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F E D E R AL R E SE R V E BANK O F N E W YO R K J" Circular No. 3 7.1 (* L June 4, 1951 REGULATION W CONSUM ER C R E D IT Pre-effective date “ balloon” notes or payments To all Persons Concerned with R egulation W in the Second F ederal R eserve D istrict: The subject o f refinancing “ b a lloon ” notes w ritten p rior to Septem ber 18,1950, the effec tive date o f R egulation W , has been given further consideration, especially as it relates to the interpretation published at 222.117, 15 F ederal R eserve B u l l e t in F ederal R e g is t e r 7756, N ovem ber 15, 1950 and 1950 1612, entitled “ P re-effective date ‘ b a lloon ’ notes or paym ents.” A s a result, the B oa rd o f G overnors o f the F ederal R eserve System has concluded that such interpretation should be revised to read as fo llo w s : Pre-effective date “ balloon” notes or payments.— The B oard lias considered certain questions con cerning instalment credits involving so-called “ balloon ” notes o r payments that were written before September 18, 1950, the effective date o f Regulation W . In a typical case o f the kind, there would be 1 1 notes followed b y a 12 th “ balloon ” note w hich may be in an amount several times the amount o f each o f the preceding notes. It appears that in most cases, because o f the special nature o f such financing, it was necessarily anticipated that the “ balloon” note or paym ent written before September 18, 1950, would be refinanced when due so that the future instalment payments o f the obligor would be approxim ately in the same amounts as the earlier payments. In the circumstances, the B oard is o f the view that it may be presumed that arrangements fo r such refinancing were made between the parties at the time o f the original transaction, and that section 8 (h ) o f the regulation permits the carryin g out o f any such arrangement. The views expressed above should be regarded as superseding the view s expressed in any earlier interpretations under the regulation dealing w ith the same subject, including those stated at page 10 o f our Circular No. 3687, dated A p ril 2, 1951. A ddition al copies o f this circular w ill be furnished upon request. A llan S proul, P re sid e n t.
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