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0.„ Minutes of actions taken by the Board of Governors of the era) Reserve System on Tuesday, September 25, 1951. The Board met in the BoPrd Room at 2:5) p.m. PRESENT: Mr. Mr. Mr. Mr. M,xtin, Chairman Szymcza Norton Powell Mr. Cari)enter, Secret:Jry Mr. Sherman, :.ssistant 2ecretc,ry Mr. Riefler, ixsjsti-int to the Chairman Solomon, ,.csistant General Counsel 1.c, J. J. Smith, Special Counsel Pursuant to the discussion at Vre metIttng on September 20, 1951, there beri r 12leetilL6 draft epared and sent to each meMber of the Board before this Statement and Order on Respondent's Motion to Dismiss, 4Ated and filed September 13; 1951, in the matter of Tx-Ansamerica Corr . Smith reviewed briefly the motion filed by attorneys for NI% Tr fillsmerica Corporation to dismiss the Soardls complaint, statinc that It 14, cubstantially identical with a motion filed by Transamerica on -4ver 7, 1948 and denied by the Board On January 71 1949, in so far 4E1 it „ pertained to a request that the complaint be dInmissed. :e sd.ld that ie felt the dental of the pouding motiOn. would bt .0ro.:)e1 for the same l!easo,„ ' 8 that firompted dental of the earlier Motion. However, the present • added; also contained in effect,, a request for oral argument ther,)_ un 1t advance of final argument, and he retominend4d that the Board .1•6.1-1t. 4 , 'ne requcst for oral arguMeht At the 1 hearing by the o 9/25k1 -2- Board, and that the request for argument in advance of the fl.nal hearing be denied. He also recommended that Respondent's request that the Board obtain legal advlce through appropriate Government channels be denied for the reasons stated at the meeting of the Board on September 20, 19)1. Thereupon, unanimous approval was given to a statement and order reading as follows: "UNITED STATES OF AMERICA BEFORE TBE BOARD OF GOVERNORS OF THE FEDER14L RESERVE CYST'ZM IN TEE MATTILT, OF TRANSAMLRICA CORPORATION STATENT A7010 ORDER ON RESPONDENT'S MOTION TO DISMISS, DATED ArD FILED SEPTEMBR 13, 1951 On r.eptember 13, 1951, respondent filed with the Board a 'Motion to DismLss the Complaint,' being a renewal of an earlier motion to dismiss filed December 7, 1948, and denied by the Board on January 17, 194S. The motion also contains (1) a request for oral argunent thereon, in which connection it is asserted that the motIon 'should be considered in advance of, and without regard to, the Recommended Decision' of the Board's Hearing Officer, and (2) a further request that 'the Board obtain through appropriate governmental channels disinterested legal advice in passing upon this // lotion.' Respondent's request for oral argument is granted as hereinafter ordered_ Howev-Jr, if and insofar as respondent intended 4180 to request that such argument be heard and considered, and its i°n to dismiss be decided, in advance of oral argument to the on final hearing, the request is denied. Entirely apart from h iarde fact that the questions raised by respondent's motion to dismiss already been fully considered by the Board and decided adliersely to resPondent, respondent will be accorded an opportunity to argue 0 ; 8 renewal of the motion on final hearing, and there Is no reason so necessity for the Board to proceed as respondent suggests. To do li,,Inight result in requiring the Board to hear two oral arguments, in 1 8ch event the disposition of this proceeding, as well as other public iness of the Board, would be unduly delayed. Respondent's second request above referred to is denied. It is th e Board's duty not only to decide this case, but also to determine-- 1T 9/2)bl -3- "consistent with due process and applicable statutes -- the decisional process to be employed in disposing of the matter. There is no basis in due process or statute for respondent's second re(.,uest. ORDER In accordance with the foregoing statement, it is ORDERED that: 1. Respondent's aforesaid 'Motion to Dismiss the Complaint' be, and it hereby is, set down for oral argument to the Board on final hearing by the Board. 2. If, and insofar as, respondent intends its above-mentioned motion as a request that said motion be separately argued and decided in advance of final hearing by the Board, the said request be, and it hereby is, denied. 3. Respondent's aforesaid second request be, and it hereby IS, aenled. This 25th day of September, 19)1. By the Board. (Signed) S. R. Carpenter, Secretary. Mr. Smith then referred to the preliminary discussion at the meeting on September 20, 1951, of the motion filed by Mr. Townsend, °01icitor for the Board, under date of September 17, 19)1 requesting that (1) the date for filing reply briefs, previously set for October 1, 1951, be extended to October 30, 19)1 and (2) the Board set the date for oral and in the event such date for oral argument was set subsequent 11"ember 10, 19)1, the time for filing reply briefs be further extended tIntil a date ten days prior to the date for such oral argument. Be also l'eferred to a reply to this motion filed by Transamerica Corporation under cl4te of ,leptember 24, 1951 stating that the Corporation did not object to eal extension of the time for filing a reply brief until October 30, 1951 or ' 44Y later reasonable date, but requesting that the date for oral argument 9/25b1 set at least 45 days subsequent to whateverdate was filed for filing of reply briefs. Mr. Smith expressed the opinion that the SOlicitor s request Cor extension of time was entirely reasonable and should be 6ranted, that Transawerica's request for a Period or at least 14.5 days between the timt-3 ter filing reply briefs and the date for oral argumeut as excessive, and that he would recommend that not more than about four weeks be permitted 'between the date for Mine: reply briefs and the date when oral argument would commence. Mr. Carpenter stated that he had inquired of Mr. Townsend, the Solicitor, whether he had any comment to make on the Transameric 1%134 and that Mr. Townsend said that he thought the request for 45 days between the filing of reply briefs and the date for oral argument was ,e4tively too long and that if the date for amnment was to be set after Ocf -°uer 30, he should be given as much of that additional time as would be reasonable to prepare his reply to the long brief and list of exceptions filed by Transamerica on September 13, 1951. Ur. Smith stated that in the circumstances he would re-commend the Board 0-ant the Solicitor's request and fix adatbetwe,:m Nolvemter 9 for filing reply briefs and a dote between December Epment 5 and 10 for It being understood that at the meeting on September 20 thc lal'Iber3 of the Board then present indicated that the date for final 9/2>/) i -5-- argument should be set for December 10. In making the foregoing recom- plendations, Mr. Sm'th stated that in his opinion a period of not more than 10 days between the filing of reply briefs and the date of oral argument which had been requested by the Solicitor, was entirely too Short In view of the extent of the briefs that might be filed, and that it addition he felt that the members of the Board might wish more time that). 10 days to devote to the study of the briefs before the final areuzetts. Mr. Smith went on to .say that he had prepared a draft of order %thigh miht be issued by the Board without, however, having Inserted any dates in it and that the order in addition to setting the dates would 'state that not more than four hours would be permitted to each side for 'rettient. discuss on, an order ing in the following form was ttmroved unanLmously: "UNITED STATES OF AMERICA BEFORE THE 'ABD OF GOVERNORS OF THE ‘FEDER4 RESEINE SYSTEM • In the Mattor of • EFtIC.. CORPORATION ORDER EXTENDING TIME FOR FILING REPLY BRIEFS AND SETTING TIME FOR °RAT, ARGUMENT . Thi:-7, ma matter coln m on this day upon the motion of the Board's S.014 4-citor, dated Selotember 17, 1951, to extend the time for the filing ' ia,,I , ° rt 'ePly 'briefs and set a t:ime for oral aiwument, cud upon respondent's re to said motion, datod September 24, 19)1, and the Board having 1Y cons I dered the matter, it is 0RDERi.:1) that; 1. The time for filing reply briefs heroin be, and it horob— ') extended to and including November 9) 1931. -6- 9/25/)1 "2. This matter be, and it hereby is, set down for oral argument to the Board on final hearing at the Board's office in Washington, D. C., at 1000 a.m., Eastern Standard Time, December 10,. 1951. 3. The Board's, ,Solicitor and the respondent shall each be allowed four hours for oral argument, and argument shall be concluded not later than December 11, 1951. This 25th day of September, 1951. By the Board. (Signed) S. R. Carpenter, Secretary." Mr. Smith withdrew from the meeting at this point. There was presented a memorandum from Mr. Heekley, Assistant General Counsel, stating that a telegram dated September 24 from Mr. SProul, President of the Fedoral Reserve Bank of New York, stated that 'Et banker's committee on nominations proposed to recommend Frederick ?slmer Armstrong, President, Keyport Banking Company, Keyport, New jersey, for nomination as a Class A director of the New York Bank, and that 1,a% ,ArwArong presently was serving as a Commissioner of the Port Qr New York Authority, which raised the question whether such service ic3111.(1- be 4 n conflict with the Board's resolution of December 23, 19I5, COh CernIng the holding of political office by a director of the Federal Reserve Bank. Mr. Sproul's telegram also stated that the Commission Qi'erated in the public interest without profit to private persons, that the office of Commissioner provided no compensation, that it was regarded Els 11 high honor, that it was not considered that appointment to the Oft e vas dictated by political considerations, and that in his opinion -7- 9/25/)1 it would not 1)e liconsIstent for Mr. Armstrong to serve as a Class A director of the New York B8nk while continuing as a member of the commission of the New York Port Authority. Following discussion, upon motion by Mr. Norton, unanimous approval was given to a telegram to Mr. Sproul reading as follows: "Reurtel September 24. Board feels that service of Mr. Armstrong as Class A Director of your Bank While serving at same time as Commissioner of Pert of New York Authcrity would not be in cbntraventien Of spirit And intent of Board's 1915 resolution regarding holding of 1)olitiCa1 or public office by ()Mears and directors of Federal Reserve Banks. Board therefore Interposes no objection." Mr. Norton stated that the Personnel Committee had submitted recommendations for appointments of Class C directors at Federal Reserve Ilenks or for directors of Reserve bank branches In addition to those considered at the meeting of September 11, 19)1, that the matter was l'esAY for consideration by the Board but had been postponed because Mr. 116,10_ u-oraen was not present, and that while he would not press for action at the meeting today he felt the recommendations should be acted upon at tt Meeting later this week. At this point all of the members of the staff with the exception "I 'lessrs. Carpenter and Sherman withdrew, and the action stated with reslject to each of the matters hereinafter referred to was taken by the `-t:.0 0 -8- 9/25/)1 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on September 21, 19)1, were approved unanimously. Minutes of actions taken by the Boqrd of Governors of the Federal Reserve System on September 24, l9J, wore approved and the actions recorded therein were ratified unanimously. Memorandum dated September 21, 19511 from Mr. Boothe, Assistant Director, Division of Selective Credit Regulation, recommending an increase in the basic salary of Mrs. Margaret L. Wolfe, Secretary to Mr. Boothe in that Division, from 0,72) to 3,80 per annum, effective ZepteMber 30, 191. Approved unanlmouslY. Letter to the board of directors of The RAleigh County Bank, teckIey, West Virginia stating that; subject to conditions of member- 6410 numbered 1 and 2 contained in the Board's Regulation HI the Board 11DProves the bank's application for membership in the Federal Reserve SteiH.11(1 for the appropriate amount of stock in the Federal Reserve 138 'llk of Richmond. Approved unanimously, together with a letter to Mr. Leach, President ,of the Federal Reserve Bank of Richmond, reading as follows: 4(..- 1)(11 9/2)/51 -9- "Reference is made to your letter of August 31, 19:)1, submitting adJitional information regarding The Raleigh County Bank, Beckley, West Virginia. This informa-Von was developed by the Reserve Bank pursuant to the Board's letter dated August 17, 1951, advising that the bank's application for membership was being deferred until it could be determined more definitely that the policies recently adopted by the management will result In correcting the ccnditions which have been subject to criticism by supervisory authorities and that satisfactory policies will be maintained. "It is noted from the information submitted that substantial progress had boon made by the hank within approximately 30 days since it received a copy of the report of examination for membership, and t7lat you are apfmrently sat;sfled that the policies recontly adopted will result in correcting the matters criticized and in maintaining satisfactory credit methods in the future. Accordingly, the LorArd of 'Governors cf the Federal Reserve System approves the application of The Raleigh County Bank, Becklii::, 'debt Virginia, subject to the conditions prescribed in the enclosed letter which You. are requested to forward to the Board of Directors O' the institution. Two copies or such letter (Ire also enclosed, one of which is Cor your files P.,nd the other you are requested to forward to the Commissioner of Banking for the State of West Virginia, for his Information. "The Board's approval of the application is given with the understanding, of course, that the Reserve BPnit will continue to follow the situation closely with a view of eliminating entirely all criticized matters." Letter to the Pr idents of all Federal Reserve Banks, readint; follows: "The Board of Governors has had occasion recently to review the practice or granting leaves of ] 9/2,1) -10- "al)sence with pay to Federal Reserve Bank employees for the purpose of making their services available to local Community Chest, Red Cross, Infantile Paralys!_s e,",(1 similar charity drives. "It is understood that the lending of services of emi)loyees to essist in clerical and other capacities in connection with such community activities is an esta-blished practice in a number of cities. It is understood, also, that the individuals whose services are loaned by the Reserve Banks for such purposes are full time employees and the work load occasioned by their absence is absorbed in the same manner as if they were on annual or sick leave; that such loans do not require the hiring of additional or substitute employees; thnt no employees are hired for the sole purpose of participating in such community activities, and that employees are selected for such Purposes wi.th a view to their availability because Of seasonal slack or other conditions pertaining to the function to which they are regularly assigned. "In the circumstances., it appears that the lending of employees services for such purposes does not involve a diract or additional cash outlay on the part of the iieserve Bunks and, in view of the resulting community benefits which accrue to the Reserve Banks through their -personnel, the Board will interpose no objection to the lending of the services of Reserve Bank Iersonnel to participate in such activities provided such loans are authorized by the d .irectors of the respective banks and are reasonable 111 relation to the participation of other banks and business enterprises in the cominunity." Approved unenirnously. Letter to Mr. Strothman, Jr., Vice President and Counsel of the l'ecierea Reserve Bank of Minneapolis, reading as follows: "This refers to the letter dated September 10, 1951, ur Bank from Mr. Roger L. Joseph, a lawyer in Minneapolis, 9/25/51 -11- "which you referred to us on September 12 at the time of the System Conference on Regulation W. M±. Joseph's letter concerns Regulation W and a proposed automobile lease program contemplated by his client, a Minneapolis dealer in new and used automobiles. "With respect to this matter, M±. Joseph made reference to the interpretation concerning 'Leasing Arrangements' which was published in the 1951 Federal Reserve Bulletin, page 270 (16 Federal Register, page 2439, Int. 33), and also to relevant provisions of Executive Order 8843 and of the regulation, as amended. Briefly, Mt. Joseph would attribute amore limited meaning to the definition of 'credit' than that indicated in the above interpretation. By the question contained in the next to the last paragraph of his letter, he suggests that so-called 'bona fide leases of automobiles, not designed to evade the restrictions imposed by Regulation W on instalment sales', should not be considered subject to restriction. "The question raised by Mr. Joseph is one that has frequently been considered at length under the present regulation. However, our study and investigation of the matter thus far have led us to believe that a broad exclusion of leases such as that suggested would not be a realistic approach to the problem and, furthermore, would necessarily impair the effectiveness of the statutory authority for the regulation. The Board has felt that neither an adequate nor aplirovriate differentiation could be based tmon whether in connection with a particular lease there may or may not be an ultimate passage of title. "AS Mr. Joseph points out, the definition of 'credit' in the Executive Order includes 'any rental-purchase contract, or any contract for the bailment or leasing of property under which the bailee or lessee either has the option of becoming the owner thereof or obligates himself to pay as compensation a sum substantially equivalent to or in excess of the value thereof; * * *'. This, however, is only a part Of the very broad definition. In addition, the definition !Fecifically includes, among other things, a number of situa"ons not involving any passage of title or the particular amount of consideration that may move between the parties. a.. Ong them, for example, are 'any loan or mortgage'. There an, of course, be a loan (i.e., a lease) of property as well as a loan of money. Moreover, there is the broad 2004 9/25/51 -12- "concluding specification of the definition which includes 'any transaction, or series of transactions having a similar purpose or effect.' In those cases of leasing arrangements subject to the regulation, the substance of the transaction, though perhaps not the form, appears little if any different from ordinary conditional sale or chattel mortgage arrangements "We shall appreciate your conveying the foregoingNiews to Mr. Joseph, and your relating to him that we shall be happy to discuss the matter with him and his client here in Washington at any suitable time should they desire to do so. The Board always welcomes the opportunity for developing further information in connection with the regulation and Its administration. In the event that such a discussion might not be practicable, we should be glad to consider any further information or any memorandum of points and authorities, which Mr. Joseph might wish to present." Approved unanimously. Letter to Mr. Pondrom, Vice President and Cashier of the Federal Reserve Bank of Dallas, reading as follows: "This refers to your letter of September 7, 1951, concerning the applicability of the section Af) exemption in Regulation X to a proposed conditional sale contract which a Registrant in your district desires to use. As we understand the facts, the Registrant plans to sell low cost housing under a plan whereby a small initial payment is made at the tiroe the contract is entered into with title to be transferred en conforming terms within six months after the data of the contract, provided that within the. eIx month's period certain plumbing installations sufficient in value to complete the down pnytlent required by the regulation shall have been made Ly the. buyer. "Section (02(d)(2) of the Defense Production Act) as incorporated in aegulation XI defines 'credit' as including waY conditional sale contract; any contract to sell or !ale or contract of sale, ***.' Accordingly, ordinary contracts to sell would be subject to Regulation X in the a8...ence of section 5.(f). The exemption was provided because ..13.ilure to do so would disrupt ordinary trade practices, and rcaut3e the, regulation in such cases is effective at the cline title is passed. 9/2-,5b1 -13- 'In this specific case, the Registrant proposes to use th,,, value of plumbing installed by the buyer as part of the required down payment and proposes that it be installed between the date of the contract and the date of transfer of title to the property. This would not be in accoi:O.Ance with clause (II) of section 5(f), which provides that the regulation does not apply to a contract to sell real property 'which does not provide for the payment of any part of the purchase price, or of any amount to be subsequently applied to such price, except a deposit of esrnest money, before the transfer of title to such property.j.K**'. Accordingly, it is our view that the proposed conditional sale contract would not be exempt from Regulation X under the provisions or section 5(f). "In arriving at the above decision the Board has carefully considered whether this application of clause (1) of section AO creates an Inequity as between purchasers of houses from operative builders or general contractors who desire to contribute a portion of their equity in the form of self labor and persons who are building their own home and who are pemitted to include self labor as part of their equity under the principles of S-1176 (X-8). In vieN., of the Pact that there is nothing in the regulation which Prohibits or in any way limits payments by contractors or oPerative builders to prospective purchasers for the fair value or work actually performed during the construction Period by such persons, we see no reason why the above rill1/13 should work any hardship on either purchasers or operative Luildors who desire to enter into arrangements for the performance of a part of the construction work by the purchasers. Itihile it is true that the contract of sale itself could not provide that such work would be credited directly toward the down payment, the alternative of paying the person who performs the work in cash in the sane way as any other workman or subcontractor would be paid and permitting him to apply tnese amounts on the down payment at the time of settlement v43111d seem to provide a completely sdtisfactory remedy in all bona rtdo cases " Approved unanimously.
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