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FEDERAL RESERVE BANK
OF NEW YORK
Fiscal A g en t o f the U nited States

r C ircu la r N o . 3 6 3 1 T
L D e ce m b e r 2 0 , 1950 J

C H A N G E IN G R O U P I N G O F T R E A S U R Y

T A X A N D L O A N D E P O S IT A R IE S

To all Treasury tax and loan depositaries
in the Second Federal Reserve D istrict:

Effective December 21, 1950, all T reasu ry tax and loan depositaries will be
divided into two groups, as fo llo w s:
Group A — A ll depositaries having T reasu ry T a x and Loan Account balances
of $100,000 or less at the close o f business December 20, 1950.
Group B — A ll depositaries having T reasu ry T a x and L oan A ccount balances
of m ore than $100,000 at the close o f business December 20, 1950.
This grouping o f depositaries will be continued until further notice, notwithstanding
any subsequent changes in the size o f the T reasu ry T a x and Loan Account balance
of any such depositary.

Calls upon depositaries in Group B w ill continue to be made fro m time to time
on relatively short notice in accordance w ith the T re a su ry ’ s requirements fo r funds,
and calls upon depositaries in G roup A will in general be made less frequently.




A

llan

S

proul,

President.

FEDERAL
OF

RESERVE
NEW

BANK

YORK

C O N S U M E R C R E D IT
Summary o f Interpretations Issued by
the Board o f Governors o f the Federal
Reserve System B efore June 30, 1949,
W hich A re A pp licab le U nder Regula­
tion W As Issued Effective September
18, 1950, and As Am ended

Decem ber 1950

L



F

R

e d e r a l
o f

N

e s e r v e

e w

Y

B

a n k

o r k

December 21, 1950

To Lenders and Certain Others Concerned ivith Regulation W
in the Second Federal Reserve D istrict:

In view o f the fact that Regulation W , which became effective Septem­
ber 18, 1950, is similar in many respects to Regulation W which was in
effect until June 30, 1949, a number o f the interpretations which were
issued by the B oard o f Governors o f the Federal Reserve System before the
latter date are applicable under the present regulation, as amended. This
pamphlet contains a summary o f those interpretations issued by the Board
o f Governors o f the Federal Reserve System, printed in such form as to
facilitate you r keeping it with your copy o f the present regulation.
These summaries, however, must be treated merely as examples which
demonstrate certain principles, and they should be used on ly as aids in
studying the application o f the regulation. Since the complete facts involved
in the administrative interpretations upon which the summaries are based
are not set forth in fu ll in the summaries, there can be no assurance that
the facts in new situations will be identical with those o f the interpretations
as condensed in the summaries. Therefore, caution should be exercised
against reaching a conclusion in a given case solely on the basis of similarity
to any one o f the summaries.
References to sections o f the regulation in the summaries refer to sec­
tions of the present regulation which, in some cases, carry different numbers
than the earlier regulation. "Without altering the principles expressed in
the underlying interpretations, some o f the summaries refer to other differ­
ences between the present regulation and the earlier regulation.
The summaries are arranged in approxim ately the same order as the
provisions o f the regulation to which they relate.
A dditional copies o f this pamphlet will be furnished upon request.




A

llan

S proul,

President.

CONTENTS
[N ote : Where a section o f the regulation is cited in a summary, that section is indicated in
brackets after the summary heading.]
S u m m ary
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S u m m a ry H ea d in g

P a ge

Registrants mav not purchase, discount, or lend upon nonconforming paper
[Sec. 2 ( a ) ] .......................................................................................................................
Isolated transaction [Sec. 2 ( a ) ] ........................................................................................
Advance by an organization to its agent [Sec. 7 ] ........................................................
Registration not required i f all credits are exempt [Secs. 2 (b ) , 7 ] .........................
Re-registering not required upon removal o f office....................... ................................
Transfer o f equity ..............................................................................................................
Conversion o f noninstalment credit...................................................................................
Free merchandise and rebates [Sec. 3 ( b ) ] .....................................................................
Insurance relating to listed article [Secs. 3 (a ), 3 ( b ), 6 ( c ) ] ....................................
Service relating to listed article [Secs. 6( h) , 8( j ) (7 ) J..............................................
Agreement to convert charge account [Secs. 3 (a ), 6 ( f t ) ] ..........................................
Delay in delivery [Secs. 6(a ), 6( b ) ] ...............................................................................
Instalments in decreasing amounts [Secs. 3 ( b ) ( 1 ) , 4 ( c ) ( 1 ) ] ..................................
Minimum monthly payments [Secs. 3 (b ), 4 ( c ) , 5 ( a ) ] ................................................
Waiver or skipping o f instalment payments [Secs. 3, 6(a ), 6(b ), 6 ( h ) ] ...............
Record o f Instalment Sale [Sec. 6 ( c ) ] ...........................................................................
Financing replacement article ..........................................................................................
Obligation payable to seller or financial institution....................................................
Balloon note [Sec. 4 ( c ) ] ....................................................................................................
Statement o f Borrower [Sec. 4 ( d ) ] .................................................................................
Loan over $2,500 or $5,000 [Sec. 7 ( a ) ] .........................................................................
Add-on sale over $2,500 or $5,000 [Sec. 7 ( a ) ] ...............................................................
Reduction in interest rate [Secs. 4 ( c ) , 5 (a ), 5 ( a ) ( 2 ) ] ..............................................
Defaulted obligations [Sec. 5 ( c ) ( 1 ) ] .............................................................................
Resale o f repossessed listed article [Sec. 5 ( c ) ] .............................................................
Listed article installed in house [Secs. 6(d ), 7(7 »)(1), Part 2 o f the
Supplement] .......................................................................................................................
Credit for mixed purposes [Sec. 6( d ) ] ...........................................................................
Sale or delivery on trial [Secs. 3 (a ), 6 ( / ) ] ...................................................................
Delivery prior to down payment [Secs. 6 ( / ) , 6 (7 i)]....................................................
Side loan to make down payment [Sec. 6( t ) ] ................................................................
Additional credit and release o f collateral [Sec. 6 ( t ) ] ................................................
Automobile demonstrator exemption [Secs. 7 (c ), 8( a ) ] ............................................
Sale o f “ demonstrator” autom obile................................................................................
Loans to carry securities [Secs. 7 ( g ) , 7 ( f c ) ] .................................................................
Loans to purchase building and loan shares [Sec. 7(<7) ] ............................................
Investment securities [Sec. 7 ( g ) ] ......................................................................................
Orthopedic and related devices exempted [Sec. 7 ( i ) ] ..................................................
Preservation o f records [Secs. 4 (d ), 8 ( a ) ] ...................................................................
Consumer-violator ................................................................................................................
Bank discounting obligation [Sec. 8 ( e ) ( 2 ) ] .................................................................
Verification o f loan value [Sec. 8 ( c ) ( 2 ) ] .....................................................................
Effective date— pre-September 18, 1950, contract........................................................
Single payment or instalment c r e d it ................................................................................
Joint instalment sale to several purchasers.....................................................................
Accessories sold with automobiles [Sec. 8 ( j ) ( 7 ) ] ........................................................
“ Cash price’ ’ established by instalment seller [Part 1 o f the Supplement]...........
Repairs and replacement parts [Part 1 o f the Supplement]......................................
Automobiles ...........................................................................................................................
Cooking stoves and ra n g e s..................................................................................................
Ironers .....................................................................................................................................
Refrigerators .........................................................................................................................
Washing m achines................................................................................................................
Radios, television sets, phonographs..................................................................................
Furniture ...............................................................................................................................
Small deficiencies in down payments [Sec. 6( e ) ] ........................................................
Excess down paym en t..........................................................................................................
Calculating down payment on automobiles [Secs. 6(t), 8 ( j ) ( 7 ) , Part 4 o f the
Supplement] .......................................................................................................................
Calculating down payment 011 Group B listed articles [Sec. 6( h) , Part 5 o f the
Supplement] .......................................................................................................................




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R E G U L A T IO N W
C O N SU M E R C R E D IT
S u m m a r y o f In te r p r e ta tio n s *
1. Registrants may not purchase, discount, or lend upon non con form ­
ing paper.— A n obligation arising out o f a bona fide transaction between
two individuals not “ engaged in the business” as described in section 2 (a )
o f the regulation, and consequently not subject to its requirements, may
not subsequently be purchased or discounted or accepted as collateral by any
Registrant if it shows on its face any failure to com ply with the requirements
o f the regulation or if the Registrant knows o f any fact by reason o f which
it fails to com ply.
2. Isolated transaction.— A lthough an automobile salesman may sell
his demonstrator as an isolated transaction on terms which do not com ply
with the regulation, the dealer-employer, if a Registrant, may not purchase
the resulting obligation unless it complies with the requirements o f the
regulation. O f course, if the relation o f the salesman and the dealer is such
that the automobile is in effect the p roperty o f the dealer rather than o f the
salesman, the sale would be subject to the regulation.
A n organization which purchases substantial numbers o f automobiles
fo r cash and sells them to its salesmen on a m onthly payment plan is “ en­
gaged in the business” described in section 2 (a ) o f the regulation and the
sales must com ply with the down payment and other requirements o f the
regulation.
3. A dvance by an organization to its agent.— A n advance made by an
organization, such as an insurance com pany, to one o f its agents which is
repayable in instalments is subject to the regulation to the same extent as
any other instalment loan. It would not be subject to the regulation if it is
an isolated loan made by a com pany not ‘ ‘ engaged in the business ’ ’ o f making
instalment loans; or if it is exempt under section 7 as, fo r example, a loan
to an agent to pay office rent or salaries o f his employees (section 1 ( b ) ) .
4. Registration not required if all credits are exempt.— A person need
not register as required under section 2 (6 ) o f the regulation if every exten­
sion o f consumer credit made by him is exempt from the provisions o f the
regulation by section 7.
5. Re-registering not required upon rem oval o f office.— It is not neces­
sary for a Registrant already registered to file another registration state­
ment upon m oving its principal office to another Federal Reserve district.
6. Transfer o f equity.— W here the original instalment purchaser o f a
listed article transfers his equity to another purchaser by transferring the
* Published in

F e d e r a l R e g iste r ,




November 17, 1950

article subject to the original debt and lien, the transfer being arranged
directly between the parties and not by or through any Registrant, the
transfer 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 o f the signature
o f the new purchaser. However, if the original purchaser is released, or the
terms o f the contract are altered, the same requirements w ould apply as if
the Registrant were making an ordinary instalment sale o f the listed article.
7. Conversion o f noninstalment credit.— W here an entire credit in
good faith originates as and is evidenced by an obligation payable in a lump
sum, its later conversion to an instalment basis by the same Registrant does
not make it subject to the regulation as an “ instalment cre d it” . I t is
essential, o f course, that the original transaction be in good faith and not
a subterfuge.
8. Free m erchandise and rebates.— A n instalment vendor o f a listed
article is not prohibited by the regulation from making a bona fide “ fr e e ”
g ift o f other merchandise to the buyer o f a listed article, provided the trans­
action is consummated on the basis o f the “ bona fide cash p rice ” o f the
listed article. A cash price would not be bona fide if it were raised to permit
the so-called ‘ ‘ free ’ ’ gift, and such a practice would be an evasive device to
circumvent the down payment requirement. In the latter case the record
required by section 3(&) should show the “ bona fide cash p rice ,” rather
than the inflated price, on which the customer made the required down p ay­
ment and the resulting time balance; and, if so handled, the “ fr e e ” g ift
would not violate the regulation.
A bona fide discount or rebate on the sales price o f a listed article is not
prohibited by the regulation. In such a case the aforementioned record
should show that an article selling at a particular price was reduced to a
price net o f discount upon which the required down paym ent was obtained.
9. Insurance relating to listed article.— W hen insurance relating to a
listed article is sold or financed in connection with the listed article by the
Registrant who sells or finances the listed article, the insurance can not be
treated as a separate exempted sale o f an unlisted article, but must be in­
cluded in the “ time balance” as required by sections 3 (a ) and 6 ( c ) , and
must be scheduled fo r repayment within the applicable maximum maturity
as specified in sections 3 (a ) and 3(& ). The same treatment is required in
the case o f instalment loans.
10. Service relating to listed article.— W hen a service relating to a
listed article is sold or financed in connection with the listed article by the
Registrant who sells or finances the listed article, the service can not be
treated as a separate exempted sale o f an unlisted article, whether or not
the service is covered b y a separate contract. The service must be included




2

as a part o f tlie “ cash p rice ” o f the listed article in com puting the maximum
loan value or down payment, and must be scheduled fo r repayment in the
manner applicable to the listed article. In the usual case, the amount charged
fo r the service would be essentially a part o f the selling price o f the article,
and section 8 ( ; ) ( 7 ) specifically includes “ the bona fide charge fo r any
services sold or financed in connection with the article” . Section 6( h) re­
garding evasive agreements also m ight be relevant in the consideration o f
such matters.
11. Agreem ent to convert charge account.— The sale o f a listed article
in a charge account with an agreement or understanding that the credit will
later be converted into an instalment contract violates sections 3 (a ) and
6 (* ).
12. Delay in delivery.— I f in an instalment sale subject to the regula­
tion the article sold is not going to be delivered until a date subsequent to
the date o f the contract, section 6(&) permits the maximum m aturity to be
calculated from the date o f delivery; and, except as perm itted by section
6 (a ), the first instalment shall be scheduled to fall due not later than one
month after the date o f delivery with, o f course, the option under section
6(&) o f making the 15-day adjustment permitted by that section with respect
both to the maximum m aturity and the date o f the first instalment.
13. Instalments in decreasing amounts.— Sections 3 (6 ) (1 ) and 4 ( c ) (1)
are worded in the alternative. F or example, a first instalment of, say, $65
may be follow ed b y the remaining permissible number o f scheduled instal­
ments of, say, $25.
14. Minim um m onthly payments.— The $5 minimum m onthly payment
requirement o f sections 3(& ), 4 ( c ) , and 5 (a ) does not prevent the last
scheduled instalment payment o f a regulated obligation from being less
than $5.
15. W aiver o r skipping o f instalment payments.— A prearrangement
in the form o f a “ side agreem ent” or understanding that the first instalment
paym ent o f the time balance arising from an instalment sale w ill be waived
or paid by the Registrant, would contravene section 6 (b ) and, in effect,
would constitute provision fo r refund o f a part o f the required down p ay­
ment contrary to sections 3 and 6(fe) o f the regulation. In view o f the perti­
nent sections o f the regulation, any arrangement or understanding at the
time the credit is extended providin g fo r the skipping o f any instalment
payment, including the first, would be contrary to the regulation unless, o f
course, the case were such as might be covered under section 6 (a ).
16. R ecord o f Instalment Sale.— The “ record o f an instalment cred it”
as described in section 6 (c ) need not be on a single sheet o f paper and need




3

not use the term inology used in that section. The cash price may be shown
as a total without itemizing taxes and accessories, but the accessories must
be identified.
17. Financing replacem ent article.— W here any o f the insurance p ro­
ceeds received in settlement fo r an irreparably damaged listed article are
used as a down payment on a replacement listed article rather than toward
paym ent o f the loan previously made to finance the purchase o f the damaged
article, it would be in violation o f the regulation fo r a Registrant to make
a new advance to the borrow er to purchase a replacement article in an
amount which, when added to the old loan balance, w ould exceed the m axi­
mum credit value o f the replacement listed article.
18. O bligation payable to seller o r financial institution.— I f the seller
o f a listed article takes an instalment note in payment, the transaction is a
sale subject to the regulation, whether the note is payable to the seller or to
a bank or finance com pany. I f the seller o f an unlisted article takes a note
payable to himself, the transaction is exempt from the regulation because
the regulation does not apply to the sale o f an unlisted article. However, if
the seller o f an unlisted article takes an instalment note payable to a bank
or finance com pany, the transaction (depending, o f course, upon the princi­
pal amount involved) is subject to the regulation as an instalment loan.
19. B alloon note.— A note evidencing an unclassified instalment loan,
fo r example, which calls fo r 11 equal monthly payments follow ed by one
larger paym ent meets the requirements o f section 4 ( c ) if, assuming the
maximum permissible m aturity to be 15 months, there is an express agree­
ment that when the tw elfth payment falls due, only one-fourth o f it will
be paid on that date and the rest will be refinanced into 3 m onthly payments
in such manner that the net result w ill be 15 substantially equal monthly
payments.
20. Statement o f B orrower.— W here there are several parties to a note,
some o f whom are accommodation makers, the Statement o f the Borrower
required by section 4 ( d ) need be obtained on ly from the party who received
the proceeds o f the loan.
21. Loan over $2,500 or $5,000.— A loan over $5,000 is not subject to
the regulation even if a part o f it is to be used to pay off an indebtedness
which was subject to the regulation. The renewal or revision o f a loan which
was originally more than $5,000 is not subject to the regulation even though
the balance at the time o f renewal or revision is less than $5,000. I f instead
o f renewing or revising such an obligation, the lender makes one instalment
loan o f less than $5,000, part o f the proceeds o f which are to be used to pay
off the old obligation, only the part o f the loan representing new money is
subject to the regulation. In such cases, however, it would ordinarily be
better practice fo r the lending institution to keep the two credits separate.




4

A ppropriate modification in the application o f these principles are necessary,
o f course, in the light o f the provisions o f section 7 ( a) o f the regulation.
22. A dd-on sale over $2,500 or S5,000.— A n add-on sale o f a listed
article having a cash price o f $900 which is consolidated with an existing
obligation o f $4,200 resulting in a total credit o f more than $5,000, is not
subject to the regulation, and therefore no down payment is required in
connection with the add-on sale. However, if the total credit is less than
$5,000, the down paym ent is required. A ppropriate modification in the
application o f these principles are necessary, o f course, in the light o f the
provisions o f section 7 (a ) o f the regulation.
23. R eduction in interest rate.— A good faith reduction in the interest
on a pre-September 18, 1950 instalment loan which would be effected simply
by a letter from the lender to the borrow er and which, except fo r a pro rata
scaling down o f instalment payments, would not otherwise change or m odify
the obligation, would not constitute a “ revision’ ’ o f the loan under section
5 (a ) o f the regulation so as to require compliance with that section. H ow ­
ever, if an instalment loan were one subject to the regulation, a reduction
o f interest should not result in scheduled payments below the minimum
amounts required b y sections 4 ( c ) and 5 (a ) (2 ).
24. Defaulted obligations.— Section 5 ( c ) ( 1 ) permits a Registrant to
renew or revise an obligation on such terms as he deems necessary in good
faith, where the obligation is in default and the subject o f bona fide collec­
tion effort by him and the action is fo r his own protection. Only the Regis­
trant holding the obligation is permitted to make such renewals or revisions.
A nother Registrant, however, may discount and receive payments upon an
obligation which p rior to discount has been renewed or revised as permitted
by this section. The section also permits a Registrant who has purchased a
delinquent instalment obligation and who has exercised a bona fide collec­
tion effort, to revise the obligation on terms not initially permissible. A ny
renewal or revision pursuant to this section must be the last resort (except,
o f course, litigation) and a measure to be taken only after other means o f
collection have been exhausted.
25. Resale o f repossessed listed article.— The fact that an automobile
or other listed article has been repossessed does not in any way authorize the
resale by a Registrant contrary to the requirements o f the regulation, in­
cluding the down payment or maximum loan value and instalment payment
and maturity requirements. This rule is contained in the proviso at the
end o f section 5 ( c ) . It is immaterial that the repossession and sale to a new
purchaser follow a “ bona fide collection effort” rather than an ordinary
or other repossession o f the car.
26. Listed article installed in house.— Section 1 ( h ) (1 ) exempts a loan
to purchase a house even if the house is one in which certain listed articles




5

had previously been incorporated. However, this section does not exempt a
mortgage loan to be used to purchase a listed article.
In view o f section 6 ( d ) , an extension o f credit which combines an
exempt credit such as one to construct a detached garage and a credit sub­
je ct to the regulation such as one to finance a listed article can not exceed
in amount the cost o f the garage plus the cost o f the listed article minus the
down payment required thereon by the regulation, and the instalments in
which the credit is payable must be sufficiently large to repay the balance
o f the cost o f the listed article within the m aturity specified fo r the listed
article in Part 2 o f the Supplement to the regulation.
27. Credit fo r m ixed purposes.— W here an extension o f instalment
credit arises out o f the sale o f a listed article, fo r example, repairs to a
dwelling, and the conversion o f a part o f the dwelling into an office, section
6 (d ) relating to mixed credits applies. The sale o f the repairs would be
subject to the regulation, while the conversion p roject would be exempt.
28. Sale or delivery on trial.— A present instalment sale o f a listed
article is subject to the regulation in the usual manner without regard to
section 6 ( f ) . This is true even though a part o f the sales agreement gives the
buyer an option to return the article, instead o f paying the price, and
thereby revest in the vendor complete ownership or property in the article.
I f an agreement o f the kind specified in the second paragraph o f section 6 ( f )
is executed and delivered in connection with an agreement evidencing a
present instalment sale, as fo r example, a conditional sales contract, and col­
lection by the Registrant o f the required deposit or down paym ent is delayed,
such an arrangement would not fall within or com ply with section 6 ( / ) , nor
would it com ply with the requirements o f section 3 (a ) o f the regulation.
H owever, where a listed article or listed-article “ dem onstrator” is delivered
to a prospective instalment buyer and he must subsequently in some way
manifest his acceptance or willingness to buy before ownership or property
in the article or a similar article passes to him, then the original delivery in
such a transaction w ould be o f the type covered by section 6 ( f ) .
29. D elivery p rior to down payment.— W here pursuant to a sales p ro­
m otion arrangement a Registrant sets aside a listed article fo r a customer
pending the accumulation o f the required down payment but delivers fo r
the custom er’s use in the meanwhile a similar listed article, the transaction
would not com ply with the requirements o f Regulation W and would be
contrary to section 6 ( f ) and section 6 ( h) .
30. Side loan to make dow n payment.— The words “ any other exten­
sion o f cred it” in section 6 (i) include but are not confined to other exten­
sions o f instalment credit.
Section 6( i ) refers to the down payment required by the regulation.
A ccord in gly, if a seller asks fo r a larger down payment than is required by




the regulation, this subsection (i ) would not prevent the lender from
lending the difference between the down paym ent required b y the regulation
and the down paym ent required by the seller.
31. A dditional credit and release o f collateral.— A Registrant holding
an unpaid, unclassified instalment loan secured by a listed article may re­
lease such article fo r the borrow er’s use as a trade-in on a new or different
listed article and make an instalment loan to the borrow er fo r the purpose
o f purchasing the new or different article, in the amount o f the maximum
loan value thereof, assuming that the parties act in good faith and that the
unclassified loan is not otherwise changed or modified. If, however, the
earlier unpaid instalment loan had been fo r the purpose o f purchasing a
listed article then, under section 6 (i) o f the regulation, neither the same nor
another Registrant properly could make the second loan since, to do so,
would constitute an extension o f credit in connection with the purchase of
a listed article in excess o f that permitted b y the regulation.

^

32. A utom obile demonstrator exem ption.— In order fo r the exemp­
tion under section 7 ( c ) to apply to credit extended to an automobile sales­
man to finance the purchase o f a new automobile fo r use principally as a
dem onstrator: (a ) the salesman must be a bona fide salesman o f new auto­
mobiles o f the same make and year as the automobile purchased as a demonstrator— the exemption is not applicable to salesmen whose sales are confined
to used cars nor to persons who are not employed principally as salesmen,
such as mechanics, parts clerks, office workers, etc.; (b ) the phrase “ used
by him principally as a dem onstrator” is not intended to require that the
automobile be used principally fo r the transportation o f his prospective
purchasers, since the phrase may also include the salesman’s use o f the
automobile fo r other bona fide demonstration practices.
Because o f section 8 ( a ) , in all such cases the Registrant, whether the
dealer or a financing institution, must have in his or its records a statement
or other record o f the facts establishing the exemption o f any such paper.

V y

33. Sale o f “ dem onstrator” autom obile.— The sale o f an automobile
which has been used and driven as a “ dem onstrator” b y an automobile
dealer or salesman constitutes the sale o f a used automobile, even though the
the automobile has not been previously sold and regardless o f whether such
sale occurred before or after the next successive model change fo r that make
o f automobile.
34. Loans to carry securities.— The word “ ca rry in g ” in section 1( g)
means the refinancing o f any indebtedness originally incurred for the p u r­
pose o f purchasing investment securities.
Section 1 ( g ) would not exempt a loan made by a credit union secured
by its shares to enable the borrow er to purchase such shares if there were
an agreement that the borrower would be permitted to withdraw any portion




7

o f the share account at any time if the credit union felt that the loan was
otherwise adequately secured, because such a loan would have a dual pur­
pose and not the single purpose mentioned in section 1 ( g ) and, in addition,
the loan w ould not be fu lly secured within the meaning o f section 7 ( k ).
35. Loans to purchase building and loan shares.— Loans fo r purposes
o f purchasing or carrying building and loan shares are exempt from the
requirements o f the regulation under the last clause o f section 1 ( g ) .
36. Investment securities.— Savings passbooks are not “ investment
securities” under section 1 ( g ) .
37. O rthopedic and related devices exem pted.— Loans to finance p u r­
chases o f artificial limbs, hearing aids, contact lenses, other such corrective
appliances, and wheelchairs would qualify fo r exemption under section
7 (i) if the statement required by that section clearly indicates in addition
to the other inform ation the use to which the proceeds are to be put.
38. Preservation o f records.— The requirement o f section 8 (a ) of
Regulation W that the Registrant preserve relevant documents fo r the “ life
o f the obligation to which they relate,” includes the “ Statement o f the
B orrow er” required under section 4 ( d) .
The term “ obligation ” as used in section 8 (a ) means the original obli­
gation with respect to which the Statement o f B orrow er was procured and,
therefore, does not require the preservation o f the Statement executed in
connection with such original obligation after a new obligation has arisen
b y virtue o f a revision o f the old credit.
39. Consumer-violator.— A consumer who knowingly violates or in­
duces violations o f the regulation may subject him self to crim inal penalties.
40. Bank discounting obligation.— A bank which purchases or dis­
counts an obligation is not required to ascertain whether the seller is licensed
under the regulation.
I f a bank lends to a finance com pany on the security o f instalment
obligations arising from sales o f listed articles, there could be no violation
o f the regulation in making such a loan or receiving payments on the loan
from the finance com pany so long as the payments do not arise directly
from the underlying obligations held as collateral. However, if and when
the bank wishes to resort to the collateral and to obtain payments directly
out o f the underlying obligations, it may not do so unless the requirements
o f section 8 (e ) (2 ) were met.
41. V erification o f loan value.— A bank or finance com pany purchasing
or discounting automobile instalment paper is not required by section
8 (e ) (2 ) o f the regulation to check appropriate appraisal guides to verify
that the instalment credit extended does not exceed two-thirds o f the
appraisal guide value in cases where the appraisal guide value is lower than




the “ cash p rice.” O f course, if it appeared from the face o f the obligation
or accom panying papers, or if the Registrant knew from any other source,
that the maximum credit value was exceeded, then the Registrant would
not be entitled to the benefits o f section 8 (e ) (2 ) with respect to such obli­
gation.
42. Effective date— pre-Septem ber 18, 1950, contract.— The delivery of
a new, more expensive listed article to replace a defective less expensive
listed article which was purchased on an instalment basis prior to September
18, 1950, is a new instalment sale and is subject to the provisions o f the
regulation, but any payments already made on the defective article may be
credited against the down payment required by the regulation on the new
article.

V

43. Single paym ent or instalment credit.— A n extension o f credit,
which upon its face is repayable in only one scheduled payment, is an exten­
sion o f instalment credit if at the time it is made the lender and the borrower
have an understanding that the borrow er w ill be required to make only a
partial payment at m aturity and that the balance w ill be renewed.
This would be true also where the single paym ent obligation was created
p rior to September 18, 1950, and the agreed instalment arrangements were
not com pleted until after that date and involved the substitution o f new
or different paper fo r the original evidence o f debt. Here, o f course, the
original obligation, including the instalment arrangements, would constitute
a pre-Septem ber 18, 1950, contract.
H owever, if a Registrant makes a sale on credit under an agreement
which does not expressly provide fo r instalment payments by the customer,
the transaction need not be treated as an “ instalment sale” even though
the customer has previously made partial, divided, or serial payments in his
account, or, regardless o f previous practice, indicates an intention to do so
in this instance, provided there is no bilateral understanding between the
customer and the seller that the customer is required to make payments in
such manner. Likewise, an ordinary bank loan evidenced by a promissory
note payable in fu ll at m aturity is not an “ instalm ent” loan subject to the
regulation even though the bank may anticipate that at the m aturity of
the note it may accept partial payment and a renewal note, provided the
bank makes no commitment to do so and the transaction is entered into in
good faith and not as a means o f evading the regulation.
44. Joint instalment sale to several purchasers.— A n arrangement,
which may be described fo r the sake o f illustration as follows, would be
subject to Regulation W . A n automobile dealer would sell three automobiles
to three different purchasers with payment to be made in instalments, the
three purchasers would become join tly and severally liable fo r the entire
amount o f credit involved in the three sales, and each one o f the purchasers
would be indemnified by a surety bond against defaults b y his join t obligors.




9

The total credit would exceed $5,000, but the amount involved with respect
to each automobile would be less than $5,000.
Viewed in its entirety, the transaction would really involve three instal­
ment credits, each less than $5,000, and could not properly be regarded as
a single credit o f more than $5,000.
45. Accessories sold with autom obiles.— W here a new automobile is
sold equipped with accessories, such as radio and heater, the cost o f the
accessories is part o f the “ cash p rice ” o f the automobile under section
8 ( ; ) ( 7 ) , and the maximum loan value is limited to two-thirds o f the total
cash price.
46. “ Cash p rice” established b y instalment seller.— W here a R egis­
trant offers an article at either a cash price or a time price, the cash price
being below the dollar amount specified in Part 1 o f the Supplem ent to the
regulation and the time price above that amount, a down paym ent would
not be necessary i f the article is in fact offered fo r sale fo r cash at the “ cash
p rice ” under such circumstances as to give each customer reasonable notice
o f the offer and reasonable opportunity to accept it.
47. Repairs and replacem ent parts.— Repairs and replacement parts
fo r automobiles, refrigerators, and other articles listed in Groups A , B , or C
are not themselves listed articles.
48. Autom obiles.— The classification “ automobiles” includes station
wagons and the “ Jeep Station W a g on ” (trade nam e). It does not include
trailers, ambulances, hearses, or jeeps.
The classification “ autom obiles” includes the Chevrolet “ Carry-all
Suburban,” the W illys-O verland “ ‘ J e e p ’ U tility W a g o n ,” the GMC “ Sub­
u rb an ” and other similar automobiles even though they are used or regis­
tered com mercially or have certain heavy-duty o r truck features or remov­
able seats, since they are designed for the purpose o f transporting less than
10 passengers.
49. C ooking stoves and ranges.— The classification “ Cooking stoves
and ranges” includes table model roasters and cookers. It does not include
cooking and baking equipment designed fo r commercial use in restaurants
and hotels, or a deep fa t fry er designed fo r such use.
50. Ironers.— The classification “ Ironers designed fo r household u se”
does not include hand irons.
51. Refrigerators.— The classification “ R efrigerators and food freez­
ers, m echanical,” includes a system consisting o f one or more cabinets with
a separate mechanical refrigeration unit serving these cabinets. It does not
include a locker in a locker p la n t; nor cabinets to hold or display ice cream
or other products fo r sale; nor water coolers; nor milk coolers not designed




10

fo r household use; nor automatic vending machines which cool as well as
dispense soft drinks.
52. W ash in g m ach in es. — A “ Commercial m odel” automatic washer
incorporating certain “ heavy d u ty ” features and equipped with a coinoperating device is a listed article within the meaning o f Regulation W if
it is o f a type readily adaptable fo r household use and is not designed ex­
clusively fo r commercial use.
53. R a d ios, television sets, p h o n o g ra p h s. — The classification “ Radio
* * * receiving sets” does not include radio transmitting sets or combination
radio transmitting and receiving sets.
The classification “ Phonographs or com binations” includes an auto­
matic record player designed to play more than the usual number o f records
without repeating or changing and incorporating other unusual technical
features but readily adaptable for household use and not designed exclu­
sively fo r commercial use.
The classification “ television receiving sets” includes sets suitable for
private or home use even though they may be commonly used commercially.
This is true, in the absence o f other facts, even though they may have exceptionallj- large screens or cabinets and may be equipped with a coin-operating
device.
54. Furniture.— The classification “ F u rn itu re” includes an ice refrig­
erator regardless o f the use to which it is to be put, unless its design and
construction are such that it is clearly usable only fo r commercial purposes;
it includes mirrors, unpainted furniture, kitchen or breakfast room sets,
swings, and a prefabricated decorative fireplace not suitable fo r heating
purposes. The classification “ F u rn itu re” does not include kitchen cabinets,
pictures, chinaware, cooking utensils, or silver-plated flatware. Furniture
o f the type used in households is subject to the regulation even though the
particular piece may be sold fo r use in an office, hospital, store, or other
commercial building.
55. Small deficiencies in down payments.— Deficiencies in down pay­
ments, even in small amounts, are not permissible, except as permitted by
section 6 (e ) o f the regulation.
56. Excess down payment.— A purchaser who has made a down p ay­
ment in excess o f the amount required by the regulation may not later have
the excess applied as part o f the down payment on another listed article.
57. C alcu latin g d ow n p a ym en t o n a u tom ob iles. — The equity in a used
car m ay be used as a down payment on another car, and fo r this purpose
the dealer may accept the first car and pay off the contract on it. However,
i f the owner obtains a loan to pay off the contract on his old car, and in
addition uses the car as a trade-in, the loan would violate section 6 (t).




11

W here a fictitious amount is added to the price o f an automobile and
is later eliminated from the price actually paid by the purchaser (either
by an increase in trade-in allowance or b y way o f discount or otherwise)
the “ cash p rice ” o f the automobile under section 8 ( j ) ( 7 ) and Part 4 o f
the Supplement, does not include the fictitious amount thus added.
58.
C a lcu la tin g d o w n p a y m en t o n G ro u p B listed articles. — W hen an
article is traded in on a listed article other than an automobile, P a rt 5 o f
the Supplement requires that the value o f the article traded in (or the value
o f the purchaser’s equity in it) be deducted in order to ascertain the net
;price to be used in calculating the down payment or loan value o f the article
being purchased. However, Part 5 o f the Supplement does not prohibit the
seller from taking back an article which is unsatisfactory to the purchaser
i f the seller allows the fu ll purchase price as a credit against the price of
the new article. O f course, if the price o f the new article in such a case is
inflated in order to offset depreciation in the original article, the transaction
would violate Part 5 o f the Supplement and section 6( h) .




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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102