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1243 A meeting of the Board of Governors of the Federal Reserve SY'eltem was held in Washington on Saturday, Septemb er 20, 1941, at 12:30 PRESENT: Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Smead, Chief of the Division of Bank Operations Mr. Dreibelbis, Assistant General Counsel Mr. McKee referred to memoranda addressed to the Board by Mr. N'etbe, 4.bis under dates of September 18 and 19, 1941, regarding the 11141.1, .4 18 Na tionalbank, calling attention to memoranda received from the 4tied.' 1-al Reserve Bank of New York containing the following informaticq: th About two years ago the Danish Legation leased from 19e German Ambassador, for a term expiring October 1, ti41, the building formerly occupied by the Austrian LegainOn, Which lease contain ed an option to purchase the buildr0 e,,T 80,000. The Danish Minister has informed the State tel‘tment that the Danish Legation would like to exercise th: °Pticm- Mr. Berle, Assistant Secretary of State, told aria' 41-J./lister that he saw no reason why he should not do so filricisaw no reason why he should not utilize 200,000 of the withs in the blocked account of the Danmark Nationalbank s the the Federal Reserve Bank of New York for this purpose, rel al?.thority of the Minister to give the instructions in par:lon to the P, 200,000 to be certified by the State Detheuent under the recent amendme nt to Section 25(b) of 1420"deral Reserve Act. It was understood that the is f'°00 desired in excess of the 80,000 purchase price br, or other expense ,.asibi s in connection with the building, Y for alterations, furniture, etc. 9/20/41 Since the invasion of Denmark the New York Bank has continued to permit the operation of the Danmarks Nationalank account on instructions from the officers of the bank at Copenhagen who are designated as the authorized siEna„°rles in the bank's signature circular. The account has .:L eon quite active, and the New York Bank has executed r ilrough it numerous transactions in which the State and 'reasury Departments have been interested and which those L',?Partments have requested the New York Bank to arrange lith the Danmarks Nationalbank. In order to induce the anmarks Nationalbank to handle such payments, the New -1- c)rk Dank has, under appropriate licenses from the TreasI Department, established a special "free” account for 4.:Ie bank, to which it has credited the dollar payments to 'fle hank against which the bank has made the requested Payments in Denmark. .TL Y The New York Reserve Bank has recognized and acted IT the instructions of the officers of the bank at Copengen, notwithstanding that the State Department said °110wing the Danish Government's repudiation of the Minister after the Minister had made the agreement our State Department in relation to air bases in 1,1eenland) that the Government of the United States had 4,eognized since the invasion of Denmark in April 19/40 that the Government of Denmark "is patently acting under 111Iress". / The New York Bank feels that there is less danger fli,eting on such instructions than there would be in reme:'Ing to do so. It has had no indication that the GerDans are exercising any coercion with respect to the henrilarks Nationalbank, and, in fact, such informal and arsaY evidence that it has indicates the contrary. 4 on The officers of the New York Bank feel that to ac., re the certified instructions of the Danish Minister.wath P et to a %).00,000 payment would seriously prejudice the: 011-,"ew York Bank's position with respect to having relied ba,l'he instructions of the officers of the Danmarks Nationalthe past, and with respect to the future reliance .11c/1. instructions, and that in acting upon such infr,'eLlons without similar instructions or confirmation -T the be Danmarks Nationalbank, the Reserve Bank would oif il\rlting an almost certain lawsuit. Consequently, the Trel a ers of the New York Bank indicated informally to the -.11rY and State Departments that they consider that the - 9/20/4i request to make such a payment would involve serious risk to the Bank, that they would object to any such request anc! that they hope such a request vail not be made. If, however, the State Department is insistent about the matter and wishes to certify the Minister's authority to direct the payment, notwithstanding such objection, and the refusal to honor such request would appear to prejudice the relationship of the New York Bank with the State DePartment and the whole procedure of certification under ' .11e statute, the officers would probably feel that the .-esser of the evils would be to make the payment on the instructions of the Minister provided that the Minister's 4uthority to make the payment is certified and provided al80 that certification is made to the effect that Danrks Nationalbank operating in Copenhagen is recognized _ 8 the central bank of Denmark and is recognized as having :uthority to control and dispose of all property in the le°unt on the books of the New York Bank in the name of c at Institution, so that all future payments from the actrnt would be made on instructions given pursuant to au"ity certified under the statute. r j 11r. Dreibelbis said that the State Department was extremely 401.0Us that some way be found to make it possible for the Danish tillister to make the payment necessary for the exercise of the option 111 SIAestion and had taken the position very strongly that the New York hould act on a certificate as to the authority of the Minister 11lake the payment out of the Danmarks Nationalbank's account. He 41c1 that Itr. Logan of the New York Bank had advised him that Mr. Berle hki called him on the telephone yesterday evening and was very insistellt that the DIew York Bank agree to handle the transaction in question, all subsequent transactions with respect to the account of the 1)atIrks N'ationalbank, on the basis of certifications which would be INled by the Secretary of State certifying to the authority of the to 9k0A1 —4— lanister and the Danmarks Nationalbank, respectively, under section 25(b) of the Federal Reserve Act, as amended. In response to 4cNest1on by Mr. McKee, Mr. Dreibelbis indicated that he felt the Pedet% al Reserve Bank of New York would not be justified in refusing to 6° along on that basis. Ur. McKee stated that he did not see that any action by the 4ard Was called for at this time, but that he wished to apprise the Qtliel' members of the Board regarding the matter so that, in the event then, --was objection, they would have an opportunity to express them— NAr„ '8 before the matter was closed. At this point Messrs. Thurston, Goldenweiser, Smead, and Drei- left the meeting, and the action stated with respect to each of raratters hereinafter referred to was then taken by the Board: The minutes of the meeting of the Board of Governors of the d.e'rtal 11101.1t4. Reserve System held on September 19, 1941, were approved unani- Telegram to Mr. Sproul, President of the Federal Reserve Bank yor ky prepared by Mr. Morrill in accordance with the action tale ' en uy the Board on September 17, 1941, and reading as follows: othjr"The Board approves of your Bank offering to the 13a Federal Reserve Banks, and the acceptance by those 1 , 2 °I* the acc0'5 , Proportionate further participation ace ea in your letter of August 6 and in n the other wij 142ts since then opened and maintained by your bank tern, ' he approval of the Board of Governors or under the 8hi-e °f the 'Procedure with Respect to Foreign RelationPe °f Federal Reserve Banks' (X-9770 in which the 1247 9/20/41 -5- "Federal Reserve Bank of Boston has declined to participate; also in the loan against gold of not in excess of 2ne million dollars to Banco Central de Reserva de El °c 1vador, approved by the Board of Governors by telegram of June 27. "Copies of this wire being sent to other Federal Reserve Banks, and it is understood you contemplate presenting matter to Presidents at time of forthcoming Presidents' Co nference." Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks tl?ading as follo-s: "Reg 17-76. If a new automobile is sold at a discount, cash purchase price' is therefore less sum of items 1 through 4 of Part 3(a) of the Supre)lement, the maximum credit value is limited to 66 2/3 per ent of the 'bona fide cash purchase price'." d the 'bona fide n "lan the Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks as follows: HD has 1, "eg. r-77. An inquiry which may be stated as ,follows ueen received under section 8(f) of Regulation 1.: A purchaser buys an automobile costing 600 and tenders his old car, which is worth ' 4 200, as the required down payment. Purchaser owed a finance company N_00 on the old car, which was part of its unpaid purchase price, but the Purchaser was able to make arrangements with the inance company whereby the automobile was re-Leased as collateral to this loan and there was Z , ,ituted therefor miscellaneous collateral than listed articles and he was able to obtain a clear title for the purpose of making la). trade-in. Assuming in each case that the "istrant involved knows or has reason to know the 100 transaction: (1) May a finance c°mPanY, other than the one which extended credit f 1248 9/20/41 -6the old car, lend 66-2/3 per cent of the purchase price of the new car when the loan is secured by the new car? (2) May the finance company which extended credit on the old car make a separate loan to the same individual equal to 2/3 of the purchase price of the new car when the collateral for the loan is the new car? (3) May a finance company make two loans to the purchaser, one secured by the new car equal to 2/3 of its purchase price, the other secured by miscellaneous collateral other than listed articles, to pay the 4'1.00 which the purchaser owes the other finance company? 'Section 8(f) in effect prohibits extensions of instalment sale credit under section or of secured in17talment loan credit under section 5(a), in any case in rhich 'the Registrant making such extension of instalment etZdIt knows or has reason to know that there is, or that t.ere is to be, any other extension of credit in connecbl°11 with the purchase of the listed article which would ill tng the total amount of credit extended in connect ion h such purchase beyond the maximum credit value of slIch article.' "The down payment in the present case is represented by the old car, which is not sufficient for this purpose IslItless taken at its full value without regard to the amounts me1}1 owed by the customer for its purchase. The dovm paystt-, therefo re includes the '13 of credit which is outthfcling for the purchase of the old car, and the result is th7t this 1.00 brings the total credit in connection with ca : .transaction beyond the maximum credit value of the new Tle, i Accordingly, when, as stated in the question, the extestrant knows or has reason to know of these facts, the pre risi°T1 of credit is prohibited in each of the three cases sented in the question." Approved unanimously. Telegram to Mr. Hodge, Assistant Counsel of the Federal Reserve Of Chicaro, reading as follows: tiola ; ( 1leel September 18. Your conclusion correct. Seer) (Regulation applies to Registrant extending 71 1249 9/20/41 -7- .instalment loan credit or instalment sale credit if Registrant knows of side loan which would bring total amount of credit extended in connection with purchase above maxiMIA fixed either by section 4(a) or section 5(a)(1)." Approved unanimously. Telegram to Mr. Hodgson, Assistant Counsel of the Federal Re%17e Dank of Minneapolis, reading as follows: "In re question 14 your wire September 2 if replacement for heating plant consists of new furnace or boiler or flea heating unit such as oil-burner, replacement comes Within Group D-1 of Supplement (to Regulation W). If repair parts only are involved, the materials and services Come within Group E. See also Ruling W-62." Approved unanimously. Letter to Mr. Rolf Nugent, Director of the Department of ConSlitter c redit Studies of the Russell Sage Foundation, reading as follows: RA reply to your letter of September 4, 1941, to Mr. .1.n which you suggest the selection by the Board a small technical advisory committee to supplement gen_fal meetings with the 'trade' for the consideration of i i)r soblems arising under the consumer credit regulation lIled by the Board, has been delayed until the matter co ! -44.be discussed with the members of the Board. "It is the feeling of the Board that in a period When , r_11 the demands on its staff were not as great as at wfsent and there was more time to consider some of the a e technical problems connected with consumer credit, a40Mmittee such as you suggest might be of real assistati, licwever, the existence of such a body would con,4-1Le another point through which matters ordinarily ciZtd.be cleared and as long as the urgency for prompt rtientsl°ns in connection with the interpretation and amendEldhe,°f Regulation Vi continues, it is believed we should i staff -e to the plan of having available on the Board's or services of three or four experts in the various fields c02?nsumer credit and of conferring with the consultative n4Rittee created by the President's executive order and, 1250 9/20/41 -8- "whenever necessary, with the representatives of the 'trade' either directly or through the Federal Reserve Banks. "In following this plan it is expected that the Federal Reserve Banks will become increasingly effective in developing information in their respective districts with respect to many of the technical phases of consumer credit, and that this information will be available to us in the ?olution of many of the problems that will arise, and it ls the hope of the Board that as the System gathers ex1,?r1ence in administering the Regulation the need for ad.1ce on matters of technical detail will be greatly diminished,, Approved unanimously. Home Letter to Mr. Henry D. Brite, Commercial Manager of the Electric cal, Farm Authority, reading as follows: of ,"This will acknowledge receipt of your six letters uePtember 16 and your letter of September 10 contain1g questi41ons regarding Regulation W. For convenience, e answer given below is preceded in each case by your question. disc "2,LitaIL22: Regulation W-58 states: '--bank which ounts an obligation which is subject to the Regulail e°r1 13 not obliged to ascertain whether the original c,11"er is a duly licensed Registrant'. Does 'bank' in1:01-1de instalment financing institutions of all types? wh s,the Word 'discounts' exclude financing institutions ai:la Purchase customer obligations from dealers or others he full value of the instrument, less finance charges? "Aappx.: The word 'bank' in the above ruling ine,udes arld , all types of instalment financing institutions; dis Word 'discounts' includes purchases as well as nt5 (see section 3(a)(2)(B) of the Regulation) 1.,ead ' uestion: The last sentence of Regulation W-4, tion as follows: 'As indicated in W-19, the consolidasa,me Pre-September credit with a new credit has the newal ej-feet, for the purposes of this question, as a reatat; or revision of the pre-September credit'. This ofl, Irllent seems to be in conflict with the general intent a as it could be interpreted to mean that c'c;i21171:Zilirof a pre-September credit with a new 9/20/41 -9Credit could could, run for the unexpired term of the pre-September credit even though such term may be considerably more than 18 months. "Answer: The sentence quoted from V;-28 is merely in the nature of a cross reference to V-19 and was into convey the thought that consolidation of a preSeptember credit with a new credit amounts to an exercise ) c f the privilege of making one renewal or revision, with the result that a subsequent renewal or revision is governed by the same rules as a second renewal or revision of a pre -September credit. As stated in paragraph 2 of the mere act of consolidating two separate obligalone can confer no greater privileges than would apply ?-f 1the obligations were treated separately, and this means ,lhat the new credit could not be for more than 18 months, hether or not it was consolidated with a pre-September credit 1.".aqt§,ILon: A purchaser buys a refrigerator or another isted article from a department store on open account and, „erefOre, does not sign a contract calling for scheduled arents. The purchaser agrees to repay the obligation at th°4t 25.00 in two months, /1440.00 at the end of another D, ree months, :' 4 15.00 at the end of another two months, etc. 11 !! .. such an open account transaction comply with the Regte °n even though no down payment has been made and the eij i of the obligation could conceivably run for more than yltet,en months? ac,r Answer: If the question means that the purchaser ees, When the credit is extended, that he will repay 'ext ' ' - 11g to the schedule stated, the seller has made an 2(elens n of instalment credit' as defined in section taklen°1 ; the Regulation because the purchaser has underother repay in two or more scheduled pvments. On the the - "and, if the agreement at the time of sale was that agreZticle would be paid for in one payment, and the ered i_ ent is subsequently revised, the question is covuY bank "aLlion: May a person obtain a cash loan from a -11eh (311 Personal finance company and use the proceeds of articl:an to cover the full purchase price of a listed ror E. : e.l ring the listed article purchased as security for If the article is not taken as security Can, or if the article was purchased more than 9/20/41 -10- 45 days prior to the making of the loan, no down payment is required (section 5(a), and see W-37). However, if the article secures the loan and was purchased within 45 daYs prior to the making of the loan, or is to be purchased at any time thereafter, a down payment is required. ".9,112Lq2a: Electric Home and Farm Authority has contractual arrangements with a number of privately owned a tilP o=cly owned utilities which act as agents for the in billing and collecting monthly instalments ,raa consumers who have purchased listed articles on the ' FIFA instalment plan. In some instances the utilities as al.gents for the Authority advance the proceeds of the cusLomer contracts to the dealer making the sale. Such funds are Promptly repaid to the utility by the Authority. In 0th instances utilities do not advance funds to dealers. In both instances, however, utilities bill and collect i °nthlY instalments from the customer and remit such colto the Authority. Are either or both classes of uLilities required to register under Regulation V? 'Answer. Apparently the utilities are doing nothing than acting as agents for the Authority in billing flu collecting monthly instalments. Apparently the sales 7 1 d the extensions of credit are made by the dealers and ay r _the Authority. In the circumstances, the utilities not required to register (see first part of section a . 3()) f Ofl What constitutes a 'bona fide collection y the Registrant'? 11. 11,tat. " ctffiTteNo general rule can be laid down regarding s a bona fide collection effort, except that visis not essential that there be court action. This proof in section 8(a) contemplates all the great variety even tualities which may occur, and the corresponding e 4-c'Y made of collection efforts and arrangements which may • estion: A purchaser buys one listed article and tionunlisted article and desires to finance the transa?nineh he d °11 °/le contract. The purchaser has a trade-in artiess t° apply as the down payment on the unlisted Will the dealer making the sale and the financ.rig Iliatrstitution handling the transaction comply with Regif this type of sale is accepted') "Answ The answer is in the affirmative. The eff0 9/20/41 -11"matter is covered by section 4(g) of the Regulation." Approved unanimously. Letter to Mr. Beneman, Union Trust Building, liashington, D. C., as follows: 'Reference is made to your letter of September 11, which was delivered in person by your Mr. Morrison to ?ur Mr. Bradley and which asks certain questions regard- the provisions of the Board's Regulation W. It is assumed, in replying to your questions, that the 1,. auo.-ons' to which you refer result from the sale of -Li...sted articles'. It is also assumed that they occur Pjlor to November 1, 1941, since the provisions of sec2 .?n 8(b) of the regulation relating to 'add-ons' do L , become '_Q-c effective until that date, and since there the Possibility of amending those t0 provisions prior lat date. te "The answer to the first four questions in your letocr is in the affirmative, providing the payments described in accordance with section 4(d), 'at approximately si'a'-nintervals not exceeding one month'. . As to your fifth question, it is suggested that it rati 4(g)r clearly answered by the provisions of section clia;at. If this is not the case, it is suggested that the 4ipiel .on be restated, or that it be clarified by an ex- temb- Our understanding of the answer to your sixth ques- correct, providing the 'account started before Sepals er ' 1 1 ° the' 941' is not renewed or revised, and providing provisions of section 4(g) are complied with. tralitThe administration of ReguTation : VI has been decen twen ' t-zect among the twelve Federal their and Reserve Banks the pfour branches, and inasmuch as you are located in is ho of the Federal Reserve Bank of Richmond, it t any pReserve that it will be convenient for you to address tion c11113=ns you may have regarding the regulaItliOtrat Approved unanimously.
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