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24 flutes of actions taken by the Board of Governors of the .1-Reserve System on Thursday, September 2, 1948. PRESENT: Mr. Draper, Chairman pro tem. Mr. Vardaman Mr. Clayton Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Morrill, Special Adviser 14e111°randum dated August 26, 1948, from Mr. Leonard, Director 1)t the Division of Examinations, recommending increases in the basic e.lar es sel)teniber of the following employees in that Division, effec- 5, 1948: thlte Designation 411411 ;tf• Laze 4114ICm "eY, Jr. 401,14, elark 41'le -eGeary 41el1e L. &halt 8eott Federal Reserve Examiner Asst. Fed. Res. Examiner Asst. Fed. Res. Examiner Asst. Fed. Res. Examiner Asst. Fed. Res. Examiner Secretary to Mr. Leonard Secretary to Mr. Millard Salary Increase To From $6,953.40 4,855.8o 3,978.00 4,103.40 3,852.60 3,852.60 3,476.40 $7,432.20 4,981.20 4,228.80 4,228.80 3,978.00 3,978.00 3,601.80 Approved unanimously. of Tele, 5 .-&am to Mr. Neely, Chairman of the Federal Reserve Bank Atittlit reacling as follows: ! etel September 1. Board approves appointment B. RoPpe as Federal Reserve Agent's RepreerltY 'New Orleans Branch, with salary at rate '11.e cl' $4 0 r,20 Per annum. that1,1 : 111s aPProval is given with the understanding geetli-p s 110PPe will be placed upon the Federal Reserve au;PaY roll and will be solely responsible to him a vacancy in the office of the Federal Reto the Assistant Federal Reserve Agent, ev4.4,0 9/2/48 -2- ,oaxd to t lornia„ he Board of Governors, for the proper per- pert. lice of his duties. When not engaged in the Or flCe of his duties as Federal Reserve Agent s er'eolesentative he may, with the approval of the Fed! serve Agent or, in his absence, of the Assistet DR elle;e0-eral Reserve Agent, and the Vice President in tor of the New Orleans Branch, perform such work Branch as will not be inconsistent with his es as Federal Reserve Agent's Representative. : 11r. Hoppe should execute the usual oath of offlee aavi "Latch should be forwarded to Board together with ce of effective date of appointment." Approved unanimously. Lett er to the Attorney General, for the attention of Mr. Nticie t4 r M. Campbell, Assistant Attorney General in charge of Division, reading as follows: 134/1- May 27, 1942 (WB:WHM:rh-146-17-012) your De- -pleb+ Irttlit - wrote to this Board that it was in accord tiottiA7, e Proposals regarding the enforcement of Regulakrelating to: Consumer Credit) which the Board -et forth in its letter of May 22 to your Department. Atove lll view of the enactment of Public Law 905, apt/lei'. AugUst 16, 1948, and the consequent reissue by ,°f Relationgu 20 W to become effective September °(3 F.R. 4865-4877), the enforcement of the is again a matter of interest. The authority Law 905 for civil suits may have a bearing on Phases 1 of enforcement procedure, and it is possible .jsent circumstances that there may be greater need ttitx Bcerd to refer cases to you for the possible inof criminal proceedings. However, the arrangeout in the previous correspondence would seem at the6e4erally appropriate as an enforcement procedure "TPresent time. 111d.el., t will be appreciated if you will confirm this Approved unanimously. 1426 9/2/48 —3— Letter to the Presidents of all Federal Reserve Banks readlig as lollows: 1,48 "As indicated in the Boards wire of August 18, the :,advising you of the adoption of Regulation W, 011 ' ,,-rect responsibility which the law has placed ale'lleFederal Reserve System makes it essential that re cIllate steps be taken to assure compliance with the Nn "The June 30, 1949, Expiration Date -- The Board 30,Tzes the difficulties that arise from the June 905: 9) expiration date that appears in Public Law elley i.Ala°ng other things, that date will have a tendthE imPair compliance with the regulation before ecitte "te, and the Board believes that a vigorous 44kn°nal and enforcement program by all the Reserve i especially necessary in order to prevent such .r41111erit. '1 • 17° one can know whether the June 30, 1949, date 13041,,i'e extended -- and that is true not only of the trari ' ' t atd the Reserve Banks, but also of such Registio/Ins as might be inclined to neglect their obligaCt ail linder the regulation. A realization on the part 14 egistrants that enforcement will begin early aaldj,! 0rta;Iluinue vigorously should be one of the best means aining respect for the regulation and compliance 4W9 s terms. The new enforcement powers in Public should be helpful in this connection. DIr.(Geheral Program -- The Board believes that the (44-0a111 outlined in its letter (S-909, F.R.L.S. #8504) l'or T1 30, 1946, affords, in the main, a sound basis Nr, enforcement of the present regulation. How1:41ed Board believes that the activities there out• n su°1-11d be conducted on a more extensive scale and 10/41.; 4 Mo e selective approach as outlined in the folAP aragraph. a new measure for minimum investigative work in "taL-La- the Board requests that each Reserve Bank una Program which would result in the completion months of about the same amount of investigative Y as was requested by the Board in S-909 for a t/leive : Mollths' period. This would not, however, be • T 1427 9/2/48 -4t --Led in terms of any set percentage of Registrants v'hej.ipe investigated. A selective approach is suggested : t1 11 will concentrate the effort at those points where 10 Most can be accomplished. Such an approach will 1Ze considerable emphasis on the checking of purchased • at financial institutions, mainly banks and sales comPanies, where paper from many sources can be feei-cted at one time. In this connection, the Board that the Reserve Banks should take full responsiNI —Y for the investigation of all sales finance comsta; eris in their districts and should reach an underto that effect with any State authorities that Peau„,sliPervisory responsibility for sales finance comatte-s. The Reserve Banks will also need to give special 1t , 1 1O4 to Registrants who retain much of their paper : appr ° are of a type that might have violations in some -ciable amount. 1.113":.ection II of the 'Outline of Enforcement Program VitII-11aation W', sent to the Federal Reserve Banks Prellis ' e Board's letter of April 30, 1946, mentioned set f°11slY in this letter, has been changed to read as °rth in the attached enclosure. (I:LIT:Staffs and Reports -- The Board is cognizant of the qatf-elaties which may be involved in building adequate investigators, particularly in view of the uie to alosi;;,' 1949, expiration date. However, it is prepared Ilsee-°ve whatever additional cost may be reasonably tield-alnY and would appreciate resumption of full scale tober 14c)rk among the Federal Reserve Banks by early Oc,It will also appreciate the resumption of reports ul-Llied in the Board's letter (8-930, F.R.L.S. #850)4.11), orp t t 27, 1948, the first report to cover enforcement 4eti rorlt. s"les for the month of October 1948. A supply of the 11 be furnished to you in due course. 1:1(41 :;'fective Administration -- The effective administra4 1011:' Ilegulation W -- whether for a few months, or for forlaj er Period -- requires an active two-way flow of in, holped.'")/1 between the Board and the Reserve Banks. It is Oi :that You will keep the Board fully informed as to • Observation of how the regulation and its administra1101; 11 ; re working in actual operation, and that you will t:itate to advise it of any changes that you would ' l ecommend from time to time in the light of your :11Cen •1 n 1428 9/2A8 -5Approved unanimously, together With the revision in the "Outline Of Enforcement Program under Regulation W" referred to, reading as follows: s coPe of Program Referring to such credit grantors asareinor Q-gated in connection with the regular examinations lIZIPervisory agencies, it is expected that under the -- s Year chedule all these will be covered at least once by th"13. For such credit grantors as are investigated tiiza;ePederal Reserve Banks' instalment creditinvesrs, each Federal Reserve Bank will maintain a parlral which will result in all sales finance comZbeing investigated in a nine-month period and, (Allee.7 1 -1.tiony investigations and reinvestigations of selected Registrants so that, in the aggregate, the be :fl,cement activity in a nine-month period will Ii0,41,:r1 to the annual activity contemplated by the cloe 14 1946 as set forth in S-909. While the program 1/1: 1111() 1,t require an equal amount of enforcement activity Igor ili month or quarter, it is expected that the field 4-- be reasonably continuous and will not be handIfork--4 DY the use of the regular investigators for other ror b°17er any extended period. The investigations called to .1,Y the Minimum standard will be of the type referred 1- gection 1-A-2. 00 -' With the exception of sales finance companies .1 11 : od, Ighich should be investigated in a nine-month pena108 distribution of the investigations among the 1, 1 classes of Registrants and by geographic areas tEtshi ' e determined by each Federal Reserve Bank in such 2icier , as to obtain the most effective coverage, conConproblem NrClig that the in certain classes and areas 'be Zore serious than in others." Tele— ' 6'am to the Presidents of all Federal Reserve Banks S follows: 414)ea e following interpretation of Regulation W will 14 the Federal Reserve Bulletin and we suggest 1429 9/2A8 6t? You c irculate it to interested persons as promptly Els 14ssible: !Tnr.,, e Board has been asked about the application of : 1 t 2 of the Supplement to Regulation W which specc.rfle c%zLIlaximum maturity of 15 =laths for extensions of $1,000 or less and a maximum maturity 41 18 months for extensions of credit of more than : 1 000 with the exception that for credits of more : 3 11. $1,000 the instalment payments shall not be isss,than $70 per month. The particular question Whether the $70 figure applies to the total onth1J payment or only to the amount of that payet a PPlicable to the principal of the obligation „rr,l, including interest or finance charge. i;"e instalment payment referred to in the $70 clause the total monthly payment. An example of its use ," connection with the purchase of an automobile is °L8 follows: $1,500.00 Purchase price 500.00 Down payment 4 l' 1,000.00 90.00 Balance of purchase price Insurance (15-18 months) 1,090.00 98.10 Unpaid balance (principal amount) Finance charge at 6% for 18 months 1,188.10 Amount of total obligation 66.01 Monthly payment at 18 months As this the amount of monthly payment is less than $70, el31 Ilia/Tiber of months over which the contract is paythie lirust be reduced. The longest term available for atstion with equal monthly payments would be 16: ticZ%sEc shown by the following calculation: $1,090.00 Unpaid balance as above 87.20 Finance charge at 6% for 16 months 1411122 Amount of total obligation 73.58 Monthly payment at 16 months 4.4 the thrcp, Usual case, the Registrant will not need to go "gh these calculations in detail as he will have 1430 9hA8 -7 appropriate payment chart which will give him 'rle necessary figures directly. :!he Board has also been asked about the application vi Part 2 in cases where the insurance and finance , ohe'rge are not separated and it is not possible to rermine the exact 'principal amount'. These are fslIallY cases in which the obligation is purchased : °111 a dealer by a financial institution which furs the dealer with charts showing the payments a!eearY for various balances (purchase price less Payment), the cost of insurance and the finance vrgs being included in the payments. The balances ich can be financed at various maturities can be ermined from the charts by following the principle tha ' mo t a balance can be financed at 18 months, at 17 lls, or at 16 months if the payments specified in tie chart applicable to the transaction for the parINzeilli ,ar maturity desired are at least $70 per month. ' eci. s Principle is illustrated by the following prot:'e. The Registrant can ascertain from the chart or r‘sMallest balance which requires monthly payments ball'70 or more with an 18-months' maturity. That o4 nee and all larger balances may be written with for"1°-Illonths maturity. If the chart shows payments 17-monthsf maturity, the Registrant can ascertai kemrti the smallest balance which requires monthly pay, of $70 or more with a 17-months' maturity. That 17 and all larger balances may be written with a 10;nriths t maturity. A similar procedure can be folif the chart shows payments for a 16-months' t4t' 413 itY. The charts will in many instances be set Y the financial institutions to show these breakand it is of course optional with the fitra-al institution whether or not it will take coneasee's with 16-months' or 17 months' maturities. For fer in handling, the financial institution may preOmit the 16-months' and 17-months' maturities, Whic ch case no balance smaller than the balance 18 requires monthly payments of $70 or more with t4r, -months' maturity could be written with a malty of more than 15 months." e Approved unanimously. 1431 448 -8teaclize Te legram to the Presidents of all Federal Reserve Banks fOilows the;Re Regulation W. The Board has realized that Banks would be asked questions concerning vhe status under Regulation W of extensions of credit teflre.ngements of some kind are made prior to Sep1948, but the transaction is not actually ted until after that date. Since there are many arts : relit circumstances under which these questions can 8111 since almost any ruling might be more of an lati-ement to than a restraint on avoidance of the regu°h111 bY such means, the Board has believed it inadDrio; -"! to Publish any interpretation on this subject '0 September 20. In the meantime, it may be to You in dealing with inquiries for us to Orest certain aspects which might be kept in mind: Irithrille regulation does not contain any such provision illthresPect to pre-existing contracts as was contained applie 1941 version. (2) The regulation by its terms Selyt,ee to all extensions of credit made on or after heri Mber 20. (3) For an extension of credit to have coz4)11114de before September 20, the contract must be qleci: e in all details including an obligation in a amount setting forth the specific payments to eare and the dates thereof. The article involved Ne ainstalment sale must be a specific item. A bona titissib l very after the effective date would be perProvided all the other conditions are met. Nsiv- extension of credit may be the subject of an side agreement such as is referred to in sec' cola(tL Any arrangement after August 20 where it the ated that the article will not be delivered 'Jet 2 , ' unds will not be disbursed until after SeptemtNIs ' would be subject to serious question unless the 1111d.erTi°n is of such a nature as commonly handled 1, ''1lich an arrangement according to the customary 'v011141:8 Practices of the vendor. (5) The burden eN) 1: on the Registrant to show that a transaction N111::% 1 after September 20 was not subject to the s4. Approved unanimously. 1432 9hA8 -9Telegram to the Presidents of all Federal Reserve Banks (11.4 a8 fOliows 14 terr, : connection with publication in ' get proposed changes in Regulation W c11 :- that) if you have not already done ri-8 subject with national associations eee °f which are in your district.' Federal Regiswe would sugso, you disthe head of- Approved unanimously. to Mr. H. L. Combs, C. & B. Electric, Inc., 116 bc,1,EtliareLetter s treet, Walton, New York, reading as follows: t.eist"This refers to your letter of August 23, 1948, etre lve to the Board's Regulation W which becomes ;ive on September 20. tericie' , As a consequence of detailed studies and ex- d tLu. te stimony the Congress and the Board concurred belief that uncontrolled consumer instalment toedit r .t) While not the only nor even the primary faceXert l-111 °lir Present economic dilemma, was nonetheless tett ;11,13 undue upward pressure on prices to the exthe structure of terms had deteriorated unN° i171Y. It was recognized that consumer instalment Etrising out of the sale of consumers' durables 1 Ets 4114; e4°f the more volatile elements in the economy tract': 'MPortant factor in contributing toward or defrom reasonable economic stability. In recogtcperof these principles the present regulation seeks tope4it and to encourage consumer instalment credit or e rm its traditional function in the distribution to cIL:unlere i durables while at the same time it seeks of th —°11rage its over-expansion. From the majority /0k0.d.e c°rnments about which we have been informed it zf4/1, apPear that most of the trades affected by the o:! lation agree that its provisions will not '41e.t 'Y interfere with normal trading activity and l -); wil provide for a sounder structure of terms. may be certain that the Board recognizes .*ct r",11 -1-1°flsibilities for enforcement of the regulation, 1433 -10it srYou maY rest assured that the several Federal RetheirBatks will vigorously enforce its provisions in respective districts." Approved unanimously. Letter to 13r, 260 te''Iirig as Mr. W. E. Stremel, Stremel Bros. Manufacturing Plymouth Avenue, North, Minneapolis 11, Minnesota, follows: "We have read with great interest your letter of 4.,:q 26, 1948, to Chairman McCabe in which you suggest Kiat . .4.111, With the view of halting black and gray market tl; e ss.ctions in steel, the use of bank credit for such 14actions should be prevented through action by the sU It Pervisory authorities. kiperT.Ile question whether the Board or other bank ls°rY authorities should be granted the authority. -sarY to effectively regulate the use of bank credit eorls idich Purposes is one which would require careful 4ti0 n. As an indirect approach to the problem Qte: T yttir -rolling prices of commodities in short supply, t/woisUggestion raises the basic questions of policy ranvea in any price control program. In addition, 41,01.1e -Y be doubted whether regulation of bank credit 1411ch Mould be sufficient to accomplish the results YOU contemplate in view of the other methods %lad be used to finance such transactions. steel:If the use of credit in transactions involving bee s1Iflh Igere to be regulated, presumably there would be trealsr la authority to regulate the use of credit in °rth,cti°ns involving other commodities. The exercise blal.cle-ks authority would place a great administrative the a.1, 1 11Pon the bank supervisory authorities; and, in i ter::(81ellee of a general price control program adminl'ortriax7 bY another agency, it would require the perof duties which are beyond the scope of the -1111ctions e li t of such authorities and for which they presently prepared. regret that we are unable to make a more favorbut assure you that we sincerely appreciate written to us." ?t Approved unanimously. 1434 9/2/48 -11Letter to Mr. Earhart, President of the Federal Reserve f Sari F rancisco, reading as follows: Au "Reference is made to Mr. Mangels' letter of st 14) 1948, transmitting final plans and outsPecifications for the proposed Portland Branch 411th and requesting the Board's approval including (3V-tY to procure firm bids for the construction. the It is noted that the architect estimates that arch st of the building, including contractor's and exci;ect's fees and allowances for contingencies but vaults, will be approximately $1,882,000, 4rIci that +, %/alas cost of a two-level vault with 30-inch i elld 20-inch doors will approximate Wo,000. letter 11 view of the considerations outlined in your the Board will interpose no objection to the ; Droc blaiacil lflg of firm bids for the construction of a Ot ior -lig to house the Portland Branch on the basis tteill -a-c) .P°sed plans and specifications, with the underf(4, -111g that the bids will be submitted to the Board Of j IPProval before a contract for the construction "e b uilding is entered into by your Bank." 4 * Approved unanimously. 41t 'Jetter to Mr. Frank H. Neely, Chairman, Federal Reserve ()1' tl allta, reading as follows: tn e have cleared with the American Bar Associak14)ra'"e matter of further distribution of Mr. Frederic ()Irlill°11's article, which is the subject of your letter tobegit 2. Your suggestion regarding the distribution coris 1°-(-yen the article has been discussed, and after sting the With Mr. Solomon it has been decided that °I-It 1;111 ' 4 should not undertake the primary distribution 04..Ve it to the American Bar Association. The artitIle ' fi cellent as it is, seems clearly to lie outside of material for which the Bulletin is intended. tisto 7i7r Board, however, is in agreement with your view he value of the paper and is having it printed 'atel, J. When copies are ready, we shall be glad to 1435 912/48 -12.as -FJ-Y the Federal Reserve Banks with such number IllaY wish to have for distribution in their i:'4districts. Thank you for your letter and with 414dest regards, I am." Approved unanimously. Letter to Mr. Lewis B. Reynolds, Editor and Publisher, / 1 4keri 14 -rianual, Inc., 369 Pine Street, San Francisco 4, Caliortiitt l'eading as follows: pien:RePlying to your letter of August 30, 1948, advised that, with respect to any protite,111-gs which the Board might institute at any e. the Clayton Act, the Board has adopted by O11 that all such proceedings will be treated eozi 'as confidential until such time as a full and tij elete 4 record may have been made. At the present 'oeke here are no Clayton Act cases on the Board's in which such a record has been made." . Approved unanimously. Secretary. airman pro tem.
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