         The President’s Authority to Regulate Extensions of
                Credit Under the Credit Control Act

U nder the C redit C ontrol A ct, the President is authorized to regulate and control
  extensions o f credit w henever he determ ines that such action is necessary for the
  purpose o f preventing o r controlling inflation generated by the extension of credit in an
  excessive volume.

Proposed executive ord er announcing the President’s determ ination, and proposed imple­
  m enting regulations o f the Board o f G overnors o f the Federal Reserve System impos­
  ing controls on certain kinds o f consum er credit, on money m arket funds, and on
  m anaged liabilities, are w ithin the authority granted the President and the Board under
  the C redit C ontrol Act.

                                                                         March 13, 1980

T   he   S ecretary   of th e   T   reasury


My D e a r M r. S e c r e t a r y : I am responding to your March 13, 1980,
request for my opinion concerning a recommendation by the Presi­
dent’s economic advisers that the President, by executive order, author­
ize the Board of Governors of the Federal Reserve System to regulate
and control certain extensions of credit under the Credit Control Act,
12 U.S.C. § 1901 et seq. You have forwarded to me, for my information,
copies of an executive order proposed by the President’s advisers, and
of regulations proposed by the Board to effect certain credit controls
that the Chairman of the Board of Governors has informed you the
Board will consider issuing if the order is executed. You have asked me
whether the recommended order would constitute a proper exercise of
the President’s authority under the Act, and, if the President issues the
order, whether the proposed credit control measures transmitted to you
by the Chairman would be within the Board’s authority under the Act.
   Under 12 U.S.C. § 1904, the President may authorize the Board “to
regulate and control any or all extensions of credit” whenever he:
          determines that such action is necessary or appropriate for
          the purpose of preventing or controlling inflation gener­
          ated by the extension of credit in an excessive volum e,. . .
The proposed executive order would announce such a determination by
the President, would authorize the Board both to regulate or control
three types of extensions of credit and to prescribe appropriate require­
ments as to the keeping of records with respect to all forms of credit,
                                             4
 and would order that such authorizations remain effective for an indefi­
 nite period and until revoked by the President. Each of these measures,
as explained below, constitutes a proper exercise of the President’s
authority under the Act.
    Although the Act includes no particular requirements for the form of
the President’s determination under § 1904, the incorporation of his
determination in an executive order that specifies the Board’s conse­
quent authorities is entirely appropriate. Further, the President is em­
powered by the Act, §§ 1904, 1905, to determine what types of exten­
sions of credit are appropriately subject to the Board’s regulation and
to authorize the Board to implement any or all of the regulatory
measures specified in § 1905. This is evident from both the language of
§§ 1904 and 1905, and from the legislative history of the A ct,1 which
amply reflect Congress’ intent to give the President the most flexible
authority possible in mounting, through the control of credit, an appro­
priate attack on inflation.2
   Finally, § 1905 provides that the Board’s authority to implement
credit controls shall exist “for such period of time as [the President]
may determine.” This authorizes the President to specify the duration,
whether definite or indefinite, of any control authority, which he would
be doing if he issues the order as drafted, see § 1-106.
   The Chairman of the Board has informed you that, if the President
executes the order, the Board will consider issuing three regulations to
effect certain credit controls. These credit controls would be within the
authority granted by the order. They would specifically address the
following kinds of extensions of credit—consumer credit, activities of
“money market funds” and similar entities, and the managed liabilities
of commercial banks that are not members of the Federal Reserve
System—the regulation of which is authorized by the order. Further,
because the order does not limit the kinds of controls that may be
imposed on these extensions of credit, the controls would be within the
Board’s authority if they are anywhere authorized among the controls
listed in 12 U.S.C. § 1905. I conclude, as explained below, that each of
the proposed controls is among the measures authorized by that section.

    'S e e H. R ep. N o. 755, 91st C o n g ., 1st Sess. 11 (1969); H . C o n f. R ep . N o . 769, 91st C o n g ., 1st Sess.
II (1969); 115 C o n g . R ec . 39649-697, 402 3 9 -2 4 4 , passim (1969), e sp e c ia lly at 39660 (re m a rk s o f R ep .
Sisk); 39669, 40241 (re m a rk s o f R ep. P atm an ); 39676 (re m a rk s o f R ep. B arrett); 39683 (re m a rk s o f R ep.
O ttin g e r); 39684 (re m a rk s o f R ep . M atsu n ag a ); 39673, 39674, 40240, 40242 (re m a rk s o f R ep . S u lliv an ).
     2 D e s p ite th e flexibility o f th e a u th o rity v e s te d b o th in th e P re sid e n t a n d th e B o ard o f G o v e r n o r s o f
th e F e d e ra l R e s e rv e S y stem , th e A c t d o e s n o t tra n sg re s s th e c o n s titu tio n a l p ro h ib itio n a g a in st e x c e s ­
siv e d e le g a tio n s o f le g islativ e p o w e r. T h e d e te rm in a tio n re q u ire d o f th e P re s id e n t, th a t a c tio n “ is
n e c e ssa ry o r a p p ro p ria te fo r th e p u rp o s e o f p re v e n tin g o r c o n tro llin g in flatio n g e n e ra te d b y th e
ex ten sio n o f c re d it in an ex c essiv e v o lu m e ,” 12 U .S .C . § 1904, p ro v id e s an a d e q u a te s ta n d a rd ag a in st
w h ic h th e te rm s o f th e P re s id e n t's a u th o riz a tio n an d th e B o a rd 's su b se q u en t a c tio n s m ay b e assessed.
S e e A F L C I O v. K ahn, 618 F .2 d 784, 793 n.51 (D .C . C IR . 1979) (en b a n c ), cert, denied. (1979);
A m a lg a m a te d M e a t C utters a n d B u tch er W o rkm en v. C onnolly. 337 F . S u p p . 737, 7 4 4 -7 6 3 ( D .D .C .
1971) (th re e -ju d g e c o u rt).


                                                                          5
   The consumer credit regulation would require that certain creditors
extending certain kinds of consumer credit maintain a special non­
interest bearing deposit with the Federal Reserve equal to a specified
percentage of the amount by which certain types of the creditor’s
outstanding consumer credit would exceed a designated base. This
control is designed to discourage the expansion of consumer credit. It is
expressly authorized by § 1905(10), which permits the Board to pre­
scribe “maximum ratios, applicable to any class o f . . . creditors . . . of
loans, of one or more types or of all types . . . (B) to assets of one or
more types or of all types.” In this case, the Board would be establish­
ing maximum ratios between consumer credit loans extended in excess
of the designated base and both the amount of assets available to
covered creditors to support such loans, and the amount of assets to be
deposited with the Federal Reserve. Such a requirement would also
limit the circumstances in which credit in excess of the designated base
could be extended, and would be within the Board’s authority under
§ 1905(11) to “prohibit or limit any extensions of credit under any
circumstances the Board deems appropriate.”
   The money market fund regulation would require such funds and
similar entities to maintain a special non-interest bearing deposit with
the Federal Reserve equal to a specified percentage of the amount by
which the extensions of credit by them exceed their outstanding exten­
sions of credit on a specified date. The covered entities typically act as
financial intermediaries, accepting funds from investors for the purchase
of “money market instruments,” i.e., various instruments of indebted­
ness with short-term maturities that are issued by governmental units,
corporations, or individuals. The intent of the regulation is to curb
inflation by curbing the volume of credit available through money
market funds and similar entities. Like the control to be imposed on
certain extensions of consumer credit, the requirement that money
market funds maintain special non-interest bearing deposits would be
authorized by § 1905(10), because it would establish a maximum ratio
between these funds’ net extensions of credit and both their net in­
creases in assets available for such extensions of credit and their assets
to be deposited with the Federal Reserve. Such a requirement would
also limit the circumstances in which money market funds may make
further extensions of credit and is authorized, by § 1905(11).
   The managed liabilities regulation contemplates a requirement that
commercial banks that are not members of the Federal Reserve System
maintain a non-interest bearing special deposit with the Federal Reserve
equal to a specified percentage of the amount by which the total of
certain managed liabilities of the covered banks exceeds a base amount
of such liabilities outstanding. The covered liabilities would include
extensions of credit to the covered banks that such banks typically use
to support the credit they themselves extend. The intent of the contem­

                                     6
plated requirement is to discourage the expansion of credit by the
covered institutions. It is authorized by § 1905(10), which permits the
 Board to “prescribe maximum ratios, applicable to any class of . . .
borrowers . . . of loans, of one or more types or of all types . . . (B) to
assets of one or more types or of all types.” In this case, the Board
would prescribe a maximum ratio between certain credit that can be
extended to a bank and both its increase in assets available to support
extensions of bank credit and its assets to be deposited with the Federal
Reserve. The proposed control would also limit the circumstances
under which credit would be extended to covered banks, and is thus
within the authority of § 1905(11).
   You will note that, in determining whether the proposed control
measures would be within the Board’s authority under the Act, I have
relied exclusively on the language of the Act and on the anti-
inflationary intent of the measures. Because the legislative history of the
Act does not elaborate on the scope of the control provisions of § 1905
and does not suggest that Congress’ intent is in any way inconsistent
with the A ct’s plain meaning, we conclude that control measures that
are covered by the plain meaning of the statute and that relate to its
purpose are authorized. Each of the proposed measures meets these
standards.
   In sum, the executive order, if executed, will be a proper exercise of
the President’s statutory authority and, if the President issues the order,
the proposed credit control measures will be within the Board’s author­
ity under the Act.

                                        Sincerely,
                                        B e n ja m in   R.   C iv ile tti




                                    7
