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I8 S A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Wednesday, September 23, 1942, at 11:00 PRESENT: Mr. Ransom, Vice Chairman Mr. Draper Mr. Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary The action stated with respect to each of the matters hereinr eferred to was taken by the Board: Memorandum dated September 21, 1942, from Mr. Szymczak, roc°I11111exidinz. that Miss Dorothy R. Tohnson be appointed as a stenographer 14 his orrice, With salary at the rate of $1,800 per annum, effective October 1, 1942, after having passed satisfactorily the usual physical exRkillation. Approved unanimously, it being understood that Miss Melania K. Sokol, who expects to resign at the end of the current Year and whom Miss Johnson will replace, Will be transferred to the Division of Personnel Administration where She will assist until she leaves. Memorandum dated September 21, 1942, from Mr. Morrill, recomthat Percy C. Riston, assistant foreman of laborers in the "17t8 Office, be promoted to the position of foreman of laborers, 114c1 t4 1)07T. Weeks, roz t14 laborer in the Secretary's Office, be promoted to 3.tic)11 of assistant foreman of laborers, both on a temporary basis illaviee:Ildefinite period, and (2) that the salaries of Messrs. piston 8 be increased from ::1,680 and : :,;1,320 to J...1,860 and 1,680 per 9/23/42 -211111111113 re spectively, effective October 1, 1942, and continuing only 141416 serving in the capacities of foreman of laborers and assistant foreman of laborers, respectively. Approved unanimously. Letter to Mr. Walden, First Vice President of the Federal Re"e Bank of Richmond, reaaing as follows: "In accordance with the recommendation contained in letter of September 19, 1942, the Board of Governors m1311 ./r°ves the payment of a salary to Mrs. Charlotte Nowell Dc-4aughlin, stenographer in the office of Mr. W. B. Van : i vnter, Regional Chairman of the Victory Fund Committee the District of Columbia, at the rate of a,800 per an1231) which is 0.20 in excess of the maximum annual salary ,7vided in the personnel classification plan of your Bank r the position occupied by Mrs. McLaughlin." Your 2 1 Approved unanimously. Or Letter to Mr. Peyton, President of the Federal Reserve Bank 147111eallolis, reading as follows: 194,"This refers further to your letter of September 12, e nclosing the opinion of counsel for your Bank re-t,;lng the question whether certain officials of the United laaritime Commission and of the War Department have -°ritY to waive reouirements of the instructions of those e; -111cies in authorizing the making of a guarantee by a Fed" 8 ' ' 4 Reserve Bank pursuant to Executive Order No. 9112. In e(Ve.ace with your request, your inquiry was referred to the cati sritime Commission and the War Department for clarifion of the question presented. bell "The Board has now received a memorandum from the War colment dated September 18, 1942, signed by Lieutenant bY nel Paul Cleveland, Chief, Loan Section, and approved war ' lle Honorable Robert P. Patterson, Under Secretary of zetiVegarding this matter; and a copy of the War Departrir, a„ memorand memorandum is enclosed for your information and guidJle have not yet received advice with respect to this vIcIri from the United States Maritime Comnission.” Approved unanimously. 9/23/42 Letter to Mr. Bale, Vice President and Secretary of the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your letter of September 4, 1942, with respect to the question whether the limitations upon real !state loans by national banks contained in section 24 of the "dercl Reserve Act are to be considered applicable to loans leranteed by the War Department, Navy Department, or Mari1111e Commission under Executive Order No. 9112 and Regulation 1, ev It is understood that you have particular reference to 1”es in which a guaranteed loan is secured in part by a first len cn real estate, but where the mortgage or deed of trust Upon; the real estate is intended only as additional security, Primary security consisting of assignments of defense conv-cacts. Aumi:!1 the Bulletin of the Comptroller of the Currency for 15, 1941, there was published at # 6740 a ruling of ' c :e Comptroller of the Currency which we believe may adequately ir-er the question with which you are presented. In that rulg' the Comptroller of the Currency stated: 'It is the position of this office that any loans based upon real estate security must conform to the Provisions of section 24 of the Federal Reserve Act, as amended, unless the circumstances justify the asthat the real estate security as such is remote or incidental and is taken out of an abundance Of caution. In such cases the burden of proof is upon the bank to convince the examiner that the loans may ! ) .r°Perly be excluded from consideration as "real estate loans" subject to the provisions of section 24, As Sla Y. 11 -'L°w, the Bulletin of the Comptroller of the Currency 110- shed and distributed only for the confidential use of tiol°111-1-1 bank examiners and others engaged in the administradirn of the national banking laws; and it may not be quoted t ze t .ZIrre ce )yothers. However, the ruling of the Comptroller of above mentioned would seem to indicate that the cliz.l ine of real estate mortgages as additional or incidental Sefor guaranteed loans, where the primary security is O' bed by the guarantee or by assigned contracts, would or sbe considered by the Comptroller's office as a violation ion 24 of the Federal Reserve Act. , 1 We are transmitting a copy of your letter and of this re to the office of the Comptroller of the Currency for the 'Traction of that office." iS blaji T Approved unanimously. 9/23/42 -4Letter to the Presidents of all the Federal Reserve Banks, reading as follows: "Consideration is being given to a proposed Amendment " N 9 to Regulation W in draft form as shown by the enclosure. "The matters to which the proposed amendment relates (1) the requirement of a down payment (or refundable deposit) on listed articles sent out 'on approval', as 'de monstrators', etc., when the sale that is in contems i ti "is an instalment sale; (2) 'floor authorizations' for ,7*ss in charge accounts of articles priced at ;5.00 or less ';4en the customer, instead of taking the article with him, 'ers it to be delivered; and (3) small defaults, those of ';1•00 or less, in charge accounts. It will be noted that the of the proposed changes is on the restrictive side and "'Jet the other two are on the liberalizing side. sna "The Federal Reserve Banks are requested to make comments Boa suggestions on the proposed changes and to advise the rd of their own recommendations. Replies should reach the 'lard by October 1, 1942. as "You are at liberty to consult such persons in the trade °11 may desire to consult in order to inform your own judgit ;1 and enable you to arrive at definite recommendations, but assumed that you have already discussed these natters 1,14, 61 the trade to such an extent that further consultation J. -L relate mainly to details and probably need not involve flora than a few selected consultants." X mej Approved unanimously. Letter to Mr. Sienkiewicz, 'Vice President of the Federal ReOf Philadelphia, reading as follows: refers to your letter of September 3, 1942, enWilli nC 11 copy of a letter of August 14, 1942, from Mr. tici ' -ams at your Bank to Col. Edward T. Biggins, of Bene110141 Management Corporation, relating to the treatment boo ! r Regulation W of instalment loans to purchase coupon which in turn y be used to purchase listed articles. al) , "On the basis of the information submitted by you, it ' Dr' sears that such transactions will be handled in a quite ioctical manner and that the possibility of abuses or evaila cn the Regulation will be reduced to a minimum." Approved unanimously. 9/23/42 -5Letter to Mr. Woolley, Vice President and Secretary of the Federal Reserve Bank of Kansas City, reading as follows: "This refers to your letter of August 26, 1942, en1.°8ing copies of letter to you and to the Retail Credit 78scciation of Kansas City from certain merchants, relattng Primarily to the return and exchange of merchandise by customers whose accounts are in default under section 5(c) Of Regulation w. It is the Board's view that if an article which has been n purchased in a charge account is returned to the seller the resulting credit to the customer's account may be E, it13 ,13lied in cancellation of the credit previously extended a" connection with the sale of such article. Thus, if the article returned is an article with respect to which the account is in default, the default in the account as to article may be regarded as cured since, as to such tit;cle, there is no longer an extension of credit essenhoe'. to the continuance of the default. On this basis, ✓ wever, it is only where the article returned is one with lesPect to which the account is in default that the resultcredit can be applied against the amount of the default. ra, "In addition , it is the Board's view that after de13, in a charge account occurs, an article previously 1 q?za -as ed in the account may be exchanged for a different 41 .4.cle (although, of course, in case the new article is a ths'ed article, the price of which exceeds the credit for ace article returned, the excess may not be charged to the „count that is in default but must be paid in cash). The ct that any such exchange, because of convenience to the temties or the Registrant's bookkeeping and inventory sysor-8) may be entered on the Registrant's books as a return artmerchandise followed by a credit sale of a new listed 5N eles would not be material. The purpose of section 484 iS tO prevent the extension of additional credit for the ved articles after the occurrence of the default, while 1.417 transactions discussed herein would not, in substance, 00 ° e the extension of additional credit but merely the -t.a ' tilled use of credit legally extended in the first inOr course, it is assumed that any such return or • IlAge is bona fide and not for the purpose of evading -N• Y Provision of the Regulation. rats "S°me of the correspondence enclosed with your letter peided a question regarding defaults arising from small unbcaances in charge accounts. The question of amending the, 113:4 liegulation to waive defaults of small amounts is still etudy.fl r Approved unanimously. t I_,8'3 9/23/42 -6Letter to Mr. Woolley, Vice President of the Federal Reserve 441cOf Kansas City, reading as follows: "This is in reply to your letter of September 16, 1942, .Illeferring to the possibility of exempting from Regulation W ' °ans made to dependents of men in the armed forces. The rfecent inquiries which you mention seem to be related to the dact that a number of these people will commence receiving °Pendency allotments from the Government in November. "The question which you raise touches upon the broader Problem of what may have to be done in the future as more ilTd more married men and others having dependents -go into :'e armed forces. The Government allotment scheme will undoubtedly be inadequate in some cases and the question _r'ses whether or not exceptions will have to be made for nses of this kind. It is not apparent to us off-hand that V,ois e xceptions would be particularly helpful inasmuch as would seem to be no income available to provide for the payment of any extensions of credit which might be made, 80 ✓ that the actual number of credits which the lenders or 1,nre would be willing to extend under these circumstances appear to be limited. me "Your particular question, however, concerns the allotrits which will be received in November. The fact that your tC' ' .4.1ri55 have originated recently would seem to indicate vie:: Prior to the allotment scheme the vendors or lenders th'' unwilling to extend the credits but that when they saw we!..°6 people were going to have some money in November they dev:,willing to anticipate those funds. Tust how much this ° t comes from the need of the families to obtain the go0, s immediately or the desire of the merchants to sell ha , 4'° is dificult to surmise. We are wondering if complaints le;le d betla -- received from individuals as distinguished from ers and vendors. me„ "If the case is merely one of anticipating November payp4e r , it would appear that RegulationWwas adapted to that • P a°26. Single-payment loans could be made for 90 days and • °III ' Payments would be involved unless listed articles tej, beinE purchased. In charge accounts, purchases in Sepber:er need not call for payment prior to the 10th of Novem, wow. , According to your informants, the people concerned 4-u receive their allotments about that time. consi : Ihis, of course, is a subject which will have to be ered very carefully and we would be glad to have you ` L se Us any additional information which you obtain as well Jour lemn reactions on the importance and urgency of the prob- 4 Approved unanimously. 18-i4 9123/42 -7- Letter to Mr. Frank Hewins, Tr., Hallowell, Maine, reading follows: aS "This is in reply to your letter of September 14, 1942, , /rhng certain specific nuestions relative to the Board's Ilegulation W. the "Your bill for repairs at the garage is not subject to 1, charge account provisions of the regulation. We do not, c/wevers use the word 'repairs' in the broad sense as includ; 'ne automobile batteries and accessories. Likewise, the rePair bill for an individual who uses his automobile for Pleasure is not subject to the regulation. "Regulation W contains all of the provisions with refer: lice to credit restrictions, but it does affect garages under ,,!rtain circumstances. If a garage sold automobile batteries -"d accessories, automobile tires and inner tubes for passen!" automobiles, automobile radios or any of the other articles listed in section 13(a), the credit extended by the ga08 1:ee wmad be subject in the following way: If an individual a businee _ b has not paid for purchases of 'listed' or unlisted ifticles by the tenth day of the second calendar month follow131 the dates of purchase, he cannot buy on credit any of the to: tecit articles unless the default has been cured pursuant -ection 5(d). A very large share of the garage business suleps not involve listed articles and would, therefore, not be letilect in any way. The notice which you enclosed with your letter bet is somewhat inaccurcte. It does not make a distinction oveween the purchase of listed and unlisted articles; morecurl', it implies that the only way in which a default can be ed is by payment in full. 8al "The accounts of merchants with manufacturers and wholeel e for articles which the merchants resell to customers re: no Way subject to the regulation, even if the articles Etre ror -Listed articles. You will note that a special exception this type of business is provided by section 8(f) which g45 revised by Amendment No. 8. whi "We hope these answers will provide the information raisch You wish to have. We have found that a good deal of sillitIllcierstanding of the provisions of the regulation has rethe ed from the fact that creditors have been anxious to use re8Illation to help them in collecting all kinds of debts apoli throuJa inadvertence, have given the regulation a broader the -ce'tion than was intended. We have endeavored to make the._1"ules as simple as possible, but you will appreciate that 1.2r must take into account the problems with which merchants so metimes faced. Most of the features that may appear 1825 9/23/42 -8-cvmPlicating are the result of our trying to provide for !Peoial cases which are not of the usual type but which must ue handled by merchants from time to time. "The administration of Regulation W is decentralized ng the twelve Federal Reserve Banks, and you will perhaps 1rd it more convenien t to direct any further questions that U may have on this subject to the Federal Reserve Bank of 1°°8ton, Boston, Massachusetts, in whose district you are lo- Approved unanimously. 4.e.„ Memorandum dated September 22, 1942, from Mr. Dreibelbis, 4-al Attorney, recommending that there be published in the October issue , oi the Federal Reserve Bulletin statements in the form attached tO the nleirlorandum with respect to the following subjects: Discounts by Federal Reserve Banks Amendment to Regulation A Reserves Amendment to Supplement to Regulation D Consumer Credit Interpretation of Regulation W Government Contracts Executive Order dealing with War Contracts Foreign Funds Control Public Circular and Public Interpretation Approved unanimously. Thereupon the meeting adjourned. Secretary. 44toyed: Vice Chairman.
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