[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR201.104]

[Page 13-14]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 201--EXTENSIONS OF CREDIT BY FEDERAL RESERVE BANKS (REGULATION A)--Table of Contents
 
Sec. 201.104  Eligibility of consumer loans and finance company paper.

    (a) The Board of Governors has clarified and modified its position 
with respect to the eligibility of consumer loans and finance company 
paper for discount with and as collateral for advances by the reserve 
banks.
    (b) Section 13, paragraph 2, of the Federal Reserve Act authorizes a 
Federal Reserve Bank, under certain conditions, to discount for member 
banks

    * * * notes, drafts, and bills of exchange arising out of actual 
commercial transactions; that is, notes, drafts, and bills of exchange 
issued or drawn for agricultural, industrial, or commercial purposes, or 
the proceeds of which have been used, or are to be used, for such 
purposes, the Board of Governors of the Federal Reserve System to have 
the right to determine or define the character of the paper thus 
eligible for discount, within the meaning of this Act.

    (c) It continues to be the opinion of the Board that borrowing for 
the purpose of purchasing goods is borrowing for a commercial purpose, 
whether the borrower intends to use the goods himself or to resell them. 
Hence, loans made to enable consumers to purchase automobiles or other 
goods should be included under commercial, agricultural, and industrial 
paper within the

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meaning of the Federal Reserve Act, and as such are eligible for 
discounting with the Reserve Banks and as security for advances from the 
Reserve Banks under section 13, paragraph 8, of the Federal Reserve Act 
as long as they conform to requirements with respect to maturity and 
other matters. This applies equally to loans made directly by banks to 
consumers and to paper accepted by banks from dealers or finance 
companies. It also applies to notes of finance companies themselves as 
long as the proceeds of such notes are used to finance the purchase of 
consumer goods or for other purposes which are eligible within the 
meaning of the Federal Reserve Act.
    (d) If there is any question as to whether the proceeds of a note of 
a finance company have been or are to be used for a commercial, 
agricultural, or industrial purpose, a financial statement of the 
finance company reflecting an excess of notes receivable which appear 
eligible for rediscount (without regard to maturity) over total current 
liabilities (i.e., notes due within 1 year) may be taken as an 
indication of eligibility. Where information is lacking as to whether 
direct consumer loans by a finance company are for eligible purposes, it 
may be assumed that 50 percent of such loans are ``notes receivable 
which appear eligible for rediscount''. In addition, that language 
should be regarded as including notes given for the purchase of mobile 
homes that are acquired by a finance company from a dealer-seller of 
such homes.
    (e) The principles stated above apply not only to notes of a finance 
company engaged in making consumer loans but also to notes of a finance 
company engaged in making loans for other eligible purposes, including 
business and agricultural loans. Under section 13a of the Federal 
Reserve Act, paper representing loans to finance the production, 
marketing, and carrying of agricultural products or the breeding, 
raising, fattening, or marketing of livestock is eligible for discount 
if the paper has a maturity of not exceeding 9 months. Consequently, a 
note of a finance company the proceeds of which are used by it to make 
loans for such purposes is eligible for discount or as security for a 
Federal Reserve advance, and such a note, unlike the note of a finance 
company making consumer loans, may have a maturity of up to 9 months.

[37 FR 4701, Mar. 4, 1972]