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A i M arch 9, 1942. To T he A d d re sse e : The Board of Governors of the Federal Reserve System has adopted A m endm ent No. 3 to Regulation W , dealing w ith instalm ent credit. The Am endm ent will become effective March 23, 1942, except th a t the change in P art 3(b ) of the Supplem ent shall not become effective until April 1, 1942. A copy of the Amendm ent is enclosed. T he following is a nontechnical summary of the changes in R egu lation W made by the am endm ent: T he stan d ard m atu rity is reduced from 18 to 15 m onths for all credits subject to the Regulation, except credits for building m odernization, plum bing, furnaces, w ater heaters, w ater pumps, and pianos, all of which m ay still be for 18 m onths. T h e down paym ents arc increased from 20 per cent to 33% per cent on refrig erato rs, w ashing m achines, ironers, vacuum cleaners, electric dish w ashers, room unit air conditioners, sewing m achines, radios and phono graphs, and m usical instrum ents. On home air conditioning system s and a ttic ventilating fans, the down paym ents are increased from 15 per cent to 33% per cent, and on furnaces, w ater heaters, w ater pum ps and plum bing, from 15 per cent to 20 per cent. T h e follow ing articles are added to the list, with 33% per cent down paym ent required: bicycles, lawn m owers, silverware (flatw are and holloww are, w hether solid or plated) and photographic equipm ent. The following arc added to the list, with 20 per cent down paym ent required: clocks, w atches and floor coverings. P erso n s who becom e subject to the Regulation on and after M arch 23 because of th e addition of articles to the list are given until Ju n e 1 to reg ister. P rio r to Ju n e 1 they are granted a general license. O n and after April 1 the credit value of a used automobile, instead of being based solely upon th e purchase price, is to be based upon the purchase pricc o r the average retail value as stated in such autom obile appraisal guides as m ay be designated by the Board, whichever is lower. Inform ation with regard to designation by the Board of Governors of autom obile appraisal guides to be used in connection with the provi sions of P art 3 (b )(2 ) of the Supplem ent as amended by Amendm ent No. 3 is not available at the present time. R egistrants affected thereby will be notified regarding such designation prior to April 1, 1942, the effective date of this P a rt of the Supplement. A dditional copies of the Amendment will be furnished upon request. Very truly yours, C H E S T E R C. D A V IS, President. LlfcKAKY OF THE FEBEKAL «ESEflV£ BANK Of CLEVELAND INSTALMENT C REDIT DIVISIO N FEDERAL RESERVE BANK OF ST. LOUIS March 9, 1942. The following additional interpretation of Regulation W relating to the extension of instalment credit has been issued by the Board of Governors of the Federal Reserve System : 129. INTERPRETATIONS AFFECTED BY AMENDMENT No. 3—Amendment No. 3 to Regulation W will affect certain interpretations previously issued by the Board, and the following com ments will be pertinent to the interpretations indicated, beginning March 23, 1942: W-4, W-73, W-7G and W-88 will be obsolete. W-55 will be obsolete only to the extent th at it refers to “ Items 1 through 4 of Part 3(a) of the Supplement.” W-69. This interpretation relates to the provisions contained in Section 6(j) before Amend ment. W-84. Paragraph numbered 4 will be obsolete. W-90 will be obsolete only to the extent th a t it refers to the old provision “seven heating surfaces” instead of the new provision “designed for household use.” W-116. Superseded by Amendment in Option 1 of Section 8(b). W-10. Note new provisions in Supplement regarding suction cleaners. W-14. Note that clocks are now listed in Group C in the Supplement. W-17. Note that silverware is now listed in Group C in the Supplement. W-38, W-43, W-49, W-52, W-56, W-63, W-70, W-95, W-102. maturities in Supplement. W-71 and W-116. W-63 and W-77. Note changes in maximum Note Part 3(b) of Supplement, as amended. Note new provisions in Supplement regarding radios. 0 INSTALMENT CREDIT D IVISIO N FEDERAL RESERVE BANK OF ST. LOUIS March 9, 1942. The following additional interpretations of Regulation W relating to the extension of instalment credit have been issued by the Board of Governors of the Federal Reserve System : 117. BUILDING SEPARATE NEW STRUCTURE—Group E—Inquiries have been received as to the appli cation of Regulation W to loans of SI,000 or less for the purpose of constructing new farm buildings, such as barns, silos, poultry houses and the like, on property where there are existing buildings, such as a farm house. The question is whether or not the materials and services used in such construction are included in Group E -l of the Supplement. The Board has ruled th at the building of a completely new structure is not a repair, alteration, or improve ment in connection with existing structures and the materials and services would not be in Group E -l. 118. CREDIT EXTENDED TO RETIRE INSTALMENT INDEBTEDNESS HELD ELSEWHERE—The Board has been asked whether, in view of the provisions of Sections 8(a), (b) and (c) of Regulation W, a Regis tran t “ taking over an extension of instalment credit th at has been made by a vendor and th a t has no connection whatever with the sale of a listed article, must be bound by the terms granted by th at vendor” . The Board has answered that, since the obligation being retired in such case is neither “instalment loan credit” nor "instalment sale credit” as defined in the Regulation, and therefore was not itself subject to Regulation W, a Registrant making a loan to retire such an obligation is not bound by the terms granted by the vendor. This, of course, does not exempt the loan from the maximum m aturity and other provisions of the Regulation applicable generally to instalment loan credit. Moreover, in such a case, if a Registrant making the loan wished to grant terms more liberal than those granted by the vendor, it would be necessary for him to ascertain th at the credit being refinanced was in fact credit arising from the sale of an unlisted article. In this connection, the “Statement of Borrower” prescribed by the Board provides a means for the Registrant to ascertain certain facts, including facts as to whether the proceeds are to be used to retire an instalment obligation, and it protects the Registrant in relying in good faith on such facts wThen so ascertained. However, the "Statem ent of Borrower” does not provide any means for ascertaining facts in addition to those developed in answering the questions contained in the prescribed form. Certain other provisions of the Regulation provide means for establishing certain pertinent facts by accepting in good faith a statem ent of the obligor with respect to such facts; but neither the "Statem ent of Bor rower” nor any provision of the Regulation provides any means for ascertaining whether instalment credit being retired, instead of being "instalm ent loan credit” or “instalment sale credit”, is some different type of instalment credit. Accordingly, if the Registrant wishes to disregard the terms of the instalment obligation being retired, he must ascertain the necessary facts independently of the “ Statement of Borrower” , and the treatm ent w'hich he may accord to the instalment obligation being retired will be controlled by the facts themselves. I t may be noted th at a similar problem arises in the case of a loan to retire an extension of “instalment sale credit” or "instalment loan credit” w'hich was originally granted writh a shorter m aturity than that required by the Regulation and on which, therefore, the Regulation w’ould permit the rate of pay ment to be reduced to th at permissible in the first instance. The question whether a particular out standing obligation is one on which the rate of payment could be reduced in this manner is another question which is not answered in the "Statem ent of Borrower” and on wrhich the Registrant is not authorized to rely on any other statem ent of the obligor. Therefore, if the Registrant making the loan to retire the obligation wishes to reduce the rate of paym ent, he m ust act independently of the “ Statement of Borrower”, and the treatm ent which he may accord to the instalment obligation being retired will depend upon the facts themselves. 119. INSURANCE PREMIUM NOTES—Notes payable to insurance agents or brokers for premiums are not subject to Regulation W, because insurance is not a “listed article” under the Regulation, and the agents and brokers are “sellers” within the meaning of Section 2(d). Financial institutions may pur chase such notes regardless of the requirements of the Regulation. However, instalment loan credit extended by a financial institution for the purpose of paying premiums is subject to the Regulation, except as provided in Section 6. (Over) i 120. * PLUMBING ANJ& SANITARY FIXTURES—The classification "plumbing and sanitary fixtures designed for household use” does not include piping or their plumbing supplies not a part of such fixtures, although these items may fall within the classification of materials and services referred to in Group E -l of P art 1 of the Supplement. , It is to be noted, however, th at for purposes of determining the maximum amount of credit, th£t>ona fide cash purchase price of the fixtures includes the cost of accessories such as faucets, cabinets, or shower attachm ents installed with the fixtures. Also included in the bona fide cash purchase price of the fixtures is the cost of installation of the fixtures and accessories but not the cost of installation of separate piping and fittings. 121. WATER PUM PS—WINDMILLS—The classification "water pumps designed for household use” includes windmills designed for pumping water to a tank from which the water is piped for various uses. The windmill is the principal part of the pumping mechanism in these cases and therefore is included even though purchased separately. 122. ERECTING NEW OR REPAIRING EXISTING FENCE—Group E—Group E -l of the Supplement includes materials and services used in erecting a new fence or in replacing or repairing an existing fence on any property on which there is an existing structure. 123. EXCESS DOWN PAYMENT LOANS--The words "down paym ent” in Section 5(f) of Regulation W refer to the down payment required by the Regulation. Accordingly, if a seller asks for a larger down payment than is required by the Regulation, Section 5(f) would not prevent a bank or other lender from lending the purchaser the difference between the down payment required by the Regulation and the down payment required by the seller. 124. GENERAL INTERPRETATION—Interpretation W-16 dealt with a case in which a dealer sells a listed article but does not take a note from the customer payable to the dealer, and instead, according to arrangements with a bank, takes a note payable to the bank. W-16 stated th a t the transaction con stitutes an extension of instalment sale credit within the meaning of Section 2(d) of Regulation W. The Board has recently been asked whether the transaction also constitutes an extension of instalment loan credit, in which event a "Statem ent of Borrower” would have to be taken in connection with the transaction. It is the view of the Board th at such a transaction does not constitute an extension of instalment loan credit since, under Section 2(e) of the Regulation, instalment loan credit includes only specified trans actions "other than instalment sale credit.” It is to be noted, of course, th at the definition of instalment sale credit in Section 2(d) is by its terms confined to transactions involving a listed article, and th a t accordingly if the article involved were unlisted, the transaction might, as indicated in the last paragraph of W-119, be an extension of instal ment loan credit. 125. STATEMENT OF TRANSACTION—Section 5(c) (1) requires th a t a copy of the statem ent of the trans action be given to the obligor. The Board has been asked whether a copy of the statement should be given to each of the parties to a note which is made by several comakers, some of whom are accom modation makers. The Board replied th at a copy of the statem ent need be given only to the party who receives the pro ceeds of the loan. Similarly, the statem ent of the borrower required by Section 5(d) need be obtained only from the party who receives the proceeds of the loan. 126. REGISTRATION STATEMENT—Under Section 3(a) of Regulation W, every person engaged in the business of making extensions of instalment sale credit or instalment loan credit, must file a simple Registration Statement. Since Section 6 of the Regulation exempts certain transactions from the requirements of Sections 4 and 5, questions have been received as to whether a person must register if the only kinds of "instalm ent sale credit” or "instalm ent loan credit” he extends are those covered by Section 6. The answer is th a t he must. The exemption, as indicated above is only from Sections 4 and 5, and it does not affect Section 3. Furthermore, the credits described in Section 6 are closely related to the general purposes of the Regulation, in fact, many of them are exempted only on certain im portant con ditions th at are similar in many respects to those stated in Sections 4 and 5. 127. FIRST MORTGAGES—Interpretation W-25 of Regulation W stated th a t a first mortgage may be con sidered a "first lien” within the meaning of Section 6(a) of Regulation W, even though a prior lien for "current taxes not due and payable” exists under state law. Although the facts involved in that interpretation related only to current taxes not due and payable, the Board has recently considered other questions regarding property taxes on mortgaged real estate under the Regulation, and the Board is of the opinion th at a first mortgage is a "first lien” within the meaning of Section 6(a) regardless of the status of any property taxes on the property, whether the taxes are current or past due. 128. SECOND M ORTGAGES—If a lender who has made a loan secured by a first mortgage makes another loan to the same borrower secured by another mortgage on the same property, and if there are no interven ing liens, the second mortgage is a "first lien” within the meaning of Section 6(a), as long as both notes are held by the same lender. This supersedes Interpretation W-30. s '
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