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F ederal R eser v e



Dallas, Texas, October 27, 1947

INSTALMENT CREDIT—Termination of Regulation W
To the Registrant Addressed:
There is reproduced herein a statement issued by the Board of Gov­
ernors of the Federal Reserve System in connection with the termination
of Regulation W on November 1, 1947.
The views expressed in the Board’s statement with regard to the in­
flationary pressures prevalent at this time and to the policies which should
be pursued by lenders and vendors deserve your most careful considera­
tion. The dangers inherent in an undue relaxation of terms on instalment
credit under existing and prospective conditions are recognized generally
by bankers and businessmen, and various banking and business groups have
issued statements urging caution in the extension of instalment credit. The
maintenance of sound credit conditions in the coming months and the pre­
vention of undue price advances will require the utmost restraint on the
part of consumers who utilize instalment credit, as well as those who pro­
vide such credit. It is hoped, therefore, that everyone concerned with con­
sumer instalment credit will give serious consideration to the course of
action urged in the statement.
At the request of the Board of Governors a copy of its statement is
being mailed to every registrant in this district.
The cooperation which this bank received from registrants in con­
nection with its administration of Regulation W is greatly appreciated.

Yours very truly,


This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (


The instalment credit controls exercised by the Board of Governors of the
Federal Reserve System under Regulation W, pursuant to Executive Order No. 8843,
will cease to be operative after November 1, 1947, in accordance with the resolution
of Congress approved on August 8, 1947.
Generally speaking, the instalment terms prescribed by this regulation called
for maturities of not more than fifteen months and down payments of at least onethird. The continuance of strong inflationary pressures has confirmed the belief of
the Board that this is no time for the relaxation of terms by banks, finance com­
panies, and instalment sellers. Demand for automobiles and many other durable
goods specifically covered by the regulation is still far in excess of supply. Easier
credit will not add to the supply. It can only intensify demand and accentuate the
upward pressure on prices. Easier terms should await a time when growth of credit
is needed to maintain full production. That time has not arrived and it is not in imme­
diate prospect. Employment and national income are at all time peaks. Inflationary
forces continue to exert powerful upward pressures on the general price level. There
could not be a worse time to encourage the public to go deeper and deeper into debt.
Notwithstanding Regulation W and continued shortages particularly of con­
sumers’ durable goods, instalment credit, on which the regulation has been focused,
has expanded by more than three billion dollars since the end of the war. Even this
is too rapid a rate of growth under the prevailing inflationary conditions. Experience
has shown that rapid and excessive expansion of this type of credit is followed by
a sharp reversal, thus contributing greatly to economic instability.
As has been stated by the President, “It will be in the public interest for every
merchant and financial agency extending instalment credit to avoid undue relaxation
of terms. It will be far better to reduce prices rather than to relax terms in seeking
new customers. Self-restraint on the part of those who use credit as well as on the
part of those who extend it will reduce the danger of an overexpansion of instalment
credit which would inevitably be followed by severe contraction, thereby contributing
to unemployment and reduced production.”
The primary responsibility for avoiding excesses now rests upon the lenders
and vendors who have been subject to the regulation. Their interest and that of the
nation will be served best if they refrain from taking undue advantage of the end of
the regulation. The Board of Governors urges all who participate in the extension
of instalment credit to recognize and do all within their power to avert through selfimposed restraints the dangers inherent in easy terms that result in overexpansion
of consumers’ instalment credit.

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