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Regulation W
JUNE 25 AND JULY 2, 1947

Printed for the use of the Committee on Banking and Currency

Federal Reserve Bank of St. Louis



CH AR LES W . TOBEY, New Hampshire, C hairm an
HOM ER E. C APE H AR T, Indiana
R A L P H E. F LA N D E R S, Vermont
H A R R Y P. CAIN, Washington

ROBERT F. W AG N ER , New York
BUR NET R. M A YB A N K , South Carolina
J. W . FU LB R IG H T , Arkansas
JOHN J. SPAR K M AN, Alabama

R o b e r t C. H i l l , C lerk

Federal Reserve Bank of St. Louis

Statement of— •
Adams, J. N ., branch manager, Hoover Co., Philadelphia, Pa.,
representing national affairs committee, Vacuum Cleaners Manu­
facturers Association---------------------------------------------------------- -----------------62
Behrens, M . I., Jr., vice president and general manager, Ludwig
Baumann, New York City, representing Retail Credit Institute of
America, Inc____________________________________________________________
Bone, Byron, vice president, American Industrial Bankers Association,
Fort Wayne, Ind________________________________________________
Eccles, Marriner S., Chairman, Board of Governors, Federal Reserve
System, Washington, D. C ------------------------------------------------------------------1
McClure, Warran A., president, Michigan Used Car Dealers Associa­
tion, Detroit, M ich_______________________ 1 ____ * _____________________
Raynor, Milton, counsel, Greater Chicago Used Car Dealers Associa­
tion, Chicago, 111----------------------57
Rhodes, H. M ., representing Credit Union^National Association, I n c ..
Wertz, P. Lynn, secretary-treasurer, National Used Car Dealers
Association, Washington, D. C __________________________ _ _ __
W ilson, William L., representing C IT , Washington, D. C __________ _
Letters, statements, etc., submitted for the record—
American Bankers Association, letter, July 2, 1947, C. Francis Cocke;
also statement__________________________________________________________
Argument that regulation W discriminates against low-income groups
and returning veterans, etc____________________________________________
Associates Investment Co., letters, March 21 and April 11, 1947,
E. M . Morris______________________________________________________________
Behrens, M . L, Jr., vice president and general manager, Ludwig
Baumann, New York, representing the Retail Credit Institute of
America, supplemental statement_______________________________________
Bill, Senate Joint.Resolution 148_________ : _____________________________
California Bankers Association, letter, April 28, 1947, D. Z. Albright,
Cedar Rapids Tribune, June 12, 1947, item _______________________________
Chamber of Commerce, letter, June 25, 1947, and excerpt from
Chart, showing what has happened to consumer credit________________
Cleveland Press, article, November 7, 1946, by Robert Seltzer_______
Commercial Investment Trust, Inc., letter, M ay 6, 1947, William L.
Consumer Credit, pamphlet, board of governors, Federal Reserve
System, revised effective December 1, 1946___________________________
Denver Industrial Bank, letter, June 25, 1947, H. C. Denny, vice
Department Store Economist, October 31, 1946, letter, D. Allyn
Garber, editor__________________________________________________________
Doig, Thomas W ., managing director, Credit Union, National Asso­
ciation, statement________________________________ ^------------------------------60
Eastern Electrical Wholesalers Association, telegram, July 2, 1947, _
First National Bank, letter, November 15, 1946, John Evans.*._______
Joint Committee on the Economic Report, excerpts from testimony. _
McGinnity and Murta, letter, June 14, 1947___________________________
Minneapolis Anti-inflation Council, letter, May 12, 1947, Mrs.
Magnus Olson, secretary_____________________________________________
National Automobile Dealers Association, letter, June 25, 1947, by
W . L. Mallon, with statement________________________________________
Federal Reserve Bank of St. Louis




Letters, statements, etc.— Continued
National Electrical Wholesalers Association, letter, June 25, 1947, _
National Manufacture and Stores Corp., telegram, M ay 26, 1947
Laurence M . For, president_________________________________________
National Republican Club, letter, M ay 14, 1947, also resolu tion ..,!
New York Times excerpt, June 30, 1947, “ Industrial Survey Predicts
Up-trend,” etc--------------------------------------------------------------------------------------Padway, Joseph, general counsel of the American Federation of
Labor, statement_______________________________________________________
Peoples Savings Bank, letter, June 14, 1947, Frank C. Welch, presi­
Resolution by the Board of Trade of the City of Frankfort, K y ______
Retail Credit Institute of America, brief submitted before the House
Banking and Currency Committee, by M . I. Behrens, Jr., W . E.
Kimbrell, and James I. M cM ahn_____________________________________
Retail Credit Institute of America, Inc., supplementary brief follow­
ing the statement of Marriner S. Eccles, June 12, 1947______________
Retail Credit Institute of America, Inc., letter, June 25, 1947 and
list of organizations opposed to regulation W ________________________
Selby, Paul L., executive vice president, National Consumer Finance
Association, Washington, D. C., statement------------------------------------Texas Southwest Furniture News, excerpt, February and March
1947, majority Southwest furniture dealers favor continuance
credit control----------------------------------------------------------------------------------------Truman, Harry S., letter, June 5, 1947________________________________
Underhill, Gary M ., executive director, Consumer Bankers Associa­
tion, statement--------------------------------------------------------------------------------------
Federal Reserve Bank of St. Louis








W E D N E S D A Y , JU N E 25, 1947

U nited S tates S en ate ,
C ommittee on B a n k in g and C urrency ,

Washington, D. G.
The committee met, pursuant to call, at 10 a. m., in room 301 Senate
Office Building, Senator C. Douglass Buck, presiding.
Present: Senators Buck (presiding), Capehart, Fulbright, and Rob­
ertson of Virginia.
Senator B u c k . The hearing will come to order.
The business before the committee this morning is the question of
whether or not to extend the life o f regulation W.
Governor Eccles has been kind enough to come here to give liis views,
and we would be very glad to hear from you, Governor.
D. C
Mr. E ccles. Senator, I have a statement here.
Senator B u c k . D o you want to put that in the record, and let us
hear from you in your own words?
Mr. E ccles. I believe, Senator, that this will cover it maybe better
than I could do.
Senator B u c k . All right.
Mr. E ccles. It will be a basis for questioning here, if you have not
read it.
The Board of Governors of the Federal Reserve System lias recom­
mended to the chairmen of the Senate and House Banking and Cur­
rency Committees a bill which would authorize the Board to continue
on a specific legislative basis the regulation of consumer installment
credit that is now based on Executive order.
S e n a to r B


I s it d o n e b y a b ill or r e so lu tio n ?

Mr. E ccles. There was a bill sent to the chairman of each committee
together with a letter. That is as I will indicate here, we do not think
that is possible at this time. We are going to suggest a resolution.
Senator R obertson. Before you proceed, may I ask, when does the
present regulation expire?
Mr. E ccles. It does not expire. It continues indefinitely under Ex­
ecutive order, but I have got a letter from the President which indi­
cates that as soon as Congress adjourns, if it does so without providing
authority for continuation, the President will vacate the order.
As the members of your committee know, since the end of the war
the question of whether some restraints upon overexpansion of this
Federal Reserve Bank of St. Louis



type of credit should be retained has been the subject of sharp contro­
versy. The Board has hoped that Congress would hear the pros and
cons before coming to a conclusion as to whether legislation should or
should not be enacted. We feel that regulation of this character
should have specific legislative sanction if it is to be indefinitely ex­
tended in peacetime. That is because we are operating under a war­
time Executive order.
Accordingly, we have recommended to the President that the Exec­
utive order be vacated in the event that the Banking and Currency
Committees do not recommend favorably the enactment of appropriate
authority for continuing regulation. The President has written a
letter indicating that he will follow the Board’s recommendation but
at the same time expressing the hope that the Congress will enact the
necessary enabling legislation. This letter is as follows:
T he W hite H ouse,
Washington, June 5,
D ear M r. C h a ir m a n : The Council of Economic Advisers has transmitted to
me a memorandum in regard to the legislation which the Board of Governors has
recommended for consideration by Congress to continue installment credit
regulations now in effect under an Executive order based on the Trading with
the Enemy Act. In their memorandum the Council states:
“ There now exists the power to limit the growth of installment credit which
even under the present restraints, has been expanding at a disturbing rate. This
power now rests on wartime Executive order, which may have to be rescinded in
the absence of legislative authority for its continuation. If the curbs on the
extension of installment credit now being exercised under regulation W were
to be removed at this time, there would be a tendency of producers and dis­
tributors to try to sustain the absorptive power of the market by accepting
lower down payments and a longer time period rather than adjusting prices
to the purchasing power of current incomes. This would postpone rather than
promote the kind of stable adjustment that our economy requires.”
I wish to advise you that I am in full accord with the Council’s recommenda­
tions and hope that the Congress will enact the necessary legislation to retain
restraints upon excessive expansion which results in excessive contradiction of
consumer credit thereby making for economic instability, reduced production
and unemployment. If the Congress does not see tit to provide the necessary
legislative authority, it is my intention to vacate the Executive order because
I do not believe that such regulations should rest indefinitely in peacetime on
emergency or war powers after the Congress has had ample opportunity to
consider the subject.
Very sincerely yours,
H arry S. T ruman .

Senator R obertson. At this time, before you go into your discussion
if we continued for a year, as you request, would it have to be con­
tinued for a year or can it be abandoned in less than a year if the
present boom should turn into something of a depression?
Mr. E ccles. Well, certainly, I understand that if it is extended for
a year, that does not mean it would have to continue for a year.
It would be discretionary on the part of the Board to relax the con­
trol or to eliminate the control if the conditions were such as to war­
rant it.
It is my belief that the power is permissive and not mandatory.
I f legislation is to lie passed, we believe from our experience that
consumer credit regulation should be directed to the volatile sector
o f consumer credit; that is, installment credit. This is the part which
has been subject to the greatest fluctuations in the past, thus contrib­
uting to instability and unemployment. Regulation under the pro­
posed legislation would be in about the form and scope effective at
Federal Reserve Bank of St. Louis



present under the Board’s regulation W. It would, with appropriate
exceptions to provide administrative flexibility, prescribe maximum
maturities for all types of installment credit and in addition would
prescribe minimum down payments for installment credit to finance
the purchase of important categories of consumers’ durable goods.
Thus, the regulation would cover not only installment credit for con­
sumers’ durable goods but also installment credit for other consumer
purposes, both o f which contribute to the accentuation o f business
upswings and downswings and neither of which can be sharply dis­
associated from the other.
I mean by that, that installment credit that covers the purchase of
consumer durable goods, installment sales contracts, are not the only
part of installment credit that we would propose to regulate, and not
the only part that we regulate now under consumer credit regulation,
because people may borrow on installment and may pay cash for the
goods which they buy.
Therefore, we have to cover the installment credit for any other
consumer purpose.
Senator R obertson. But you have no power to reach the manufac­
turer ?
Mr. E ccles. N o ; we do not try to.
Senator R obertson. But if he insists on maintaining his prices, how
can we effect low prices just by putting the pressure, so to speak, on
the distributor?
Mr. E ccles. Well, of course, you cannot, except as goods become
more plentiful, prices will come down unless terms are eased. But if
as goods become more plentiful terms are eased so that you can have
a wider and wider market and lower and lower down payments, and
longer, and longer terms, the distributor and the manufacturer will
find a market for his goods without reducing prices, because the terms
are made easier. Lower and lower down payments and longer ma­
turities would make it possible to cover a much wider market for his
And the time will come finally when you get the public more and
more and more in debt for high-priced goods, of a quality that is not
necessarily up to standard, until what we might term a saturation
point may be reached.
We think there is a possibility that the volume of consumer credit
may rise to a level as high as maybe $15,000,000,000.
There is $4,500,000,000 now in consumer installment credit, and I
have a chart here where I will show you in a few moments we think
there is a possibility of that going to at least $15,000,000,000 and maybe
as much as $20,000,000,000 before the down-turn or the liquidation
may come.
Senator B u c k . Can we understand that second type of credit you
are speaking of? You could borrow and obtain credit?
Mr. E ccles. What I mean is, a lot of people will go to banks and
installment loan companies, finance companies, and borrow money
and pay cash for merchandise.
Therefore, you have got to cover that installment loan credit the
same as you would the sales contract installment credit, because other­
wise you of course would have a big loophole where the people would
borrow money on the installment basis.
Federal Reserve Bank of St. Louis



Senator B u c k . H ow do you regulate that with buying? Suppose
a man wants to go in and borrow $1,000 to buy an automobile?
Mr. E ccles. That is regulated now if it is on an installment basis
unless he signs a statement that it is for some purpose that is exempt’
For instance, if a man is borrowing for purchasing farm implements
that is productive property, and we do not restrict the use of install­
ment credit for agricultural purposes.
Neither do we propose to restrict the use of credit for the purchasing
by small businesses of machinery and equipment that they mioht La
buying for the plant.
This does not cover that type of installment credit at all, or that of a
small merchant who may be buying merchandise on an installment
None of tlmse items are for consumer purposes, and this is merely
covering the credit used for consumer purposes, where people are not
only using their current income but are getting all the credit they
can to be paid out of future income. That, in itself, of course, makes
for pressures on the inflationary side, and it makes for pressures on
the deflationary side as soon as payments exceed new credits on
Generally speaking, the installment terms now prescribed by re<mlation W call for maturities of not more than lo months and down
payments of at least one-third. Under the proposed legislation
terms would, of course, be varied from time to time depending upon
changing economic conditions but with a view to restraining the
development o f unsound credit terms and with a view to prevent nig oxreducing excessive expansion or contraction of consumer installment
credit which is that sector of consumer credit subject to the widest
fluctuation. These would be the declared statutory objectives.
Under existing conditions when the articles commonly financed with
installment credit are for the most part in short supply relative to
demand, it is apparent that the restraints help to dampen the demand
and thus reduce the upward pressure on prices, Even when goods
become available in larger quantities, however, reasonable restraints
on consumer installment credit would serve a useful public purpose
because they would tend to induce sellers to reach more customers by
reducing prices instead of by resorting to a competitive relaxation of
installment credit terms while still maintaining high prices. Under
prevailing conditions of maximum peacetime employment and national
income, it would be economically unsound to encourage people to
deeper and deeper into debt on increasingly easy terms.
To illustrate: The prices of automobiles in the used-car market
today reveal a serious lack of balance between supply and demand.
In that market, 1947 cars in the lowest price lines are selling for pre­
miums o f $300 and $400 above the delivered prices established for these
cars when new. Prices of older used cars are in proportion. These
prices have been holding firm, and even showing some tendency to
rise, notwithstanding the present credit restrictions. With the added
demand for both new and used cars which would result from the
removal of credit restrictions and with a supply of both new and used
cars which is strictly limited by the productive facilities, labor supply,
and materials available, there is no likelihood that there would be the
downward adjustment in prices of used cars that is so much needed.
Federal Reserve Bank of St. Louis



Senator R obertson. May I interrupt to say there that I think you
base that report on the price of used cars on some extreme cases, because
I cannot believe in Virginia, for instance, they are selling old cars
above the prices of the same car new, because I do not know of any
instance at all in which that has occurred in Virginia.
Mr. E c c l e s . B u t th e o ld car is a 1947 car, y o u see.
This is the way it operates. A dealer must sell a new car at the
price established by the manufacturer. When that car is sold it may
be sold again. It is immediately a second-hand car. It may not have
run more than 1,000 or 2,000 miles, but it becomes a second-hand car,
and there is no control over its price by the manufacturer.
Senator R obertson. Yes; but you are discussing a payment opera­
tion. The dealer is bound to be a party to it, because he has got his
lists, and lie knows this is a second-hand car dealer, and he knows
who is a bona fide purchaser. I f he lets a car go to a second-hand
dealer, and he runs it around the block and puts it in the parking lot
and asks $300 or $400 or $500 more than he paid for it, it is a blackmarket operation.
Mr. E ccles. That may well be, but you have this situation with
reference to the sale of new cars: It is practically impossible to get
a car unless you have got a car to trade in, because if the price of a
new car is established, and it is established, the way the dealer can
get more than that price is to allow on a second-hand car substan­
tially less, of course, than the car may be worth in the second-hand
And that is the only wav that a person can get a new car, generally
speaking, is through having a second-hand car to turn in at a low
Then, of course, that second-hand car is sold at whatever the traffic
will bear.
What I am saying is that that is a condition today where a require­
ment is of one-third down and 15 months’ payment. Those are the
prices today where the requirement is one-third down and 15 months’
If you take off the credit control altogether, and that was the next
point I wanted to make here, it will make quite a difference. I f
credit restrictions are removed, there is every reason to expect that
the present abnormally high prices of used cars will increase further
in relation to the prices established by manufacturers for new cars.
A downward adjustment in used-car prices is especially needed by
the working people and the lower-income groups who make up the
principal market for used cars.
Notwithstanding continued shortages of goods, particularly durable
goods, and notwithstanding regulation of consumer credit, install­
ment credit expanded during the past 12 months by more than $2,000,000,000. The economic effect of adding borrowed dollars to current
income, together with the unprecedentedly large volume of savings
in the hands of the public generally, can only be to prolong the period
of inflated prices. The premature relaxation o f restraints, or their
'complete removal, would make no more goods available. It would
only help to build prices higher in the market place.
With existing shortages in consumers’ durable goods and the re­
straint of regulation W, the volume of consumer installment credit
Federal Reserve Bank of St. Louis



has not reached a point where it could be considered excessive as
viewed in relation to the level of national income and production. The
restraint is now imposed because of other current factors such as the
high individual incomes and the large cash resources which consumers
widely possess as related to the supplies of consumers’ durable goods
available. Were goods available in larger volume and were many con­
sumers able to finance their purchases on easier credit terms there
is little question but that the volume of consumer installment5credit
would be much higher. As an indication of the potentialities, sales of
consumers’ durable goods in 1946 were nearly twice the dollar volume
of such sales in 1940 but the volume of installment sales credit extended
in 1946 was less than three-fourths of the installment sales credit
extended in 1940. Thus with the elimination of restraint and the larger
supplies of goods that are becoming available, consumer installment
credit could increase rapidly in absolute volume and in relation to
national income.
The need for regulation is not merely a temporary one. Experience
has shown that the excessive expansion and subsequent contraction
of consumer installment credit contributes substantially to the rise
and fall of production and employment. Its role in instability is
increasing with the growing importance of consumers’ durable goods
in the economy. It is recognized that the development of this type
of credit has gone hand in hand with and facilitated the unparalleled
industrial development of the Nation. Yet it is equally significant
that when competition takes the form of relaxing credit terms and
is carried to extremes, it is a symptom and cause of economic un­
soundness. Millions of people are encouraged to overpledge future
income. This inevitably entails instability, because the excessive
credit extended during a business boom accentuates the boom and
has to be liquidated out of current income on the downswing, which
accentuates depression. The fact that current income has to be used
to pay off excessive installment debt created during the business
boom necessarily diverts that income from the channels of consumer
expenditures in the depression, especially in the important sector
of consumers’ durable goods.
Voluntary efforts made by foresighted retailers, sales finance com­
panies, banks, and other lenders to prevent down payments from
becoming excessively small and repayment periods from becoming
overextended in times of credit expansion are ineffective because of
the aggressive competition of those who will not voluntarily cooperate
in this objective.
The present trend of expansion in consumer installment debt needs
to be carefully watched and restrained so that the country shall not
repeat the pattern of inducing American families to go heavily into
debt on too-easy terms, particularly for high-priced goods many of
which are not only high-priced but of inferior quality. The decline
that would be bound to follow would be felt not only in the durablegoods industries but throughout the economy. Continued restraints
as proposed in the legislation would help to prevent a repetition of
such an unsound sequence of events.
The Board feels that this type of regulation, which is of a selective
character, serves a useful purpose which cannot be reached by the
exercise o f any powers over bank credit in general. The regulation
is needed, therefore, as a supplement to general credit-control powers.
Federal Reserve Bank of St. Louis



As the Board pointed out in its 1945 annual report to Congress,
however, over-all restraints to the sources of bank credit have, under
existing conditions, lost much of their effectiveness. For this reason,
it is all the more important for Congress to consider whether a
selective control such as proposed would, as the Board believes, reduce
economic instability and thus help to provide conditions more favor­
able to the maintenance of our private-enterprise system.
Senator F u l b r i g h t . Who objects, principally, to the extension here?
Mr. E ccles. Well, the principal opposition is the small-loan com­

Senator F ulbright . The small-loan companies?
Mr. E ccles. Yes.
Senator R obertson. Are not most of the banks against it?
Mr. E ccles. Many of the banks are against it.
Let me put it this w ay: The people that object to it are the people
that are selling credit.
Senator B u c k . Why do you confine it to the small-loan companies?
Mr. E ccles. Some of the sales finance companies are against it.
CIT is opposed to it. That is the biggest. The CCC, I would say, are
not opposed to it. They have remained pretty neutral, and they are
not opposed to it.
The General Motors Acceptance Corp. has also been neutral.
Senator F ulbright . They have to be.
Mr. E ccles. N o.
Senator F ulbright . People who are selling the goods are not oppos­
ing it?
Mr. E ccles. The automobile dealers are about evenly divided. They
have made surveys, and I would say that the dealers themselves, a
great many of them, are opposed to it. but they are about evenly
We find that the installment furniture houses, and various concerns
engaged in the selling of consumer durable goods, are fairly divided.
So far as the consumer is concerned, there is no organized consumer
opposition. There has been a lot o f talk that these regulations are
unfair to the little man, that it is only the man with money that can
pay the one-third down and can pay off in 15 months that can get
the benefit o f an automobile or other consumer durable goods, and
that the little man is penalized. That is the argument, however, that
the credit people make.
As a matter of fact, if you made easier terms, you do not make any
more goods available. If, by making easier terms so that the little
fellow could pay 10 percent down and get an automobile, instead of
33%, and if he could pay it off in 36 months, there may be some argu­
ment, but all it does is increase the pressure on the existing demand
and on the existing prices.
That has always been true in every field of activity, that the person
with money is able to do things that the person without money is
not able to do.
That is certainly true with respect to travel.
I f we want to carry it to the extreme, we may well say that if
you reduced the terms of an automobile from one-third down and
payment in 15 months to, say, 25 percent down and payment in 2
years, that that will cover another field.
Federal Reserve Bank of St. Louis



But then what about the fellow that cannot pay the 25 percent
down and he cannot pay it off in 24 months?
Then you could argue that you ought to reduce it to 10 percent
down and make it payable in 36 months.
You still have got people that have not 10 percent to put down and
they could not pay it off in 36 months. Then you could argue that it
ought to be sold with no down payment and make it payable over
5 years.
So that the question, it seems to me, is not so much to make terms
so favorable that it will give everybody’s pocketbook and income
a chance, but it seems to me that the terms should be made to suit the
economic condition at a given time.
At least, it will help to maintain some degree of stability so far a.
you can do so in this particular field, because, after all, that is where
the public interest is protected. That is the public interest as a whole
To continue to pump credit into the economy could sustain present
prices, or at least help to sustain them, or may be even put some of
them higher, and thereby continue production and employment but
at the cost of failing to get a necessary economic adjustment.
I f enough people spent their current income and used up some of
their savings, and will use enough credit, you can carry along for
a considerable period, but you finally reach a point in the economic
system where, instead of getting a recession, an adjustment of the
disequilibrium that now exists, you then get a prolonged depression
that could prove to be extremely serious.
The longer your maladjustments in the price system are sustained
by providing credit for consumer groups, and having people in these
groups using up their savings, as some of them are doing today it
seems to me the more serious the economic situation for the future* is
We would be much better off, very much better off, at least it seems
to me to maintain for the time being, some of the restraints that are
mild, as they are now. It is unfortunate, as I have said many times
before, that we have taken off as many of the restraints as have been
taken off. We now are on an inflation ladder here, with great dis­
equilibrium, and we are going to have real difficulty getting an adjust­
Senator R obertson. Governor, what restraints are put on a veteran
who wants to set up housekeeping for himself with respect to getting
some furniture, a refrigerator, and gas, or electric range, a baby
carriage, and a few other essentials?
Mr. E ccles. It is not the veterans’ organizations that are making
, a fuss about this. It is the fellows that want to get them in debt at
very high rates, and many of these small-loan companies have rates
that run up to 36 percent a year.
It does not seem to me that we are really rendering any service to
veterans or any other group by making it easier for them to get credit
at high rates to buy high priced goods of inferior quality.
I f there were an abundance of goods, prices may come down and
quality improve, and the veteran or anybody else, for that matter, is
more than likely then to get his money’s worth. So it seems to me
that you are rendering the consumer today, by this restraint, a service.
You are certainly not rendering him a service to get him into debt
beyoncThis ability to meet the payments, and that is just exactly what
is likely to happen if the restraints are removed.
Federal Reserve Bank of St. Louis



I think that by 1950 we will see a large volume of consumer credit
here that will have to be liquidated, at least a substantial portion of
it., and that could be very painful.
It is an easy process to go up in this inflationary structure, or it is
easy to do while credit is being expanded, as we saw in 1929. It was
marvelous for thejpublie to be going into debt without restraint for
the purpose of buying securities, because they always saw them go a
little higher, and everybody felt good. But when it came to the ques­
tion of liquidating that credit structure they had built up, it was of
course extremely painful, and the public then blamed the Government
and blamed the banks and blamed everybody for making it possible
for them to get in debt and take the losses which they took, although
they would have complained bitterly if restraints had been imposed.
As 1 say, the opposition to this control of consumer credit does not
come from consumers. It is the people that want to sell credit at high
rates that are primarily the organized opposition, and they are very
Senator B u c k . Under your suggestion, as I understand it, you
would want us to handle this through a joint resolution?
M r. E ccles. That is right.
Senator R obertson. Before you read the resolution, may I ask you

when the President’s power to control consumer credit expires?
Mr. E ccles. It does not expire.
Senator B u ck . He threatens to vacate?
Mr. E ccles. This is under the Trading with the Enemy Act. The
President, issued an Executive order under the authority given him
by the Trading with the Enemy Act.
Senator B u c k . He states he will vacate it if Congress does not take
some action.
Mr. E ccles. But he feels, as the Board feels, that this power was of
wartime nature and that it should not rest upon a wartime Executive
order for more than 2 years after the war.
So we have recommended, and he has agreed to vacate the order
after Congress adjourns, at the end of Congress when Congress ad­
journs, unless by that time Congress has taken action to continue
the control.
We find this: That in trying to administer this regulation, it be­
comes exceedingly difficult because of the fact that it is based upon
a wartime Executive order.
I f Congress should make it known that it is their desire that this
authority should be extended as a peacetime measure for a period of
time, there would be a better public acceptance of it, and it would
make it possible for the Board and the Reserve banks—for you see
this is administered through the 12 Banks and their 2-1 branches—to
administer this regulation. We would not then be accused, as we some­
times are today, of usurping the power of Congress through a wartime
Executive order.
So we feel the thing should be vacated unless Congress is willing to
grant an extension of the authority.
We had first though of legislation, but it is too late in the session
of Congress. Legislation is extremely controversial, and it is our feel­
ing that it would not be possible and possibly not desirable. It would
not be possible to get legislation and it would not be desirable in any
case to press for permanent legislation at this time.
Federal Reserve Bank of St. Louis



And I wish to say this further: This is the last part. I will just
read this closing paragraph covering this point.
The case for permanent legislation seems to the Board to be very
strong. At the same time, we recognize that Congress may not feel
that there is time enough, at the present session, to give adequate con­
sideration to a permanent measure. For this reason, and because it
now appears that there is great need for restraint during the coming
year, we suggest that the committee give consideration to the adorn
tion of a joint resolution providing that consumer credit controls
should continue under the existing Executive order until a specified
date, such as July 31, 1918, and then be automatically terminated
Unless it was otherwise extended again. If the regulation were"
continued on this basis, the Board would be in position to modify
or remove the present restrictions in the event such action should be
warranted by a change in economic conditions at any time during the
coming year. The substance of such a resolution might be alono- the
following lines:
Resolved by the Senate and House of Representatives of the United States of
America in Congress assembled, That the Board of Governors of the Federal
Reserve System is authorized to continue to exercise consumer credit controls
pursuant to Executive Order No. 8843 until July 31, 1948, and, except durinsr
any war beginning after such date or any national emergency proclaimed by the
President after such date, no such consumer credit controls shall be exercised
after such date.

Senator B u c k . Senator Fulbright, did you have a question?
Senator F ulbright . I just had a question.
I do not understand this installment loan at the bank. If a man
borrows $1,000, what do you mean “ installment loan” ? The repay­
ment is in installments, or it is for the purpose of paying for consumer
goods ? What determines whether or not it is an installment loan at
the bank ?
Mr. E ccles. The terms of the loan.
Senator F ulbright . The terms of repayment?
Mr. E ccles. That is right.
Senator F ulbright . I f he borrows it to be paid back in a year in
one sum it is not installment ?
Mr. E ccles. That is right, it is not covered. We exempt what we
call a single-payment loan.
Senator F ulbright . It is one of these repayments of so-much-a
month loan?
Mr. E ccles. That is right.
Senator F ulbright . They are prohibited for this purpose?
Mr. E ccles. They are not prohibited. They can be made as lono- as
they comply with the terms.
Senator F ulbright . I meant for any purpose beyond the terms.
Mr. E ccles. There is a purpose statement that the banks have to
Senator F ulbright . I see. On all loans?
Mr. E ccles. N o . I f a single-payment loan is made, why, it is just

I f it is an installment loan, then they must state the purpose.
For example, if it is done for the purpose of buying agricultural
machinery, it would not be covered.
Federal Reserve Bank of St. Louis



I f it was done for the purpose of a small merchant doing business,
for the purpose of paying goods on installment, or paying for his goods
over a period of time, it is not covered. There are small merchants of
that sort.
Senator F ulbright . An ordinary loan providing for payment on or
before a certain date.
Mr. E ccles. That is right.
Senator F ulbright . I s that an installment loan?
Mr. E ccles. N o, that would be a single-payment loan.
Senator F ulbright . What the practice is in these small banks is usu­
ally they will give you credit if you come in and pay half of it any
time you feel like it.
Mr. E ccles. That is right. But the terms of the loan are really a
single-payment loan, so far as the bank is concerned.
Senator F ulbright . Yes.
Mr. E ccles. Those are not regulated loans. It is the fellow that
goes in and the bank is not making a single-payment loan because the
bank in these consumer credit departments that thousands of them
have set up—and there are thousands of banks toda}^ that have gone
into this wholesale—there is a terrific pressure to sell consumer credit,
much more so than there ever was before the war, because there were
very few banks in the consumer credit business.
Now, they have gone into the field extensively, and I would say
that 9,000 or 10,000 banks, at least, are in this business of trying to
sell consumer installment credit.
Now, they are not going to extend these loans largely to money
borrowers except on an installment basis, because only on that basis
is there an assurance of getting them paid back.
And, of course, a great many of them are on sales contracts. They
are secured by the article that is purchased.
Senator F ulbright . A chattel mortgage?
Mr. E ccles. Title retaining. *
Senator F ulbright . Title retaining?
Mr. E ccles. Title retaining, that is right. A sales contract. They
are secured by the article.
However, there are a great many installment loans made to people
that have steady jobs, and they make them on their reputation as
being substantial people, payable over a period of a year or a year
and a quarter, for the purpose of buying for cash many of these
That would be covered in the same way.
Senator B u c k . Mr. Eccles, if someone would ask what the cost
to the Government was of administering regulation W, the answer
is “ nil” ?
Mr. E ccles. It is nil. As a matter of fact, the Reserve banks in
connection with all their other activities administer it and there
is no appropriation.
We did get figures as to our cost.
1 believe we have those figures here.
It is about $500,000 per year, total cost throughout the system, about
$500,000 per year.
Senator B u c k . Total cost for administering regulation W ?
Mr. E ccles. That is right.
Federal Reserve Bank of St. Louis



Senator B u c k . H ow do you spend that money?
Mr. E ccles. Well, we have these things. Here is what it is. Let
me cover it.
We have here 50 investigators, and employees in the banks are 105
including the investigators, and then the Board’s staff here where
we have 5.
So that the principal cost, of course, would be the personnel of
supervision and administering it.
We have about 210,000 registrants, 170,000 of which are vendors
and 40,000 lenders; they would be principally the banks and the
small-loan companies.
So there are 210,000 people engaged in the business of extendinginstallment credit.
Now, it is their supervision, to see that the regulations are carried
out, where this cost would come.
S e n a to r B u c k . A s f a r as th e b a n k s are con cern ed , th a t is ju st
cov ered in y o u r re g u la r e x a m in a t io n ’?

Mr. E ccles. The examiners would check that; that is right.
Senator B u c k . Just a regular examination ?
Mr. E ccles. That is right.
Senator R obertson. Everybody in this country knows about this
credit restriction.
Mr. E ccles. That is right.
Senator R obertson. And there has been a good deal of complaint.
The banks have complained, and some people of moderate income
have complained, and the installment credit houses have complained.
It has been pretty well advertised that you think this regulation
should be continued by act of Congress for another year, and that the
President thinks it should be continued for another year, and that
we were going to be requested to continue it for another year.
How do you explain the fact that no organization anywhere in the
Nation, so far as I know, has endorsed the proposal to continue this
by law?
We have got plenty of them who complain and we have plenty who
keep up with public issues.
Mr. E ccles. We have got lots of organizations who have endorsed
Senator R >
bertson . They have not been brought to the attention
of this committee.
Mr. E ccles. Well, for instance, the National Automobile Dealers
Association made a survey, and in that survey that they made, they
showed something like half of the dealers were in favor of continuin'«»the regulation.
I have gotten a great many letters recommending that it be contin­
ued, asking that it be continued.
There has been, I recall, one case where in Texas the Furniture
Dealers Association in Texas went on record and passed a resolution
favoring it.
T just happen to remember those.
But there is a great deal of support for it.
Now, I will admit that there is more opposition, apparently, be­
cause the opposition is organized through the credit people.
Federal Reserve Bank of St. Louis



The bankers, as an organization, are opposed to it, while at the same
time there are literally hundreds and hundreds of banks, individually,
that are in favor of it.
But as an association, they are opposed to it, because, I would say
possibly the majority just do not like regulation of any kind. 1 have
never seen legislation or regulations governing banks that they ever
liked in the iirst instance.
They have fought every piece of legislation and regulation over the
years. There was some opposition to it, at least.
Some of it has
been fought violently. The Federal Reserve Act, in 1913, was fought
very violently by the banks of this country.
So that I would expect that those engaged in the extension of credit
as an organization such as the banks, would be opposed to the regula­
tion. There would be nothing unusual in it.
Certainly the small loan companies, whose very life and very exist­
ence depends upon getting as big a volume bf these small loans at high
rates as possible—and they certainly get high rates-^—
today they feel
they should oppose it.
Today, the field of consumer installment credit is very well covered,
and the opposition of that organized group, 1 recognized is quite
S e n a to r F ulbrigiit . Y ou d o not t h in k , th e n , th a t becau se a lo t o f
th e m o p p o se it, th e y are n ec e ssa rily r ig h t , 1 tak e it?

Mr. E ccles. What is that, Senator?
S e n a to r F u l b r i g i i t . Y ou d o n o t a d m it th a t because a g r e a t m a n y
o p p o se it, th e y are n ec e ssa rily r ig h t ?

You would say even in the case of the Federal Reserve, they might
not have been right in opposing the organization of the Federal Re­
serve ?
Mr. E ccles. Well, I would not want to even raise any doubt about
Senator B u c k . Governor Eccles, in the application of the rule, for
instance of the 33 fh percent and 18 months to pay the loan, suppose
it would not be paid in IS months?
W1iat occurs?
Mr. E ccles. Well, they would have to refinance it and extend it.
They would be permitted to do that. Because, after all, it is like any
piece of credit. Jf a loan is in default, you do the best you can to
make collection.
Now. they may go out and repossess the article.
Senator B u c k . I was thinking o f banks who would not want to do
Mr. E ccles. Well, the tiling is. the credit people make the terms.
They make the terms with an expectation to pay. Certainly, the
signer has an obligation which says he is going to make certain pay­
ments. That signer expects to make those payments when he signs
that obligation.
Senator F ulbright . There are often penalties attached?
Mr. E ccles. What is that, Senator?
Senator F ulbright . There are often penalties attached if they do
not live up to it ?
Mr. E ccles. That is right. It costs them money, certainly, every
time their loan is refinanced.
63735— 47
Federal Reserve Bank of St. Louis

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It has been brought out that the installment credit is only a com­
paratively small part of the total consumer credit.
Well, we recognize that that is true, that of the total consumer credit
which, at the present time, is a little more than $10,000,000,000, the
credit we are talking about controlling is a little over $4,500,000,000.
However, the justification for the control of installment credit, as
against trying to control all of the consumer credit, is that it is the
volatile section of the consumer credit structure. This is shown by the
Senator B u c k . What is that black line on the bottom ?
Mr. E ccles. That is what we call service credit. That is a credit
for your telephone bill, and your power bills, and gas bills, and so
forth, doctors’ bills. That is service credit.
This [indicating] is the charge account credit. That is your open
charge account which you have, which we did control for a consid­
erable time up until last fall, and then we eliminated all control of the
charge account credit. It is a very difficult form of credit to control.
And it went up.
You will notice, all during this period, back to 1980, the fluctuation
in charge account credit is not very great. This service credit is very
The single payment loan fluctuates, of course, some, but it is not
the volatile section of consumer credit.
On the other hand, look what has happened to your installment
credit. See how it follows the total consumer credit, and is largely
responsible for the wide fluctuation in the total consumer credit. It
has followed, as you notice, here, almost identically. Look here.
Therefore, we say that from the standpoint of economic stability,
if you can exercise some influence and control over this sector of the
economy, it will tend to stabilize the use of consumer credit.
For instance, if all restraints are taken off and this installment credit
would go up to where we would expect it to go over the next several
years, this credit may well get up to $15,000,000,000, and you will see
this grand total, of course, go with it.
These other items here will not be a very important factor.
Now, certainly, at the end of a boom period, if this installment credit
should expand by reason of easy terms, as much as $3,000,000,000 or
$4,000,000,000 or even $2.000,000,000, and then the down-turn comes,
and then there is liquidation within a year of $2,000,000,000, or $3,000,000,000. or $4,000,000.000, you can see that while it is going up at the
top of this boom period, at the top of the credit expansion, that it is
of course supplying purchasing power in addition to consumer income:
and as it turns down the opposite is true, that the consumer is paying
and not buying on the downswing, just as on the upswing the con­
sumer on balance is buying more than his income permits, and they
are using credit.
Senator Ft lbkight. Y ou would say it accentuates it ?
Mr. E ccles. What is that?
S e n a to r F u i bright . Y


w o u ld sa y it a ccen tu a tes if.

Mr. E ccles. It accentuates the boom and accentuates the downswing.
It tends to make for. instability.

I would not want the committee to think for one moment that this is
a vital factor in the maintaining of stability. It is only one of the
Federal Reserve Bank of St. Louis



factors, but to the extent that through the control of this expansion,
you also reduce its contraction $2,000,000,000 or $3,000,000,000 or
$4,000,000,000, in a period, you at least take that much off the boom
and you lessen the deflation that much.
Senator B u c k . What is the maximum margin you permit brokers
now to carry ?
Mr. E ccles. We require 75 percent margin.
In other words, for $1,000 purchase, they can borrow $250. The
75 percent is on the margin, of course.
Now, the net result is that the credit being used for the purpose
of buying listed securities is only a little over $1,000,000,000.
Senator F ulbright . What is your authority for that?
Mr. E ccles. That is statutory. The Congress, in 1934, passed a
law which gave to the Board that authority. That, of course, was
the result of what happened after 1929.
Senator F ulbright . Yes.
Mi1 E ccles. When there was something like $11,000,000,000 of stock
market credit.
Senator F ulbright . It is the same theory there that you apply here
Mr. E ccles. Exactly the same theory.
Senator F ulbright . For the same purpose.
Mr. E ccles. It is for the same purpose. It is what you call selective
credit control. It is for the purpose of trying to cushion. You cannot
prevent, but you can cushion the effect. You can lessen the expansion
of credit on the boom side, and you can thus lessen the contraction
of it on the other side.
Senator B u c k . Y ou require 75 percent margin on short sales, too?
Mr. E ccles. It is the same on both. Of course, the most important
influence in helping to maintain economic stability, of course, is fiscal
It is far more important than credit.
And, as I said in this statement here, that I want to leave for the»
record, the Board feels that this type of regulation, which is of a
selective character, serves a useful purpose which cannot be reached by
the exercise of any powers over bank credit in general. The regulation
is needed, therefore, as a supplement to the general credit control
As the Board pointed out in its 1945 annual report to Congress
however, over-all restraints to the sources of bank credit have, under
existing conditions, lost much of their effectiveness. For this reason
it is of more importance for Congress to consider whether a selective
control, such as proposed, would, as the Board believes, reduce eco­
nomic instability and thus help to provide conditions more favorable
to the maintenance of our private enterprise system.
Because of the great size of the public debt and the necessity of
maintaining the stability of the Government security market, we can­
not use the usual monetary and credit powers.
Senator F ulbright . Control on interest?
Mr. E ccles. That is right. By raising rates substantially, that is,
by raising rates to the point where it would actually restrain the use
of bank credit.
Senator F u l b r ig h t . Y ou said that in these loans it runs up as high
as 36 percent .
Federal Reserve Bank of St. Louis



Is there no control you have over an interest rate on installment
credit ?
Mr. E ccles. Mo control.
Senator F ulbright . Y ou have no control at all?
Mr. E ccles. We have no control over the interest rate on any credit.
Senator F ulbright . H o w is it that they go out as high as 36 percent ?
Mr. E ccles. Well, these small-loan companies are permitted to
charge that much.
Senator F ulbright . D o the States not have State laws controlling
Mr. E ccles. That is under the State laws.
Senator F ulbright . Yes.
Mr. E ccles. They have such an excellent lobby, these small-loan
companies, that they have been able to get that privilege.
Senator F ulbright . Thirty-six percent per year ?
Mr. Ecci ,e s . Thirty-six percent in some States.
It is 2 percent, and 2y2 percent a month, which are the common rates,
and in some States they are as high as 3 percent.
Senator F ulbright . Per month?
Mr. E ccles. Yes.
Senator F ulbright . I would think under your theory of interest
rates, that those ought to be a damper on it, but it does not seem to be.
Mr. E ccles. Well, that is no damper when the person that has not
got very good credit standing is considered, and where the damper
comes on is not in that manner.
Let me put it this w ay: the high rate of these small-loan companies
to the consumers is not applicable in the case of banks. The banks, of
course, do not charge that kind of rates.
And they, of course, take the better credit risks.
However, even the banks in the consumer credit field get 8 percent,
or 10 percent, and 12 percent, and in some places even more, but I
would say, generally, those are the rates they would go to.
Senator B u c k . Your member banks do not get that, Governor?
Mr. E ccles. What is that?
Senator B u c k . Your member banks do not get that much interest?
Mr. E ccles. Sure they do.
Senator B u c k . They do?
Mr. E ccles. On the consumer credit, yes.
But if the Reserve System was in a position to withdraw from any
support of Government security market, for instance, which, of course,
is the source of excess reserves by the member banks, then what would
happen is immediately the interest on Government securities would
go up, and with their going up. then all loans to business would go
up, and finally you would find loans of private financing, municipal
financing, industrial and all kinds of financing, going up.
It is the support of low rate on Government securities that anchors
the entire rate structure down. And that is done by the open market
pegging the short-term seven-eighths rate, and the whole rate structure
is therefore related to that rate.
That is where there is first-class or good credit.
Now, the banks have available immediately a market for the Gov­
ernment securities that they own at a seven-eighths rate for the short
term securities, such as certificates, and for ever}7 dollar of securities
Federal Reserve Bank of St. Louis



they sell to the FED, the banking system, out of the reserves thus
created, they can expand seven times that amount of credit.
Therefore, you have quite an engine of inflation we cannot control.
To let the rates go up to the point where borrowing was restricted
would have to go to a point where your Government bond market
would be demoralized, and where Governments would sell at a very
substantial discount, and where the interest rate paid by the Govern­
ment would go up billions of dollars.
The interest charge today is $5,000,000,000. You can readily see
with something like $100,000,000,000 falling due within the next 5
years, if the Government had to refund that-in a market where the
rate was permitted to go up 1 or 2 or 3 percent, what that would mean.
So, as a practical matter, as we pointed out to the Congress, our
general credit control powers are pretty ineffective, and that the selec­
tive credit- control, such as is applied in the case of the stock market
credit, and as has been applied in the case of your consumer install­
ment credit—those are the most effective ways of dealing with some
of the excesses.
Senator B u c k . Governor, tell me how a commercial bank gets 10 or
12 or 14 percent on these loans they make.
Mr. E ccles. H ow do you mean ?
Senator B u c k . Well, you say they get that much interest on these
installment loans.
Senator F u l u r i g h t . Consumer credit ?
Mr. E ccles. Y e s; would you not say that a lot of the banks get 8
or 10 or 12 percent ?
Mr. C arl E. P arry (director, Division of Security Loans, Board of
Governor of the Federal Reserve System). Yes.
Senator B u c k . Commercial banks?
M r. P arry . They discount at 6.
Senator B u c k . Very few banks discount at 0 percent.

There is no

member bank that gets 6 percent for its loans?
M r. E ccles. Yes, sir.

Mr. P arry . On this type of paper,
Mr. E ccles. On this type of paper they do.
Senator B u c k . What type of paper, now ?
Mr. E c c l e s . Here is a loan secured by an automobile, and it is due
over a period of 15 months, or a period of 12 months, and that loan
is discounted at a 6 percent rate, and it is paid back on a monthly basis.
The actual amount of time that money is used, on the 12-month loan,
is for months, because the money is repaid in installments. It would
figure 12 percent on the money. Then you would have to consider if it
is 15 months.
Senator B u c k . Your banks do not get that business, much of that
business ?
Mr. E ccles. They get a lot of it.
Senator B u c k . That is what these little loan companies are living
on ?
Mr. E ccles. A great deal of the credit extended by these loan com­
panies is in the form of cash loans; is it not. Mr. Brown ?
Mr. B onnar B rown (Assistant Director, Division of Security Loans,
Board of Governors of the Federal Reserve System). I would say all
o f it is in the form of cash loans. Many of them are not secured by
automobiles or anything of that sort.
Federal Reserve Bank of St. Louis



Mr. E ccles. Well, what happens is this: The dealers have sales con­
tracts. These men do not have enough money to carry them indefi­
nitely, and so they are sold.
Senator B u c k . They run them through General Motors?
Mr. E ccles. Yes; through sales finance companies like G M AC: but
they run them into the banks now. The banks have cut into that field
Senator B u c k . Some; yes.
Mr. E ccles. D o you remember what that growth is in the bank in­
stallment credit ?
Mr. B ro w n . It has gone up about 100 percent.
Mr. E ccles. Up to where?
Mr. B ro w n . About up to $2,000,000,000.
Mr. E ccles. Installment credit.
Senator F ulbright . Up to $2,000,000,000?
Senator B u c k . 100 percent from when?
Mr. B r o w n . In about 12 months.
Senator B u c k . The last 12 months?
Mr. B ro w n . I do not have the actual figure here.
Mr. E ccles. It has come up more than that.
I was looking at the figures a while ago, and as he says, during 1946
and at the present time in 1947. the consumer credit by the banks of
this country has been growing very rapidly. It is growing much more
rapidly than the rest.
Senator F ulbright . It seems to me it naturally would, if they
only charge 12 percent for the same type of loan that the loan com­
panies charge 36 percent for. They would go to the banks.
Mr. E ccles. I know; but this is consumer credit. There are large
consumer credit companies, known as sales finance companies, such as
the C. I. T., the C. C. C., Universal Credit. Universal Credit was
taken over by the C. I. T. They are just about the same as the banks.
Senator F ulbright . The same as the banks?
Mr. E ccles. It is the hundreds of small-loan companies that loan
$100 or $200 or $300 o f cash that may be secured by somebody’s furni­
ture, or secured by an endorser, or secured by an automobile.
Senator B u c k . Catastrophe loans?
Mr. E ccles. Loans that are made to consolidate debts, or loans that
are made to buy any number of things, or for, as you say, catastrophe
loans—some of them.
But those are the loans that bear the high rates, and there are people
that never get out of t hose debts. They can try.
Senator F ulbright . I f you ever get in, I do not see how you would
ever get out at that rate.
Mr. E ccles. They contrive to keep them in. They are a very ag­
gressive group of people, and you will find in every city these loan
companies in a plentiful supply.
Senator B u c k . Plenty of them.
Well, Mr. Eccles, I do not think we need keep you any longer.
Mr. E ccles. Thank you.
S e n a to r B u c k . T h e c o m m itte e th a n k s y o u
m o r n in g .

f o r c o m in g h ere th is

Senator F ulbright . Has a resolution been introduced on this, sir?
Senator B u c k . N o ; it has not. We will pass on this tomorrow.
We will meet tomorrow at 10 o’clock.
Federal Reserve Bank of St. Louis



We want to vote on this resolution, and on the bill that Mr. Eceles
suggested here.
Senator F ulbrigiit . We ought to have a copy of that bill printed.
Senator B u c k . There is a copy of it attached to the paper.
Mr. E ccles. There is a copy attached to the statement and I think
the resolution is also there.
Senator B u c k . Very well.
We will adjourn now. Thank you, Mr. Eccles.
(Thereupon, at 11:40 a. m., an adjournment was taken until 10
a. m., Wednesday, July 2, 1947.)
(The following were later received for the record:)
Chamber of Commerce of the
U nited States of A merica,
Washington 6. D. C., -June 2.5, 19J ,
Hon. C harles W . T obey,
Chairman, Senate Committee on Banking and Currency,
United States Senate, Washington 25, D. C.
D ear Senator T obey : I would like to place before you and your committee tlie
position of thè Chamber of Commerce of the United States with regard to an
important matter now pending before you— control of consumer credit.
The National Chamber opposes both continuance of present consumer credit
controls and legislation to make them permanent.
This statement is based on policy of this organization approved by our member­
ship, excerpt from which is attached.
Objections to continuance far outweigh any possible advantages. While it was
desirable during the war to regulate consumer credit, that regulation now tends
to interfere with marketing processes which must be allowed free play for attain­
ment of full production, lower prices, and high level of employment. The regu­
lation obviously discriminates against those without cash resources, includine
many war veterans. The recent rise in consumer credit may be attributed in
considerable part to the pressure of high taxes, relief from which would provide
a check upon excessive borrowing.
While the present regulation rests upon authority vested in the Board of Gov­
ernors of the Federal Reserve System by the President, it has been stated officially
that the Executive order will be vacated if the Banking and Currency Committees
of the Congress do not approve proposed legislation for permanent statutorv
powers in this field.
Cordially yours,
C. R. Miles.
Clarence R. M iles .
E xcerpt F rom Policy of the C hamber of Commerce of the U nited St a t e s ;
A doption, M a y 1947— Government L oans and Credit Controls
Government credit extensions and Government intervention and bureaucratic
action in the field of credit present a menace to chartered banking and the private
enterprise system.
There should be early withdrawal of Government competition with private
sources in the lending field and persistent reduction in the scope and power of
Government lending and guaranteeing agencies.
Remaining wartime controls of consumer credit should be terminated. Such
credit should be permitted to assume its normal function and provide support of
essential processes of production and distribution upon which depends- a high
level of employment. Existing authority for imposition of controls upon such
credit should be revoked and requests for permanent power regulation denied.
M cG in n ity & M urta,
Philadelphia. Pa., June V,, 191/7.

United States Senate, Washington, 1). C.
Gentlemen : W e are in favor of retaining regulations W even though its re­
moval would temporarily increase our sales and our earnings.
Many of the G I’s who are now our principal buyers are already in too much
debt through the purchase of homes on long-term contracts.
Federal Reserve Bank of St. Louis



The regulation as it stands is good legislation. It can be relaxed later, when
conditions require more credit.
Protect the GI against his own folly and against the unscrupulous dealer
who uses excessive terms as a means of moving his shoddy, overpriced
P etek M cG in n it y .
N ational R epublican Club ,
New York 18, N. Y., May 11,, 191,7.
Hon. Chartes W . T obey, Chairman,
Banking and Currency Committee,
United States Senate, Washington, D. C.
D ear Senator To: ey : I am enclosing for your information copies of two reso­
lutions recommended by the national affairs committee and adopted by the
National Republican Club at its regular meeting held April 22.
One resolution advocates elimination of regulation W to reestablish a free
economy for credit and installment purchases and remove the discriminations
now caused by the regulation, especially against war veterans who cannot afford
to pay cash or high installment payments for furniture and other necessities,
this discrimination against the war veteran is deemed to be more apparent
because of the liberal terms allowed for the purchase of homes while the re­
strictions of regulation W prevent the same veteran from acquiring the furniture
and other equipment necessary for the home he purchases on a longer term
payment plan.
The second resolution supports the President’s Executive order of March 22,
3947, designed to eliminate subversive and disloyal persons from employment
in the executive branch of the Federal Government. Such a program has long
been advocated by the Republican Party and the National Republican Club.
At the meeting of the national affairs committee, the hope was expressed that
the President’s Executive order of March 22, 1947, would be vigorously and
promptly carried out. However, it looks to me as though the enforcement of the
order is encountering some unreasonable delay.
Your consideration of these resolutions will be greatly appreciated.
Cordially yours,
V ictor D. W erner,
Chairman, National Affairs Committee.
R esolution R ecommended ey the N ational A ffairs Committee of the N ational
R epublican C lub, V ictor D. W erner, C h a ir m a n , and A dopted by the Club at
I ts R egular M eeting H eld A pril 22, 1947
Whereas regulation W limiting consumers credit, issued by the Federal Reserve
Board on August 31, 1941, under the authority of Executive Order 8843, and
amended from time to time, was initiated purely as an emergency war measure
for the purpose of reducing the demand for consumers goods and conserving the
Nation’s manpower and resources for the production of war materials; and
Whereas it is very doubtful that regulation W ever served any useful purpose
because of Government distribution and allocation of materials and goods; and
Whereas it is believed that regulation W restricts demand, employment, and
production, and discriminates against war veterans and other persons who cannot
afford to pay cash or the high installment payments required under the regulation
by granting a priority on scarce articles to those persons who can afford to pay
cash or higher installments: and
Whereas it is believed that regulation W induces manv people to liquidate
war bonds to secure funds for the purchase of articles requiring larger down paymerits than necessary; and
Whereas merchants and others selling on the installment plan have had great
difficulty in interpreting the regulations issued from time to time and compliance
with the regulation requires needless filling out of the many forms ; and
Whereas the elimination of this regulation will establish a free economy in the
place of a managed or controlled economy in the field of commercial credit: Now,
therefore, be it
Resolved, That the National Republican Club in meeting assembled urges Con­
gress to enact legislation which will eliminate regulation W and reestablish a
free economy for credit and installment purchases ; he it further
Federal Reserve Bank of St. Louis



Resolved, That the chairman of the national affairs committee be and is hereinauthorized to release this resolution for publication and to send copies to the
President, the Federal Reserve Board, and such Members of Congress as he deems
N ew Y ork, X. Y., June 25, 191,5.
Senator C harles W . T obey,
Chairman, Senate Committee on Banking and Currency,
United States Senate:
The National Electrical Wholesalers Association on behalf of our 900 member
houses distributing electrical merchandise throughout the country respectfully
urge that you favorably consider discontinuance of regulation W on the ground
that it unnecessarily restricts purchases by our citizens, especially those in the
lower income brackets accustomed to buying out of income. These electrical
appliances are now becoming available in quantity for the greater living comfort
of our citizens, the purchase of which they themselves should decide upon without
legislative restriction.
N ational E lectrical W holesalers A ssociation
E. B. I ngraham , President.
C G. P yle , Managing Director.
Federal Reserve Bank of St. Louis

W E D N E S D A Y , J U L Y 2, 1947

U nited S tates S en ate ,
C ommittee on B a n k in g and C urrency ,

Washington, I). G.
The committee met, pursuant to adjournment, at 10 a. in., Senator
C. Douglass Buck, presiding.
Present: Senators Buck (presiding), Bricker, McCarthy, Taylor,
Fulbright, and Robertson o f Virginia.
Senator B u c k . The meeting will come to order.
The meeting was called this morning to hear the opponents of regu­
lation W. The first man appearing on the agenda is Mr. M. I.
Behrens, Jr.
Will you come forward, please.
We will be glad to hear from you. Proceed in your own way. Give
the reporter your full name and business connection.

Mr. B ehrens . My name is Manfried I. Behrens, Jr., and I am vice
president and general manager of Ludwig Baumann & Co., and a chain
of retail stores in New York City handling home furnishings, ladies’
ready-to-wear, men's clothing, and the usual assortment of merchan­
I am a director of the National Retail Furniture Association, and
also of the Credit Institute of America, which I represent today.
I think it might also interest the committee too, to know that I
was, beginning in the fall of 1941, before the war started, and con­
tinuing thereafter for a period of a couple of years, an official con­
sultant to the Federal Reserve System on the matter of regulation W ;
although I am not an economist of any kind, I can lay claim to being
a little bit of an expert in the field of consumer credit.
Senator B u c k . H ow many members in your association, Mr. Beh­
rens ?
Mr. B eh rens . I would like to say about five or six hundred mer­
chants representing perhaps a thousand or 1,200 stores spread over
48 States in the United States.
The National Retail Furniture Association has about 8,000 mem­
bers, I believe, in all States.
Senator B u c k . Have they taken any stand on this legislation?
Mr. B ehrens . They have not taken an official stand, but I think
perhaps I should tell you the reason for that, so long as you ask the
Federal Reserve Bank of St. Louis




Senator B u c k . Perhaps you can preface that remark by stating
they are in favor of it. Is that correct ?
M r . B e h r e n s . N o , th a t is n o t correct, as I th in k w ill be ev id en t in
a m o m e n t.

The National Retail Furniture Association, as I said, has a very
large membership all over the country. It has always been our policy
not to take strong positions in matters in which we feel even a sub­
stantial minority of the membership might not favor the position.
The furniture association comprises many cash stores who have no
interest in this problem as well.
However, I think this will interest you. Last January during the
furniture market in Chicago, there was a meeting of the consumer
credit committee of the national association. It has 13 members.
An informal vote was taken as to the attitude of these 13 men com­
prising the committee. The vote was 12 to 1 for its discontinuance.
That was as to regulation W, as to its discontinuance.
There was only one member that favored the continuation of reg­
ulation W.
First of all, I would like to go into a little history. Regulation W
in my opinion has been ineffectual from its start. I think it is prettv
interesting to go back and look at what the objectives of the regula­
tion were.
They are clearly set forth in the preamble to the regulation itself,
and I would like to read you a part of that preamble. These were'
the stated objectives:
(a) To facilitate the transfer of productive resources to defense industries(6) to assist in curbing unwarranted price advances and profiteering which tend
to result when the supply of such goods is curtailed without corresponding cur­
tailment of demand; (c) to assist in retraining general inflationary tendencies
to support of supplement taxation imposed to restrain such tendencies, and to
promote the accumulation of savings available for financing the defense pro­
gram ; ( d ) to aid in creating a backlog of demand for consumers’ durable goods;
and (e) to restrain the development of a consumer debt structure that would
repress effective demand for goods and services in the postdefense period.

Now, in the first place, gentlemen, those objectives were not at­
tained in any substantial way by regulation W, although of course
all of them were very worthy and all of them were at least to some de­
gree accomplished. They were accomplished, however, because we
did not make consumer durable goods in this economy during the war
period, and because further, due to the excess of income paid to the
working population over available consumer goods, the people had
money in their pockets.
It is my opinion, improvable, of course, that regulation W could
not and would not have worked even during the war period had it
not been for that set of facts.
In other words, the factor which created the situation in which
consumers did not buy durable goods was because the durable goods
were not made, and the reason they were able to pay such installment
accounts as they opened rapidly is because they had plenty of money
and for the most part did not need consumer credit.
Another factor which has to be considered in this connection is
the proportion of consumer credit, particularly consumer sale credit,
which is the oidv thing that I as a merchant know about, as to the
Federal Reserve Bank of St. Louis



As of the end of April, according to the Board, there was $1,800,000
of consumer credit outstanding, of which only a little over a billion
dollars was in consumer credit outstanding, I mean sale credit, exclu­
sive o f automobiles that was outstanding. That is about a billion
dollars, about 0.6 of 1 percent, I believe, of the national income which
I submit is a pretty small tail with which to try to wag the dog of
the American economy.
Furthermore, the $1,800,000,000 itself has just now reached the
prewar high in dollars, and yet we all know, of course, that the post­
war dollar is only worth perhaps two-thirds of the prewar dollar, and
we know further that during the past 6 or 7 years there has been
an increase of something like 17 percent in the number of family
units in this country.
Let us go back to the billion dollars outside of automobiles. Not
even all of that is regulated, because the board saw tit some time ago
to release clothing, jewelry, and many other articles from the restric­
tions of regulation AY. It is very curious to me that the Federal
Reserve Board should be asking for continuation of this control
since they now have, and have voluntarily surrendered a great deal
more power than they are using. They cannot justify what they have
done on grounds of scarcity, I think, because that we all know means
suits have been pretty scarce items, and were extremely scarce at the
time they were released from controls. Yet living-room furniture, for
example, that has been a drug on the market, subject to price breaks,
factories have been laying off thousands of employees in the livingroom furniture field, and yet that is still subject to control at 20
percent in that case.
Even more important is the perfectly incomprehensible release of
charge accounts completely from any controls whatever. Charge
accounts, by way of comparison, have now reached a total of $3,000,000,000, considerably higher than the prewar high.
Yet they are completely released from controls. It almost makes
one suspicious that the Federal Reserve Board feels that in the quo­
tation marks respectable people who use charge accounts should not be
regulated, but that the working people who use instalment accounts
should be regulated.
The answer of the Federal Reserve Board, I understand, before a
committee of the Congress, as to why they had relieved charge accounts
from regulation, was that they would not be able to enforce the regu­
lation if it applied to charge accounts.
AVell, to be honest about it. they have never made any real attempt
to enforce the regulation as far as instalment accounts are concerned,
Senator B u c k . AVliat are your terms in time accounts?
Mr. B e h r e n s . In normal times, or now?
Senator B u c k . N o.
Mr. B ehrens . According to regulation A r, 20 percent down on
furniture, a third down on other merchandise, and 15 months to" pay.
In normal times we have never advertised longer terms on anythin' ti­
tilan 18 months.
Senator B u c k . \VTiat are your terms on charge accounts?
Mr. B e h r e n s . 30 days.
Federal Reserve Bank of St. Louis



Actually of course charge accounts do not pay in 30 days. The aver­
age would be something between 60 and 90 days. Many charge ac­
counts today, Senator Buck, shade into installment accounts.
Senator B u c k . Eventually.
Mr. B ehrens . Yes. The customer owes the account. This was
going on before the war. He opens a charge account, finds at the end of
the month when he receives his bill that he cannot pay it off altogether
goes into the store and pays something on account, and that may drag
on, particularly in the case of the high-class specialty shops.
Senator B u c k . Y ou would extend that period for another 30 days
would you not, in many instances, maybe 60 or maybe 100 days ?
Mr. B ehrens . Sure, of course. The big difference is not the length
of time, but the fact that the charge accounts require no down payment.
I will come to that point a little later. It is my own conviction that
charge accounts are being used, we in our store do not happen to have
any charge accounts to speak of, it is my conviction that charge ac­
counts are being used in many places as a form of legal evasion of
regulation W, that is the acount is opened as a charge account without
a down payment, and when the customer cannot pay, other arrange­
ments are made to continue the account along.
Senator B u c k . They are not made until the customer credit is
looked into.
Mr. B ehrens . Neither is an installment account opened before it
is looked into.
Senator B u c k . In one you know that he does not have any funds
with which to pay it in advance, and the other you know that he does
Mr. B ehrens . N o ; I do not think that would follow, sir; we would
open a charge account or an installment account at the customer’s soli­
citation. Most customers understand their own problems, and would
prefer if the bill is substantial would prefer installments.
Senator B u c k . Y ou do not open the charge account unless you have
a credit rating.
Mr. B ehrens . That is quite right.
Senator R obertson. In selling items that are under regulation W
now, do you retain vender’s lien recorded for your protection?
Mr. B ehrens . I did not quite get that.
Senator R obertson. On items that are now controlled by regula­
tion AY, do you retain a vendor’s lien and record it for your protection?
Mr. B ehrens . We do not record any liens at all, and we use chattel
mortgages in a majority of the cases of open installment accounts.
For charge accounts, we do not.
Senator R obertson. When you say you do not record any vendors
liens, it is the practice of those who sell furniture and other items on
the instalment basis to record their liens.
Mr. B eiirens . I would say that is a minority practice. In my ex­
perience, very few merchants have found it advisable or justified by
the cost involved to record liens. I know.of no large merchant who
records chattel mortgages or conditional bills of sale.
Senator R obertson. The cost is only 25 cents in Virginia to record
Mr. B ehrens . I did not mean to imply that the fee was too large.
I meant that the work involved of preparing the papers and doing it
would be a pretty substantial cost in the average store. You see, the
Federal Reserve Bank of St. Louis



average bill of goods does not run so terribly high. Some merchants
I have heard of have a dollars and cents limit. They might record
any purchase over $1,000, something of that nature. We do not our­
selves do that.
Senator R obertson. When you sell merchandise or goods of that
type, do you completely divest yourself of the title?
Mr. B ehrens . Yes.
Senator M cC a r t h y . If you sell on an installment buying plan, you
keep a chattel mortgage, I assume.
Mr. B ehrens . Yes. But the title passes to the customer with the
delivery of the merchandise in New York City.
Senator R obertson. Y ou do not divest yourself of a title if you
keep a chattel mortgage.
Mr. B ehrens . In New York State, the title passes to the customer
and he gives us back a mortgage. That is the legality of the situation.
In practice it does not make much difference whether the title passes
or not.
Senator R obertson. Y ou keep it in position where you can repos­
sess it, and he cannot sell it.
Mr. B ehrens . That is true.
Senator R obertson. Unless the purchaser can say, “ I had no notice
of the lien.”
Mr. B ehrens . That is correct. O f course, I might point out to the
Senator that I have been with our company now for 17 years. There
has not been any year when our repossessions amounted to a meas­
urable figure. It might be a quarter of one per cent, or something of
that nature.
Repossessions are almost nonexistent in our business, because they
only occur, I may as well dilate on the point, when we feel that we
have to deal with a very rare customer who is himself not honest.
I f it is a question of hardship, we do not want to repossess the mer­
chandise. That is quite selfish, because our business, our whole future
depends on retaining the good will of the consuming public in New
York City.
Senator R obertson. But you insist on the contract under which the
purchaser cannot dispose of the goods.
Mr. B ehrens . That is absolutely correct, sir.
As I started to say, the spokesman for the Federal Reserve Board
said they decontrolled charge accounts because they did not think they
could enforce the control. Actually speaking, gentlemen, if these con­
trols are retained into a time when there is substantial merchant and
consumer objection to them, which is now coming upon us rapidly, it
will take an army to enforce the law, and an army, I would say, com­
parable to the army which OPA had during the war period. There
would be hundreds of thousands of merchants and millions of consumers
subject to this regulation, merchants, mind you, who for the most part
are willing to adapt themselves to the individual needs of individual
consumers, which of course the regulation W permits them to do. But
the door will be wide open, and I will tell you frankly that the expense
of enforcement will be enormous.
Those few of us, and I mean few, who have scrupulously lived up to
the regulation throughout the war period feel that it is the duty of the
Government, if this control is maintained, to enforce it, so that the
Federal Reserve Bank of St. Louis



right-minded merchant is not penalized by the merchant who is willing
to connive with his customers to evade the regulation.
The regulation of course is most unjust. In all of the entire story
of war controls, it is the one regulation that was regressive. That is
it was the one control which put a heavier burden on the poor at the
expense of the poor, penalized the working man to favor the man who
had money in his pocket. It is rationed by the pocketbook.
Our position, gentlemen, is that if we need rationing, then let us have
it as during the war. I f there are not enough refrigerators, let us
ration for the people who need them. Let us not ration it to the people
who have a lot of money, which is what the regulation did at the ex­
pense of those who have not the money. Regulation W deals only with
Senator Buck asked me before what terms we offered prior to the
war, and I told him that we offered 18 months to pay. The fact of the
matter is, however, that our average arranged terms were between 8
and 9 months. This was before the war.
At the present time it is still shorter than that, around 6 months, be­
cause people do not ask for longer time to pay than they need, but the
fellow who comes in and asks you for 18 months is the man who needs
it, and he is the fellow, he is the only fellow who is regulated by regula­
tion W. The fellow who has not got enough to pay 20 percent down on
his home furnishings and the fellow who cannot afford to pay in 15
months’ time, he is the only one regulated.
The man who would come in normally and pay 40 or 50 percent down
is not regulated. The fellow who will pay off in a year's time is not
regulated. The only man that is regulated is the man that reallv
needs the credit.
These tilings are my merchants’ experience with individuals. You
lose individuals in statistical averages. We all look at the BLS index,
and we all look at the index of factory pay rolls, and so forth, and we
see that the average consumer is doing very well.
Senator B u c k . Suppose regulation W modified so that you would
have 24 months to pay and 20 percent down; how much'difference
would that make ?
Mr. B ehrens . The down-payment requirement would still be verv
high on most merchandise and most people. Let us take the veterans
Senator Buck. We have had innumerable cases. We have the letters
in our files. We have had cases o f veterans in this position: The
Government has made it possible for him to buy a house on terms of
20 to 25 years; very often the payments, around New York, the first
year are lower than they are subsequently. He might have to pay as
little as $55 a month on his house.
Well, the house is just four walls, you know. He has to furnish it.
Perhaps that will cost him $1,000 to furnish his house. Immediately
he has to have $200 down payment, and he has to pay off the remaining
balance of $800 in 15 months, so that in instance after instance, even
the monthly payments, let alone the fact that he has not the $200,
because he made his down payment on his house by his Government
Senator B u c k . Suppose the regulation were done away with: what
terms would he get ?
Federal Reserve Bank of St. Louis



Mr. B e h r e n s . Mr. Buck, it lias been our policy, we have been in
business since 1858, it has been our policy always to adapt ourselves to
the individual needs of the individual consumer.
Senator B u c k . I am talking about the man who could not pay $200
Mr. B e h r e n s . I f he had a good job, I would say, with reasonable
prospects of being able to make the payments, we do not want to sell
people what they cannot afford to pay for, we do not want them
unhappy. Only two things can happen. Either we do not get paid,
and we lose our profit or we do have to use collection methods on the
customer to get the money.
Senator B u c k . Y ou are not answering my question. Is there some
minimum amount that you require him to deposit?
Mr. B e h r e n s . I would say, in extraordinary circumstances, no. *We
might let him have it without an}7 money down, if he had some good
reason not to be able to make it.
Senator B u c k . What terms would you give him for payment ?
Mr. B e h r e n s . We would try to see to it that he would pay within
18 months, but if we felt the circumstances warranted, we might go
to 20 or 22 or 24 months; longer than it would seem to me to be wrong,
although we have made occasionally exceptions even to that rule.
Senator B u c k . I do not think that jibes. I f a man can not pay any­
thing on anything he wants to purchase, you expect him to pay it off
in two years: that does not sound quite reasonable.
Mr. B e h r e n s . Let me give you a concrete example. This is an actual
case. I am not sure that I recall the precise figures from memory.
It ran something like this:
This man got married apparently in the early days of the war. He
then went overseas. In the meantime he had a child. The child is
now about 4 or 5 years old, 6 years old. He was released from the
Army about 0 or 8 months ago. has been living with his parents. He
has finally been able to obtain living accommodations.
He came in and placed an order with us for the furnishings which
he had never had before in his life for his apartment. He was not
to get the apartment for another 30 days.
In the meantime his child had an attack of appendicitis, had to be
operated on, and the down-payment money went for the operation.
W e are not permitted by regulation W to allow this man and his wife
and child to have a home of their own. There is the fellow who has an
excellent job; he is with one of the big insurance companies, making
$60 a week. There is no reason in the world why he cannot pay for
the furniture. We cannot let him have it until he saves up a couple of
hundred dollars which he needs, and my guess would be never.
Senator B u c k . He can go to the bank and get it if he needed it.
Mr. B e h r e n s . He is not permitted to do that under the regulation.
Senator B u c k . Not for sickness, he would not?
Mr. B e h r e n s . That is what I was talking about before. I did not
mention that phase of it. O f course, the loans are completely out from
under the regulation, because whereas it is not permissible to borrow
the down payment to purchase listed articles, there is nothing to pre­
vent you from using the rent money and then going to the bank and
borrowing the rent money. That is what I meant before when I talked
6 3 7 .3 5 — 4 7 ------------3
Federal Reserve Bank of St. Louis

abou t le g a l e v a sio n .

Y o u are q u ite r ig h t th a t th a t so rt o f t h in g does

I do not think anything could be clearer, Mr. Buck, than the attitude
o f innumerable labor unions toward this proposition. The attitude
of a large number of the American Legion posts, to prove that the
working men of this country simply do not Avant this control of their
credit, and by the way, that leads me to something else.
No phrase gets me madder in all of the years I have been in the
business than “ granting credit.” We grant credit. Credit men like
to use that. No credit man, no merchant in his life ever granted
credit to the consumer. The consumer had the credit in the first,
place and the merchant made use of it to make a profit.
This credit that you are regulating is not the merchant’s credit. It
it is the consumer’s credit. It belongs to him.
The Federal Reserve Board has said that regulation W is a tAvo-Avay
street. That is, as I alluded to before, they expect to use it to control
the business cycle. Well, it is a pretty small item to try to control
the business cycle with. But that is neither here nor there.
1 want to ask one question. I told you before I am not an economist.
But I do in the nature of my job have to read what the economists
have to say, and it seems to me that you can find as many prominent
men on the side of good times right h o a v as you can on the side of bad
times. It all depends upon whom you read.
Apparently the Federal ReserA’e Board is still very fearful of in­
flation. Otherwise they would not want to retain this control.
Hei• is Mr. Runkel, ATi c e president and general manager of Lily,
and here is their magazine, Stores, the June issue. He says here,
“ Can Ave write the ad that will move $200,000,000,000 of goods a year?”
I n o th er Avords, he is Avorried about b ein g able to sell th e g o o d s a n d
th e F e d e r a l R ese rv e B o a r d is w o r r y in g ab o u t se llin g too m u c h . S o
y o u d o not h a v e a g reem e n ts betAveen th e e c o n o m ists, a n d I w ill tell y o u
w h a t m y w o r r y is.
I d o n o t th in k a n y b o d y is sm a r t e n o u g h to p r e d ic t th e fu tu r e . A n
in d iv id u a l m ig h t m a k e a lu c k y g u e ss on ce in a Avhile, b u t I d o n o t
th in k a n y b o d y in th is w o r ld is s m a r t e n o u g h to p r e d ict the fu tu r e , n o t
th e F e d e r a l R e se r v e B o a r d , c e r ta in ly n o t th is Avitness, p r o b a b ly no one.

The trouble Avith it is th is: Y ou can stop purchasing by the use of
consumer credit controls, but you cannot start purchasing Avith any­
thing. Mr. Hoover tried it back in the early days of the depression.
M r. Roosevelt tried it back in the days of the depression. Nobody can
make the consumer buy Avhen he is pessimistic about the future. S o if
you are going to stop purchasing when they Avant to buy, you cannot
start it, then the only net result can be over the years a total reduction
of purchasing poAver.
I n th a t c o n n e ction I w a n t to read y o u a q u o ta tio n fr o m a f o r t h ­
c o m in g b o o k b y D r . C o x . th e c h a ir m a n o f th e d e p a rtm e n t o f m a r k e tin g
o f t h e 'U n iv e r s it y o f P e n n s y lv a n ia . H e r e is Avhat he s a y s :
A control that keeps out installment buyers only when they can afford to buy
is likely to keep them out altogether. Since cash sales fluctuate as widely as
credit sales, the net effect would seem to be not stability, but instability at a
lower l e A ’ e l .

I think that sums up the point better than I could possibly do it
Federal Reserve Bank of St. Louis



Senator R o b e r t s o n . I did not dearly understand that last sentence.
W ill you repeat it?
M r. B




m ea n fr o m th e q u o ta tio n ?

Senator R o b e r t s o n . Yes.
Mr. B e h r e n s (reading) :
A control that keeps out instalment buyers only when they can afford to buy
is likely to keep them altogether. Since cash sales fluctuate as widely as credit
sales, the net effect would seem to be not stability but instability at a lower level.

He is with the Wharton School of the University of Pennsylvania.
Regulation W, as I have alluded to before, is inflexible. I do not
think that anybody on the staff of the Federal Reserve Board in
Washington knew about this customer of ours whose little boy had
been operated on for appendicitis. That is the problem of the individ­
ual merchant, the individual consumer, and the individual community.
I might mention also that these consumers who, as I said before, own
this credit, have a right to contract for their necessities of life on
terms that they find pleasing to them, not on terms dictated by some­
body else. 1 do not know why we do not control cash sales.
That keeps coming back to me. We let the fellow go who has a few
hundred dollars in his pocket, but not the fellow who does not have it.
We let the charge account customer go free because he lives on Park
Avenue, of course I am referring .to New York City, but the working
man, tlie instalment customer, that is the fellow we want to regulate.
There has been a lot of discussion about the effect of consumer credit
on price, and although that is pretty complicated as an economic sub­
ject, 1 will have to allude to it very briefly.
Mr. Eccles in the testimony which I was given to read made the
completely amazing statement that a release of consumer credit would
cause prices to rise.
Well, now, let us think about that for a minute. What has brought
pr ices down over the years in this country ? Mass production. That
is the thing we are most proud of in the economic sphere, our Ameri­
can mass production.
What makes mass production possible ? You cannot have it without
mass distribution, and in the consumer durable goods fields, you can­
not have mass distribution without consumer credit,
The whole history of the automobile and refrigerator and furniture
businesses proves that.
Furthermore, I believe that some remark was made about the quality
of the merchandise sold on the instalment plan. Well, that is another
just complete fallacy, completely opposite to the truth. I will ask you
to use your common sense, gentlemen. If you sell a man a bilí of
goods, and you get paid for it in full, you are through. You are
Senator B u c k . I do not want to interrupt you, but can you finish in
the next 10 minutes?
M r. B


Y e s ; sure.

Senator B u c k . We have a long list of witnesses here.
Mr. B e h r e n s . Yes; sure.
As I say, the cash purchase is a completed transaction. The instal­
ment purchase, the merchant has to collect his money, and because he
has to collect his money, you see 1 am not putting it on any grounds of
altruism, because he has to collect his money, he must supply goods of
Federal Reserve Bank of St. Louis



good quality which will last, at least until the bill is paid, which is
not true in the case of cash purchases.
It might interest you to know—I see you smiling—that we have had
innumerable instances in our store where merchandise that we have
rejected for quality has been sold for cash out of the basements of
New York City department stores.
Senator B u c k . I was only smiling because you said at least the
goods had to last until* the bill is paid, and then it does not matter.
Mr. B e h r e n s . That is right. I do not mind.
It has also been said, and I do not want to get involved here, I will
make this very rapid, it has also been said that consumer credit causes
fluctuations in the business cycle. That simply is not true.' If you
will look at the purchases of consumer durable goods which form the
big bulk of consumer credit purchasing, you will find that cash pur­
chases of those goods fluctuate as widely as credit purchases of con­
sumer durable goods.
Therefore, it is self-evident that it is not the credit which causes the
fluctuation, but something perhaps inherent in the nature o f consumer
durable goods.
I thought it might interest you to know on this question of price
too, I understand that Mr. Eccles discussed the question of credit
service charge rates. O f course, actually, as far as the use of con­
sumer credit has been a tool for the use of mass distribution, actually
through this mass distribution and production, every credit and cash
customer alike pays less for goods than they would if there were
none. But there is a credit service charge in most stores for credit.
I thought it would interest you to know that the most common
charge in this country is 6 percent of the original unpaid balance. I
will translate that for you. That figures out in simple interest of
somewhere between 10 and 11 percent, depending on the length of
time. That is by far, I would say that more than 50 percent of the
stores in the credit business in this country who make a charge use
that particular charge.
Now, one more item on the question of price, and I will move
along rapidly.
I understand that the statement has also been made to your com­
mittee that the release of consumer credit would drive the man into the
used car market. I do not know much about automobiles. In fact,
I do not know anything about them except that I buy them once in a
while. I would like to give you this thought to chew o n :
The present down payment in terms of what is forcing many cus­
tomers out of the new car market into the used car, they just cannot
afford to pay $1,500 for an automobile, and get up to $500 down. So
they take any old jalopy that they can get for $000 and pay only
$200 down. In my opinion they are getting the least possible utility
in transportation out of their dollar.
I think contrary to Mr. Eccles, then, that the existence of con­
sumer credit regulations is one of the factors which is forcing the
prices of used cars up.
That brings me to another mathematical consideration that I will
make very rapid for you.
Regulation W is and always was a one time operation. I am going
to give you the easy example. Let us suppose that after down pay­
Federal Reserve Bank of St. Louis



ment the customer has a balance to pay of $240, and let us suppose
in the old days the merchant would have been able to take $10 a
month. That is subtracted from his purchasing power for 24 months.
Regulation W came along and originally said he had to pay in 12
months. So now, instead of paying $10 a month, he has to pay $20.
It is absolutely true that for the first year, $20 a month instead of
$10 a month, $10 extra will be subtracted from his purchasing power.
But what happens the second year? The second year, having
completed his payments in the first year, he has $10 more to spend
than he would nave had under the old arrangement with the clear and
easy result that the deflationary effect of regulation W is immediately
followed by an exactly equal inflationary effect.
Some business men favor regulation W. That has been told you,
and it is perfectly true.
Senator F u l b r i g i i t . Are you under the impression that Mr. Eccles
is supporting regulation W as a permanent part of our regulation?
Mr. B e h r e n s . I certainly am, not so much from his testimony before
this committee as from my many conversations with influential mem­
bers of his staff, including Dr. Perry, who ie the chief of the Division
of Security Loans which administers regulation W, who has been
telling me it should be a permanent part of it.
Senator F u l b r i g i i t . That is not what he told the committee. All o f
your examples there are based upon that assumption. I f you do not
assume that, and it is only for this immediate period in which there
is at least I have heard a shortage of goods. You have an entirely
different result from all of your discussion.
Mr. B e i i r e n s . D o you know what will happen during the next
Senator F u l b r i g i i t . N o ; I do not pretend to know what is going to
happen. We 1
lave a vague idea of what is happening today.
Mr. B e h r e n s . Let us take it from the point of view of shortage.
Furniture is still regulated. I grew up as a furniture man.
Would you tell me why ? There is not a scarce item in the entire
Senator F u l b r i g i i t . This does not apply only to furniture. It ap­
plies to many things which are in short supply, such as automobiles.
Mr. B e h r e n s . I tried to show you the effect of that. Even if an
item is in short supply, moreover, why should it be rationed to the
people who can afford to pay cash ?
Senator F u l b r i g i i t . This, is supposed to be the transition period
from a period when we do not have a sufficient supply to a period
when the normal relationship between supply and demand will be
reached. That was the whole theory of all of these, such as OPA. It
was not for a permanent regulation, and of course I know a year ago
everybody, the witnesses here were saying exactly the same thing you
are now saying about regulation W, they said it about OPA.
Mr. B e h r e n s . I have to interrupt you. because I testified before the
House committee in favor of the retention of regulation W, represent­
ing the National Retail Furniture Association.
So this witness at any rate did not oppose the continuation of O P A ;
in fact, I felt that it should have been continued, perhaps in a modi­
fied form, but it should have been continued.
Federal Reserve Bank of St. Louis



Senator B u c k . T o stress the point that the Senator made, it is the
understanding in this committee that this regulation is only for 1 year.
Mr. B e h r e n s . That may have been the testimony given to you, but
I know of my own knowledge that that is not the attitude of many
individuals connected with the Federal Reserve System, and if it
were, if that were the fact, I would still say to you that during this
coming year that marginal part of the population, school teachers
insurance company employees, have a right to come into our markets
and have their share of whatever goods is available, which they can­
not have today.
Senator F u l b r i g i i t . What proof do you have that that is the atti­
tude of the Federal Reserve S}7
stem? That is certainly not what
they have told us.
Mr. B eh rens . Personal conversations with members of the staff.
Senator F u l b r i g i i t . Could you give us specific instances of what
the members of the staff said so we could ask the members of the
Mr. B e h r e n s . I certainly could.
Senator F u l b r i g h t . I think you ought to put it in the record.
Mr. B e h r e n s . I mentioned Dr. Perry’s name. At a meeting of the
National Retail Furniture Association in Atlantic City, it must be 2
years ago, I spent a whole evening with them in which he set out for
me in the greatest detail what the plans of the staff were for the future
of consumer credit control.
They viewed it as a permanent part of the economy designed to help
control the business cycle.
Senator F u l b r i g i i t . Who else?
Mr. B e h r e n s . I was always under the impression that the other
members of his staff, some of whom are here this morning agreed with
Senator F u l b r i g h t . Put that in the record. That is a new aspect
o f it. I did not know that. The Chairman of the Board did not say
that. I would like to have your evidence as to who said that.
Mr. B e h r e n s . I have mentioned the man who said it.
Senator F u l b r i g i i t . That is the only one?
Mr. B e h r e n s . Yes sir.
Senator F u l b r ig h t . Y ou reason from that that controls the policy
of the Board? lie is the boss of what?
Mr. B e h r e n s . He is the chief of the Division of Security Loans.
Senator F u l b r ig h t . Not the boss of the Federal Reserve Board?
Mr. B eh rens . N o ; I meant that Division.
Senator F u l b r i g i i t . That is the only one that said anything directly
to you ?
Mr. B eh rens . That is correct.
Senator F u l b r i g i i t . I do not think that is sufficient evidence to make
such a broad statement that the policy of the Board is to make this a
permanent regulation when the testimony of the Chairman of the
Board is directly to the contrary.
Mr. B e h r e n s . Did not the Chairman ask for permanent legislation
originally, before he asked for this resolution to continue the regula­
tion for 1 year ?
Senator F u l b r i g i i t . That is not what he is asking for here.
Federal Reserve Bank of St. Louis



Mr. B e h r e n s . That is quite right. I am glad Mr. Cheney reminded
me of this. Mr. Eccles at a meeting of the board of directors of the
National Retail Furniture Association—Ronald Random, not Mr.
Eccles, asked the Board, and Dr. Perry was there with him, I was
present at the meeting, to sponsor permanent legislation for a per­
manent control.
Senator B u c k . When was that?
Mr. B e h r e n s . The board of directors of the National Retail Fur­
niture Association.
Senator B u c k . When ?
Mr. B e h r e n s . That was in Washington here, and I would say it
is about a year and a half ago. I would not have the exact date in my
records here. It can be ascertained.
Senator B u c k . Times have changed since then. Perhaps their views
have now, Mr. Behrens, changed.
We are going to ask you to conclude.
Mr. B e h r e n s . I was about to do that anyway. I think you ought
to know one thing, though, Senator Buck, before I do conclude, and
that is that the question of the support of regulation W by large
numbers of businessmen is purely selfish. It is a desire to control
competition. It is exactly analogous to a request for price fixing.
That is, these fellows do not want to compete with their other fellow
merchants who are willing to give more credit service than they are
willing to give.
By way of a summary, then, I would like to say that it is about
time, in my opinion, that consumers and merchants alike are per­
mitted to use the proven tool of consumer credit to raise still further
the standards of our American economy. Full employment results as
credit flows back into the economy, full employment not only for those
who use credit, but for everyone. There is no possible excuse in my
opinion for the continuation any further of this most unjust, unfair,
and unworkable wartime regulation.
In support of my remarks, I would like to point out that-----Senator B u c k . I will have to ask you to conclude. I am sorry.
Mr. B e h r e n s . I am, sir; just one more sentence.
Senator B u c k . Thank you for appearing.
Mr. B e h r e n s . May I just say that we are submitting a brief;
that is all I wanted to say.
Senator B u c k . That is quite all right.
( I he brief referred to is as follows:)

Supplementary Statement by M. I. B ehrens , Jr., V ice President and
G eneral M anager, L udwig B a u m a n n , N ew Y ork (R epresenting the R etail
C redit I nstitute of A merica )

(E ditorial note.— Br. Behrens is the 1940 holder of the Cavalier Award voted at
the end of each year h.v the entire furniture industry, retailers, manufacturers,
and wholesalers, to the outstanding furniture merchant of America, the man who
has contributed most to the welfare of the industry and the public in the year.
He is a vice president and member of the board of the National Retail Furni­
ture Association, and appears before this committee as a member of the execu­
tive committee and board of directors of the Retail Credit Institute of America,
an organization of retail store owners throughout the United States who offer
credit service to American consumers.)
I have submitted to this committee the complete brief upon which I based
my testimony before the House Banking and Currency Committee in June. As
I explained orally, I did this because I cannot see what purpose can be achieved
Federal Reserve Bank of St. Louis



in attempting to put the same arguments in separate language. 1 believe the
position taken by retailing as explained in this brief is sound and warrants
the discontinuance immediately of consumer credit regulation by the Federal
Since the time this brief was originally written, Marriner S. Eceles, chairman
of the Board of Governors of the Federal Reserve System, has testified before
your committee. Likewise since that time the House committee has reported
a resolution favoring the immediate end of the regulation. 1 should like to dis­
cuss very brieily in this supplementary statement a few of the points which these
later events have brought to light.







Mr. Eccles has asked for continued regulatory authority over 12 lines of
durable products for 1 year after July 31, 134 f. A month ago he asked perpetual
authority— said it is important to restrict consumer purchasing of 12 basic com­
modity lines of durable products to tight the pressure of what he calls too much
buying power against inadequate supply.
Comment: Inflationary pressure does not concentrate itself in 12 major
commodity lines. Inflation cannot be fought by regulating the use of consume!
credit in these twelve lines.
The board of governors released from control all other consumer credit pur­
chasing last December. Today it possesses three times as much power as it is
using. Last December it likewise decontrolled charge accounts.
To perpetuate even for a year the restrictive controls on these 12 lines and only
upon purchase of these particular goods on installment credit is discriminatory
against the huge segment of Americans who buy on installment accounts instead
of charge accounts. It is an unfair invitation to those who use charge accounts
to buy freely as much as they want of these 12 product lines as well as everything
else. * The installment account is the poor man’s charge account. All argument
to the contrary, this is a basic fact. To free the charge account and control the
installment account is a direct slap in the face to the working man, a step back­
ward in American policy developed over the past 25 years— to assure the working
family a fair share in the possession of the major durable products this country
When the Federal Reserve relinquished two-thirds of its regulatory authority
last December 1, and does not even ask Congress its continuation by legislation,
it serves notice upon the American people that it aims to perpetuate for 1 year—
and then longer, the most uneven, unfair, and un-American type of regulation
the poorer people of this country have ever faced at the hands of Government
Failing to use its full present authority, the Reserve System admits that it is not
proceeding directly against any immediate problem of inflation in connection
with regulation W .





Mr. Eccles was asked by the House committee why charge accounts were freed
of control December 1, with their $3,000,000,000 balances, if the basic reason for
control was still so real. He answered that the Reserve System dropped these
controls because of the pressure of the American people against this control over
their charge account buying. He said enforcement became impossible and
would remain so as long as the people would not cooperate.
He went further, said the System also does not want to control real-estate
mortgages because this power also would be too hard to enforce.
The people who buy on installment accounts do not want to be controlled any
more than their more wealthy fellow citizens who use charge accounts. Does the
Reserve System fear less the ire of our poorer people than that of the middle
and upper economic ranks?
There are no moral grounds involved in obedience to regulation W . The
people see in it no question of right or wrong, honesty or dishonesty.
A week ago Saturday, the New York Times carried a story on the new “ Black
Market in Credit” which regulation is fostering— creating further disrespect
for law.
Mr. Plccles told you he has 210.000 business firms, registrants, and 50 enforce­
ment officers. If only one-tenth of the registrants were inspected in any year,
each officer would have to audit more than 1 a day, a 10-year job to inspect them
all fust once. Some registrants are so large that all 50 could spend full time
on their affairs alone.
Federal Reserve Bank of St. Louis



In view of the lack of sympathy which can be expected from the public
regarding this regulation, and the way it already is widely disregarded, an
enforcement army comparable to that of the OPA would he required.
In fairness to those who will faithfully abide by all law and regulation, Con­
gress and the Federal Reserve Board must assume responsibility for complete
and adequate enforcement if this regulation is continued. Thousands of regis­
trants have since 1941, its inception, never seen a Reserve agent. This is an
unanswerable challenge.







Mr, Eccles explains his desire to control the 12 product lines by saying it is
these lines which are still in short supply.
Every member of this-committee knows that men’s suits are very scarce, yet
the Reserve Governors eliminated them from the control list in December, but
continued to restrict the sale of wood furniture. Many major lines of wood
furniture today, for example living-room suites, are in such good supply that
factories are laying off men and cutting down shifts. Radios are under control,
hut we believe no major radio manufacturer sees this control as warranted.
All are concerned rather with bolstering their sales and continuing top em­
ployment in their factories. The magazine of the National Retail Dry Goods
Association, June issue, out yesterday, carries an article asking “Can W e Write
the Advertising that W ill Move $200,000,000,000 of Goods a Year?” 9
This is just what almost all Government and private economists are telling
business we must do. Yet the Reserve System in the face of this asks power
to cut back sales in important major lines of products. There is fundamental
contradiction here— dangerous economic contradiction.
Sales once cut off cannot be turned hack on again at will. Every billion
dollars in sales cut back by Government regulation means a billion dollars
of business forever lost to American industry, millions of hours of* potential
labor usage forever lost. There is little weight to the argument of delayed
or pent-up demand.


“ S E L L C R E D IT ”


In talking to this committee, Mr. Eccles emphasized his belief that regulation
W should he continued in order to protect people agaist those who sell credit at
high rates. He pointed particularly to the small-loan companies. I do not
care to enter into this discussion except to say that it has absolutely nothing
to do with regulation W , and regulation W is the subject being considered by
the committee. The regulation lias no effect on at least 85 or 90 percent of
the business of small-loan companies. It applies only when loans are made
specifically to purchase regulated products. The records of the loan companies
show that these are few and far between, but I do point out that every American
citizen who wishes to borrow for whatever purpose, even for an entirely unreg­
ulated purpose, is required by this regulation to till out statements about bis
personal affairs and the purposes he has in mind— which the American people
simply will not tolerate, are not complying with today and will not accept
at any time.
The great bulk of the effective restriction of regulation W hits directly at
consumer purchasing in retail stores of the durable products that make the
American home.










Mr. Eccles told the committee that regulation W would protect veterans
against buying poor products at high prices. The fact is just the reverse.
Regulation W is forcing veterans to buy the cheapest possible furniture and
home furnishings to make their available cash cover the several uses to which
it has to be put. The purchase of a second-rate product, to meet the down pay­
ment and other terms of regulation W , is often sheer waste. W e in the furni­
ture industry dislike to force these veterans and others who make homes, to
grade down their purchases, buy things that must be replaced in a few years,
with great depreciation.
Federal Reserve Bank of St. Louis




Retailers are not overselling consumers. Buying durable products is not
like buying food. Families buy them to live with and use for years. Twothirds of the sales in my store, and I think this is true of the entire furniture
industry, are repeat purchases, meaning that people have been satisfied, not
Mr. Eceles inferred to the committee that consumers, labor and the veterans
all three, favor continued regulation.
Consumers and labor.— Credit Union National Association which is com­
prised of multitudes of consumers has told your committee that it opposes reg­
ulation W . The American Federation of Labor lias expressed the same opin­
ion. The Brotherhood of Carpenters and Joiners is similarly on record, as is
the Union of Retail Clerks. Several shipping unions on the west coast have
written editorials condemning regulation W and have been echoed by important
editorials in Eastern labor papers. There was a strong article against the
regulation in the paper of the International Brotherhood of Electrical Workers.
W e have been told that the CIO has expressed itself on one oevasion or another
against it.
Veterans.— Now for the veterans. Between a half-dozen and a dozen of the
regional posts of the Amefican Legion have petitioned the Legion for strong
opposition to regulation W.
W e in retailing do not believe that people want their family purchasing regu­
lated at Washington. W e believe their distaste for it will be expressed and is
being expressed through their attitude in retail stores.
The people obeyed regulation W during the war for patriotic reasons and be­
cause they have not felt its pinch. When they do feel its pinch, neither the Fed­
eral Reserve nor retailing will he able to force their compliance. W e retailers
do not care to be caught in the middle. Already we are being blamed by con­
sumers for foisting upon them a Federal law for our own selfish profit. Mr
Eceles told the House committee that the retailers should favor this r e g u l a t i o n
because it means profit. I, representing these retailers, say that we do not ask
profit brought about this way. It would be a short-term profit, and we retailers
would ultimately bear the brunt of public disfavor.
Regulation W is discriminatory against the poor man. In applying it, Reserve
Governors have admitted that they do so by curbing the rights of the poorer
people while permitting the more well-to-do and higher salaried folk to buy
what they please and as much as they please. The little man is to bear the brunt
of whatever brakes are put on the market. This is un-American, unfair, and
retailing does not believe that the Congress of the United States will permit it.
B rief Submitted by M. I. B ehrens , J r., of N ew Y o r k ; W . E. K imbreil , C har ­
lotte, N. C .; and James I. M cM a h a n , S anta M onica , Calif ., A ll II irectors
of the R etail Credit I nstitute of A merica, at the C lose of T heir O ral
T estimony , M a y 27, 1947, R equesting the E limination of R egulation W of
the F ederal R eserve S ystem
R etail Credit I nstitute

A merica, I nc.,
Washington 5, D. C.


To the Banking and Currency Committee, House of Representatives:
Regulation W of the Federal Reserve System is the instrument of the Federal
Government to control and regulate the American citizen’s personal right to use
his credit as he purchases the products of our economy; in contrast to the right
of others possessing sufficient cash to cover their wants, to use it freely and
By actual tally, more than 91 percent of the members of the Retail Credit
Institute of America believe that such regulation of the consumer by the Federal
Government is unwise, unfair, and detrimental to the best interests of the con­
sumer and private enterprise.
By following a simple outline the major objections to such regulation may be
brought to light.
Federal Reserve Bank of St. Louis




The regulation was issued by the Federal Reserve System on authority of
Executive Order No. 8843, August 9, 1941. Its objective w as: “Whereas the
public interest requires control of the use of installment credit for financing and
refinancing purchases of consumers’ durable goods the production of which ab­
sorbs resources needed for national defense, in order (a) to facilitate the transfer
of productive resources to defense industries, (b) to assist in curbing unwar­
ranted price advances and profiteering which tend to result when the supply
of such goods is curtailed without corresponding curtailment of demand, (c) to
assist in restraining general inflationary tendencies, and to promote the accumu­
lation of savings available for financing the defense program, (d) to aid in
creating a backlog of demand for consumers’ durable goods, and (e) to restrain
the development of a consumer debt structure that would repress effective
demand for goods and services in the postdefense period.”
W e think that these objectives no longer hold. By the language of the order,
the subtopics (a ), (&), (e ), ( d) , and (e ), are all subsidiary to the general
purpose of preserving “ resources needed for national defense.”

S E C T IO N 5 <B)

T H E E N E M Y A C T , 0 C T 0 3 E R G, 1 9 1 7 ,

The Administration gives as its authority for Executive Order No. 8843, Section
5 (h) of the act of October 0. 1917 (Trading W ith the Enemy).
Without going into detail, we believe that this act did not contemplate regu­
lation of consumer credit in the United States, certainly not in time of peace.
Credit transactions between citizens of single States, for purchase of goods
sold in a local retail capacity and consumed in the United States usually in
the same State where sold. Many have felt that the regulation has no authority,
statutory nor constitutional, hut have refused to raise this question during
national emergency, patriotically supporting every effort to Present a unified war
front. Today, the war over, the interpretation of the Trading W ith the Enemy
Act of 1917 as statutory authority for regulation W may be questioned. A
typed copy of section 5 lb) of the Trading with the Enemy Act of 1917 is
attached at the end of this brief.
There is grave question of underlying constitutionality in time of peace, but we
do not intend to explore it at this time.



{ A ) It is ineffectual as an economic control
Consumer credit outstanding, now close to 810.010.000 000, constitutes only
abmit 11 percent of the national income. Of the $10.000.000,000 of consumer
credit, installment sales credit, credit used directly to buy products is now only
$1,000.000,000. exclusive of automobiles. With automobile credit, the total is
about $ 1,000.000,000. This is tlm pari of consumer sale cmfiif rightly controlled
Twice this amount of credit, more than $3,000,000,000 in “charge
accounts” now. the Federal Reserve System of its own accord freed of control as
no longer “ in the public interest.”
In requesting continued power to control, the Reserve System indicates that
the present coverage of regulation W may be considered essentially the frame­
work of any continuing device. The balance of the present $10.000.000 090
total of consumer credit is in loans— largely also freed of control by the Federal
Reserve, the small portion still controlled being loans to make down payments
on goods still controlled. The letter pill here for the consumer is that making
any loan he must tell the Government just the reason why. name and address
of hospital or doctor be is paying, etc., which results in widespread refusal to
disclose the truth— under^tandingl.v so. It is obvious that any effect imon the
national economy and business ovcle of the remaining “ W ” control is uifinitesiinal and ineffectual— lust as that upon the recently decontrolled charge ac­
counts was found ineffectual.

Consumers will always pay their accounts fast or slow as their
available stream o f income payments rises and falls, not by virtue
of any artificial regulation from Washington. Rutrnlation can be,
and is today, prohibitive to many citizens. It is designed so as to
stifle purchasing and does so—but by “ class” dividing our fellow citi­
Federal Reserve Bank of St. Louis



zens. The Regulation did not speed payments during the war period
nor hold consumer debt balances low as you may be asked to believe.
The Federal Reserve System admits this in its writings. The unusual
wartime cash holdings and ready earnings of a large segment of the
people accomplished what the Regulation has been credited with doing.
Likewise no regulation caused people to refrain from buying tlie
durables not produced during the war. It was the production stop­
page obviously that did it. Nor did the regulation stop consumer
buying—it merely shifted it to nonregulated lines. See what hap­
pened in so many of these “ soft lines.”
It did not foster savings—the excess of war earnings over heavy
pay envelopes did this—if one doubts, he need only study the break­
down of “ who had how much of the earnings as the war ended.”
Nor could any regulation force a citizen temporarily in an unfor­
tunate economic situation, to pay up his accounts more quickly. And
as for those with plenty of cash—there never was any attempt to
regulate their spending.
The whole substance of the control has been unfortunate and unfair
as well as ineffective.
In considering it as an accelerating or retarding influence on the
economy, which is what the Federal Reserve System would like to
make o f it, one must remember that it will never apply at all to the
great bulk of credit purchasers, but rather only to tliose who need
credit most, or need special consideration most. These folk are no
less worthy of reasonable individual treatment according to their cir­
cumstances than is the cash customer for all his economic inde­
Back during the depression years of the 1930’s the average instal­
ment account in furniture was being paid off in 7 or 8 months. It is
those who struggle hardest to achieve an American standard of livinothose striving to rise from less advantageous to more advantageous
circumstances who ask more lenient credit, and hence fall prey to
the meshes of this sort of regulation. I f the terms of regulation W
were made doubly severe, statistically the average of instalment ac­
count repayments would not decrease by more than a month, from
8 months to 7, or from 7 to 6, as the case might be; certainly not
enough in the aggregate to change the picture of the national economy.
But countless thousands of Americans would be terribly hurt.
Remember, however, that drastic terms under such a regulation,
while not changing to any real degree the rate of repayment of out­
standing accounts, might well stagnate the purchase of products in
the first instance, driving consumers from markets to the extent of
dangerously reducing sales and starting a downward spiral of pur­
chasing even by those with cash. First this would apply to the “ regu­
lated” industries—later by contagion to others. The dangerous fea­
ture of reducing American business, artificially or otherwise in times
o f peace, is that downward spirals are contagious.
It is noteworthy that not one of the objectives mentioned in its “preamble”
was achieved by regulation W in practice. Every one of them was actually
achieved, but by economic conditions upon which regulation bad little, if any,
It Was most fortunate indeed that business conditions in the country during
the war brought this about, for if regulation W had been relied upon alone and
the public had really felt the pinch of this control, administering and enforcing
it would have been one of the greatest headaches Washington has ever ex­
Federal Reserve Bank of St. Louis



perienced. And this it will be in the future if regulation W continues, because
not always will business conditions play into the hands of those who do the
Right now, today, enforcement is getting harder as the public is
readily preparing to disregard Washington authority over purchasing for every­
day living. Several Reserve officials have been heard to say they personally
want no responsibility for enforcing it once the regulation actually irks consumers
(B ) The regulation is inconsistent
One present-day national objective sponsored by the White House, and with
which we have no quarrel, is that prices must go downward, “ to increase the
purchasing power of consumers.” A logical aim, but for what i Is it not to
permit consumers to raise their standard of living to buy more products with
their money V
Yet the Federal Reserve System seeks to continue regulation W to decrease
the purchasing power of the poor— those who need credit. The Reserve System
says just this— to reduce demand for goods.
The only logical conclusion one can draw is that we are to drive prices down
to permit those with cash to purchase even more than they would otherwise,
and achieve this by a regulation to force the poor to purchase less than they
want-~iess than their rightful share, they would say, of America’s products.
In passing it seems important to say that an adequate supply of durable
products is entirely contingent upon adequate demand, and if demand should
buckle, supply itself will never reach high proportions, prices will never come
down. So regulation W to a large extent nullities one of the Administration’s
published purposes, that is adequate supply and continuing broad demand,
without which there can be no full employment or prosperity.
The contributin of instalment selling to ti e ecoiumy has been always mass
consumption, making possible mass production. Let mass consumption buckle
and depression through loss of mass production will follow. The effect of
credit purchasing on prices in the past has always been to decrease them, as is
historically known. But the Federal Reserve Governors now would have you
believe that the need for regulation W lies in an attempt to cut consumption
in order to reduce prices. This would be true in war when production was
artificially prohibited— not today when the pipe lines for practically every
produce have finally been refilled to overflowing.
The Reserve Governors know that Government economists now predict 6%
million unemployed within (5 months or so. W hy? Obviously for lack of
adequate demand— while regulation W would continue to stem demand.
So long as regulation W requires high down payments and fast maturity
of accounts for durable products, soft goods, and other unregulated markets
will suffer because consumers, having done without durables through the
war, will strain financially ro procure these “ regulated” things despite the
Government’s inferred prohibition, while other markets in oversupply already
go begging for business and lay off men. Regulation W is one of the direct
causes for the present slow-down of these “unregulated” industries.
( C ) Regulation W commits injustice
Regulation W can be described from beginning to end with one word—
“ discrimination,” and it attacks rights which are fundamentally our inalien­
able possession.
(1) Obviously it strikes at the working families of the country and others
not well off financially— but equally Americans with all the rest.
( 2 ) It strikes at labor, saying to the workingman that he may not have
direct open competitive access to markets, where they sell products he makes
with his own hands.
(3) It discriminates against new families whose struggle to furnish a
home and way of life requires reasonably liberal treatment at the hands of
Government and enterprise.
It is the things these couples need most that
are singled out as the targets of this regulation.
(4) It discriminates against the veterans who have had no opportunity to
accumulate cash during the war, who return home, invited by the Govern­
ment to acquire low-cost housing with special priority, special loans and
Yet when they come to furnishing these homes regulation W
stands in the way with prohibitive demands for cash in advance and pay­
ments many thousands cannot meet.
Federal Reserve Bank of St. Louis



It spells discrimination between the poor and wealthy, saying to the
rich, “You with cash may have as many and as much as you want, whenever
you want” ; to the poor, “You may buy only what we permit and have it
only when we say.”
(0) It discriminates between Americans who habitually choose to use the
“ charge account” method of buying, charge accounts being unregulated, and
the other family which habitually chooses to buy on installments, che install­
ment account being regulated drastically.
(7) It discriminates between the stores which habitually offer charge
account service and those which habitually serve others, offering the install­
ment method— and relating to the same American products as far as both
types of stores are concerned. Is this fair competitively? Is it a fair business
( 8 ) Regulation W discriminates between those who would purchase from
retailers with arrangements to pay later and others who would prefer to borrow
and purchase with that cash; for the borrower is subject to a few questions
under the regulation while the purchaser on credit is fixed, hard and fasi in the
meshes of down payment and terms on balance.
(9) It discriminates among the products of American industry, inviting the
public to patronize some and not permitting free market access to others. In­
cidentally the products discriminated against are those which the Reserve Sys­
tem’s ace economist, Dr. E. A. Goldenweiser, says must be made and consumed
in the period ahead in unit quantity 150 percent of the prewar peaks per year
or we face unemployment and depression such as we struggled with in the
(D ) It tampers ivith inalienable rights of free people
(1) Regulation W discriminates among Americans with respect to the right
to make contracts, a right which the Supreme Court of the United States has
several times held tantamount to constitutional guarantee; the right to contract
for the ordinary things of life, which we English-speaking people wrested from
the British Crown centuries ago, not lightly to be given up at the whim of
economic planning.
(2) It denies the right of a man to choose his way of living. Unregulated is
the family that finds most of its desires in soft goods, travel, shirts, and clothes
jewelry and luxuries. Regulated is the family which desires beds, furniture’
baby carriages, and other things just as necessitious. What a ridiculous way
to divide the American people.
(E ) An impossible type of regulation
(1) Cannot fit nerd of whole Nation — Business conditions are never the
same in all marketing areas of the Nation. All top analysts recognize this
Regulation W could not a^plv properly, for the economic effect d'sired in any
one section, without disastrously ; ffneting business and consumers in another
Stiffened to halt trade in Now York, the regulation would unavoidably cripple
business already low in some other section.
The use of credit is personalized to the immediate need of individuals. Ameri­
cans must not be made pawns of economic experimenters. The F >deral Gov­
ernment must not reach out with over all control and interfere with the mil­
lions of Americans striving individually to achieve their personal living goals
a right so constantly guaranteed them by our Government and the political’
In the period of the OPA and the W P B we lived through attempted over all
Federal controls over business margins. The Government found this position
untenable and ended the method. Costs of doing business in various commu­
nities varied and the costs in different stores of the same community likewise
So it is with the needs o f fain'lins for credit service. Men are not averages.
(2) Who is Government's best gnesser?— Nor can the Government correctly
predict future cond'tions. L ^ t August the Reserve Governors in their annual
report intimated that they cou'd do so.
At least a half-dozen times in the hast 5 years Government has reversed its
prediction of the reconversion reriod. The departments, U e Federal Reserve
System quoted them often, pred'etod 9 to 8 millions unemployed where history
showed 2 m'llion. So it has been over and over.
Would it be wise for the American people to put control of family spending
into the hands of Washington g u" s rs?
Federal Reserve Bank of St. Louis



A recent study showed a cross-section of economists to be right on’ y 47 percent
of their aggregate predictions over a period of recent years. This was pub icized
under the caption, ‘ Better we had followed the fl'p of a coin.” The men involved
here were no less in stat ure than the Federal Reserve officials.
Dr. Carl E. Parry, chief of the Reserve Board’s division in charge of regula­
tion W , once said that in 1926 and thereabouts, the Federal Reserve Board for saw
the depression of the 19“0's. He claimed that they would have done someth ng
if they had had the power.
The fact is that during this period Americans were encouraged to put b'llions
of dollars in foreign securities sold them by member banks of the Reserve Sys­
tem without warning of oncoming default. If they saw “ it” coming, the peop’e
should have been warned— the banks could have been advised to stop market ng
these securities.
Right today the Government through one department is pointing to oncoming
recession while the Federal Reserve Board asks for continued controls over the
consumer purchasing to avoid oncoming inflation.
Both cannot be correct. Yet always there will be such divergence among <fficials and economists. Can any group of appointed men regularly outguess the
combined judgment of all the American people? What happens in the American
market place reflects this combined judgment. No illustration in economic his­
tory shows officials doing so.
If a prediction at Washington, by those with power to regulate, is incorrect,
the result may be greatly intensified gyrations of the so-called business cycle,
and actual harm to business and the public. Regulation W cannot increase con­
sumption at will. Of course it could kill business and stop consumption. It
can never induce consumers to buy when they are not ready to do so. Presidents
Hoover and Roosevelt found this true when, over the radio and in everv way
possible, they begged and cajoled, in the early l!)30’s, but the consumers did not
buy until in their combined judgment business conditions seemed to favor them.
For this reason regulation W over periods of time can have but one eff ct,
that is, total net reduction in production, distribution, consumption, and em­
ployment ; hence lower average over-all prosperity, lower standards of living.
(3) Consumer credit not inflationary.— Whatever inflationary effects there are
in the accelerated buying power of consumers when they use credit, is offset in
the ensuing months as buyers pay off their accounts, by an equal deflationary
effect. Even in the “ tip-off” years of 1929 and 1930 as the depression ’n't t'us
country, installment accounts, created in 1929 and 1930 were 85 percent paid
off within the next 7 months, which illustrates this compensatory equalizing
factor. Instalment sales in 1929 would not have had any effect on that depres­
sion and deflation a year later for they were paid .off by that time and to the
contrary every monthly payment made on 1929's instalment accounts through
1930 added money, revolving cash, to the income streams of the country.
(4) Better conserve war bonds— buy from earnings.— To continue regulation
W is to encourage consumers to cash war bonds. To the extent that they are
able the people will purchase durable products so long denied them during the
war. They will do so out of income, if allowed. If not, they will do it out of
savings. Business sincerely wants to encourage retention of savings whether
in bonds or accounts.
There is great national benefit in paying for durables out of income, retaining
savings as a security backlog against turns of the business cycle and (.other
emergencies. (Incidentally all business, railroads, factories practice this great
truth. They buy “equipment,” machines, cars, etc., almost always out of inconn1 not long-term capital or savings.) Conserving savings will arm the con­
sumer against the psychological ills and fears of depression, lay-off. and sickness.
This far more than outweighs any supposed ill effect of freedom in using
personal credit.
(5) And who has these savings?— Those who so lightly suggest that our durable
products should be purchased out of savings should also remember the figures
of the Department of Agriculture, gathered for the Federal Reserve System a
few months ago. The figures are available to this committee. Fundamentally
they show that huge segments of the public do not have wartime savings;, that
40 percent of the people have less than $40 each, that 60 percent of the Nation’s
individual savings is held by the top 10 percent economically. Thus such
advocates really say, “ Let the rich man buy all that he wants, let the poor
man go without, severely regulated by the Federal Government in his purchases.”
( 6 ) Nullifies national policy of open competition.— There are merchants who
want regulation W . Obviously, acting as a collecting agent for a retailer, the
Federal Reserve Bank of St. Louis




Reserve System can make it possible for any one retailer to do more business
with less capital, just as a retailer with a cash business can do more volume
with less capital, even while killing off business nationally and damaging the
whole economy.
Regulation W is anticompetitive. It strikes a solar-plexus blow at a national
policy of the Government, open, free competition, usually held to be the secret
to prosperity, high standards of living, and equality in the market place.
Regulation W stands for inequality in the market place. It stamps out com­
petition, divides the American people into classes, the "haves” and the "m ay
not haves.”
Businessmen willing to compete and serve in accordance with the individual
needs of customers and not by averages, want none of this tampering with the
consumers’ purchasing power, the average man’s use of the credit that is h is;
just as they want no Government regulation over the way a citizen may use his
savings, his cash or income, as he reaches for his standard of living.
IV .








Regulation W is erroneously defined as a regulation of business. This is
because the Reserve System naturally fears to emphasize its attempt to regulate
millions of individual Americans.
Credit is not granted. If it were, you could regulate the grantors, and inci­
dentally hurt those to whom credit is granted. Merely the recipients of some­
thing for nothing, they could not kick strenuously. There would be a few
political implications in such regulation.
One hundred forty-two million American consumers, however, all citizens
of the United States, bear the brunt of regulation W directly.
The credit used for consumer purchasing belongs to them, the consumers,
not to business. Curb it and you curb consumers, not business. One day the
people will rise up and throw off such a regulation if the Government does not
do so voluntarily. They did it when prohibition was foisted upon them. Even
those opposed to the liquor business rose up and killed a constitutional
The right of contract belongs to a free people. They will not have it curbed
as they use it for the everyday necessities of life and to attain their desired
standard of living.
When a family buys a refrigerator that lasts for 15 years and pays for it in 2
years, only the silliest of economists would argue that he asks for credit. He
pays seven times as fast as his satisfaction is delivered to him— advances, in
fact, 13 years of his own credit to the makers.
In fact, the refrigerator was produced by industry on credit. Short-term
bank loans and long-term bond issues help to provide the cost of labor and
materials that go into it. Once a refrigerator is finished, the American consumer
buys it with his own credit, substitutes his credit for industrial credit already
In the aggregate the credit of millions of American consumers is the bedrock
foundation of production and distribution.
Let no one confuse the issue by talking of retailers granting credit to con­
sumers, or of regulation W being a regulation upon retailers. Neither retailers
nor manufacturers possess the credit necessary to finance the American con­
sumer. Only he has this much credit, and he has never given his Government a
mandate to regulate or curtail it.
" W ” is a positive direct regulation, to some degree a prohibition of the Amer­
ican family’s use of its own possession— its credit.
People acquiesce to curbs and regulations to win a war, but do not give up
their rights permanently in this acquiescence.
The Congress, representing the people more directly than any branch of the
executive department, should obliterate regulation W immediately.







To continue control in time of peace will involve a very heavy financial burden
for the employment of administrative and enforcement personnel.
Officers of tiie several Federal Reserve banks have complained already of the
high cost of carrying out regulation W. continued and continuous expense of ex­
amining the entire bookkeeping set-up of retail stores and others involved.
Federal Reserve Bank of St. Louis



But thus far business has'complied with the regulation for patriotic war rea­
sons. Likewise tlie public has not demanded evasion on a heavy scale, partly
for patriotic reasons and partly because most of the people have had fairly good
The expenditure of this quasi-public money has no excuse at a time when the
Government is attempting to eliminate financial burdens.
Two very unfair practices are developing out of the enforcement of regulation
W : ( 1 ) The inconvenient and unnecessary probing into the private accounts of
retail stores by Government; and (2) a very noticeable failure of the Reserve
System to check any more than a “cross-section” of the stores. Many retailers
have never seen a Federal Reserve investigator. Many others have been inves­
tigated at least dozens of times, even though on no occasion have they been found
violating "\Y” which means their names must appear on a permanent list of
those to be investigated, while the names of others apparently appear on no
list at all.
If regulation W continues and it is enforced, retailing will insist upon com­
plete enforcement which would mean many times the financial expenditure thus
far made. In time of peace neither the public nor business will have any real
interest in cooperation any more than they did in the days of prohibition'. An
unpopular regulation becomes an impossible matter of enforcement.

Supplementary B rief F iled by the R etail C redit I nstitute of America , I nc .,
W ashington , I). <’., F ollowing the Statement by M arkiner S. E ccles, C hair ­
m an of the B oard of G overnors, F ederal R eserve S ystem , on June 12, 1947
The institute feels that certain of Mr. Eccles’ remarks should be reviewed in an
effort to clarify the committee and to correct misunderstanding. To be brief,
some of the statements of Mr. Eccles are paraphrased here (no attempt being
made at direct quotation, for they Mere noted in longhand at the hearing June
12). For exam ple:
Mr. Eccles. People can only spend the amount of their income. Credit does,
not enlarge this.
Observation. This is naturally true of any one individual. Economists are dis­
tinctly divided as to whether consumer credit in the aggregate increases total
purchasing power. The phenomenon of national growth during the period in
which consumer credit has been used most, and the tremendous growth of certain
big industries whose products are sold from 50 to 85 percent on instalment
credit seem to indicate that national growth at least was tremendously accel­
erated by instalment credit, and having accelerated it, actually did increase.
It is difficult to picture a $180,000,000,000 ecinomy (as of today) if the in­
stalment credit industries (all the major “controlled” durables) had never
received the impetus of credit purchasing.
Mr. Eccles. Credit does not increase the total sale of goods, but I do admit that
because of it major portions of certain products are sold that otherwise would
not be sold.
Observation. Dr. E. A. Goldenweiser, recently chief economist of the Federal
Reserve System, says that unless the consumer durable goods industries (chiefly
the ones now covered by regulation W ) achieve postwar distribution 150 percent
of th(' highest peaks before the war, we face depression. This means it is
absolutely essential, not just to maintain present volume, but to see that the
total consumer durable goods markets distribute at least 50 percent lfiore
units of sale than before the war (and because of price increases, this means at
least twice as many dollars of sale as prewar).
Mr. Eccles. Excessive use of credit serves no public good— nor even for the
sellers nor buyers.
Observation : Everyone agrees with this, but the figures Mr. Eccles presented
do not show “ excessive” use.
Mr. Eccles: Total volume of instalment credit which we want the power to regu­
late is now $4,000.000,000.
Question by Mr. W olcott: What proportion of this represents the sale of the 12
product lines covered by regulation W ?
Mr. Eccles' answer: About $3,COO,000.000 or 75 percent.
Observation: The latest Federal Reserve figures show total outstandings for
instalment sales credit was $1,000,000,000 plus $680,000,000 for automobiles or
G 3 7 3 ”> 4 7 ----------- 4
Federal Reserve Bank of St. Louis



a total of lass than $1,700,000,000. A very small' portion of consumer “small
loans” is procured to purchase these 12 product lines.
Also, as Mr. Eccles said, subtract from these totals the items under $50
exempt from control, but the total credit outstanding on such items is included
in the above figures.
And also subtract more than $100,000,000, representing jewelry credit, not
controlled since December 1946.
This leaves the total on “ regulated” products probably less than $1,500,000,000,
including automobiles.
‘Not mentioned by Mr. Eccles is the fact that the Federal Reserve through regu­
lation W is not controlling this total of $1,500,000,000 outstandings. It only
controls that portion of consumer buying which is on the margin, that is, Hint
portion of business which would be transacted were it not for regulation W but
which has not been transacted because of regulation W .
Mr. Eccles: The people ought to be protected from overbuying!
Observation: W hy then did the Board free jewelry from regulation and
continue to regulate furniture? Is not furniture possibly a more conservative
purchase than jewelry generally?
And does he infer that people do not
“extend” themselves on charge accounts? There probably are more overdue
charge accounts, several times as many, as installment accounts. Yet these
are freed.
Mr. E ccles: The opposition to regulation comes from those who want to sell
credit. It does not come from producers or consumers.
Observation: (1) A large list of producers, some of the most important dur­
able producers in America, can be gotten together, producers who oppose the
regulation. Mr. Eccles merely meant that the producers have not come before
the committee to be heard.
(2) The American Federation of Labor did appear before the committee to
oppose the regulation. Presumbaly it appeared for labor as consumers.
(3) The national organization of consumer credit unions, presumably made up
entirely of consumers, including tens of thousands of Government workers and
hundreds of thousands of others, joined the Retail Credit Institute of America
and other organizations in opposing regulation W.
(4 )
. Mr. Eccles admitted that the regulation of charge accounts was dropped
because neither consumers nor merchants would further cooperate. If charge
account consumers refused to cooperate, making administration impossible, how
can he say consumers using instalment accounts will be more cooperative or more
in favor of the regulation?
The only way consumers generally have of voicing disapproval of a regulation
like this is through lack of cooperation. Does Mr. Eccles expect consumers indi­
vidually ot come to Washington or write him letters?
Does he think the Federal Reserve System will not have to spend millions of
dollars policing American business and American consumers? The answer is
quite obvious to those of us in the retail business where we meet consumers
Does Mr. Eccles fear more the opposition of charge account consumers, who
often are a little more wealthy than those who use instalment accounts? Would
he continue controls over the instalment consumers because they are weaker, less
dangerous in their opposition? From his testimony it would seem so.
Possibly you can force an instalment buyer to make his down payment but you
can never force him to meet the rest of his terms unless he cooperates.
Mr. E ccles: The Federal Reserve Board opposed control over real estate mort­
gage credit because of the great complexity in the problem of administering it.
Any other Government bureau or department “ is welcome to the job,” he said.
The Reserve System does not want it.
Observation : Does Mr. Eccles mean that there are more real estate mortgages
than consumer-credit transactions— a greater problem of enforcement in real
estate than in the vast army of consumer credit transactions?
Mr. Eccles: Practically every bank in the United States is opposed to regula­
tion W and this is understandable.
Observation: The Reserve Governors ought not to view the attitude o f all of
these banks, members of the Reserve System, as mere selfish opinion. With these
banks almost unanimously opposing regulation W , isn't there reasonable reason
to question the Board’s advocacy of it?
air. Eccles: The retailers oppose regulation W because they too are selling
credit and the regulation is necessary because without it their interest would be
to overload the people, sell them more than they should buy, on excessive credit
Federal Reserve Bank of St. Louis



Observation : This implication will and should arouse the ire of American busi­
nessmen. The retailers’ objective in offering credit service is diametrically op­
posed to what Mr. Eccles infers. It is rather to distribute American products to
the largest possible number of American homes; able to afford the American
living standard; homes which if they realized the Federal Reserve System
opposes their possession of these things, like refrigerators, bathtubs, etc., might
likewise become very much incensed at the social doctrine proposed by Mr. Eccles.
Mr. Eccles: The public is getting into debt again and at a time when greater
cash savings than ever before are “ widely held by consumers.”
Observation : Mr. Eccles carefully refrained from referring to the savings
studies made by the Department of Agriculture for the Federal Reserve System.
These show that 40 percent of the American families possess an average of less
than $40 each in savings. It is this 40 percent which largely is served by the
stores which permit buying out of income.
Lack of income is not exactly what is involved here, but rather lack of desire or
propensity to save.
Never has the Federal Government taken the position that the American people
must save in the form of money, to prove that they are substantial citizens. There
are many hundreds of thousands of these families which possess only an average
of $40 each, which are perfectly good credit risks and have accumulated a con­
siderable supply of consumers’ durable goods in their homes by buying on instal­
ments and without the paternal regulation of the Federal Reserve System. And
these should be contrasted with the suggested pattern of Mr. Eccles— that they
might better switch their expenditures to nondurables.
Mr. Eccles failed to point out. when showing his charts, that the top prewar
totals of consumer installment credit (at the highest point $6,090,000,000 including
automobiles, all durables and installment loans) was achieved in an $80,000,000,000 economy. In other words, the ratio of installment credit to the total was
as 0 is to 80, or about 7 percent. Today the total of the same installment credit
outstanding is about four billions in an economy of $180,000,000,000. A ratio
today of 4 to 180 or 2 % percent.
He would have you look at total dollar figures rather than at the relationship
of credit outstanding to the total national ectmomy.
He also failed to mention that there are 17 percent more families to be served
by the American economy now than in the earlier period. It is ridiculous to
compare national totals in such a way as to-say that a particular family should
have less credit facility than it had before the war, as Mr. Eccles does.
It would take approximately $13,009,000,009 of installment credit outstanding
today to equal prewar installment levels when you compare the relative size of the
economy, now and then. The figure today as $4,000,000,000 is about 30 percent
of the prewar level by this comparison.
As retailers pointed out in the hearings, contrary to Mr. Eccles, a great bulk
of the items now controlled and over which he seeks control, are not in short
supply. Retailers stated accurately that already several furniture factories are
closed today because of oversupply while many others are running on short shifts
because demand has been met. Electrical appliances will be in this position in a
few months. Only automobiles remain conspicuously in short supply.
Mr. Eccles spoke on the long-term depressing effect of the overhanging con­
sumer debt in time of depression— the long period during which the consumers
are paying off debt created during the preceding boom.
Does Mr. Eccles know that 75 percent of the entire consumer installment debt
at the beginning of the'1930 collapse was paid off in full within 7 months? Does
this bear out the theory of long-term depressing effect on business?
Does this fit logically into Mr. Eccles’ statement that the Reserve System does
not want to control real estate mortgages? Mortgages do have long-time repay­
ment schedules. Their effect is felt over periods of years. Yet the Reserve System
asks power to control short term consumer paper to get at what they describe as
the depressing effect on the economy as people pay it off.
Credit stiles remained approximately between 12 and 13 percent of total sales
of American products all through the latter 20’s and 30’s as shown in Simon
Kuznets’ National Income and Its Composition, indicating that sales of Ameri­
can products for cash rose and fell just about as fast as sales on credit in all
those years. The volatility involved is inherent in the durable goods industries
more than it is a credit phenomenon. The rise and fall of sales for cash and
credit for the Same durable products showed about the same volatility. In fact,
cash sales dropped faster in the depression than did credit sales in many instances!



Federal Reserve Bank of St. Louis

We will next hear from Mr. Bone.




Mr. B o n e .- Mr. Chairman, my name is Myron R. Bone. I am a
vice president of the American Industrial Bankers Association, which
maintains its national headquarters at Fort Wayne, Ind. I have
made that city my home for the last 25 years. I am appearing before
you, on behalf of our members and their millions of customers in
opposition to a resolution that would extend for 1 year the authority
of the Federal Reserve Board to continue its wartime control of con­
sumer credit.
In large measure, this statement is a repetition of one I made on
May 27 o f this year, before the Banking and Currency Committee of
the House of Representatives in support of three resolutions introduced
into the Congress for the prompt return to the American people of
their right to free use of their credit. They gave up that right
temporarily, almost 6 years ago, when a Government order, oddly
based on First World War powers of the Chief Executive, decreed
the sacrifice necessary to national defense.
The need for regulation W, if one hver existed, which is very
doubtful, has long since ceased to exist. It was devised to “ dampen
the demand” for consumer durable goods, but their manufacture
was stopped soon after we entered the war.
Regulation W might well have been cancelled 5 years ago. It has
lingered on, under various pretexts, founded on faulty theories of
economic planners who would fasten permanently on America their
ideologies of state socialism.
The case against regulation W is clear cut. It is class regulation
of the worst type. It gives to the man of financial means priority
of rights to buy whatever he wants and whenever he is willing to pay
the price. It denies to the individual of limited means his inherent
right to use his credit on the best terms he can secure for the purpose
of buying necessities.
During the war, food was rationed on a per capita basis. That was
fair. Now, in times of peace, the Federal Reserve Board still pre­
scribes, arbitrarily, the terms on which American citizens may pur­
chase the necessities of life. Its rules, which give priorities to the
rich, are undemocratic and un-American. It seeks to have its power
Mr. Chairman, I have fought for years against the provisions of
regulation W, which grant purchasing priorities to people who have
plenty. I am grateful for this opportunity to lay the farts before
your committee.
When the first draft of the regulation was submitted by the Federal
Reserve Board to a selected group of us, in August 1941, we accepted
its terms as a necessary contribution to the cause o f national defense.
Members of the association I am privileged to represent endorsed the
sound requirements of regulation W regarding down payments, length
of contracts, maturities, and uniform payments. They are such as
we have found by years of experience to be in the best interest of
consumer installment buyers, borrowers who make repayment in
systematic installments and consumer bankers themselves.
" Experience has taught us, however, that character is the basis of
sound credit and, so, many exceptions can be made, safely, to usual
Federal Reserve Bank of St. Louis



l ilies of practice. This leeway of business judgment is denied by
regulation W. Furthermore, economic conditions vary with the sea­
sons and at any one time in different sections of our country. They
vary with individuals in the same community. It borders on the
ludicrous to think of specifying hard-and-fast rules for the extension
o f personal credit.
Inferentially, we were promised that the regulation would be with­
drawn at the end of the war. That promise lias been defaulted. In­
stead, the Federal Reserve Board sought a law making consumer credit
control by the Federal Government permanent.
Recently, the House Banking and Currency Committee held exten­
sive hearings on proposed legislation to terminate consumer credit
controls. That committee heard the plea of the chairman o f the
Federal Reserve Board for favorable consideration of his proposal
that Congress enact a law providing for permanent power to control
extensions o f consumer credit. That committee heard the promise of
Mr. Eccles that the Federal Reserve Board would recommend to the
President that the Executive order giving it authority for regulation
W be withdrawn, if approval were not accorded the proposal for
peacetime control. That promise, also, has been defaulted.
Within a few hours after the House Banking and Currency Com­
mittee had approved legislation calling for a prompt end to wartime
controls over extensions of consumer credit, Mr. Eccles appeared
before this committee to plead for 1 more year of bureaucratic power.
Federal regulation of a small segment of consumer credit is a dan­
gerous encroachment on personal liberty and a pernicious interference
in the relationship between debtors and their creditors.
Why should a Federal board be given authority to limit the dis­
tribution of durable goods to those who have ready cash ? Why
should it have the right to deny those goods to individuals who prefer
to hold their war bonds or other savings and use their credit instead ?
Mass consumption is a vital corollary to mass production and con­
sumer credit is essential to mass consumption. High levels of pro­
duction and consumption of durable goods have only been possible
in (he past through the upbuilding of very large outstandings of
consumer credit. We may be able to do otherwise in the future, but
the burden of proof of that ability rests upon those who seek to pro­
mote peacetime prosperity by restricting the rights of individuals to
use their credit. They would substitute their untried theories for
time-tested realities and would do so at the expense of personal
Consumer financing is only a means to attain a desired end.
When the consumer buys durable goods, he buys a ‘stored-up volume
of satisfaction which he can use only over a period of tiipe.” In a
true economic sense the purchaser of an automobile is buying trans­
portation rather than a physical object. When lie takes advantage
of a consumer plan he is paying for that transportation as he
uses it.
I f no one ever bought a house, an automobile, a business enter­
prise, or anything else of value until able to pay the full amount in
cash our economic structure would collapse. Both consumer credit
and producer credit are essential to a sustained prosperity.
Federal Reserve Bank of St. Louis



While it is a known fact that the volume of consumer credit fol­
lows the business cycle, no sound evidence has ever been produced
to indicate it causes the cycle to rise and fall.
There is n o t h i n g in the Federal Reserve Board’s own figures to
support the Board’s contention that consumer credit is or ever has
been of sufficient volume to exert even a minor influence on the total
business picture or on either inflation or depression.
Consumer credit is likely to expand in good times and to contract
when they are not so good, for the simple reason that, when the out­
look is good, people will obligate themselves more heavily; because
they are reasonably confident of being able to liquidate their debts.
They stay out of debt, as nearly as they can, when the outlook is not
good for prompt liquidation.
Officials of the Federal Reserve Board have contended, repeat­
edly, that practically all of the opposition to regulation W has come
from money lenders only. They have asserted that they have not
had protests from “ consumer groups.” They choose to ignore the
steadily mounting volume of objections from war veterans, labor
unions, chambers of commerce, members of Congress, newspaper
editors, and many other citizens. All of them are consumers. In
fact, everyone is a consumer.
A typical example is that of a Pennsylvania labor leader, who
said on March 21:
Jobs and employment cannot continue at the present level unless regula­
tion W is repealed * * * If durable goods are not taken out of the market
by consumers, the workers who produce those goods will lose their jobs.
fall in purchasing power will then react adversely on workers in the softgoods lines as well, and we will have a mounting tide of unemployment.

One of the favorite arguments of the Federal Reserve Board is that
“ over-extension of consumer credit has always ended in serious eco­
nomic trouble.” Such statements are made without supporting proof
or even any evidence. According to the Board’s published statistics
on consumer credit, the total was only $7,637,000,000 in 1929. It was
down to only slightly more than $4,000,000,000 when the depression
came in 1942. That was not the cause o f the depression, it was one of
its results. When the American people became fearful of their future
income they restricted their purchases, payable in installments, and
reduced their borrowings. That is normal.
Gradually, during the next decade, as business conditions slowly
improved, consumers were more willing to use their credit and, natur­
ally, the volume of consumer credit increased. These, gentlemen, are
the facts derived from Federal Reserve Board figures, as contrasted
to their current fanciful theories.
The Bo^trd claims, also, that “ over-extension of consumer credit”
has resulted in “ curtailed production and unemployment.” That also
is untrue and is best refuted by the fact presented in statistics com­
piled by the Federal Reserve Board. With the help of consumer credit
in the thirties, production was increased and unemployment decreased.
Another pet theorv of the Federal Reserve Board, unsupported by
facts, is that without Federal restraint, “ it is likely that sellers of
durable goods will seek to expand their sales by easing terms, instead
o f reducing prices.” The fact is that the selling price o f merchandise
in a free market is determined by its cost to the merchant and by
competition. Easing of terms might increase the physical volume of
Federal Reserve Bank of St. Louis



sales, but if so, that increased volume would mean lower prices. The
classic example is the automobile. America was put on wheels in low
cost transportation with the help of consumer credit. I f the Federal
Reserve Board were sincerely interested in reducing prices of durable
goods and maintaining their mass production, it would have sur­
rendered voluntarily, its control over consumer credit, instead of
appealing to you for a fresh grant of power.
Mr. Chairman, we firmly believe that character and capacity to pay
should always be the determining factors in extensions of personal
credit; that neither can be determined by bureaucratic economists and
that rationing of credit on the basis of wealth is unsound, unworkable
and un-American.
I thank you.
Senator B u c k . Thank you, Mr. Bone.
Are there any questions?
Senator R obertson. H ow many of the 15 items now covered by
regulation W are included in the Bureau of Labor Statistics in the
cost of living?
M r. B one . I am not an economist. I do not know, sir.
Senator R obertson. Then of course you would not know to what
extent an increase in the cost of these items would be reflected in the
general cost of living index.
Mr. B one . No ; I do not.
Senator R orertson. I s it your opinion that the majority of the
people who are affected by regulation W are opposed to it ?
Mr. B one . Yes, sir.
Senator R o b e r t s o n . I am speaking now particularly with reference
to consumers.
M r. B o ne . T o the consumers; yes, sir.
Senator M cC a r t h y . I believe that most of the labor unions, but a

number o f them have gone on record as opposed to regulation W.
Senator R obertson. D o you agree with the previous witness that
this is a situation where the regulation, if continued, could not be
properly enforced?
Mr. B one . It is becoming increasingly difficult, and there is too
much evasion. After 5 or (5 years people have found ways to evade
it. It has become largely a farce. I do not like to see any Federal
regulation or Federal law become a farce, such as happened to the
prohibition law.
Senator R obertson. Speaking of the injustice between those who
can pay cash, those who have good credit and are not subject, and
those who cannot pay cash and are subject to this regulation, what
percentage of the buying is done by the first two classes, and how much
of the buying would be increased if the third class, by ending this
regulation, would be put on a parity with them ?
Mr. B one . I cannot say as to the buying, because our association is
engaged in the business of lending.
Senator B u c k . Any other questions?
Senator M cC a r t h y . Mr. Bone, as I view this situation, regulation
W in effect channelizes the spending of those in the low income groups
from durable to nondurable.
Mr. B one . It only relates that cost between $50 and $200, so any­
thing above is off, anything below $50 is out.
Federal Reserve Bank of St. Louis



Senator M cC a r t h y . That is the over-all effect of regulation W.
Mr. B one . Yes.
Senator M cC ar t h y . It says to those in the low-income groups, you
can spend your money on nondurable goods, but we will prevent your
spending on durable goods.
Mr. B one . Yes.
Senator M cC a r t h y . That seems to be rather unsound economics
to you, does it?
Mr. B one . It does to me, unsound and unfair.
Senator M c C a r t h y . Y ou are in effect saying that if we allow people
to use their cash to buy durable goods but prevent those in the lower
income bracket from using their credit to buy durable goods, which
they also want, that by doing that we can in effect keep the price down
for those in the upper brackets. That is the ultimate result, is it not ?
Mr. B one . I think so.
Senator M cC a r t h y . I think you have covered this in your state­
ment, but I am not sure. I think you perhaps covered i t / However
there is no question at all, is there, but what we are in effect savin«- we
will ration the durable goods, we will ration it by preventing people
who have credit from buying, and allow those who have cash to buy it ?
Mr. B one . That is right, unless they can meet the requirements.
Senator M cC a r t h y . This is a system of rationing never used before
Mr. B one . That is right.
Senator M c C a r t h y . And it discriminates against the people in the
low-income brackets in favor of those in the higher-income brackets
Mr. B one . That is right.
Senator M cC a r t h y . N o further questions.
Senator B u c k . Any further questions?
Thank you, Mr. Bone.
Mr. B one . Thank you.
Senator B u c k . Give the reporter your name.

Mr. W ertz. Mv name is P. Lynn Wertz. I am secretary treasurer
of the National Used Car Dealers Association.
I have a brief statement which I would like to make.
The National Used Car Dealers Association has gone on record as
advocating a general downward price re-adjustment in the used
motor vehicle field throughout the country. The National Associa­
tion and all local associations affiliated with it are making every
effort and using every device at their command to produce a leveling
off process in the prices of used motor vehicles in an effort to create
a healthier economic condition in the industry as a whole. It is our
belief that continuation of regulation W will aid and abet the present
inflationary market in motor vehicles. It is our belief that elimination
of regulation W will tend to ease the market and cause an immediate
sharp downward trend in all motor vehicle prices.
Senator B u c k . Will you explain that, how that would happen. If
you take it off, the prices will go down : if you keep it on. it will go up ?
Mr. W ertz. We are not of the opinion that there is not an acute
shortage of used automobiles in the sense that the regulation would
Federal Reserve Bank of St. Louis



fit into the picture. Cheap or low priced automobiles are not in acute
shortage at this time. Regulation W has closed the door to the prospec­
tive purchasers of that type of transportation.
Senator B u c k . I f there is not a shortage of second hand cars, how
can the dealers get the prices that they are getting for them today?
In some instances I understand they cost more than cars did sev­
eral years ago, is that correct ?
Mr. W ertz. That is more or less common knowledge that they are
getting excessive prices. I question that there are excessive prices in
the field covered generally by regulation W.
Senator B u c k . What are the prices today of used cars, the average
price, generally speaking?
Mr. W ertz. The prices of used cars today are in two categories;
current and late model used automobiles and the earlier or the used
cars which are in the lower-priced category.
I would say the regulation W has no appreciable effect on the pur­
chase of the cars in the higher priced category, but it definitely has a
discriminatory effect on the people that purchase cars in the lower
priced category. It is closing the door to them in their efforts to acquire transportation.
Senator R obertson. I f I may interrupt, I think the witness would
be helpful if he would draw the distinction for us between what is
known normally as a used car, and what we now refer to as a black
market operation in new cars masquerading as a used car. Drive it
around the block a few times, add $400 to the price, and it is sold by
the secondhand dealer that much above the used car price that the
dealer cannot charge.
Senator M cC a r t h y . I do not believe regulation W would affect
that transaction.
Senator R obertson. I f they could sell the new cars on credit, the
dealers say they could sell more cars at the list price, whereas they
claim, I do not know whether it is true or not, that the black market
operators do not pay any attention to regulation W. They get the
additional price that they find some way of evading; how I do not
know. Is there anything in that ?
Mr. W ertz. I believe that the proposition of the excess prices in the
current publicity in relation to that subject is something that is some­
what removed from the proposition of regulation W. I would be glad
to go into that further, and furnish the committee with a memoran­
dum on that subject.
Senator R obertson. I understand you made the contention here
that if we had an immediate end to regulation W, the price of cars
would come down, and that is what the chairman asked you to explain.
M r. W ertz. I mentioned that the elimination of regulation W
would have a tendency to reduce the prices of used cars. I am speak­
ing o f used cars in the terms of what is commonly accepted as a used
Senator M cC a r t h y . H ow could the elimination of regulation W
reduce the price? I do not think you have answered that question.
Mr. W ertz. I was just at the point of getting to that subject by

atempting to bring out the fact that there are definitely two different
fields of used automobiles today, an unprecedented condition in the
automobile industry.
Federal Reserve Bank of St. Louis



Senator M cC a r t h y . The effect of regulation W, of course, is to pre­
vent people in low-income groups from doing certain buying. In this
instance you refer to automobiles-. The continuation of regulation W
I believe we both agree, will cause less people in the lower-income
groups to buy used cars. And if you take off regulation W, and allow
them to use their credit as I think you should, I cannot see how that
will drop the price of used cars.
Mr. W e r t z . Well, I might be able to give you an example of that.
I would say that today if every show room in the country was in pos­
session of an adequate supply of new cars, regulation W would cause
a condition to exist which would find the dealer in the position of
having merchandise and no customers.
Senator M cC a rth y . That would cause the price to drop.
Mr. W ertz. That is right.
Senator M cC arthy . That is in direct contradiction to what you
Senator R obertson. I would suggest that this and other witnesses
may not be very helpful to us to argue that if we now have $3,000,000,000 of credit, of those who have good credit, and we add another
$3,000,000,000 of those who do not have good credit, that would not be
inflation, because it creates $3,000,000,000 of demand for more goods
wdiich may not be there to fill it.
I think they should stress the fact that if they believe it to be true,
that it should be on a voluntary basis, and that these consumers do not'
want us to save them, they want to buy and use their own judgment
to the extent that they are going in the hole or not; that it is unfair
then between those who have the financial status and the others or that
controlling 15 items out of all of those the people of this country might
purchase, and if adequately controlled and enforced against every­
body, it would materially affect the question of cost of living.
Senator B u c k . I f you take regulation W in the interest of second­
hand-car prices, the prices would go down, he said; to me it would
likely react the other way, prices would go up.
Senator R obertson. I do not know about that. The better price
you can get when you are the man fixing the price, and you have a
sellers’ market.
S e n a t o r B u c k . Y ou h a v e a la rg e b u y e rs’ m a r k e t, a n d no m ore cars.
T h e p r ic e seem s to m e w o u ld be sure to g o u p.

Senator M c C a r t h y . I think it is obvious if you say to one group
that they cannot buy certain articles, that will tend to cause the price
to do down. I do not agree that it is a wise thing, but I certainly
cannot agree with the witness if you do away with the regulation,
that that will cause the prices to drop.
Mr. W ertz. My theory in that respect was that the existence of
regulation W today is driving a great number of potential new ear
buyers into the used-car market because o f the fact they are unable
to meet the existing terms under regulation AY, which will enable them
to acquire a new car.
Senator M cC a r t h y . I get you now.
Mr. W ertz. People that have entered their order a year and a half

ago or 2 years ago for an automobile at $1,200 or $1,300 and when
they find their number is up, and they have an opportunity to pur­
chase that automobile, the price has increased to the extent that pro­
Federal Reserve Bank of St. Louis



hibits them from making the purchase so they are in turn forced
into the used-car market.
Senator B u c k . I f the price of old cars was not almost more than
new cars that would hold. Is it not true, that they are, at least in
excess of what they cost originally?
Mr. W e r t z . That is a rather delicate subject which will take more
time than we have here to go into it.
Senator B u c k . Y ou go ahead with the statement.
I will go further to say this discriminatory regulation lias abso­
lutely failed to contribute anything tangible toward a downward
trend in the prices of automobiles.
H aving no desire to impose upon the committee’s time in present­
ing any specific cases in which regulation W indicates itself to be a
burden on the average American or where it definitely deprives a man
of his personal liberty, I wish to call attention to the statement of our
vice president, J. B. Caldwell, containing an incident relative to defi­
nite discrimination which I hand you herewith.
Further, speaking as the manager for one of the largest independent
used car operators in the country, I have observed evidence of the
discriminatory nature of this regulation, the manner in which it
discriminates against the low income white-collar worker and others
engaged in occupations with limited incomes.
After careful analysis and consideration, it is the belief of the Na­
tional Used Car Dealers Association that the elimination of regula­
tion W will be conducive to the welfare and best interests of the public.
Senator M c C a r t h y . Mr. Wertz, am I correct in this, that regulation
IV is more obnoxious to dealers and consumers in smaller localities
than in larger localities, and for this reason, that you find a greater
variation in the type of contract given a smaller locality, for ex­
ample, take a town of two, three, five, or ten thousand people where
the furniture dealer, the car dealer, whatever it happens to be, knows
the buyer, knows his boss, knows his background, you may decide to
give him much more liberal terms than in your larger communities
where things are done more or less according to rule.
Mr. W e r t z . Yes; I understand what you mean. I am of the opinion
that regulation W is inconsistent for the reasons that you have ad­
vanced, and also I am of the opinion that elimination of regulation
W would be an aid generally throughout the country. Each indi­
vidual locality have their own economic problems, and I believe that
the finance companies and banks are in a position to regulate the
velocity of credit in accordance with their particular economy or con­
ditions that exist in their locality.
Down through the years of this business the loan companies and
banks and finance companies have more or less controlled excessive
credit or overcredits. It has been their business to watch that. They
have their finger on the pulse of their particular locality, and I be­
lieve they are in a position to regulate that in a manner that is con­
ducive to the best interests of the public in their particular community.
Senator M c C a r t h y . A s I understand it, this is not a question of
allowing people with bad credit to buy, but rather it is those who
advocate the elimination of regulation W, and in effect say that in­
stead of having the Federal Government decide what credit John
Johns will give to Pete Smith, in Podunk, Iowa, that the seller and
the buyer themselves will determine the terms.
Federal Reserve Bank of St. Louis



Mr. W ertz. I think that is more in keeping with the proper princinle
of good business.
Another objection I have to regulation W is the inconsistency of
having to use a book to determine the value of a used commodity. It
stands to reason that a used automobile that has been driven 20,000
miles has greater value than one that has been driven 120,000 miles.
But no provision is in the regulation to take care of a situation of that
Senator M cC a r t h y . Can you see any reason, any reason at all, why
the Government should say to the people in the lower-income groups
that you cannot spend your money for durable goods, we will let you
spend all of the money you want for nondurable goods? Do you see
any reason for it at all ?
Mr. W ertz. My own personal opinion in those matters is that I am
radically opposed to any form of control or regulation, and I would
have to say that I do not believe in that principle.
Senator M cC ar t h y .' Can you not go a step farther and say it. is
unsound economically that you force the people in that group to spend
their money on nondurable goods; that it would be sound economics if
you can induce people in lower income brackets to save by purchasing
durable goods?
Mr. W ertz. Well, I am not an economist, and that would be difficult
for me to answer, but I am of the opinion that the average American
today is certainly entitled to purchase transportation which represents
some of the few pleasures that he has available.
Senator M cC a r t h y . N o further questions.
I would like to say at this point, Mr. Chairman, that I wish the wit­
nesses who appear would give us their thought on this particular thing.
I feel that it is so inconceivably unsound for the American Govern­
ment, or some branch of it, to say we will force people in the lowerincome brackets to spend their money on nondurable gods; we will
make it impossible for them, even though they have good credit, to
save money by spending on durable goods.
S e n a to r B
anyhow .


T h a t is on th e a ssu m p tio n th a t th ey w ill sp e n d it

Senator M cC a r t h y . I think that is a fairly safe assumption.
Senator R o b e r t s o n . I am not the sponsor of this program or the
defendant of Mr. Eccles, but I think in fairness to Mr. Eccles, I should
say that his theory is that the Government is justified in putting some
credit restrictions on items that are in short supply, and it is not that
he wants people to spend their money on nondurable goods and restrict
them on durable goods, but he picked out certain items of durable
and semidurable goods of which the supply is going to be inadequate
for the present demand, and he said if you increase the demand you
will necessarily increase the price, because you are bidding for a limited
Senator M c C a r t h y . Let me say this to you : Knowing your basically
sound line of thinking, I think you will agree with me however that
we should not say to Mr. Eccles that he can ration scarce goods and say
to people who have perfectly good credit, who need the goods, you
cannot buy and say to the people who have cash, instead of credit,
you can buy. It seems to me basically unfair.
Senator R obertson. I agree with that.
Federal Reserve Bank of St. Louis



Senator B u c k . Thank you, Mr. Wertz.
Mr. W ertz. Thank you.
Senator B u c k . Give your name for the record.

Mr. R aynor . Milton Raynor. I am the attorney for the Greater
Chicago Used Car Dealers Association, and I am speaking for the
Before starting I want to go back to the question that the Senator
asked about why the prices of used cars are so high.
The picture is very clear. There are some of these other questions
I want to answer before I go to my statement.
What determines the price of a used automobile? The price of a
used car works in direct ratio to the price of the current model 1947
automobile; that has been basic in the industry.
For example, we will take an ordinary Chevrolet, one of the biggest
selling items on the market, and you have an automobile where the
current market price runs to $2,300. The buying public is buying
that automobile for $2,300 where the list is $1,500.
Senator R obertson. Buying it from whom at that price ?
Mr. R aynor . They are buying it from anyone or everyone that they
can possibly buy the automobile from, whether they had their orders
in five different new car dealers’ places or buy from other individuals
who advertise cars, or they buy from used-car dealers.
The usual method of determining the price of a used car which has
been set for years and years is to take an allowance of $200 per year
for depreciation. That has been set for over a period of a number
of years. You allow a car that is 1 year old to deduct $100 for depre­
ciation, and that is the sales value. So when you take a 1941 auto­
mobile, which is G years old, and determine what its value is on the
going market, the price of that 1941 Chevrolet is going to be cor­
respondingly higher, because we cannot purchase that 1941 Chevrolet
unless we pay for it on the basis of a going market. So we pay a
certain amount of money for that automobile, take a small profit on it
so we can make the measure of profit we are entitled to and resell
it to the public.
Senator R obertson. Which one are you, the legitimate or the black
market ?
Mr. R aynor . There is no black market.
Senator R obertson. I f the list price of the Chevrolet is $1,500, let
us say it is $1,500, I do not know what it is, yo\i say you sell it fbr
$2,300; no legitimate dealer is going to ask $2,300 for it, and they do
not do that, and they sell at the list price. That is what I call the
legitimate market.
I say that when some other dealer gets one of those new cars and
drives it around the block and then sells it for $2,300, he is operating on
what I call the black market.
Mr. R a y n o r . Let us be realistic about that.
Senator R obertson. That is what I am trying to be.
Mr. R a y n o r . There are dealers that we call the legitimate dealers
that sell their automobiles at the legitimate list price. There are
Federal Reserve Bank of St. Louis



people that have orders on 15 or 20 dealers’ places of business. We
cannot control those individuals. There are people that want auto­
mobiles and cannot buy them. We have people that have been on the
lists of dealers for over 1 year, going back to December of 1946
October of 1946, people that need transportation and want auto­
mobiles and cannot get them. I mean new automobiles.
As a consequence, people with numerous orders are in turn sellinothese cars into a going market and it is not a question of the used^
car dealer trying to connive to raise the price of that new automobile.
They are only going into an actual going market and selling that
car for what the market value of that automobile is to those people
that want transportation.
Senator B u c k . D o not the manufacturers set a price on every car?
Mr. R aynor . The manufacturer when he sells to a franchised dealer
puts a list price on the automobile.
Senator B u c k . Then he is allowed to add so much to it ?
Mr. R aynor . Correct, and put his accessories in and sell that auto­
Now, the question that follows that, Senator Buck, is where do
these automobiles come from under those circumstances. I f a newcar dealer who is the only man that can obtain a new automobile
under a franchise and has a limitation on the sales price of that auto­
mobile, where is the source of this so-called evil that the Senator is
talking about ?
These cars are on the market. He says that they are brand-new.
Where are they coming from ?
Senator B u c k . I presume the legitimate dealer sells the car as the
Senator suggests for the proper price; the man takes it and 2 days
later takes it to the second-hand place and sells it again for $300 or
$400 more.
Mr. R ayn o r . Exactly. That happens that way, and it happens
with individuals that are trafficking in the situation that take ad­
vantage of the market condition.
I want to say just a few words here. Mr. Wertz made the statement
that the National Used Car Dealers Association is doing everythin»
in its power to reduce the prices on used cars. He did not explain
why, and I want to take a moment to explain why.
Senator M c C a r t h y . M r . Chairman, I do not think we are much
concerned with what the National Association of Used Car Dealers is
doing in regard to reducing and increasing prices. We are not con­
cerned with that today. It is the effect of removal of regulation W
on the economy of the country.
Mr. R aynor . That is right. I bring this in only for one reason.
Chairman Eecles made the statement that prices would rise with
the removal of regulation W. I do not take it that will bring a
downturn in prices, because as the Senator pointed out, there will be
an influx of new purchasers in the market which will cause prices
to rise. All of those who are discriminated against and cannot
purchase will now come into the market and be able to buy.
However, what Chairman Eccles does not understand or recognize is
that we ourselves within the industry, as was pointed out, the salvation
must come from the industry itself. We are treading on thin financial
ice from an economic standpoint. Used-car dealers investment back
Federal Reserve Bank of St. Louis



in 1939 and 1940 and 1941, where lie would have a certain number of
units to show to the public, was approximately $10,000. Today to
display the same number of units he must invest $35,000 to $40,000,
because of what he must pay to get the units on his display.
As a consequence, he is financed up to the hilt and treading on thin
ice, and we have all come to the recognition in the present market we
must bring the prices down ourselves or wind up in a situation where
we will not be able to carry on our normal business operations.
Secondly, we operate on a very close competitive market. The
theory of the used-car dealer has always been a big volume and a
small profit. That has always been the experience of the used-car
dealer, and we cannot get that big volume by catering to the individual
that can come in with a larger cash payment and segregating that
portion of the population which normally constitutes our buying
The bread and butter items of the used car dealer is the ’38, and ’39
and ’40 automobile. He is not in the new car business. We cannot
sell the ’38 and ’39 and ’40 items which is the automobile that we
normally sell unless we can reach the working class of the public.
That public comes in to buy transportation at a price where they can
afford to buy it, and we feel that by getting back to our normal
operation, which is the sale of ’39 and *40 automobiles to the working
population, where these people can come in and buy these cars that
the competition among the used car dealers in selling these cars-----Senator M cC a r t h y . Y ou do not claim that if you open up the mar­
ket to another vast group o f people that is going to result in reducing
the price of used cars.

Mr. R a y n o r . I do not. I could not possibly make that statement.
But I say the salvation is for ourselves to recognize what the problem
is and to bring our own economy into line where we can sell the
cars to the people that we have been normally selling them, and the
fact that A are forced into a situation where A are selling used cars
at higher prices is something to be rectified by ourselves, and regula­
tion W has not acted as a lever to keep the prices down in any respect
whatsoever, because today the people that have cash are in the market
buying these 1947 automobiles, or 1942 or 1941 model automobiles,
and they are able to pay'for them, whereas the other portions of the
population are completely discriminated against, and not able to buy
decent transportation.
Senator M c C a r t h y . I might say for your benefit that I think if
A\e are dealing only Avith the used car business, I personally would be
in favor o f continuation of regulation W.
Mr. R aynor . I can understand your reaction would be that. There

has been a lot of publicity pertaining to the Avhole automobile indus­
try, as a matter of fact, but a good percentage of it has been without
justification. I assure you of that. The used car industrv is in its
knee pants, but it has recognized that it is an entity. We have been
an appendage of an industry in the past years. Today it lias been
recognized that it is an industry. Remember, there are four used
cars sold to every new automobile. There have to be 4,000,000 used
cars for evefy 1,000,000 new cars. And if the 4,000,000 are not used
there is a backlog and bottleneck created Avith the production of neAv
automobiles, and their distribution.
Federal Reserve Bank of St. Louis



Senator B u c k . H ow can you sell four for one? Where do they
come from?
Mr. R aynor . The vast millions of cars now in existence, the turn­
over that takes place with the used automobiles.
Senator B u c k . The used automobiles come out of the new car field.
I f you only sell one new car and sell four used ones, you are going
to run short of sunply of the old ones.
Mr. R ayno r . Y ou are correct in your original statement that the
first instance, the source is when the new car dealer sells the new
automobile and takes the second-hand car in trade. He wholesales it.
That creates one car for one.
In the meantime you have millions of automobiles that are now be­
ing driven on the street which are constantly being turned over to
the working people. When a person rids himself of an automobile,
and it is in turn sold to the lower income population-----Senator B u c k . Have you finished?’
Mr. R aynor . Yes, sir. Thank you.
Senator B u c k . Any questions?
Thank you.
Mr. R aynor . Thank you.
Senator B u c k . We will next hear from Mr. Rhodes.
Give your name to the reporter.

Mr. R h o d e s . Mr. Chairman, my name is H. M. Rhodes, and I am a
representative of the Credit Union National Association. In behalf
of credit unions and their members I should like to present the follow­
ing statement by Mr. Thomas W. I)oig, managing director of the
Credit Union National Association, in opposition to the continuance
of regulation W.
(The following statement by Mr. Doig was submitted for the
Credit unions are a sort of people’s banks; they are cooperative thrift and
credit organizations organiz'd by, serving, and belonging to groups of people
having a mutual bond of interest. They are chartered under and regulated by
Federal and State Government authority. Their chief purposes are:
(1) To promote thrift and encourage systematic saving.
(2) To provide credit facilities for members for helpful purposes at moderate
(3) To train members in the management of their financial affairs and in
working together to help each other.
The Credit Union National Association is the central organization of credit
unions in this country. Through it credit unions have gone on record as op­
posing further regulation of consumer credit. W e have received many expressions
of opinion from credit unions throughout the country in this regard.
For several months we have gathered resolutions from them favoring the elim­
ination of regulation W . W e have them now from 2,042 credit unions represent­
ing 901,717 members. Our people are consumers and the cooperative owners of
their organizations. Considering an average of three people to the families of
members, this protest represents more than 2,700,0(H) consumers. This is a fair
cross-section of our members from the entire country. It is a representative ex­
pression from consumers who are affected by the restrictions on «credit imposed
by regulation W . W e are opposed to the further continuance of this regulation
for the following reasons:
W e believe that it served the purpose for which it was inaugurated,
effective September 15, 1941, to aid the war effort in the following manner,
Federal Reserve Bank of St. Louis



namely, to transfer production resources to defense industries, to restrain
unwarranted price advances and to aid in creating a backlog of demand for
consumer goods in postwar period. W e believe that it is no longer needed
since the termination of the war, and that it is no longer in tune with other
Government action.
(2) W e feel that regulation W definitely discriminates against those who
have the least in the way of liquid assets. There are many who do not have
much in cash reserve. According to figures gathered by the Bureau of Agri­
cultural Economics of the United States Department of Agriculture at the
request of the Federal Reserve Board, the bottom 40 percent of spending units
(family pools) in the United States held at the end of 1945 only 1 percent of
the liquid assets ; the next higher 30 percent of spending units held only 12
percent. These are the ones who do feel heavily the restrictions on con­
sumer credit under regulation W .
(3) W e feel confident that our organizations will continue a safe and
sound policy as regards extending loans to their members when regulation
W is removed. W e desire to do so without the necessity of operating under
extra rules and regulations and to be able to serve our members as we did
before regulation W was promulgated.
W e hope, therefore, that no action will be taken to continue it longer.
T homas W . D oio.
Ma?iaging Director, Credit Union, National Association.

Thank you for this opportunity to state the position of credit
union people who are opposed to the extension of consumer credit
restrictions under regulation W.
Senator B uck . Are there any questions, gentlemen?
Senator M cCarthy . Mr. Rhodes, let me ask you, is it your opin­
ion that if you make it possible for people in the low-income brack­
ets to buy under more liberal terms durable goods, that actually
induces the people in those brackets to save money ?
Mr. R h o d e s . T o save money?
Senator M cC arthy . T o save by purchasing durable goods, mak­
ing their monthly payments.
Mr. R hodes. Well, under our organizations, the rate of course
is reasonable; we feel that by buying on cash that they save money
in that respect.
I do not know whether I get the question.
Senator B uck . Thank you, Mr. Rhodes.
Mr. R hodes. Thank you.
Senator M cCarthy . I would like to have the right to read into
the record parts of the testimony given by Mr. Padway before the
House Committee, who is representing the A. F. of L. I think he
has well stated the position of labor towards regulation W.
Senator B u c k . The request is approved.
Senator M cC arthy . He opposes the continuation of regulation W.
(The testimony of Mr. Padway read into the record by Senator
McCarthy is as follows :)


Joseph P ad w ay , G eneral Counsel
F ederation of L abor

of the

A merican

Mr. P a d w a y . Mr. Chairman and members of the committee, I do not want
to go into a discussion of the economic and social implications involved in
regulation W . I am rather here to report to you how most of our people feel
about this regulation. Only yesterday I took the matter up with Mr. Hushing.
Mr. Hushing is the chairman of the legislative board of the American Federa­
tion of Labor, and its function and business is to read these bills and see what
effect they have on labor and to come to conclusions respecting them— that is,
whether they are bills that ought to be supported or otherwise.
The C h a ir m a n . I s that W illiam Hushing?
6 3 7 3 5 — 47
Federal Reserve Bank of St. Louis



Mr. P a d w a y . Yes. Only yesterday he informed me that he had received
information from State federations of labor affiliated with the American Fed­
eration of Labor to the effect that they are opposed to regulation W .
The State federations— there are 4S of them— act in the same manner as the
American Federation of Labor acts nationally.
The State federations act
within the borders of their States.
From such personal study as I have been able to give to the subject I am of
the opinion that regulation W is not altogether in the interests of labor. I
think it would be much better to have the regulation abolished.
There may be arguments that can be made for some control, and some people
may go as far, even within our own movement, as to support the retention of
regulation W , but on the whole, viewed from the various angles, pro and con,
Mr. Hushing and I have come to the conclusion that it would be better to have
it done away with.
W e are not for controls. W'e do not want too much government in our affairs.
Just as business does not want too much government in its affairs, labor feels
the same way.- This has a tendency, at times, to pry into the personal affairs
of workers— the way the regulation is set up— in connection with what they
must do to obtain credit when they need that credit.
The regulation as it stands now, in the postwar conditions, is discriminatory.
People w ith a lot of money can get the things that they need, while these witli
less money, such as wage earners, have found it, in many instances, impossible
to obtain the things they need.
Others have been compelled to cash in their savings bonds in order to obtain
things they cannot obtain otherwise, whereas if there were no regulation W
or regulations of that nature, they could retain those savings and holdings
and obtain their credit and pay out over a period of time for the articles they
need and still have their savings and their bonds.
It is not necessary for me to go into a long discussion on the subject. I am not
an economist. But I heard Mr. Davis of Georgia testify, and I agree with
everything lie said. I think that in the short period of time he testified here
he made a splendid representation of the entire subject which seems to fit in
my ideas and with the ideas of Mr. Hushing. I assure you that we have only
the interests of our workers at heart.
The Ch air m an . Thank you very much, Judge Padway.
Are there any questions?
It not, and if you have any supplemental statement you care to file or anv
further information, we wall be glad to have it.
1 y
Mr. P a d w ay . I will be very glad to. Thank you.

Senator B uck . Mr. Adams.

Mr. A dams. My name is J. X. Adams. I am the branch manager
of the Hoover Co. of Philadelphia. This statement is being made
on behalf of the National Affairs Committee.
Senator B uck . What is the Hoover Co.?
Mr. A dams. Manufacturers of the Hoover cleaner.
On behalf o f the national affairs committee of the Vacuum Cleaner
Manufacturers Association.
The Board of Governors of the Federal Reserve System amended
regulation W in December 194G, but retained vacuum cleaners on the
list of the appliances still controlled by this regulation.
Therefore, on December 10, 1946, the national affairs committee of
the Vacuum Cleaner Manufacturers Association filed a petition with
the Board of Governors of the Federal Reserve System asking that
vacuum cleaners be added to the list of consumers goods that had
been removed from regulation W.
Federal Reserve Bank of St. Louis



In this petition we set forth our reasons. No. 1, that an investiga­
tion conducted by the Office of Price Administration had resulted
in the vacuum cleaner prices being decontrolled on November 6, 1946;
that the action had been taken because they found that the supply
was more than equal to the demand, that the vacuum cleaners were
available for immediate delivery in dealers stores.
No. 2, that the monthly production and sales of vacuum cleaners
was now far in excess of either 1940 or 1941.
No. 3, that the vacuum cleaner industry was anxious to continue
producing vacuum cleaners as they had been during that past few
months, but felt very definitely to enable them to do so, it needs to
be removed from the list of products controlled by regulation W.
No. 4, that vacuum cleaners have always been sold with a reasonable
down payment and on monthly terms, and that to enable the industry
to keep on selling in volume, the industry needs the stimulus of being
lemoved from the provisions of regulation W.
No. 5, that approximately 50 percent of the 30,000,000 wired homes,
in the United States are still without the services of a vacuum cleaner
of any kind.
No. C, that other merchandise can be purchased with lower down
payments, that the action of the Board of Governors was discrimi­
The survey conducted by the Bureau of Agricultural Economics
indicated that almost 70 percent of the families have insufficient sav­
ings and liquid assets to provide a satisfactory market for the sale
of vacuum cleaners.
Senator B u c k . I understand that the industry applied to be re­
leased and the Board of Governors would not grant it even though
OPA in December 194G had removed and taken off controls ?
M r. A

dam s.

T h a t is r ig h t.

That the people living in the wired homes should be given op­
portunity to purchase vacuum cleaners on the terms that might be
arranged with the retail merchants for these reasons.
The vacuum cleaner is perhaps the greatest labor-saving appliance
used in the home. It is important that the dangerous disease-laden
dirt lurking in all of the furnishings of the home be removed, that
a single thimbleful of dirt has been shown to contain millions of disease
germs of various kinds, particularly children’s diseases. The use of
the vacuum cleaner is looked upon as both life and health insurance
for all of the members of the family, and for all of the furnishings
in the home as well.
It is a well known fact that damage done by moths in the homes
of our country is greater than the damage done by fires.
We pointed out to the Board of Governors of the Federal Reserve
System they should immediately remove vacuum cleaners from the
products controlled by regulation W so that these homes can be
equipped with this much needed electric appliance, and therefore
save the time o f the housewife and remove the disease germ laden
Our dealers and salesmen representing dealers report that there are
large numbers of people who are anxious to purchase cleaners now out
of their regular earnings, and thereby secure the benefits of this laborsaving device, but are not in a position to make the one-third down
Federal Reserve Bank of St. Louis



payment required by this regulation. Yet they are prepared to
purchase it under the satisfactory terms of the retail merchant.
This required down payment plus another provision of regulation
W is retarding the sales and it is for that reason that we feel that the
regulation W should be discontinued.
The other provision in the regulation W that is retarding sales, I
can explain in this w ay: Mrs. Prospect visits our dealer or a vacuum
cleaner salesman contacts her, and she becomes interested, and asks
that the cleaner be demonstrated in her home. When it is demon­
strated there, she becomes further interested in it, and asks that it be
left until her husband can see it, and she can ask him for approval
to buy it.
But regulation W will not permit that to be done until the one
third down payment is made.
Regulation W therefore will not permit us, unless the initial pay­
ment of one-third of the retail price is paid, and it is our definite
feeling that regulation W is retarding sales in the vacuum cleaner
industry, and should be discontinued or at least vacuum cleaners
should be removed from the list of articles still controlled by it.
Senator B uck . Y ou can certify, Mr. Adams, that the supply of
cleaners is well in excess of he demand ?
• M r. A

dam s.

Y e s , sir.

Senator B uck . What is the reason given you by the Federal Reserve
Board for not taking this off ?
Mr. A dams. I do not know that. I do not know the reason given
why it was not removed at that time.
Senator B uck . Any questions that the members would like to ask
Mr. Adams ?
Mr. A dams . I would like to answer the question that you asked
the other witness, and I would say definitely yes. I am sure you under­
stand it is better to pay a little more and get a great deal more than
to pay a little less, and get a great deal less, and the people in the
low-income brackets today can buy a vacuum cleaner, but it is under
the $50 mark, which is the inefficient and cheap type of cleaner. The
majority of the cleaners average above the $50 mark.
Senator B uck . Thank you, Mr. Adams.
Senator M cCarthy . In other words, you feel that the removal of
the regulation W will allow the people in the lower-income brackets
to buy a better grade of furniture.
Mr. A dams. Of quality merchandise, and thereby save.
Senator M cCarthy . I would like to ask another question. I be­
lieve the answer is obvious; it may not be, however.
Take John Jones out in some small town. He has a wife and family,
and makes, say, $40 a week. Ordinarily, of course, he does not save
any of that money, or does not save enough to buy the furniture, the
vacuum cleaner he wants. I f his credit is good, you make it possible
for him to buy the vacuum cleaner, the piece of furniture, make the
payments over 18 or 24 months, whatever he and the seller agree pon.
H e w ill m a k e th ose p a y m e n ts , a n d u lt im a t e ly he g ets to be a more
s ta b le citize n th a n i f he is in effect to sp e n d it on n o n d u ra b le g o o d s.
, M r . A d a m s . T h a t is tru e .
Senator M cC arthy . S o from that standpoint alone, it would be an

excellent idea to do away with regulation W, and put this question
o f credit back in the hands of the local people.
Federal Reserve Bank of St. Louis



Mr. A dams. Yes, sir.
Senator B uck . I s Mr. Wilson here?

Mr. W ilson. My name is Willihm L. Wilson; I represent CIT
Financial Corp. I have a statement, Senator, which I would like to
provide the committee with, but I will avoid that at this time.
There is one question which I would like to clarify for the com­
Directed to Mr. Fulbright’s question regarding the intention of the
Federal Reserve Board, as expressed in Mr. Eccles’ testimony before
this committee, I have page 23 of the committee record, and I will
read you a few lines of Mr. Eccles’ testimony.
W e had first thought of legislation, but it is too late in this session of Con­
gress. The legislation is extremely controversial, and it is our feeling that it
would not be passed and possibly not desirable. It would not be possible to get
legislation and it would not be desirable in any case to press for permanent
legislation at this time. The case for permanent legislation seems to the Board
to be very strong. At the same time we recognize that Congress may not feel
that there is time enough at the present session to give adequate consideration
to a permanent measure. For this reason, and because it now appears that tlrere
is a great need for restraint during the coming year, we suggest that the com­
mittee give consideration to the adoption of a joint resolution providing that
consumer credit controls should continue under the existing executive order until
a specified date, until July 1948, and then be terminated unless it is otherwise
extended again.

I think that I imply that it is perfectly evident that Mr. Eccles,
speaking for the board there, is much in the question of permanent
consumer credit control or installment credit control.
We are opposed to that, and our appearance is basically directed at
the question of permanency. AVe do not think we are closing that out
when we say all right, let us have a few more months. You have heard
very persuasive testimony which I do not want to repeat. I want to
identify ourselves a little more.
AVe are one of the larger financial institutions of the United States.
Last year we advanced more than a billion and a half to the Amer­
ican industry in credits of one kind; over a billion and a quarter of
this was in the form not of consumer credit, but industrial credit of
one sort or another. AVe have a big stake in the American system.
AVe would not advise anything that we felt was wrong, and we urge
that on any point we subscribe to, one more quotation which I would
like to read to you from the AAhill Street Journal.
If the Government should control one kind of credit, why not other kinds?
I f the general welfare requires that John Smith be stopped from borrowing to
buy an automobile, will it never be that the general welfare in the opinion of
Washington requires that the maker of automobiles be denied credit lest he
make too many at the wrong time? If the Government can withhold credit in
one place, why can it not act in other cases? The results of such extensive au­
thority can be appreciated. If some Government agency can say who is to get
credit, when and under what circumstances, it needs no other authority to run
the whole economy, and decide who shall enter what business, and how lie shall
conduct himself once he is in business.

Senator B uck . I f this regulation as now in effect were modified,
would that remove some of your objections to it?
Federal Reserve Bank of St. Louis



Mr. W ilson. Senator, n o ; it would not. Obviously, it would solve
some of the problems which have been raised before the committee,
but we do not feel that it is the proper type of control for the central
Government to extend over this economy, as I have expressed it.
Senator B uck . You would rather have it modified than the wav
it is, if we have to have it.
Mr. W ilson. I f the clear-cut, logical, and intellectual question can
be settled by keeping it tough, 1 think we would prefer that to modi­
The New York Times a week ago carried a story on the new credit
black market, summarizing the various evasions going on in credit
because of regulation W. We are a large organization. We operate
nationally. We observe regulations scrupulously, as so many others
do, but there are many organizations we know of affected in this story
which are evading regulations. This committee and the Federal
Keserve Board and Congress, if they continue it, they assume respon­
sibility for the protection of those of us who are observing it.
Mr. Eccles said there were over 200,000 registrants, and there were
50 enforcement officers. The job cannot be done on that basis.
Senator B uck . Any questions?
Thank you, Mr. Wilson.
Mr. W ilson . Thank you.
Senator B uck . We have one more witness, Mr. McClure.
Give your name to the reporter.

Mr. M cC lure. Warran A. McClure, president of the Michigan
Used Car Dealers Association.
One point they did not cover here, gentlemen, this has been a pretty
rugged industry; it did not ask any help of anybody.
Senator B uck . What is it you represent ?
Mr. M cC lure. Michigan Used Car Dealers Association.
As this thing built up, it built up on credit, and when you put this
regulation in, you took the base out from under us.
Now, we regulated credit ourselves. We gave them 8 or 10 or 12
or 18 months up to 21 on the coast; at one time it got to 36 months.
Senator M cCarthy . I have had quite a bit of experience with some
of your used car dealers on the coast. I was stationed at Altura,
Calif. I had a lot of my boys in the Marine Corps who came back,
and they had considerable experience with the dealers. California
has an unusual set-up as you know, lliere is a cash price and a
time-payment price. The difference between your cash-payment
price and the time-payment price is not considered as interest, so the
usury laws do not apply.
And out there we had the experience of finding used-car dealers
refusing to sell for the cash price, because they had to stick to the
O PA ceiling. so they would oftentimes double the price and consider
the extra $6<X) to $800 as the time-payment fee.
While we are talking about used-car dealers, this is not a witch
hunt, so far as they are concerned, but there have been newspaper
stories to the effect'that in a number of cases used-car dealers have
refused to sell for cash.
Federal Reserve Bank of St. Louis



Do you know anything about that situation?
Mr. M cClure. There are, of course, some dealers who have peculiar
finance set-ups where their State laws allow it, whereby I was going
to get into that. You know these dealers used to charge 25 percent
on the unpaid balance, and that is 20 years or 25 years ago. Now it
is down to 4, 5, 6, and 7, and an average of 7y2 percent by financing.
We did not get any help from anybody. The industry did it itself.
To build as we did, roughly 5,000,000 cars at one time, we had to
have a good, broad foundation without any regulations'. We could
not have it ourselves, and we did it ourselves.
We had a farmers plan where he paid three times a year or four times
a year or twice a year. We had a teachers plan where 3 months of
the year she did not pay. We had all kinds of plans.
Senator M cCarthy . Y ou are speaking of Michigan.
Mr. M cClure. We are talking of the industry, as well as Michigan;
that is the cradle of this market.
Senator M cC arthy . Apparently you do not have very good disci­

pline over the entire industry. You talk about charging 4 percent
on the balance; that is not true, of course, in all cases.
Mr. M cC lure. Y es; it is true.
Senator M cC arthy . It so happens that I know it is not.

I can
give you cases and places where they added 50 percent.
Mr. M cClure. A railroad employee can go to his corner bank today
and borrow at 4 percent, and come in and buy for cash from me. He
can go to Kroger, A. & P., Society for Railroad Engineers, there are
a hundred of them that will loan at 4, 5, or G percent. The Teachers
Unions will do it, at 6 and 7 percent, and then they pay oil“ in cash,
so far aa we are concerned.
Nevertheless it is contracted at that rate. The CIT was just here.
They will loan money at 5 percent. It gets right back to where I
started, that we gave them credit according to their ability to pay. I f
it was necessary to give them 18 or 24 months, we did; if they were
good credits.
We had a plan even where we could sell the man on the Great
Lakes that sailed during the summer. He only paid a couple of times
a year. We had teachers plan, farmers plan, every plan. We did
not need any regulation, nor did we ever get any help in the industry
from banks and financing to start.
As they get this up to 5,000,000, gentlemen, he told you four to one;
it is about 3Y2 to 1 nationally on used cars, based on 1941 figures. They
were not the top figures. The top figures were 1929. In that year, to
show you about Michigan, we are a great wholesale State, your f. o. b.
starts there, we sold in Detroit in what we call the metropolitan area
140,000 units in 1929. That same year Los Angeles was next with
109,000; Philadelphia with 3 times the people only sold 48,000. So
we are wholesalers.
You want to know about these prices. Everybody’s mother and
brother has been in this business, veterans and everybody else/ But
the total amount of these cars, the total number out is about 2 percent,
and they got out of it at a profit.
This regulation up to the last 4 or 5 months has not been so
disastrous, but from here on as we get into high gear, we have to have
that broad base for credit. We have to be able to judge it. You have
Federal Reserve Bank of St. Louis



to take the halter off of ns if we are going to go and a great deal of the
economy of this country depends on what that automobile industry
Senator B u c k . I f you do not have it, what down payment do you
generally get?
Mr. M cC lure. Well, we got as low as 20 percent and 15 percent: it
depends on the man’s credit. I have delivered a lot of automobiles and
given them an invoice at the end of 30 days, and if he did not pay it
in 30 or 60 or 90, it was all right. When you strangle us, you cut our
base out from under us, and the economy of this country requires it.
We have to have transportation.
Maldistribution now of the few new cars, getting into what we call
strong hands, men with money, the fellow without money is excluded
from this market unless he wants to buy junk. There just is not any
sense to it at all, and it is not helping. It is not doing a bit of good.
They are not going to drop. The only thing that will drop these prices
is production, and you will not get a sufficient amount for 3 years.
You might as well know it.
We are down now with steel. I talked to one of the officials of the
General Motors, and the picture does not look so good. We have
60,000 or 70,000 men laid off last week because of sheet steel. That
goes back to regulations where they messed up everything and stuff
went to the wrong place.
Today we are feeling it. I talked with officials of the Chrysler
Corporation, General Motors, the presidents of the two largest banks
in Detroit, before I came down, and they all said, “ Go on down and
see what you can do, and tell them the story.” They are all against
this regulation^ so far as cars are concerned, because we can see the
future on this. We are wholesalers. We have to sell that merchandise
and redistribute it, and we have to have this credit. We will decide
how long a man can take and how good he is. The Government cannot
decide that for us.
Senator B u c k . Any questions?
Thank you very much, Mr. McClure.
M r . M c C l u r e . Thank y o u .
Senator B u c k . We will insert in the record a statement by Mr.
Selby at this point.
(The statement referred to is as follows:)


P aul L. Selby , E xecutive V ice P resident, N ational C onsumer
F inance A ssociation, W ashington , D. C.

The National Consumer Finance Association is the national trade association
of the licensed small-loan companies operating in 32 States having adequate regu­
latory laws for the licensing and supervision of small-loan companies. There are
approximately 5,000 of these licensed small-loan offices who are authorized to and
do business in the principal industrial States of the United States. These com­
panies are united in their opposition to regulation W as now effective, and are
opposed to any permanent authority to regulate consumer credit by the Federal
Reserve Board.
Some of the reasons for our position are the following:
1. Reputation W vxis an emergerucy wartime measure and should now he
abolished in a peacetime economy.
Regulation W was promulgated pursuant to an Executive order under the
alleged authority of the Trading W ith the Enemy Act of 1917 as amended, for
the stated purposes:
1. To reduce the demand for stractegic materials necessary for the war effort;
2. To build up a backlog of purchasing power for post-war use, and
Federal Reserve Bank of St. Louis



3. To reduce the inflationary pressure for goods and services in general.
Any meaning of the first of these stated purposes ceased to exist with the
termination of the war and has no application now. The second objective, the
building up of a backlog of savings for postwar use, has also lost its significance.
W e are in the postwar era now, and the objective to be accomplished is the reverse
of that stated in the original purpose. Regulation W never was effective for this
purpose anyway. The recent survey of the Bureau of Agricultural Economics, as
announced by the Federal Reserve Board, shows that more than half of (he
families of the United States have no accumulated savings, while the top 10
percent holds 60 percent of the liquid savings. Regulation W was ineffective
for this purpose even during the wartime. The third purpose was based upon
the theory that consumer credit contributed to the upswings and the downswings
of the economic cycle, and therefore might have some effect in controlling inflation.
This theory is not generally accepted by the economists. Our observation and
experience is to the effect that outstandings in consumer credit follow economic
trends rather than cause or accentuate them.
Regulation W as now effective applies only to 12 classes of durable goods,
known the “ listed” items. The total outstandings in installment sale'credit
amount to less than $2,000,000,000. The total outstandings in installment loan
credit are only about $2.500.000,000. The total installment credit amounts to
only approximately $4,604,600.000. W ith the national income ranging from
$165,000,000,000 to $175,000,000,000, the outstanding installment sales and loan
credit amounts to something like 2 percent of the national income, and less than
4 percent of the annual purchases by American consumers. These ratios are too
small to support the theory that these consumer credit outstandings have any
tangible effect upon the economic cycles or add substantially to inflationary
2. The rise in consumer credit is not substantial
In the last few months, outstanding consumer credit has reached the dollar
volume which it attained at the peak in 1041. During that period, the popula­
tion has increased 5 percent, the number of family units has increased 7 percent,
and the percentage of persons employed has increased even more. The buying
power of some consumer units has climbed even higher. The outstandings in
total consumer credit today are only 5 % percent of the national income. Prior
to the war, consumer credit varied in dollar volume, but from 102!) to 1041
approximated 10 percent of the national income. On this historic basis, the
normal outstandings in consumer credit would be $16,000,000,600 to
$18,000,000,000, instead of the present $10,000,000,000 outstanding. The changes
in purchasing power and increased economic activity indicate that more con­
sumer credit is needed if we are to maintain sound economic relationships.
Prior to the war, the amount of outstanding production credit extended by
federally insured banks to business firms and corporations and the outstanding
consumer credit roughly paralleled each other,in amount. For example: In
1041, production loans by banks amounted to fl.3 billions, when consumer credit
was approximately 0.7 billions. Commercial and industrial loans have increased
from $6,500,000,000 to 14.000,000,000 since VJ-day, while consumer credit in
the same period has gone up to only $ 10.000.000,000. American industry has
an enormous productive capacity. Supply lines are rapidly being filled, and it
is vitally essential that consumer credit be made more available in order to
provide consumer purchasing power to take up the enormous output of production
and distribution if we are to avoid a break-down in the economy through a lack
of consumer purchasing power.
3. Regulation IF is highly discriminatory
The higher income groups during the war and since the war have been able
to satisfy their needs by buying all of their requirements for cash, without
resorting to the use of installment credit. The American wage earner, the
white-collar worker, the school teacher and low salaried income groups have been
and remain unable to accumulate large sums with which to buy for cash. They
live on periodic incomes, and their purchasing power, with installment credit
available is tremendous. The well-to-do can buy an automobile, a refrigerator,
or household furnishings for cash, without limitation or restriction. T'm poor
must pay down one-third of the purchase price and the remainder is not to exceed
15 months. The purchaser of the lowest priced car today must accumulate at
least $500 to make the down payment and then meet monthly payment require­
ments of approximately $80 per month. The wage earner is unable to meet
these terms.
Federal Reserve Bank of St. Louis



The veteran, encouraged to purchase a home or to go into a small business
on long-term Government credit of 15 to 20 years, may be able to finance a
home but wholly unable to buy the furnishings to put in the home under the
restrictive terms and requirements of regulation W .
So far as we know, regulation W is the only wartime regxilation which directly
discriminates against low income groups and in favor of the rich and well-to-do.
Discrimination is abhorrent in Government, and this discriminatory regulation
should be abolished.
J Regulation W creates disrespect for Government
One of the requirements which applies to every application for an installment
loan is that the borrower sign a statement of purpose for which he proposes to
use the proceeds of the loan. I f for medical, hospital or educational purposes
he may be exempt from the regulation. Borrowers consider this requirement
that they sign a written statement of purpose for which they will use the money
as an invasion of their personal rights. When told that it is a governmental
requirement, the-reaction is unfavorable to Government. Borrowers resent Gov­
ernment prying into personal affairs and demanding from them the name and
address of their physician, the hospital, or .the details of their private spending.
They resent as deeply the limitation and restrictions on the free exercise of their
own judgment and their ability to make an agreement with a credit grantor as
to the terms under which they may borrow.
5. Regulation W is a burden on business
Every credit grantor is required to comply with the Government regulation
requiring the obtaining of statements from borrowers, the making, keeping, and
maintenance of records subject to examination by the agents of the Federal
Government, and all of the red tape and annoyance incident to the administration
of the regulation. Our companies cooperated fully with the Federal Reserve
Board during the war, as a patriotic gesture and as evidence of their willingness
to do anything to contribute to the war effort. Our people helped in drafting
and as consultants with respect to the administration of the regulation. As
chief of the Division of Securities in the State of Ohio, and as a member of the
National Conference of State Small Loan Supervisors, I know from experience
that the State supervisory authorities cooperated fully with the Federal Reserve
Board, but I also know that the regulation has involved an immeasurable burden
upon operators and supervisors alike. Our people feel that it serves no valuable
purpose whatsoever, and resent the imposition of these unnecessary burdens upon
the operation of a business so fully regulated and supervised by State authority.

6 There is no danger of consumer credit running wild if the regulation is
Credit grantors have more at stake in the maintenance of sound credit extension
than anyone else. Our companies do business with private funds. They are
lending their own money. They are vigorously opposed to overextension of credit.
The wage earners of America are honest. Even through the depression years,
they paid their installment obligations, their record has been splendid during the
war, and we have a constantly growing faith in the integrity of the American
wage earner and his conscientious desire to meet his obligations. He is cautious.
Both the lenders and borrowers are interested in the maintaining of sound budget
borrowing. The American people make their money on a series of pay days.
Their incomes are monthly or semimonthly. With sound credit, they can budget
their purchasing, acquire things of utility and value, and raise their standard of
living, while remaining on a sound economic basis. Regulation W is an inter­
ference with the ordinary buying habits of the honest working people of America.
It serves no sound economic purpose and should be abolished without delay, and
the authority to encroach upon this field of free enterprise should not he granted
for the future.
7. Emergency credit demands are not controllable; hence borrowers and lenders
should be free to exercise sound judgment as to credit tains
The Federal Reserve Board has recognized that credit emergencies do exist.
For example, the Federal Reserve Bank of Chicago, under the authority con­
tained in section 7 (i) of regulation W , as revised effective December 1. 1946, on
June 25 declared that an emergency exists affecting a substantial number of in­
habitants in those portions of the State of Iowa inundated by flood waters during
the month of June 1947, and ordered that any extension of credit to finance the
repair or replacement of property damaged or lost as a result of the flood is
Federal Reserve Bank of St. Louis



exempt from the provisions of regulation W . Similar action was taken in the
emergency created by the recent Texas City explosions. These blanket exemp­
tions by the Federal Reserve Board are commendable and necessary, but indi­
vidual credit emergencies are just as tragic to the individual as these disasters
are to communities. When a wage earner’s home and furnishings and auto­
mobile have been burned or destroyed by a fire, he is faced with an emergency
as serious to him as though it covered an entire community or area. It is im­
practical to grant exemptions hit or miss to cover such situations, but since
these situations do exist regulation W is an iniquitous restraint upon the freedom
of a credit grantor to give full credit service under such conditions. The exten­
sion- of credit should be left to the sound judgment and discretion of exeprienced
credit grantors and careful borrowers. Regulation W is not workable.
8. Governor Eccles distorts tlie position of the small loan company
Gov. Marriner Eccles has indicated that the small loan companies of America
are the principal opponents of regulation W . The small loan companies are
opposed to regulation W for the reasons stated in this memorandum, but the
view presented by Mr. Elccles was grossly distorted. The total outstandings of
the small loan companies, as shown by tlie Federal Reserve Board statistics,
were only $037,000,000 at the end of April 1947. Less than 25 percent of these
loans were subject to the limitation of terms provided by regulation W ; that is
to say that more than 75 percent of the loans made by these companies were
exempt from the limitations imposed by regulation W . but Only after obtaining
from the borrower a statement of the purpose for which the proceeds of the loan
were to be used— if for medical, dental, or hospital purposes, also naming the
physician or the hospital. Borrowers resent the requirement that they sign
these statements, and the expense of keeping and maintaining records under the
Federal Reserve Board requirement is extremely burdensome, even though loans
are exempt. The total volume of small loan outstanding which is related to
durable goods purchases will probably not exceed $150,000,000, and certainly can
have no inflationary effect upon the general economy of the country as compared
with general banking and money policies, the public debt of more than $250,000,000,000 and the billions of dollars extended by the Federal Government in vet­
erans’ loans of one kind or another, some of them running for as long as 25 years.

9. The business of small loan companies is rigidly regulated by State law
Our small loan companies operate in 32 States which have rigid small loan
laws requiring a license, State supervision and examination and reports. These
statutes in nearly all cases fix a maximum ceiling on the amount of the loan,
maximum rates, and maximum length of term. The Uniform Small Loan Act
is the basic framework for nearly all of these laws. It was originated by research
and welfare organizations and is strictly designed as a borrowers’ protection law.
These laws are widely accepted as constructive social measures and are so
recognized by those who know and understand the problem of furnishing credit
to needy and necessitous borrowers at rates designed to keep private capital
invested in the business at a profit return comparable to or less than the return
on investments in bank capital. One of the outstanding examples is the small
loan law of the State of New York, which was signed by Franklin D. Roosevelt
as Governor of that State. Governors of 31 other States have signed modern
small loan acts. A number of these Governors are now serving in the Senate
of the United States and are aware of the extended research and study which
has made the Uniform Small Loan Act the accepted method through which small
borrowers may be served at fair and reasonable rates. The traditional $300
ceiling limit, of course, prevents these companies from making the larger loans
involved in the purchase of automobiles, and ordinary fairness requires the
statement that when small loan companies do purchase automobile paper under
authority other than the small loan law they do so at competitive rates much
lower than the rates required to make cash loans in small amounts. Rate
structures are not involved in the consideration of regulation W controls.
10. Regulation W ivas not designed to control prices and is ineffective for that
Mr. Eccles made the statement to this committee that he desired to retain
regulation W in order to keep prices down. This purpose is a wide departure
from the original stated purpose of regulation W and has no place in a peace-time
approach to the general economy. The Federal Government tried direct control
of prices under the Office of Price Administration. The unlamented OPA yielded
Federal Reserve Bank of St. Louis



to the popular demand for its termination and is deceased. Regulation W is
wholly ineffective to accomplish price controls and is certainly inconsistent with
the entire public policy of the country. It would he quite illogical for an
administration which terminated OPA controls to attempt an indirect control of
prices through the control of a small segment of the economy representing less
than 4 percent of the annual income and spending of the American public.
Regulation W should be abolished forthwith.

Senator B u c k . That concludes the hearing this morning.
(Thereupon, at 12:15 p. m., the committee adjourned.)
(The following items were submitted for the record:)

We stand

[S. J. lies. 148, SOtli Cong., 1st sess.]
JOINT R ESO LUTIO N To authorize the temporary continuation of regulation of consumer

Resolved by the Senate and House' of Representatives of the United States of
America in Congress assembled, That the Board of Governors of the Federal
Reserve System is authorized to continue to exercise consumer credit controls
pursuant to Executive Order Numbered 8843 until December 31, 1047 : Provided,
That no such regulation shall fix a maximum maturity of installment credit of
less than twenty-four, months, or require a down payment in excess of 20 per
centum of the purchase price.S e c . 2. Except during any war beginning after December 31, 1947, or any
national emergency proclaimed by the President after such date, no such con­
sumer credit controls shall be exercised after such date.

[From a board of governors of the Federal Reserve System pamphlet]
R e g u l a t io n



R e v is e d

E f f e c t iv e

D ecem ber










This regulation is issued by the Board of Governors of the Federal Reserve
System (hereinafter called the “Board” ) under authority of section 5 (b)
of the act of October G 1917, as amended, and Executive Order No. 8843,
dated August 9, 1941 (hereinafter called the “Executive order” ).
The regulation applies, in general, to any person who is engaged in the
business of making extensions of instalment credit in amounts of $2,000
or less, or discounting or purchasing obligations arising out of such exten­
sions of credit. It applies whether the person is a bank, loan company, or
finance company, or a person who is so engaged in connection with any
other business, such as by making such extensions of credit as a dealer,
retailer, or other person in connection with the selling of consumers’ durable






General requirements.— No person engaged in the business of making
instalment sa les 2 or instalment loans ,3 or engaged in the business of lending
on the security of or discounting or purchasing obligations arising out of
such extensions of credit, shall make or receive any payment which con­
stitutes or arises directly or indirectly out of any such extension of credit
made by him or out of any such obligation lent on or discounted or pur­
chased by him, except on the following conditions:
( 1)
He must be licensed pursuant to this section (any person so
licensed being hereinafter called a “Registrant” ) ; and
1 This revised regulation shall apply to transactions effected on or after December 1,
1946, and the revision shall not affect any transaction prior to such date.
2 It is to be noted that “ instalment sale” is defined to include only instalment credit
arising out of the sale of an article listed in the Supplement, hereinafter called a “ listed
3 Both “ instalment sale” and “ instalment loan” are defined to exclude credits in a princi­
pal amount exceeding $2,000.
Federal Reserve Bank of St. Louis



The extension of credit made, renewed, revised or consolidated
by him, or giving rise to the obligation discounted or purchased by him
or acquired by him as collateral, must comply with the applicable require­
ments of this regulation.
Registration und general license.— Any person whose license is not
suspended under section 8 (b) may become licensed by filing, with the
Federal Reserve Bank or any branch thereof in the district in which the main
office of the registrant is located, a registration statement on forms obtain­
able from any Federal Reserve Bank or branch. Whenever any person who
was not formerly subject to section 2 (a) becomes subject thereto, such
person is hereby granted a general license for 60 days.






Except as otherwise permitted by this regulation, each instalment sale
shall comply with the following requirements :
(a ) Down payment and maturity.— There shall be a down payment
not less than that specified for the listed article in the supplement, such
down payment to be calculated as therein specified; and the maturity shall
not exceed that specified for the listed article in the Supplement.
( b ) Amounts and intervals of instalments.— Except as permitted by section
6 (a) for seasonal incomes, the time balance shall be payable in instalments
which shall be ( 1 ) substantially equal in amount or so arranged that no
instalment is substantially greater than any preceding instalment, ( 2 ) pay­
able at approximately equal intervals not exceeding one month, and ( 3 )
not less than $5 per month or $1.25 per week on the aggregate instalment
indebtedness of one debtor to the same creditor.
Statement of transaction.— The instalment sale shall be evidenced by
a written instrument or record which shall set forth the information specified
in section (5 (c ).






Except as otherwise permitted by this regulation, each instalment loan
shall comply with the following requirements:
Instalment loans to purchase listed articles.— If the Registrant knows
or has reason to know that the proceeds of an instalment loan are to be
used to purchase any listed article:
(1) The principal amount lent (excluding any interest or finance
charges and the cost of any insurance) shall not exceed the maximum
loan value specified for the article in the Supplement, such loan value
to be calculated as therein specified; and
( 2 ) The maturity shall not exceed the maximum maturity specified for
the listed article in the Supplement.
(&) Unclassified instalment loans.— In the case of an instalment loan which is
not subject to section 4 (a), the maximum maturity shall not exeed the maximum
maturity specified therefor in the supplement.
Amounts and intervals of instalments; record.— Whether subject to sec­
tion 4 (« ) or section 4 (&), the instalment loan, except as permitted by section
6 (a) for seasonal incomes, shall b * payable in instalments which shall be ( 1 )
substantially equal in amount or so arranged that no instalment is substantially
greater in amount than any preceding instalment, ( 2 ) payable at approximately
(<l,1!d intervals not exceeding one month, and (3) not less than $5 per month or
$1.25 per week on the aggregate instalment indebtedness of one debtor to the same
creditor. It shall be evidenced by a written instrument or record which shall set
forth the terms of paymint.
<d) Statement of the borrower.— No Registrant shall make any instalment loan
subject to section 4 (« ) or 4 (b) unless he shall have accepted in good faith a
signed statement of the borrower as to the purposes of the loan. Such s atement
shall state whether or not any of the proceeds of the loan are to be used to make
a down payment on the purchase of a listed article or to be used to purchase any
listed article, and if any of the proceeds of the loan are to be used for the latter
purpose such statement shall identify su h listed article and shall state the cash
price thereof and the value of any trade-in. If a registrant relies in good faith on
the facts set out by the obligor in such statement, it shall be deemed to be correct
for the purposes of the registrant.
Federal Reserve Bank of St. Louis



(e) Loans to make doicn payments prohibited.— A registrant shall not make
any instalment loan if he knows or has reason to know that any part of the pro­
ceeds thereof is to be used to make a down payment on the purchase price of any
listed article.






() General requirements.— In the case of an instalment sale or instalment
loan which results from a renewal or revision of any such credit already out­
standing, or which results from the combination of any such outstanding "credit
with an additional extension of instalment credit, the renewed, revised, or consoli­
dated obligation shall comply with all the requirements of this regulation as if it
were a new extension of credit except th a t:
(1) The requirements as to statement of borrower and down payment or
maximum loan value, if any, shall not apply to the outstanding credit already
held by the registrant; and
(2) The renewed, revised or consolidated obligation may, in so far as the
maturity and instalment requirements are concerned, be treated as if it were
a new credit with the maximum maturity calculated from the date of the
renewal, revision or consolidation. Tile payments on such renewed, revised,
or consolidated obligation shall not be less than $5 per month or $1.25 per
week on the aggregate instalment indebtedness of one debtor to the same
( 6 ) Statement of changed conditions.— Notwithstanding any other provision
of this regulation, if a registrant accepts in good faith a statement of changed
conditions as provided in the following paragraph, an extension of instalment
credit that refinances any outstanding obligation (whether or not such obliga­
tion is held by the registrant or is itself payable in instalments) may have a
maturity not exceeding that specified in the supplement for refinancing pursuant
to such statements, but such maturity shall be applicable only to the credit re­
financed. The payments on the credit refinanced need not be as large as $5 per
month or $1.25 per week.
The requirements of a statement of changed conditions will be complied with
only if the registrant accepts in good faith a written statement signed by the
obligor that the contemplated refinancing is necessary in order to avoid undue
hardship upon the obligor or his dependents resulting from contingencies that were
unforeseen by him at the time of obtaining the original extension of credit or
which were beyond his control, which statement also sets forth briefly the prin­
cipal facts and circumstances ( 1 ) with respect to the original extension of credit
and ( 2 ) with respect to such contingencies, and specifially states in addition that
the contemplated refinancing is not pursuant to a preconceived plan or an inten­
tion to evade or circumvent the requirements of this regulation.
( c)
Bona fide collection effort; servicemen's preinduction debt.— Nothing in
this reglation shall be construed to prevent any registrant from making any
renewal or revision, or taking any action that he shall deem necessary in good
faith ( 1 ) for the registrant’s own protection with any obligation which is in
default and is the subject of bona fide collection effort by the registrant, or ( 2 )
with respect to any obligation of any member or former member of the armed
forces of the United States incurred prior to his induction into such service.
S E C T IO N 6 .


(а) Special payment schedules for seasonal incomes.— If the income received
by an obligor from the main sources of his income customarily fluctuates mate­
rially from month to month or from season to season, the payment schedule may
be adapted, within the applicable maximum maturity, to such customary flow of
income, provided the obligation complies with one or the other of the following
requirements: ( 1 ) at least half of the credit is to be repaid within the first
half of the applicable maximum m aturity; or ( 2 ) payments are reduced or omit­
ted in not more than 4 months of any calendar year but are otherwise in equal
monthly amounts. In all such cases, a statement of the facts relied upon shall
be preserved in the registrant’s files for the life of the obligation.
( б) Calculating maximum maturity of contract.— In calculating the maximum
maturity of an instalment sale or instalment loan, a registrant may, at his
option, use any date not more than 15 days subsequent to the actual date of the
sa'e or loan.
Federal Reserve Bank of St. Louis



(c) Record of instalment sale.— The instrument or record evidencing an in­
stalment sale pursuant to section 3 (c) shall set forth (in any order) the following
(1) A brief description identifying the article purchased;
( 2 ) The cash price of the article;
(3) The amount of the purchaser’s down payment (i) in cash and (ii) in
goods accepted in trade, together with a brief description identifying such
goods and stating the monetary value assigned thereto in good faith ;
(4) The amount of any insurance premium for which credit is extended
and of any finance charges or interest by way of discount included in the
principal amount of the obligation, or the sum of these amounts ;
(5) The time balance owed by the purchaser, which is the sum of items
(2) and (4) minus item (3) ; and
(fi) The terms of payment.
The instrument or record need not include a description of the article if it is
purchased by means of a coupon book or similar medium of instalment credit
upon which a cash down payment of at least one-third of its purchase value has
been made. The instrument or record need not include the information called for
by items (2) and (4) if the registrant is one who quotes to the public a time
price for the article which includes the finance charge if any, provided he sets
forth such time price in such instrument or record, and provided he obtains a
cash down payment which is at least as large as would be required if the precentage specified for the article in the Supplement were applicable to the time price.
(d) Extension of cerdit for mixed purposes.— In case an extension of credit is
partly subject to one section of this regulation and partly subject to another sec­
tion, the amount and terms of such extension of credit shall be such as would
result if the credit were divided into two or more parts and each part were treated
as .if if stood alone. In case an extension of credit is partly subject to this regu­
lation and partly not subject to the regulation, the amount and terms of such
extension of credit shall be such as would result if the credit were divided and
the part subject to the regulation were treated according to the applicable pro­
visions of the regulation; the part not subject to the regulation may be reated as
if the regulation did not exist.
(e) “Lay-away” plans.— With respect to any extension of credit involving a
bona fide “lay-away” plan, or other similar plan by which it purchaser makes
one or more payments on an article before receiving delivery thereof, the regis­
trant may, for the purposes of this regulation, treat the extension of credit as not
having been made until the date of the delivery of the article to the purchaser.
( / ) Mail orders.— An instalment sale shall not be deemed to be in violation of
the down payment requirement of section 3 (a) if the sale is made upon the
receipt of a mail order for one or more articles and the cash deposit received
with the order fails by less than $1 to equal the sum of the down payments re­
quired by this regulation for all of the articles included in the order.
{<)) Delivery in anticipation of instalment sale.— In case a listed article is
delivered in anticipation of an instalment sale of that article or a similar article
(such as a delivery “on approval”, “on trial” , or as a “demonstrator’ ), the regis­
trant shall require, at or before the time of such delivery, a deposit equal to the
down payment that would be required on such an instalment sale.
<h) Sets and groups of articles.— In determining whether an article is a “ listed
article” the word “article” shall be deemed to include any set, group or as
sembly commonly considered, sold or used as a single unit, if the component parts
thereof are sold or delivered at substantially the same time.
( /) Evasive side agreements.— No extension of credit complies with the re­
quirements of this regulation if at the time it is made there is any agreement, ar­
rangement, or understanding ( 1) by which the obligation is to be renewed or
revised on terms which would permit final payment to be deferred beyond the
date permitted, by this regulation for such credit at its inception, or ( 2 ) by which
the obligor is to be enabled to make repayment on conditions inconsistent in any
other respect with those required by this regulation, or (3) by which there is to
be any evasion or circumvention, or any concealment of any evasion o r circum­
vention, of any requirement of this regulation.
(j )
Side loan to make down payment.— A registrant shall not make an ex­
tension of instalment credit to finance the purchase of any listed article if lie
knows or has reason to know that there is, or that there is to be, any other
extension of credit of any kind in connection witli the purchase of the listed
article which would bring the total amount of credit extended in connection with
such purchase beyond the amount of instalment credit permitted by this reg­
Federal Reserve Bank of St. Louis



ulation; but, if tlie registrant, accepts in good faith a written statement signed
by the obligor that no such other extension exists or is to he made, such state­
ment shall be deemed to be correct for the purposes of the registrant.
(k) Purchase of article in lieu of trade-in.— Anything which the seller of a
listed article buys, or arranges to have bought, from the purchaser at or about
the time of the purchase of the listed article shall be regarded as a trade-in for
the purposes of this regulation.
( l) Misuse of coupon plans.— No coupon, ticket or similar medium of credit,
whether paid for in instalments or otherwise, shall be accepted by any regis­
trant in payment, in whole or in part, for any listed article if such acceptance,
in effect, would permit the article to be sold on tertns not complying with the
requirements of this regulation.




This regulation shall not apply to any of the follow ing:
( a ) Business or agricultural loans.— Any loan for business purposes to a
business enterprise or for agricultural purposes to a person engaged in agricul­
ture, provided the loan is not for the purpose of purchasing a listed article.
(b) Credit to dealers and certain salesmen.— Any extension of credit to a
wholesaler or retailer to finance tlie purchase of any article for resale, or any
extension of credit which is made to a bona fide salesman of automobiles in order
to finance the purchase of a new automobile to be used by him principally as
a demonstrator.
(c) Credit to governmental agencies, religious institutions, etc.— Any extension
of credit to the Federal Government, any State government, any political sub­
division. or any department, agency or establishment thereof, or to any church,
hospital, clinic, sanitarium, school, college, or other religious, educational, char­
itable, or eleemosynary institution.
(d) Credits under Government rehabilitation and readjustment programs.__
Any extension of credit (1) made by the Land Bank Commissioner on behalf of
the Federal Farm Mortgage Corporation or by any Federal land bank and found,
pursuant to regulations issued by the Commissioner, to be necessary to maintain
or increase production of essential agricultural commodities, ( 2 ) made or insured
by the Farmers’ Home Administration, (3) made in accordance with the regula­
tions of the Secretary of the Interior for the economic development or rehabili­
tation of Indians, (4) made by the Disaster Loan Corporation, or ( 5 ) made,
guaranteed or insured in whole or in part by the Administrator of Veterans’
Affairs pursuant to the provisions of title III of the Servicemen's Readjustment
Act of 1914 or by any State agency pursuant to similar Srate legislation.
(e) Loans to pay fire and casualty insurance premiums.— Any loan to finance
a premium in excess of 1 year on a fire or casualty insurance policy, if the loan
is fully secured by the unearned portion of such premium.
(f) Credit for purchasing securities.— Any extension of credit which is sub­
ject to the Board's regulations under the Securities Exchange Act of 11.34 or
which is otherwise for the purpose of purchasing or carrying stocks, bonds, or
other investment securities.
(g) Real estate and home improvement loans.— Any extension of credit which
is for the purpose of financing or refinancing ( 1 ) the construction or purchase of
an entire residential building or other entire structure or ( 1 ) repairs, alterations,
or improvements upon urban, suburban or rural real property in connection'
with existing structures, except to the extent that such repairs, alterations, or
improvements incorporate any listed article.
(/¡) Loans to meet medical expenses, etc.— Any loan as to which the Registrant
accepts in good faith a written statement signed by the borrower certifying
that the proceeds are to be used for bona fide educational, medical, hospital,
dental, or funeral expenses, or to pay debts incurred for such expenses, and that
such proceeds (unless they are to be used exclusively for educational expenses)
are to be paid over in amounts specified in such statement to persons whose
names, addresses, and occupations are stated therein.
(i) Disaster credits.— Any extension of credit to finance the repair or replace­
ment of property damaged or lost as a result of a flood or other similar disaster
which the Federal Reserve Bank of the district in which the disaster occurred
finds has created an emergency affecting a substantial number- of the inhabi­
tants of the stricken area, provided such extension is made prior to the end of
the sixth calendar month following the month in which the disaster occurred and a
statement describing the damage or loss is preserved in the registrant’s files.
Federal Reserve Bank of St. Louis






(a) Preservation of records; inspections.— Every registrant shall preserve,
for the life of the obligation to which they relate, such books of account, records,
and other papers (including any statements required by or obtained pursuant to
this regulation) as are relevant to, establishing whether or not an extension of
credit within the scope of tliiff regulation was in conformity with the require­
ments thereof, provided, however, that the registrant may preserve photographic
reproductions in lieu of such hooks of account, records, or papers.
For the purpose of determining whether or not there has been compliance
with the requirements of this regulation, every person required to be licensed
under section 2 (a) shall permit the Board or any Federal Reserve Bank by its
duly authorized representatives, to make such inspections of his business opera­
tions as the Board or Federal Reserve Bank may deem necessary or appropriate,
including inspections of books of account, contracts, letters, or other relevant
papers wherever located, and. for such purpose, shall furnish such reports as
tiie Board or the Federal Reserve Bank may require. When ordered to do so
by the Board, every such person shall furnish, under oath or otherwise, such
information relative to any transaction within the scope of the Executive order
as the Board may deem necessary or appropriate for such purpose, including
the production of hooks of account, contracts, letters or other papers in the
custody or control of such person.
Suspension of license ,4 The license of any registrant may, after reason­
able notice and opportunity for hearing, he suspended by the Board, in its entirety
or as to particular activities or particular offices or for-specified periods, on any
of the following grounds:
(1) Any material missstatement or omission willfully or negligently made
in the registration statement;
(2) Any willful or negligent failure to comply with any provision of this
regulation or any requirement of the Board pursuant thereto.
A license which is suspended for a specified period will again become effective
upon the expiration of such period. A license which is suspended indefinitely
may he restored by the Board, in its discretion, if the Board is satisfied that it's
restoration would not lead to further violations of this regulation and would
not he otherwise incompatible with the public interest.
(e) Enforceability of contracts.— Except as may subsequently he otherwise pro­
vided, all provisions of this regulation are designated, pursuant to section 2 (d)
of the Executive order, as being “ for administrative purposes” within the mean­
ing of said section 2 (d), which provides that noncompliance with provisions of
the regulation so designated shall not affect the right to enforce contracts.
Clerical errors.— Any failure to comply with this regulation resulting from
a mistake in determining, calculating, or recording any price, down payment
or extension of credit, or other similar matter, shall not he construed to be a
violation of this regulation if the registrant establishes that such failure to
comply was the result of excusable error and was not occasioned by a regular
course of dealing.
Noncompliance due to facts outside registrant’s knowledge.— The pro­
hibitions of this regulation shall not apply to a registrant with respect to any
failure to comply with this regulation in connection with ( 1 ) an extension of
credit made by him if, at the time he made it, he did not know or have reason
to know any fact by reason of which such extension failed to comply; ( 2 ) an
obligation purchased, discounted, or acquired as collateral by him if, when he
purchased or discounted the obligation or acquired it as collateral, the obliga­
tion did not show on its face any failure to comply and he did nob know anv
fact by reason of which the extension of credit giving rise to the obligation
failed to comply; or (3) an obligation renewed, revised, or consolidated by him
if, at tiie time when he renewed, revised, or consolidated it, lie did not know or
have reason to know any fact by reason of which such renewal, revision, or con­
solidation failed to comply. With respect to any loan on the security o f'an obli­
4 In addition, any registrant who willfully violates or knowingly participates in a viola
tion of this regulation is subject to the penalties prescribed in sec. 5 (6) of the act of
October 0, 1917. as amended, which reads in part as follow s: “ Whoever willfully violates
any of the provisions of this subdivision or of any license, order, rule, or regulation issuer!
thereunder, shall, upon conviction, be fined not more than $10,000. or. if a natural person
may he imprisoned for not more than ten years, or both : and any officer director or a^ent
of any corporation who knowingly participates in such violation may be’punished bv a like
tine, imprisonment, or both.”
6 3 7 3 5 — 47

Federal Reserve Bank of St. Louis



gation which rises out of an extension of credit subject to this regulation, the
prohibitions of this regulation shall be deemed to apply only to payments arising
out of the obligation rather than to payments arising out of the loan.
( f ) Transactions outside United States.— Nothing in this regulation shall
apply with respect to any extension of credit made in Alaska, the Panama Canal
Zone, or any Territory or possession outside the continental United States.
(g ) Right o f registrant to impose stricter requirements.— Any registrant has
the right to refuse to extend credit, or to extend less credit than the amount per­
mitted by this regulation, or to require that repayment be made within a shorter
period than the maximum permitted by this regulation.
( h ) Definitions.— For the purposes of this regulation, unless the context other­
wise requires:
( 1) “•
Person” means an individual, partnership, association, or corporation.
( 2 ) “Registrant” means a person-who is licensed pursuant to section 2 ( 6 )!
(3) ‘‘Extension of credit” has the meaning given it in the Executive
(4) “Installment credit” means an extension of credit which the obligor
undertakes to repay in two or more scheduled payments or as to which The
obligor undertakes to make two or more scheduled payments or deposits
usable to liquidate the credit, or which has a similar purpose or effect.
(5) “Instalment sale” means an instalment credit in a principal, agent or
broker, by any seller of any consumers’ durable good listed in the Supple­
ment to this regulation (herein called a “listed article” ) and which arises
out of a sale of such listed article. For this purpose, “sale” includes a lease,
bailment, or other transaction which is similar in purpose or effect to a sale!
( 6 ) “Instalment loan” means an instalment credit, other than an instal­
ment sale, in the fonn of a loan which is in a principal amount of $ 2.00< or
less; but the definition does not include any loan upon the security of any
obligation which arises out of any instalment sale or instalment loan.
(7) “ Cash price” means the bona fide cash purchase of an article, including
bona fide cash-purchase price of any accessories, any bona fide delivery, in­
stallation and service charges (other than interest, finance or insurance
charges), and any applicable sales taxes.
S upplement


R egulation W , E ffective D ecember 1, 1946

Part I. Listed article, maturities, doien payments, loan values.— For the pur­
pose of regulation W , the following articles, whether new or used, are “ listed
articles”, and the following maximum maturities, required down payments and
maximum loan values are prescribed (such down payments and loan values to be
calculated as specified in parts 4 and 5 of this Supplement) ; but no article having
a cash price of less than $50 shall be considered a listed article:
Group A — 15 months maximum maturity, 33y3 percent minimum down payment,
66% percent maximum loan value:
1. Automobiles (passenger cars designed for the purpose of transporting
less than 10 passengers, including taxicabs).
Group B — 15 months maximum maturity, 33% percent minimum down payment,
66% percent maximum loan value:
1. Cooking stoves and ranges, designed for household use.
2. Dishwashers, mechanical, designed for household use.
3. Ironers designed for household use.
4. Refrigerators, mechanical, of less than 12 cubic feet rated storage capac­
ity (including food freezers).
5. Washing machines designed for household use.
6. Combination units incorporating any listed article in the foregoing clas­
sifications of this group B.
s The pertinent part of the Executive order reads as follows : “ Extension of credit”
means any loan or m ortgage; any instalment purchase contract, any conditional sales con­
tract, or any sale or contract of sale under which part or all of the price is payable sub­
sequent to the making of such sale or con tract; any rental-purchase contract, or 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 ; any contract creating any lien
or similar claim or property to be discharged by the payment of money : any purchase,
discount, or other acquisition of, or any extension of credit upon the security of, any
obligation or claim arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
Federal Reserve Bank of St. Louis


7. Air conditioners, room unit.

8. Radio receiving sets, phonographs, or combinations.
9. Sewing machines designed for household use.
10. Suction cleaners designed for household use.
iIroup C— 15 months maximum maturity, 20 percent minimum down payment, 80
per cent maximum loan value:
1. Furniture, household, (including ice refrigerators, bed springs, mattresses
and lamps) ; and floor coverings, soft surface.
Part 2. Unclassified instalment loans.— The maximum maturity of any instal­
ment loan subject to section 4 ( 6 ) shall be 15 months.
Part 8. Refinancing pursuant to statement of changed conditions.-—The maxi­
mum maturity of any refinancing pursuant to a statement of changed conditions
as specified in section 5 ( 6 ) shall be 18 months.
Part J Calculation of down payments for automobiles.— In the case of a
new automobile, the required down payment and maximum loan value shall be the
specified percentage of the cash price; and such down payment may be obtained in
the form of cash, trade-in, or both.
The same rule shall apply in the case of a used automobile, except that-after
January 1, 1947, the maximum loan value shall be the specified percentage of the
cash price or of the “appraisal guide value” , whichever is lower, and the required
down payment shall be the difference between the cash price and the maximum
loan value as so calculated.
“Appraisal guide value” means the estimated average retail value as stated
in such edition of any regularly published automobile appraisal guide as the Board
may designate for this purpose for use in the territory in which such used auto­
mobile is sold, plus any applicable sales taxes. Information as to the guide or
guides designated for any given territory may be obtained from any Federal
Reserve Bank or branch.
Part 5. Calculation of down payments for articles in group B or group C.—
If any article is traded in by the purchaser on an article listed in group B or
group C, the required down payment and the maximum loan value shall be
the specified percentage of the net price of the article after deducting from the
cash price the amount allowed for the trade-in; and such down payment shall be
obtained in cash in addition to the trade-in.

A rgument T h a t R egulation W D iscriminates A gainst L ow -I ncome Groups
and R eturning V eterans
It must be remembered that credit has to be repaid. The real restriction on
the person of low income is his low income— a restriction which is found through­
out our system and does not derive from regulation W . The only way the pro­
ponents of this argument could remove the “discrimination” is by having zero
down payments and permitting unlimited time for repayment. This is something
which they obviously do not propose to do. This argument, therefore, must be
intended to confuse the issue.
The “discrimination” argument also ignores the fact that the person of small
income suffers most because of a rise in the price of things he has to buy. The
elimination of regulation W would throw'additional demand into the market at
this particular time. This would tend to hold prices high, or press them still
higher, and thus would deal an especially heavy blow to the man of low income.
Of course, the man of low income also has a special interest in avoiding the
unemployment that goes with depression. He thus has a special interest in the
antidepression effect of regulation W .
A rgument T h a t Consumer Credit (O r the I nstalment Part
U nimportant


It ) I s

Total consumer credit in 1941 was about $10,000,000,000 and the instalment
part of this was about $0,500,000,000. The argument is that these are rela­
tively inconsequential when compared with national income, which at that time
was about $97,000,000,000.
Such a comparison, however, does not give a true picture of the situation; al­
most any figure looks insignificant when compared with national income. For
example, everybody knows that commercial and industrial loans of banks are
important; yet the total of all those loans at all member banks was only about
Federal Reserve Bank of St. Louis



$8,000,000,000 in 1941— a figure smaller than total consumer credit and roughly
similar to the instalment part of consumer credit * * * Another exam ple:
There was only about $11,000,000,000 of stock market credit in 1929 when na­
tional income was about $80,000,000,000, but we all know that this was ample
for the stock market “boom and crash” in 1929.
A rgument T hat Consumer Credit I s N eeded for M ass P roduction and E mploy­
ment and T h at R egulation W R estrains Production and E mployment
The arguments about the need for consumer credit in the economy are ir­
relevant to the present question. No one is proposing now, or has proposed, that
consumer credit be abolished. Regulation W merely restrains consumer-instal­
ment credit, and rather mildly.
The irrelevance of the argument about the need for consumer credit to sus­
tain production and employment is especially glaring in present circumstances.
Under present conditions, no one can seriously claim that the restraints of re«--il­
lation \V are holding down production of automobiles, appliances or furniture—
or employment in-these industries. The things holding down production are
shortages in materials, productive capacity, and labor. Removal of regulation
W in present circumstances would not increase production or employment; it
would only swell the already excessive present demand for articles in short
A rgument T h at Self-I nterest

of the Credit G rantor W ill Present

This argument assumes that any credit which is repaid (and therefore is
sound from the viewpoint of the creditor) is sound from the viewpoint of the
general economy. This assumption is incorrect.
The great trouble with overexpansions of consumer installment credit__aside
from its inflationary effect during a boom— is tlv> fact that the consumer is
forced, during time of depression, to use his income to pay the excessive debts
which he was induced to incur during time of boom. This diverts this income
from the purchases that are needed to sustain production and employment
during the depression.
The credit grantor comes out without loss; but the general public suffers from
the inflationary high prices while the excessive debt is being built up and from
the ravages of depression while it is being liquidated.
The situation is similar to that in connection with excessive stock market
credit. Banks and brokers lost almost nothing on stock market credit all during
the 1929 boom and the depression that followed it. Yet the building up of the
excessive stock market credit and its consequent liquidation caused untold damage
throughout the general economy.
C ertain I nformation R egarding N ational A utomobile D ealers A ssociation
The replies of members of this association to the questionnaire submitted to
them on the subject of regulation W by the association do not support any con­
tention that the membership is insistent that regulation W be abolished.
Only 12,209 of its 28,204 members, or about 43 percent, replied to the question­
naire at all. Of those who replied, 36 percent favored modification of regulation
W , which very probably means that they favor retention on a modified basis.
Twelve percent favored retention without change. In other words, probably a
total of 48 percent, of the members who replied to the questionnaire favored
retention of the regulation.
R etail C redit I nstitute of A merica., I nc .,
Washington 5, D. C.. June 25, 19',7.
lion. C harles W . T obey,
Senate of the United States. Washington, I). C.
D ear Senator T obey : The matter of ending regulation W of the Federal
Reserve System (consumer credit control) is one of far greater import than the
testimony offered this morning to the Banking and Currency Committee by
proponents of the control would infer. It is of extreme importance to the
retailers of the United States who serve with credit terms when people buy
consumers’ durable products.
In behalf of these retailers, whom we represent, (in practically all of the
fields of durable products), we respectfully ask permission to tell our side of the
story. W e were not aware of the arrangement for hearings until Monday and
Federal Reserve Bank of St. Louis



did not believe that the committee would close hearings after only one witness
had appeared.
On the other hand, if the committee should decide the question without further
hearings, we ask that you glance through the attached two short briefs which
were offered by retailers when the House Banking and Currency Committee con­
sidered the matter, before it adopted the resolution calling for the immediate
end of regulation W.
W e ask that you notice particularly, in this brief, that it is not true that labor,
consumers, and veterans favor the regulation, as was inferred to you today.
W e ask you further to notice from the attached list that the opponents of the
regulation are not small loan people but include many representative American
organizations of the public and business, whose position cannot be waived aside
.as biased or unimportant. W e were chagrined that in testimony this morning
this too was inferred.
W e truly urge that regulation W should he rescinded immediately for the good
of consumers against whom it mitigates terribly, and in behalf of sound business
Sincerely yours,
E ugene K elly.
A random list of some of the organizations known to be opposed to the regulation
of consumer credit
1. Chamber of Commerce of the United
2. Chamber of Commerce of the State
of New York.
3. National Electrical Manufacturers
4. Retail Credit Institute of America
(Retail Store Owners).
5. National Retail Credit Association.
6. American Federation of Labor.
7. American Bankers Association.
8. Nat ional Automobile Dealers A s­
9. Credit Union National Association.

10. National Association of Credit
11. American National Retail Jewelers
12. American Finance Conference. '
13. National Used Car Dealers Associa­
14. American Industrial Bankers Asso­
15. National Consumer Finance Associ­
16. National

A half dozen, perhaps 10, regional and State posts of the American Legion
have passed resolutions opposing regulation W . W e know of none which have
voted down such a resolution.
Several large labor unions in addition to the American Federation of Labor
are on record. The United Brotherhood of Carpenters and Joiners of America;
International Electrical Workers and Operators, at least one or two of the Pacific
Northwest shipping unions. W e presume there are others— no attempt has been
made to ascertain.
W e know of no consumer organization which favors regulation W .

N ational A utomobile D ealers A ssociation .
Washington ü, D. C., June 25, 19J
Hon. C harles W illiam T obey,
Chairman, Banking and Currency Committee,
Senate Office Building, Washington, J). C.
M y D ear M r. C h a ir m a n : Our president, M. O. Anderson, of Seattle, Washing­
ton, has requested me to file with your committee a copy of his statement on the
attitude of the members of the National Automobile Dealers Association toward
continuing or abolishing regulation W . A majority of them favor its abolition
A copy of this statement also has been filed with the House Banking and
Currency Committee.
You will note that the chief concern of the dealers in new cars, who comprise
our association, is about the possibility of regulation W slowing up new car
sales when full production is reached. So far as used car sales, to which Chair­
man Eccles has referred, are concerned, most of them are made on a cash basis
Hence the continuance or termination of regulation W would have little or no
effect on such sales.
Sincerely yours,
W. L. Mallon,
Chah man, Public Contacts Committee,
Federal Reserve Bank of St. Louis




N ational A utomobile D ealers A ssociation

This is an official statement from the National Automobile Dealers Associa­
tion, 1026 Seventeenth Street N W , Washington; D. C., on the dealer attitude
toward elimination of regulation W . The National Automobile Dealers Asso­
ciation has a membership of 28,264, or more than 70 percent of all the new car
dealers in the country.
Dealers are vitally interested in the future of regulation W because new and
used automobiles are included in that small group of commodities still coming
under the provisions of the regulation. Regulation W controls the amount of
down payment and the length of monthly terms on the sale of all new and
used automobiles with an unpaid balance of $2,000 or less. The terms of the
regulation, at the present time, require a one-third down payment and limit
the monthly payments to 15 months. These regulations, it should be noted '
apply only to the low- and medium-priced cars. The credit of the man least
able to pay is restricted. The large car buyer is not regulated.
The National Automobile Dealers Association has constantly watched the
effect of regulation W as it applies to automobile dealers. In order to determine
the position of its members on the subject,, the National Automobile Dealers
Association recently addressed a questionnaire to all members. Replies were
received from 12,307 dealers, or about 43 percent of the membership of the
Dealer opinions were expressed in those returns as follows :
Favoring outright elimination of regulation W ________________
Favoring modification of regulation W ____________________________~
Favoring continuance of regulation W as-is_________________ _
These results indicate a majority in
Those dealers who cast a vote in favor
favor of elimination, total 10,765. This
the regulation in its present form.
The survey has been broken down by


North Dakota-----------------------------------------Ohio________ _______ ____ ____ __________
Oklahoma_________ _____ ________________
Oregon............. ........ ..................... ..................
Rhode Island_______ _______ ___ _____ _
South Carolina_____________________ _____
Federal Reserve Bank of St. Louis

g «-jo.
4’ ¿go

1 542

favor of elimination of the regulation
of modification, together with "those in
indicates a decided dissatisfaction "with

Member­ Total votes In favor of In favor of
1, 7S3









In favor of




favor f
M ber­ Total v tes In favor o In favor ­ Inod o
elim a­
con u m ifica­
a ce

Sou D
th akota
irginia______ ..
ashington. ____________________
W Virginia........ .. . . _________
nidentified States_____________ ___
Total___ ___ _______________











In common fairness, it must be stated that today, from a strictly dealer
standpoint, the application of regulation W to dealer operations is not a serious
problem. Because of a shortage of new cars and the current amount of ready
cash in the hands of some, he can move all the cars he is obtaining.
The situation of buyers in the lower income groups, including returned
veterans, however, requires serious consideration now. Millions of them want
and need new cars. Many veterans are in this category and find it impossible
to finance the purchase of a lower priced car within the 15-month period
permitte. The livelihood of many individuals is entirely dependent upon the use
of private motor transportation. Only the fact that a great new car shortage
exists prevents the stringency of present new car credit regulations from be­
coming a far more active public issue. If a normal supply of new cars were
being produced, undoubtedly there would he bitter complaints over the terms
of the present regulation. An example of the increased amount of cash required
as down payment and the increased monthly payments needed to purchase a
typical low priced new care under regulation W follow s:
C ash dow n
p a y m en t

1041_____________________________ $311

M o n th ly
p a y m en ts

18 months, at___________________ $42. (X)
15 months, at— :-------------------------- 77.06

The day of normal production and widespread public complaint against regu­
lation W may be imminent. New car production is picking up rapidly and indica­
tions are that the 1030-40-41 production average soon may he achieved. A
comparison of passenger car production for domestic consumption show s:
First quarter, 1046___________________________________________ 187,701
First quarter, 1047___________________________________________ 750,141
In view of the recent increase in production it may be that the first quarter
of 1048 would equal or exceed the same period in 1041 when 1,198,175 passenger
cars were produced.
As this level of production is reached, public resentment against a credit
regulation which denies an honest man a new car on reasonable time payments
will be quick and decisive.
It is upon knowledge of these conditions that dealers throughout the country
have based their insistence that regulation W should be abolished.
M. O. A nderson, President.
Statement of Gary M. U nderhill . E xecutive D irector, Consumer B ankers
A ssociation, on F ederal R egulation of Consumer Credit
The Consumer Bankers Association was until last fall known as the Morris
Plan Bankers Association. It was organized in 1919. Its 73 members through­
out the United States pioneered in bank consumer credit, the first institution
being organized for this specific purpose in 1910.
The writer was, until he entered naval service in 1944, an assistant vice
president of the Bank of Virginia at Richmond, whose employ he first entered
in 11)28. Upon his release from active duty in the Navy, he assumed his pres­
ent position as executive director of the national association in Washington.
Federal Reserve Bank of St. Louis



To conserve the time of this committee, we shall not argue the merits of
“consumer credit” as such, as a contributing factor in the American economy
and the American standard of living; nor shall we quote voluminous statis­
tics. W e shall assume that the issue is solely -whether or not this type of
credit shohld he regulated by Federal Government authority.
It is the official opinion of the members of this association that regulation
of consumer credit by Federal authority is unnecessary, ineffective, un-Amer­
ican, unsocial, inconsistent, and impractical.
Certainly in peacetime, it is an unnecessary regimentation of the personal
affairs of the individual citizens of this country.
From the banker’s point
of view, it it unnecessary because no banker in his right mind is going to
permit unsound or unreasonable terms, either directly to the purchaser or in
discounting dealer paper, or even so indirectly as through the finance com­
panies whose paper the larger banks purchase.
It is axiomatic that the
smaller the down payment on consumer durable goods, for example, the faster
the obligation must be liquidated for the hanker to maintain a proper equity
ratio in the underlying col'ateral which is subject to depreciation from use
and age. It is a simple matter of arithmetic that the smaller the down pay­
ment, and the shorter the maturity, the larger monthly payments it will take
out of the purchaser’s income to pay off the obligation in a given period
of time. The banker does not need Federal or any other kind of regulation
to take care of that. W e submit that there is no evidence to indicate that
such regulation is necessary from the point of view of either the banker or
the citizens of this country as a whole.
In order to appreciate the second point, i. e„ that Federal regulation of
consumer credit has been and will continue to be ineffective as an economic
policy, it is necessary to point out that the term “consumer credit” has been
loosely used. Actually, nonfarm, single-family residential mortgage credit is
a long-term form of consumer credit. Even in speaking of consumer credit
with its ordinary short-term connotation, it should be pointed out that the
term cannot be used interchangeably with “ instalment credit” or “ instalment
sales credit.” Instalment sales credit amounts to less than half of the total
of “ instalment credit.” In turn, instalment credit amounts to less than half
of total short-term “consumer credit.” The remaining, and larger, portion of
total short-term consumer credit is composed of single-payment loans (roughly
one-fifth of the total), charge accounts (about one-fourth of the total), and
service credit (a little less than one-tenth of the total).
It is interesting
to note that these last three forms of short-term consumer credit, comprising
better than half the total, were completely released from regulation W last
December by the administrative agency, the Federal Reserve Board of Gov­
ernors. Control of instalment credit, somewhat less than half the total, is
all that remains.
In this connection it is interesting to note that noninstalment consumer credit,
which was supposedly “ regulated” during the war, rose from its 1!)41 peak
through the end of the war in 1945; whereas instalment credit during the same
period of time decreased from 5.9 billion dollars to 2.4 billion dollars.
explanation of this latter decrease can therefore largely be attributed to the
lack of consumer durables to purchase or finance during the war, rather
than to the effectiveness of Regulation.
It is also worthy of note that many types of installment credit are exempt
from the regulation. Insured repair and modernization loans, which amount to
some $354,009,000, are exempt. Loans for educational purposes and for hospital,
medical, and dental care, as well as loans for commercial or agricultural pur­
poses and other minor purposes, are likewise exempt.
So are any instalment
transactions of less than $50 or more than $2,000, regardless of purpose.
The point is that the remaining regulated portion of installment credit, which
in itself represents less than half of total short-term consumer credit, is an
infinitesimal amount in comparison with the agregate influence on the economy
of mortgage loans and other forms of private debt, G wernment debt, currency
outstanding, bank deposits, and in relation to retail sales and total income
payments to individuals.
What disturbs the banking fraternity as much as. if not more than, any other
aspect of Federal regulation of consumer credit is its un-American connota­
tions * * * the social and political implications of such a policy. A primary
tenet of communistic doctrine, as expressed in Das Kapital, by Karl Marx, is
that of the necessary for the central government to have control of credit
in all its forms. It would be an unhappy day for the American way of life
Federal Reserve Bank of St. Louis



were Congress officially to sanction tlie power of a Federal agency to say on
what terms and conditions consumer credit may be extended to individual
American citizens in connection with their personal financial affairs.
The staff and membership of the Consumer Bankers Association cooperated
whole-heartedly with the Federal Reserve officials in inaugurating regulation W
as a part of the national defense program in mid-1941. In this connection, we
quote Ihe following paragraph from a letter dated April 2, 1947, received by this
association from Richard II. Stout, executive vice president of the Bank of
Louisville, who was the executive head of the Association from 1938 to 1945:
“Any of those who sat in on the first meetings of Federal Reserve, or who oc­
casion to visit with Governor Ransom and other Federal Reserve officials,
during the first 2 or 3 years of regulation W , will recall numerous occasions on
which it was stated that Federal Reserve was accepting the charge reluctantly
and as a matter of duty; that it would be happy to terminate its assumed
responsibilities as soon as the emergency was declared at an end by the Executive.
To the best of my knowledge, it has been only during the past 2 years that
Federal Reserve officials have begun to talk in terms suggesting a perpetual con­
trol machinery for consumer credit.”
The members of this association, who have been serving the credit requirements
of men and women as individuals for 35 years and more, deplore the unsocial
aspects of Federal regulation of consumer credit. The present regulation says,
in effect, that individual desires for better things for better living must be fore­
gone or sacrificed to the over-all economy of the State.
W e have the situation where if you are in the income brackets high enough
to make a purchase and command installment credit of over $2,000— or if
your credit is good enough to get a single-payment loan from your bank in any
required amount— you can buy or repay on any terms you wish. But if you
are going to buy a Ford instead of a Cadillac, for exaihple, on the instalment
plan, you have to pay one-tliird down and the balance in 15 months.
The regulation is not only inconsistent with the American philosophy, it is
inconsistent with other Federal Government economic policies; and it is even
inconsistent within itself.
W e have the situation where the Treasury Department is desirous of doing
everything it can to persuade the American public to hold on to its war bonds
rather than cash them in. Yet the restriction of consumer credit leaves many
people, particularly the masses, in the position where they can not meet the
required credit terms available to them and they must either cash in their war
bonds or give up their place in line for the purchase of postwar durable goods
to those others fortunate enough to have the cash to buy outright or sufficient
income to meet the credit terms.
W e have the situation where one Government agency seeks to dampen, restrict,
and control short-term consumer credit in the form of installment direct loans*
and sales finance credit, while another Government agency has relaxed and
lengthened and broadened the terms in another and several-fold larger field of
cosumer credit, i. e., long-term home mortgage loans. W e have the situation
where a veteran can buy a home with no down payment and take up to 25 years
to pay off the loan ; but if he wants to buy a refrigerator and other essential
appliances to make the house a home, he must pay one-third down and the balance
in 15 months— that is, in every State except New Jersey.
W e have the situation where the veterans in one State of the Union (New
Jersey) can buy furniture and appliances for their homes with no down payment
and up to 2 years to repay, but the veterans in other States must pay 20 percent
down on furniture and one-third down on appliances and repay in 15 months.
W e have the situation where you can go to a dealer and buy certain “nonlisted”
merchandise on any terms you wish, and the bank can in turn buy that note or
contract from the dealer; but if you go directly to the bank to borrow the money
to buy that article or merchandise you must repay the obligation in not over 15
W e havo4he situation where an ordinary bank loan evidenced by a promissory
note payable in full at maturity is not an “ installment” loan subject to the regu­
lation even though-the bank may “anticipate” that at maturity of the note it may
accept partial payment and a renewal note, provided the bank makes no commit­
ment to do so and the transaction is entered into in good faith and not as a means
of evading the regulation. That may not be exactly an inconsistency, but it is
close to it.
W e have the situation where if a loan is originally made in good faith on a
single-payment basis, it may subsequently be converted to an installment basis oil
Federal Reserve Bank of St. Louis



any terms whatsoever, completely outside the regulation. That may not be a
literal inconsistency, either, but it illustrates the extreme difficulty of trying to
work out rules and interpretations in connection with the regulation of consumer
credit, where the requirements of thousands of individual customers must be
taken into consideration.
As one illustration as to the impracticability of regulation W , in connection
with the rule mentioned immediately above, the warning is made that in any
case where investigation shows that a registrant is converting an “undue”
number of credits to an installment basis after originating them on a non­
installment basis, the inference would be fairly plain that the registrant was
guilty of “evasion” of the regulation. Now who is going to judge what constitutes
an “undue” number of instances of this kind? Who is to say when “the inference
would he fairly plain” that the registrant was guilty of evasion?
There is no way in the world to enforce such a regulation as far as the gen­
eral public is concerned. It is impractical by its very nature. To enforce it. vou
would have to pass a law requiring every citizen 21 years of age or over to keep
a complete set of books and then hire a gestapo to audit those books. Unless the
banker “ knows or has reason to know” something to the contrary, he can only
accept the borrower’s signed statement as to the purpose of the loan. If the
borrower says it is for one purpose and uses it for another which is contrary to the
regulation, what is the banker to do about it?
W hat is to prevent the borrower using his pay check to complete the down pay­
ment on an automobile and then coming into the bank to borrow the money to pay
the rent, the grocery bill, the doctor and the insurance premium? How are you
going to put a stop to that without a gestapo? People are doing it every day.
It’s the little fellow who cannot meet the high monthly payments that gets hurt
any way he turns.
Even though it were not unnecessary, ineffective, un-American, unsocial, in­
consistent, and impractical, the continuation of Federal regulation of consumer
credit will do more to harm the Nation, by breaking down respect for and observ­
ance of Federal laws, rules, regulations, and interpretations than any good that
could possibly come of it.
T he A merican B ankers A ssociation
New York IG, N. Y.— Chicago 3, III.— Washington 5, D. C.
S enate C ommittee


J uly 2,1947.
B a n k in g and C urrency ,
Senate Office Building, Washington, D. C.

Attention : Mr. Robert C. Hill, Clerk.
D ear M r. H i l l : There are transmitted herewith two copies of a statement
setting forth the views of the American Bankers Association on consumer credit
controls under regulation W of the Board of Governors of the Federal Reserve
It would be appreciated if you would see that this statement is included in the
record of the hearings held today by the Committee on Banking and Currency
on this subject.
Sincerely yours,
C. F rancis Cocke.
Statement of the A merican B ankers A ssociation F iled W ith the S enate
B an k in g and C urrency Committee R egarding R egulation “ W ” in Connec­
tion W it h H earings H eld by T h at Committee on J uly 2, 1947
The American Bankers Association opposes permanent extension of the author­
ity extended to the Board of Governors of the Federal Reserve System to admin­
ister the selective credit controls imposed by regulation W . The association
favors immediate discontinuance of the authority for such controls presently
delegated to the Board of Governors of the Federal Reserve System.
As early as March 27, 1945, the association expressed its opposition to perma­
nent continuation of the consumer credit restrictions provided by the regula­
tion. At a meeting of the association’s committee on consumer credit, held in
Chicago on that date, the committee adopted the following resolution :
“ Whereas, it is the opinion of the committee on consumer credit that the cur­
rent provisions of regulation W impose unwarranted and unnecessary hardships
on many individuals such as returning veterans ; and
Federal Reserve Bank of St. Louis



“ Whereas, this committee believes that regulation W should in time be totally
abolished, and
“ Whereas, this committee believes that the restrictions of regulation W in
respect to each ‘listed article’ as such article becomes unrationed should be
removed, and
“ Whereas, the employment of returning veterans and released war workers will
be materially stimulated by the early repair and modernization of homes, this
committee believes that as rapidly as labor and materials become available for
these purposes, the restrictions imposed by regulation W in respect to these
activities should be relaxed, and
“ Whereas, regulation W imposes certain restrictions which now act as a
hindrance to returning veterans in becoming reestablished in gainful employment
and in acquiring the essentials of civilian life, the committee believes that these
restrictions should now be relaxed.
“Now, There, be it resolved that the committee on consumer credit recom­
mends (o the administrative committee of the American Bankers Association
that the foregoing principles be adopted as the official position of the association
with respect to regulation W and that the association seek the cooperation of
interested groups in implementing this program.”
The position set forth in this resolution was reaffirmed by the association’s
committee on consumer credit and by its resolutions committee at the associa­
tion’s annual convention held in Chicago, September 25-27, 194G. The committee
on consumer credit reported at this convention to the resolutions committee
that :
“The committee on consumer credit believes that regulation W can be relaxed
in relation to the production of consumer durable goods and the restrictions
modified on each article as it becomes more plentiful, and, further, that regula­
tion W should be abolished completely as the supply of such goods somewhat
meets the demand.
“ Further, the committee feels that consumer credit in the peacetime economy
is undemocratic and contrary to the principles of free enterprise, and that the
emergency for which this regulation was created will have ceased to exist when
production of consumer’s durable goods is sufficient to approximately meet the
demand, and at that time consumer credit control should be abolished com­
The association’s resolutions committee thereupon presented to the conven­
tion the following resolution, which was unanimously adopted by the convention :
“During the depression of the 1930’s and the carrying on of World W ar Ilj
a huge bureaucracy has been built up in the United States that constitutes at!
enormous burden to our people from the standpoint of cost, from the standpoint of the loss of the manpower of those in the bureaus to constructive enter­
prise, and from the standpoint of the disruption of industry through subjecting
it to unwise, unnecessary, and expensive controls tiiat add to the consumer cost
of the whole Nation.
“ We recommend that the administration and Congress work together to reduce
this enormous bureaucracy and allow those who are unnecessarily employed in
it to become associated with non-Government. constructive interests that will
increase their value to themselves and to the people.
“ We further recommend that in accomplishing the reduction of the overex­
panded Government agencies immediate consideration be given to the proper
timing for the elimination of all war controls and activities that hamper the
functioning of the private enterprise system.
“Among such controls and activities are those applying to the limitation of
the use of consumer credit; Government loaning and guaranteeing agencies*
and, governmental price controls.”
On December 12, 1946, at a meeting of the association’s committee on con­
sumer credit held in Chicago, the chairman of the committee issued a statement
with regard to regulation W , which read in part :
“On November 10 (1946), the Board of Governors of the Federal Reserve Sys­
tem announced the streamlining of regulation W . This was widely publicized as
an important step in the Board’s program of modifying regulation W, whereas
in fact the principal relief it granted to consumers was in the matter of charge
accounts. The limitation on the use of charge accounts was lifted; however
rigid controls were continued on the use of consumer installment credit.
“Now that all other controls governing the purchase of consumer durable
goods have been removed, the time has come for the complete abandonment of
regulation W .
Federal Reserve Bank of St. Louis



“W e recognize that some consumer durable goods, including automobiles, re­
frigerators, washing machines, etc., are still in scarce supply. However, we also
realize that if the distribution of these goods is to he on a fair and equitable
basis, the arbitrary restrictions* imposed under regulation W on the consumer
financing of these goods must be eliminated. The only way these goods can be
made available to all groups of our citizens is to permit sound credit terms which
are within the reach of the vast majority of the people. - Under regulation W the
present terms mean that the little fellow must obligate himself to make monthly
payments of such size that they would obviously be a financial burden that he
could not afford to assume.
“The consumer credit committee of the American Bankers Association is aware
of its responsibility to help combat inflation. The committee recognizes that it
would be a mistake to do anything that would contribute to inflationary pressures.
However, the committee believes that the arbitrary control of consumer credit
is inflationary because if the terms imposed are too severe for most people to
buy needed consumer goods out of income they will be forced to cash war bonds
to purchase such goods. The committee further believes that bankers and busi­
ness men could put in effect sound credit terms. These terms would make it
possible for people in the middle- and lower-income groups to buy necessary goods.
These terms would not be inflationary, nor affect prices or require policing by the
Government. W hat these terms should he is a matter of education on the part
of each lender. This committee would be pleased to advise banks, for instance,
what in its judgment are sound, standard terms in this particular period. The
losses that would inevitably result from loose terms that create unsound loans
is the natural check on our system of individual enterprise. A free yet sound
flow of consumer credit can be maintained only if bankers and businessmen are
free to use their own best judgment, based on their intimate knowledge of the
borrower and local conditions.
“ W ith the elimination of controls on prices and wages there is no longer any
justification for the existence of regulation W . The Board of Governors of the
Federal Reserve System suggested in a recent report to Congress that this regu­
lation be made a permanent credit control. Regulation W was a war-emergency
measure. It was never intended to he a permanent Government control and should
be abolished now. It is hoped that the new Congress will agree with this view.”
The association has previously offered testimony before the House Banking
and Currency Committee with regard to regulation W . A statement submitted
to the committee on .Tune 4,1047, by the chairman of the association’s credit policy
commission, read in part, with respect to regulation W , as follows:
“The real issue involved with any such regulation as W is whether Congress
should extend the qualitative credit controls of the Federal Reserve Board or
confine these powers to purely quantitative controls and other credit controls
now existing, such as authority to charge the discount rate, required reserves,
open market operations, etc. No one argues that our central banking authorities
should not have the power to regulate the over-all supply or volume of credit to
level booms and depressions. But the power to dictate the use of credit is al­
together another and dangerous thing.
“ If, for example, we agree that the principle of regulation of consumer credit
is right, then I do not see how we can say that the principle of control of pro­
duction credit is wrong. Subscribing to the theory of selective controls means
that you are delegating to bureaucrats complete power over business, giving
agencies carte blanche as to whom and for what and for how long they may
extend credit.
“ Such power is too great to delegate to anyone or any group or any govern­
ment. It is incompatible with the philosophy upon which this country was
founded and developed to be the greatest Nation in the world today, and those
who seek such power should realize its implications and responsibilities.
“ W e are opposed to the selective control of consumer credit primarily because:
First, from the standpoint of its economic soundness, we can find little evidence
to support the view that consumer credit initiates the turns in the economy either
up or down, and we think it more likely has tended to follow these turns rather
than lead them.
Second, from the standpoint of its social implications there
already has been much said before this committee with respect to it resulting in
discriminating against the low-income groups. Third, because we firmly believe
it won’t work and even if it did work, it is not worth its price.
“Also, much has been said as to the impossibility of the Federal Reserve Board
or any other governmental agency to enforce the contraction of consumer credit
without the use of a vast FB I if the people resist it. But the most important
Federal Reserve Bank of St. Louis



thing is— is it worth its price? And, as I have herein stated, the delegation of
selective credit control is far too dangerous to justify the meager results, if any,
such a regulation could achieve.”
These resolutions, statements of policy, and official expressions of the position
of the American Bankers Association with respect to regulation W demonstrate
clearly the consistency of the association’s opposition to permanent continuation
of the powers granted to the board of governors of the Federal Reserve System,
under which regulation W wvas established and has been adm.nistered.
The association not only opposes permanent continuation of the Board’s present
authority; it favors immediate discontinuance of that authority. The associa­
tion is of the opinion that regulation W is now obsolete and wholly inadequate
in terms of the original purpose of inflation control for which it was established
during the war emergency; that it is an obstruction to the normal flow of goods
and services in a peacetime economy; that it has operated against the lowerincome groups, and particularly against the Nation’s war veterans, in their
efforts to obtain open and equal access to consumer goods heavily in demand ;
that it affords a quasi-governmental agency a selective and qualitative control
of credit that impedes the free flow of credit in a free enterprise economy; that
the sole argument which can now be advanced for its continuance, as an effective
means of controlling the swings of the business cycle, cannot be substantiated;
and, finally, that it is virtually impossible of effective administration because it
seeks to regulate an infinity of day-to-day business transactions involving the
use of consumer credit.
The adequacy and effectiveness of regulation W in controlling inflationary
forces at work in the Nation’s economy are now sufficiently doubtful to outweigh
whatever advantages in this direction that the regulation might have provided
during the war. The fact is that the chief cause of the postwar inflation -has
been the war-created shortage of goods, together with a relatively excessive
quantity of purchasing power, resulting from monetization of the national debt.
To argue that consumer credit adds to the purchasing power of the public is
to overlook that shortages of goods have been the inflationary factors deserving
the most consideration, and it is also to argue, falsely, that curtailment of
consumer credit would of itself be an automatic, inflation-controlling factor.
Nothing could be further from the truth. In the last analysis, consumer credit
is a substitute for business and commercial credit. Manufacturing and business
concerns have probably expanded their loans in recent years above the amount
of credit they would have had need for had regulation W not been in effect, in
order to finance both inventories and the volume of business ordinarily financed
by consumer credit. Regulation W , in curtailing the amount of credit available
to consumers, thus has tended to expand the volume of commercial and business
loans. The net result, in terms of inflationary effect, is the same.
A normal flow of goods and services in a peacetime economy is one of the basic
requirements of the health of an economy. The pages of economic history are
filled with illustrations of the ill effects of imbalances in prices, production, and
distribution. To set one group of purchasers— those who have adequate cash to
finance their transactions— as against another group who have lesser reserves
and income— is to invite both social and economic difficulties.
Consumer credit is the established method by which low-income groups have
acquired the consumer’s goods that comprise the essentials of the American
standard of living. What justification can exist for economic partiality which
denies one family access to household goods or transportation, because it is
unable to match the cash and income position of another fam ily? Yet, that
is the inevitable consequence of regulations which deny the low income group
access to adequate credit which enables them to enter the markets where their
necessities are bought. The basic purpose of a system of banking and. credit
is to provide credit to needful and worthy borrowers, not to withhold it from
those in need of it.
While there is no denying the need for the quantitative credit controls
presently and traditionally in the hands of the Board of Governors of the
Federal Reserve System, there is no justification for qualitative or selective
controls of credit. Inevitably, they'result in hardship to the users of the select
types of credit so controlled. Furthermore these selective controls are a source
of economic instability. Regulation of demand and supply in certain types of
markets through excessive credit control merely unsettles the stability of still
other markets. For example, if consumers are barred from purchasing durable
goods such as automobiles, because they are arbitrarily forbidden credit that
portion of their income which normally would have gone into installment pay­
Federal Reserve Bank of St. Louis



ments on an automobile then finds its way into other markets, tending to force
up the price of other goods, and ultimately the cost of living. Imbalances in
prices are a further result, and these imbalances are the essence of violent
fluctuations in economic and business conditions.
To argue that consumer-credit control, or any other type of selective credit
control, is a desirable and effective means of regulating the fluctuations of
the business cycle is therefore not only open to question, hut is plainly a matter
of serious doubt. The assertion that the provisions of regulation W serve not
only as an effective check on the upward boom or inflationary phase of the
business cycle, but could also be made to serve, through relaxation of the
controls, as an effective stimulant to business when the business cycle turns
downward, is likewise a contention of doubtful validity. To approach the
question from the viewpoint of the “purchasing power” theory of periodic
business fluctuations, is to repeat one of the mistaken economic theories of the
depression era. During those years, literally billions of dollars of Government
money, created through Government borrowing, were pumped into the stream
of purchasing power, without significant effect in bringing about business
recovery. What was then overlooked was the fact that business and industrial
expansion in an atmosphere of business confidence create effective consumer
demand, and that consumer demand is more an effect than a cause of the
upturn of the business cycle. It is doubtful that consumer credit could have
any consequential effect in bringing about business recovery in a future period
of depression, because individuals make use of it principally during periods of
business confidence, full employment and high incomes.
However, the immediate concern of the Nation is inflation, the high cost of
living, and the inaccessibility of many types of goods to low-income purchasers,
rather than deflation and depression. There is little consistency in the position
of those who advocate permanent extension of regulation W as an economic
nostrum equally effective in treating both conditions. If the power of regulation
W to check the upward spiral of inflation has been challenged by the economic
fact of inflation, as it has been challenged during the past 2 years, there is little
point in giving further consideration to its potency as a business stimulant in
anv possible future period of deflation.
I f the worth of regulation W as an economic control is at its face so question­
able, then the fact that the regulation imposes unwarranted controls upon the
consumer and business alike in the countless daily transactions between them
is sufficient reason to justify its elimination. Like other business controls that
have been established by the Government at the meeting point of business and
consumers, such as the rationing of food during the war, the effectiveness of the
control in the last analysis depends upon the willingness of the people to accept
continued regulation of their daily economic life.
There is no more justification in the rationing of consumer credit only to those
in the higher-income brackets than there would have been to ration foods during
the war only to those most able to pay for their food purchases. Governmentally
imposed inequities in the availability of credit could have only the same conse­
quence— a social and economic inequity that would invite popular disrespect for
ti e regulation, and a resulting impossibility of administration in the long run.
The American Bankers Association, for the reasons presented above, favors
the immediate discontinuance of the authority of the Board of Governors of the
Federal Reserve System to exercise selective controls of consumer credit under
regulation W , and opposes the permanent extension of the presently existing
E xcerpts F rom T estimony B efore J oint Committee
J U N E 2 4, 1 9 4 7 —

on the

E conomic R eport

S . S L O A N C O L T , P R E S I D E N T , B A N K E R S T R U S T C O ., N E W Y O R K , N . Y .

The C h a i r m a n . What do you think o f the regulation by Government control of
consumer credit?
Mr. C o lt . I believe that lias been a good thing, and I would think it r' ould be
retained for the present. There may come a time when better conditions may
permit and when the production of durable goods manufactures is slowing up
for the reason that credit is being restricted, that consideration should be given,
perhaps, to relaxing that regulation.
Federal Reserve Bank of St. Louis



The C h air m an . But as a banker you do not feel that we are restricting the
free enterprise system by giving the Federal Government, the Federal Iteserve
Banks— now at least— the control of consumer credit?
Mr. Colt. I do n o t; no.
The Ch air m an . Y ou think that is a proper weapon in discouraging undue infla­
tion of buying power or purchasing power?
Mr. Colt. I think it is part of the whole credit control. I do not think you
can eliminate it from the question of credit, and therefore I think it should be
regulated, and I think the Federal Iteserve is the proper place for that to be done.


1 !> 4 7 — P A U L

G. IIO F F M A N , P R E S ID E N T .


C O R P .,


B E N D , IN D .

The C h air m an . This regulation W that was testified to, I think Mr. Colt
thought it should be continued. Other bankers apparently disagree with him.
Mr. H offman . Of course, everyone in the automobile industry thinks it ought
to be abandoned quickly except perhaps myself.
The C h a ir m a n . How do you feel about it?
Mr. H offman . Well, I don’t see why we should loosen up on credits in the
installment field at this time. I think they ought to be held down.
Senator O’M ahoney . Why do you think they ought to be held down?
Mr. H offman . Because they are a great inflationary force and this is a
period------Senator O’M ahoney . I s the fact that the automobile industry is not in posi­
tion to produce as much as the market demands a factor, does that have a
bearing on it?
Mr. H o fim a n . It might influence my judgment, Senator, I don't think so, but
it might. I would grant the possibility of that.
Senator O'M ahoney . Why shouldn't it influence your judgment?
Mr. H offman . I don’t think it should. I think we ought to be able to make
our own judgments on policies of that kind.
I think that the control, regulation W . during the war period worked out
well and during the postwar period worked out well in deferring the demand.
There are very strong arguments against it. as you know, that have been made
here about the regulation W repeal with respect to durable goods and the heavy
commodities of one kind and another, and if you want to call it a philosophical
argument, there is meat to it.
The C h airm an . In the long run it is what it costs you per year. If you
cannot afford it, you ought not to have it, I suppose.
Mr. H offman . A s I say, I have listened to all the arguments and they have
not convinced me.
Senator O’.Mahoney . That is a pretty good philosophy, Mr. Chairman, if you
cannot afford it you shouldn’t have it. hut it has a double edge, I think, par­
ticularly when we are endeavoring to stabilize the economy so as to produce
mass consumption. If industry were to be guided by this principle, that only
those who can afford to buy, who can afford to pay cash should have what
industry can produce, there wouldn't he very much production, would there?
Mr. H offman . I will have to think that question over. Would you mind
repeating it. Senator? I didn't get it.
Senator O’M ahoney . I say if industry had to depend for its market upon those
who are able to pay cash there wouldn’t be a mass market for a mass production
Mr. H offman . The durable goods industry. The durable goods industry has
been built up— I think that the installment credit has been a very substantial
factor in building up the durable goods industry.
Mr. P a t m a n . H ow many products are affected by regulation W now? About
a dozen?
Mr. H offman . I wouldn’t know that, Mr. Patman. I know the automobile
industry is.
Mr. P a tm an . Jewelry and radios.
Mr. H o f f m a n. Jewelry and radios.
The C h a ir m a n . Of course, it doesn't abolish sales on credit.
Mr. H offman . That is right.
The C h a ir m a n . It simply regulates the extent to which that credit may be
Mr. Pa t m a n . On purchases of two thousand dollars or less.
Mr. H offman . I happen to believe that we ought to bring all the counter­
cyclical influences into play in this field for two reasons:
Federal Reserve Bank of St. Louis



One, I think it puts a cost on the economy. Second, I think history clearly
shows, just as a general business proposition, that the credits that prove to be
unsound are those accumulated in periods of boom. Credits that you give in
times of depression almost always are good credits. That is its history.
I know what I am talking about when I speak about th a t; particularly from
the standpoint of business it is smart policy and I think from the standpoint
of the impact on our economy it is highly desirable, a highly desirable policy.
I don’t think we have come anywhere near exhausting what can be done to
bring about counter-cyclical losses in the field of credit. This would include
installment credit.
The C h a ir m a n . If you have, say, $5,000,000,000 as you view it it is not
inflationary to keep on reducing that.
Mr. H offman . That is right.
The C h a ir m a n . What is inflationary is if you have $5,000,000,000 and run it
up to $10 000.000,000 over a short period of time.
Mr. H offman . That is right.
The C h a ir m a n . That is the danger situation and that is where if you have
in effect a restraint of the character of regulation W it would enable you to
check that particular expansion.
Mr. H offman . The social factors also, I think, are important because if you
are issuing credit loosely in times of boom— it is always a temptation— then "the
repossessions hit most heavily on those who can least afford the losses and
it is not good for the economy. In other words, any policy that leads to any
substantial volume of repossessions is an unsound policy.
The C h a ir m a n . And, of course, you have the very restraint on the purchase
o f stock in the stock market, another credit control.
Mr. H offman . Yes.
The C h a ir m a n . Besides the general control of bank credit through the control
o f reserves anil open market policies.

m - i 7--- E M I L
C O M M IT T E E ; P R E S ID E N T , T E X T IL E W O R K E R S

C H A IR M A N ,

Mr. R ieve. Purchasing power is now being bolstered by installment buying
which is reaching all-time peaks. This is an unhealthy way to bridge the gap
between income and purchases. Inflation first steals savings and then tends
to continue on its merry way through expanding consumer credit.
O pinions


Consumer Credit R eguiation

[Dun & Bradstreet Survey]

The Survey on Business Expectations and Governmental Policies conducted by
Dun & Bradstreet, Inc., for the Joint Committee on the Economic Report asked
the respondents to indicate whether restrictions on consumer credit should be
“ reduced” or “ maintained without change.”
In general, the respondents who are not directly affected by the regulation__
manu acturing, mining, construction, utilities, and service industries— were about
G to 40 in favor of reduction.
In the rtynaining fields, the following were the results :


ers....... .....................-____ _____________ _ _____
Federal Reserve Bank of St. Louis

N ber P
ercen fo ercen r
t r
g red ction Po ch nto
n a ge




[F ro m


n d u s t r ia l

u r v e y


m p l o y m e n t


e p o r t s


a d e



r e d ic t s

r o m is e d
t o


th e N e w

f o r



Y o rk

r e n d


e c o n d

s s o c ia t io n

T im e s , J u n e

o f




30, 1 9 4 7 ]

n c r e a s e d

a l f

o f

o m m e r c e


u s in e s s

1947— 600
a n d





a t e r ia l

o m p a n ie s

n d u s t r y


p l it


a n d

o l l e d

o f



r ic e

O utlook

Increase in business, in employment, and in availability of materials, with
little change or lower prices for materials, is the outlook for the second half of
1947 as reported by a large proportion of manufacturers in New York City in a
spot survey made public over the week-end by Thomas Jefferson Miley, secretary
of the Commerce and Industry Association of New York, Inc.
Of the companies reporting, among the 600 to whom questionnaires were sent,
views on the mid-year business were expressed as follow s:
Volume of business: 42.5 percent look for an increase; 35.2 percent see no
change; 22.3 percent expect a decrease.
Employment: 43.2 percent expect to increase their labor force; 32.5 percent
will make no change; 24.3 percent plan to decrease.
Material costs: 35.9 percent expect no change in price levels; 33.9 percent look
for lower prices; 30.2 percent say prices will be “still high” or will go higher.
Availability of materials: 47.9 percent report supplies improving; 22.9 percent
say present supplies are available or am ple; 18.8 percent expect continued scar­
city : 10.4 percent expect no change.
With respect to policy to be followed by Government and steps to be taken by
management and labor to assist industry in maintaining a high level of employ­
ment, expressions of opinion were tabulated as follow s:
Housing: 42.7 percent advocate some form of Government assistance in ex­
pediting construction; 22.9 percent recommend elimination of controls or leaving
it to “private enterprise.”
Farm product prices: 52.3 percent believe Government support should be
dropped entirely; 25 percent want support reduced or continued to a limited
extent; 18.2 percent favor continuing present support.
Federal ta x es: 58.8 percent favor unqualified reduction; 25.4 percent want
taxes reduced as much as possible.
Federal expenditures: 84.4 percent advocate reduction; 11.1 percent say “ re­
duce without impairing essential services,” and the balance want no change.
Restriction on consumer credit: 35 percent believe restriction should be lifted;
32.5 percent favor limited restriction ; 24.3 percent want present restriction con­
Voluntary industry-wide agreements to reduce prices: 56.4 percent in favor;
35.9 percent oppose.
For management, these steps were suggested: reduce prices wherever possible,
70.7 percent; develop new products, 69 percent: cut operating costs, 58.6 percent;
do more advertising, 36.2 percent.
Labor was offered these suggestions: cooperate with management in increasing
efficiency, 841 percent; abandon make-work and featherbedding practices,'81
percent; increase output per man hour, 77.6 percent.
The survey was conducted by the Industrial Research Division of the Associa­
tion’s Industrial Development Bureau. Seven of the city’s major industries
were queried : clothing, food, beverages, metal products, paper products, printing,
and radio manufacturers.
[F ro m

a j o r it y


th e T e x a s S o u th w e s t F u r n itu r e N e w s . F e b ru a ry a n d M a rc h 1 94 7]

o u t h w e s t


u r n it u r e


e a l e r s


a v o r


o n t in u a n c e


r e d it


o n t r o l

Retail furniture dealers in the Southwest have expressed themselves as
being “five-to-one” against any immediate termination of credit controls as
currently administered by the Board of Governors of the Federal Reserve Sys­
Almost “ four-to-one” favor specific legislation by the United States
Congress to give the Federal Reserve Bank specific, statutory authority to
continue controls, and to modify or terminate regulations at the discretion of
the Board.
The above statements are contained in a bulletin recently released to its mem­
bers by the Retail Furniture Association of Texas. Inc. Three hundred twentyone furniture retailers replied to a questionnaire which was prepared by authority
0 3 7 3 5 — 4 7 ------------7
Federal Reserve Bank of St. Louis



of the association’s directors. It is believed to be the only comprehensive survey
of retail dealer sentiment that has been compiled within the past 2 years.
The survey to secure the opinion of its members consisted of three principal
questions, with a further break-down by annual volume of sales, and size of
city. A committee which approved the form of the questionnaire decided it
would not be advisable to give dealers the “pro” or “con” arguments which are
customarily advanced by opponents and proponents of regulation W .
The questions and break-down by sales volume and size of city :
A. Would you favor legislation by the United States Congress for immediate
termination of regulation ~W?
42 answered “ Yes”
201 answered "N o ”


Large stores over $150,000 sales annually :
Size city :
Yes N
Under 10,000_______________________________________________________ 1
0* 1
10 to 25,000________________________________________________________
25 to 100,000________________________________________________________ 1
100 to 300,000______________________________________________________ 1
Over 300,000_________________
Total--------------------------------------------------------------------------------------------Medium stores— $125,000 to $350,000 sales annually :
Size city :
Under 10,000-----------------------------------------------------------------------------------10 to 25,000--------------------------------------------------------------------------------------25 to 100,000------------------------------------------------------------------------------------100 to 300,000---------------------------------------------------------------------------------Over 300,000-------------------------------------------------------------- r -------------------







Small stores— Under $125,000 sales annually :
Size city :
Under 10,000------------------------------------------------------------------------------------ 11
10 to 25,000--------------------------------------------------------------------------------------- 3
25 to 100,000________________________________________________________ 5
100 to 300,000--------------------2
Over 300,000— ------------------------------------------------------------------------------ 6
Total_____________________________________________________________ 27



B. Should Regulation W be retained until it automatically ends with the
official declaration of the end of the war emergency f
163 answered “ Yes”
50 answered “ No”
Large stores over $350,000 sales annually:
Size city :
Under 10,000_______________________________________________________ 4
10 to 25.000__________________________________________________ _____
25 to 100,000_______________________________________________________ 3
100 to 300,000______________________________________________________ 4
Over 300,000 ------------------------------------------------------------------------------------ 4
Medium stores— $125,000 to $350,000 sales annually :
Size c ity :
Under 10.000________________________________________________________ 11
10 to 25,000--------------------------------------18
25 to 100,000_______________________________________________________ 7
100 to 300,000______________________________________________________ 8
Over 300,000_______________________________________________________ 4
Federal Reserve Bank of St. Louis






Should Regulation W he retained until it automatically ends with the official
declaration of the end of the war emergency ?— Continued

Small stores— Under $125,000 sales annually:
Size c ity :
Under 10,000--------------------------------------10 to 25.000----------------------------------------25 to 100.000__________________________
100 to 200,000-------------------------------------Over 300,000----------------------------------------








C Do you favor the enactment of legislation to retain Regulation “ TT” after
the end of the war emergency under the supervision of the Federal Reserve
j{oar(j__ granting to the Board authority to modify or terminate control over
199 answered “ Yes”
55 answered “ No”
Large stores, over $350,000 sales annually :
Size city :
Under 10,000-------------------------------------------------10 to 25,000--------------------------------------------------25 to 100,000-------------------------------------------------100 to 300,000-----------------------------------------------Over 300,000--------------------------------------------------Total-----------------------------------------------------------



_____ I




' 4





Medium stores— $125,000 to $350,000 sales annually :
Size city :
Under 10,000-------------------------------------------------10 to 25,000--------------------------------------------------25 to 100,000_________________________________
100 to 300,000_______________________________
Over 300,000________________________________

_________ 13
_________ 21
-------------- 13
-------------- 12

Total----------------------------------------------------------„m an stores— Under $125,000 sales annually :
Size city :
Under 10,000------------------------------------------------10 to 25,000___________________________________
25 to 100,000________________________________
100 to 300,000________________________________
Over 300,000--------------------------------------------------



r k d it


e g u l a t io n


r o s


a n d


o n s








One of our local associations, in the course of a molding, discussed the question­
naire, and reported sentiment of the 13 members in attendance was unanimous
as follows: All voted “No” to question A : all voted “ Yes” to question R ; all
voted “ Yes” to question C. (This, however, is not included in the above com­
pilation, dnless some of these members returned their individual questionnaires.)


Among the separate letters enclosed with the questionnaire:
“Referring to the enclosed questionnaire, I have a strong conviction that
business ultimately prospers when governmental regulations are at a minimum.
There may seem to be some temporary advantages in governmental regulations,
Federal Reserve Bank of St. Louis



but sooner or later these regulations become burdensome and disadvantageous.
I think it is a mistake for business to encourage government to regulate its
affairs. I have a feeling that an organization that fears independent credit com­
petition should not be engaged in the sale of home furnishings * * *
It has
always seemed to me somewhat presumptuous for furniture retailers who are
not interested in the credit business to take the position that dealers who wish
to sell on credit should be curbed. If other stores wish to restrict the extension
of credit, that is definitely their affair. I do not think, however, that they
should encourage the government to curtail the type of business in which other
dealers may be interested * * * To sum up, I am tempermentally and con­
stitutionally opposed to Government controls.”
Ten quotations taken at random from those who opposed regulation are—
1. All wartime Government control of business should be suspended now.
2. I do not feel that business should be hampered by controls of the Govern­
ment on any phase of operation.
3. Maybe we are gun-shy, but we are afraid of anything the Government tries
to handle in the line of individual enterprise. Having seen so many instances
of gross inefficiency on the part of governmental appointees, we want the breed
stopped as soon as possible. Free enterprise has built this nation and it will
hold it up.
4. Government control of private investment in peacetime is definitely wrong
in a free country.
5. I think regulation W was alright during the war and administered well__
but I am opposed to regulation of credit by law7
6. If a person does not have the ability to operate his own business, he will
not be in business long.
7. Although I favor the policy of credit extension advocated by regulation W ,
I do not like government control of any kind; and believe that the average
businessman can see what advantage this control has been to him and regulate
his business accordingly.
8. I am opposed to the Government interfering with free enterprise in any
manner— let’s get them out of business.
9. The terms of W are good, but I am for free, competitive enterprise— and
less government.
10. Throw all war regulations over and get back o i k the law of supnly and
F A V O K A R I .E T O C O N T I N U A N C E



One of the separate letters which favored control:
W e are in favor of retaining regulation W with any reasonable proviso as
should coincide with prevailing economic conditions of the country. W e fully
realize the benefits of the regulation during wartimes, and it is our belief that a
better standard of credit has generally been established through the enforcement
of regulation W . From the standpoint of the smaller store, we who sell, approve
applications for credit and effect collections, certainly have a close personal con­
tact with the customer. In abiding by the regulation, we avoid the obligatory
relation and quote the terms as set forth by the regulation with candor. Certainly
with the small margin of profit on the sale and maintenance of appliances, 33y;i
percent is not too large a down payment— neither is 20 percent on household
furnishings, with 15 months allowed on time payments; whereas, the retailer
must pay his accounts in full on a limited 10 day or 30 day basis.
Ten quotations taken at random from those who favor continuance of credit
regulation a r e :
1. Regulation W , in our opinion, is one of the best things the country ever
had. It has handicapped no one in buying, and sure does make good accounts
and better citizens.
2. W e need regulation to keep the low and medium salaried people from mort­
gaging their salary 2 and 3 years in advance— which eventually would bring a
collapse like 1929.
3. Without credit’ control, we will find ourselves in a similar position to that
of 1929. As soon as the market is saturated with consumer goods, then little
money is in circulation and everyone indebted.
4. This is the only government regulation which was of real benefit to the
furniture dealer.
5. Regulation W has not only been good for the merchant granting credit, but
a help to the people getting credit. I f they know a bill must be paid in 12 to 15
Federal Reserve Bank of St. Louis



months they figure how it can be done. If they have longer, they will not figure,
for it is impossible to plan finances for a longer period than 12 to 15 months for
the people who buy on the installment plan.
6 W e feel that the last depression was caused by the fact that so many people
were mortgaged beyond their ability to pay. Thus, the seller and the buyer
both lost. Regulation W , we feel, will cause at least some of the people to buy
what they can pay fo r ; instead of what they would like to have and will not be
able to pay for.
^ , ,
, .
, ,
7 Large firms will extend longer and longer terms and less down payment—
leading to an oversold condition if regulation W is not continued.
8 Twenty percent down and 12 to 18 months on balance would be fair to
customer and good for the dealer.
9 While we do not favor government control of business, in general, we are
of'the opinion that our economic safety demands control for a while.
10 Regulation W is a life-saver for small business. It is difficult for small
independent business to compete with large credit houses on terms. Small stores
cannot carry large accounts receivable and keep proper inventory without out­
side help from some financial institution.
D anville , V a ., .June 13, 1947.
Mr. M a r r i n e r S. E c c l e s ,
Chairman, Federal Reserve Board, Washington, 1). C.
D e a r Mr. E c cl e s : We, the undersigned retail furniture dealers of Danville, Va.
in the “small business man” class, sincerely believe that some form of credit con­
trol is very desirable and very necessary to prevent the return of the chaotic
credit conditions which existed in this country prior to 1942. Therefore, we
hereby earnestly petition you to do what you can to keep the present regulations
in effect or to draft new ones dealing with down payments and time limit of
Thanking you for your support in this matter, we are
Very truly yours,
Paul W . Cochran, G. M. Sales, In c .; Motley & Lumpkin Furniture Co.,
E. P. M otley; Lewis Furniture Co., B. G. L ew is; R. S. Woolen Fur­
niture Store, R. S. W oolen; C. It. Thomas; ,T G. Bledsoe, Bledsoe
Furniture C o .; Ingram Furniture Co., F. C. Ingram ; Cole Furni­
ture Co., N. W . Cole; Lea-Lewis Furniture Co., H. T. Lea, Presi­
dent ; W . R. Mitchell Furniture Co., It. P. Mitchell, Vice President;
W . E. Scuddarth Furniture Co., W . E. Scuddartli; Elliott Furni­
ture Co., E. L. Elliott; Clutter Bros. Furniture Co., by R. V.
Clutter; Taylor Mattress Co., W . M. Rowe; W . K. W yatt, W yatt
Furniture Store; Danville Supply Co., J. II. Mehaffey.
T h e P eo ples S a v in g s B a n k .

Cedar Rapids, Iowa, June 14,1947.
Gov. R. M. E v a n s ,
Federal Reserve System, Washington, D. C.
D ear M r. E v a n s : The enclosed cartoon appeared in this week’s Cedar
Rapids Tribune. I am sure you will remember something about our local labor
paper and I thought you might wish to present this cartoon to Mr. Eccles.
I cannot speak for all the banks in Cedar Rapids, but we, here at the Peoples,
have been in the automobile and personal loan business for more than the past
20 years and because of our experience in this field, we agree with Mr. Eccles
and this cartoonist.
In discussing the subject at our officers’ meeting yesterday, we were unani­
mous in our opinion that Mr. Eccles is right when he insists that some controls
are needed. W e feel that if all controls are lifted, competition between linance
companies and banks plus pressure from the automobile and farm implement
manufacturers, are very apt to produce a volume of paper much greater than
has ever been known before in the history of our country. When the recession
time arrives, the FD1C might very well be giving serious consideration to es­
tablishing a division for the sale of used automobiles, farm machinery, radios,
The Cedar River is on a rampage due to heavy rains north of here and the
best guess this morning is that we will have water just as high as in 1929.
I understand most of the members of our city council got very little sleep last
If Ronald Ransom is back on the job. tell him I said “howdy.”
Kindest regards.
Sincerely yours
F r a n k C. W e l c h , President.
Federal Reserve Bank of St. Louis



[From the Cedar Rapids Tribune, June 12, 1947]

Look Out for a Bust

R e p r e s e n t a t iv e W


in n e a p o l i s

14, M i n n ., May 12, 19 ',7.

J udd,

House of Representatives, Washington, D. C.
R e p r e s e n t a t iv e J u d d : The Minneapolis Antiinflation Council, an or­
ganization of 75 women from the various church, consumer, labor, and civic or­
ganizations of this city, voted at its last meeting to support the restrictions on
installment buying that are now in effect. This action was taken after a con­
sideration of the inflationary danger of expanded consumer credit at this time.
W e are aware that total consumer credit, most of it for installment buying,
now outstanding has doubled since 1944, and that the total now equals the'pre­
war peak. The volume of consumer credit continues to expand even with the
present restrictions. W e are aware that there are numerous powerful forces
at work applying pressure for the removal of these restrictions.
W e ask that you lend your support to measures that will help keep the
lid on further inflation. W e ask that you help to protect the American con­
sumer from this credit bubble that is such a threat to our continued prosperity.
D ear
Federal Reserve Bank of St. Louis



W e ask finally that you work for the maintenance of credit restrictions until such
time as the economy becomes stable enough to bear a larger amount of con­
sumer credit.
Very respectfully yours,
M rs. M a g n u s O l s o n , Secretary,
Minneapolis Antiinflation Council.

A s s o c ia t e s I n v e s t m e n t C o..

South Bend, Ind.. March 21,
Dr. C art, E. P a r k y .
In Charge of Consumer Credit Regulation,
Federal Reserve System, Washington 25, D. C.
D ear D o c t o r : I notice from press releases that there has been some agitation
to eliminate regulation W. We, in our company, have given the matter consid­
erable thought and do not see the necessity of such elimination at this time. If it
were eliminated I am afraid that terms, due to a competitive situation, might
become quite long and the down payment quite small on used cars. W hile it will
probably be some time before new cars are available to purchasers generally,
vet they are becoming sufficiently available that the deflationary effect in used
cars is becoming noticeable. This does not mean, of course, that the terms could
not be relaxed a little later on; for instance IS months, or possibly 24 on new
ears would not be out of the way. I do not believe there is any necessity now
for changing the down payment.
I thought I would like to write you this in view of the fact that you are
getting numerous requests for a change or elimination entirely of regulation W .
This was not exactly ourjopinion a few months ago.
Every good wish to you, and many thanks.
Sincerely yours,
E . M . M o r r is .
A s s o c ia t e s I n v e s t m e n t C o ..

South Bend, Ind., April 11. lf)Jf7.
D r. C a r l E. P a r r y ,

In Charge of Consumer Credit Regulation.
Hoard of Governors,
Federal Reserve System. Washington 25. 1). C.
D ear D o c t o r : According to news releases I rather gather that it is going to
he the attitude of the Federal Reserve Board that unless regulation W will become
permanent by legislation, it is their wish that the regulation be abandoned. I
dislike to see this situation prevail inasmuch as I have heard no one say recently
that they felt the regulation should be abandoned.
I believe there is some feeling now that it could be liberalized, such as, perhaps,
on new cars an extension could be made to 24 months and on used cars IS months,
the down payment to remain one-third. However I think there is some feeling
that the down payment on new cars could easily be made 25 percent.
I know you are looking for expressions of sentiment, and I believe this is not
far from the viewpoint of most operators in our line of business. As I told you
previously, G months or longer ago the feeling was more pronounced along more
liberal lines.
Sincerely yours,
E . M . M o r r is .
D e p a r t m e n t S tore E c o n o m is t ,

F ew York 17, N. Y., October 31. ll)J,6.
M r. M a r k in e r S. E c c l e s ,

Chairman*, Federal Reserve Board. Washington, I). C.
D ear M r . E c c l e s : I imagine you are being swamped with resolutions and pleas

for tin' discontinuance of regulation W . To be sure the Retail Credit Institute
is for killing it. But I want you to know that there are two sides to it and two
sets of thinking. This publication happens to represent the thinking of depart­
ment stores throughout America, going regularly to every executive in every
department store and departmentized specialty shop in America doing a volume
of .$100,000 or more annually.
Federal Reserve Bank of St. Louis



Not all, but the majority— I think over 60 percent— are for the retention of
regulation W . While the board of directors of the National Retail Dry Goods
Association voted the other day 16 to 6 for rescinding the regulation, even their
vote was somewhat smaller in connection with the regulation of installment
accounts than it had been where charge accounts were concerned. The stores who
wanted the regulation continued— I repeat over 60 percent— even though in a
modified fashion, said that the regulation assisted the smaller stores in meeting
the competition of the larger ones on credit term s: a big-league attitude. Those
stores favoring abolition, simply “want the Government out of business.”
I am enclosing copy of an editorial, written by John Guernsey, which appeared
in our last issue, October 1, and created considerable discussion. Guernsey,
as you may know, was at one time head of the Controllers’ Congress of NRDGA,
and keeps thoroughly abreast of conditions today. I am also enclosing a copy
of an editorial I have written for our December 1 issue (November issue is on
the press).
' I thought you might be interested. You undoubtedly always hear more from
the cons than the pros. I think it would be very bad for business to completely
wipe out regulation W at this time.
D . A l l y n G arber.

Editor and Vice President.
T h e F ir s t N a t i o n a l B a n k .

Denver, Colo., November 15, 1946.
M arr t n er S. E c ci .e s , E s q .,

Chairman, Federal Reserve Board, Washington, D. C.
D ear M a r r i n e r : Since the removal of price controls, particularly on used

automobiles, we have been concerned lest the various automobile dealers and
finance companies to whom we lend might, in the face of scarcity and unsound
competition, unduly increase the dollar amount of their loans to purchasers
buying used cars at inflationary prices.
I thought, in view of the pressures the Board must be under to remove con­
trols, that you would be interested to know that we and many o f our customers
with whom we have discussed the matter, hope very much that the Board may
decide not to relax regulation W at this time.
W ith personal regard, I am,
Sincerely yours,
Jo h n E v a n s .
R e s o l u t io n

Whereas under authority of section
(b) of the act of October 6, 1917, as
amended, and Executive Order No. 8813, dated August 9, 1941, and effective
May 6, 1942, regulation W has been in force and effect for more than 4 years, and
Whereas credit regulation W has resulted in considerable benfits to the
general public and merchants; now therefore be it
Resolved by the Board of Trade of the City of Frankfort, K y., (1) That it go
on record as wholeheartedly endorsing the provisions of credit regulation W .
(2) That the members of Congress from this State be urged to use their best
efforts to insure that credit regulation W is continued in full force and effect
as a permanent law or regulation.
(3) That a copy of this resolution be sent to Hon. Alben W . Barkley, United
State Senator from Kentucky, Senate Office Building, Washington, D. C., to
Hon John Sherman Cooper; to Hon. Virgil Chapman, Congressmen from
Kentucky, House Office Building, Washington, D. C .; and to the Board of
Governors of the Federal Reserve System, St. Louis, Mo.

C a l if o r n ia B a n k e r s A

s s o c ia t io n ,

San Francisco 4, Calif., April 28, 1947.
Re Regulation W .
To The Member Bank Addressed:
Although current reports emanating from Washington indicate that regulation
W will be continued as long as it is effective in relieving inflationary pressure,
Federal Reserve Bank of St. Louis



e x p e rie n c e w ith oth er c o n tr o ls sh o w s th a t th e re g u la tio n m a y be te r m in a te d
su d d e n ly a n d w ith o u t a d v a n c e notice.
I n a n tic ip a tio n o f such a d e v e lo p m e n t, th e co n su m e r c re d it c o m m itte e re c o m ­
m en d s th a t each m em b er b ank en ga ge d in co n su m e r c re d it g iv e im m e d ia te an d
se rio u s th o u gh to th e p ro b le m s th a t m a y a r is e in con n e c tio n w ith b o th s a le s
c re d it an d cash le n d in g u n d e r h ig h ly c o m p e titiv e c o n d itio n s.

Prior to regulation W there was very little uniformity with respect to interest
’ates and maturities in consumer, credit. This was due in part to competition
by the different types of lenders for the available business. Since competition
has been increased by the recent entry of several thousand banks into this field,
it is reasonable to assume that whenever the regulation is lifted competitive
lending agencies will again use “ terms” as a medium of business soliciation.
The committee feels that each bank should prepare for the day when competi­
tion in the consumer credit field will again be free and unrestricted. No specific
formula for rates and maturities can be offered which would be suitable for each
community but experience gained under regulation W and a careful analysis of
collateral values of consumer goods and local and national economic trends will
serve as a guide in establishing the individual bank’s policy. One of the most
serious mistakes that could be made would be to meet the terms of other lending
agencies without regard for sound loaning principles and operating costs.
Your committee will be happy to serve in an advisory capacity on any con­
sumer credit problems you may have. Please address your inquiry to the
committee in care of the association office.
D. Z. A l b r ig h t ,
Chairman, Committee on Consumer Credit-

[F ro m

G und S

t h e C le v e la n d

e k s

P re s s , N o v e m b e r 7, 1 9 4 6 ]

L ess D anger


V io l e n t I n f l a t io n

(B y Robert Seltzer)
There is less danger of more violent inflation, with the victorious Republican
Party pledging to reduce expenditures and try to balance the budget, George
Gund, president of the Cleveland Trust Co. and ardent foe of inflation, said today.
Guild, in an interview, asserted: “Congress will work hard for a tax reduc­
tion. It is difficult to obtain immediately, and we should not be too optimistic
about it in the very near future.
“ D e p a r tm e n t-s to r e s a le s re m a in h igh , b u t a f t e r th e first o f th e y e a r th e re
p ro b a b ly w ill be a m a rk e d declin e in th e d e m a n d fo r s o f t go o d s, w ith c a n c e lla tio n s
in so m e lin e s.

“ Labor will be more responsive. The play period, to a degree, has terminated.
Labor realizes a lesson that, had it come earlier, would have been much more
salutary. W e will have more production and teamwork, better relationship of
capital and labor.”
Gund, built like a fullback, a vigorous man with bushy brows and a shock of
dark hair little touched by gray, said the reduction of expenditures and balancing
of the national budget “ will be a slow process because the job confronting the
Republicans is so huge.”
“ The stock market,” said Gund, “ doesn’t discount the same thing twice. It
discounted belatedly the Republican victory. It realized that election of a
Republican Congress doesn’t mean a Miry wand will be waved miraculously.
Congress will need insight and co-operation and understanding in its approach
to its problems— and I think it will have them.
“ The Republican victory will have a minor deflationary effect. W e still have
a great shortage of goods. It is subject to cancelation in some lines to a certain
degree, but still there is a definite shortage and quite a bit of money available.
Savings at the Cleveland Trust still are increasing, but not on the basis they
formerly did.”
Gund said the absence of margins makes for a “ thin” stock market, and “ in that
sense, a dangerous one.”
“The 100 percent cash market may have been necessary,” he said. “ It may
have prevented larger losses. People were buying indiscriminately, and many
lost— margins or not. Yet one mustn’t lose sight of the fact that it’s possible to
borrow on stocks outside of the New York Stock Exchange.”
Referring to regulation W , which restricts the time on installment buying and
specifies percentage of down payments, Gund asserted: “ If we didn’t have regu­
Federal Reserve Bank of St. Louis



lation W there would be a wild scramble to extend terms, and a bad competitive
“ Timing isn’t right to rescind or repeal it. Regulation W lias prevented some
unwise extension of credit. It should remain in effect until we more nearly
balance production and demand. Eventually W can be extended as production
Gund said a prime source of credit inflation now is the nearly $10,000,000 000
of financial, commercial, and agricultural loans, much of which is being used to
finance inventories which have grown to large proportions. He said this was
“ dangerous at the moment,” and asserted its most spectacular side was the recent
cotton debacle.
A t l a n t a , G a ., May 26, 191,7.
M a r r in e r S. E c c l e s ,

Chairman, Federal Reserve Board, Washington, D. C.
This company operates 28 retail furniture stores, selling on installment in
seven southern States. This is its twentieth year. It is our opinion that regu­
lation W should be only modified at this time and controls not entirely lifted
until all types of merchandise are plentiful and at a level comparative to
present dollar purchasing power. W e believe that eliminating all controls at
this time would cause temporary flurry for several months and make artificial
demand. W e therefore urge that controls at this time be only modified, but not
eliminated entirely.
N a t i o n a l M a n u f a c t u r e a n d S tores C orporation
L a w r e n c e M . F o x , President.

D e n v e r I n d u s t r ia l B a n k ,

Denver 2. Colo., June 25, 191,7.
Hon. E dwin C. Johnson ,
United States Senate, Washington. D. C.
M y D e a r S e n a t o r : Concerning the proposals by the Banking and Currency
Committee on the continuation of controls governing installment sales, described
as regulation W of the Federal Reserve Bank, I have some recommendations
to make which warrant consideration.
In the event the controls are taken off. many small under-capitalized businesses
must immediately fold up because they will be unable to compete in the money
market. The Government would be called upon to establish lending agencies
or to broaden the authority of the Reconstruction Finance Corjioration to permit
loans to this class of business.
Under regulation W , installment sales can be readily financed for the reason
that the borrower or the consumer has considerable equity in the purchased item.
It is my prediction that, if regulation W , or a similar control, is not in effect,
you may expect a mortality of at least one-third of all small consumer, durable
goods sellers having a capital of $5,000 or less.
I am of the firm opinion that this is a matter for consideration by the Small
Business Men’s Committee, as well as the Finance Committee.
While it is true that I do not voice the sentiment of the majority of the}
industrial bankers, as evidenced by a vote taken at a meeting of the American'
Industrial Bankers’ Association recently held in Denver, I put forth this state­
ment: When the small businesses compete in the money market, they must fold up.
The American Retail Federation is urging the discontinuation of regulation W.
Tlii.s organization advances the views of the large mail order houses who support
its Washington office and who have secured membership from a lot of small
dealers who do not understand the real imi>ort.
In a discussion with Roseoe Rail, executive vice-president of the National
Retail Furniture Association during a meeting of the American Banking AssociatiQii in St. Louis, he said that his membership was hopelessly divided on the
question of the continuance of regulation W , and that this division was not large
firms against small firms, but many of the larger dealers felt that it would
be only a matter of time until installment lending would go back to 50 to 00
months payments.
If any change is to be made in the regulation, I would not change the down
payment, but would extend the payments on automobiles up to 24 months, and
on furniture, to 18 months.
Federal Reserve Bank of St. Louis



I make the following additional statement on automobile sales: Prior to
regulation W , the rule of the industry was 30 percent down and not more than
24 months. There was no similar established practice in the retail furniture
business, but the public has been educated to pay down 20 percent and the
balance in 12 months. This is not a discriminatory regulation as the American
Retail Federation would have you believe, but only a requirement of sound
business practice on the part of the Government.
Yours very truly,
H. C . D e n n y , Vice President.
C o m m e r c ia l I n v e s t m e n t T ri


I n c ..

New York 16, N. Y„ May 6, 19h7.
Hon. C h a r l e s W . T o b e y ,
Senate Office Building, Washington, D. C.
D ear S e n a to r T o b e y : A s a person vitally interested in the question of ter­
minating regulation W of the Federal Reserve Board, I am writing to ask your
views on the matter. As chairman of the Banking and Currency Committee, you
may he sure that your public position, if one has been taken, would be of ex­
ceptional interest to me.
With many others engaged in manufacturing, retailing and the granting of
credit, my associates and I view regulation W with sincere opposition. Opinions
which we read from spokesmen for the Federal Reserve Board and the adminis­
tration are erroneous and run counter to the vast body of opinion of leading
economists which minimizes the importance of consumer instalment credit on
our general economy. This statement can be thoroughly documented through
leading authorities if you are interested. It is enough to say that consumer
instalment credit obligations incurred in any period usually amount to not more
than 2 percent of the total national income for the period. There are other im­
portant persuasive and significant economic facts supporting this conclusion.
Thank you for considering my views in this matter, and please be assured tlmt
I would welcome any expresson of your position on the matter as an indication
of the attitude of a leader of your party on this matter of national controversy.

L . W

il l ia m

il s o n


N e w Y o r k , N. Y., July 2, 19'H.
Hon. C h a r l e s W . T o b e y .
Chairman. Senate Committee on Banking and Currency,
United States Senate.
The Eastern Electrical Wholesalers Association on behalf of our 175 inde­
pendent electrical wholesaler members along the eastern seaboard respectfully
urges that you favorably consider the discontinuance of regulation W on the
ground that it restricts purchase by our citizens who are desirous of buying out
of income and are opposed to the dissemination of their savings. Thèse elec­
trical appliances are no longer in short supply and are constantly becoming
available for the greater living comfort of our citizens. W e feel the purchase of
same should be permitted in the manner most convenient without legislative
E astern E

Federal Reserve Bank of St. Louis

l e c t r ic a l


h olesalers


s s o c ia t io n .