) requires itemization of (1) the article, (2) the accessories and (3) the services referred to
in the section, the items themselves may be itemized without stating the portion of the total purchase price that relates to each. Accessories which are standard equipment for the article need not
be individually itemized, and a group of accessories which are sold as a single group by the manufacturer may be shown in the statement as a unit.
4. The itemization for a new automobile follows this same rule, and need not show separately
the matters referred to in paragraphs 1 through 4 of Part 3 (a) of the Supplement. As indicated
above, however, the accessories should be indicated, and so should the relevant services.
5. In the case of an extension of instalment sale credit subject to section 4 of the regulation,
Item 2 under section 4 (f) requires that the statement of transaction show the bona fide cash purchase price of the article—the price at which the seller would sell the article for full cash payment—
even though the sale will be made at a "time price" which includes carrying charges.
6. The information referred to in each of the seven paragraphs of section 4 (f) must be set
forth, and it is not sufficient that an item of information may be obtained by mathematical derivation from other information in the statement. However, if the interest or finance charge is not
included in the face amount of the obligation but is an additional amount calculated pursuant to an
arithmetic formula plainly set forth in the statement, paragraphs 5 and 6 do not require this amount
to be shown in dollars and cents or to be included in the statement of the time balance.
7. In any case in which a State law or local regulation requires that sales taxes be shown
separately or requires in any other respect more detail than that required by Regulation W, the
regulation does not prohibit such further itemizing.
W-85
Gas heating units suspended from ceiling
[See "Status of Specific Articles" below]
STATUS OF SPECIFIC ARTICLES
The following information is consolidated from several interpretations of the Board in response
to inquiries regarding the status of particular articles. The group headings C and D below correspond with the similarly lettered Groups in Part 1 of the Supplement to Regulation W.
Group C
With reference to the classification "cooking stoves and ranges with less than seven heating
surfaces" a warmer drawer in electric ranges is not considered a heating surface.
The classification "heating stoves and space heaters designed for household use" does not
include gas heating units designed to be suspended from the ceiling and operated with a fan
circulator.
The classification "radio receiving sets, phonographs, or combinations" does not include coinoperated phonographs.
Group D
The classification "new household furniture" includes a prefabricated fireplace, sold as a complete unit, that is decorative only and not usable for heating purposes.
The inclusion or exclusion of articles under the classification "ice refrigerators", which is a
part of Group D-7 "New household furniture" in the Supplement, is determined by the same
general principles that have been applied in connection with "mechanical refrigerators". Refrigerators of less than 12 cubic feet rated capacity are included, no matter what the use to which they
are to be put, unless their design and construction is such that they are clearly usable only for
commercial purposes.
Please forward to us
additional copies of your Circular
No. 2286, dated October 1, 1941, entitled '"Consumer Credit—Interpretations of the Board of Governors of the Federal Reserve System Regarding
Regulation W".
(Date)
(Name of Bank)
(Signature)
(Street Address)
(City or Town)
(State)
FEDERAL RESERVE BANK OF NEW YORK
Federal Reserve Station, P. 0.,
New York, N. Y.
FEDERAL RESERVE BANK
OF NEW YORK
October 1, 1941.
Removal of Foreign Property Control Department
to 70 Pine Street, New York, N. Y.
To all Banking Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Federal Reserve Bank of New York announces that on and
after October 6, 1941 its Foreign Property Control Department will
be located on the fifth and sixth floors of 70 Pine Street, New York,
N. Y., and that the new telephone number of the department will be
HAnover 2-9440.
Notwithstanding this change of location, it is requested that mail
for the attention of the Foreign Property Control Department be
addressed as follows:
Federal Reserve Bank of New York,
Foreign Property Control Department,
Federal Reserve Station, P. 0.,
New York, N. Y.
ALLAN SPROUL,
President.
@FedFRASER