MONETARY POLICY AND SALES-FINANCE AND SMALL-LOAN COMPANIES' FUNDS, 1949-54*

Abstract

ONE POINT OF DISAGREEMENT between advocates and non-advocates of general credit controls is whether a tightening credit structure affects the operations of consumer instalment credit institutions. This study attempts to determine how a restrictive monetary policy affected the amounts, source, and cost of funds of sales-finance and small-loan companies. It is limited to the period from December 31, 1948, to June 30, 1954, which includes the restrictive monetary episode of March, 1951-June, 1953. Questionnaires were sent to one hundred companies (fifty-one replied) to determine quantitatively and qualitatively what effect monetary policy had had on their funds. This study is a compilation and analysis of their answers. Quantitative portions of the study deal with the amount, source, and cost of funds. Qualitative portions represent the expression of opinions by financial officers about their companies' actual and anticipated experiences in the money market during the 1951-53 episode and how these experiences altered their financial operations. Companies were segregated into sales-finance and smallloan groups and then further broken down into size groups. As an analysis of each division was made, qualitative and quantitative data were integrated to determine whether variations among the divisions were reactions to changing monetary policy. Major findings were that the amount, source, and cost of funds to these companies were influenced to some degree by monetary policy. The amount of funds was least affected, the source of funds more, and the cost of funds most significantly. There was no discernible limitation in the total amount of funds used by these companies as a group, but some companies were unable to get all the funds they wanted at rates they were willing to pay. This limitation was more than offset by the fact that larger companies could obtain additional funds at all times. The only possible limitation was of an indirect nature, caused by changes in terms of credit to the consumer which were made under the influence of monetary policy.