Restriction of Consumer Credit

Report Outline
Proposals to Curb Instalment Selling
Consumer Credit in the Depression
Consumer Credit in Recovery and Recession
Present Volume of Instalment and Other Consumer Credit

Proposals to Curb Instalment Selling

In A special message to Congress July 30 urging enactment of price control legislation, President Roosevelt said that such legislation should include authority “to deal more extensively with excesses in the field of instalment credit.” Leon Henderson, head of the Office of Price Administration and Civilian Supply, has several times noted the desirability of imposing curbs on instalment selling. However, the Emergency Price Control bill introduced in Congress on August 1 contained no reference to consumer credit. It was reported at the time that the House Committee on Banking and Currency would be asked to amend the bill to include authorization for the control of instalment selling, but the constitutionality of such a provision has since been brought into question, and it is now considered doubtful whether any attempt will be made to compel restriction of instalment selling by law.

Instead of asking new legislation, it is now anticipated that the President will issue a proclamation under the Banking Act of 1933 directing the Federal Reserve banks to limit the availability of bank credit to finance companies which handle retail instalment paper. Since a considerable part of finance company funds are obtained by borrowing from commercial banks, such action would automatically lead to a restriction of the total amount of outstanding retail instalment credit, and the natural result would be a tightening of instalment credit terms available to consumers.

At hearings on the price control bill before the House committee, doubt was expressed by Chairman Steagall (D., Ala.) that powers conferred by the Emergency Banking Act of 1933, of which he was co-author, could be employed to force a contraction of consumer credit. Price Administrator Henderson took the contrary view, but added: “If the present law does not cover instalment selling, then there should be a law.” Unbridled credit extension would nullify the effect of price control legislation, he said. However, instalment selling should be regulated, not cut off entirely. “The man who gets his income in weekly instalments has a right to pay for those things that require a large part of that income in instalments.” Henderson's declaration that “there should be a law” was later endorsed by Secretary of the Treasury Mor-genthau, “l am for it,” he said. “The Federal Reserve wants to do it and I give them my blessing.”