A-90122, NOVEMBER 17, 1937, 17 COMP. GEN. 403

A-90122: Nov 17, 1937

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IS DETERMINED BY THE FEDERAL RESERVE DISTRICT IN WHICH THE LOANS ORIGINALLY WERE MADE. NOTWITHSTANDING ALL LENDING ACTIVITIES HAVE NOW BEEN TRANSFERRED TO THE VETERANS' ADMINISTRATION CENTRAL OFFICE. IS AS FOLLOWS: THE WORLD WAR ADJUSTED COMPENSATION ACT PROVIDES THAT A LOAN MAY BE MADE TO A VETERAN UPON HIS ADJUSTED SERVICE CERTIFICATE ONLY IN ACCORDANCE WITH SECTION 502 OF THE ACT. SECTION 502 (I) OF THIS ACT PROVIDES "* * * THAT THE RATE OF INTEREST SHALL BE 2 PERCENTUM PER ANNUM MORE THAN THE RATE CHARGED AT THE DATE OF THE LOAN FOR THE DISCOUNT OF NINETY-DAY COMMERCIAL PAPER UNDER SECTION 13 OF THE FEDERAL RESERVE ACT BY THE FEDERAL RESERVE BANK FOR THE FEDERAL RESERVE DISTRICT IN WHICH IS LOCATED THE REGIONAL OFFICE.

A-90122, NOVEMBER 17, 1937, 17 COMP. GEN. 403

VETERANS' ADMINISTRATION - ADJUSTED SERVICE CERTIFICATES - LOANS - INTEREST - CENTRALIZATION OF LENDING ACTIVITIES IN WASHINGTON OFFICE INTEREST ON LOANS PREVIOUSLY MADE ON VETERANS' ADJUSTED SERVICE CERTIFICATES AT REGIONAL OFFICES OR OTHER FIELD STATIONS, WHICH LOANS BECOME NEW LOANS BECAUSE OF FAILURE OF PAYMENT AT THE END OF THE LOAN YEAR, IS DETERMINED BY THE FEDERAL RESERVE DISTRICT IN WHICH THE LOANS ORIGINALLY WERE MADE, NOTWITHSTANDING ALL LENDING ACTIVITIES HAVE NOW BEEN TRANSFERRED TO THE VETERANS' ADMINISTRATION CENTRAL OFFICE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, NOVEMBER 17, 1937:

YOUR LETTER OF NOVEMBER 1, 1937, IS AS FOLLOWS:

THE WORLD WAR ADJUSTED COMPENSATION ACT PROVIDES THAT A LOAN MAY BE MADE TO A VETERAN UPON HIS ADJUSTED SERVICE CERTIFICATE ONLY IN ACCORDANCE WITH SECTION 502 OF THE ACT. SECTION 502 (I) OF THIS ACT PROVIDES "* * * THAT THE RATE OF INTEREST SHALL BE 2 PERCENTUM PER ANNUM MORE THAN THE RATE CHARGED AT THE DATE OF THE LOAN FOR THE DISCOUNT OF NINETY-DAY COMMERCIAL PAPER UNDER SECTION 13 OF THE FEDERAL RESERVE ACT BY THE FEDERAL RESERVE BANK FOR THE FEDERAL RESERVE DISTRICT IN WHICH IS LOCATED THE REGIONAL OFFICE, SUBOFFICE, OR HOSPITAL OF THE UNITED STATES VETERANS' BUREAU AT WHICH THE LOAN IS MADE, BUT IN NO EVENT SHALL THE RATE OF INTEREST EXCEED 6 PERCENTUM PER UM.' AS AMENDED ON FEBRUARY 27, 1931, THE ACT PROVIDES THAT THE RATE OF INTEREST SHALL NOT EXCEED 4 1/2 PERCENTUM PER ANNUM, COMPOUNDED ANNUALLY, ON ANY LOAN MADE ON OR AFTER THAT DATE, AND THE ACT WAS FURTHER AMENDED ON JULY 21, 1932, TO PROVIDE THAT THE RATE OF INTEREST SHALL NOT EXCEED 3 1/2 PERCENTUM PER ANNUM, COMPOUNDED ANNUALLY, AFTER THE EFFECTIVE DATE OF THE AMENDMENT.

INSTRUCTIONS FORWARDED TO ALL FIELD STATIONS OF THIS ADMINISTRATION RELATIVE TO SETTLEMENT OF ADJUSTED SERVICE CERTIFICATES SUBSEQUENT TO OCTOBER 16, 1936, ARE IN PART AS FOLLOWS:

"EFFECTIVE OCTOBER 16, 1936, THE OPERATIONS UNDER THE PROVISIONS OF THE WORLD WAR ADJUSTED COMPENSATION ACT, 1924, AS AMENDED, AND THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, AS AMENDED, WILL BE CONDUCTED BY THE CENTRAL OFFICE OF THE VETERANS' ADMINISTRATION AT WASHINGTON, D.C. ON AND AFTER OCTOBER 16, 1936, FIELD STATIONS OF THE VETERANS' ADMINISTRATION ARE NEITHER AUTHORIZED TO GRANT LOANS ON THE SECURITY OF ADJUSTED SERVICE CERTIFICATES NOR TO EFFECT SETTLEMENTS UNDER THE PROVISIONS OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936. FIELD STATION ACTIVITIES WILL BE RESTRICTED TO THE DISSEMINATION OF INFORMATION AVAILABLE FROM RECORDS IN THE POSSESSION OF FIELD STATIONS AND THE ACCEPTANCE OF REPAYMENTS TO APPLY ON INDEBTEDNESS TO THE UNITED STATES ON ACCOUNT OF ADJUSTED SERVICE CERTIFICATES OR ADJUSTED COMPENSATION.

"ON AND AFTER OCTOBER 16, 1936, ALL LOANS UPON THE SECURITY OF ADJUSTED SERVICE CERTIFICATES MADE UNDER THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, AND CERTIFICATIONS OF SETTLEMENTS UNDER THE PROVISIONS OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, WILL BE MADE FROM CENTRAL OFFICE

"FORMS 1184 (D), VETERANS' NOTE CARDS, IN CASES UPON WHICH CERTIFICATION OF SETTLEMENT TO THE TREASURY DEPARTMENT HAS NOT BEEN MADE WILL BE ARRANGED * * * AND TRANSMITTED BY REGISTERED MAIL OR BY EXPRESS TO THE ADJUSTED COMPENSATION ACCOUNTS SUBDIVISION, COLLECTIONS AND LOANS DIVISION, WASHINGTON, D.C. * * * ALL ADJUSTED SERVICE CERTIFICATES HELD BY FIELD STATIONS WILL BE ARRANGED IN A NUMBER ORDER AND TRANSMITTED TO THE ADJUSTED COMPENSATION ACCOUNTS SUBDIVISION, COLLECTIONS AND LOANS DIVISION, CENTRAL OFFICE, WASHINGTON, D.C., BY REGISTERED MAIL.'

AT THE TIME THE FIELD STATIONS OF THIS ADMINISTRATION WERE INSTRUCTED TO DISCONTINUE MAKING CERTIFICATION OF LOANS AND SETTLEMENTS ON ADJUSTED SERVICE CERTIFICATES, THE DISCOUNT RATE OF INTEREST ON NINETY-DAY COMMERCIAL PAPER WAS 1 1/2 PERCENTUM OR MORE IN ALL THE FEDERAL RESERVE DISTRICTS; THEREFORE, THE RATE OF INTEREST CHARGED VETERANS ON ALL OUTSTANDING LOANS MADE BY THE FIELD STATIONS AND BY THE CENTRAL OFFICE WAS 3 1/2 PERCENTUM PER ANNUM ON AND AFTER JULY 21, 1932, AS PROVIDED IN THE AMENDMENT TO THE WORLD WAR ADJUSTED COMPENSATION ACT OF THAT DATE. THIS RATE HAS BEEN CHARGED ON ALL LOANS SINCE THE TRANSFER OF THE RECORDS TO CENTRAL OFFICE OCTOBER 16, 1936, AS THE FEDERAL RESERVE DISCOUNT RATE ON NINETY-DAY COMMERCIAL PAPER HAS NOT BEEN REDUCED TO A RATE OF INTEREST BELOW 1 1/2 PERCENTUM SINCE THAT TIME IN ANY OF THE FEDERAL RESERVE DISTRICTS UNTIL AUGUST 27, 1937, WHEN THE RATE IN THE NEW YORK FEDERAL RESERVE DISTRICT WAS REDUCED TO 1 PERCENTUM. ALL ACCOUNTS COVERING LOANS MADE BY THE FIELD STATIONS ARE NOW MAINTAINED IN THE CENTRAL OFFICE OF THIS ADMINISTRATION. IF THE RATE OF INTEREST TO BE CHARGED VETERANS IS TO BE GOVERNED BY THE RATE IN EFFECT IN THE FEDERAL RESERVE DISTRICT IN WHICH THE FIELD STATION MAKING THE LOAN IS LOCATED, THE RATE WHICH WOULD NOW BE CHARGED ON LOANS MADE BY STATIONS IN THE NEW YORK FEDERAL RESERVE DISTRICT WOULD BE 3 PERCENT.

THERE IS SUBMITTED FOR YOUR DECISION THE FOLLOWING QUESTION WHICH HAS ARISEN IN THIS ADMINISTRATION RELATIVE TO THE RATES OF INTEREST TO BE CHARGED SUBSEQUENT TO OCTOBER 16, 1936, ON LOANS PREVIOUSLY GRANTED ON THE SECURITY OF ADJUSTED SERVICE CERTIFICATES AT FIELD STATIONS.

ALL LOANS MADE ON THE SECURITY OF ADJUSTED SERVICE CERTIFICATES WHICH ARE NOT PAID AT THE END OF THE LOAN YEAR BECOME IN EFFECT NEW LOANS. WHERE LOANS WERE MADE AT FIELD STATIONS AND INTEREST IS PROPERLY CHARGEABLE FOR THE PERIOD SUBSEQUENT TO THE DATE THE LOAN ACCOUNTS WERE TRANSFERRED TO THE CENTRAL OFFICE SHOULD INTEREST BE COMPUTED ON THE INDEBTEDNESS AT THE RATE PREVAILING IN THE FEDERAL RESERVE DISTRICT IN WHICH THE LOAN WAS MADE, OR SHOULD THE INTEREST RATE IN THE WASHINGTON, D.C., AREA GOVERN AFTER THE FIRST ANNIVERSARY DATE OF THE LOAN SUBSEQUENT TO OCTOBER 16, 1936.

THERE ARE A NUMBER OF CASES ON WHICH ACTION CANNOT BE TAKEN PENDING THE RECEIPT OF YOUR DECISION. IT IS, THEREFORE, REQUESTED THAT PROMPT CONSIDERATION BE GIVEN THE QUESTION SUBMITTED.

THE VETERAN'S NOTES, EXECUTED WHEN LOANS ARE MADE PURSUANT TO SECTION 502 (I) OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED BY THE ACT OF MARCH 3, 1927, 44 STAT. 1389, THE STATUTE FIRST QUOTED IN YOUR LETTER, CONTAIN THE FOLLOWING CLAUSE:

ONE YEAR AFTER DATE OF CHECK ISSUED BY THE VETERANS' BUREAU IN CONSIDERATION OF THIS NOTE, I PROMISE TO PAY TO THE ORDER OF THE DIRECTOR, UNITED STATES VETERANS' BUREAU, AT THE PLACE NAMED ABOVE, -- - DOLLARS FOR VALUE RECEIVED, WITH INTEREST AFTER DATE OF SUCH CHECK AT THE RATE FIXED BY LAW UNTIL PAID. IF THE PRINCIPAL AND INTEREST OF THIS NOTE ARE NOT PAID AT ITS MATURITY, I AGREE TO THE AUTOMATIC EXTENSION OF THE NOTE FROM YEAR TO YEAR FOR PERIODS OF ONE YEAR IN THE AMOUNT OF THE PRINCIPAL PLUS INTEREST TO THE END OF THE IMMEDIATELY PRECEDING EXPIRED LOAN YEAR, WHICH TOTAL AMOUNT SHALL AUTOMATICALLY BECOME A NEW PRINCIPAL EACH YEAR, AND SHALL BEAR INTEREST AT THE RATE FIXED BY LAW UNTIL PAID.

IN DECISION OF SEPTEMBER 30, 1927, 7 COMP. GEN. 250, IT IS HELD AS FOLLOWS (QUOTING FROM THE SYLLABUS):

AS THE AGREEMENT BETWEEN THE VETERANS' BUREAU AND THE VETERANS PROVIDING FOR AUTOMATIC EXTENSION OF NOTES COVERING LOANS MADE BY THE BUREAU, WITH THE ADJUSTED SERVICE CERTIFICATES AS SECURITY, AND PROVIDING FOR ADDING THE ACCRUED INTEREST TO THE OLD PRINCIPAL TO MAKE A NEW PRINCIPAL EACH YEAR, IS, IN EFFECT, THE CREATION OF A NEW OBLIGATION EACH YEAR, AND, THEREFORE, A NEW LOAN EACH YEAR, THE "RATE OF INTEREST FIXED BY LAW" WITHIN THE MEANING OF THE AGREEMENT MUST BE DETERMINED AS OF THE DATE OF THE BEGINNING OF EACH LOAN YEAR, IN ACCORDANCE WITH THE STATUTE, SO THAT IT WILL BE 2 PERCENTUM PER ANNUM MORE THAN THE DISCOUNT RATE OF THE FEDERAL RESERVE BANK FOR THE DISTRICT IN WHICH THE LENDING OFFICE IS LOCATED AT THE TIME OF THE NEW LOAN.

THE CURRENT ADMINISTRATIVE PROCEDURE OF THE VETERANS' ADMINISTRATION PROVIDES FOR ONLY ONE ,LENDING OFFICE," THE CENTRAL OFFICE AT WASHINGTON, D.C. THERE IS INVOLVED THE QUESTION WHETHER THE VETERANS' ADMINISTRATION BY A CHANGE IN ADMINISTRATIVE POLICY OR PROCEDURE NOT CONTEMPLATED WHEN THE CONTROLLING STATUTE WAS ENACTED, MAY CHANGE THE RATE OF INTEREST OTHERWISE AUTHORIZED BY SUCH STATUTE. IT IS NOT BELIEVED THE VETERANS' ADMINISTRATION HAS THAT AUTHORITY. SECTION 502 (I) OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, UNQUESTIONABLY FIXED INTEREST RATES ON THE BASIS THAT LOANS WOULD BE MADE IN A "REGIONAL OFFICE, SUBOFFICE, OR HOSPITAL OF THE UNITED STATES VETERANS' BUREAU.' THE CENTRAL OFFICE AT WASHINGTON AS A "LENDING OFFICE" IS NOT MENTIONED. THE STATUTE RECOGNIZED THAT THERE MIGHT BE VARYING RATES OF INTEREST AT DIFFERENT REGIONAL OFFICES. WHILE THERE IS NOT QUESTIONED THE LEGALITY OF THE CENTRALIZATION OF THE ADMINISTRATIVE WORK IN MAKING RENEWALS OR NEW LOANS EACH YEAR, SUCH ACTION MAY NOT AFFECT THE RATE OF INTEREST ON THE LOANS OTHERWISE FIXED BY LAW. THE "LENDING OFFICE" UNDER THE LAW AND UNDER THE CONTRACT WITH THE VETERAN REMAINS THE REGIONAL OFFICE OR OTHER FIELD STATION AT WHICH THE ORIGINAL LOAN WAS MADE AND THE RATE OF INTEREST SHOULD BE COMPUTED ACCORDINGLY. THEREFORE, ON LOANS ORIGINALLY MADE AT FIELD STATIONS IN THE NEW YORK FEDERAL RESERVE DISTRICT, THE LEGAL RATE OF INTEREST FROM THE EFFECTIVE DATE OF ANY YEARLY RENEWAL MADE ON OR AFTER AUGUST 27, 1937, IS 3 PERCENT.