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A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Thursday, January 1, 1942, at 11:00 a.m. PRESENT: Mr. Ransom, Vice Chairman Mr. McKee Mr. Draper Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman The action stated with respect to each of the matters hereinafter referred to was taken by the Board: Memorandum dated December 30, 1941, from Mr. Goldenweiser, Director of the Division of Research and Statistics, recommending that Miss Margaret G. Metcalf be appointed as a clerk-stenographer in that Division, with salary at the rate of $1,560 per annum, effective as of the date upon which she enters upon the performance of her duties after having passed satisfactorily the usual physical examination. Approved unanimously. Memorandum addressed to all division heads by the Board's Personnel Committee, and reading as follows: "Recently one of the divisions at the request of one of the defense agencies made available the services of a stenographer-clerk who was loaned to the agency and worked in an office of the defense agency outside the Board's premises. The division concerned assumed that this was proper under certain actions taken by the Board in 1940 relating to assistance to the Advisory Commission of the Council of National Defense. "It is the view of the Board, however, that no member of the Board's organization should be loaned to any other Government agency without specific authority from the Board." Approved unanimously. 1/1/42 -2Letter to Mr. Williams, President of the Federal Reserve Bank of Philadelphia, reading as follows: "Referring to your letter of December 24, 1941, the Board of Governors approves the appointment of Messrs. Daniel H. Schultz and James M. Skinner as members of the Industrial Advisory Committee for the Third Federal Reserve District to serve for the unexpired portion of the term ending February 28, 1942." Approved unanimously. Letter to Mr. Swanson, Vice President of the Federal Reserve Bank of Minneapolis, reading as follows: "This is in reply to your telegram of December 19, 1941, concerning the application of Regulation IV to credit sales of coal stokers. You state that 30-pound stokers are being converted into 50-pound stokers by a small attachment and sold as an article not subject to the regulation. "Reference is made to interpretation T-51 which classifies as household types those heat generating sources which are designed for actual net output of 240,000 B.t.u. per hour or less and also to S-380 which relates to the method of determining the B.t.u. rating of stokers. "In this field and in others the question to be determined is what the particular article was designed to do, that is what use the manufacturer intended to be made of the particular model involved. The stoker manufacturer designs his models for different heating requirements. According to our investigations and our consultations with the Stoker Manufacturers Association, it appears that in the past a stoker rated as a 45-pound stoker was recommended for installations where the maximum net output required was about 240,000 B.t.u. per hour. That conclusion applied to stokers as then designed and as then rated. "The essence of the matter is that the manufacturer is recommending the particular model as the most efficient and economical installation for the heating required. The '45-pound' delivery rate has no significance in itself. It just happened that at the time the manufacturers used the pound delivery rate for the purpose of classifying 3 1/1/42 -3- "their stokers and the one rated at 45 pounds was the one associated with 240,000 B.t.u. net output. "The problem, therefore, is whether, after a change of the kind described, it can be maintained in good faith that the stoker is designed for a heating load of more than 240,000 B.t.u. net output per hour. In this connection it would have to be determined whether or not the other features of the converted stoker were such as to make it suitable and economic for the heavier heating requirements. Also, there would be a question as to the ability of the converted stoker over its normal life actually to deliver coal at the rate required of a 50-pound stoker. These are matters to be established by heating engineers, and up to the present time the Board has been willing to rely upon the judgment of the manufacturer in rating his products provided this judgment is exercised in good faith. "It is suggested that you talk with the dealer and, indicate such action is desirable, with circumstances if the manufacturer. Please inform the Board of the results of your conversations as it is probable that copies of this correspondence should be sent to the other Federal Reserve Banks and to the Stoker Manufacturers Association." Approved unanimously. Letter to Mr. Stroud, First Vice President and General Counsel of the Federal Reserve Bank of Dallas, reading as follows: "Reference is made to your letter of November 24, 1941 regarding Regulation W. "You present a case in which there is an instalment note with a maturity of more than 18 months and covering the sale of a listed article as an isolated extension of credit by a person who is not 'engaged in the business' as described in section 3(a). The question is whether such a nonconforming note may subsequently be purchased by a Registrant. "As you indicate, Interpretation W-57 states that no Registrant may knowingly purchase any obligation arising out of the instalment sale of any listed article which fails to comply with section 4, regardless of who made the original extension of credit. You point out that in the case involved in that interpretation the Registrant 1/1/42 -4- 'purchasing the obligation was the automobile dealer who was the employer of the salesman who sold his demonstrator. It is the view of the Board, however, that the principle applies regardless of the relationship between the seller of the article and the purchaser of the paper. "In the circumstances, it may be worthwhile to review some of the reasons for this opinion. "As indicated in U-119, the application of the regulation to a given transaction may vary with changes in the surrounding circumstances. An extension of credit to purchase an unlisted article may, depending on the circum,stances, be either an exempted sale of an unlisted article or a regulated extension of 'instalment loan credit'. Similarly, a transaction may be regulated as to one person and exempt as to another. "Section 4 provides that 'any extension of instalment sale credit shall comply' with the specified requirements. This is a flat statement of the requirements that apply to the described obligations. "Section 3(a) describes the persons who must observe these requirements. A person who is not 'engaged in the business' may make an extension of credit without complying with the requirements of section 4, but this is only because section 3(a) does not require him to follow the requirements. "This exemption is personal to the person making the casual transaction. It does not change the status of the paper and does not carry over to a subsequent purchaser of the paper. The fact that the credit was originally granted by a person who enjoyed such a personal exemption under section 3(a) does not alter the requirements that apply to the obligation -- and that must be followed by a Registrant who subsequently purchases the obligation. "It is to be remembered, of course, that the burden imposed on the Registrant who subsequently purchases the obligation is not unreasonable. Under section 3(a)(2)(B), he is held accountable only for what the obligation 'showed on its face' at the time of purchase, or for any fact which he knew at that time." Approved unanimously. Letter to Mr. Stroud, First Vice President of the Federal Reserve Bank of Dallas, reading as follows: "This will acknowledge receipt of your letter of 1/1/L2 -5- "December 23, 1941, enclosing a communication from Mr. Z. Donigan, District Manager of The Tappan Stove Company, Houston, Texas and your reply. This letter refers to an advertisement of a range which is clearly of the type used in homes but which is exempt from the provisions of RegulationWbecause it has seven heating surfaces. "It has been recognized that the "7 heating surfaces' distinction made by the regulation is not entirely satisfactory and that there are probably some stoves being sold for domestic use at terms more liberal than the regulation permits. Up to this time no more satisfactory way has been found to describe the 'household' category but we should be glad to have any thoughts which might occur to you in this connection. The Office of Price Administration very shortly will announce price ceilings with respect to manufacturers' sales of cooking stoves and in that connection there will be limitations on changes in specifications. The Office of Price Administration expects to get information on specifications shortly after the announcement of the price ceilings, and this may provide some basis for determining how serious the problem is and what might be done to meet it." Approved unanimously. Letter to Inland Empire Electrical Equipment Association, Spokane, Washington, reading as follows: "This will acknowledge receipt of your letter of December 17, 1941, in which you suggest that the minimum down payment for electrical merchandise under the Board's Regulation W be set at 10 per cent instead of 20 per cent as it is now. "The Board has been giving a great deal of study to the effects of its regulation on the various businesses concerned and has given earnest consideration to all suggestions that the terms be adjusted. As to your particular request, the Board has come to the conclusion that present conditions do not justify any reduction in down payments for this class of merchandise, the production of which is being curtailed for reasons of national defense. It is not believed that the terms of Regulation W are so restrictive as to curtail sales more than production will be curtailed -6- 1/1/42 "in the months to come." Approved unanimously. Letter to Mr. Attebery, Vice President of the Federal Reserve Bank of St. Louis, reading as follows: "Acknowledgment is made of your letter of December enclosing copies of circulars recently issued by 1941, 27, the Little Rock and Memphis Clearing House Associations regarding uniform analysis of correspondent bank accounts and absorption of exchange on checks. Your courtesy in keeping the Board informed of such developments is appreciated. "The statement in the last paragraph of your letter with respect to a National bank which is considering conversion into a nonmember State bank is noted." Approved unanimously. Thereupon the meeting adjourned. 6 * 7NW4><WA/J1r)0-041P Secretary. Approved: ti 4111011° ifILAAI_Add A. At' Vice Chairman. .-411.•01.
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