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FEDERAL
OF

RESERVE
NEW

BANK

YORK

R E G U L A T IO N

W

CONSUMER CREDIT

Interpretations of Regulation W
Issued by the Board of Governors
of the Federal Reserve System




through January 10, 1952

Circular No. 3812
January 18, 1952
.(Supersedes Circular No. 3687)_

Federal
of

Reserve
New

Bank

Y ork

January 18, 1952

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

This circular contains interpretations of Regulation W which
were issued by the Board of Governors of the Federal Reserve
System between September 18, 1950, the effective date of the
regulation, and January 10, 1952.
We printed some of these interpretations in our Circular
No. 3687, dated April 2, 1951; the remainder were issued after
that date. We have printed this circular in a form similar to that
of the regulation so that you may keep both together.
This circular supersedes our Circular No. 3687, dated April
2, 1951.
Additional copies of this circular will be furnished upon
request.




A

llan

S proul,

President.

NOTE
These interpretations should be used only as aids in studying
the application of the regulation. Since the complete facts upon
which these interpretations are based have not been given in every
case, there can be no assurance that the facts in new situations will
be identical with those condensed in the interpretations. Therefore,
caution should be exercised against reaching a conclusion in a given
case solely on the basis of similarity to any one of the interpretations.
Some interpretations have been omitted because later amend­
ments to Regulation W have made them obsolete; others have been
slightly altered to make them conform to later amendments.
The interpretations are arranged in the same order as the sec­
tions of the regulation to which they relate. Section numbers fol­
lowing the headings have been added in order to key the interpreta­
tions to the relevant sections of the regulation.
Each interpretation is followed by a reference to the Federal
Register (F .R .), and in most cases to the Federal Reserve Bulletin,
and circular, if any, of this Bank.
A table of contents appears on page 23.




R E G U L A T IO N W
C O N S U M E R C R E D IT
I n te r p r e ta tio n s

Refinancing of instalment sale of unlisted article— Sec. 1
A question has been presented concerning the application of Regula­
tion W to the instalment refinancing by a bank or finance company of an
instalment obligation which had been made payable to the vendor by the
purchaser of an unlisted article and which thereafter had been purchased
or discounted by the bank or finance company at a date subsequent to the
sale of the article. In the case presented the refinancing would be accom­
plished by the Registrant taking an instalment note payable to itself which
would replace the original obligation purchased or discounted. Inasmuch
as the transaction between the purchaser and vendor was not regulated, the
Board is of the view that such refinancing, whether or not evidenced by &
new obligation, likewise would not be a regulated transaction. In all such
cases, however, the Registrant would have a duty under section 8 (a) of
being able to demonstrate that any such refinancing on unregulated terms
was permissible.
[15

F .R .

8559;

F ederal

R eser ve

B u l l e t in ,

D ec.

1950,

p.

1 6 1 3 .]

Statement of the Borrower— Sec. 4(cZ)
A recent inquiry received by the Board raised a question concerning
the application of section 4(d) of Regulation W in the case of an instal­
ment loan for the purpose of purchasing residential repairs, alterations, or
improvements covered under Part 1, Group D of the Supplement to the
regulation. The specific question is whether, in the case of any such loan
for which F H A insurance is sought, the “ F IIA Title I Credit Application”
form and the “ F H A Title I Cash Down Payment Certificate” form, when
both are properly completed by the borrower, are sufficient to satisfy the
requirements of section 4 (d ) concerning the Statement of the Borrower.
The aforementioned forms are designated, respectively, “ Form FH-1, (Rev.
6-50) ” and “ Form FH-9, Rev. 7-50.”
The Board’s understanding is that a separate Credit Application to the
lender is required to be executed by the borrower for each such loan, and
that such Credit Application and a Down Payment Certificate executed by
the borrower are required to be obtained by the lender prior to any disburse­
ment of the loan. The Credit Application form specifically states that the
proceeds of the loan applied for will be used to finance the repairs or
improvements which the form requires the borrower to describe. It is under­
stood also that the “ total cost,” exclusive of financing charges, required to
be set out in the Down Payment Certificate represents the actual cost of




l

2

the repairs or improvements described in the Credit Application, and that
no discrepancy is permitted between this figure and the cost as revealed by
the Credit Application. In addition, it is understood, and the Down Pay­
ment Certificate indicates, that the borrower must specify in such Certificate
the amount of any trade-in or other allowance.
On the basis of the foregoing and from an examination of the F H A
forms in question, the Board is of the view that such forms, when properly
completed by the borrower, are sufficient to satisfy the requirements of
section 4 (d ) of Regulation W . In such a case, the borrower states the pur­
pose of the loan and indicates that the entire proceeds of the loan are to be
used for that purpose. And, as the purpose is to purchase a listed article,
the borrower identifies such article, supplies sufficient information with
respect to its price and also with respect to any trade-in or allowance. Con­
sequently, in cases of this kind section 4 (d ) would not require of the bor­
rower an additional statement.
Of course, the information reflected in the aforementioned forms when
completed by the borrower will not necessarily indicate compliance with
requirements of Regulation W other than section 4 (d ). For example, in
a given case, a down payment greater than the 10 per cent requirement
specified by the Down Payment Certificate may be necessary under Regula­
tion W . This would occur by virtue of Group B of the Supplement where
a modernization job would include, for example, the installation of a kitchen
sink unit incorporating a mechanical dishwasher.
[1 5

F .R .

8559;

F edekal

R eser ve

B u l l e t in ,

D ec.

1950,

p.

1 6 1 4 .]

Revision by original or other Registrant— Sec. 5 (a ) 1
Section 5 of Regulation W relates
Subsection (a) of section 5 states the
such cases, and other subsections of
situations. In connection with several
of those other subsections, questions
possible application of section 5 (a ).

to renewals, revisions and additions.
general requirements that apply in
section 5 relate to certain special
cases that do not qualify under any
have been received regarding the

Question— If Registrant A extends credit for the purchase of an auto­
mobile and the customer later asks to revise the credit, what is the maxi­
mum maturity permissible for the revised obligation ?
1
W herever necessary, interpretations have been revised to reflect Am endm ent N o. 4,
effective J u ly 31, 1951, which changed the required down payment and maximum
m aturities as follo w s:

Type o f instalment credit
A u t o m o b ile s ....................................................................
Household appliances, radio, and television sets
Furniture ........................................................................
Residential repairs and im provem ents..................
Unclassified instalment loans ..................................




Required
down payment

33^%
1
ir>%
10%

Maximum
maturity
18
18
18
30
18

months
months
months
months
months

*

A nsw er— 18 months, because that is the maximum maturity applicable
to a new automobile credit.
Question— W hat would be the maximum maturity in the above ease
if the Registrant who was asked to revise the credit was not A , who had
originally extended it, but B, a bank or finance company that had purchased
the paper from A ?
Answ er— 18 months, because it would still be the revision of an instal­
ment credit “ already outstanding.”
Question— What would be the maximum maturity if the customer went
to C, a bank or loan company that did not hold the original paper, and
asked to obtain a loan to pay off the obligation referred to above ?
A nsw er— 18 months, the maximum maturity for an unclassified loan,
because section 5(a) applies merely to the “ renewal or revision of * * *
credit already outstanding” and C could not be said to be renewing
or revising a credit which he already has outstanding. This contrasts
with the broader language of section 5(b) which applies to credit that
“ refinances” an outstanding obligation “ whether or not sucli obligation
is held by the Registrant,” but which requires that certain conditions
exist which were not present here.
[1 5

F .R .

6985;

F ederal

R eserve

B u l l e t in ,

N ov.

1950,

p.

1 4 7 1 .]

Bona fide trade-ins— Sec. 6 (c) (3)
Since the amendment to Regulation W which was made following the
amendment of the Defense Production Act, and which became effective
July 31, 1951, questions have been received concerning trade-ins in connec­
tion with the instalment sale of listed articles, particularly articles listed
in Groups B, C, and D of the Supplement to the regulation.
It should be noted that the new provisions of the statute and the regu­
lation do not repeal the requirement that a down payment must be obtained.
Two provisions of the regulation are of special importance here. One is
section 6 (c )(3 ) which requires that a trade-in be described in the Regis­
trant’s records and that the Registrant set out “ the monetary value assigned
thereto in good faith.” The other is section 8 ( j ) ( 7 ) which requires that
“ any rebate or sales discount” be deducted in calculating the “ cash price”
of the listed article, and that the required down payment be determined on
the basis of the “ cash price . . . net of any rebate or sales discount.”
The provisions of the statute and regulation, especially those quoted
above, prohibit certain practices which would attempt to use fictitious
trade-in allowances to evade the down payment requirements. This is true
even though the regulation does not necessarily require that trade-in allow­
ances counted against down payments be limited to the actual market value




4

of the trade-in or to the amount for which the Registrant expects to be able
to sell it. Some of the more important principles forbidding fictitious tradein allowances are indicated below.
1. It is evident that a transaction would involve a rebate or sales dis­
count rather than a trade-in where the Registrant in fact did not receive
delivery and possession of the property for which a so-called trade-in allow­
ance was granted. In such a case an actual trade-in has not occurred, and
labelling the transaction as a “ trade-in” will not change its essential char­
acteristic as a mere rebate or discount. The Registrant has received nothing
in part payment by virtue of the so-called trade-in and has merely reduced
the price of the article sold. Accordingly, the required down payment would
have to be obtained on the basis of the “ cash price” of the article net of
such reduction.
2. A transaction would similarly conflict with the requirements of the
regulation where there was applied against the required down payment a
so-called trade-in allowance in substantial amount for property having a
value that was nominal or negligible, or that bore no reasonable relation­
ship to the so-called allowance. Among transactions that would thus con­
flict would be many made on the basis of a substantial uniform allowance
for all so-called trade-ins irrespective of their make, model, or condition.
3. A trade-in could not be counted as a down payment to the extent
that there had been any offsetting increase in the price of the article being
sold. The price to be used as a standard here would be the actual value at
which the Registrant at the time is selling the same or like articles with an
all-cash down payment or on a comparable basis; that price might, of
course, be lower than the “ list” price.
4. From the foregoing it may be noted that a trade-in allowance cannot
be counted against the down payment required under the regulation except
to the extent that it reflects a bona fide trade-in or exchange of property.
The regulation does not prevent a Registrant from giving rebates or dis­
counts, or from calling them anything he may like; but no matter what he
may choose to call them for his own purposes, they obviously cannot take
the place of the down payment required by the regulation and cannot excuse
the Registrant from the requirement that he actually obtain the required
down payment. In other words, a Registrant is entirely free to give any
trade-in allowances, rebates, or discounts that he desires; but such allow­
ances, rebates, or discounts cannot be used as a cloak to conceal evasions
of the down payment requirements of the regulation contrary to the prin­
ciples here set out.
5. Under section 8 (a) of the regulation the Registrant is required in
any given case to keep such records as are relevant to establishing that his
treatment of an allowance as a trade-in or exchange in payment or part




payment of the required down payment is in conformity with the foregoing
and with the requirements of the regulation.
[1 6 F .R . 9 2 8 7 ; F e d e r a l
N o. 3755, S eptem ber 7, 195 1.]

R eserv e

B u lle tin ,

S eptem ber

1951,

p.

1134;

FRBNY

C ircu la r

“ Over-allowances” on trade-ins— Sec. 6 (c) (3)
Questions have been received concerning “ over-allowances” on tradeins in connection with automobile sales.
Section 6 (c )(3 ) of the regulation requires that a trade-in be described
in the Registrant’s records, and that the Registrant set out “ the monetary
value assigned thereto in good faith.” This requirement does not prohibit
all over-allowances on trade-ins as such. If the Registrant can show that
the price of the automobile being sold has not been increased to offset any
part of the over-allowance on the car accepted in trade, section 6 (c) allows
the Registrant to show the trade-in at the value at which he accepts it in
trade and to treat it as being a down payment to that extent, even though
that may be more than the amount for which he expects to be able to sell
it. In such a case the amount of the down payment requirement on the
car being sold would, of course, be calculated on the basis of the price
against which the trade-in was allowed.
Obviously, however, if any over-allowance on a trade-in were added to
the cash price of the article being sold, the over-allowance on the trade-in
then could not properly be said to be “ assigned thereto in good faith” and
the trade-in could not be counted as a down payment to the extent that
there had been any offsetting increase in the price of the article being sold.
[1 5

F .R .

9383;

F e d e ra l

R eserv e

B u lle tin ,

Jan . 1951, p. 2 1 .]

Sets and groups o f articles— Sec. 6( g)

A question has been presented concerning the application of section
6 (#) of Regulation W relating to sets and groups of articles.

In determining whether several articles constitute “ a single listed
article” under section 6 (g ) — ( 1 ) the articles must be so related as to con­
stitute a set, group, or assembly, or ( 2 ) they must be merchandised as a
single unit; and, in either case (3) they must be sold or delivered at sub­
stantially the same time.
Requisites (1) and (2 ), it will be noted, are stated in the alternative.
Consequently, if a given case meets either or both of these requisites, section
6 ( 0 ) will apply, assuming that the third requisite, which is self-explana­
tory, is also satisfied.
If the items are functionally related as in the case of a dining room
or bedroom suite, the first requisite would be met. However, even if the
items are not functionally related, but are merchandised as a set, group,




or assembly, the second requisite would be met and the absence of functional
relationship would be immaterial.
With respect to the second requisite, important considerations are
how the items are offered to customers, advertised, or ticketed, and the
merchandising practices of a particular seller or practices in the particular
trade. If listed articles are sold pursuant to an offering of the articles
as a set, group, or assembly, the articles constitute a single listed article
regardless of functional relationship and regardless of whether they are
offered at a combination price which is lower than the price of each article
if bought separately.
[1 5 F .R . 8 0 7 5 ;

F e d e ra l

R eserv e

B u lle tin ,

D e c . 1950, p. 161 2.]

Side loans prohibited— Sec. 6 (i)
Questions have been received regarding section 6 (i) of Regulation W .
The section states that “ a Registrant shall not extend any credit for
financing the purchase of a listed article” if he knows or has reason to
know of any other credit that would cause the total credit in connection
with the purchase to exceed the amount of instalment credit permitted by
the regulation.
(1) The requirements of the section apply to a Registrant only in a
case in which he is extending instalment credit. This is because section 2(a)
of the present regulation limits the application of the entire regulation to
cases in which the Registrant is extending instalment credit.
(2) In any case in which the Registrant is extending instalment credit
subject to the regulation for the purchase of a listed article, he must take
into account under section 6 (i) all credit, of which he knows or has reason
to know, in connection with the purchase of the article. He must take
into account not merely other credit that would be subject to the regulation,
but also “ other credit of any kind” in connection with the purchase of
the article, including credit that is not itself subject to the regulation.
(3) Single-payment credit is one example of credit that is not itself
subject to the present provisions of the regulation but that must be taken
into account under section 6 (i) when the Registrant extends instalment
credit subject to the regulation for the purchase of a listed article.
(4) Similarly, credits exempted by section 7 of the regulation are also
among the credits that must be taken into account under section 6 (i).
For example, section 7(k) exempts certain credits that are fully secured
by withdrawable shares issued by or savings accounts held with the lender
but such credits, like single-payment credits, must nevertheless be taken
into account under section 6( i ) by any Registrant extending any credit
subject to the regulation for the purpose of purchasing a listed article.
[1 5

F .R .

6985;




F ederal

R eserve

B u l l e t in ,

N ov.

1950,

p.

1 4 7 2 .]

7

Large quantity sales of listed articles— Sec. 7(a)
From time to time questions have been received under Regulation W
concerning the provisions of sections 7 (a ), 8 ( j ) ( 5 ) and 8 0 ') ( 6 ) which
exempt from the regulation instalment credit “ in a principal amount”
exceeding $5,000 in the case of automobiles, and exceeding $2,500 in other
cases.
Whether credits considered individually or collectively.— In certain
circumstances, credits may be added and treated collectively as a single
credit for the purposes of the foregoing dollar figures. To be considered
collectively as a single credit, the indebtedness must not only be incurred
between the same Registrant and one customer, but it also must be incurred
pursuant to a basic contract between them which governs the indebtedness
and which must be relied upon to enforce the indebtedness. Even if there is
some kind of basic contract, various items under it cannot be added together
to reach the $2,500 (or $5,000) figure if they are represented by individual
notes or other evidences of indebtedness that would support an action for
the debt without resorting to the basic contract.
The amount stated in the basic contract is not controlling except to the
extent that articles have actually been delivered or funds actually been dis­
bursed pursuant to the contract. This may be illustrated by an example in
which a Registrant and a customer enter into a contract for the delivery and
instalment sale to the customer of, say, 50 refrigerators. Suppose further
that each delivery of refrigerators is represented only by a mere receipt
that refers back to the original contract and would not support a separate
action. In such a case, deliveries under the original basic contract would
be subject to the regulation until the outstanding indebtedness exceeded
$2,500. Once that figure was exceeded, the entire credit would be exempt.
Additional deliveries under the contract while the indebtedness exceeded
$2,500 would also be exempt.
The foregoing principles would apply also in the case of instalment
leases or instalment loans.
Continuance of over-$2,500 ($5,000) exemption.— The over-$2,500 (or
$5,000) exemption is not lost merely because the principal amount of instal­
ment indebtedness falls below such figure as the obligation is paid down.
However, when such indebtedness has fallen below the exemption figure,
additions thereto do not get the benefit of the exemption unless they are
sufficient to bring the total of the indebtedness above the exemption figure.
When the outstanding credit under a leasing or similar contract for financ­
ing quantity merchandising has exceeded the exemption amount, substitu­
tions or exchanges of articles that are contemplated by the contract may be




made without regard to cash repayments that may in the meantime have
reduced the amount of the credit.
[1 6
June

1,

F .R .

5321;

1951.

T h is

F ederal

R eser ve

in te r p r e ta tio n

C ir c u la r N o . 3 6 3 4 , D e c e m b e r 2 7 ,
A p r il

2,

B u l l e t in , J u n e

su p ersed es

th e

1 9 5 0 , a n d r esta te d

one

1951,
on

th e

at pages 5

p.

646;

sam e
and 6

F R B N Y
s u b je c t

in

C ir c u la r

p u b lis h e d

F R B N Y

in

C ir c u la r

N o.

3715,

F R B N Y
N o.

3687,

1 9 5 1 .]

Loans for business purposes— Sec. 7 (6)
A loan to a doctor or dentist to purchase medical or dental equipment
is a “ loan for business purposes to a business enterprise” within the mean­
ing of section 7 ( b ) of Regulation W if the doctor or dentist is engaged
in performing services for various patients for individual fees. However,
a doctor or dentist performing services only on a regular salary basis
cannot be considered a “ business enterprise” under section 7 ( b ) .
[1 5

F .R .

7316;

F ederal

R eser ve

B u l l e t in ,

N ov.

1950,

p.

1 4 7 2 .]

House trailers— Sec. 7( h)
1. Instalment credit for the purchase of a house trailer designed for
residential use is exempt under section 7( h) of the regulation. This is
true whether the purchaser intends that the trailer remain mobile or
whether he intends to detach the wheel assemblies and place the trailer
on a foundation constructed on real property. In the latter event, the
credit is exempt under either section 7 ( h ) ( 1 ) or 7 ( h ) ( 2 ) . With respect
to section 7 ( h ) ( 3 ) , it is the Board’s view that extensions of credit in
connection with sale of house trailers are subject to Regulation X governing
real estate credit where the trailers are to be used for dwelling purposes
and the wheel assemblies are to be detached and the trailer placed on a
foundation constructed on real property.
2. If the wheels of a house trailer are detached and it is placed on a
foundation constructed on real property, then the trailer is an “ existing
structure” for purposes of Group D of the Supplement to Regulation W .
[1 5

F .R .

7755;

F ederal

R e ser ve

B u l l e t in ,

D ec.

1950,

p.

1 6 1 2 .]

Construction of or repairs to detached structure— Sec. 7 ( h) (1)
Questions have been received as to whether instalment credit (1) for
the construction of a detached garage on a lot already occupied by a
house, or ( 2 ) for repairs or alterations to such a garage previously built,
is subject to Regulation W .
A garage so constructed would be in connection with an existing
structure and would not be a structure “ designed exclusively for nonresi­
dential use” within the meaning of Group D of the Supplement. However,
the Board’s view is that such a garage would be an “ other entire structure”
within the meaning of the exemption in section 7 ( h ) ( 1 ) . Consequently,
instalment credit for the construction of the garage would not be subject
to the regulation.




9

On the other hand, instalment credit for repairs or alterations to
such a garage previously built would not be affected by section 7 ( h ) ( 1 )
and, therefore, in the Board’s view would be subject to the terms applicable
in the case of a Group D article.
Whether or not a garage is “ detached” must depend upon the facts
and circumstances of the particular case. For example, the mere fact
that a concrete sidewalk or fence may connect the house with the garage
normally would not prevent the garage from being a detached garage and,
therefore, an “ other entire structure” within the meaning of section
7 ( h ) ( 1 ) . A rigid structural connection, however, such as an enclosed
passageway or breezeway would prevent the garage from being an “ other
entire structure.”
[15

F .R .

6630;

F e d e r a l

R eserv e

B u lle tin ,

O ct. 1950, p. 130 9.]

Verification of loan value-—Sec. 8 (e) (2)
A bank or finance company purchasing or discounting an instalment
obligation arising from the sale of a listed article is not required by section
8 ( e ) ( 2 ) of the regulation to check the applicable maximum retail price,
if any, prescribed by Federal price authorities, to verify that the instalment
credit extended does not exceed the amount permissible under Part 4 of
the Supplement to the regulation in cases where the “ cash price” of the
article might not be less than the maximum retail price. Of course, if it
appeared from the face of the obligation or accompanying 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 of
section 8 ( e ) ( 2 ) wtih respect to such obligation.
[1 7 F . R . 158. T h is in terp retation supersedes the o n e on the sam e s u b je c t pub lish ed in 15
F . R . 7 8 3 0 ; F e d e r a l R e s e r v e B u l l e t i n , D ec. 1950, p. 161 9; an d restated on page 8 (S u m m a ry
N o . 4 1 ) o f F R B N Y c ir c u la r , D e c. 21, 1950.]

Pre-effective date transactions— Sec. 8 (/i)
Certain questions have been received regarding the status under Regu­
lation W of contracts or commitments made prior to September 18, 1950,
to extend credit after that date. Section 8( h) of the regulation exempts
“ any valid contract or obligation entered into prior to” September 18. In
order to clarify the application of this provision certain general principles
are set out below:
1.
The exemption in section 8( h) for “ any valid contract or obliga­
tion” entered into before September 18 applies not only to credit actually
extended before that date, but also to any valid contract or obligation to
make a contract. The exemption, therefore, includes a valid commitment
made in good faith before September 18 to extend credit after September
18, and includes also the credit extended pursuant to such a commitment.




10

2. In order for the exemption to apply there must have been a valid
contract or obligation. The general test is that the party seeking the credit
should, aside from the regulation, have been able to maintain a suit for
damages if the credit had not been granted pursuant to the contract or
commitment to extend the credit. Some of the requirements for such a
contract may be briefly summarized:

*
v

(a) A contract to sell or even a contract of sale for future delivery is
not necessarily an agreement to extend credit for the article involved.
There must have been a valid contract relating to the credit for the pur­
chase of the article.
(b) There must be considerably more than general negotiations or
indefinite “ understandings” that cerdit would be extended. There must
have been an agreement to extend the credit and a reasonably exact agree­
ment as to terms and amount.
(c) While not always essential, the case is much clearer if there is
written evidence of the commitment. The time as of which the credit itself
is dated is not important, the significant date being that of the prior
commitment.
3. Substance and good faith rather than technicalities and formalities
control in determining whether there is a valid pre-September 18 contract.
The most elaborate written documents do not constitute such a contract
unless they represent a bona fide commitment made as a part of a regular
business transaction and not as a means of evading the regulation.
[1 5

F .R .

6540;

F e d e ra l

R eserv e

B u lle t in ,

O ct.

1950,

p.

{
^

1 3 0 9 .]

Purchase or discount of credits extended pursuant to pre-effective date
commitment— Sec. 8 (/i)
Section 8 ( h ) permits the performance of any valid contract or obliga­
tion entered into prior to September 18, 1950 even though such performance
may result in an extension of instalment credit subsequent to that date on
terms which do not conform with the regulation. The interpretation headed
“ Pre-effective date transactions” set out certain general principles regard­
ing the application of section 8( h) . The question now asked relates to what
evidence a Registrant shall hold in its files to establish the fact that a nonconforming contract it has purchased from an originating Registrant was
the result of a pre-effective date contract between that Registrant and the
obligor.
Section 8 ( e ) provides that the prohibitions of the regulation (including
the prohibitions of section 2 ( a) ) shall not apply to a Registrant with respect
to any failure to comply with Regulation W in connection with an obliga­




-

tion purchased, discounted or acquired as collateral from another Registrant
if when so purchased, discounted or acquired the obligation did not show
on its face any failure to comply. Section 8 (a) provides that every Regis­
trant shall preserve for the life of the obligation to which they relate such
records as are relevant to establishing whether or not a credit is in con­
formity with the requirements of the regulation.
Application of the sections mentioned above places on a Registrant
holding paper which on its face does not conform with Regulation W the
burden of proof that the paper does in fact conform. Accordingly, the
Board feels that it is not practicable to lay down specific rules as to the
evidence to be obtained in such cases. In that connection, statements from
the originating Registrant that the non-conforming obligation resulted from
a pre-September 18, 1950 commitment or the furnishing of dealer lists of
pre-September 18, 1950 orders for listed articles may not in themselves be
sufficient to satisfy the responsibility of the Registrant to have in its files
evidence to show that the paper it holds subject to Regulation W is in con­
formity with the terms of the regulation.
[IS

F .R .

6630;

F ederal

R eser ve

B u l l e t in ,

O ct.

1950,

p.

1 3 1 0 .]

Revisions of and additions to pre-effective date credit— Sec. 8 ( h ) 2
Section 8( h) of Regulation W permits performance of valid contract
or obligations entered into prior to effective date of regulation but provides
that when any such credit is combined with new credit extended after
effective date it shall be treated as if it were extended on the date of con­
solidation. I f a pre-effective date obligation to purchase an automobile has
been paid down to $900 and after the effective date the Registrant desires
to combine it with an additional $1,700 loaned for an exempt purpose,
section 8( h) would require the remainder of the automobile credit to be
scheduled for repayment within the maximum maturity applicable to
automobiles. Since the example involves a mixed credit, section 6 (d) would
apply and under the present provisions of the regulation the Registrant
could schedule the consolidated obligation so that at least $900 would be
repaid within 18 months from date of consolidation; the $1,700 new credit
could be scheduled for payment without regard to Regulation W .
In the case described above, if the new $1,700 credit were for the pur­
chase of a listed article such as a Group D article, the entire $2,600 would
have to be scheduled in accordance with the regulation. However, the $1,700
arising from the Group D article and subject to 36 months maximum
maturity would, of course, be larger than the $900 arising from the auto­
mobile and subject to 18 months maximum maturity. Therefore, under the
2
See footn ote on page 2. In addition to changing maximum m aturities to conform
to those now in effect, different amounts and articles than the ones originally set forth
in this interpretation have been substituted in order to make the exam ple pertinent.




12

option in section 6 ( d ) relating to the major part of the credit, the Regis­
trant, if he desired, could give the entire $2,600 credit the 36 months maxi­
mum maturity applicable to the listed article giving rise to the major part
of the credit.
[1 5

F .R .

6985;

F ederal

R eser ve

B u l l e t in ,

N ov.

1950,

p.

1 4 7 1 .]

Pre-effective date “ balloon” notes or payments— Sec. 8 ( h)
The Board has considered certain questions concerning instalment
credits involving so-called “ balloon” notes or payments that were written
before September 18, 1950, the effective date of Regulation W . In a typical
case of the kind, there would be 11 notes followed by a 12 th “ balloon” note
which may be in an amount several times the amount of each of the preced­
ing notes. It appears that in most cases, because of the special nature of such
financing, it was necessarily anticipated that the “ balloon” note or pay­
ment written before September 18, 1950, would be refinanced when due so
that the future instalment payments of the obligor would be approximately
in the same amounts as the earlier payments.

[ 1 6 F . R . 5 5 3 8 ; F e d e r a l R e s e r v e B u l l e t i n , J u n e 1951, p . 6 4 6 ; F R B N Y C ir c u la r N o . 3716,
J u n e 4 , 1951. T h is in terp retation su p ersed es th e o n e on th e sam e s u b je c t pub lish ed in 15 F .R . 7 7 5 6 ;
F e d e r a l R e s e r v e B u l l e t i n , D e c. 1950, p . 1 6 1 2 ; a n d restated at pag e 10 o f F R B N Y
C ircu la r
N o . 368 7, A p r il 2, 195 1.]

Leasing or rental arrangements— Sec. 8 (j) (3)
A transaction does not cease to be subject to Regulation W merely
because the parties choose to call it a “ rental” rather than a “ sale.”
Without attempting to describe all the various arrangements that are subject
to the regulation, it should be noted that the definition of credits that are
subject to the regulation, includes, among other things, “ any contract for
the bailment or leasing of property under which the bailee or lessee either
has the option of becoming the owner thereof or obligates himself to pay
as compensation a sum substantially equivalent to or in excess of the value
thereof; * * * and any transaction or series of transactions having a similar
purpose or effect.”
[15

F .R .

8075;

F e d e ra l

R eserv e

B u lle t in ,

D e c . 1950, p. 161 3.]

Since the amendment to Regulation W adopted effective October 16,
1950 (15 F.R. 6118, 6931), the Federal Reserve Banks and the Board of
Governors of the Federal Reserve System have received a number of in­
quiries concerning the applicability of Regulation W to various proposed
arrangements for leasing automobiles or other listed articles.
Many of these inquiries seem to reflect a failure to appreciate the fact




A

In the circumstances, the Board is of the view that it may be presumed
that arrangements for such refinancing were made between the parties at
the time of the original transaction, and that section 8 ( h) of the regulation
permits the carrying out of any such arrangement.

that Regulation W and the legislation under which it is issued extend to
a great many transactions besides the ordinary conditional or instalment
sale.
Leasing arrangements, other than those limited to a single payment,
in general are subject to Regulation W and the legislation in the same
manner as instalment sales. They are not exempt, and they are not a
privileged class of transactions.
In the past when Regulation W was not in effect, there have been
certain highly specialized operations which have been found somewhat more
suited to leasing or rental arrangements than to other methods of financing.
That fact does not exclude them from the operation of Regulation W and
the legislation. Of course, a lessor could comply with Regulation W by
obtaining the required down payment and monthly payments (or deposits
in equal amounts), and later could return to the customer any portion of
such payments or deposits when the article is returned and the lease
terminated. The lease might even provide in advance for such refunds.
However, the Board is examining further into the characteristics of
the various proposed arrangements for leasing automobiles or other listed
articles and will consider whether or not any of them are of such a special
character as to make it desirable or feasible to relax any of the provisions
of Regulation W to any extent for their benefit.
[IS

F .R .

8856;

F ederal

R eser ve

B u l l e t in ,

Jan .

1951,

p.

2 0 ;

F R B N Y

C ir c u la r

N o.

3627.

D ecem b er 15, 195 0.]

(a)
Certain transactions exem p t.— Three different classes of leasing or
rental arrangements are exempt from Regulation W . These are outlined
below:
1. Single-payment arrangements are exempt. This exempts the usual
drive-it-yourself arrangement that contemplates a rental of a car for merely
a day or a week or so, with the car to be returned, the arrangement termi­
nated, and the single-payment made, at the end of the brief period.
2. Auto leasing contracts that exceed the ceiling figure of $5,000 (the
ceiling figure for listed articles other than autos is $2,500) are exempt if
there is a single obligation rather than a number of separate obligations.
This exempts a number of large scale “ fleet operations.” It also exempts
over-$5,000 leases covering both trucks and automobiles in combination
even if the auto portion would be less than $5,000.
3. Certain temporary short-term, nonrenewable rentals are exempt
under section 7(1) of the regulation if they do not extend beyond 3 months
and, briefly, also are not related to any subsequent leasing or sale arrange­
ments. Certain other rental, leasing or bailment contracts or assignments
are exempt under section 7 (I) ( 2) .




14

(b) Other leasing or rental arrangements.— Other types of rentals or
leases of listed articles should be considered subject to the regulation. With
the exception of those indicated above, there is no appreciable difference
between leases that were in use before Regulation W and those proposed
for use now in an effort to avoid the regulation.
The absence of an option to purchase or of an obligation to pay sub­
stantially the value of the article does not exempt a contract from the
regulation. Regardless of whether or not the lease contains an option to
purchase and regardless of the amount the customer undertakes to pay,
leasing contracts can supply a person with the continuous use of an auto­
mobile in substantially the same way as a conditional sale contract. Banks
or finance companies also can finance them in substantially the same way
as conditional sale contracts.
(c) Leases can com ply with Regulation W .— Regulation W does not
prohibit leasing or rental arrangements— it merely requires that specified
payments (or deposits) be obtained. When arrangements are subject to the
regulation, the lessor can comply with the regulation by obtaining the
required down payment and monthly payments (or deposits in equal
amounts). He can return to the customer any portion of such payments or
deposits when the article is returned and the lease terminated. The lease
can even provide in advance for such refunds.
(d) D eterm ining w hether contract exceeds $5,000 (o r $2,500) ceiling.3
■ In determining whether leasing arrangements exceed the $5,000 (or
—
$2,500) ceiling, and also in determining the size of payments or deposits
required on contracts that are subject to the regulation, it is helpful to con­
sider the analogy of leasing contracts to chattel purchase-money mortgages.
For example, suppose that A sells B three $2,000 automobiles, getting a
total down payment of $600, and a $5,400 purchase-money mortgage that
is payable in 18 monthly instalments of $300 each. Assuming that there is
a single obligation for all three cars rather than a separate one for each
car, the contract would obviously be exempt from the regulation because it
would be over the $5,000 ceiling.
Suppose that the contract were slightly different. Instead of paying
the $5,400 purchase-money mortgage in eighteen monthly instalments of
$300 each, B is to pay eighteen monthly instalments of $250 each, and at the
end of the 18-month period is to reconvey the three cars to A . The contract
would still be exempt as over $5,000, because the proper test of the amount
of credit would still be the $ 6,000 value of the cars minus the $600 down
payment, rather than merely the $4,500 of cash monthly payments.
Similarly, a lease of the three $2,000 cars for 18 months with a $600
3
Sec footn ote on page 2. Figures in this paragraph have also been revised to reflect
down paym ent requirements now in effect.




15

payment (or deposit) in advance and 18 monthly payments of $250 each
would be considered exempt from the regulation as an over-$5.000 contract
rather than subject as a $4,500 contract.
(e)
Paym ents that com ply.4— I f the instalment contract referred to
above were for only two $2 ,000 cars instead of three, it would lose the benefit
of the over-$5,000 exemption and would be subject to the regulation. The
similarity between a lease and a chattel purchase-money mortgage also is
helpful in showing the amounts of payments required in such cases.
For example, suppose A sells B two $2,000 cars and takes a chattel
purchase-money mortgage payable in instalments. He must get a down
payment of $1,334 and the remaining $2,666, plus any insurance and finance
charges, must be paid in 18 monthly instalments.

^

Suppose that the contract were changed slightly. The down payment
and monthly payments are to be as before, but at the end of the 18-month
period B is to reconvey the car to A and receive $600 from A in return.
That payment of $600 to B when the car is reconveyed to A at the conclu­
sion of the transaction would not conflict with Regulation W . On the other
hand, the provision for reconveyance of the car at the end of the period
would not exclude the arrangement from the operation of the regulation,
nor would it reduce the amount of the down payment or monthly payments
that must be obtained.
Similarly, if the contract were for a lease— rather than a chattel pur­
chase-money mortgage followed by a reconveyance— the payments (or
deposits) made initially and each month of the 18-month period would have
to be the same as in the cases indicated above.
In some cases, the parties might wish to set up the arrangement so that
the car would be reconveyed (or returned) to A in some reasonable period
shorter than 18 months, say twelve months or six months. In such a case,
the dollar payments (or deposits) initially and for each month of the period
would not have to be increased above those applicable on an 18-month basis.
[ 1"6

F .R .

2439;

F e d e ra l

R eserv e

B u lle tin ,

M ar.

1951,

p.

2 7 0 .]

Suction cleaner attachments— Sec. 8 (j) (7)
Questions have been raised concerning the status under Regulation W
of certain devices or attachments frequently offered for sale and usable in
connection with suction cleaners.
“ Suction cleaners designed for household use,” whether tank-type or
upright brush-type, are articles listed in item 10 of Group B of the Supple­
ment to the regulation. Devices or attachments which may be fitted to a
suction cleaner power unit by means of a flexible hose, wand, or by other
4
See footnote on page 2. Figures in this paragraph have also been revised to reflect
down payment requirements now in effect.




means, are “ accessories” within the meaning of section 8 0 ) (7) of the
regulation and must be included in the “ cash price” of the listed article
when sold in connection with the suction cleaner power unit. Such attach­
ments include nozzles, sometimes equipped with bristles, adapted for clean­
ing rugs, furniture, floors, walls, draperies, radiators and the like.
To be so classified as “ accessories” within section 8 0') (7 ), it is not
necessary that the device or attachment be usable exclusively with the
suction cleaner power unit or for cleaning in the more ordinary sense. It
is sufficient that the device or attachment is usable in connection with the
suction cleaner power unit. The fact that the device or attachment may be
operated manually or with other power units is immaterial. Thus, attach­
ments for scrubbing or polishing floors, vaporizing moth crystals, or spray­
ing rugs, fabrics, etc., are likewise “ accessories” within the meaning of
section 8 0 ) (7 ). The same would be true, for example, of a garment bag
equipped with a fitting to accommodate an attachment for vaporizing moth
crystals, a self-winding extension cord device or attachment, and a device
especially designed for holding or storing some or all of the attachments
mentioned above.
The fact that some or all such devices or attachments may be available
for purchase independently of the suction cleaner power unit also is
immaterial, as is the fact that they may be priced separately.
[1 6 F .R . 5 9 5 0 ; F e d e r al R e se r ve B u l l e t in , J u ly
J u n e 2 1 , 1 9 5 1 .]

1951, p. 8 1 3 ; F R B N Y

C ir c u la r

N o.

3725,

Contest prizes— Sec. 8 (7 ) (7)
A question recently arose concerning the status under Regulation W of
so-called “ Merchandise Certificates” to be awarded as prizes in contests
open to the public and sponsored by a manufacturer and its local dealers
on a nation-wide scale as a sales promotion program for the products of
the manufacturer which include refrigerators, freezers, ranges, kitchen
equipment, water heaters, radios, and television receivers.
Among other things, it appears that the “ Merchandise Certificates,”
which range in value from $25 to $500, are to be awarded to contestants
who are judged to have given the best answers to certain questions con­
cerning the manufacturer’s products and who also have written the best
short essay on a specified topic of general interest. A description of the
contests states that “ a winner may, at his option, apply all or part of the
value of his prize Certificate toward a down payment on a higher priced”
product of the manufacturer. In addition, a winner may receive “ up to
$15 in ‘ change’ after a Certificate has been partially redeemed for” any
such product. Furthermore, in the case of a purchase “ during the Contest,
such Merchandise Certificate will be redeemed in cash by the dealer from




whom the purchase was made up to either the face amount of the Certificate
or the price of the product so purchased during the Contest, whichever
shall be less, and any balance may be applied against the purchase of
additional” products of the manufacturer.
Insofar as the use of the “ Merchandise Certificate” in connection with
instalment credit for the purchase of a listed article is concerned, the Board
is of the view that, on the basis of the facts as presented, such use of a
Certificate would constitute a “ rebate or sales discount,” as specified in
section 8 ( j ) ( 7 ) of the regulation. Consequently, the down payment to be
obtained on the listed article purchased must be net of the amount of the
“ Merchandise Certificate” used in connection with the transaction in
accordance with the principle stated on page 21 under the heading “ Free
merchandise and rebates.” This applies whether the “ Merchandise Certi­
ficate” is applied in its entirety toward the purchase of a listed article or
whether so applied in part with a cash payment for any balance of the
value of the Certificate. It would also apply where the balance of the value
of a Certificate remaining after a cash payment to a contestant who pur­
chased a listed article during the Contest, would be applied in connection
with instalment credit for an additional article. As to instalment credit
outstanding in connection with an article purchased during the Contest,
cash payments to the purchaser of such article receiving a Certificate would
constitute either refund of down payment or payment of instalment pay­
ments contrary to the regulation, including section 6 (/<).
A Registrant who is an instalment vendor of a listed article is not
prohibited by the regulation from giving a rebate or sales discount on the
sales price of the listed article, but such rebates or discounts must be treated
in the manner required under the regulation. In addition, a Registrant is
free to make such payments as he may wish to make to the customer upon
the termination of the instalment obligation, including refund of the entire
amount paid by the customer. However, payment by an instalment vendor,
for example, of all or part of any instalment prior to the last instalment,
would not be permissible under the regulation, in cases such as that
described herein.
[1 6

F .R .

1 2 6 6 6 .]

“ Used” automobiles— Sup piemen t-P art 1-Group A

An automobile becomes a ‘ ‘ used ’ ’ car for the purposes of Regulation W
when it is ( 1 ) first sold to any person not engaged in the business of selling
automobiles, or ( 2 ) used and driven as a “ demonstrator” by an automobile
dealer or salesman even though the automobile has not been previously sold.
[IS

F .R .

7755;

F ederal




R e serve

B u l l e t in ,

N ov.

1950, p.

1 4 7 2 .]

Refrigerators and fo o d freezers— Supplem ent—
Part 1 -G ro u p B

The substitution of “ designed for household use” for the previous
cubic foot capacity demarcation in the listing of refrigerators and food
freezers has resulted in questions relating to the applicability of Regulation
W . In one case certain food freezers have been designated by the manu­
facturer as “ commercial models.’ ’ They are similar in appearance and func­
tion to the freezers manufactured by the same company and designated by
that company as “ home freezers,” although the home model uses a smaller
horsepower compressor and at least one of the commercial models is
equipped with a sliding glass lid.
The Board believes, however, that because the food freezers in question
are of a type readily adaptable to household use, and are not designed
exclusively for commercial use, they are listed articles under Regulation W .
[1 5

F .R .

6985;

F e d e ra l

R eserv e

B u l l e t in ,

N ov.

1950,

p.

1 4 7 1 .]

H om e im provem ent incorporating G rou p B com bination unit—
S u p p lem en t-P art 1 -G r o u p B 5

The Board understands instalment financing of combination units
including a kitchen sink and dishwasher may be covered by F H A Title I
insurance. As you know, Regulation W establishes a minimum down pay­
ment of 10 per cent and a maximum maturity of 36 months for home
improvement credits which do not include articles listed in Group B of
Part 1 of the Supplement to Regulation W . Item 6 in Group B reads
“ Combination units incorporating any listed article in the foregoing classi­
fications of this Group B ” and one article “ in the foregoing classification”
is “ Dishwashers, mechanical, designed for household use.” The effect of
this listing in Group B is that a minimum down payment of 15 per cent is
required and the maximum maturity is 18 months for such a combination
unit as a sink including a dishwasher.
Where a credit insured under Title I arises from the installation, in an
existing residential structure, of a combination unit included as item 6 in
Group B of Part 1 of the Supplement to Regulation W , that portion of
credit is subject to the minimum down payment and the maximum maturity
specified for Group B articles although the balance of the credit, if any,
may be subject to the minimum down payment and maximum maturity
applicable to Group B. In that connection, where a credit is partly subject
to one section of Regulation W and partly subject to another, section 6 (d )
of Regulation W is applicable.
[1 5

F .R .

8075;

F e d e ra l

R eserv e

B u lle tin ,

D ec. 1950, p.

1 6 1 3 .]

T a p e or wire recorders— S u p p lem en t-P art 1 -G ro u p B

Tape or wire recorders not designed exclusively for commercial use
are listed articles under item 8 of Group B of the Supplement.
[1 5

F .R .

6985;

F e d e ra l

5 See footn ote on page 2.




R eserv e

B u lle tin ,

N ov . 1950, p.

1 4 7 2 .]

Evaporative air coolers— Supplement-Part 1-Group B

Evaporative air coolers which do not incorporate a refrigerating unit
are not “ air conditioners, room unit,” within meaning of Regulation W ,
Group B, item 7.
[1 6

F .R .

2439;

F ederal

R eserve

B u l l e t in ,

M ar. 1 9 5 1 , p . 2 7 0 .]

A ir conditioners, room unit— Supplement-Part 1-Group B

The classification “ air conditioners, room unit” in Group B of Part 1
of the Supplement to Regulation W does not include units of 2 horsepower
or more rated capacity.
[1 6

F .R .

4320;

F ederal

R eserve

B u l l e t in ,

M ay 1 9 5 1 , p . 5 1 0 .]

Cooking stoves and ranges— Supplement-Part 1-Group B

The classification “ Cooking stoves and ranges” does not include cook­
ing equipment designed for commercial use in restaurants and hotels; nor
does it include any cooking equipment with less than 3 heating surfaces.
[1 6

F .R .

Ju n e 2 1 , 1 9 5 1 .

F e d e r a l R e s e r v e B u l l e t i n , J u ly 1 9 5 1 , p. 8 1 3 ; F R B N Y C ircu la r N o . 3 7 2 5 ,
T h is in terp reta tion supersedes the o n e on the sam e s u b je c t pub lish ed in 1 5 F . R .
p . 1 6 2 0 ; a n d restated o n pag e 1 0 (S u m m a r y N o . 4 9 )

5950;

7 8 2 7 ; F e d e r a l R e s e r v e B u l l e t i n , D e c. 1 9 5 0 ,
o f F R B N Y circu la r, D e c . 2 1 , 1 9 5 0 . ]

Hotel or motel repairs or improvements— Supplement-Part 1—
Group D

A structure is not ‘ ‘ designed exclusively for nonresidential use ’ ’ within
the meaning of Group D of the Supplement to Regulation W merely because
it is used, or designed for use, as a motel, tourist court or ordinary hotel.
Of course, repairs, alterations and improvements upon such structures will
be exempted from the regulation in many cases by the $2,500 ceiling appli­
cable to such credits under section 7 (a) of the regulation.
[1 5

F .R . 8 0 7 5 ;

F ederal

R eserve

B u l l e t in ,

D e c. 1 9 5 0 , p . 1 6 1 3 . ]

Home improvement “materials and articles” — Supplement-Part 1—
Group D

Certain questions have been received concerning the application of
Group D of the Supplement to Regulation W . The Board is of the view
that Group D includes, but is not limited to, the following:
Air conditioning systems
Attic ventilating fans
Garbage disposal units and garbage incinerators
Water heaters
Entire heating systems and heating units for furnaces (including oil
burners, gas conversion burners, and stokers)
Lighting fixtures
Electric generating plants
Electric wiring
Gas or water piping
Butane, propane, or similar automatic gas systems or containers




Water pumps and pumping systems
Plumbing and sanitary fixtures
Fencing
Landscaping
Sidewalks and driveways
Awnings, marquees, storm doors and windows, screens, Venetian blinds,
and shades
Septic tanks
In answer to other inquiries, tlie Board is of the view that Group D
does not include the following:
Space heaters (heat generating units designed to heat directly the space
in which they are located and not deisgned to transmit heat to other
spaces by means of pipes or ducts) (See “ F loor or wall fu rn a ce,”
below )
Portable window fans
[1 5

F .R . 6 6 3 0 ; F

ederal

R eserve B u l l e t i n ,

O ct. 1 9 5 0 , p . 1 3 1 0 .]

The Board has expressed the view that a floor or wall furnace which
transmits heat to a room from a recess in which the furnace is located and
which is installed as a permanent part of the realty, is not a space heater,
even though the heat is not transmitted by means of pipes or ducts. Space
heaters, referred to above, does not include such furnaces. Accordingly,
when sold for installation in an existing residential building, a floor or wall
furnace as described herein constitutes a listed article under Group D,
Part 1, of the Supplement to the regulation.
[1 7 F .R . 158 .]

Draperies or curtains are not listed articles under Group D of the
Supplement to Regulation W .
[1 5

F .R . 7 3 1 6 ;

F ederal R eserve

B u l l e t in , N o v . 1950, p .

1 4 7 2 .]

Exclusion of “ self-labor” — Supplement-Part 1-Group D

A question has been presented as to whether there may be included in
the cash price of “ materials, articles, and services” comprising a listed
article under Group D of the Supplement to Regulation W , any amount for
services or labor performed by the instalment obligor himself or with
gratuitous assistance of his family and friends.
For example, a home owner finds it necessary to enlarge his house to
provide additional living quarters. In order to hold the cost to him of the
project to a minimum, he plans to undertake the necessary labor or services
himself. Must the maximum loan value of an instalment credit to finance
the project be calculated on the basis of a cash price limited to the cost of




21

the necessary materials, or may such loan value be calculated on the basis
of a cash price which, in addition, includes an amount reflecting the value
of the necessary labor and services?
The Board is of the view that in such cases where materials or articles
and services are required, the regulation would permit including in the
cash price of the Group D project only the amount to be paid for the
necessary materials or articles. Consequently, there could not be included
in the cash price of such project any amount usable to compensate the
instalment obligor for the service or labor performed by himself or with
gratuitous assistance of others in connection with the project.
[ 1 6 F .R . 2 S 0 ; F ederal

R eserv e

B u lle tin ,

Jan . 1951, p. 2 1 .]

Tax or fee prerequisite to auto tags— Suppleinent-Part 4
A question has been presented concerning the treatment under Regula­
tion W of a tax or fee payable as a prerequisite to obtaining license plates in
the name of the purchaser of an automobile. The Board is of the view that
such tax or fee may be included in the “ cash price” of the automobile, and
may be added in computing the “ appraisal guide value” under Part 4 of
the Supplement. To this extent the credit extended may cover such tax or
fee whether the transaction is an instalment sale or instalment loan. This is
in accordance with interpretations issued under earlier versions of the
regulation. The Board is of the further view, however, that such tax or fee
may not be treated separately and added in its entirety as part of the time
or loan balance subject to maximum maturity limitations.
[1 5

F .R . 8 0 7 5 ;

F e d e r a l

R eserv e

B u lle tin ,

D ec.

1950,

p. 1 6 1 3 . ]

Free merchandise and rebates— Supplement-Part 4
An instalment vendor of a listed article is not prohibited by the regu­
lation from giving a discount or rebate on the sales price of a listed article
or from making a bona fide “ free” gift of other merchandise to the buyer
of a listed article. However, in the case of a cash discount or rebate, and also
in the case of a “ free” gift which allows the customer to make a selection
among a variety of merchandise or which is otherwise similar or equivalent
to cash, the down payment to be obtained on the article must be net of the
amount received by the purchaser from the vendor. In the case of other
“ free” gifts, the down payment must be obtained on the gross price of the
listed article without any deduction for the “ free” gift.
[ 1 6 F . R . 5 9 5 0 ; F e d e r a l R e s e r v e B u l l e t i n , J u ly 1951, p . 8 1 3 . T h is in terp retation supersedes
the on e on th e sam e su b je ct published in 1 5 F .R . 7 8 2 7 ; F e d e r a l R e s e r v e B u l l e t i n , D e c. 1950,
p. 1 6 1 5 ; and restated o n page 2 (S u m m a r y N o . 8 ) o f F R B N Y c ir c u la r , D e c . 21, 195 0.]




22

Refund of finance charges at time of add-on sale—
Supplement-Part 4

An inquiry has been received concerning the application of Regula­
tion W to a sales promotional proposal of a Registrant doing business on
a nation-wide basis to refund, by cash payment or check, a portion of the
finance charges originally included in an outstanding instalment sale obli­
gation held by him. Such refund would be made at or about the time of an
instalment add-on sale to the same customer. It is understood that such
refund may include some of the finance charges already paid, as well as
the portion thereof not yet paid at the time of the add-on transaction and
the resulting consolidation of indebtedness.
There would, of course, be 110 objection under the regulation to a can­
cellation of the unearned portion of the finance charges on the outstanding
obligation at the time of the consolidation of the obligation with the new
credit. However, the Board is of the view that a transaction pursuant to
the proposal in question would effect a reduction or refund of the down
payment required on the instalment add-on purchase or a total extension
of credit in connection therewith in an amount greater than that permis­
sible under the regulation.
[ 1 6 F .R . 9 0 3 2 ;




F e d e r a l

R eserv e

B u lle tin ,

Sept. 1951, p. 113 4.]

CO NTENTS
X
Section

S u b je c t o f I n t e r p r e t a t i o n

Page

1

Refinancing o f instalment sale o f unlisted a r t ic le .......................

1

4 (d )

Statement o f the Borrower ...............................................................

1

5 (a )

Revision by original or other R eg istran t........................................

2

6 (c )(3 )

Bona fide trad e-in s...............................................................................

3

6 (c) ( 3 )

"O ver-allow ances” on trad e-in s......................................................

5

6( g)

Sets and groups o f articles ..............................................................

5

6 (i)

Side loans proh ibited ..........................................................................

6

7( a)

Large quantity sales o f listed a r ticle s ............................................

7

7 (b )

Loans for business pu rposes...............................................................

8

7(A)

House trailers .......................................................................................

8

7 (A )(1 )

Construction o f or repairs to detached structure .......................

8

8 (c )(2 )

Verification o f loan v a lu e ...................................................................

9

8(A )

Pre-effective date transactions ........................................................

9

8(A )

Purchase or discount o f credits extended pursuant
to pre-effective date com m itm ent................................................

10

8(A )

Revisions o f and additions to pre-effective date c r e d it ...............

11

8(A)

Pre-effective date “ balloon” notes or payments .......................

12

8 (j)(3 )

Leasing or rental arrangem ents......................................................

12

8 ( j ) ( 7)

Suction cleaner attachments ............................................................

15

8 (j)(7 )

Contest prizes .......................................................................................

16

Supplement
Part 1. Group A “ Used”

automobiles .........................................................................

17

P a r ti, Group B Refrigerators and food freezers ......................................................

18

Home improvement incorporating Group B Combination u n it..

18

Tape or wire recorders .......................................................................

18

Evaporative air coolers .......................................................................

19

Air conditioners, room unit ...............................................................

19

Cooking stoves and ranges ................................................................

19

Part 1, Group D Hotel or motel repairs or im provem ents........................................

19

Home improvement “ materials and articles”
Exclusion o f “ self-labor”
Part 4

.............................

19

.................................................................

20

Tax or fee prerequisite to auto t a g s ................................................

21

Free merchandise and rebates ..........................................................

21

Refund o f finance charges at time o f add-on s a le .........................

22

'W




23

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