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FEDERAL RESERVE BANK OF NEW YORK Fiscal A g en t o f the U nited States r C ircu la r N o . 3 6 3 1 T L D e ce m b e r 2 0 , 1950 J C H A N G E IN G R O U P I N G O F T R E A S U R Y T A X A N D L O A N D E P O S IT A R IE S To all Treasury tax and loan depositaries in the Second Federal Reserve D istrict: Effective December 21, 1950, all T reasu ry tax and loan depositaries will be divided into two groups, as fo llo w s: Group A — A ll depositaries having T reasu ry T a x and Loan Account balances of $100,000 or less at the close o f business December 20, 1950. Group B — A ll depositaries having T reasu ry T a x and L oan A ccount balances of m ore than $100,000 at the close o f business December 20, 1950. This grouping o f depositaries will be continued until further notice, notwithstanding any subsequent changes in the size o f the T reasu ry T a x and Loan Account balance of any such depositary. Calls upon depositaries in Group B w ill continue to be made fro m time to time on relatively short notice in accordance w ith the T re a su ry ’ s requirements fo r funds, and calls upon depositaries in G roup A will in general be made less frequently. A llan S proul, President. FEDERAL OF RESERVE NEW BANK YORK C O N S U M E R C R E D IT Summary o f Interpretations Issued by the Board o f Governors o f the Federal Reserve System B efore June 30, 1949, W hich A re A pp licab le U nder Regula tion W As Issued Effective September 18, 1950, and As Am ended Decem ber 1950 L F R e d e r a l o f N e s e r v e e w Y B a n k o r k December 21, 1950 To Lenders and Certain Others Concerned ivith Regulation W in the Second Federal Reserve D istrict: In view o f the fact that Regulation W , which became effective Septem ber 18, 1950, is similar in many respects to Regulation W which was in effect until June 30, 1949, a number o f the interpretations which were issued by the B oard o f Governors o f the Federal Reserve System before the latter date are applicable under the present regulation, as amended. This pamphlet contains a summary o f those interpretations issued by the Board o f Governors o f the Federal Reserve System, printed in such form as to facilitate you r keeping it with your copy o f the present regulation. These summaries, however, must be treated merely as examples which demonstrate certain principles, and they should be used on ly as aids in studying the application o f the regulation. Since the complete facts involved in the administrative interpretations upon which the summaries are based are not set forth in fu ll in the summaries, there can be no assurance that the facts in new situations will be identical with those o f the interpretations as condensed in the summaries. Therefore, caution should be exercised against reaching a conclusion in a given case solely on the basis of similarity to any one o f the summaries. References to sections o f the regulation in the summaries refer to sec tions of the present regulation which, in some cases, carry different numbers than the earlier regulation. "Without altering the principles expressed in the underlying interpretations, some o f the summaries refer to other differ ences between the present regulation and the earlier regulation. The summaries are arranged in approxim ately the same order as the provisions o f the regulation to which they relate. A dditional copies o f this pamphlet will be furnished upon request. A llan S proul, President. CONTENTS [N ote : Where a section o f the regulation is cited in a summary, that section is indicated in brackets after the summary heading.] S u m m ary N o. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 S u m m a ry H ea d in g P a ge Registrants mav not purchase, discount, or lend upon nonconforming paper [Sec. 2 ( a ) ] ....................................................................................................................... Isolated transaction [Sec. 2 ( a ) ] ........................................................................................ Advance by an organization to its agent [Sec. 7 ] ........................................................ Registration not required i f all credits are exempt [Secs. 2 (b ) , 7 ] ......................... Re-registering not required upon removal o f office....................... ................................ Transfer o f equity .............................................................................................................. Conversion o f noninstalment credit................................................................................... Free merchandise and rebates [Sec. 3 ( b ) ] ..................................................................... Insurance relating to listed article [Secs. 3 (a ), 3 ( b ), 6 ( c ) ] .................................... Service relating to listed article [Secs. 6( h) , 8( j ) (7 ) J.............................................. Agreement to convert charge account [Secs. 3 (a ), 6 ( f t ) ] .......................................... Delay in delivery [Secs. 6(a ), 6( b ) ] ............................................................................... Instalments in decreasing amounts [Secs. 3 ( b ) ( 1 ) , 4 ( c ) ( 1 ) ] .................................. Minimum monthly payments [Secs. 3 (b ), 4 ( c ) , 5 ( a ) ] ................................................ Waiver or skipping o f instalment payments [Secs. 3, 6(a ), 6(b ), 6 ( h ) ] ............... Record o f Instalment Sale [Sec. 6 ( c ) ] ........................................................................... Financing replacement article .......................................................................................... Obligation payable to seller or financial institution.................................................... Balloon note [Sec. 4 ( c ) ] .................................................................................................... Statement o f Borrower [Sec. 4 ( d ) ] ................................................................................. Loan over $2,500 or $5,000 [Sec. 7 ( a ) ] ......................................................................... Add-on sale over $2,500 or $5,000 [Sec. 7 ( a ) ] ............................................................... Reduction in interest rate [Secs. 4 ( c ) , 5 (a ), 5 ( a ) ( 2 ) ] .............................................. Defaulted obligations [Sec. 5 ( c ) ( 1 ) ] ............................................................................. Resale o f repossessed listed article [Sec. 5 ( c ) ] ............................................................. Listed article installed in house [Secs. 6(d ), 7(7 »)(1), Part 2 o f the Supplement] ....................................................................................................................... Credit for mixed purposes [Sec. 6( d ) ] ........................................................................... Sale or delivery on trial [Secs. 3 (a ), 6 ( / ) ] ................................................................... Delivery prior to down payment [Secs. 6 ( / ) , 6 (7 i)].................................................... Side loan to make down payment [Sec. 6( t ) ] ................................................................ Additional credit and release o f collateral [Sec. 6 ( t ) ] ................................................ Automobile demonstrator exemption [Secs. 7 (c ), 8( a ) ] ............................................ Sale o f “ demonstrator” autom obile................................................................................ Loans to carry securities [Secs. 7 ( g ) , 7 ( f c ) ] ................................................................. Loans to purchase building and loan shares [Sec. 7(<7) ] ............................................ Investment securities [Sec. 7 ( g ) ] ...................................................................................... Orthopedic and related devices exempted [Sec. 7 ( i ) ] .................................................. Preservation o f records [Secs. 4 (d ), 8 ( a ) ] ................................................................... Consumer-violator ................................................................................................................ Bank discounting obligation [Sec. 8 ( e ) ( 2 ) ] ................................................................. Verification o f loan value [Sec. 8 ( c ) ( 2 ) ] ..................................................................... Effective date— pre-September 18, 1950, contract........................................................ Single payment or instalment c r e d it ................................................................................ Joint instalment sale to several purchasers..................................................................... Accessories sold with automobiles [Sec. 8 ( j ) ( 7 ) ] ........................................................ “ Cash price’ ’ established by instalment seller [Part 1 o f the Supplement]........... Repairs and replacement parts [Part 1 o f the Supplement]...................................... Automobiles ........................................................................................................................... Cooking stoves and ra n g e s.................................................................................................. Ironers ..................................................................................................................................... Refrigerators ......................................................................................................................... Washing m achines................................................................................................................ Radios, television sets, phonographs.................................................................................. Furniture ............................................................................................................................... Small deficiencies in down payments [Sec. 6( e ) ] ........................................................ Excess down paym en t.......................................................................................................... Calculating down payment on automobiles [Secs. 6(t), 8 ( j ) ( 7 ) , Part 4 o f the Supplement] ....................................................................................................................... Calculating down payment 011 Group B listed articles [Sec. 6( h) , Part 5 o f the Supplement] ....................................................................................................................... 1 1 1 1 1 1 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 8 8 8 9 9 9 10 10 10 10 10 10 10 11 11 11 11 11 11 12 R E G U L A T IO N W C O N SU M E R C R E D IT S u m m a r y o f In te r p r e ta tio n s * 1. Registrants may not purchase, discount, or lend upon non con form ing paper.— A n obligation arising out o f a bona fide transaction between two individuals not “ engaged in the business” as described in section 2 (a ) o f the regulation, and consequently not subject to its requirements, may not subsequently be purchased or discounted or accepted as collateral by any Registrant if it shows on its face any failure to com ply with the requirements o f the regulation or if the Registrant knows o f any fact by reason o f which it fails to com ply. 2. Isolated transaction.— A lthough an automobile salesman may sell his demonstrator as an isolated transaction on terms which do not com ply with the regulation, the dealer-employer, if a Registrant, may not purchase the resulting obligation unless it complies with the requirements o f the regulation. O f course, if the relation o f the salesman and the dealer is such that the automobile is in effect the p roperty o f the dealer rather than o f the salesman, the sale would be subject to the regulation. A n organization which purchases substantial numbers o f automobiles fo r cash and sells them to its salesmen on a m onthly payment plan is “ en gaged in the business” described in section 2 (a ) o f the regulation and the sales must com ply with the down payment and other requirements o f the regulation. 3. A dvance by an organization to its agent.— A n advance made by an organization, such as an insurance com pany, to one o f its agents which is repayable in instalments is subject to the regulation to the same extent as any other instalment loan. It would not be subject to the regulation if it is an isolated loan made by a com pany not ‘ ‘ engaged in the business ’ ’ o f making instalment loans; or if it is exempt under section 7 as, fo r example, a loan to an agent to pay office rent or salaries o f his employees (section 1 ( b ) ) . 4. Registration not required if all credits are exempt.— A person need not register as required under section 2 (6 ) o f the regulation if every exten sion o f consumer credit made by him is exempt from the provisions o f the regulation by section 7. 5. Re-registering not required upon rem oval o f office.— It is not neces sary for a Registrant already registered to file another registration state ment upon m oving its principal office to another Federal Reserve district. 6. Transfer o f equity.— W here the original instalment purchaser o f a listed article transfers his equity to another purchaser by transferring the * Published in F e d e r a l R e g iste r , November 17, 1950 article subject to the original debt and lien, the transfer being arranged directly between the parties and not by or through any Registrant, the transfer may be made without restriction under the regulation provided the original purchaser (who is not a Registrant) remains liable on the contract and there is no change in the contract except the addition o f the signature o f the new purchaser. However, if the original purchaser is released, or the terms o f the contract are altered, the same requirements w ould apply as if the Registrant were making an ordinary instalment sale o f the listed article. 7. Conversion o f noninstalment credit.— W here an entire credit in good faith originates as and is evidenced by an obligation payable in a lump sum, its later conversion to an instalment basis by the same Registrant does not make it subject to the regulation as an “ instalment cre d it” . I t is essential, o f course, that the original transaction be in good faith and not a subterfuge. 8. Free m erchandise and rebates.— A n instalment vendor o f a listed article is not prohibited by the regulation from making a bona fide “ fr e e ” g ift o f other merchandise to the buyer o f a listed article, provided the trans action is consummated on the basis o f the “ bona fide cash p rice ” o f the listed article. A cash price would not be bona fide if it were raised to permit the so-called ‘ ‘ free ’ ’ gift, and such a practice would be an evasive device to circumvent the down payment requirement. In the latter case the record required by section 3(&) should show the “ bona fide cash p rice ,” rather than the inflated price, on which the customer made the required down p ay ment and the resulting time balance; and, if so handled, the “ fr e e ” g ift would not violate the regulation. A bona fide discount or rebate on the sales price o f a listed article is not prohibited by the regulation. In such a case the aforementioned record should show that an article selling at a particular price was reduced to a price net o f discount upon which the required down paym ent was obtained. 9. Insurance relating to listed article.— W hen insurance relating to a listed article is sold or financed in connection with the listed article by the Registrant who sells or finances the listed article, the insurance can not be treated as a separate exempted sale o f an unlisted article, but must be in cluded in the “ time balance” as required by sections 3 (a ) and 6 ( c ) , and must be scheduled fo r repayment within the applicable maximum maturity as specified in sections 3 (a ) and 3(& ). The same treatment is required in the case o f instalment loans. 10. Service relating to listed article.— W hen a service relating to a listed article is sold or financed in connection with the listed article by the Registrant who sells or finances the listed article, the service can not be treated as a separate exempted sale o f an unlisted article, whether or not the service is covered b y a separate contract. The service must be included 2 as a part o f tlie “ cash p rice ” o f the listed article in com puting the maximum loan value or down payment, and must be scheduled fo r repayment in the manner applicable to the listed article. In the usual case, the amount charged fo r the service would be essentially a part o f the selling price o f the article, and section 8 ( ; ) ( 7 ) specifically includes “ the bona fide charge fo r any services sold or financed in connection with the article” . Section 6( h) re garding evasive agreements also m ight be relevant in the consideration o f such matters. 11. Agreem ent to convert charge account.— The sale o f a listed article in a charge account with an agreement or understanding that the credit will later be converted into an instalment contract violates sections 3 (a ) and 6 (* ). 12. Delay in delivery.— I f in an instalment sale subject to the regula tion the article sold is not going to be delivered until a date subsequent to the date o f the contract, section 6(&) permits the maximum m aturity to be calculated from the date o f delivery; and, except as perm itted by section 6 (a ), the first instalment shall be scheduled to fall due not later than one month after the date o f delivery with, o f course, the option under section 6(&) o f making the 15-day adjustment permitted by that section with respect both to the maximum m aturity and the date o f the first instalment. 13. Instalments in decreasing amounts.— Sections 3 (6 ) (1 ) and 4 ( c ) (1) are worded in the alternative. F or example, a first instalment of, say, $65 may be follow ed b y the remaining permissible number o f scheduled instal ments of, say, $25. 14. Minim um m onthly payments.— The $5 minimum m onthly payment requirement o f sections 3(& ), 4 ( c ) , and 5 (a ) does not prevent the last scheduled instalment payment o f a regulated obligation from being less than $5. 15. W aiver o r skipping o f instalment payments.— A prearrangement in the form o f a “ side agreem ent” or understanding that the first instalment paym ent o f the time balance arising from an instalment sale w ill be waived or paid by the Registrant, would contravene section 6 (b ) and, in effect, would constitute provision fo r refund o f a part o f the required down p ay ment contrary to sections 3 and 6(fe) o f the regulation. In view o f the perti nent sections o f the regulation, any arrangement or understanding at the time the credit is extended providin g fo r the skipping o f any instalment payment, including the first, would be contrary to the regulation unless, o f course, the case were such as might be covered under section 6 (a ). 16. R ecord o f Instalment Sale.— The “ record o f an instalment cred it” as described in section 6 (c ) need not be on a single sheet o f paper and need 3 not use the term inology used in that section. The cash price may be shown as a total without itemizing taxes and accessories, but the accessories must be identified. 17. Financing replacem ent article.— W here any o f the insurance p ro ceeds received in settlement fo r an irreparably damaged listed article are used as a down payment on a replacement listed article rather than toward paym ent o f the loan previously made to finance the purchase o f the damaged article, it would be in violation o f the regulation fo r a Registrant to make a new advance to the borrow er to purchase a replacement article in an amount which, when added to the old loan balance, w ould exceed the m axi mum credit value o f the replacement listed article. 18. O bligation payable to seller o r financial institution.— I f the seller o f a listed article takes an instalment note in payment, the transaction is a sale subject to the regulation, whether the note is payable to the seller or to a bank or finance com pany. I f the seller o f an unlisted article takes a note payable to himself, the transaction is exempt from the regulation because the regulation does not apply to the sale o f an unlisted article. However, if the seller o f an unlisted article takes an instalment note payable to a bank or finance com pany, the transaction (depending, o f course, upon the princi pal amount involved) is subject to the regulation as an instalment loan. 19. B alloon note.— A note evidencing an unclassified instalment loan, fo r example, which calls fo r 11 equal monthly payments follow ed by one larger paym ent meets the requirements o f section 4 ( c ) if, assuming the maximum permissible m aturity to be 15 months, there is an express agree ment that when the tw elfth payment falls due, only one-fourth o f it will be paid on that date and the rest will be refinanced into 3 m onthly payments in such manner that the net result w ill be 15 substantially equal monthly payments. 20. Statement o f B orrower.— W here there are several parties to a note, some o f whom are accommodation makers, the Statement o f the Borrower required by section 4 ( d ) need be obtained on ly from the party who received the proceeds o f the loan. 21. Loan over $2,500 or $5,000.— A loan over $5,000 is not subject to the regulation even if a part o f it is to be used to pay off an indebtedness which was subject to the regulation. The renewal or revision o f a loan which was originally more than $5,000 is not subject to the regulation even though the balance at the time o f renewal or revision is less than $5,000. I f instead o f renewing or revising such an obligation, the lender makes one instalment loan o f less than $5,000, part o f the proceeds o f which are to be used to pay off the old obligation, only the part o f the loan representing new money is subject to the regulation. In such cases, however, it would ordinarily be better practice fo r the lending institution to keep the two credits separate. 4 A ppropriate modification in the application o f these principles are necessary, o f course, in the light o f the provisions o f section 7 ( a) o f the regulation. 22. A dd-on sale over $2,500 or S5,000.— A n add-on sale o f a listed article having a cash price o f $900 which is consolidated with an existing obligation o f $4,200 resulting in a total credit o f more than $5,000, is not subject to the regulation, and therefore no down payment is required in connection with the add-on sale. However, if the total credit is less than $5,000, the down paym ent is required. A ppropriate modification in the application o f these principles are necessary, o f course, in the light o f the provisions o f section 7 (a ) o f the regulation. 23. R eduction in interest rate.— A good faith reduction in the interest on a pre-September 18, 1950 instalment loan which would be effected simply by a letter from the lender to the borrow er and which, except fo r a pro rata scaling down o f instalment payments, would not otherwise change or m odify the obligation, would not constitute a “ revision’ ’ o f the loan under section 5 (a ) o f the regulation so as to require compliance with that section. H ow ever, if an instalment loan were one subject to the regulation, a reduction o f interest should not result in scheduled payments below the minimum amounts required b y sections 4 ( c ) and 5 (a ) (2 ). 24. Defaulted obligations.— Section 5 ( c ) ( 1 ) permits a Registrant to renew or revise an obligation on such terms as he deems necessary in good faith, where the obligation is in default and the subject o f bona fide collec tion effort by him and the action is fo r his own protection. Only the Regis trant holding the obligation is permitted to make such renewals or revisions. A nother Registrant, however, may discount and receive payments upon an obligation which p rior to discount has been renewed or revised as permitted by this section. The section also permits a Registrant who has purchased a delinquent instalment obligation and who has exercised a bona fide collec tion effort, to revise the obligation on terms not initially permissible. A ny renewal or revision pursuant to this section must be the last resort (except, o f course, litigation) and a measure to be taken only after other means o f collection have been exhausted. 25. Resale o f repossessed listed article.— The fact that an automobile or other listed article has been repossessed does not in any way authorize the resale by a Registrant contrary to the requirements o f the regulation, in cluding the down payment or maximum loan value and instalment payment and maturity requirements. This rule is contained in the proviso at the end o f section 5 ( c ) . It is immaterial that the repossession and sale to a new purchaser follow a “ bona fide collection effort” rather than an ordinary or other repossession o f the car. 26. Listed article installed in house.— Section 1 ( h ) (1 ) exempts a loan to purchase a house even if the house is one in which certain listed articles 5 had previously been incorporated. However, this section does not exempt a mortgage loan to be used to purchase a listed article. In view o f section 6 ( d ) , an extension o f credit which combines an exempt credit such as one to construct a detached garage and a credit sub je ct to the regulation such as one to finance a listed article can not exceed in amount the cost o f the garage plus the cost o f the listed article minus the down payment required thereon by the regulation, and the instalments in which the credit is payable must be sufficiently large to repay the balance o f the cost o f the listed article within the m aturity specified fo r the listed article in Part 2 o f the Supplement to the regulation. 27. Credit fo r m ixed purposes.— W here an extension o f instalment credit arises out o f the sale o f a listed article, fo r example, repairs to a dwelling, and the conversion o f a part o f the dwelling into an office, section 6 (d ) relating to mixed credits applies. The sale o f the repairs would be subject to the regulation, while the conversion p roject would be exempt. 28. Sale or delivery on trial.— A present instalment sale o f a listed article is subject to the regulation in the usual manner without regard to section 6 ( f ) . This is true even though a part o f the sales agreement gives the buyer an option to return the article, instead o f paying the price, and thereby revest in the vendor complete ownership or property in the article. I f an agreement o f the kind specified in the second paragraph o f section 6 ( f ) is executed and delivered in connection with an agreement evidencing a present instalment sale, as fo r example, a conditional sales contract, and col lection by the Registrant o f the required deposit or down paym ent is delayed, such an arrangement would not fall within or com ply with section 6 ( / ) , nor would it com ply with the requirements o f section 3 (a ) o f the regulation. H owever, where a listed article or listed-article “ dem onstrator” is delivered to a prospective instalment buyer and he must subsequently in some way manifest his acceptance or willingness to buy before ownership or property in the article or a similar article passes to him, then the original delivery in such a transaction w ould be o f the type covered by section 6 ( f ) . 29. D elivery p rior to down payment.— W here pursuant to a sales p ro m otion arrangement a Registrant sets aside a listed article fo r a customer pending the accumulation o f the required down payment but delivers fo r the custom er’s use in the meanwhile a similar listed article, the transaction would not com ply with the requirements o f Regulation W and would be contrary to section 6 ( f ) and section 6 ( h) . 30. Side loan to make dow n payment.— The words “ any other exten sion o f cred it” in section 6 (i) include but are not confined to other exten sions o f instalment credit. Section 6( i ) refers to the down payment required by the regulation. A ccord in gly, if a seller asks fo r a larger down payment than is required by the regulation, this subsection (i ) would not prevent the lender from lending the difference between the down paym ent required b y the regulation and the down paym ent required by the seller. 31. A dditional credit and release o f collateral.— A Registrant holding an unpaid, unclassified instalment loan secured by a listed article may re lease such article fo r the borrow er’s use as a trade-in on a new or different listed article and make an instalment loan to the borrow er fo r the purpose o f purchasing the new or different article, in the amount o f the maximum loan value thereof, assuming that the parties act in good faith and that the unclassified loan is not otherwise changed or modified. If, however, the earlier unpaid instalment loan had been fo r the purpose o f purchasing a listed article then, under section 6 (i) o f the regulation, neither the same nor another Registrant properly could make the second loan since, to do so, would constitute an extension o f credit in connection with the purchase of a listed article in excess o f that permitted b y the regulation. ^ 32. A utom obile demonstrator exem ption.— In order fo r the exemp tion under section 7 ( c ) to apply to credit extended to an automobile sales man to finance the purchase o f a new automobile fo r use principally as a dem onstrator: (a ) the salesman must be a bona fide salesman o f new auto mobiles o f the same make and year as the automobile purchased as a demonstrator— the exemption is not applicable to salesmen whose sales are confined to used cars nor to persons who are not employed principally as salesmen, such as mechanics, parts clerks, office workers, etc.; (b ) the phrase “ used by him principally as a dem onstrator” is not intended to require that the automobile be used principally fo r the transportation o f his prospective purchasers, since the phrase may also include the salesman’s use o f the automobile fo r other bona fide demonstration practices. Because o f section 8 ( a ) , in all such cases the Registrant, whether the dealer or a financing institution, must have in his or its records a statement or other record o f the facts establishing the exemption o f any such paper. V y 33. Sale o f “ dem onstrator” autom obile.— The sale o f an automobile which has been used and driven as a “ dem onstrator” b y an automobile dealer or salesman constitutes the sale o f a used automobile, even though the the automobile has not been previously sold and regardless o f whether such sale occurred before or after the next successive model change fo r that make o f automobile. 34. Loans to carry securities.— The word “ ca rry in g ” in section 1( g) means the refinancing o f any indebtedness originally incurred for the p u r pose o f purchasing investment securities. Section 1 ( g ) would not exempt a loan made by a credit union secured by its shares to enable the borrow er to purchase such shares if there were an agreement that the borrower would be permitted to withdraw any portion 7 o f the share account at any time if the credit union felt that the loan was otherwise adequately secured, because such a loan would have a dual pur pose and not the single purpose mentioned in section 1 ( g ) and, in addition, the loan w ould not be fu lly secured within the meaning o f section 7 ( k ). 35. Loans to purchase building and loan shares.— Loans fo r purposes o f purchasing or carrying building and loan shares are exempt from the requirements o f the regulation under the last clause o f section 1 ( g ) . 36. Investment securities.— Savings passbooks are not “ investment securities” under section 1 ( g ) . 37. O rthopedic and related devices exem pted.— Loans to finance p u r chases o f artificial limbs, hearing aids, contact lenses, other such corrective appliances, and wheelchairs would qualify fo r exemption under section 7 (i) if the statement required by that section clearly indicates in addition to the other inform ation the use to which the proceeds are to be put. 38. Preservation o f records.— The requirement o f section 8 (a ) of Regulation W that the Registrant preserve relevant documents fo r the “ life o f the obligation to which they relate,” includes the “ Statement o f the B orrow er” required under section 4 ( d) . The term “ obligation ” as used in section 8 (a ) means the original obli gation with respect to which the Statement o f B orrow er was procured and, therefore, does not require the preservation o f the Statement executed in connection with such original obligation after a new obligation has arisen b y virtue o f a revision o f the old credit. 39. Consumer-violator.— A consumer who knowingly violates or in duces violations o f the regulation may subject him self to crim inal penalties. 40. Bank discounting obligation.— A bank which purchases or dis counts an obligation is not required to ascertain whether the seller is licensed under the regulation. I f a bank lends to a finance com pany on the security o f instalment obligations arising from sales o f listed articles, there could be no violation o f the regulation in making such a loan or receiving payments on the loan from the finance com pany so long as the payments do not arise directly from the underlying obligations held as collateral. However, if and when the bank wishes to resort to the collateral and to obtain payments directly out o f the underlying obligations, it may not do so unless the requirements o f section 8 (e ) (2 ) were met. 41. V erification o f loan value.— A bank or finance com pany purchasing or discounting automobile instalment paper is not required by section 8 (e ) (2 ) o f the regulation to check appropriate appraisal guides to verify that the instalment credit extended does not exceed two-thirds o f the appraisal guide value in cases where the appraisal guide value is lower than the “ cash p rice.” O f course, if it appeared from the face o f the obligation or accom panying papers, or if the Registrant knew from any other source, that the maximum credit value was exceeded, then the Registrant would not be entitled to the benefits o f section 8 (e ) (2 ) with respect to such obli gation. 42. Effective date— pre-Septem ber 18, 1950, contract.— The delivery of a new, more expensive listed article to replace a defective less expensive listed article which was purchased on an instalment basis prior to September 18, 1950, is a new instalment sale and is subject to the provisions o f the regulation, but any payments already made on the defective article may be credited against the down payment required by the regulation on the new article. V 43. Single paym ent or instalment credit.— A n extension o f credit, which upon its face is repayable in only one scheduled payment, is an exten sion o f instalment credit if at the time it is made the lender and the borrower have an understanding that the borrow er w ill be required to make only a partial payment at m aturity and that the balance w ill be renewed. This would be true also where the single paym ent obligation was created p rior to September 18, 1950, and the agreed instalment arrangements were not com pleted until after that date and involved the substitution o f new or different paper fo r the original evidence o f debt. Here, o f course, the original obligation, including the instalment arrangements, would constitute a pre-Septem ber 18, 1950, contract. H owever, if a Registrant makes a sale on credit under an agreement which does not expressly provide fo r instalment payments by the customer, the transaction need not be treated as an “ instalment sale” even though the customer has previously made partial, divided, or serial payments in his account, or, regardless o f previous practice, indicates an intention to do so in this instance, provided there is no bilateral understanding between the customer and the seller that the customer is required to make payments in such manner. Likewise, an ordinary bank loan evidenced by a promissory note payable in fu ll at m aturity is not an “ instalm ent” loan subject to the regulation even though the bank may anticipate that at the m aturity of the note it may accept partial payment and a renewal note, provided the bank makes no commitment to do so and the transaction is entered into in good faith and not as a means o f evading the regulation. 44. Joint instalment sale to several purchasers.— A n arrangement, which may be described fo r the sake o f illustration as follows, would be subject to Regulation W . A n automobile dealer would sell three automobiles to three different purchasers with payment to be made in instalments, the three purchasers would become join tly and severally liable fo r the entire amount o f credit involved in the three sales, and each one o f the purchasers would be indemnified by a surety bond against defaults b y his join t obligors. 9 The total credit would exceed $5,000, but the amount involved with respect to each automobile would be less than $5,000. Viewed in its entirety, the transaction would really involve three instal ment credits, each less than $5,000, and could not properly be regarded as a single credit o f more than $5,000. 45. Accessories sold with autom obiles.— W here a new automobile is sold equipped with accessories, such as radio and heater, the cost o f the accessories is part o f the “ cash p rice ” o f the automobile under section 8 ( ; ) ( 7 ) , and the maximum loan value is limited to two-thirds o f the total cash price. 46. “ Cash p rice” established b y instalment seller.— W here a R egis trant offers an article at either a cash price or a time price, the cash price being below the dollar amount specified in Part 1 o f the Supplem ent to the regulation and the time price above that amount, a down paym ent would not be necessary i f the article is in fact offered fo r sale fo r cash at the “ cash p rice ” under such circumstances as to give each customer reasonable notice o f the offer and reasonable opportunity to accept it. 47. Repairs and replacem ent parts.— Repairs and replacement parts fo r automobiles, refrigerators, and other articles listed in Groups A , B , or C are not themselves listed articles. 48. Autom obiles.— The classification “ automobiles” includes station wagons and the “ Jeep Station W a g on ” (trade nam e). It does not include trailers, ambulances, hearses, or jeeps. The classification “ autom obiles” includes the Chevrolet “ Carry-all Suburban,” the W illys-O verland “ ‘ J e e p ’ U tility W a g o n ,” the GMC “ Sub u rb an ” and other similar automobiles even though they are used or regis tered com mercially or have certain heavy-duty o r truck features or remov able seats, since they are designed for the purpose o f transporting less than 10 passengers. 49. C ooking stoves and ranges.— The classification “ Cooking stoves and ranges” includes table model roasters and cookers. It does not include cooking and baking equipment designed fo r commercial use in restaurants and hotels, or a deep fa t fry er designed fo r such use. 50. Ironers.— The classification “ Ironers designed fo r household u se” does not include hand irons. 51. Refrigerators.— The classification “ R efrigerators and food freez ers, m echanical,” includes a system consisting o f one or more cabinets with a separate mechanical refrigeration unit serving these cabinets. It does not include a locker in a locker p la n t; nor cabinets to hold or display ice cream or other products fo r sale; nor water coolers; nor milk coolers not designed 10 fo r household use; nor automatic vending machines which cool as well as dispense soft drinks. 52. W ash in g m ach in es. — A “ Commercial m odel” automatic washer incorporating certain “ heavy d u ty ” features and equipped with a coinoperating device is a listed article within the meaning o f Regulation W if it is o f a type readily adaptable fo r household use and is not designed ex clusively fo r commercial use. 53. R a d ios, television sets, p h o n o g ra p h s. — The classification “ Radio * * * receiving sets” does not include radio transmitting sets or combination radio transmitting and receiving sets. The classification “ Phonographs or com binations” includes an auto matic record player designed to play more than the usual number o f records without repeating or changing and incorporating other unusual technical features but readily adaptable for household use and not designed exclu sively fo r commercial use. The classification “ television receiving sets” includes sets suitable for private or home use even though they may be commonly used commercially. This is true, in the absence o f other facts, even though they may have exceptionallj- large screens or cabinets and may be equipped with a coin-operating device. 54. Furniture.— The classification “ F u rn itu re” includes an ice refrig erator regardless o f the use to which it is to be put, unless its design and construction are such that it is clearly usable only fo r commercial purposes; it includes mirrors, unpainted furniture, kitchen or breakfast room sets, swings, and a prefabricated decorative fireplace not suitable fo r heating purposes. The classification “ F u rn itu re” does not include kitchen cabinets, pictures, chinaware, cooking utensils, or silver-plated flatware. Furniture o f the type used in households is subject to the regulation even though the particular piece may be sold fo r use in an office, hospital, store, or other commercial building. 55. Small deficiencies in down payments.— Deficiencies in down pay ments, even in small amounts, are not permissible, except as permitted by section 6 (e ) o f the regulation. 56. Excess down payment.— A purchaser who has made a down p ay ment in excess o f the amount required by the regulation may not later have the excess applied as part o f the down payment on another listed article. 57. C alcu latin g d ow n p a ym en t o n a u tom ob iles. — The equity in a used car m ay be used as a down payment on another car, and fo r this purpose the dealer may accept the first car and pay off the contract on it. However, i f the owner obtains a loan to pay off the contract on his old car, and in addition uses the car as a trade-in, the loan would violate section 6 (t). 11 W here a fictitious amount is added to the price o f an automobile and is later eliminated from the price actually paid by the purchaser (either by an increase in trade-in allowance or b y way o f discount or otherwise) the “ cash p rice ” o f the automobile under section 8 ( j ) ( 7 ) and Part 4 o f the Supplement, does not include the fictitious amount thus added. 58. C a lcu la tin g d o w n p a y m en t o n G ro u p B listed articles. — W hen an article is traded in on a listed article other than an automobile, P a rt 5 o f the Supplement requires that the value o f the article traded in (or the value o f the purchaser’s equity in it) be deducted in order to ascertain the net ;price to be used in calculating the down payment or loan value o f the article being purchased. However, Part 5 o f the Supplement does not prohibit the seller from taking back an article which is unsatisfactory to the purchaser i f the seller allows the fu ll purchase price as a credit against the price of the new article. O f course, if the price o f the new article in such a case is inflated in order to offset depreciation in the original article, the transaction would violate Part 5 o f the Supplement and section 6( h) . 12
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