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									                                    GOVERNMENT CBEDIT

                                    FRIDAY, MAY           23,   1947

                                             H O U S E OF R E P R E S E N T A T I V E S ,
                                    B A N K I N G AND CURRENCY COMMITTEE,
                                                               Washington, D. O.
             T h e committee met at 10 a. m., Hon. Jesse P. W o l c o t t (chairman)
          presiding.
             Also present: Messrs. Smith, K u n k e l , Sundstrom, B u f f e t t , Cole,
          Stratton, Banta, Spence, Brown, Monroney, Folger, and Buchanan.
             T h e CHAIRMAN. The committee w i l l come to order.
             This morning we w i l l start consideration of consumer credit, and i n
          particular of regulation W of the Federal Reserve Board.
            We have w i t h us Congressman H a r o l d C. Hagen, of Minnesota,
          this morning, who has introduced a b i l l on the subject.
             Congressman, y o u may proceed in any way y o u desire.

           STATEMENT OF HON. HAROLD C. HAGEN, REPRESENTATIVE
                   FROM THE NINTH DISTRICT OF MINNESOTA

             M r . HAGEN. M r . Chairman and members of the committee, I
          have introduced i n the House ot Representatives H . R . 2542, a b i l l
          which has been referred to your committee. This b i l l has been drawn
          so existing consumer credit regulations, so-called regulation W , as
          prescribed b y the Board of Governors of the Federal Reserve System,
          shall not apply to future consumer credit transactions.
             Regulation W is an emergency wartime regulation. I t derives its
          a u t h o r i t y f r o m the Trading W i t h the Enemy A c t and the Second W a r
          Powers A c t . I t was intended to restrain inflation and to assist i n
          the rationing of goods i n short supply during the war.
             I t h i n k afl good Americans supported i t then, and all during the
          war period. N o w , 2 years after the war has ended, we find this w a r
          regulation, this specialized, planned economy regulation still i n exist-
          ence. Under the fiction t h a t we are still at war, the Federal Reserve
          B o a r d is setting the terms on all installment purchases of 12 classes
          of durable goods, all the w a y across the N a t i o n : radios, automobiles,
          washing machines, furniture, rugs, and such items being sold b y law-
          abiding merchants only on terms which have been consciously set b y
          the Federal Reserve B o a r d System i n the wisdom of the experts over
          there, t o depress demand and make i t hard and difficult for the low-
          income purchaser, veterans, w o r k i n g people, and so on, t o b u y these
          products t h a t have become standard parts of the American home.
             T o interfere w i t h and manage the w a y i n w h i c h Americans spend
          their money, how American businessmen r u n their business, on no
          basis of law excepting an emergency regulation p u t over i n w a r t i m e
          and on a u t h o r i t y granted by Congress solely for war purposes is bad
          government, and, i n m y mind, detrimental t o the economy of the
          Nation.
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              I am glad to find t h a t M r . M a r r i n e r S. Eccles sometimes agrees
          w i t h me on this point. H e has been an outstanding proponent of
          regulation W during the many months when the Federal Reserve
          B o a r d retention of the regulation has been under fire f r o m business,
          banking, labor, veterans, and other quarters. However, i n reply
          t o a letter f r o m me the other day, he wrote as follows, on M a y 12:
               So f a r as I a m concerned, there is no change i n m y position w h i c h is based on
           t h e feeling t h a t a regulation of this sort should rest on legislation i n peacetime,
           a n d n o t on an Executive order issued under emergency or war powers. Accord-
           ingly, I felt t h a t i f Congress adjourned w i t h o u t enacting legislation necessary t o
           c a r r y on the regulation, we should recommend t h a t the order be vacated.               I
           cannot, of course, speak for or c o m m i t the President.
               This is a t r u l y interesting statement. Here is a m a n who has kept
           the war regulation alive for many, many months after the shooting
           has stopped and most war controls were progressively abandoned i n
           the interests of getting back to a peacetime economy, now m a k i n g
           i t very clear t h a t the regulation should be abandoned. I wish t h a t
           he could have come to this conclusion a year ago as well as today.
               I t h i n k t h a t if I understand the feelings of the Congress today,
           t h a t we w i l l never vote for the Federal Reserve Board, as far as giving
           them any a u t h o r i t y is concerned, to have permanent power to regulate
           consumer credit. This Congress wants fewer, not more, controls
           over the normal life of our people. Therefore, I have introduced this
           legislation to strip f r o m the board this wartime power which they have
           retained for themselves i n peacetime.
               I n spite of some statements I have no confidence now t h a t they w i l l
           surrender this authority voluntarily, because t h a t agency, as many
           others, has never operated to seek less power over our people, and
           over, i n this case, our credit system, b u t always more. I have no
           confidence t h a t a request to the W h i t e House for the l i f t i n g of the
           order on which the regulation rests w i l l accomplish anything.              In
           fact, the Board does not need to do this—and this puzzles me: the
           Executive order of the President is merely permissive. I t is a grant
           of authority to regulate w i t h i n the discretion of the Board. I f the
           B o a r d desires to do so, i t can certainly l i f t the regulation tomorrow,
           and end this nonsense f o r t h w i t h . For i t surely must k n o w t h a t
           Congress will not perpetuate its authority.
               M a n y other Members of Congress agree w i t h me. Y o u r o w n
           distinguished chairman has made his position clear i n opposition t o
           the regulation. Congressmen Davis of Georgia, and Schwabe of Okla-
           homa, introduced similar bills to mine and these are now before your
           committee.
               Congressman Eberharter of Pennsylvania, Sadowski of Michigan,
           H o o k of Michigan, Priest of Tennessee, M o r r i s o n of Louisiana, and
           others have spoken out i n the Congressional Record against this regu-
           lation.
               I have here before me clippings f r o m three newspapers on the
           subject—the N e w Y o r k Times, for instance, criticizes the control of
           consumer credit by the Board because—
               1. The Reserve Board record i n recent years has been such as t o
           create more t h a n a suspicion t h a t i t was interested i n acquiring power
           for its own sake.
               2. The Board has not given convincing evidence t h a t i t was pre-




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            pared at all times to use what power i t had fearlessly and w i t h o u t
           regard to political considerations.
               3. There has been no consistent pattern i n the matter of credit
            policy so far as the administration i n Washington is concerned.
               Then, I have here two labor newspapers, one f r o m a large central
           labor union group of the American Federation of Labor unions i n
            western Pennsylvania, the other the Commercial Telegraphers Journal.
            B o t h of these assail regulation W for the manner i n which i t dis-
            criminates against the workingman i n the lower-income groups who
            have always relied on installment buying to equip their homes and
            get the major items for good l i v i n g which they need.
               M i l l i o n s of workers should not be barred f r o m the market for
            durable goods because they must use credit, this labor editor writes.
               I could cite many other articles opposing this, legislation, b u t i t is
           n o t necessary, even if time permitted.
                I find the following business organizations opposing the continuation
            of regulation W : American Bankers Association, Chamber o f Com-
           merce of the U n i t e d States, American Finance Congress, the N a t i o n a l
           Electrical Wholesalers Association, the National Electrical M a n u -
           facturers Association, the Retail Credit I n s t i t u t e , the N a t i o n a l
            Automobile Dealers Association, the N a t i o n a l Used Car Dealers
           Association, the Consumers Bankers Association, the National Asso-
           ciation of Credit Jewelers, the National Consumer Finance Association,
            the Chamber of Commerce of the State of New Y o r k , and m a n y local
            bankers groups as well as others w h o m I have failed to note here.
               A l l of these i m p o r t a n t groups of legitimate businessmen, the life-
           blood of our real American economy, oppose this harmful, trouble-
           m a k i n g regulation. Furthermore, many labor and veterans groups
           and individuals, as members of these various veterans and labor groups,
           have adopted resolutions and have w r i t t e n letters to m a n y Members
            of Congress asking t h a t regulation W be terminated.
              A t this hearing, y o u may hear many technical and seemingly
           i m p o r t a n t arguments against regulation W . I am not i n a position
           myself to cover these as well as some of the businessmen who w i l l be
           here representing the various organizations. They w i l l testify on these
           points before your committee, no doubt, later on.
               I n closing, I want only to read a statement to which I subscribe most
           heartily f r o m an expert, i n m y opinion, on these matters, whose sound
           judgment and broad t h i n k i n g I completely respect. I refer again to
           your own chairman, Congressman Wolcott, who was quoted as follows
           some time ago i n his early opposition to all t h a t regulation W stands for.
              A n d this is really the lifeblood of this whole argument, the brief
           statement:
                Credit is the lifeblood of the American economy. Reasonably easy credit terms
           result i n mass b u y i n g and, therefore, mass production, w h i c h always lowers prices.
            W e are n o w r u n n n i n g i n t o a situation where we are going t o have enormous pro-
           d u c t i o n w i t h a possible cut i n domestic markets, as a result of the Government
           controls on consumer credit. There is no p o i n t i n mass production unless these
           things can be p u t i n t o the hands of the people, and i t is simply impossible t o have
           mass purchases when the l a w requires stiff d o w n payments w i t h quick p a y m e n t of
           t h e balance.
             Therefore, i n closing, I wish y o u r committee the u t m o s t success i n
          the present public spirited and most i m p o r t a n t i n q u i r y on the subject
          of regulation W and credit controls i n general.




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               I n closing I w a n t to thank y o u for the o p p o r t u n i t y of appearing
          before your Committee i n behalf of m y own b i l l and the other bills of
          a similar nature which have been introduced and which are before
          y o u r committee.
              T h a n k you.
               The CHAIRMAN. T h a n k you, M r . Hagen. D o y o u take the attitude
          also t h a t this regulation has perhaps outlived its usefulness, though i t
          served a very good purpose during the war, and t h a t at the present
          t i m e i t is somewhat discriminatory?
               M r . H A G E N . I believe t h a t is right. The person who has a lot of
          money can go i n and pay cash for any i t e m he m a y w a n t to buy.
          B u t the w o r k i n g person or the young veteran who is just getting mar-
          ried and has a j o b and does not have a l o t of money i n reserve cannot
          go i n and b u y a refrigerator, a washing machine, a r u g and some f u r n i -
          ture i n order to set up his household and pay cash for i t . H e has to
          pay a small down payment and pay so much a month, and i n t h a t w a y
          he m a y get established. B u t regulation W makes i t almost impossible
          for a m a n of small means to get started i n setting up his household.
               T h e CHAIRMAN. Are there any further questions of Congressman
          Hagen?
               M r . SMITH. M r . Hagen, who, besides the Federal Reserve, opposes
          this bill?
               M r . H A G E N . I am not so sure whether they w i l l oppose i t now, b u t
          perhaps they will. I have not heard anyone opposing i t . There are
          perhaps a few merchants who may oppose i t . I notice i n the polls
          t h a t were taken b y various groups, credit groups and retail groups, as
          t o whether or not regulation W should be lifted, and also as to whether
          or not i t should be modified, and t h i r d l y , as to whether or not i t should
          be retained, there are always a certain small percentage who say i t
          should be retained. So, i n m y mind, i t m i g h t be 10 or 15 percent of
          the people who were polled w i t h i n the last year, on t h a t , who said i t
          should be retained. Perhaps 15 or 20 or 25 percent m i g h t say i t
          should be modified.
              However, the great m a j o r i t y i n most of the polls I have seen, and as
          indicated b y the letters I have received, indicate i t should be termi-
          nated entirely.
              M r . S M I T H . D O y o u include people who do a credit business? D o
          y o u mean to say people who do a credit business, t h a t there is a small
          percent of those who want this regulation retained?
              M r . HAGEN. The average merchant who sells furniture, and ma,ny
          others, do a good deal of credit business, and some of them are w i l l i n g
          t h a t i t be retained. B u t , as I understand i t , i n m a n y cases, those who
          do w a n t i t retained, they can go to the bank and get their money
          immediately, anyway, so i t probably does n o t affect the small group
          who are saying " l e t us keep i t as i t is." T h e y probably have n o t
          had any difficulty. B u t t h a t would be a very small percentage.
              M r . SMITH. I t would simply depend upon how m u c h credit business
          they do, and the type of credit business they do, would i t not?
              M r . HAGEN. The average businessman is still going to be very
          careful about this credit, as also the banks, who m a y support the
          businessman, i n extending h i m a loan on the basis of these contracts
          or agreements. B u t if more people could b u y these items, more of
          them could be manufacturers, and, therefore, the price w o u l d come
          down, and if there is a depression coming up—which some people




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           t h i n k there m i g h t be—the average manufacturer cannot plan ahead
           under the present program. H e does not know whether these regula-
           tions are going to be lifted or not, or if they are going to be continued,
           and he cannot plan his program for 2 or 3 years ahead, if he is manu-
           facturing washing machines, say, and w i t h t h a t type of set-up i t is
           difficult for American industry to plan ahead.
               M r . SMITH. W h a t reason does the Federal Reserve give y o u for
           retaining this regulation?
               M r . HAGEN. Generally based on anti-inflation. I n other words,
           they are fearful that l i f t i n g the consumer credit controls m a y create a
           tremendous demand, and because of the shortage of supply, t h a t prices
          w i l l go up. Well, the average American industry has set its prices.
           They are t r y i n g to get their prices lowered. I f they can have a
          greater demand, they can decrease their prices, because their manu*
          facturing costs would be less. I n m y opinion, i t is going to w o r k just
           oppositely to what the Federal Reserve claims, i n peacetime. I n
          wartime i t is different, because they are regulated as to the amount
           they can produce and the shortages of material. N o w , material is
          plentiful and there is considerable employment i n the country, and
           there is a need for long-term planning of production of durable goods
          which the people could b u y if they had more liberalized credit.
               The CHAIRMAN. Are there any further questions?
               M r . KUNKEL. M r . Hagen, I t h i n k that letter y o u read f r o m M r .
          Eccles is an extremely interesting i t e m i n view of the permissive
          character of the Executive order. I t seems to me i t is entirely
          inconsistent.
               M r . HAGEN. Well, unless he has just changed his m i n d recently.
          This letter was dated M a y 12, and i t would clearly indicate to me t h a t
          he feels that the regulation is not necessary i n peacetime, and they
          w o u l d recommend t h a t the order be vacated.
               M r . KUNKEL. H e says he w i l l not continue i t unless the Executive
          order is continued, and yet the Executive order is permissive and
          allows the authority to rest i n the Federal Reserve Board. So he has
          nothing to w o r r y about f r o m the Executive order and could get r i d
          of i t right now. T h a t is w h y i t seems inconsistent.
               M r . HAGEN. I t is confusing to me, too, t h a t is w h y I believe
          Congress should take a definite action on the matter.
               M r . B U F F E T T . I do not t h i n k very much of this regulation, b u t ,
          under the somewhat master-mind theory of government, is i t n o t
          possible t h a t a regulation like this, b y preventing people w i t h small
          incomes f r o m making purchases on today's inflated m a r k t , w o u l d
          give them the opportunity, i n 6 months or a year, or a year and a half
          f r o m now, to b u y the things they are urged to b u y now, at the lower
          prices t h a t are supposed to prevail when the inflationary surge is over?
               M r . HAGEN. T h a t could happen. However, a person who signs a
          contract for a washing machine, for instance, w i l l have the use of t h a t
          machine, and even if the price should go down 10 or 15 percent, he
          w o u l d still have the use of t h a t machine i n the meantime. So he
          w o u l d still be even w i t h the situation, even should the price go down.
               M r . B U F F E T T . H O W much of the advertising and ballyhoo, for
          instance, today, on war bonds is to b u y war bonds and postpone the
          purchase of these different things that people want, and b u y at lower
          prices later on? I f that philosophy is correct, i t could be t h a t this
          regulation is designed to fit i n w i t h that.
                 61861—47—pt. 2     2




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              M r . HAGEN. B u t I do n o t anticipate t h a t things w i l l go up t h a t
          way, because the manufacturer, knowing t h a t he w i l l produce and
          sell twice as many washing machines i n the next 6 months or a year
          as he is today, w i l l plan on cutting his prices rather t h a n raising t l em.
              M r . BUFFETT. Of course, y o u have this problem, H a r o l d : Y o u are
          using up the deferred demand i n a h u r r y , when y o u make credit-
          t h a t easy, and we m a y work ourselves into a depression period when
          there w i l l not be buyers for these items simply because we have ex-
          hausted the demand i n a quick upsurge of production and buying.
               M r . HAGEN. T h a t is true. However, there are many people who
          are btiying these things today so there is not going to be a great rush
          to b u y these things. I t is people who are getting married next year
          or 6 months f r o m now, and people who are setting up households,
          who w i l l be gradually getting into this market, and the manufacturer
          w i l l see t h a t and understand i t and he w i l l have this steady market.
              M r . BUFFETT. Understand, I a m not t r y i n g to b u i l d up a case for
          Government regulation. I a m simply t r y i n g to find but the argu-
          ments t h a t m i g h t be advanced i n favor of i t .
              M r . HAGEN. Take a veteran and his wife setting up a house. I f
          they pay 5 or 10 dollars more for a washing machine, presume they
          might, t h a t housewife would rather have i t , anyhow, to relieve her
          of washing clothes b y hand, and t h a t veteran w o u l d rather have
          f u r n i t u r e and a radio i n his home and enjoy i t even though i t m i g h t
          cost h i m $5 more. B u t over the long-time pull, t h a t radio or washing
          machine w i l l cost h i m less money if the manufacturer is able to
          produce twice as many as he would otherwise.
               M r . BUFFETT. A n d , of course, as long as we have the domestic
          T r u m a n doctrine of an annual wage raise of 10 or 15 percent every
          year, the price of washing machines is going to continue to go up.
              M r . STRATTON. The point he made, I t h i n k , is very good. There
          are so many of these young veterans who cannot afford to b u y these
          things unless this regulation is relaxed.
              M r . HAGEN. T h a t is right.
              M r . SUNDSTROM. M r . Hagen, is i t n o t possible t h a t the Federal
          Reserve System wanted to keep this power because, as a result of the
          deficit financing during the war and preceding the war, t h a t we have
          developed an artificial money market, controlled b y the Government,
          the ratio of reserves have had t o be changed because of wartime condi-
          tions, and the Federal Reserve were practically out of the market
          insofar as b u y i n g or selling Government bonds i n the open market,
          so t h a t y o u have really removed most of the controls on credit t h a t
          the Federal Reserve had, and the only credits they really had were
          under regulations T , U , and W , and they are perhaps a l i t t l e reluctant
          to give up t h a t control although they were never meant to be i n the
          Federal Reserve originally?
               M r . HAGEN. T h a t m a y be true, however, i n addition to t h a t , there
          is a bureaucratic policy not to give up controls of any k i n d because
          they want t h a t a u t h o r i t y and control and they w a n t to have the jobs
          t h a t control and power gives them.
               The CHAIRMAN. T h a n k you, M r . Hagen.
               I s M r . Selby here? M r . Paul Selby, as I understand, is executive
          vice president of the N a t i o n a l Consumer Finance Association.
               M r . Selby, y o u m a y proceed as y o u see fit.




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           STATEMENT OF PAUL L. SELBY, EXECUTIVE VICE PRESIDENT
                  NATIONAL CONSUMER FINANCE ASSOCIATION
               M r . SELBY. M r . Chairman and members of the committee, I
          would like to present t o y o u
               M r . SMITH. M r . Chairman, m a y 1 ask where the witness is from?
               T h e CHAIRMAN. W i l l y o u further identify yourself, M r . Selby?
               M r . SELBY. M r . Smith, this witness comes f r o m the great State
          of Ohio.
               M r . SMITH. I wanted to get t h a t in the record.
               M r . SELBY. I was chief of the division of securities i n charge of
           the administration of all the consumer finance laws of the State of
          Ohio for 6 years, and for the past year and a half have been executive
          vice president of the National Consumer Finance Association, f o r m e r l y
          k n o w n as the Association of Small Loan Companies.
               M r . SMITH. I just want to say to the committee t h a t I am per-
          sonally acquainted w i t h M r . Selby and t h a t he has a very high repu-
           t a t i o n i n m y great State.
               M r . SELBY. T h a n k you, D r . Smith.
               The N a t i o n a l Consumer Finance Association is the national trade
          association of the licensed small-loan companies operating i n 32 States
           having adequate regulatory laws for the licensing and supervision of
          small loan companies.
               There are approximately something over 5,000 of these licensed
          small-loan offices who are authorized to and do business i n the princi-
          pal industrial States of the U n i t e d States. These companies are
          united i n their opposition to regulation W as now effective, and are
          opposed to any permanent authority to regulate consumer credit b y
          the Federal Reserve Board.
               Some of the reasons for our position are as follows:
               First, regulation W was an emergency wartime measure and should
          now be abolished i n a peacetime economy.
               Regulation W was promulgated pursuant to an Executive order
          under the alleged authority of the Trading W i t h the E n e m y A c t of
           1917, as amended, for the stated purposes:
               1. T o reduce the demand for strategic materials necessary for the
          war effort;
               2. T o b u i l d up a backlog of purchasing power for postwar use, and
               3. T o reduce the inflationary pressure for goods and services i n
          general.
               A n d meaning of the first of these stated purposes ceased to exist
          w i t h the termination of the war and has no application n o w — t h a t is,
          to have provided strategic materials for war purposes.
               T h e second objective, the building up of a backlog of savings for
          postwar use, has also lost its significance. We are i n the postwar era
          now, and the objective to be accomplished is the reverse of t h a t stated
          i n the original purpose. Regulation W was never effective for this
          purpose, anyway. The recent survey of the Bureau of A g r i c u l t u r a l
          Economics, as announced b y the Federal Reserve Board—and I w a n t
          t o insert here t h a t I t h i n k t h a t was i n the June, July, and August
          issues of the Federal Reserve Bulletin—shows t h a t more t h a n half of
          the families of the U n i t e d States have no accumulated savings, while
          the top 10 percent holds 60 percent of the l i q u i d savings. Regula-
          t i o n W was ineffective for this purpose even during the time of war.




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                I f I m a y interpolate, there is a vast accumulation of l i q u i d savings
           i n the U n i t e d States—over a hundred billion dollars. B u t 60 percent
           of i t is i n the top 10 percent bracket; the lower 40 percent, i n the
           aggregate, hold only 1 percent of the l i q u i d savings. The next 30
           percent have only 12 percent. M o r e t h a n half of the families, there-
           fore, have no liquid- savings w i t h which to go into the market and
           supply their pent-up demand for goods.
                T h e t h i r d purpose was based upon the theory t h a t the consumer
           credit contributed to the upswings and the downswings of the economic
           cycle, and they m i g h t have some effect i n controlling inflation. T h i s
           theory is not generally accepted b y the economists. Our observation
           and experience is to the effect t h a t outstandings i n consumer credit
           follow economic trends rather t h a n cause or accentuate them.
                Regulation W as now effective applies only to 12 classes of durable
           goods, k n o w n as listed items. The t o t a l outstandings in installment
           sale credit amount to less than $2,000,000,000. T h e t o t a l outstand-
           ings i n installment loan credit are only about $2,500,000,000. T h e
            t o t a l installment credit amounts to only approximately $4,000,000,000.
                 I received this morning—and I notice a number of copies have been
           made available to the committee—a series of Federal Reserve charts,
           prepared b y the Board of Governors, showing the trends and the curves
           of consumer credit and the amounts outstanding. The figures t o
           which I refer m a y be found i n an analysis of those charts.
                N o w , let me repeat t h a t statement: The t o t a l installment credit—
           sales financed and direct loans—in the U n i t e d States totals approxi-
           mately only $4,000,000,000.
                W i t h the national income ranging f r o m 165 to 175 billion dollars,
           the outstanding installment sales and loan credit amounts to some-
           t h i n g like 2 percent of the national income, and less t h a n 4 percent of
           the annual purchases b y American consumers.
                One of these charts shows the annual purchases of nondurable goods
           t o be something i n excess of $100,000,000,000, and the annual purchases
           of durable goods to be something approximating $10,000,000,000.
                These ratios are too small to support the theory t h a t these consumer
           credit outstandings have any tangible effect upon the economic cycles
           or add substantially to inflationary pressures.
                The second point is t h a t the rise i n consumer credit is not substantial.
                I n the last few months, outstanding consumer credit has reached
           the dollar volume which i t attained at the peak in 1941—roughly
           $10,000,000,000. D u r i n g t h a t period the population has increased
           5 percent, the number of f a m i l y units has increased 7 percent and the
           percentage of persons employed has increased even more. The
           t>uying power of some consumer units has climbed even higher. T h e
           outstandings i n t o t a l consumer credit today are only 5% percent of the
           national income. Prior to the war consumer credit varied i n dollar
           volume, b u t f r o m 1929 to 1941 approximated 10 percent of the na-
           t i o n a l income. On this historic bases, the normal outstandings in
           consumer credit would be 16 to 18 or 20 billion dollars instead of the
           present 10 billion dollars outstanding.
                M r . B U F F E T T . H O W do y o u arrive at the 16 or 18 or 20 b i l l i o n
           dollars?
                M r . SELBY. A t 10 billion dollars i t was approximately 10 percent
           of the national income.
                M r . B U F F E T T . Y O U are talking about w h a t i t should be t a k i n g i n t o
           consideration today's income?




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              M r . S E L B Y . I am considering the 1 2 to 1 5 years when we had normal
          consumer relationships, prior to 1941, at the time t h a t the regulation
          was imposed on consumer credit.
              M r . B U F F E T T . I see. Y o u t h i n k i t averaged about 8 billion dollars
          then, and now, w i t h double income, i t would average around 16
          billion dollars.
              M r . SELBY. I n the same ratio. When the national income used
           t o be about 70 billion dollars consumer credit r a n about 7 billion
          dollars. When i t was 80 billion dollars, i t was about 8 billion dollars.
          T h e n we went down to a lower figure i n the thirties. N o w i t ia
           approximately a l i t t l e more than half of t h a t ratio.
              M r . BROWN. I s the automobile industry supporting this bill?
              M r . SELBY. I am sorry, M r . Brown, I did not hear the question.
              M r . B R O W N . I say, is the automobile industry supporting this bill?
              M r . SELBY. The ISlational Association of Automobile Dealers has
          gone on record and adopted a resolution, I am told—and I have seen
           a copy of it—opposing regulation W and the extension of i t .
              M r . BUCHANAN. They are the retail dealers?
              M r . SELBY. They are the retail dealers. N o w I understand t h a t
           the distributors, while they cooperated f u l l y w i t h the regulation during
           the war period, are swinging over to the other side.
              The changes in purchasing power and increased economic a c t i v i t y
           indicate t h a t more consumer credit is needed if we are to m a i n t a i n
           sound economic relationships.
              Prior to the war the amount of outstanding production credit ex-
          tended b y federally insured banks to business firms and corporations
          and the outstanding consumer credit roughly paralleled each other i n
           amount. For example: I n 1941 production loans b y banks amounted
          to 9.3 billions, when consumer credit was approximately 9.7 billions.
           Commercial and industrial loans have increased f r o m 6% to 14 billion
           dollars since VJ-day, while consumer credit i n the same period has
          gone u p to only 10 billions of dollars. American industry has an
          enormous productive capacity. Supply lines are rapidly being filled,
          and i t is v i t a l l y essential t h a t consumer credit be made more available
          i n order to provide consumer purchasing power to take up the enor-
          mous output of production and distribution if we are to avoid a
          break-down i n the economy through a lack of consumer purchasing
          power.
              T h i r d l y , regulation W is highly discriminatory.
              The higher income groups during the war and since the war have
          been able to satisfy their needs b y buying all of their requirements f o r
          cash, w i t h o u t resorting to the use of installment credit. The A m e r i -
          can wage earner, the white-collar worker, the school teacher and l o w -
          salaried income groups have been and remain unable to accumulate
          large sums w i t h which to b u y for cash. They live on periodic incomes,
          and their purchasing power, w i t h installment credit available, is
          tremendous. The well-to-do can buy an automobile, a refrigerator,
          or household furnishings for cash, w i t h o u t l i m i t a t i o n or restriction.
          The poor must pay down one-third of the purchase price and the
          remainder i n not to exceed 15 months.
              M r . SMITH. W o u l d y o u m i n d an interruption at t h a t point, M r .
          Selby?
              M r . SELBY. Certainly not, M r . Smith.
              M r . SMITH. A very important point m i g h t be brought out there.
          Prices, i n general, have been rising. Those who have the money t o




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          pay cash for their goods have greatly profited b y being able to b u y
           at a low figure, whereas those people who have not had the cash—the
          poor people y o u speak of—now must pay those higher prices. Had-
          they had an opportunity t o b u y those goods on installments they
           could have availed themselves of the privilege of b u y i n g at much
          lower prices. T h a t has been indeed a bad t h i n g for the working people
          of our Nation.
               M r . SELBY. I t is the most highly discriminatory b i t of regulation
           t h a t has been on the books during the war period.
               M r . B U F F E T T . Y O U don't believe, then, Doctor, t h a t prices are
          going down, as the advertisements tell us?
                M r . SMITH. I have a suspicion that the Federal Reserve is sort of
           relaxing on this thing, b u t sort of holding on also. I t suspects,
           perhaps, t h a t a recession is just around the corner somewhere, al-
          though they are not so sure about i t , and they want to relax a l i t t l e
          b i t on this regulation W , perhaps, i n order to overcome t h a t situation.
           One never knows where the Federal Reserve stands on some of these
          matters.
               M r . SELBY. The point is extremely well taken. Y o u never know.
          T h e y claim i t is flexible—that i t is the spigot w i t h which y o u can
          t u r n on the ebb and flow of consumer purchasing power and demand.
          T h e y might cut i t off or prohibit i t , b u t no m a n has the power or the
          wisdom or the vision to t u r n i t on, to make people use credit. Be-
          cause the people have good judgment and know h o w to select their
          o w n credit terms, as evidenced through the last few years. L e t us
          look at the situation.
                T h e purchaser of the lowest-priced car today must accumulate at
          least $500 to make the down payment and then meet m o n t h l y pay-
          ment requirements of approximately $80 per month. The wa^e
          earner is unable to meet these terms.
               The veteran, encouraged t o purchase a home or t o go i n t o a small
          business on long-term Government credit of 15 to 20 years, m a y be
          able to finance a home b u t is wholly unable to b u y the furnishings
          to p u t i n the home under the restrictive terms and requirements of
          regulation W .
               M r . SMITH. W i t h his own money.
               M r . SELBY. "Well, he cannot even borrow i t for the down payment.
               M r . SMITH. I know. B u t i n one instance the Government hands
          h i m the cash, gives h i m the inflationary dollars and tells h i m to go
          ahead, and i n the other instance i t takes the dollars w h i c h he has
          already earned and prevents h i m f r o m using them.
               Mr.'SELBY. SO far as we know, regulation W is the only wartime
          regulation which directly discriminates against low-income groups
          and is i n favor of the r i c h and well-to-do. Discrimination is abhorrant
          i n Government, and this discriminatory regulation should be abolished.
               F o u r t h l y , regulation W creates disrespect for Government.
               One of the requirements which applies to every application for an
          installment loan is t h a t the borrower sign a statement of purpose
          for w h i c h he proposes t o use the proceeds of the loan. I f for medical,
          hospital, or educational purposes, he may be exempt f r o m the regu-
          l a t i o n — i f he tells the name of his doctor, or his address, or his hospital,
          or the educational institution.
               Borrowers consider this requirement t h a t they sign a w r i t t e n state-
          ment of purpose for which they w i l l use the money as an invasion of




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          their personal rights. When t o l d t h a t i t is a Government requirement,
          the reaction is unfavorable to Government. Borrowers resent Gov-
          ernment p r y i n g into personal affairs and demanding of them t h a t they
          name their doctor, the hospital, or the details of their private spending.
          T h e y resent as deeply the l i m i t a t i o n and restrictions on the free exer-
          cise of their own judgment and their ability to make an agreement w i t h
          a credit grantor as to the terms under which they m a y borrow.
               F i f t h l y , regulation W is a burden on business.
               E v e r y credit grantor is required to comply w i t h the Government
          regulation requiring the obtaining of statements f r o m borrowers, the
          making, keeping, and maintenance of records subject to examination
          b y the agents of the Federal Government, and all of the red tape and
          annoyance incident to the administration of the regulation.
               Our companies cooperated f u l l y w i t h the Federal Reserve Board
          during the war as a patriotic gesture and as evidence of their willing-
          ness to do anything to contribute to the war effort. Our people
          helped i n drafting and as consultants w i t h respect to the administra-
          t i o n of the regulation. As chief of the Division of Securities i n the
          State of Ohio and as a member of the National Conference of State
          Small L o a n Supervisors, I know f r o m experience t h a t the State super-
          visory authorities cooperated f u l l y w i t h the Federal Reserve Board,
          b u t I also know t h a t the regulation has involved an immeasurable
          burden upon operators and supervisors alike. Our people feel t h a t i t
          serves no valuable purpose whatsoever and resent the imposition of
          these unnecessary burdens upon the operation of a business so f u l l y
          regulated and supervised by State authority.
               Sixth, there is no danger of consumer credit running w i l d if the
          regulation is removed, which is one argument used i n favor of regu-
          lation W .
               Credit grantors have more at stake i n the maintenance of sound
          credit extension than anyone else. Our companies do business w i t h
          private funds. They are lending their own money. T h e y are
          vigorously opposed to overextension of credit. The wage earners of
          America are honest. E v e n through the depression years they paid
          their installment obligations; their record has been splendid during
          the war, and we have a constantly growing f a i t h i n the integrity of
          the American wage earner and his conscientious desire to meet his
          obligations. H e is cautious. B o t h the lenders and borrowers are
          interested i n the maintaning of sound budget borrowing. T h e
          American people make their money on a series of pay days. T h e i r
          incomes are m o n t h l y or semimonthly. W i t h sound credit, they can
          budget their purchasing, acquire things of u t i l i t y and value and raise
          their standard of l i v i n g while remaining on a sound economic basis.
               Regulation W is an interference w i t h the ordinary buying habits of
          the honest working people of America. I t serves no sound economic
          purpose and should be abolished w i t h o u t delay, and the a u t h o r i t y to
          encroach upon this field of free enterprise should not be granted for
          the future.
               M r . Chairman and members of the committee, I have completed
          m y statement.
               The CHAIRMAN. W e are very glad t o have had y o u w i t h us this
          morning, M r . Selby.
               D o the members have any questions?




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                M r . B U C H A N A N . H O W m u c h do y o u t h i n k the down payment should
           be? I t is now one-third down and the balance in 15 months. T o
           w h a t figure do y o u t h i n k t h a t should be reduced?
                M r . SELBY. T h e automobile dealers are t a l k i n g about something
           i n the nature of 20 to 25 percent.
                M r BUCHANAN. A n d how many months to pay the balance?
                M r . SELBY. As far as our business is concerned, most of our State
           laws l i m i t the m a x i m u m to about 21 months. Some of them are 25.
           T h a t is, i t allows for either 20 or 24 m o n t h l y payments. T h e credit
           terms b y the sales finance companies are governed b y their own judg-
           ment i n the matter. B u t t h a t is about the l i m i t to w h i c h i t should go.
                M r . BUCHANAN. W o u l d y o u have the same regulations for used-car
           purposes?
                M r . SELBY. N o t regulations. T h e y are n o t regulations at all.             I
           am against any regulations.
                M r . BUCHANAN. The finance companies would certainly have t o
           have some standard for a down payment and the balance payments.
           Those are regulations set b y the finance companies w i t h dealeis.
                M r . SELBY. I t seems to me t h a t the A t t o r n e y General of the U n i t e d
           States had some remarks i n the Federal courts a few years ago about
            agreements i n fixing terms, rates, and prices i n connection w i t h financ-
            ing.
                M r . BUCHANAN. Well, t h a t has always existed i n the retail auto-
            mobile market, has i t not?
                 M r . SELBY. I do not t h i n k i t should be-
                 The CHAIRMAN, They are trade practices.
                 M r . SELBY. I do not t h i n k i t should be a matter of agreement a t
            all, b u t the sound judgment of the credit guarantors and the bor-
            rowers and the sales finance people should govern according to the
            circumstances at the time, and not some Federal bureau which fixes
            the m i n i m u m terms under which they should do business, or the
            m a x i m u m terms.
                 M r . BUCHANAN. They have always been rather uniform, though,
            i n the trade.
                 M r . SELBY. Well, I t h i n k there is substantial u n i f o r m i t y . As far
             as our companies are concerned, we are regulated b y the State laws
             and i t varies f r o m State to State, b u t w i t h i n a general rate. I w o u l d
             prefer t h a t the sales finance people and the finance companies who
            handle sales financing should discuss their own terms. As far as we
             are concerned, we are not interested i n going far beyond w h a t the
             thing is, b u t the regulation itself is obnoxious, f r o m the standpoint of
             compliance w i t h a l o t of formalities and embarrassing to the borrower,
             and limitations upon his operations, particularly i n view of the fact
             t h a t i t applies only to the poor-wage earner and lets the higher-bracket
             individual go scot free.
                 M r . BUCHANAN. I f y o u remove the Government regulations, y o u
             p u t on private regulations, or private trade practices, let us say; is
             t h a t right? T h a t is w h a t takes its place, is i t not?
                 M r . SELBY. Well, I do n o t want to disagree w i t h you, b u t I do n o t
             see how i t could happen. I n our industry we have no agreements.
             Our limits are fixed b y the State statutes under which we operate.
                 The CHAIRMAN. W h a t is your industry, M r . Selby?
                 M r . SELBY. The small-loan business. We have about 5,000 licensed
             small-loan companies i n 32 States which have small-loan laws and
             regulations.




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               The CHAIRMAN. Are y o u i n private business yourself?
               M r . S E L B Y . N O ; I am the executive of the national association of
            these consumer finance companies.
               The CHAIRMAN. Then, y o u are not i n private business for yourself?
               M r . S E L B Y . N O ; when I refer to our companies, I mean the people
            who are members of our association.
               M r . SPENCE. W h a t is the average rate of interest charged b y the
           institutions y o u represent?
               M r . SELBY. Last year the effective rate, as shown b y the several
            reports t h a t I have seen, r a n about 2.25 percent per m o n t h on the
            unpaid balances. N o w , the ceiling rates are fixed b y statute i n the
           various States and are limited b y law. Some of them are 3 percent
            a m o n t h on the first bracket of the amount, up to $100 or $150.
           Michigan, I think, passed a new law the other day w i t h a 3-percent
           rate on $50, and 2 or 2% percent to $300. B u t those m a x i m u m rates
            are fixed b y all of the State statutes under which we operate.
               M r . SPENCE. T h a t is about 30 percent a year.
               M r . BUCHANAN. I t h i n k i t is 27 percent.
               M r . SPENCE. I understood h i m to say 2 ^ percent a month.
               M r . SMITH. M r . Selby, the record, so far as meeting obligations is
           concerned, has been very fine, has i t not, i n this field?
               M r . SELBY. Well, I would say f r o m 1939 to date losses and bad
           accounts have been negligible.
               M r . SMITH. Less t h a n 1 percent?
               M r . SELBY. Yes; I t h i n k the highest i n any State r a n about 1 per-
           cent, and most of them have been a l i t t l e under. M a y b e 1J4 i n some
           States.
               M r . BUCHANAN. A n d do y o u have a l i m i t on the amount of the
           loan, $300, $500, $1,000?
               M r . SELBY. M o s t of the States t h a t have small-loan laws l i m i t the
           amount of the loan to $300, as a ceiling. A few of them permit a
           higher ceiling on the amount of loan, b u t l i m i t the small loan rate to
           the portion w i t h i n the $300,% and the usual usury rates i n the State.
           Ohio, for example, permits a loan up to $1,000, b u t the rate is 8 per-
           cent per annum maximum, on any amount over $300.
               M r . BUCHANAN. A n d is there a ratio to the man's income, so far as
           the amount of these loans is concerned?
               M r . SELBY. N o t b y statute. B u t by practice, the companies, jusf
           as a matter of good business judgment, w i l l not follow a practice of
           making a loan to a m a n which requires payments of more than 10
           percent of his m o n t h l y income. The average is somewhere around
           60 or 70 percent usually. Of course, i t varies according to the size of
           the loan. A m a n has certain fixed expenditures which he must meet—
           taxes, heat, light, shelter, clothing, food, and i t is a p o r t i o n of the
           supernumerary income between his necessary expenditures and his
           income, which is the area i n which we are interested, when we grant
           h i m a loan.
               The CHAIRMAN. There is not too much affiliation between the small-
           loan business regulations and the Government regulation, except they
           m i g h t borrow $300 f r o m the small-loan company to make the down
           payment. A n d he cannot do that.
               M r . S E L B Y . Y O U are prohibited f r o m loaning for t h a t purpose.
           Y o u see, y o u have to require a statement of purpose f r o m the borrower,
           and y o u are prohibited f r o m lending h i m money for the down payment.
                  61861—47—pt. 2    3




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          We are l i m i t e d b y the same terms, i n m a k i n g cash loans, for the listed
          article purchases as any other type of buyer.
               The CHAIRMAN. Then, w h a t affiliation is there between the small-
          loan rate of interest and regulation W ?
               M r . SELBY. Well, on the face of i t , i t would appear to be very little,
          M r . Chairman, because of the fact t h a t our loans are n o t the p r i m a r y
          or principal source of financing of automobiles. W e furnish the funds
          for a l o t of household appliances and furniture, b u t automobiles con-
          stitute the principal i t e m i n this finance. B u t here is where i t gets us:
          E v e r y loan t h a t we make requires this statement of purpose b y the
          borrower. H e has to say, " M y wife is i n the hospital having a baby,
          and I want the money to get her o u t , " and name the hospital and the
          doctor. Then i t is exempt. B u t he has to sign this statement. F o r
          every purpose for which he borrows, he has to sign this statement.
               Then, if i t is for the purchase of a listed article, one of these 12
          groups of items, then, our company is prohibited f r o m m a k i n g the
          loan unless they comply specifically w i t h the terms and conditions
          set f o r t h i n regulation W . M o s t of our loans, I would say the m a j o r i t y
          of our loans, are exempt, after y o u get the statement of purpose, and
          embarrass the borrower b y asking h i m all the personal questions
          about his life t h a t he may not want to disclose.
               M r . KUNKEL. D i d y o u say your rate was 2% percent per m o n t h
          under $300, and then over $300 the usury rate?
               M r . SELBY. T h a t is about the effective rate charged. I t is made
          up of a composite rate i n those States. Three percent on the unpaid
          principal balance, as an over-all m o n t h l y charge, on the first bracket
          of t h a t loan, $100 or $150. Then, i t usually goes to 2 percent, some
          of them 1% percent, up i n the balance of the loan up to $300.
               The C H A I R M A N . Are there further questions?
               M r . MCMILLEN. D i d y o u make any charges which m i g h t be classi-
          fied as commissions or service fees?
               M r . SELBY. The small-loan charge is an over-all charge, and we are
          expressly prohibited f r o m charging, receiving, accepting, or i n any
          manner acquiring any other fees or commissions for any other service
          rendered. T h a t is the over-all complete charge.
               The CHAIRMAN. I t is very apparent t h a t we w i l l have to recess.
          The House is i n session on some very controversiallegislation. W e
          did n o t anticipate this when we called these hearings. W e are sorry
          we cannot proceed w i t h them. There w i l l be votes f r o m now on i n
          the House and the Members w i l l have t o be on the floor, so we w i l l
          have to recess this morning.
               We w i l l stand i n recess u n t i l M o n d a y morning at 10 o'clock, when
          M r . Goodloe w i l l be back on the Reconstruction Finance Corpora-
          tion, and then i t is our purpose to continue the hearings on regula-
          t i o n W , w i t h the balance of the witnesses scheduled for this morning,
          and some others, on Tuesday, M a y 27, at 10 o'clock.
               We w i l l continue the hearings on the Reconstruction Finance Cor-
          poration w i t h M r . Goodloe as our witness on M o n d a y morning at
          10 o'clock.
               The committee w i l l now stand i n recess u n t i l t h a t time.
               (Whereupon, at 11:20 a. m., the committee recessed, to reconvene on
          Tuesday, M a y 27,1947, at 10 a. m . to further consider Regulation W . )




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                                                 TUESDAY, M A Y                  27,     1947

                                                          H O U S E OF R E P R E S E N T A T I V E S ,
                                                    B A N K I N G AND C U R R E N C Y C O M M I T T E E ,
                                                                            Washington, D. O.
               T h e committee met at 10 a. m., H o n . Jesse P. Wolcott (chairman)
           presiding.
               Also present: M r . Smith, M r . Runkel, M r . Talle, M r . Sundstrom,
           M r . M c M i l l e n , M r . H u l l , M r . Stratton, M r . Scott, M r . Banata, M r .
           Fletcher, M r . Foote, M r . Brown, M r . Patman, M r . Monroney, M r .
           Folger, M r . Buchanan.
               The C H A I R M A N . The committee w i l l come to order.
               We w i l l resume hearings this morning on regulation W ,
               I s Congressman Davis here?
               M r . D A V I S . Yes, M r . Chairman.
               The C H A I R M A N . M r . Davis, if y o u care to make a statement y o u
           m a y proceed i n any way i n which you see fit.
               M r . D A V I S . Unfortunately I have not had the opportunity t o
           attend the committee meetings and I do not know to what extent
           y o u have had hearings on this measure. I had understood t h a t y o u
           had some hearings prior to today. Is t h a t right, M r . Chairman?
              T h e C H A I R M A N . We had 1 day of hearings, at which time one
           member of Congress presented a statement.
              Mr." D A V I S . I do not want to take up the time of the committee
           needlessly, b u t I . do have some facts here on regulation W , and if
           they would be of any service to the committee 1 would be glad t o
           give them to you.
              T h e C H A I R M A N . W e w i l l be glad to have them, M r . Davis.
              Y o u may proceed.

           STATEMENT OF HON. JAMES C. DAVIS, A REPRESENTATIVE I N
                   CONGRESS FROM THE STATE OF GEORGIA
              M r . D A V I S . I have introduced House b i l l 2 4 4 3 , the purpose of w h i c h
           is to abolish regulation W on M a r c h 10 of this year.
              T h a t b i l l has two provisions. The first is to abolish regulation W
           and the second is to provide t h a t hereafter the Board of Governors
           ot the Federal Reserve System, or any other Federal governmental
           agency, or official, shall not have—
          t h e p o w e r t o issue o r enforce s a i d a b o v e - m e n t i o n e d r e g u l a t i o n a n d s u p p l e m e n t s ,
          o r a n y o t h e r m e t h o d of r e g u l a t i o n of c o n s u m e r c r e d i t .
             I assume t h a t the, members of this committee are familiar w i t h the
          history of regulation W . I t was enacted b y the Board of Governors
          of the Federal Reserve System i n August of 1941 and was based on a
          Presidential order dated August 9, 1941. A t the time i t was estab-
                                                                                                                      235




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          lished there were good reasons, of course, for the adoption of the
          regulation. I t served to channel funds out of the purchase of con-
          sumer goods into the purchase of war bonds and thus provided for
          the manufacture of munitions and war supplies. I t also served to
          keep down inflation i n some measure, although I do n o t t h i n k t h a t
          the effect of regulation W on inflation, one way or the other, amounts
          to very much.
               Since the war is over, i t is m y opinion, and the opinion of a great
          many people i n m y district—business people of one k i n d or another—
          t h a t the time for regulation W ' s usefulness has passed.
               I n t h a t respect, the automobile dealers, the furniture dealers, the
          industrial banks, the building and loan associations, and the national
          banks, all have expressed to me an interest i n having regulation W
          abolished. I n t h a t respect not only has t h a t occurred locally i n m y
          district, b u t I have a list, here, of a number of Nation-wide and
          regional associations and aggregations of business people who have
          gone on record as favoring the abolishment of regulation W .
               This list includes the U n i t e d States Chamber of Commerce, the
          N a t i o n a l Electrical Manufacturers Association, the National A u t o -
          mobile Dealers Association, the American Finance Conference, the
          N a t i o n a l Association of Credit Jewelers, the American Bankers
          Association, the Ohio Bankers Association, the National Consumer
          Finance Association, the Consumer Bankers' Association, the N a t i o n a l
          Retail Furniture Association, the Retail Credit I n s t i t u t e of America,
          the N a t i o n a l Electrical Wholesalers' Association, and I have been
          informed b y the secretary of the Georgia B u i l d i n g and L o a n Associa-
          t i o n t h a t the 65 members of t h a t association are i n favor of abolishing
          regulation W .
               I have also—and I would like to offer i t for the record—a house
          concurrent resolution, which was adopted b y the House and the
          Senate of the Legislature of the State of Minnesota. I t is a con-
          current resolution giving a number of very logical reasons w h y
          regulation W should be abolished and expresses the opinion of the
          t w o houses of t h a t State to the effect t h a t they are i n favor of abolish-
          i n g regulation W completely, rescinding and repealing i t , and t h a t
          copies of this resolution be forwarded to the President of the U n i t e d
          States, the President of the Senate, the Speaker of the House and t a
          each Senator and Representative.
               I offer t h a t for incorporation i n the record.
               The CHAIRMAN. T h a t may be inserted at this point.
                (The document above referred to is as follows:)
                                                             (H. Con. Res. No. 23]
           A HOUSE C O N C U R R E N T RESOLUTION Memorializing the President of the United States and the
                                          Congress to abolish Regulation W

                   ( I n t r o d u c e d b y Lyse, M a r c h 24, 1947; referred t o General Legislation)
                Be it enacted by the Legislature of the State'of                              Minnesota:
                 Whereas, Federal r e g u l a t i o n W was, b y Presidential E x e c u t i v e Order N o . 8843,
           d a t e d A u g u s t 9, 1941, a u t h o r i z e d t o p r o m u l g a t e , impose, a n d a d m i n i s t e r restric-
           t i v e regulations u p o n consumer goods a n d t h e c r e d i t purchases t h e r e o f ; a n d
                 Whereas t h e w a r a n d t h e emergency o u t of w h i c h was b o r n r e g u l a t i o n W has
           ceased t o exist a n d r e g u l a t i o n W has n o t o n l y become unnecessary b u t has become
           a h i n d r a n c e t o f u l l p r o d u c t i o n w h i c h is necessary t o a h e a l t h y e c o n o m y ; a n d
                 Whereas t h e restraints a n d compulsions e m b o d i e d i n t h e r e g u l a t i o n are m a n i -
           f e s t l y u n d e m o c r a t i c a n d i n f r i n g e u p o n t h e r i g h t s of t h e citizens of t h i s c o u n t r y ,




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          p a r t i c u l a r l y those i n t h e lower-income brackets w h o need t h e consumer goods
          f o r t h e i r existence; a n d
               Whereas r e g u l a t i o n W a n d i t s compulsions m i l i t a t e s against mass p r o d u c t i o n
          a n d mass b u y i n g w h i c h i f u n r e s t r a i n e d w o u l d result i n lower prices a n d f u l l
          e m p l o y m e n t a n d w o u l d assist o r d e r l y r e t u r n t o a peacetime e c o n o m y ; a n d
               Whereas one of t h e p r i n c i p a l objectives of G o v e r n m e n t is t o assist i n t h e speedy
          a n d complete r e a d j u s t m e n t of a l l veterans a n d w a r workers t o a s o u n d c i v i l i a n
          life; and
               Whereas t o o b t a i n those objectives n o t h i n g is m o r e basic t h a n t h e a v a i l a b i l i t y
          t o veterans a n d w o r k i n g people of adequate housing a n d t h e essential f u r n i s h -
          ings such as f u r n i t u r e a n d appliances; a n d
               Whereas t h e veterans a n d t h e workers s h o u l d have a n d deserve t h e o p p o r -
          t u n i t y t o use t h e i r credit t o meet t h e i r i n d i v i d u a l needs a n d s h o u l d have t h e o p p o r -
          t u n i t y t o purchase t h e goods t h e y need f o r a decent l i v i n g w i t h o u t r e s o r t i n g t o
          t h e i r cash savings or t h e i r w a r bonds, a n d
               Whereas r e g u l a t i o n W operates u n f a i r l y against t h e v e t e r a n a n d t h e w o r k i n g
          m e n of modest means i n f a v o r of t h e person of w e a l t h ; a n d
               Whereas t h e p r o d u c t i o n of consumer goods has reached a p o i n t where t h e y
          s h o u l d be available t o a l l citizens w i t h o u t d i s c r i m i n a t i o n a n d w i t h o u t f o r c i n g
          t h e veterans a n d w o r k i n g people i n t o t h e b l a c k m a r k e t ; N o w , therefore, be i t
               Resolved by ike House of Representatives of the State of Minnesota,                                 the Senate
          concurring herein, as follows: T h a t t h e President of t h e U n i t e d States a n d t h e
           Congress use w h a t e v e r means t h e y deem effective t o i m m e d i a t e l y rescind, repeal,
          a n d c o m p l e t e l y e n d r e g u l a t i o n W ; a n d be i t f u r t h e r
               Resolved, T h a t t h e Secretary of State t r a n s m i t copies of t h i s resolution t o t h e
           President of t h e U n i t e d States, t h e President of t h e Senate of t h e U n i t e d States,
          t h e Speaker of t h e House of Representatives of t h e U n i t e d States, a n d t o each
          Senator a n d Representative representing t h e State of M i n n e s o t a i n t h e Congress
          of t h e U n i t e d States.
               M r . D A V I S . I have also had a visit f r o m one of the officials of the
           American Federation of Labor and was informed b y h i m t h a t while
           the American Federation of Labor does not propose to adopt any
           resolution on the subject they nevertheless do feel t h a t i t is i n the
           interest of the laboring man t h a t regulation W be abolished and t h a t
           the influence of the American Federation of Labor is i n t h a t direction—
           t h a t is, i n favor of abolishing this regulation.
               H e gave me—and I have i t here—a clipping or excerpt f r o m a labor
           union paper known as " U n i o n , " an official publication of the Regional
           Conference of Southern Lake Erie A . F . of L . Central Labor Unions,
           i n which t h a t organization places itself behind efforts to abolish
           regulation W .
               I would like to offer t h a t also as a p a r t of m y statement.
               The CHAIRMAN. T h a t m a y be included i n the record at this point.
               (The document above referred to is as follows:)
                                                       [From Union, January 31, 1947]

                                           L A B O R PROTESTS C R E D I T - B U Y I N G            BAN

                M i l l i o n s of A m e r i c a n w o r k e r s are d i s c r i m i n a t e d against b y r e g u l a t i o n W ,
           w h i c h shuts t h e m o u t of t h e m a r k e t f o r consumer-durable goods.                             Regulation
           W holds t h e d o o r open f o r purchase of these goods b y people w i t h large incomes
           or people w i t h r e a d y cash, b u t i t does n o t give t h e f a m i l y t h a t m u s t spread t h e
           cost of c a p i t a l i m p r o v e m e n t s i n t h e h o m e over a p e r i o d of t i m e a n e q u a l chance
           t o b u y t h e goods.
                M o s t of t h e income of w o r k i n g people m u s t be expended t o t a k e care of c u r r e n t
           needs. T h e y b u y automobiles, electrical refrigerators, w a s h i n g machines, a n d
           o t h e r d u r a b l e goods t o raise t h e i r s t a n d a r d of l i v i n g b y b u d g e t i n g themselves t o
           p a y o u t of c u r r e n t income t h r o u g h t h e j u d i c i o u s use of c r e d i t .
               Figures o n t h e d i s t r i b u t i o n of savings a m o n g A m e r i c a n f a m i l i e s j u s t p u b l i s h e d
           i n t h e F e d e r a l Reserve B u l l e t i n , J u n e issue, r e v e a l h o w d i f f i c u l t i t is f o r t y p i c a l
           A m e r i c a n families t o b u i l d u p t h e l i q u i d assets t o m a k e cash purchases of t h e
           conveniences of life.




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                A c c o r d i n g t o these figures gathered a t t h e request of t h e F e d e r a l Reserve
           B o a r d of G o v e r n o r s b y t h e B u r e a u of A g r i c u l t u r a l E c o n o m i c s of t h e U n i t e d
           States D e p a r t m e n t of Commerce, t h e h i g h l y p u b l i c i z e d w a r t i m e savings are v e r y
            u n e v e n l y d i s t r i b u t e d . Of t h e l i q u i d assets w h i c h were o w n e d a t t h e e n d of 1945:
                T h e t o p 30 percent of spending u n i t ( f a m i l y pools) h o l d 87 percent.
                T h e n e x t 30 p e r c e n t of spending u n i t s ( f a m i l y pools) h o l d 12 percent.
                T h e b o t t o m 40 percent of spending u n i t s ( f a m i l y pools) h o l d o n l y 1 percent.
                A n o t h e r w a y t o m a k e t h i s c o m p a r i s o n is t o say t h a t 23,000,000 families h a v e
           p r a c t i c a l l y n o l i q u i d assets—only 3 percent of t h e savings. I t is t h i s large g r o u p
            of w o r k e r s i n t h e lower income b r a c k e t s w h o feel m o s t h e a v i l y t h e r e s t r i c t i o n o f
           r e g u l a t i o n W . T h e 10 percent of t h e families i n t h e t o p - i n c o m e brackets w h o h a v e
           60 percent of t h e l i q u i d resources are n o t k e p t o u t of t h e m a r k e t b y c r e d i t controls.
                E v e n t h o u g h a b o u t 18,000,000 families i n t h e m i d d l e i n c o m e g r o u p ($2,000 t o
           $5,000) h o l d s u b s t a n t i a l l i q u i d resources—about o n e - t h i r d of t h e m w o u l d h a v e t o
           d i s r u p t t h e i r affairs t o b u y f o r cash.
                C o n t r o l of consumer c r e d i t t h r o u g h r e g u l a t i o n W is n o t a f o r m of G o v e r n m e n t
           a c t i o n t h a t serves t h e p u b l i c good. M i l l i o n s of workers s h o u l d n o t be c o n t r o l l e d
           o u t of t h e m a r k e t f o r d u r a b l e goods m e r e l y because t h e y m u s t use c r e d i t . I f goods
           a r e i n short s u p p l y , all p o t e n t i a l purchasers s h o u l d h a v e e q u a l o p p o r t u n i t y t o b u y
           f r o m t h e available s u p p l y t h r o u g h some f o r m of r a t i o n i n g based o n needs.                 Regu-
           l a t i o n W disregards needs, a n d selects o n l y those w h o h a v e t h e cash.
               M r . D A V I S . I S there any occasion, M r . Chairman, for me to go i n t o
           details as to what regulation W provides, what articles of consumer
           goods i t affects, the percentage of down payment t h a t the purchaser
           is required to make and the time allowed for the balance of the i n -
           stallments?
               T h e CHAIRMAN. I do not know t h a t we have i n the record a list of
           the 12 articles still under regulation.
               M r . DAVIS. Well, I w i l l be glad to touch on that.
               There are three schedules, I believe, which operate under regulation
           W . The major list of articles regulated b y this regulation require the
           purchaser to make a down payment of 33% percent and the remaining
           two-thirds must be paid for i n 15 months. T h a t group covers auto-
           mobiles, including passenger cars and taxicabs. I t requires, as I said,
           a down payment of 33K percent, w i t h the remainder t o be paid i n 15
           months.
               I n t h a t same category are cooking stoves and ranges for household
           use; dishwashers—mechancial ones, for household use—ironers for
           household use; refrigerators—mechancial—of less t h a n 12 cubic feet
           rated storage capacity, including food freezers; washing machines
           designed for household use.
               Then, i n the next group, there are air-conditioners, r o o m units,
           radio receiving sets, phonographs or combinations, sewing machines
           designed for household use and suction cleaners designed for house-
           hold use—that is, vacuum cleaners for household use.
               T h e n there is the group which has a requirement for a smaller
           down p a y m e n t — t h a t is, a down payment of 20 percent, or one-fifth,
           w i t h the remainder to be paid i n 15 months. T h a t group includes
           household furniture, including ice refrigerators as distinguished f r o m
           mechanical refrigerators, bed springs, mattresses and lamps and floor
           coverings. Those articles do not require as much of a down payment
           although the same length of time is extended for the balance of pay-
           ments.
               N o w , as I see i t , and as do the people who favor the abolishment of
           regulation W , to continue this regulation i n force w i l l operate against
           speedy recovery of our peacetime manufacturing and peacetime
           economy i n two ways: First, i t makes i t difficult for m a n y people
           who do not have savings on hand whereby they can pay cash for these




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          items to purchase what they actually need to establish a home. There
          are m a n y veterans whose homes have been broken up and who have
          come back and would like to establish a home. T h e y w i l l need
          practically everything that I have called out an:l listed i n these various
          categories. A n d at present prices i t w i l l be practically impossible
          for the average workingman to set up a home and furnish i t w i t h the
          articles needed and to which people have become accustomed, even
          not t a k i n g into consideration the automobile—and now almost every
          f a m i l y does want an automobile.
               I t w i l l make i t impossible for the wife and the mother to have
          these household conveniences which are almost necessities, and i t is
          also a discrimination against the person who does not have money
          i n the bank.
               Then, on the other hand, i t w i l l have an effect on the o u t p u t of
          the factories which manufacture these various articles. I t w i l l
          restrict employment of labor because unless they can r u n at f u l l
          capacity and dispose of their output, of course, they w i l l not require
          a f u l l force to man the plants. I n that way i t w i l l tend to reduce the
          number of jobs and tend to create unemployment i n this country,
          whereas if the regulation were removed t h a t would take the brakes
          off purchasing power and off production and would enable the economy
          of the country to resume its normal course, I believe, i n a much more
          speedy manner than if this regulation were kept on.
               Briefly, those are the reasons that impelled me to introduce this
          b i l l to abolish regulation W .
               I have" a prepared statement which I w i l l be glad to p u t i n the record
          and not take up any more time of the committee, unless there are
          some questions the committee wishes me to answer.
               T h e CHAIRMAN. The statement may be included i n the record.
               (The statement referred to is as follows:)
           S T A T E M E N T OF R E P R E S E N T A T I V E J A M E S C . D A V I S , OF G E O R G I A , I N R E H . R . 2 4 4 3

                O n M a r c h 10, 1947, I i n t r o d u c e d H . R . 2443, a b i l l t o cancel r e g u l a t i o n W a n d
          t o p r e v e n t r e g u l a t i o n of consumer c r e d i t b y t h e Federal G o v e r n m e n t .
                R e g u l a t i o n W , issued b y t h e B o a r d of Governors of t h e Federal Reserve System,
          was a d o p t e d A u g u s t 21, 1941, t o become effective September 1, 1941. I t was is-
          sued u n d e r a u t h o r i t y of Presidential E x e c u t i v e Order N o . 8843, d a t e d A u g u s t 9,
           1941.
                R e g u l a t i o n W n o w applies t o d o w n p a y m e n t a n d _ m a t u r i t y r e q u i r e m e n t s o n 12
          m a j o r categories of consumer durable goods. I t s regulations a p p l y t o a n y person
          w h o is engaged i n t h e business of m a k i n g extensions of i n s t a l l m e n t c r e d i t i n
          a m o u n t s of $2,000 or less, or d i s c o u n t i n g of purchasing obligations arising o u t of
          such extensions of credit, w h e t h e r t h e person is a m e r c h a n t , b a n k , l o a n c o m p a n y ,
          or finance c o m p a n y .
                I t affects t h e business of every dealer i n automobiles, stoves, w a s h i n g a n d i r o n i n g
          machines, refrigerators, radios, sewing machines, v a c u u m cleaners, a n d o t h e r
          l i s t e d articles.
                I t requires t h a t every c r e d i t - i n s t a l l m e n t b u y e r of automobiles, a n d a l l o t h e r
          l i s t e d articles except certain items of household f u r n i t u r e , m u s t p a y a t least one
          t h i r d of t h e purchase price as a cash p a y m e n t , a n d m u s t p a y t h e r e m a i n i n g t w o -
          t h i r d s of t h e purchase price i n n o t less t h a n 15 m o n t h s .
                I t f u r t h e r requires t h a t e v e r y m e r c h a n t a n d dealer w h o makes i n s t a l l m e n t -
          c r e d i t sales of these listed items, a n d every b a n k , finance c o m p a n y , or i n d i v i d u a l ,
          w h o lends m o n e y t o b u y these articles, or w h o b u y s purchase m o n e y notes executed
          f o r t h e m , m u s t be registered w i t h , a n d have a license f r o m , t h e Federal G o v e r n -
          m e n t t o do business, a n d m a y be prosecuted f o r v i o l a t i o n of t h e regulations a n d
          p u n i s h e d b y a fine of $10,000 or i m p r i s o n m e n t f o r 10 years, or b o t h .
                T h e enforcement of t h i s r e g u l a t i o n necessarily means t h e m a k i n g of d e t a i l e d
          reports b y t h e businessman, a n d a force of Federal employees large enough t o
          r e v i e w a l l these reports a n d t o enforce t h e requirements of t h e regulation.




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                R e g u l a t i o n W was i n a u g u r a t e d as a t e m p o r a r y w a r t i m e , measure w h e n t h e r e
           was a need f o r c o n t r o l of t h e use of i n s t a l l m e n t credit, because t h e m a n u f a c t u r e
           a n d sale of t h e articles affected were absorbing resources needed f o r n a t i o n a l
           defense.
                T h e s i t u a t i o n has n o w changed. I n s t e a d of decreasing peacetime p r o d u c t i o n ,
           t h e need n o w is t o increase peacetime p r o d u c t i o n .
                P r o d u c t i o n of these l i s t e d i t e m s has n o t y e t c a u g h t u p w i t h t h e d e m a n d f o r
           t h e m . H o w e v e r , there is a p o i n t i n t h e i m m e d i a t e f u t u r e where p r o d u c t i o n of
           these goods w i l l c a t c h u p w i t h d e m a n d f o r t h e m , a n d w h e n t h a t p o i n t is reached
           r e g u l a t i o n W w i l l g r e a t l y r e t a r d sales of these articles. I t is u n d e m o c r a t i c i n i t s
           a p p l i c a t i o n . T h e purchaser of a car p r i c e d m o r e t h a n $2,000 is n o t affected b y
           i t , y e t a m a n w h o b u y s a lower-priced car is obliged t o c o m p l y w i t h i t s s t r i c t
           terms.
                T h e r e are m a n y veterans a n d others w h o w a n t t o establish homes, b u y f u r n i t u r e ,
           possibly w a s h i n g machines, refrigerators a n d t h e like, a n d possibly a n a u t o m o b i l e ,
           a n d p a y f o r a l l these i t e m s i n regular i n s t a l l m e n t s f r o m t h e i r salaries. Unless
           r e g u l a t i o n W is canceled, m a n y wage earners w i l l be unable t o b u y these articles.
           A c o n t i n u a t i o n of r e g u l a t i o n W w i l l m a k e i t d i f f i c u l t indeed f o r m a n y housewives
           t o purchase articles w h i c h w o u l d m a t e r i a l l y a d d t o t h e c o m f o r t a n d convenience
           of t h e f a m i l y , such as w a s h i n g machines, i r o n i n g machines, stoves, refrigerators,
           radios, v a c u u m cleaners, a n d m a n y o t h e r items of household a n d k i t c h e n f u r n i -
           ture.
                T h e r e m o v a l of these restrictions w i l l help t h e A m e r i c a n veterans a n d A m e r i c a n
           w o r k e r s t o reestablish t h e i r o w n homes a n d t h e i r o w n f a m i l y lives b y t h e i r o w n
           w o r k a n d l a b o r a n d o n t e r m s w h i c h t h e y can meet. I t s r e m o v a l w i l l cause
           m a r k e t s t o e x p a n d a n d p r o d u c t i o n t o increase. I t w i l l give m o r e w o r k t o l a b o r
           a n d more investment t o capital, a n d w i l l contribute t o prosperity t o America
           as a whole.
                L a s t , b u t n o t least, one of t h e beneficial effects of canceling r e g u l a t i o n W w i l l
           be t o relieve t h i s section of A m e r i c a n business f r o m G o v e r n m e n t r e g i m e n t a t i o n
           a n d t o reestablish, t o t h a t extent, t h e A m e r i c a n s y s t e m of free enterprise.                          The
           r e m o v a l of t h i s r e g u l a t i o n w i l l be q u i t e a step i n t h e d i r e c t i o n of t h a t goal t o w a r d
           w h i c h t h e A m e r i c a n people h a v e been l o o k i n g , n a m e l y , t h a t t h e G o v e r n m e n t
           w i l l get o u t of business a n d l e t t h e A m e r i c a n people get b a c k i n t o business.
               T h e CHAIRMAN. Are there any questions b y the members of the
           committee? I f not, t h a n k you, M r . Davis.
               M r . DAVIS. T h a n k you, M r . Chairman.
               The CHAIRMAN. I f you have any supplementary information we
           w i l l be glad to have y o u submit i t , M r . Davis.
               M r . DAVIS. T h a n k               you.
               The CHAIRMAN. M r . Brehrens, y o u m a y proceed.

           STATEMENT OF M. I. BEHRENS, JR., OF LUDWIG B A U M A N CO.,
                               NEW YORK CITY

               M r . BEHRENS. M y name is M . I . Behrens, J r . ; I am vice president
           and general manager of L u d w i g Bauman Co., i n N e w Y o r k C i t y .
               W e were originally a home furnishing store, b u t today we sell almost
           all the goods t h a t are sold b y a department store—most of i t , however,
           i n normal times, which we are now approaching, we hope, on the
           installment plan.
               I t m i g h t interest the committee to k n o w t h a t I was also, i n 1941
           and 1942, a consultant to the Federal Reserve System on the subject
           of regulation W , officially so appointed. I n fact, when the regulation
           first came out i t made no provision for add-ons, as they are called,
           which means additional purchases b y customers who already have
           a balance owing, and I was able to w o r k out to the satisfaction of the
           system a scheme for handling those additional purchases.
               I do n o t mean to be immodest, b u t I feel I know something about
           regulation W and about its effect on the consumer, and t h a t is the




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          point I w a n t to emphasize. I am going to move rather rapidly because
          I know your time is short.
               I represent here the Retail Credit I n s t i t u t e of America, which has
          merchant members, store-owner members, i n 44 out of the 48 States.
          W e have a couple of other gentlemen here, one of whom is f r o m
          California, who came here especially to testify before your committee,
          and I w a n t to give them a chance if I can.
               The first point about the regulation itself is t h a t i t is ineffectual.
          I t has not, and cannot i n the future, i n m y opinion, do the job. I am
          not going to bore y o u b y reading the regulation, b u t I do want to tell
          y o u w h a t the objectives of the regulation were. They are specified
          i n the preamble of the regulation itself.
               T h e y are a b i t fantastic as y o u look at them today. One was to
          facilitate the transfer of productive resources to defense industries.
          Well, t h a t is one b y the boards.
               Another to assist i n curbing unwarranted price advances and
          profiteering, which tend to result when the supply of such goods is
          curtailed w i t h o u t corresponding curtailment of demand.
               (c) T o assist i n restraining general inflationary tendencies; to sup-
          port or supplement taxation to restrain such tendencies and to accumu-
          late the savings available for the defense program.
               (d) T o create a backlog of demand for consumer durable goods.
               W i t h o u t too much discussion, I submit t h a t those objectives, at
          any rate, are today archaic. W e have passed beyond the stage where
          any of those things are of much importance.
               N o w , actually, even during the war—and I know that this is an
          individual point of view—regulation W was only able to help accom-
          plish those purposes, to whatever extent i t m a y have been able to do
          so, because the people had money i n their pockets. Everyone of us
          whov is i n the installment business know t h a t there is a gap between
          promise and performance. There is never any point i n making a
          consumer promise what he cannot afford to pay. D u r i n g the war not
          only were terms of regulation W possible, b u t most of our business, i n
          our installment store, was done for cash because people had the money.
               Of course t h a t is becoming less and less true as time goes on. A l l of
          us know the statistics on savings, and so forth, and I am not going to
          go into them.
               T h e second point is t h a t regulation W was a p r e t t y small t a i l w i t h
          which to t r y to wag the dog of our American economy. As a matter
          of fact, the t o t a l of installment sale credit outstanding at the end of
          February, according to the last figures of the Federal Reserve itself,
          which I have seen, was $1,600,000,000.                     A l i t t l e less than
          $1,000,000,000 was for automobiles. T h a t is six-tenths of 1 ^percent
          of the national income.
              N o w even t h a t t o t a l of somewhat less t h a n a billion is not all
          regulated at the present time. For example, jewelry, for $100,000,000.
          A n d t h a t is out f r o m under the regulation.
              Also, parenthetically, I w a n t to tell y o u t h a t the Federal Reserve
          has dropped control of charge accounts, which amount, at the present
          time, to over $3,000,000,000. Incidentally, charge accounts at
          $3,000,000,000 are at an all-time h i g h i n the history of this country,
          whereas installment credit has not even begun to approach its prewar
          h i g h of $1,800,000,000. A n d do not forget also t h a t that is i n the

                 61861—47—pt. 2      4




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          face of a much larger national income and something like a 17-percpnt
          increase i n the population since t h a t time.
              Those statistics lead us into what I t h i n k is the most m p o r t a n t
          point aBout this regulation, which is t h a t i t is unjust. I t is the only
          example t h a t I know of, during the whole war period, of regressive
          regulation—that is, regulation or legislation which bore more heavily
          upon t h a t element of the population which hasn't so much money
          i n the bank. The less money y o u have, i n fact, the heavier the regu-
          lation bears upon you. Because do not forget t h a t the Federal
          Reserve System has only been able to regulate extremes.
              I f the terms at the present time permissible on regulated articles
          are 15 months, 90 percent of the customers do not ask for 15 months.
          They do not want and do not need 15 months. B u t the fellow who
          asks for i t does need i t , and he is the fellow y o u cannot take care of
          A n d I must tell you t h a t all too often he is a veteran. A l i t t l e simple
          arithmetic w i l l show you t h a t a veteran who may have to pay i n the
          neighborhood of $40 to $50 a m o n t h to buy a home, getting the down
          payment, to a substantial extent, f r o m the Government itself, is
          prevented by this regulation f r o m making t h a t house into a home.
          Because if he needs eight or nine hundred dollars w o r t h of furniture
          to p u t into the house, he may have to pay $250 or $300 down, and
          his monthly payments w i l l figure out to be equal to his rent—at least
          for that first year, and t h a t first year is the hardest for him. T h a t
          is when he is getting started i n a new job, perhaps, after 4 or 5 years
          i n the A r m y .
              I could give y o u example after example of actual customers—with
          names and addresses—who have come into our place, and we found
          i t impossible to take care of them as we wanted to take care, of them
          because of this regulation.
              The attitude of labor toward the regulation has already been
          covered. We have a 100 percent union shop i n our store, and every
          one of the labor unions who comprise our employees have memorial-
          ized the Federal Reserve System or the Congress to please get r i d of
          this regulation because of its effect on labor.
              Now, I would like to point out that credit belongs to the consumer.
          I f there is anything I dislike i n this world, i t is the common phrase,
          i n our trade, of a merchant or a bank granting credit. N o merchant
          ever granted credit to a consumer i n his life. H e took advantage,
          for the selfish purposes of his own business, of the credit which the
          consumer owned. A n d that is what is being regulated here—the
          consumer's credit.
              Next, the Federal Reserve itself has often pointed out t h a t regula-
          tion W is a two-way street. They hope to use i t as a means of con-
          trolling the business cycle.
              I expressed m y opinon of t h a t possibility before i n relation to the
          proposition of consumer credit to the whole economy. B u t there is
          another l i t t l e item. I have been following the predictions made b y
          various private and public economists for a number of years and I
          don't know b u t w h a t y o u would have come out better tossing a coin.
          As a matter of fact, right now most of the economists are predicting
          gloom and depression. Well, if t h a t is so, then we ought to get r i d
          of regulation W , as far as its restrictive effect is concerned, tomorrow
          morning. B u t apparently there are some people who believe that
          we are still i n an inflationary cycle.




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               N o w I am not smart enough, gentlemen, to know who is right.                   I
          only know t h a t i t is p r e t t y tough for anybody to be* right, and i t is
          particularly tough for a group of men sitting i n Washington, 3,000
          miles or more f r o m some of these consumers, to be right. I want t o
          k n o w just how anybody sitting i n the Federal Reserve System offices
          is going to know when M r s . Jones comes into our store, and l i t t l e
          Willie had to be operated on for appendicitis last month—and she
          has been a customer of ours for 10 or 12 years and always paid her bills,
          her husband having worked for the N e w Y o r k Central for some 20
          years—just w h y she cannot get up t h a t $150 or $100 for the down
          payment t h a t she needs to make on a new refrigerator. T h a t is a
          p r e t t y involved sentence. On the other hand, if she does not get the
          new refrigerator they w i l l not have any way of keeping the m i l k cold
          for l i t t l e Willie's sister M a r y , who is a baby. I want to know how the
          Federal Reserve System is going to k n o w that. I want to know
          whether I am going to be able to tell them t h a t and say, " L o o k , we
          have just got to take care of M r s . Jones; she must have this refrigera-
          t o r ; she needs i t . "
               No, gentlemen, i t is not a subject for inflexible regulation. Before
          the war, when there was no a regulation whatever i n our business—
          and we were typical—the average installment account took 7 or 8
          months to pay. N o t 12 months, not 18 months, not 24 months, b u t
          the average of 7 or 8 months. B u t w i t h i n t h a t average there were
          the people who needed 18 months and 20 months and 24 months.
          A n d i t is t h a t fringe t h a t we want to be able to take care of, as we used
          to in the past.
               Once again, I t h i n k t h a t people have a r i g h t to t h a t credit because
          i t is t h a t credit which has supported American industry, and which,
          parenthetically, has brought down the prices of refrigerators and
          automobiles, and L o r d knows how many other items, to everybody,
          even the people who pay cash, because y o u cannot have mass pro-
          duction w i t h o u t mass distribution.
               A l l y o u have to do is to study the statistics of the automobile
          industry and see w h a t happens to the price of automobiles, even at
          today's levels, compared w i t h w h a t they sold for when automobiles
          were first produced. Y o u w i l l find t h a t the reduction i n price came
          f r o m mass production, and t h a t mass production was made possible
          b y mass distribution through the installment plan.
               I have got to h u r r y along. I am going to give y o u one example
          of mathematics. L e t us suppose t h a t M r s . Jones wanted to come
          i n to our store and have a $240 balance on her account at $10 a
          month, and t h a t we w o u l d be w i l l i n g to do t h a t . For 24 months,
          gentlemen, $10 would be subtracted f r o m her purchasing power.
               N o w , regulation W came along, and originally said: " O h , no, M r s .
          Jones has to pay $20 a month, not $10." Y o u w i l l admit at once
          t h a t for the first 12 months $10 additional is subtracted from her
          purchasing power because she has to pay $20 instead of $10 every
          month.
               B u t stop and t h i n k for just one minute what happens i n the follow-
          i n g 12 months. H a s n ' t she got $10 a m o n t h more to spend than if
          we had sold her on 24 months' terms? Y o u cannot get away f r o m i t .
          T h e subtraction f r o m purchasing power caused by regulation W is
          immediately and inevitably followed b y an exactly equal addition to
          purchasing power. I n other words, i t is a one-time operation, which
          y o u pay for when i t is finished.



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                I n that connection I would like to point out t h a t nobody I have
            ever been able to find out about has been able to start purchasing
           power. Oh, yes, we can stop i t . I f we made the requirements of
           regulation W 100 percent down we would stop some purchasing
           power.
                I remember when first M r . Hoover, then M r . Roosevelt, back i n
            the early thirties, tried to t a l k the people into buying things. There
           were plenty of savings i n the country at the time. Sure, i t was less
           than there were i n 1928 or 1929, b u t there were millions and billions^
           of dollars to spend. B u t the people would n o t spend i t . As a m a t t e r
           of fact, people w i t h o u t jobs do n o t spend money. A n d they do n o t
           spend their credit, either.
                Those are historic statistics. The use of the installment plan has
           f one up and down w i t h the business cycle, just as the use of cash has.
              t is just not possible to t u r n on the spigott, even though y o u have
           turned i t off. A t least nobody ever has.
                Some businessmen favor regulation W . A n d I w a n t to tell y o u
           right now t h a t as far as the selfish needs of our business are concerned
           I would favor the retention of -the regulation. B u t I have a l i t t l e
           more conscience than that. I do n o t . w a n t to pose as a moralist,
           b u t I have a l i t t l e more conscience than t h a t because, as I conceive
           i t , the retailer is i n business to serve the consumer. A n d if we forget
           about t h a t we are not going to be i n business very long.
                W h a t these retailers who favor regulation W w a n t is protection
           against competition, and I very quickly submit t h a t if we get to the
           stage where we provide Federal protection against competition i t
           Will not be long before our system w i l l only be a shell of w h a t we are
           pleased to call free enterprise.
                Furthermore, these same retailers t h i n k t h a t their present easy
           cash position was caused b y regulation W . I submit t h a t i t was
           not. I submit t h a t regulation W could not possibly have worked
           had i t not been for the money i n the people's pockets. A n d t h a t is
           what p u t money i n the bank for the merchant—the fact t h a t the
           people had money.
                I arti not going to take up any more of your time. I w a n t y o u t o
           hear f r o m some of these other gentlemen. I am going to close w i t h
           one last word. Have we, have you, gentlemen, the legislators of
           this country—has anyone the right to control the way the working-
           man spends his credit any more than we have the r i g h t to control
           the way the rich m a n spends his cash?
                T h a n k you. I f y o u have any questions, I w i l l be glad to anwer
           them.
                The CHAIRMAN. T h a n k you, M r . Behrens.
                Are there any questions of M r . Behrens?
                M r . B R O W N . I just w a n t to say t h a t y o u have certainly impressed
           me w i t h your sincerity. I am very sorry I was not here when Con-
           gressman Davis f r o m m y State testified. I just w a n t y o u to know
           t h a t he is held i n the highest esteem i n m y State. I w i l l read his
           testimony w i t h interest.
                M r . P A T M A N . I was here, and I was impressed w i t h his testimony.
                The CHAIRMAN. H e has given a great deal of study and attention
           to the matter.
                We are glad to have had you, M r . Behrens. T h a n k you.
                M r . MONRONEY. I appreciated the testimony of M r . Behrens and
           I would like to say for the members of the committee who do not know




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           h i m as well as I do t h a t he was chosen as the NO. 1 m a n i n the furniture
           industry for the outstanding service to the retail furniture industry
           and received the cavalier award for his distinguished services to that
           industry. Incidentally, he was one of the most alert and aggressive
           businessmen i n combating inflation t h a t I happened to r u n up against
           during the 3 or 4 years t h a t we had t h a t problem before this committee,
               M r . BEHRENS. T h a n k you, M r . Monroney.
               The CHAIRMAN. Are there further questions?
               M r . MCMILLEN. W h a t interest do these deferred payments carry
           i n the case* where a retailer sells furniture to a housewife?
               M r . BEHRENS. I would say that the most common charge is either
           one-half of 1 percent per m o n t h or six-tenths of 1 percent per m o n t h
           o n the original unpaid balance. T h a t is not a simple interest charge.
           A t simple interest t h a t figures out, depending on the length of time—
           the mathematics are a l i t t l e involved—to somewhere between 10
           and ll}{ percent.
               M r . M C M I L L A N . I S there any service charge i n addition to that?
               M r . BEHRENS. N o ; usually that is i t .
               M r . M C M I L L E N . N O additional commission?
                M r . BEHRENS.      NO.
              The CHAIRMAN. Are there any further questions?
              M r . SCOTT. H O W does regulation W stifle competition? Y o u made
           that remark during your testimony.
              M r . BEHRENS. Yes. The retailer who does not want to sell on
           the installment plan, b u t has been forced into i t by competition,
           would like to give as short terms as possible. Those of us who
           believe i n the installment plan are often w i l l i n g to give longer terms.
           Regulation W prevents us f r o m doing that.
             M r . MONRONEY. There are two elements to every sale, and i n the
           installment business the first is the price and the second thing is the
           length of the terms, i n most cases, is i t not?
              M r . BEHRENS. Yes. •
              M r . MONRONEY. A n d if the Government is standardizing on the
           length of terms i t eliminates one part of the competitive system.
              M r . BEHRENS. T h a t is right.
              T h e CHAIRMAN. T h a n k y o u very much, M r . Behrens.
              W e have Judge Padway w i t h us this morning. I t h i n k perhaps
           I owe Judge Padway a personal apology. He has called m y office but
           I have been too busy to arrange an appointment.
              M r . P A D W A Y . I know y o u are busy, M r . Chairman. T h a t is all
           right.
              T h e CHAIRMAN. Judge Padway, general counsel for the American
           Federation of Labor. Judge Padway, we are very glad to have you
           proceed i n any w a y y o u see fit.

          STATEMENT OF JOSEPH PADWAY, GENERAL COUNSEL OF THE
                     AMERICAN FEDERATION OF LABOR
             M r . PADWAY. M r . Chairman and members of the committee, I do
          n o t want to go into a discussion of the economic and social implications
          involved i n regulation W . I am rather here to report to you how
          most of our people feel about this regulation. Only yesterday I took
          the matter up w i t h M r . Hushing. M r . Hushing is the chairman of
          the legislative board of the American Federation of Labor, and its
          function and business is to read these bills and see what effect they



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          have on labor and to come to conclusions respecting t h e m — t h a t is,
          whether they are bills t h a t ought to be supported or otherwise.
               The C H A I R M A N . I S that W i l l i a m Hushing?
               M r . PADWAY. Yes. Only yesterday he informed me t h a t he had
          received information f r o m State federations of labor affiliated w i t h the
          American Federation of Labor to the effect t h a t they are opposed t o
          regulation W .
               The State federations—there are 48 of them—act in the same
          manner as the American Federation of Labor acts nationally. T h e
          State federations act w i t h i n the borders of their State.
               F r o m such personal study as I have been able to give to the subject
          I am of the opinion t h a t regulation W is not altogether i n the interests
          of labor. I t h i n k i t would be much better to have the regulation
           abolished.
               There m a y be arguments t h a t can be made for some control, and
          some people m a y go as far, even w i t h i n our own movement, as t o
           support the retention of regulation W , b u t on the whole, viewed f r o m
           the various angles, pro and con, M r . Hushing and I have come to the
           conclusion t h a t i t would be better to have i t done away w i t h .
               We are not for controls. We do not w a n t too m u c h Government i n
          our affairs. Just as business does not w a n t too m u c h Government i n
          i t s affairs, labor feels the same way. This has a tendency, at times,
           to p r y into the personal affairs of workers—the way the regulation is
          set u p — i n connection w i t h w h a t they must do to obtain credit when
           they need t h a t credit.
               The regulation as i t stands now, i n the postwar conditions, is
           discriminatory. People w i t h a l o t of money can get the things
          t h a t they need, while those w i t h less money, such as wage earners,
          have found i t , i n many instances, impossible to obtain the things
           they need.
                Others have been compelled to cash i n their savings bonds i n order
           to obtain things they cannot obtain otherwise, whereas if there were
           no regulation W , or regulations of t h a t nature, they could retain
           those savings and holdings and obtain their credit and pay out over
           a period of time for the articles they need and still have their savings
           and their bonds.
                I t is n o t necessary for me to go i n t o a long discussion on the subject.
           I am n o t an economist. B u t I heard M r . Davis of Georgia testify,
           and I agree w i t h everything he said. I t h i n k t h a t i n the short period
           of time he testified here he made a splendid representation of the
           entire subject which seems to f i t i n w i t h m y ideas and w i t h the ideas
           of M r . Hushing. I assure y o u t h a t we have only the interests of our
           workers at heart.
                The CHAIRMAN. T h a n k y o u very much, Judge Padway.
                Are there any questions?
                I f not, and if y o u have any supplemental statement y o u care t o
            file or any further information, we w i l l be glad to have i t .
                M r . P A D W A Y . I w i l l be very glad to. T h a n k you.
                The CHAIRMAN. T h a n k y o u very much.
                M r . K i m b r e l l . M r . K i m b r e l l is president of Kimbrell's Inc., of
            Charlotte, N . C. Is t h a t right?
              M r . KIMBRELL. Yes, sir.
              The C H A I R M A N . Y O U m a y   further identify yourself as y o u wish,
           and y o u may proceed.




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           STATEMENT OF W. E. KIMBRELL, PRESIDENT, KIMBRELL'S INC.,
                               CHARLOTTE, N. C.

               M r . KIMBRELL. M y name is W . E . K i m b r e l l . I am a furniture
           merchant. I am f r o m Charlotte, N . C., covering the States of N o r t h
           and South Carolina. I am president of the Retail Credit Institute.
               Gentlemen, I have quite a l o t of ideas, w i t h reference to regulation
           W , which are based principally on the experience of operating under
          regulation W .
               Government control of consumer credit, i n m y judgment, should be
           abolished. Control of credit at the consumer level, as is attempted
           under the present regulation W , is a large undertaking. The exten-
           sion or continuation of such regulation would involve a vast amount
           of checks to educate hundreds of thousands of credit merchants to
           enforce the law.
               I t h i n k t h a t is very true. I t becomes more or less a denying instru-
          ment, or a distrubance instrument. D u r i n g the war, patriotism plus
          a shortage of merchandise were the real enforcement agents. T h a t
           condition no longer exists. A n d w i t h the r e t u r n of keen competition
           enforcement w i l l become very expensive.
               The merchants of the country have a deep conviction that credit
          control is a breach of their fundamental r i g h t of freedom to contract.
          I n peacetime no agent of the Government can expect general obser-
          vance, except strict enforcement.
               I t h i n k t h a t this is a very big question. I cannot see the point of
          taxing the people for something t h a t retards instead of increases
          business.
              W h a t was the effect of consumer credit controls during the war?
          I t was supposed to retard inflation. A l l we had was inflation. Added
          t o t h a t was a sharp decline i n the quality of the merchandise. More
          jobs and higher wages eliminated any doubtful value this regulation
          ever had.
              Regulation W d i d not f i l l the merchants' pockets w i t h money.
          F r o m accounts receivable t h a t had originally been on their books,
          before this drought, a swell of money came by. The swell of money
          came because of the increased earnings, and the number of hours and
          the number of people who had jobs, all of which helped the people to
          pay their debts and eliminate them. I t was not regulation W . As
          t o what they purchased, and how much they purchased, they could
          pay because they had the money. So regulation W , insofar as bring-
          i n g about the cash position of retail or installment merchants are
          concerned, was not very valuable.
              T o d a y regulation W is fast becoming a support toward deflation,
          as regards commodities still under control and those commodities are
          largely the ones t h a t make the Nation's homes. We have been
          taught t h a t the home—where the f a m i l y has its sanctuary, where the
          next generation of citizens is growing up—should have first considera-
          tion. I contend t h a t regulation W does deny, to a certain extent, the
          furnishing of a comfortable home.
              Y e t the home is first discriminated against b y regulation W. How
          can a house become a home unless i t has comfortable furnishings?
          They say y o u can buy this or t h a t on any k i n d of credit you can get.
          B u t y o u must have money to get these things y o u call furniture.
          Whether or not y o u have a livable home for yourself and your children




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           depends on whether or not y o u have the cash to pay down, and there
           are a lot of them, at the present time, who do not have i t .
               Regulation W is discouraging people w h o m we have been taught to
           encourage. E v e n if there were a gain i n the business cycle, would t h a t
           gain offset the harm done i n discouraging the having of a livable home?
               I t h i n k t h a t any possible advantage t h a t regulation W might have
           on the installment furniture business would be dismissed f r o m every-
           body's m i n d if they could see the inner workings of the effort of the
           people to change their l i v i n g level b y changing their homes or home
           environments. I cannot help t h i n k t h a t many years ago when we
          went into homes we found t h a t they had iron beds and a straw m a t -
           tress, and t h a t maybe they were cooking over the fireplace. A n d
          f r o m the experience i n the furniture industry t h a t I have come through,
          to go back i n t o those homes and see them clean and comfortable, and
          to t h i n k of what made them so, I find t h a t the cause is t h a t they had
          the right to use their credit. H a d they not had the right to use t h a t
          credit, those homes would not have changed to the extent they have.
               Regulation W is discriminatory and unfair to the durable-goods
          industry because i t unnaturally diverts a portion of its legitimate
          business to other industries. I t h i n k t h a t is very true. Especially
          of such goods as jewelry and soft goods, and so forth. They can sell
          on any terms they and the buyer agree upon.
               We furniture people are helping a m a n b u i l d his home; helping h i m
          change the l i v i n g level of his home; helping h i m to have a nice home
          where a young boy can come and see his daughter, and so forth. H e
          is denied t h a t right. H e cannot treat w i t h me on his terms beyond
          regulation W .
              Insofar as regulation W is concerned a $100 piece of jewelry—and
          I use jewelry not because I do not like jewelry or have any spite
          against jewelry dealers b u t merely as an illustration-—can be had
          on credit for as low as nothing down. B u t when the family is i n
          need of a new $100 cooking stove regulation W says the purchaser
          must pay $33.34 down or do w i t h o u t i t . F r o m t h a t I do not see
          where we are encouraging the building of homes.
              I t is difficult i n these times of h i g h food prices for a workingman
          w i t h a f a m i l y to accumulate the sums t h a t are necessary to purchase
          the necessities of the home. I t is h a r d to save particularly when
          you get your pay f r o m day to day, week to week, or m o n t h to m o n t h ,
          and i n the face of the changed l i v i n g conditions. Y e t the other
          things are very easy to buy. A n d i t is nothing b u t human nature
          that a lot of the money t h a t a m a n intended to save to make the
          down payment on an article for the home leaked out to some of the
          things t h a t were easier to buy.
              This is class regulation. I f y o u have the money y o u can b u y all
          you want for credit or cash. I f y o u are poor you are denied the use
          of your credit i n the manner your finances would permit.
              Likewise, if y o u are a furniture merchant y o u can sell if y o u get so
          much down and so much a month. B u t if you sell jewelry y o u sell
          as you please, which means t h a t jewelry sales go up while f u r n i t u r e
          sales are stagnating.
              This would eventually mean a curtailing of durable goods manu-
          facture. The consumer does not like to be regulated either. I n the
          last few months we have been running into more and more problems
          in t r y i n g to explain to the consumer w h y he cannot b u y f u r n i t u r e




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          except b y Government regulation while everything else seems to be
          free. I t is very difficult to explain to the consumer w h y his home
          should be penalized.
                Credit control during the war was of doubtful value. Today and
          tomorrow i t accelerates deflation i n terms of Government cost, b u t
          i t is more expensive i n t h a t i t denies the necessities to those who need
          t h e m most. Reduced production i n controlled commodities because
          of increased manufacturing costs w i l l tend to keep prices high be-
          cause i t w i l l tend to keep production lower. Again we penalize the
          consumer of durable goods.
                I f y o u r average consumer does n o t have the cash, then the return-
          i n g veteran who has served his country for several years on meager
          ?ay certainly has still less. H o w can he furnish the home which t h e
              Jongress has arranged for h i m to purchase on very small terms? Tch
           t e l l a veteran t h a t he can have a house consisting of so many rooms
          for nothing down and $30 a m o n t h and at the same time require h i m
           t o pay $250 or $300 cash and $65 a m o n t h on $1,200 w o r t h of f u r n i t u r e
           is nonsensical.
                M o s t of these boys have to start f r o m scratch when they come
          back. T h e y do n o t have a bank roll to start w i t h . When he cornea
          back he can go and b u y his wedding outfit on credit. H e can go-
           on his honeymoon on credit, and he can b u y his house w i t h almost'
          nothing down. B u t When he goes to furnish i t he must have the
           money.
                Regulation W , as most regulations, applies on a national scale
           and makes no provision for individual and local circumstances. On
           the consumer level, a b i l i t y to pay is too varied to be regulated.
                I t h i n k business m i g h t be good i n Chicago and at the same time
          i t m i g h t be bad i n M i a m i . T h e 15 months terms of regulation W-
          have a tendency to become a m i n i m u m as well as a maximum, whereas-
           w i t h o u t such regulation m a n y more durable goods would be sold oni
          shorter terms. I t h i n k t h a t is true.
                T h e reason t h a t regulation W is necessary to prevent runaway
          prices because of scarcity of merchandise is outdated. The number
          of items t h a t are unavailable is daily dwindling. Retailers' shelves
          and floors are full. Reports on inventory increases for months have
          indicated this. T o d a y scarce items can be counted on the fingers
          of two hands.
               W h e n the regulation was originated, i t was accepted as a necessity
          for the winning of the war. As such, i t was gladly accepted and
          obeyed. W e were led to believe t h a t when the war was over. B u t
          the war has been over for a number of months. The inflationary
          pressures caused b y consumer credit are greatly exaggerated. Control
          of credit at this level does n o t l i m i t buying or prevent runaway prices.
               M r . B R O W N . D O y o u have enough furniture now to supply the
          demand?
               M r . KIMBRELL. M o r e t h a n enough. As a matter of fact, there are
          quite a l o t of furniture factories curtailing operations now, particularly
          i n some segments of i t , such as living-room furniture. I know numbers
          of them have even closed down and are n o t even running.
               T h e preservation of our economy, which w i l l promote our production
          facilities and our f u n d of skilled labor—and t h a t is the question most
          of us are concerned w i t h — i s a better and safer defense than if the
          country had pursued a different theory. I f the country had pursued
                 61861—47—pt. 2      5




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           a different theory, would we have had the General Motors, the Fire-
           stones, the Fords, and the hundreds of smaller industry which helped
           us during the war? I wonder.
              We should q u i t regulation and promote higher l i v i n g standards,
           particularly w i t h reference to the home.
              Again, gentlemen, I say, regulation W should be eliminated,
           period, and meaning b y " p e r i o d " t h a t i t should stop.
              M r . MCMILLEN. M a y I ask a question, M r . Chairman?
             T h e CHAIRMAN. M r . M c M i l l e n .
              M r . MCMILLEN. W h a t becomes of this installment paper after
          the merchants take i t , usually?
              M r . KIMBRELL. I n our case we keep i t i n our sjafe.
              M r . MCMILLEN. I beg your pardon?
              M r . KIMBRELL. I n m y own case we keep i t i n our safe. There
          are some of us who, i n some cases, discount t h a t paper to get funds
          to replenish the cash box.
              M r , MCMILLEN. Some merchants bank and rediscount i t , I assume.
              M r . KIMBRELL. Some of them do, where i t is desired on the part
          of the merchant.
              M r . MCMILLEN. Does very much of i t go back to the wholesaler?
              M r . K I M B R E L L . N O , sir; not t h a t I know of.
              M r . M C M I L L E N . I S there any difference i n the price of this mer-
          chandise as between the installment buyer and the cash buyer?
              M r . KIMBRELL. I n our case there is 10 percent difference. A n d
          t h a t is p r e t t y general through m y section of the country. I n other
          words, i t is a hundred dollars, y o u b u y i t for $90 cash or y o u b u y i t
          for a hundred dollars on 12 months' or 15 months' terms.
              M r . MCMILLEN. I n other words, there is a 10-percent difference,
          and i n addition to t h a t there is interest charge for the paper?
              M r . K I M B R E L L . N O , sir; there is no other charge. A n d t h a t
          10-percent difference is largely taken up by the expense of our repos-
          session losses, turn-backs, or keeping the merchandise serviced u n t i l
          i t is paid for, plus collections for accounts t h a t are hard to collect,
          and running the general office. I n other words, 10 percent is very
          often all consumed, and we get nothing out of i t .
              M r . M C M I L L E N . I S i t not true t h a t some of the merchants offer a
          cash discount Tor cash sales that' an installment buyer cannot take
          advantage of, i n t h a t the installment buyer is required to pay the f u l l
          price i n addition to the interest t h a t is normally charged?
              M r . K I M B R E L L . I do not know of anybody who has a discount for
          cash and then charges interest on top of that. A difference between
          the cash and credit price, and then interest on top of that. I know
          of no furniture store t h a t does that.
             M r . M C M I L L E N . T h a t is all.
             M r . SMITH. M r . C h a i r m a n .
             T h e CHAIRMAN. D r . S m i t h .
              M r . SMITH. Regulation W is a purely paternalistic constraint; is
          i t not?
              M r . K I M B R E L L . I would judge so.
              M r . S M I T H . Y O U have some idea of what is i n the minds of the
          men who compose your Congress. I have heard the Federal Reserve
          criticized for the manner i n which it operates this regulation W , but
          is that criticism properly directed? Should it not be directed against
          the Congress of the U n i t e d States?




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              M r . KIMBRELL. I n our part of the country, we have been very
           pleased t h a t regulation W was operated through the Federal Reserve
           banks. They have been very straightforward to work with. I n
           our case they have checked us time and t i m e again i n our stores.
           Of course, I know i n many other stores i n our community they have
           not even heard of them. B u t we have been very cooperative w i t h
           them and have had no complaint f r o m them.
             M r . SMITH. B u t the responsibility is w i t h Congress; is that not true?
             M r . KIMBRELL.        Yes, sir.
             M r . SMITH. T h a n k y o u .
             The CHAIRMAN. Are there further questions?
             Mr.   FOLGER.
              M r . F O L G E R . I do not t h i n k Congress is responsible for i t .
              M r . BROWN. Was t h a t regulation not issued b y the Federal Reserve
          Board?
              The CHAIRMAN. Under the power of the T r a d i n g W i t h the Enemy
          Act.
              M r . MCMILLEN. Over all the sales t h a t are made, is i t true t h a t
          there is more profitability to the merchant i n installment sales than
          i n cash sales?
             M r . KIMBRELL.        NO, sir.
             M r . TALLE. M r . C h a i r m a n .
             T h e CHAIRMAN. M r . T a l l e .
             M r . T A L L E . I t h i n k y o u said t h a t the merchants accepted the reg-
           ulation during the war as a necessity; is t h a t right?
             M r . KIMBRELL. W e were under t h a t impression, t h a t the Govern-
           ment thought i t was a necessity and, naturally, we were glad to obey.
             M r . TALLE. A t this hour, are y o u convinced t h a t i t was a necessity?
             M r . KIMBRELL.        NO, sir.
             M r . TALLE. T h a t is all, M r . Chairman.
             T h e CHAIRMAN. M r . M o n r o n e y .
                M r . M O N R O N E Y . Y O U mentioned t h a t jewelry had been taken out
           f r o m under regulation W . Does t h a t mean t h a t y o u can sell jewelry
           on any length of terms at which y o u choose to sell i t now?
                M r . KIMBRELL. Yes, sir. W e see people advertising jewelry
           50 cents a week, and, of course, our b o t t o m terms are $1.25 a week.
                M r . MONRONEY. B u t there is no l i m i t whatever on any k i n d or
           amount or a n y t h i n g else, as far as jewelry is concerned?
             M r . KIMBREL^.        N O , sir.
             M r . MONRONEY. Would there be any l i m i t on clothing, fur coats,
          or anything like t h a t , on the installment plan?
             M r . KIMBRELL.        NO, sir.
              M r . MONRONEY. The only l i m i t s to which regulation W still
          applies would be to automobiles and household appliances and home
          furnishings; is t h a t true?
              M r . K I M B R E L L . I t h i n k t h a t covers i t . M o s t others have been
          eliminated f r o m under the regulation.
              M r . MONRONEY. Open book accounts, i n department stores, things
          of t h a t k i n d , would permit, w i t h o u t violation of the law, complete
          evasion of this regulation, would they not? I mean you could sell
          a refrigerator, which would have to come under regulation W , under
          a contract account, b u t y o u could sell i t on an open account w i t h
          the understanding t h a t the customer wotild n o t be able to pay for
          i t i n 30 days, t h a t there would be no foreclosure or anything, t h a t
          i t could be sold on open account w i t h o u t coming under regulation W ?




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               M r . K I M B R E L L . T h a t is correct.
               M r . B R O W N . D O the local finance companies finance purchasers of
           automobiles?
               M r . M O N R O N E Y . T h e y s t i l l come under regulation W if i t is for
           the purpose of an automobile or any of these other articles mentioned
           i n the regulation.
               Of all the 12 things t h a t are under regulation W , w h a t would y o u
           say were at present i n scarce supply?
               M r . K I M B R E L L . Washing machines.
              M r . M O N R O N E Y . A n d automobiles, of course?
              M r . K I M B R E L L . Well, I t h i n k automobiles are more plentiful t h a n
           washing machines i n proportion to the demand.
              M r . M O N R O N E Y . A n y other?
              M r . K I M B R E L L . Electric refrigerators would be next, insofar as
           household furniture is concerned. Radios, for instance, are plentiful.
              M r . M O N R O N E Y . Almost getting into distress position, are they not,
           because of oversupply at the present time?
              M r . K I M B R E L L , Yes, sir; inventories have gotten swollen and,
           naturally, we have no way t o dispose of them.
              M r . M O N R O N E Y . O n afl b u t those three things—automobiles, re-
           frigerators, and washing machines—there are threats of price declines,
           as well, are there n o t ; i n most of those other lines?
              M r . KIMBRELL. Yes, sir.
              M r . M O N R O N E Y . So t h a t       the taking off of regulation T V , I N y o u r
            opinion, would n o t necessarily raise the selling price of any of those
            items?
                M r . K I M B R E L L . I t w o u l d not.
                M r . M O N R O N E Y . T h a t is all I have, M r . Chairman.
                The C H A I R M A N . I s there any black marketing under regulation W ?
                M r . K I M B R E L L . I do not KNOW of any now i n the household goods
            field. There m a y be some i n the automobile field; I do not know.
                The C H A I R M A N . I t does not readily lend itself t o t h a t sort of
            practice; is t h a t the idea?
               M r . K I M B R E L L . T h a t is r i g h t . W e f u r n i t u r e merchants are s i t t i n g
           i n a very peculiar position. W e have to sell and resell and resell, and
           keep selling the same consumer over and over to m a i n t a i n our volume.
           We could not afford t o go t o the black market.
               The C H A I R M A N . M a y I suggest t h a t the black market has taken
           a very peculiar t w i s t w i t h respect to regulation W? I f y o u go to the
           bank and borrow money, y o u have to make a certificate t h a t the
           money is not going to be used t o make a down payment on any
           commodity which is controlled under regulation W . B u t i f y o u
           have got a hundred dollars i n y o u r pocket t h a t y o u w a n t t o b u y a
           suit of clothes w i t h , and y o u w a n t a hundred dollars t o make a d o w n
           payment on something under control, y o u borrow the hundred dollars
           to b u y the suit of clothes and use the hundred dollars w h i c h y o u
           have to b u y the clothes to make the down payment.
               M r . K I M B R E L L . I suspect t h a t there is some of t h a t being borrowed
           i n that manner, and being used as a down payment on household
           furniture.
               The C H A I R M A N . Y O U have to certify t h a t this particular money is
           not going to be used for t h a t purpose, however,
              M r . KIMBRELL.        Yes, sir.
              Mr. SMITH. I n        other words, y o u cannot destroy people's determi-
          nation to live.




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                M r . KIMBRELL. A n d y o u cannot destroy people's determination to
           have a comfortable home.
                M r . M O N R O N E Y . Y O U are n o t wedded to the language i n the b i l l
           t h a t w o u l d p r o h i b i t the Federal Reserve f r o m taking any possible
           action regarding the effect on consumer credit, are you? I t seems to
           me as though the b i l l is so wide t h a t i t would p r o h i b i t perhaps, i n its
           complete interpretation, the regulation of rediscount rates and other
           v i t a l functions of the Federal Reserve System.
                M r . K I M B R E L L . I d i d n o t quite get you, M r . Monroney.
                M r . MONRONEY. I do n o t have a copy of the b i l l here, I do have
           one b i l l here, b u t t h a t is n o t the one I am referring to. [Reading:]
           Provided, T h a t f r o m a n d a f t e r t h e passage of t h i s A c t , t h e r e shall n o t be vested
           i n t h e B o a r d of Governors of t h e F e d e r a l Reserve System o r a n y o t h e r Federal
           G o v e r n m e n t official o r agency t h e p o w e r t o issue or enforce said above-mentioned
           r e g u l a t i o n a n d supplements, or a n y o t h e r m e t h o d of r e g u l a t i o n of consumer
           credit.
              Well, of course, y o u r rediscount rate has certain effect on the reg-
           ulation of consumer credit, and m a n y other things t h a t your Federal
           Reserve B o a r d historically has done since its establishment. I would
          n o t t h i n k t h a t even business w o u l d w a n t t h a t nailed down t h a t
          completely.
              M r . K I M B R E L L . I do n o t t h i n k t h a t we retailers would like the law
          to be changed on any basis except permanent relief being continued.
              M r . M O N R O N E Y . Y O U w a n t to get r i d of regulation W?
              M r . KIMBRELL. T h a t is r i g h t .
              M r . M O N R O N E Y . Y O U do n o t w a n t to hogtie the Federal Reserve
          System o n its Federal j o b of regulating rediscount rates and things
          of t h a t k i n d , w h i c h undoubtedly do have some effect on consumer
          credit, however?
              M r . K I M B R E L L . N O ; I do n o t t h i n k t h a t we are making an effort
          to keep the Federal Reserve B a n k f r o m regulating interest rates.
              M r . B R O W N . I wish y o u would get after regulation Q a l i t t l e b i t ,
          too.
              (Discussion off the record.)
              M r . MCMILLEN. W h a t becomes of the installment buyer's equity
          i n the event t h a t he pays out one-half for the purchase price and is
          unable t o pay a n y t h i n g further? W h a t then happens to his equity
          i n t h a t purchase?
              M r . KIMBRELL. T h a t depends on the basis of the operations of
          different merchants. I n some cases he makes a separate contract;
          he pays one o u t and he gets a receipt i n f u l l for t h a t , and others i t is
          consolidated to h o l d i t for security t o carry i t on further.
              Then, i n case of a misfortune, the chances are t h a t he would have
          to r e t u r n i t all or pay for i t all.
              However, I do n o t t h i n k t h a t t h a t is abused i n the furniture in-
          dustry, because, as I said a while ago, we are up against the problem
          of a continued customer, and n o t the one-time customer. As t o
          merchandise repossessed or brought back or turned back, or unpaid
          for, i t is a loss t o our operations to even receive i t . I f we feel t h a t we
          have got to repossess i t , or t h a t we have got to take i t back, we would
          rather n o t sell i t , because we k n o w i t w i l l be a loss i n the end.
              M r . MCMILLEN. I n the event the purchaser has paid 90 percent
          and he cannot p a y anything more, and i t has to be taken back, does
          t h a t buyer get any of his equity back?




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             M r . K I M B R E L L . N O ; the buyer does n o t get his equity back, and
          the chances are the merchant who sold i t loses the 10 percent.
            The C H A I R M A N . Are there further questions of M r . Kimbrell?
            I f not, t h a n k y o u very much, M r . K i m b r e l l , for your contribution
          to the subject.
             The C H A I R M A N . M r . M c M a h a n .

          STATEMENT OF JAMES I. McMAHAN, McMAHAN FURNITURE CO.,
                          SANTA MONICA, CALIF.

              M r . M C M A H A N . M r . Chairman and gentlemen, m y name is
          M c M a h a n , and I come f r o m California, to appear before you, and
          to just express some of m y heartfelt feeling about this most v i t a l
          problem t h a t confronts us today, and we appreciate the o p p o r t u n i t y
          and likewise we know t h a t y o u are now serving your chairs on borrowed
          time, and I w i l l not bother y o u w i t h the statements t h a t I really had
          gathered together t o make to y o u here.
              I would like to ask you, M r . Chairman, for the permission of sub-
          m i t t i n g our brief, i n the name of the directors of the Retail Credit
          I n s t i t u t e of America.
              (The brief referred to is as follows:)
                 E L I M I N A T I O N OF R E G U L A T I O N W      OP T H E F E D E R A L R E S E R V E      SYSTEM

           (Brief of t h e D i r e c t o r s of t h e R e t a i l C r e d i t I n s t i t u t e of A m e r i c a , M a y 27, 1947,
             i n s u p p o r t of t h e t e s t i m o n y of Messrs. M . I . Behrens, Jr., N e w Y o r k ; W . E .
             K i m b r e l l , C h a r l o t t e , N . C . ; a n d J^mes I . M c M a h a n , Santa M o n i c a , Calif.)
               Regulation W of t h e Federal Reserve System is t h e i n s t r u m e n t of t h e Federal.
           G o v e r n m e n t t o c o n t r o l a n d regulate the A m e r i c a n citizen's personal r i g h t t o use
           his credit as he purchases t h e products of our e c o n o m y ; i n c o n t r a s t t o t h e r i g h t
           of others possessing sufficient cash t o cover t h e i r wants, t o use i t freely a n d u n -
           regulated.
               B y a c t u a l t a l l y , more t h a n 91 percent of t h e members of t h e R e t a i l C r e d i t
           I n s t i t u t e of A m e r i c a believe t h a t such r e g u l a t i o n of t h e consumer b y t h e Federal
           G o v e r n m e n t is unwise, u n f a i r , *and d e t r i m e n t a l t o t h e best interests of t h e con-
           sumer a n d p r i v a t e enterprise.
               B y f o l l o w i n g a simple o u t l i n e t h e m a j o r objections t o such regulation m a y be
           brought to light.
                                                         i . REGULATION          w
          Definition
               T h e r e g u l a t i o n was issued b y t h e Federal Reserve System on a u t h o r i t y of
          E x e c u t i v e Order N o . 8843, A u g u s t 9, 1941. I t s objective was:
               "Whereas t h e p u b l i c interest requires c o n t r o l of t h e use of i n s t a l m e n t c r e d i t
          f o r financing a n d refinancing purchases of consumers' durable goods t h e p r o -
          d u c t i o n of w h i c h absorbs resources needed f o r n a t i o n a l defense, i n order (a) t o
          facilitate t h e transfer of p r o d u c t i v e resources t o defense industries, (b) t o assist
          i n c u r b i n g u n w a r r a n t e d price advances a n d profiteering w h i c h t e n d t o result w h e n
          t h e supply of such goods is c u r t a i l e d w i t h o u t corresponding c u r t a i l m e n t of demand,
           (c) t o assist i n restraining gneral i n f l a t i o n a r y tendencies, t o s u p p o r t or s u p p l e m e n t
          t a x a t i o n imposed t o restrain such tendencies, a n d t o p r o m o t e t h e a c c u m u l a t i o n
          of savings available f o r financing t h e defense p r o g r a m , (d) t o a i d i n creating a
          backlog of d e m a n d f o r consumers' durable goods, a n d (e) t o r e s t r a i n t h e develop-
          m e n t of a consumer d e b t s t r u c t u r e t h a t w o u l d repress effective d e m a n d f o r goods
          a n d services i n t h e post-defense p e r i o d . "
               W e t h i n k t h a t these objectives no longer hold. B y t h e language of t h e order,
          t h e subtopics (a), (b), (c), (d), a n d (e), are a l l subsidiary t o t h e general purpose
          of preserving "resources needed f o r n a t i o n a l defense."




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           I I . T H E STATUTORY AUTHORITY             T H E T R A D I N G W I T H T H E E N E M Y A C T — O C T O B E R 6,
                                                     1917, S E C T I O N 5 (B)

                T h e a d m i n i s t r a t i o n gives as its a u t h o r i t y for Executive Order No. 8843, section
           5 (b) of t h e act of October 6, 1917 ( T r a d i n g w i t h t h e E n e m y A c t ) .
                W i t h o u t going i n t o detail, we believe t h a t this act d i d n o t contemplate regula-
           t i o n of consumer credit i n t h e U n i t e d States, certainly n o t i n t i m e of peace;
           credit transactions between citizens of single States, for purchase of goods sold
           i n a local r e t a i l capacity a n d consumed i n t h e U n i t e d States usually i n the same
           State where sold. M a n y have felt t h a t t h e regulation has no s t a t u t o r y not
           constitutional a u t h o r i t y b u t have refused t o raise this question during national
           emergency, patriotically supporting every effort t o present a unified war f r o n t .
           T o d a y , the w a r over, t h e i n t e r p r e t a t i o n of the T r a d i n g w i t h the Enemy A c t of
            1917 as s t a t u t o r y a u t h o r i t y for regulation W m a y be questioned. A t y p e d
           copy of section 5 (b) of the T r a d i n g w i t h t h e E n e m y A c t of 1917 is attached at
           the end of this brief.
                There is grave question of underlying c o n s t i t u t i o n a l i t y i n t i m e of peace, b u t
           we do n o t i n t e n d t o explore i t a t this time.

                  I I I . T H E P R A C T I C A L REASONS W H Y R E G U L A T I O N W S H O U L D B E      ENDED
                                                         IMMEDIATELY

             (a) It is ineffectual as an economic control
                  Consumer credit outstanding, now close t o $10^)00,000,000, constitutes only
            about 11 percent of the national income. Of t h e $10,000,QP0,000 of consumer
            credit, installment sales credit, credit used directly 16 b u y products is n o w only
             $1,000,000,000, exclusive of automobiles. W i t h automobile credit, the t o t a l
            is about $1,600,000,000. T h i s is the p a r t of consumer sale credit r i g i d l y con-
            t r o l l e d today. Twice this a m o u n t of credit, more t h a n $3,000,000,000 i n "charge
            accounts" now, the Federal Reserve System of its o w n accord has freed of c o n t r o l
             as no longer " i n t h e public interest."
                  I n requesting continued power t o control, the Reserve System indicates t h a t
             the present coverage of regulation W m a y be considered essentially the framework
             of a n y continuing device. T h e balance of the present $10,000,000,000 t o t a l of
             consumer credit is i n loans—largely also freed of control b y the Federal Reserve,
             the small p o r t i o n s t i l l controlled being loans t o make d o w n payments on goods
           ' s t i l l controlled. T h e b i t t e r p i l l here for the consumer is t h a t i n making any ldan
             he m u s t t e l l the Government j u s t the reasons w h y , name a n d address of hospital
             or doctor he is paying, etc., w h i c h results i n widespread refusal t o disclose t h e
             t r u t h — u n d e r s t a n d i n g ^ so. I t is obvious t h a t any effect u p o n the national econ-
             o m y a n d business cycle of the remaining W control is infinitesimal and ineffectual—
             j u s t as t h a t u p o n the recently decontrolled charge accounts was f o u n d ineffectual.
                  Consumers w i l l always pay their accounts fast or slow as their available stream
             of income payments rises a n d falls, n o t b y v i r t u e of any artifical regulation f r o m
             Washington. Regulation can be, a n d is t o d a y , p r o h i b i t i v e t o m a n y citizens.       It
             is designed so as t o stifle purchasing a n d does so—but b y "class" d i v i d i n g our
             fellow citizens. T h e regulation d i d not speed payments d u r i n g the war period,
             nor h o l d consumer debt balances low as y o u m a y be asked t o believe. T h e
             Federal Reserve System admits this i n its writings. T h e unusual wartime cash
             holdings a n d ready earnings of a large segment of the people accomplished w h a t
             the regulation has been credited w i t h doing.
                  Likewise no regulation caused people to refrain f r o m b u y i n g the, durables n o t
             produced d u r i n g the war. I t was the production stoppage obviously t h a t d i d i t .
             N o r d i d the regulation stop consumer b u y i n g — i t merely shifted i t to nonregulated
             lines. See w h a t happened i n so m a n y of these " s o f t lines."
                  I t d i d n o t foster savings—the excess of w a r earnings over heavy pay envelopes
             d i d t h i s — i f one doubts, he need only s t u d y the break-down of " w h o had how
             m u c h of the earnings as t h e w a r ended."
                  N o r could any regulation force a citizen t e m p o r a r i l y i n a n unfortunate economic
             situation, t o pay u p his accounts more q u i c k l y . A n d as f o r those with* plenty
             of cash—there never was any a t t e m p t t o regulate their spending.
                  T h e whole substance of the control has been u n f o r t u n a t e a n d unfair as well as
             ineffective.
                  I n considering i t as a n accelerating or retarding influence on the economy,
             w h i c h is w h a t the Federal Reserve System w o u l d like t o make of i t , one must
             remember t h a t i t w i l l never a p p l y a t a l l t o the great b u l k of credit purchasers,
             b u t r a t h e r only t o those w h o need credit most, or need special consideration




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           most. These f o l k are no less w o r t h y of reasonable i n d i v i d u a l t r e a t m e n t according
           t o their circumstances t h a n is the cash customer f o r a l l his economic independence.
                 Back d u r i n g the depression years of the t h i r t i e s t h e average installment account
           i n f u r n i t u r e was being p a i d o f f i n 7 or 8 months. I t is those w h o struggle hardest
           t o achieve a n A m e r i c a n standard of l i v i n g , those s t r i v i n g t o rise f r o m less a d v a n -
            tageous t o more advantageous circumstances, w h o ask m o r e lenient credit, a n d
           hence f a l l prey t o t h e meshes of this sort of regulation. I f t h e terms of regulation
            W were made d o u b l y severe, statistically the average of i n s t a l l m e n t account
           repayments w o u l d n o t decrease b y more t h a n a m o n t h , f r o m 8 m o n t h s t o 7, or
           t r o m 7 t o 6, as t h e case m i g h t be; certainly n o t enough i n t h e aggregate t o change
           $he p i c t u r e of the n a t i o n a l economy. B u t countless thousands of Americans
            w o u l d be t e r r i b l y h u r t .
                Remember, however, t h a t drastic terms under such a regulation, while n o t chang-
          i n g t o a n y real degree t h e rate of repayment of outstanding accounts, m i g h t w e l l
           stagnate the purchase of products i n t h e first instance, d r i v i n g consumers
           f r o m markets t o the extent of dangerously reducing sales a n d s t a r t i n g a d o w n w a r d
           sprial of purchasing even b y those w i t h cash. F i r s t this w o u l d a p p l y t o t h e
            " r e g u l a t e d " industries—later b y contagion t o others. T h e dangerous feature i n
           i n reducing American business, artifically or otherwise i n times of peace, is t h a t
           d o w n w a r d spirals are contagious.
                 I t is n o t e w o r t h y t h a t n o t one of the objectives mentioned i n its preamble was
           achieved b y regulation W i n practice. E v e r y one of t h e m was actually achieved,
           b u t b y economic conditions u p o n w h i c h regulation h a d l i t t l e , i f any, effect.
                 I t was most f o r t u n a t e indeed t h a t business conditions i n t h e c o u n t r y d u r i n g t h e
           w a r b r o u g h t t h i s about, f o r i f regulation W h a d been relied u p o n alone a n d t h e
            p u b l i c h a d really felt t h e p i n c h of this control, administering a n d enforcing i t
            w o u l d have been one of t h e greatest headaches Washington has ever experienced.
            A n d t h i s i t w i l l be i n t h e f u t u r e i f regulation W continues, because n o t always
            w i l l business conditions p l a y i n t o t h e hands of those w h o do t h e regulating.
           JRight now, t o d a y , enforcement is g e t t i n g harder as t h e public is readily preparing
           t o disregard W a s h i n g t o n a u t h o r i t y over purchasing f o r everyday l i v i n g . Several
           .Reserve officials have been heard t o say t h e y personally w a n t no responsibility f o r
           enforcement once t h e regulation actually i r k s consumers generally.
            (6) The regulation is inconsistent
                One present-day n a t i o n a l objective sponsored b y t h e W h i t e House, a n d w i t h
            Which we have no*quarrel, is t h a t prices m u s t go downward, " t o increase t h e p u r - ,
            chasing power of consumers." A logical aim, b u t f o r what? I s i t n o t t o p e r m i t
           consumers t o raise their standard of l i v i n g — t o b u y more products w i t h t h e i r
           jnoney?
               Y e t t h e Federal Reserve System seeks t o continue regulation W t o decrease
           t h e purchasing power of t h e poor—those w h o need credit. T h e Reserve System
           says j u s t t h i s — t o reduce demand f o r goods.
                The only logical conclusion one can d r a w is t h a t we are t o drive prices d o w n t o
           p e r m i t those w i t h cash t o purchase even more t h a n t h e y w o u l d otherwise, a n d
           achieve this b y a regulation t o force the poor t o purchase less t h a n t h e y w a n t —
           less t h a n t h e i r r i g h t f u l share, t h e y w o u l d say, of America's products.
                I n passing i t seems i m p o r t a n t t o say t h a t an adequate supply of durable p r o d -
           ucts is entirely contingent upon adequate demand, a n d if demand should buckle,
           supply itself w i l l never reach high proportions, prices w i l l never come down. So
           regulation W t o a large extent nullifies one of the administration's published p u r -
           poses, i. e., adequate supply and continuing broad demand, w i t h o u t w h i c h there
           can be no f u l l e m p l o y m e n t or prosperity.
                The c o n t r i b u t i o n of installment selling t o the economy has been always mass
           consumption, m a k i n g possible mass production. L e t mass consumption buckle
           a n d depression t h r o u g h loss of mass p r o d u c t i o n w i l l follow. T h e effect of credit
              urchasing o n prices i n the past has always been t o decrease them, as is historically
              nown. B u t the Federal Reserve Governors now w o u l d have y o u believe t h a t
           t h e need f o r regulation W lies i n a n a t t e m p t t o cut consumption i n order t o reduce
           prices. « T h i s w o u l d be t r u e i n war, when p r o d u c t i o n was artifically prohibited,
           n o t t o d a y w h e n the pipe lines f o r practically every p r o d u c t have finally been
           refilled t o overflowing.
                The Reserve Governors k n o w t h a t Government economists now predict 6%
           m i l l i o n unemployed w i t h i n 6 months or so. W h y ? Obviously f o r lack of ade-
           quate demand—while regulation W w o u l d continue t o stem demand.
                So long as regulation W requires h i g h d o w n payments a n d fast m a t u r i t y of
           accounts for durable products, soft goods a n d other unregulated markets w i l l suffer
           because consumers, h a v i n g done w i t h o u t durables t h r o u g h t h e war, w i l l s t r a i n




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           financially t o procure these " r e g u l a t e d " things despite t h e Government's inferred
           p r o h i b i t i o n , while other markets i n oversupply already go begging f o r business
           a n d l a y off men. Regulation W is one of the direct causes for the present slow-
           d o w n of these " u n r e g u l a t e d " industries.
            (c) Regulation W commits injustice
                 Regulation W can be described f r o m beginning t o end w i t h one w o r d , " d i s -
           c r i m i n a t i o n , " a n d i t attacks rights w h i c h are f u n d a m e n t a l l y our inalienable
           possession.
                 (1) Obviously i t strikes a t the w o r k i n g families of t h e c o u n t r y a n d others n o t
           w e l l off financially, b u t equally Americans w i t h a l l t h e rest.
                 (2) I t strikes at labor, saying to the w o r k i n g m a n t h a t he m a y n o t have direct
           open competitive access t o markets, where t h e y sell products he makes w i t h his
           o w n hands.
            . ,(3) I t discriminates against new families whose struggle t o f u r n i s h a home a n d
           w a y of life requires reasonably liberal t r e a t m e n t a t t h e hands of Government a n d
           enterprise. I t is the things these couples need most t h a t are singled o u t as t h e
           t a r g e t s of this regulation.
                 (4) I t spells discrimination between t h e poor a n d w e a l t h y , saying t o t h e r i c h ;
           " Y o u w i t h cash m a y have as many a n d as m u c h as y o u w a n t , whenever y o u w a n t " ,
           t o t h e poor, " Y o u m a y b u y only w h a t we p e r m i t a n d have i t o n l y w h e n we s a y . "
                 (5) I t discriminates against the veterans w h o have h a d no o p p o r t u n i t y t o
           accumulate cash d u r i n g the war, w h o r e t u r n home, i n v i t e d b y t h e G o v e r n m e n t
           t o acquire low-cost housing w i t h special p r i o r i t y , special loans a n d privileges.
           Y e t when they come to-furnishing these homes, regulation W stands i n t h e w a y
           w i t h p r o h i b i t i v e demands for cash i n advance a n d payments m a n y thousands
           cannot meet.
                (6) I t 'discriminates between Americans w h o h a b i t u a l l y choose t o use t h e
           "charge account" method of buying, charge accounts being unregulated, a n d the
           other f a m i l y which habitually chooses t o b u y o n instalments, the i n s t a l m e n t ac-
           count being drastically regulated.
                (7) I t discriminates between the stores w h i c h h a b i t u a l l y offer charge account
           service a n d those w h i c h h a b i t u a l l y serve others, offering t h e i n s t a l m e n t m e t h o d —
           a n d relating t o the same American products as far as b o t h types of stores are
           concerned. Is this fair competitively? I s i t a f a i r business principle?
                (8) Regulation W discriminates between those w h o w o u l d purchase f r o m
           retailers w i t h arrangements to pay later a n d others w h o w o u l d prefer t o b o r r o w a n d
           purchase w i t h t h a t cash; for the borrower is subject o n l y t o a few questions under
           t h e regulation while the purchaser o n credit is fixed, h a r d , a n d fast i n t h e meshes
           of d o w n payment a n d terms on balance.
                (9) I t discriminates among the products of A m e r i c a n i n d u s t r y , i n v i t i n g t h e p u b -
           lic t o patronize some a n d not p e r m i t t i n g free m a r k e t access t o others. I n c i d e n t a l l y
           the products discriminated against are those w h i c h t h e Reserve System's ace
           economist, D r . E . A t Goldenweiser, says m u s t be made a n d consumed i n t h e p e r i o d
           ahead i n u n i t q u a n t i t y 150 percent of the prewar peaks per year or we face u n -
           employment and depression such as we struggled w i t h i n t h e t h i r t i e s .
            (d) It tampers with inalienable rights of free people
                (1) I t discriminates among Americans w i t h respect t o t h e r i g h t t o m a k e con-
           tracts, a r i g h t w h i c h the Supreme C o u r t of t h e U n i t e d States has several times
           held t a n t a m o u n t t o constitutional g u a r a n t y ; t h e r i g h t t o c o n t r a c t f o r t h e o r d i n a r y
           things of life, which we English-speaking people wrestled f r o m t h e B r i t i s h C r o w n
           centuries ago, not l i g h t l y t o be given u p a t t h e w h i m of economic planning.
                (2) I t denies the r i g h t of a m a n t o choose his w a y of l i v i n g . U n r e g u l a t e d is
           t h e f a m i l y t h a t finds most of its desires i n soft goods, t r a v e l , shirts a n d clothes,
           jewelry, a n d luxuries. Regulated is t h e f a m i l y w h i c h desires beds, f u r n i t u r e ,
           b a b y carriages, and other things j u s t as necessitious. W h a t a ridiculous w a y t o
           d i v i d e t h e American people.,
           (e) An impossible type of regulation
          . (1) Cannot fit needs of whole Nation.—Business                        conditions are never t h e same
          i n a l l m a r k e t i n g areas of the N a t i o n . A l l t o p analysts recognize this.      Regulation
          W could n o t apply properly, for the economic effect desired i n a n y one section,
          w i t h o u t disastrously affecting business a n d consumers i n another. Stiffened t o
          h a l t i n N e w Y o r k , the regulation w o u l d u n a v o i d a b l y cripple business already l o w
          i n some other section.
              T h e use of credit is personalized t o t h e i m m e d i a t e need of i n d i v i d u a l s . Ameri-
          cans m u s t n o t be made pawns of economic experimenters. T h e Federal G o v e r n -




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          m e n t m u s t n o t reach o u t w i t h over-all control and interfere w i t h the millions of
          Americans s t r i v i n g i n d i v i d u a l l y t o achieve their personal l i v i n g goals, a r i g h t so
          constantly guaranteed t h e m b y our Government and the p o l i t i c a l parties.
               I n the period of the O P A a n d the W P B we lived t h r o u g h a t t e m p t e d over-all
          Federal controls over business margins. The Government f o u n d this position
          untenable a n d ended t h e method. Costs of doing business i n various communities
          v a r i e d a n d t h e costs i n different stores of the same c o m m u n i t y likewise. So i t is
          w i t h t h e needs of families for credit service. M e n are not averages.
               (2) Who is Government's best guessert—Nor                          can the Government correctly
          predict f u t u r e conditions. L a s t August the Reserve Governors i n their annual
          r e p o r t i n t i m a t e d t h a t t h e y could do so.
               A t least a half-dozen times i n the last 5 years Government has reversed its
          p r e d i c t i o n of the reconversion period. The departments, a n d the Federal Reserve
          q u o t e d t h e m often, predicted 6 t o 8 millions unemployed where history showed
          2 m i l l i o n . So i t has been over a n d over.
               W o u l d i t be wise for t h e A m e r i c a n people t o p u t control of f a m i l y spending i n t o
          t h e hands of Washington guessers?
               A recent s t u d y showed a cross section of economists to be r i g h t only 47 percent
          i n t h e i r aggregate predictions over a period of recent years. T h i s was publicized
          under t h e caption, " B e t t e r we h a d followed the flip of a coin." The men i n v o l v e d
          here were no less i n stature t h a n the Federal Reserve officials.
               D r . C a r l E . P a r r y , chief of t h e Reserve Board's division i n charge of regulation
          W , once said t h a t i n 1926 a n d thereabouts the Federal Reserve B o a r d foresaw
          t h e depression of the thirties. H e claimed t h a t they would have done something
          i f t h e y h a d h a d the power.
               T h e f a c t is t h a t d u r i n g this period Americans were encouraged t o p u t billions
          of dollars i n foreign securities sold t h e m by member banks of the Reserve System
          w i t h o u t w a r n i n g of oncoming default. I f they saw " i t " coming, the people should
          have been w a r n e d — t h e banks could have been advised t o stop m a r k e t i n g these
          securities.
               R i g h t t o d a y t h e G o v e r n m e n t t h r o u g h one department is p o i n t i n g t o oncoming
          recession w h i l e t h e Federal Reserve Board asks for continued controls over the
          consumer purchasing t o a v i o d oncoming inflation.
               B o t h cannot be correct. Y e t always there w i l l be such divergence a m o n g
          officials a n d economists. C a n any group of appointed men regularly outguess
          t h e combined j u g m e n t of a l l t h e American people? W h a t happens i n the A m e r i -
          can m a r k e t place reflects t h i s combined jugment. N o i l l u s t r a t i o n i n economic
          h i s t o r y shows officials doing so.
               I f a p r e d i c t i o n a t Washington, b y those w i t h power t o regulate, is incorrect,
          t h e result m a y be greatly intensified gyrations of the so-ealled business cycle, a n d
          a c t u a l h a r m t o business a n d t h e public. Regulation W cannot increase consump-
          t i o n a t w i l l . Of course i t could k i l l business a n d stop consumption. I t can never
          induce consumers t o b u y w h e n t h e y are n o t ready t o do so. Presidents H o o v e r
          a n d Roosevelt f o u n d t h i s t r u e when, over t h e radio and i n every w a y possible,
          t h e y begged a n d cajoled, i n t h e early thirties, b u t the consumers d i d n o t b u y
          u n t i l i n t h e i r combined j u d g m e n t business conditions seemed t o favor them.
               F o r t h i s reason regulation W over periods of t i m e can have b u t one effect, i. e.,
          t o t a l n e t r e d u c t i o n i n production, distribution, consumption, a n d e m p l o y m e n t ;
          hence lower average over-all prosperity, lower standards of l i v i n g .
                (3) Consumer credit not inflationary.—Whatever                       inflationary effects there are
          i n t h e accelerated b u y i n g power of consumers when t h e y use credit, is offset i n t h e
           ensuing m o n t h s as buyers p a y off their accounts, b y ari equal deflationary effect.
           E v e n i n t h e " t i p o f f " years of 1929 and 1930, as the depression h i t this c o u n t r y ,
           i n s t a l l m e n t accounts created i n 1929 were 85 percent paid off w i t h i n the next 7
           m o n t h s , w h i c h illustrates t h i s compensatory equalizing factor. I n s t a l l m e n t sales
           i n 1929 w o u l d n o t have h a d a n y effect on t h a t depression a n d deflation a year
           later f o r t h e y were p a i d off b y t h a t t i m e and t o the contrary every m o n t h l y p a y -
           m e n t made o n 1929's i n s t a l l m e n t accounts t h r o u g h 1930 added money, r e v o l v i n g
           cash, t o t h e income streams of the country.
                (4) Better conserve war bonds—Buy from earnings.—To continue regulation W is
           t o encourage consumers t o cash war bonds. T o the extent t h a t t h e y are able,
           t h e people w i l l purchase durable products so long denied t h e m t h r o u g h t h e w a r .
           T h e y w i l l do so o u t of income, i f allowed. I f not, they w i l l do i t o u t of savings.
           Business sincerely wants t o encourage retention of savings whether i n b o n d s ' o r
           accounts.
                There is great n a t i o n a l benefit i n paying for durables o u t of income, r e t a i n i n g
           savings as a security backlog against turns of the business cycle a n d other emer-
           gencies. ( I n c i d e n t a l l y / a l l business, railroads, factories practice this great t r u t h .




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           T h e y b u y " e q u i p m e n t / ' machines, cars, etc., almost always out of i n c o m e — n o t
           long-term capital or savings.) Conserving savings w i l l a r m t h e consumer against
           the psychological ills and fears of depression, lay-off, a n d sickness. T h i s f a r more
           t h a n outweighs any supposed i l l effect of freedom i n using personal credit.
                (5) And who has these savingss—Those w h o so l i g h t l y suggest t h a t our durable
           products should be purchased out of savings should also remember t h e figures of
           the Department of Agriculture, gathered f o r t h e Federal Reserve System a f e w
           months ago. The figures are available t o t h i s committee. F u n d a m e n t a l l y t h e y
           show t h a t huge segments of the public do n o t have w a r t i m e savings; t h a t 40 per-
           cent of the people have less t h a n $40 each, t h a t 60 percent of t h e N a t i o n ' s i n -
           d i v i d u a l savings is held by the t o p 10 percent economically. T h u s such advocates
           really say, " L e t the r i c h m a n b u y all t h a t he wants, let t h e pbor m a n go w i t h o u t ,
           severly regulated b y the Federal Government i n his purchases."
                (6) Nullifies national policy of open competition.—There            are merchants w h o w a n t
           regulation W . Obviously, acting as a collecting agent f o r a retailer, t h e Reserve
           System can make i t possible for any one retailer t o do more business w i t h less
           capital, just as a retailer w i t h a cash business can do more volume w i t h less c a p i t a l ,
           even while k i l l i n g off business nationally a n d damaging t h e whole economy.
               Regulation W is anticompetitive. I t strikes a solar-plexus b l o w a t a s t a n d a r d
           policy of the Government, open, free competition, usually held t o be t h e secret
           to.prosperity, high standards of living, a n d e q u a l i t y i n t h e m a r k e t place.
               Regulation W stands for inequality i n t h e m a r k e t place. I t stamps out c o m -
           petition, divides the American people i n t o classes, t h e " h a v e s " a n d t h e " m a y n o t
           haves."
               Businessmen w i l l i n g t o compete a n d serve i n accordance w i t h t h e i n d i v i d u a l
           needs of customers and not b y averages, w a n t none of t h i s t a m p e r i n g w i t h t h e
           consumers' purchasing power, the average man's use of t h e credit t h a t is his; j u s t
           as t h e y w a n t no Government regulation over the w a y a citizen m a y use his sav-
           ings, his cash or income, as he reaches for his s t a n d a r d of l i v i n g .

           IV. IT   IS   142,000,000 A M E R I C A N   CITIZENS   WHO    ARE     REGULATED         NOT     BUSINESS

                Regulation W is erroneously defined as a regulation of business. T h i s is be-
           cause the Reserve System n a t u r a l l y fears t o emphasize its a t t e m p t t o regulate m i l -
           lions of i n d i v i d u a l Americans.
                Credit is not granted. I f i t were, y o u could regulate t h e grantors, a n d inci-
           dentally h u r t those t o w h o m credit is granted. M e r e l y t h e recipients of some-
           t h i n g f o r nothing, t h e y could not k i c k strenuously. There w o u l d be few p o l i t i c a l
           implications i n such regulation.
                One hundred and f o r t y - t w o m i l l i o n A m e r i c a n consumers, however, a l l citizens of
           the U n i t e d States, bear the b r u n t of regulation W directly.
                T h e credit used for consumer purchasing belongs to'Chem, t h e consumers, n o t to
           business. Curb i t and y o u curb consumers, n o t business. One d a y t h e people
           w i l l rise u p and t h r o w off such a regulation if t h e G o v e r n m e n t does n o t do so
           v o l u n t a r i l y . They d i d i t when p r o h i b i t i o n was foisted u p o n t h e m . E v e n those
           opposed t o t h e liquor business rose u p a n d k i l l e d a c o n s t i t u t i o n a l amendment.
                T h e r i g h t t o contract belongs t o a free people. T h e y w i l l n o t have i t curbed as
           t h e y use i t for the everyday necessities of life a n d t o a t t a i n t h e i r desired s t a n d a r d
           of l i v i n g .
                W h e n a f a m i l y buys a refrigerator t h a t lasts f o r 15 years a n d pays f o r i t i n 2
           years, only t h e silliest of economists w o u l d argue t h a t he asks f o r credit. H e pays
           seven times as fast as his satisfaction is delivered t o h i m — advances, i n fact, 13
           years of his own credit t o the makers.
               I n fact, t h e refrigerator was produced b y i n d u s t r y o n credit. S h o r t - t e r m b a n k
          loans a n d long-term bond issues help t o p r o v i d e t h e cost of labor a n d materials
          t h a t go i n t o i t . Once a refrigerator is finished, t h e A m e r i c a n consumer b u y s i t
          w i t h his o w n credit, substitutes his credit f o r i n d u s t r i a l credit already used.
               I n t h e aggregate the credit of millions of A m e r i c a n consumers is t h e bedrock
          f o u n d a t i o n of production and distribution.
               L e t no one confuse the issue b y t a l k i n g of retailers g r a n t i n g credit t o consumers,
          or of regulation W being a regulation u p o n retailers. N e i t h e r retailers nor m a n u -
          facturers possess the credit necessary t o finance t h e A m e r i c a n consumer.                        Only
          he has this m u c h credit, and he has never given his G o v e r n m e n t a m a n d a t e t o
          regulate or curtail i t .
               W is a positive direct regulation, t o some degree a p r o h i b i t i o n of t h e A m e r i c a n
          f a m i l y ' s use of its own possession—its credit.
               People acquiesce t o curbs and regulations t o w i n a war, b u t do n o t give u p t h e i r
          rights permanently i n this acquiescence.




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               T h e Congress, r e p r e s e n t i n g t h e people m o r e d i r e c t l y t h a n a n y b r a n c h of t h e
            •executive d e p a r t m e n t , s h o u l d o b l i t e r a t e r e g u l a t i o n W i m m e d i a t e l y .

                             V . T E R R I F I C A N D U N N E C E S S A R Y E X P E N S E OF      CONTINUANCE

                 T o c o n t i n u e c o n t r o l i n t i m e of peace w i l l i n v o l v e a v e r y h e a v y financial b u r d e n
            f o r t h e e m p l o y m e n t of a d m i n i s t r a t i v e a n d enforcement personnel.
                 Officers of t h e several F e d e r a l Reserve banks have c o m p l a i n e d a l r e a d y of t h e
            h i g h cost o f c a r r y i n g o u t r e g u l a t i o n W , c o n t i n u e d arid c o n t i n u o u s expense of
            ^examining t h e e n t i r e b o o k k e e p i n g set-up of r e t a i l stores a n d others i n v o l v e d .
                 B u t t h u s f a r business has c o m p i l e d w i t h t h e r e g u l a t i o n f o r p a t r o t i c w a r reasons.
            L i k e w i s e t h e p u b l i c has n o t d e m a n d e d evasion o n a heavy scale, p a r t l y f o r p a t r i o t i c
            Teasons a n d p a r t l y because m o s t of t h e people have h a d f a i r l y good income.
                 T h e e x p e n d i t u r e of t h i s q u a s i - p u b l i c m o n e y has n o excuse a t a t i m e w h e n t h e
            • G o v e r n m e n t is a t t e m p t i n g t o e l i m i n a t e financial burdens.
                 T w o v e r y u n f a i r practices are developing o u t of t h e enforcement of r e g u l a t i o n
             W : (1) T h e i n c o n v e n i e n t a n d unnecessary p r o b i n g i n t o t h e p r i v a t e accounts
            o f r e t a i l stores b y G o v e r n m e n t ; (2) a v e r y noticeable f a i l u r e of t h e Reserve
            S y s t e m t o check a n y m o r e t h a n a "cross section" of the stores. M a n y retailers
             h a v e n e v e r seen a F e d e r a l Reserve investigator. M a n y others h a v e been i n v e s t i -
             g a t e d a t least dozens of t i m e s , even t h o u g h o n n o occasion have t h e y been f o u n d
            v i o l a t i n g W w h i c h means t h e i r names m u s t appear on a p e r m a n e n t l i s t of those
             t o be i n v e s t i g a t e d , w h i l e t h e names of others a p p a r e n t l y appear o n n o l i s t a t a l l .
                 I f r e g u l a t i o n W continues a n d i t is enforced, r e t a i l i n g w i l l insist u p o n complete
             e n f o r c e m e n t w h i c h w o u l d m e a n m a n y t i m e s t h e financial e x p e n d i t u r e t h u s f a r
            m a d e . I n t i m e of peace n e i t h e r t h e p u b l i c n o r business w i l l have a n y r e a l interest
            i n c o o p e r a t i o n a n y m o r e t h a n t h e y d i d i n the days of p r o h i b i t i o n . A n u n p o p u l a r
            r e g u l a t i o n becomes a n impossible m a t t e r of enforcement.
                T h e CHAIRMAN. W e w i l l be very glad to have y o u proceed i n any
            w a y y o u see fit.
                M r . MCMAHAN. I n s u b m i t t i n g t h a t , M r . Chairman, I w o u l d like
            first t o ask y o u r permission to read seven or eight short points t h a t
            I believe y o u w o u l d enjoy hearing, first-hand, and I am progressing
            w i t h o u t the preliminaries t h a t bring us to the point, t o say t h a t the
            regulation, i n the opinion of the committee, is discrimination f r o m
             start to finish.
                One reason is t h a t obviously i t strikes at the working families o i the
            c o u n t r y and others n o t well off financially, b u t equally Americans.
                Second, i t strikes at labor, saying to the working m a n t h a t he
            m a y n o t have direct open competitive access to markets where they
            sell the v e r y products t h a t he may be making.
                N e x t , i t discriminates against new families whose struggle t o furnish
            & home and the w a y of nfe requires a reasonably liberal treatment
            a t the hands of b o t h government and enterprise. I t is the t h i n g
             these couples need most t h a t are singled out as the targets of this
            regulation.
                N e x t , i t spells discrimination between the poor and the wealthy,
            saying t o the rich, " Y o u w i t h cash may have as many and as m u c h
             as y o u want,® whenever y o u want i t " ; and to the poor, " Y o u m a y b u y
             only w h a t we p e r m i t , and have i t only when we say."
                 N e x t , i t discriminates against the veterans, who have h a d no
            o p p o r t u n i t y to accumulate cash during the war, who returned home,
            i n v i t e d b y the Government to accept low-cost housing, and special
            priorities, special loans, and privileges, yet, when they come to furnish-
            i n g these homes, regulation W stands i n the way, w i t h prohibitive
            demands for cash i n advance, and payments which m a n y thousands
             cannot afford.
                 N e x t , i t discriminates between Americans who h a b i t u a l l y choose
            t o use the charge-account method of buying, charge accounts being




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           unregulated, and the other families, w h i c h h a b i t u a l l y choose t o b u y
           on installments. The installment accounts being t r a d i t i o n a l l y
           regulated against.
               N e x t , i t discriminates between the store w h i c h h a b i t u a l l y offers
           charge-account service and those w h i c h h a b i t u a l l y serve others,
           offering the installment method, and relating to the same American
           products, as far as both types of stores are concerned. I s this com-
           petitively fair? I s i t a fair business principle?
               N e x t , i t discriminates among the products of American i n d u s t r y ,
           i n v i t i n g the public to patronize some and n o t p e r m i t t i n g free m a r k e t
           access to others. -
               Incidentally, the products discriminated against are those w h i c h
           the Reserve System's ace economist, D r . E . A . Goldenweiser, says
           must be made and consumed i n the period ahead i n u n i t quantities
           150 percent of the prewar peaks per year, or there w i l l be unemploy-
           ment and depression such as we struggled w i t h i n 1930.
               As I said before, i t would be a pleasure t o t e l l y o u of m a n y other
           things t h a t have come to m y notice d u r i n g the 27 years t h a t I have
           developed, w i t h m y family, a group of 44 r e t a i l f u r n i t u r e stores operat-
           i n g i n California, i n neither of the large cities of Los Angeles o r San
           Francisco, but, rather, i n those smaller towns where we feel t h a t we
           are i n touch directly w i t h the consuming public at a level where i t is
           to our advantage to know t h a t our opinion should be one founded
           upon experience. A n d I give y o u m y w o r d i t is m y firm conviction
           t h a t the time is well spent, t h a t regulation m u s t be w r i t t e n off the
           books.
               Again, w i t h your permission, I w i l l file w i t h y o u r clerk the brief, as
           submitted b y the Retail Credit I n s t i t u t e of America.
               T h e CHAIRMAN. T h a t may be done.
               M r . MCMAHAN. T h a n k y o u very m u c h for the o p p o r t u n i t y , and
           I k n o w I express the sentiments of the committee and of the R e t a i l
           Credit I n s t i t u t e of America when I say sincerely t h a t i t is a privilege
           to present the case as we see i t to you.
               T h e CHAIRMAN. We are very glad to have h a d y o u w i t h us.
               Are there any questions of M r . M c M a h a n ?
                (No response.)
               T h e CHAIRMAN. T h a n k y o u M r . M c M a h a n . I f y o u have a n y
           supplemental information which y o u t h i n k w o u l d be helpful, we w i l l
           be glad to have y o u submit i t .
               M r . MCMAHAN. T h a n k y o u v e r y much.
               M r . MONRONEY. Could I ask y o u a question before y o u leave?
             M r . MCMAHAN.         Yes, sir.
                M r . MONRONEY. I n the case of a veteran purchasing a house under
          t i t l e V I , those, i n many States, can be supplied w i t h the electric
          refrigerator and gas range; can they not?
                M r . MCMAHAN. T h a t is true.
                M r . MONRONEY. I f they are supplied w i t h the house and go u n d e r
          the title V I mortgage, the length of t i m e o n w h i c h those t w o ap-
          pliances are financed would be for 20 or 25 years, w o u l d i t not?
                M r . MCMAHAN. T h a t is right.
                M r . MONRONEY. B u t if the builder of the house chose n o t t o i n s t a l l
          the refrigerator and gas range i n the new house, and the veteran h a d
          to go into a furniture store to b u y them, then, he w o u l d be required
          to pay a t h i r d down on the two appliances, and then p a y t h e m u p
          w i t h i n 15 months; is t h a t right?




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              M r . MCMAHAN. T h a t is quite right.
               M r . MONRONEY. A n d y o u have b o t h situations, do you, i n Califor-
          nia, as we do i n m a n y other States?
               M r . MCMAHAN. Yes, we do; and sometimes, as,merchants, we
          feel t h a t we are u n d u l y discriminated against i n t h a t regard.
               M r . MONRONEY. Has t h a t practice, because of the advancing con-
          s t r u c t i o n costs and the retail price of the home gone up so much, has
          t h a t practice tended, i n order to shave the selling price down and
          make i t look lower, have builders ofttimes declined of late to install
          the range and the refrigerator i n that home?
               M r . MCMAHAN. T h a t is right.
               M r . MONRONEY. T h e y are being priced now w i t h o u t those two
          appliances?
               M r . MCMAHAN. T h a t is very definitely true.
               M r . M O N B O N E Y . SO i t violates an old practice where the home
          buyer used to get those t w o appliances w i t h these home purchases,
          ana n o w he is compelled to pay high down payments and short terms
          f o r those t w o items?
               M r . M C M A H A N . Y O U have expressed the absolute practical view-
          p o i n t . I n practice, t h a t is the way i t is currently working out, i n
          m a n y cases.
              M r . MONRONEY. T h a n k y o u very much for a very clear statement.
               T h e CHAIRMAN. T h a n k you, M r . M c M a h a n .
               W e w i l l hear next f r o m M r . Bone, M r . M y r o n R . Bone, vice presi-
          dent of the American I n d u s t r i a l Bankers Association; is t h a t correct?
              M r . BONE. Yes, sir.
              T h e CHAfmMAN. Y o u m a y further identify yourself.

           STATEMENT OF MYRON R. BONE, VICE PRESIDENT OF AMERICAN
             INDUSTRIAL BANKERS ASSOCIATION, FORT WAYNE, IND.
                M r . BONE. M r . Chairman, m y name is M y r o n R . Bone. I am vice
           president of American I n d u s t r i a l Bankers Association, which main-
           tains its national headquarters at F o r t Wayne, I n d .
                I have made t h a t c i t y m y home for the last 25 yeras. I am appear-
           i n g before y o u o n b e h a l f of our members and their millions of customers
           i n support of legislation t o restore to the American people their r i g h t
           t o free use of their credit. They gave up that right, t e m p o r a l l y ,
           almost 6 years ago, when a fatherly Federal fast, weakly based on
           F i r s t W o r l d W a r powers of the Chief Executive, decreed the sacrifice
           necessary to national defense.
                T h e need for regulation W , if one ever existed—which is very doubt-
           ful—has song since ceased to exist. I t was devised to "dampen the
           d e m a n d " for consumer durable goods, b u t their manufacture was
           stopped soon after we entered the war. Regulation W m i g h t well have
           been canceled 5 years ago. I t has lingered on under various pretexts,
           founded on f a u l t y theories of economic planners. T h e y would fasten,
           permanently, on America their ideologies of state socialism. Their
           M a r x i a n doctrines have no r i g h t f u l place i n a free America.
                T h e case against regulation W is clear cut. I t is class regulation of
           the worst type. I t gives to the man of financial means p r i o r i t y of
           r i g h t s to b u y whatever he wants and whenever he is w i l l i n g to pay the
           price. I t denies to the individual of limited resources his inherent
           r i g h t to use his credit on the best terms he can secure for the purpose




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           of b u y i n g necessities. D u r i n g the war, food was rationed o n a per
           capita basis. T h a t was fair. N o w , i n times of peace, the Federal
           Reserve Board still prescribes, arbitrarily, the terms on which American
           citizens may purchase the necessities of life. I t s rules, w h i c h give
           priorities to the rich, are undemocratic and un-American.
               M r . Chairman, I have fought for years against the provisions of
           regulation W , which provides purchasing priorities for people who have
           plenty. I am grateful for this o p p o r t u n i t y to l a y the facts before
           y o u r committee.
               W h e n the first d r a f t of the regulation was submitted b y the Federal
           Reserve Board to a selected group of us i n A u g u s t 1941, we accepted
           its terms as a necessary contribution to the cause of national defense.
           Members of the association I am privileged to represent endorsed the
           sound provisions of regulation W regarding d o w n payments, length
           of contract, maturities, and u n i f o r m payments. T h e y are such as
           we have found b y years of experience to be i n the best interest of
           consumer installment buyers; borrowers who make repayment i n
           systematic installments and consumer bankers themselves.
              Experience has taught us, however, t h a t character is the basis of
           sound credit and so, many exceptions can be made, safely, t o usual
           rules of practice. This leeway of business j u d g m e n t is denied b y
           regulation W . Furthermore, economic conditions v a r y w i t h the
           seasons and at any one time i n different sections of our country.
           T h e y v a r y w i t h individuals i n the same c o m m u n i t y . I t borders on
           the ludicrous to t h i n k of specifying h a r d and fast rules for the exten-
           sion of personal credit.
               Inferentially, we were promised t h a t the regulation w o u l d be w i t h -
           drawn at the end of the 1 war. T h a t promise has been defaulted.
           Instead, we are threatened w i t h a law m a k i n g permanent consumer
           credit control b y the Federal Government. Such a law w o u l d prove
           to be bureaucratic rule at high tide. I t w o u l d be unadulterated
           Stalinism.
              Soon after the end of the Japanese war, the Secretary of the B o a r d
           of Governors of the Federal Reserve System was credited w i t h t h e
           statement t h a t —
           " t h e p r i n c i p a l economic problems of t h e N a t i o n d u r i n g t h e i m m e d i a t e period
           ahead . . . are t o expand production of c i v i l i a n goods as m u c h as possible a n d t o
           m a i n t a i n price s t a b i l i t y .
             A t t h a t time I was prompted to ask t w o questions: W h y n o t free
          consumer credit so t h a t all m a y enjoy the benefits of peacetime pro-
          duction? W h y l i m i t durable goods to those who have ready cash,
          and deny them to individuals who prefer to h o l d their war bonds or
          other savings and use their credit instead?
             M&3S consumption is a v i t a l corollary to mass production and con-
          sumer credit is essential to mass consumption. H i g h levels of produc-
          tion'and consumption of durable goods have only been possible i n the
          past through the upbuilding of very large outstandings of consumer
          credit. W e may be able so do otherwise i n the future, b u t the burden
          of proof of that ability rests upon those who seek to promote peace-
          time prosperity b y restricting the rights of individuals to use their
          credit. They would substitute their u n t r i e d theories for time-tested
          realities and would do so at the expense of personal rights.
             Consumer financing is only a means to a t t a i n a desired end. W h e n
          the consumer buys durable goods, he buys a " s t o r e d - u p volume of




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           264                             G O V E R N M E N T CREDIT

          satisfaction w h i c h he can use only over a period of t i m e . " I n a t r u e
          economic sense, the purchaser of an automobile is b u y i n g transporta-
          t i o n rather t h a n a physical object. W h e n he takes advantage of a
          consumer credit plan, he is paying for t h a t transportation as he uses i t .
               I f no one ever bought a house, an automobile, a business enterprise,
          or a n y t h i n g else of value u n t i l able to pay the f u l l amount i n cash,,
          our economic structure w o u l d collapse. B o t h consumer credit and
          producer credit are essential to a sustained prosperity.
               W h i l e i t is a k n o w n fact t h a t the volume of consumer credit follows
          the business cycle, no sound evidence has ever been produced to indi-
          cate i t causes the cycle to rise and fall.
               There is n o t h i n g i n the Federal Reserve Board's own figures to*
          support the Board's contention t h a t consumer credit is, or ever has
          been, of sufficient volume t o exert even a minor influence on the t o t a l
          business picture or o n either inflation or depression.
               Consumer credit is l i k e l y to expand i n good times and to contract
          when t h e y are n o t so good, for the simple reason t h a t when the o u t -
          look is good, people w i l l obligate themselves more heavily, because
          t h e y are reasonably confident of being able to liquidate their debts.
          T h e y stay o u t of debt, as nearly as they can, when the outlook is n o t
          good for p r o m p t liquidation.
               Officials of the Federal Reserve Board have contended, repeatedly,
          t h a t practically all of the opposition to regulation W has come f r o m
          money lenders only. T h e y have asserted t h a t they have n o t h a d
          protests f r o m " consumer groups." They choose to ignore the steadily
          m o u n t i n g volume of objections f r o m war ^veterans, labor unions,
          chambers of commerce, Members of Congress, newspaper editors, and
          m a n y other citizens. A l l of them are consumers. I n fact, everyone
          is a consumer.
               I w o u l d l i k e t o cite one typical example f r o m a Pennsylvania labor
          leader. I do n o t k n o w h i m . H e was absolutely right, however, when
          he said o n M a r c h 21:
              Jobs a n d e m p l o y m e n t cannot continue at the present level unless regulation W
           is repealed * * * . I f durable goods are n o t taken out of t h e m a r k e t b y con-
           sumers, t h e workers w h o produce those goods w i l l lose t h e i r joos. T h e f a l l i n
           purchasing power w i l l t h e n react adversely on workers in t h e soft goods lines, as
           well, a n d we w i l l have a m o u n t i n g tide of unemployment.
                T h e B o a r d has elected t o "choose up sides" and points to an assort-
           m e n t of economic experts who support theories of planned economy.
           T h a t is rather weak proof for a very f r a i l case i n support of a socialistic
           experiment.
                One of the favorite arguments of the Federal Reserve B o a r d is t h a t
           "overextension of consumer credit has always ended i n serious eco-
           nomic t r o u b l e . " Such statements are made w i t h o u t supporting proof
           or even any evidence. According to the Board's published statistics
           o n consumer credit, the t o t a l was only $7,637,000,000 i n 1929. I t was
           d o w n to o n l y slightly more t h a n $4,000,000,000 when the depression
           came i n 1932. T h a t was n o t the cause of the depression; i t was one
           of i t s results. W h e n the American people became fearful of t h e i r
           f u t u r e income, they restricted their purchases, payable i n installments,,
           and reduced their borrowings. T h a t is normal.
                Gradually, d u r i n g the next decade, as business conditions slowly
           improved, consumers were more w i l l i n g to use their credit and,
           n a t u r a l l y , the volume of consumer credit increased. These, gentlemen.




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          are the facts derived f r o m Federal Reserve B o a r d figures, as contrasted
          to their current fanciful theories.
             T h e Board claims, also, t h a t "over-extension of consumer c r e d i t "
          has resulted i n " curtailed production and u n e m p l o y m e n t . " T h a t , also,
          is untrue and is best refuted b y the facts presented i n statistics
          compiled b y the Federal Reserve Board. W i t h the help of consumer
          credit i n the thirties, production was increased and unemployment
          decreased.
             Another pet theory of the Federal Reserve Board, unsupported
          b y facts, is that, w i t h o u t Federal restraint, " I t is l i k e l y t h a t sellers
          of durable goods w i l l seek to expand .their sales b y easing terms,
          instead of reducing prices." T h e fact is t h a t the selling price of
          merchandise i n a free market is determined b y its cost to the merchant
          and b y competition. Easing of terms m i g h t increase the physical
          volume of sales, b u t if so, t h a t increased volume w o u l d mean lower
          prices. The classic example is the automobile. American was p u t
          on wheels i n low-cost transportation, w i t h the help of consumer
          credit. I f the Federal Reserve B o a r d is sincerely interested i n
          reducing prices of durable goods and m a i n t a i n i n g their mass produc-
          tion, i t w i l l surrender, voluntarily, its control over consumer credit.
             M r . Chairman, we firmly believe t h a t character and capacity to
          pay should always be the determining factors i n extensions of personal
          credit; t h a t neither can be determined b y bureaucratic economists
          and t h a t rationing of credit on the basis of wealth is unsound, un-
          workable, and un-American/
             I thank you.
             T h e CHAIRMAN. T h a n k you, M r . Bone.
             Are there any questions of M r . Bone?
             M r . MCMILLEN. M r . Bone, who makes up y o u r membership?
          Y o u are known as the American I n d u s t r i a l Bankers Association. I t is
          made up of what k i n d of members?
             M r . BONE. I n those States w h i c h have industrial b a n k laws, there
          are industrial banks. I n some States, where they have industrial loan
          laws, they are known as industrial loan companies. Some States have
          neither. Our membership there constitutes institutions w h i c h operate
          on a comparable basis.
             Our membership is also made up of a substantial number of com-
          mercial banks operating consumer-credit departments. So to t h a t
          extent, i t is a h y b r i d organization. T h e y are all interested i n consumer
          banking; b u t they vary, due to State laws.
             M r . SMITH. M r . Bone, I just w a n t to say t h a t this is one of the
          finest statements t h a t I have ever heard presented to this committee.
              M r . BONE. T h a n k y o u , sir.
              M r . SMITH. I like your American spirit. Y o u believe i n i n d i -
           vidualism. Y o u do not believe i n bureaucracy. Y o u do n o t believe
           i n paternalism.
              M r . BONE. T h a t is right. T h a n k you.
               The CHAIRMAN. Thank you, M r . Bone.
               The committee is i n this position now: There has been a call o n
           the floor which we must answer. W e have one more witness sched-
           uled for this morning, M r . Underhill, who is here.
              M r . Underhill, we cannot proceed any f u r t h e r this m o r n i n g . Y o u
           are here i n the c i t y ; are y o u not?
              M r . UNDERHILL. Yes, sir.




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                T h e CHAIRMAN. I t is possible t h a t we may get back to this sub-
           j e c t on Thursday morning.
               M r . UNDERHILL. M r . Chairman, if I m a y interrupt, I w i l l be very
           glad to s u b m i t m y statement for the record, and if the members of
           the committee w i l l find time to read i t , I w i l l come back i n case there
           are any questions they w o u l d like to ask me.
               T h e CHAIRMAN. T h a t is splendid, M r . Underhill. Y o u r statement
           w i l l be inserted i n the record as though read, and if the members
           care to ask y o u any questions, we w i l l have you back.
              M r . UNDERHILL.       Thank     you.

           STATEMENT          OF GARY M. UNDERHILL, EXECUTIVE DIRECTOR,
                               CONSUMER BANKERS ASSOCIATION

                 T h e Consumer Bankers Association was, u n t i l last fall, k n o w n as
            the M o r r i s Plan Bankers Association. I t was organized i n 1919.
            I t s 73 members throughout the United States pioneered i n bank-
           consumer credit, the first i n s t i t u t i o n being organized for this specific
           purpose i n 1910.
                 T h e w r i t e r was, u n t i l he entered naval service i n 1944, an assistant
           vice president of the B a n k of Virginia at Richmond, where he first
           entered i n 1928. U p o n his release f r o m active d u t y i n the N a v y , he
            assumed his present position as executive director of the national
            association i n Washington.
                 T o conserve the time of this committee, we shall n o t argue the
           merits of "consumer credit," as such, as a contributing factor i n the
           American economy and the American standard of l i v i n g ; nor shall
           we quote voluminous statistics. We shall assume t h a t the issue is
           solely whether or n o t this type of credit should be regulated b y
           Federal Government authority.
                 I t is the official opinion of the members of this association t h a t
           regulation of consumer credit b y Federal authority is unnecessary,
           ineffective, un-American, unsocial, inconsistent, and impractical.
                 Certainly i n peacetime i t is an unnecessary regimentation of the
           personal affairs of the individual citizens of this country. F r o m the
           banker's p o i n t of view, i t is unnecessary because no banker i n his
           r i g h t m i n d is going t o p e r m i t unsound or unreasonable terms, either
           directly to the purchaser or i n discounting dealer paper, or even
           so indirectly as t h r o u g h the finance companies whose paper the larger
           banks purchase. I t is axiomatic t h a t the smaller the down payment
           o n consumer durable goods, for example, the faster the obligation
           m u s t be liquidated for the banker to maintain a proper equity ratio i n
           the underlying collateral which is subject to depreciation f r o m use
           and age. I t is a simple m a t t e r of arithmetic that the smaller the down
           p a y m e n t , and the shorter the m a t u r i t y , the larger m o n t h l y payments i t
           w i l l take out of the purchaser's income to pay off the obligation i n
           a given period of time. T h e banker does not need Federal or any other
           k i n d of regulation to take care of that. We submit t h a t there is no
           evidence to indicate t h a t such regulation is necessary f r o m the point
           of v i e w of either the banker or the citizens of this country as a whole.
                I n order to appreciate the second point, t h a t is, t h a t Federal
           regulation of consumer credit has been and w i l l continue to be in-
           effective as an economic policy, i t is necessary to point out t h a t the
           t e r m "consumer c r e d i t " has been loosely used. Actually, nonfarm,




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           267                           GOVERNMENT        CREDIT

           single-family residential mortgage credit is a long-term f o r m of
           consumer credit. Even i n speaking of consumer credit w i t h its
           ordinary short-term connotation, i t should be pointed o u t t h a t the
           t e r m cannot be used interchangeably w i t h " i n s t a l l m e n t c r e d i t " or
           "installment sales credit." Installment sales credit amounts t o less
           t h a n half of the t o t a l of "installment c r e d i t . " I n t u r n , installment
           credit amounts to less than half of t o t a l short-term "consumer c r e d i t . "
           The remaining, and larger, p o r t i o n of t o t a l short-term consumer
           credit is composed of single-payment loans—roughly one-fifth of the
           total, charge accounts—about one-fourth of the total, and service
           credit—a l i t t l e less than one-tenth of the total. I t is interesting t o
           note t h a t these last three forms of short-term consumer credit,
           comprising better than half the total, were completely released f r o m
           regulation W last December b y the administrative agency, the
           Federal Reserve Board of Governors. C o n t r o l of installment credit,
           somewhat less than half the total, is all t h a t remains.
               I n this connection i t is interesting to note t h a t noninstallment
           consumer credit, which was supposedly " r e g u l a t e d " d u r i n g the w a r ,
           rose f r o m its 1941 peak through the end of the war i n 1945; whereas
           installment credit during the same period of time decreased f r o m 5.9
           to 2.4 billion dollars. The explanation of this latter decrease can,
           therefore, largely be attributed to the lack of consumer durables t o
           purchase or finance during the war, rather t h a n to the effectiveness of
           regulation.
               I t is also worthy of note t h a t m a n y types of installment credit are
           exempt f r o m the regulation. Insured repair and modernization loans,
           which amount to some $354,000,000 are exempt. Loans for educa-
           tional purposes and for hospital, medical, and dental care, as well as
           loans for commercial or agricultural purposes and other m i n o r purposes,
           are likewise exempt. So are any installment transactions of less t h a n
           $50 or more than $2,000, regardless of purpose.
                The p o i n t is t h a t the remaining regulated p o r t i o n of installment
           credit, which i n itself represents less t h a n half of t o t a l short-term
           consumer credit, is an infinitesimal amount i n comparison w i t h the
           aggregate influence on the economy of mortgage loans and other forms
           of private debt, Government debt, currency outstanding, b a n k
           deposits, and i n relation to retail sales and t o t a l income payments t o
           individuals.
                W h a t disturbs the banking f r a t e r n i t y as m u c h as, if n o t more than,
           any other , aspect of Federal regulation of consumer credit is its u n -
           American connotations—the social and political implications of such
           a policy. A p r i m a r y tenet of communistic doctrine, as expressed i n
           Das K a p i t a l , b y K a r l M a r x , is t h a t of the necessity for the central
           government to have control of credit i n all its forms. I t w o u l d be
           an unhappy day for the American w a y of life were Congress officially
           to sanction the power of a Federal agency t o say on w h a t terms and
           conditions consumer credit may be extended t o i n d i v i d u a l A m e r i c a n
           citizens i n connection w i t h their personal financial affairs.
                The staff and membership of the Consumer Bankers Association
           cooperated wholeheartedly w i t h the Federal Reserve officials i n
           inaugurating regulation W as a p a r t of the national-defense program
           i n mid-1941. I n this connection we quote the following paragraph
           f r o m a letter dated A p r i l 2, 1947, received b y this association f r o m




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           268                               G O V E R N M E N T CREDIT

           R i c h a r d H . Stout, executive vice president of the B a n k of Louisville,
           who was the executive head of the association f r o m 1938 to 1945:
               A n y of those w h o sat i n on the first meetings of Federal Reserve, or who h a d
           occasion t o v i s i t w i t h Governor Ransom and other Federal Feserve officials, d u r i n g
           t h e first 2 or 3 years of regulation W, w i l l recall numerous occasions on w h i c h i t
           was stated t h a t Federal Reserve* was accepting the charge reluctantly and as a
           m a t t e r of d u t y ; t h a t i t w o u l d oe happy t o terminate its assumed responsibilities
           as soon as t h e emergency was declared at an end Dy the Executive. T o the best
           of m y knowledge, i t has been only during the past 2 years t h a t Federal Reserve
           ojfficials have begun t o t a l k i n terms suggesting a perpetual control machinery f o r
           consumer credit.
                T h e members of this association, who have been serving the credit
            requirements of men and women as individuals for 35 years and
            more, deplore the unsocial aspects of Federal regulation of consumer
            credit. T h e present regulation says, i n effect, t h a t individual desires
            for better things for better l i v i n g must be foregone or sacrificed to the
            over-all economy of the State.
               W e have the situation where if we are i n the income brackets high
            enough to make a purchase and command an installment credit of
           over $2,000—or if your credit is good enough to get a single-payment
           loan f r o m y o u r bank i n any required amount—you can b u y or repay
            on any terms y o u wish. B u t if you are going to b u y a F o r d instead
           of a Cadillac, for example, on the installment plan, y o u have to pay
            one-third d o w n and the balance i n 15 months.
               T h e regulation is not only inconsistent w i t h the American philosophy
           i t is inconsistent w i t h other Federal Government economic policies;
            and i t is even inconsistent w i t h i n itself,
               W e have the situation where the Treasury Department is desirous
           of doing everything i t can to persuade the American public to hold
           onto its war bonds rather t h a n cash them in. Y e t the restriction of
           consumer credit leaves m a n y people, particularly the masses, i n the
           position where they cannot meet the required credit terms available
           t o t h e m and they must either cash i n their war bonds or give up'their
           place i n line for the purchase of post-war durable goods to those others
           fortunate enough to have the cash to b u y outright or sufficient income
           t o meet the credit term.
               W e have the situation where one Government agency seeks to
           dampen, restrict, and control short-term credit, while another Gov-
           ernment agency has relaxed and lengthened and broadened the terms
           i n another and severalfold larger field of consumer credit, t h a t is,
           long-term home-mortgage loans. We have the situation where a
           veteran can b u y a home w i t h no down payment and take up to 25
           years to pay off the loan; b u t , if he wants to b u y a refrigerator and
           other essential appliances to make the house a home, he must pay
           o i e - t h i r d down and the balance i n 15 months—that is, i n every State
           exoeot N e w Jersey.
               W e have the situation where the veterans i n one State of the Union—
           N e w Jersey—can b u y furniture and appliances for their homes w i t h
           no d o w n p a y m e n t and up to 2 years to repay, b u t the veterans i n
           other States m u s t pay 20 percent down on furniture and one-third
           d o w n on appliances and repay i n 15 months.
               W e have the situation where you can go to a dealer and b u y certain
           " n o n l i s t e d " merchandise on any terms y o u wish, and the bank can,
           i n t u r n , b u y t h a t note or contract f r o m the dealer; b u t if y o u go
           directly to the bank to borrow the money to buy t h a t article or mer-
           chandise y o u m u s t repay the obligation i n n o t over 15 months.



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          269                                   GOVERNMENT               CREDIT

               W e have the situation where an ordinary b a n k loan evidenced b y a
          promissory note payable i n f u l l at m a t u r i t y is n o t an " i n s t a l l m e n t "
          loan subject to the regulation even though the b a n k m a y " a n t i c i p a t e "
           t h a t at m a t u r i t y of the note i t m a y accept p a r t i a l payment and a
          renewal note, provided the bank makes no c o m m i t m e n t to do so and
           the transaction is entered into i n good f a i t h and n o t as a means of
           evading the regulation. T h a t m a y n o t be exactly an inconsistency,
           b u t i t is close to i t .
               W e have the situation where if a loan is originally made i n good
          f a i t h on a single-payment basis, i t m a y subsequently be converted t o
           an installment basis on any terms whatsoever, completely outside the
          regulation. T h a t m a y n o t be a l i t e r a l inconsistency, either, b u t i t
          illustrates the extreme difficulty of t r y i n g to w o r k out rules and
          interpretations i n connection w i t h the regulation of consumer credit,
          where the requirements of thousands of i n d i v i d u a l customers must be
           taken into consideration.
               As one illustration as to the i m p r a c t i c a b i l i t y of regulation W , i n
          connection w i t h the rule mentioned immediately above, the w a r n i n g
          is made t h a t i n any case where investigation shows t h a t a registrant
          is converting an " u n d u e " number of credits to an installment basis
           after originating them on a noninstallment basis, the inference w o u l d
          be fairly plain t h a t ' t h e registrant was g u i l t y of "evasion" of the
          regulation. Now, who is going to judge w h a t constitutes an undue
          number of instances of this kind? W h o is to say when " t h e inference
          would be fairly p l a i n " t h a t the registrant was g u i l t y of evasion?
               There is no way i n the world to enforce such a regulation as far
          as the general public is concerned. I t is impractical b y its very nature.
          T o enforce i t , you would have to pass a law requiring every citizen
          21 years of age or over to keep a complete set of books and then hire
          n Gestapo to audit those books. Unless the banker " k n o w s or has
          reason to k n o w " something to the contrary, he can only accept the
          borrower's signed statement as to the purpose of the loan. I f the
          borrower says i t is for one purpose and uses i t for another, w h i c h is
          contrary to the regulation, what is the banker t o do about it?
               W h a t is to prevent the borrower using his p a y check to complete
          t h e down payment on an automobile and then coming i n t o the batik
          t o borrow the money to pay the rent, the grocery bill, t l e doctor, and
          t h e insurance premium? H o w are y o u going to p u t a stop t o t h a t
          w i t h o u t a Gestapo? People are doing i t every day. I t is the l i t t l e
          fellow who cannot meet the high m o n t h l y payments t h a t gets h u r t
          any way he turns.
               E v e n though i t were not unnecessary, ineffective, un-American,
          unsocial, inconsistent, and impractical, the continuation of Federal
          regulation of consumer credit w i l l do more to h a r m the N a t i o n , b y
          breaking down respect for and observance of Federal laws, rules,
          regulations, and interpretations t h a n any good t h a t could possibly come
          of i t .
               (The following statement was s u b m i t t e d b y the N a t i o n a l A u t o -
          mobile Dealers' Association:)
                     S T A T E M E N T OF N A T I O N A L A U T O M O B I L E D E A L E R S   ASSOCIATION

             This is an official statement f r o m the N a t i o n a l A u t o m o b i l e Dealers Association,
          1026 Seventeenth Street N W . , Washington, D . C., o n t h e dealer a t t i t u d e t o w a r d
          elimination of regulation W . N A D A has a membership of 28,264, or more t h a n
          70 percent of a l l the new-car dealers i n the c o u n t r y .




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          270                                       G O V E R N M E N T CREDIT

                Dealers are v i t a l l y interested i n the future of regulation W because new a n d
           used automobiles are included i n t h a t small group of commodities s t i l l coming
           under t h e provisions of t h e regulation. Regulation W controls the a m o u n t o f
           d o w n p a y m e n t a n d the l e n g t h of m o n t h l y terms on the sale of all new a n d used
           au tomobiles w i t h a n u n p a i d balance of $2,000 or less. The terms of the regulation,
           a t the present t i m e , require a one-third down payment a n d l i m i t the m o n t h l y
           payments t o 15 months. These regulations, i t should be noted, apply only t o t h e
           low- a n d m e d i u m - p r i c e d cars. The credit of the m a n least able t o pay is restricted.
           T h e large-car buyer is n o t regulated.
                N A D A has constantly watched the effect of regulation W as i t applies t o a u t o -
           mobile dealers. I n order t o determine the position of its members on the subject,
           N A D A recently addressed a questionnaire t o all members. Replies were received
           f r o m 12,307 dealers, or about 43 percent of the membership of the association.
                Dealer opinions were expressed i n those returns as follows:
                 F a v o r i n g o u t r i g h t e l i m i n a t i o n of regulation W                           6, 312
                 F a v o r i n g m o d i f i c a t i o n of regulation W                                         4, 453
                 F a v o r i n g continuance of regulation W a s i s                                             1, 542
               These results indicate a m a j o r i t y i n favor of elimination of the regulation.
           Those dealers w h o cast a vote i n favor of modification, together w i t h those i n
           f a v o r of elimination, t o t a l 10,765. This indicates a decided dissatisfaction w i t h
           the regulation i n its present f o r m .
               T h e "survey has been b r o k e n down b y States. The States, represented b y
           members of y o u r committee, are designated b y asterisks.

                                                              Member-         Total       In favor of I n favor of I n favor of
                                State                           ship        votes cast     elimina-     continu-    modifica-
                                                                                              tion        ance         tion

           •Alabama               .                                  455            182          100           35            47
            Arizona.                                                 127             63           25            8            30
           •Arkansas                                                 354            119           58           29            32
           •California         .                                   1,394            849          242           90           517
            Colorado                                                 301            152           74           27            51
           •Connecticut                                              395            179          100           13            66
            Delaware                                                  48             22           11            3             8
            District of Columbia                                      71             47           34            3            10
            Florida          ... _                                   373            169           88           22            59
           •Georgia                                      ._          453            182          102           30            50
            Idaho                                                    220            106           45           13            48
           •Illinois                                               1,529            683          397           64           222
            Indiana                                                  938            346          149           33           164
           •Iowa                                                   1,065            334          189           55            90
           •Kansas                                                   920            312          174           48            90
           •Kentucky                          „                      423            157           94           27            36
           •Louisiana                                                362            169           95           23            51
            Maine...                                                 227             87           46           13            28
            Maryland..                                               322            140           88           16            36
            Massachusetts                                            722            357          198           24           135
           •Michigan                                                 853            539          312           58           160
            Minnesota                                              1,186            334          186           55            93
            Mississippi                                              462            149           61           36            52
           •Missouri                                                 640            301          184           32            85
            Montana                                                  267            129           65           18            46
           •Nebraska                                                 347            130           79           27            24
            Nevada                                                    45             26           10            3            13
            New Hampshire                                            226            107           43           13            51
           •New Jersey                                               937            504          326           20           158
            New Mexico                                               135             67           22           15            30
           •New York                                               1,817            773          476           48           249
           •North Carolina                                           725            318          175           48            95
            North Dakota                                             284             79           41           19            19
           •Ohio                                                   1,783            767          426           83           258
           •Oklahoma                                                 539            240          119           33            88
             Oregon                                                  419            205           83           32            90
           •Pennsylvania                                           1,635            756          351           98           307
             Rhode Island                                            179             73           48            3            22
           •South Carolina                                           381.           131           85           18            28
             South Dakota                                            237             57           20           14            23
             Tennessee                                               346            139           69           28            42
           •Texas                                                  1,276            610          281          103           226
             Utah                                                    212             94           38           15            41
             Vermont                                                 128             57           28           11            18
             Virginia                                                587            271          128           26           117
             Washington..                                            541            288           95           30           163
             West Virginia                                           362            131           76           21            34
           •Wisconsin                                                527            241          129           29            83
             Wyoming                                                 169             70           27           19            24
             Unidentified States                                      10             66           20           11            35
                 Total                                            28,264.        12,307        6,312        1,542         4,453




Digitized for FRASER
Federal Reserve Bank of St. Louis
           271                                        GOVERNMENT                 CREDIT

                 I n c o m m o n fairness, i t m u s t be s t a t e d t h a t t o d a y , f o r m a s t r i c t l y dealer s t a n d -
           p o i n t , t h e a p p l i c a t i o n of r e g u l a t i o n W t o dealer operations is n o t a serious p r o b l e m .
           Because of a shortage of new cars a n d t h e c u r r e n t a m o u n t of r e a d y cash i n t h e
           hands of some, he can m o v e a l l t h e cars he is o b t a i n i n g .
                 T h e s i t u a t i o n of buyers i n t h e l o w e r - i n c o m e groups, i n c l u d i n g r e t u r n e d veterans,
           however, requires serious consideration n o w . M i l l i o n s of t h e m w a n t a n d n e e d
           new cars. M a n y veterans are i n t h i s category a n d find i t impossible t o finance
           t h e purchase of a lower-priced car w i t h i n t h e 1 5 - m o n t h p e r i o d p e r m i t t e d .                   The
           l i v e l i h o o d of m a n y i n d i v i d u a l s is e n t i r e l y dependent u p o n t h e use of p r i v a t e
           m o t o r t r a n s p o r t a t i o n . O n l y t h e fact t h a t a great new-car shortage exists p r e v e n t s
           t h e stringency of present new-car-credit r e g u l a t i o n s f r o m b e c o m i n g a f a r m o r e
           a c t i v e p u b l i c issue. I f a n o r m a l s u p p l y of new cars were b e i n g p r o d u c e d , u n -
           d o u b t e d l y there w o u l d be b i t t e r c o m p l a i n t s over t h e t e r m s of t h e present r e g u l a -
           t i o n . A n example of t h e increased a m o u n t of cash r e q u i r e d as d o w n p a y m e n t
           a n d t h e increased m o n t h l y p a y m e n t s needed t o purchase a t y p i c a l l o w - p r i c e d
           new car u n d e r r e g u l a t i o n W follows:
           1941—Cash d o w n p a y m e n t                                                                                 $311
                M o n t h l y payments: 18 m o n t h s , a t                                                                 42. 0 0
           1947—Cash d o w n p a y m e n t                                                                                  476
                M o n t h l y p a y m e n t s : 15 m o n t h s , a t                                                         77. 96
                T h e d a y of n o r m a l p r o d u c t i o n a n d w i d e s p r e a d p u b l i c c o m p l a i n t against
           r e g u l a t i o n W m a y be i m m i n e n t . N e w - c a r p r o d u c t i o n is p i c k i n g u p r a p i d l y a n d
           i n d i c a t i o n s are t h a t t h e 1939-40-41 p r o d u c t i o n average soon m a y be a c h i e v e d .
           A comparison of passenger-car p r o d u c t i o n f o r domestic c o n s u m p t i o n s h o w s —
                  F i r s t q u a r t e r 1946                                                                      187, 791
                  F i r s t q u a r t e r 1947                                                                      750, 141
               I n v i e w of the recent increase i n p r o d u c t i o n i t m a y be t h a t t h e first q u a r t e r
           of 1948 w o u l d equal or exceed t h e same p e r i o d i n 1941 w h e n 1,198,175 passenger
           cars were produced.
               As t h i s level of p r o d u c t i o n is reached, p u b l i c r e s e n t m e n t against a c r e d i t
           r e g u l a t i o n w h i c h denies a n honest m a n a n e w car o n reasonable t i m e p a y m e n t s
           w i l l be q u i c k a n d decisive.
               I t is u p o n knowledge of these c o n d i t i o n s t h a t dealers t h r o u g h o u t t h e c o u n t r y
           h a v e based t h e i r insistence t h a t r e g u l a t i o n W s h o u l d be aboloshed.
             T h e CHAIRMAN. The members w i l l stand i n recess u u t i l 10 o'clock
           tomorrow morning provided the House does n o t meet at 10. I f the
           House meets at 10, we w i l l n o t be able to meet tomorrow morning.
              (Whereupon, at 12:30 p. m., the committee recessed, to reconvene
           at 10 a. m., Wednesday, M a y 28,1947, or at a later date, as provided i n
           the chairman's statement.)




Digitized for FRASER
Federal Reserve Bank of St. Louis

								
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