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year should be sufficient, even though it may be necessary at the expiration of that time to renew a portion of the loan.

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Loans should be repaid in weekly or monthly instalments or in a single
This is to be determined in each instance by the Credit Committee.

m) SECURITY FOR LOANS

Ordinarily the security that a Credit Union demands for loans is the promissory note of the borrower with one or more endorsements, supplemented by a lien upon the borrower's shares and deposits in the Credit Union. The requirement of endorsements may be waived in some cases if the loan is for a small amount. Large loans may also be made to members upon security of mortgage of real or personal property, but unless the Credit Union has an abundance of funds, preference should be given to the smaller loans.

As a rule members only should be accepted as endorsers. In exceptional cases non-members may be permitted to endorse for members. In either case the endorsers must be acceptable to the Credit Committee. The Credit Committee may, if it deems it necessary, require additional security upon any loan in the form of additional endorsements, a mortgage, or other collateral.

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174. THE BLESSINGS OF CO-OPERATIVE BANKS'
BY HENRY W. WOLFF

Apart from the great gains on the economic side there are other important considerations. Co-operation has its moral, educating side as well, more beneficent than the economic. The training of this co-operative power has succeeded where other educating methods have failed, making the drunkard sober, the spendthrift saving, the ne'erdo-well well conducted, turning the illiterate into a penman. What an opportunity is there here for ministers of religion, for temperance advocates, for philanthropists, for all who have the people's moral welfare at heart!

Only we should do well to take to heart the teaching which we owe to the experience of People's Banks abroad, and ground our own institutions absolutely on self-help, the more thorough the better. Every dallying with greed, every yielding to the spirit of patronage, foreign experience has shown, adds a toe of clay to the huge brazen Colossus, and thereby threatens to overthrow it in spite of its size. And the thing must grow from out of its own self, from the bottom to the top. Committees and boards can do nothing. Large schemes

'Adapted from People's Banks, p. 260. (Longmans, Green, & Co., 1893.)

worked by public bodies are as much out of place. The workingman and the farmer must become "the instruments of their own emancipation." None of the systems that have succeeded abroad have been organized from above. They have all risen from below, built up by local association which, in submission to the advice pressed upon them by Signor Luzzatti, have studied to keep themselves independent of outside influence, self-contained, yet firmly connected among themselves by a bond of union-independti semper, isolati mail Nowhere, moreover, has this work been "good fairy" work. Every shilling's worth of success has been purchased by unremitting application, by economy, gratuitous labor (so far as gratuitous labor was possible), zeal, and caution. And experience has shown that it is not otherwise to be obtained. There may be hindrances, and progress may at first appear slow. But among ourselves the work is likely to succeed, as it has succeeded abroad, under the principle of that apt motto chosen as a watchword for the movement by one of its best leaders, M. Léon d'Adrimont: "Vouloir-voilà le grand mot de las coopération, sa raison d'être, la garantie de son succès."

C. Building and Loan Associations

175. THE BUILDING AND LOAN MOVEMENT IN THE
UNITED STATES1

BY JAMES M. McKAY

Building and Loan Associations had their origin in England about one hundred years ago. The original association was nothing more or less than a home-builder's club, where each man paid into the common treasury a certain sum per month. The aim was to secure enough members to make the monthly payments aggregate a sum sufficient to build a modest home for one member. For instance, if the club had a hundred members and each member paid the equivalent of $10 per month, it would bring into the treasury a total sum of $1,000 monthly. This money would be allotted to one member after another for the purpose of buying homes, and the society would take a mortgage on the home so procured to secure the future payments, each member continuing to pay until all had been supplied with homes. The object Adapted from "The Building and Loan Movement in the United States," Commercial and Financial Chronicle, Bankers' Convention Supplement, 1901,

I

pp. 213-15.

of the club having been accomplished, the association would dissolve and cease to exist.

At a very early period in the history of these associations the idea of shares was introduced. By means of these the man who wanted to invest more money, and thereby be enabled to build a better home than his fellow-members, could be accommodated. Thus if the ordinary fund to be allotted for building purposes was $1,000, a member could, by doubling his payment, receive an advancement of $2,000 and have his payments cease at the same time as those of his fellowmembers. Or by increasing his payments 50 per cent, he could receive $1,500 to build his house, and other sums in like manner, the amount of money he could borrow from the society depending on the number of shares subscribed for. The face value of the shares would, of course, vary in different associations. In the eastern part of the United States, especially in Pennsylvania, shares of the face value of $200 each have always been the rule, while west of the Alleghenies $100 shares are common. In the matter of shares the Building and Loan Associations are directly opposed to the Mutual Savings Banks. These latter have no capital stock at all, while in the former, as a rule, there is nothing but capital stock, and the person who places his money in a Building and Loan Association does so in the payment of one or more of its shares of stock. Whenever his payments, with his share of the profits, make his stock worth its face or par value, the shares are said to be matured.

It will be seen from the very nature of the organization that regularity of payment for a series of years must, in some way, be secured, and in order to secure such regularity, a certain penalty or fine was assessed against members who became delinquent. The power of assessing fines was at first somewhat abused, but the present tendency is toward their gradual elimination altogether in some states. It would seem that regularity of payments might be accomplished better by adding an extra profit to the man who persists rather than by withholding part of the profits from the one who does not persist.

In the early associations there were various modes of determining who should have the right to borrow from the society. Practically all the members wanted to build and would be willing to pay the customary rate of interest for the funds, and there were always some who would be willing to pay more; hence the method which finally obtained the most favor was to put the money up at auction at the regular monthly meetings of the society and let the one who would

pay the most for the funds have the use of them. The amount that any member bid in excess of legal interest was called a premium, and as the premium went into the common fund and inured to the benefit of all the members, the legality of the premium has almost universally been upheld by the courts. In theory this was a fair and reasonable way to determine who should take precedence in the right to borrow, but it cannot be denied that premiums, like fines, became the subject of abuse and worked a hardship in many cases. The national associations that exploited the country from fifteen to twenty years ago seized on the fines and premiums as two important features of their system and made them the means of mulcting thousands of individuals throughout the country. Premiums, I am glad to say, are, like fines, a vanishing quantity. In principle there is no reason why a Building and Loan Association should charge either more or less for its money than other money-lending institutions are charging in the same community at the same time.

The payment of interest on the money advanced for homebuilding, the premium bid by members over and above the legal rate of interest, and the fines assessed against delinquents constituted from the very first a handsome source of profit to these associations; hence early in their history there were inducements to people to become members, not only for the purpose of acquiring homes, but also on account of the profits that accrued; and thus arose the two classes of members, depositors and borrowers, which still exist in every healthy, successful association. The introduction of the depositing member was in no sense a departure from the original purpose of the association, but was rather an additional means of securing the same end, as the depositing member paid into the common treasury the same amount in proportion to his shares that the would-be borrower paid, thus increasing the amount of funds to be allotted to homebuilders and making it easier and speedier for them to get their homes. The investing or depositing member has always been an important factor in these associations, and in our crowded industrial communities today the chief problem of many associations is to attract enough depositing members to supply the demand for loans. In order to attract depositing members certain privileges are allowed in the way of withdrawal of shares before they mature, but while the depositor is a member he pays regularly on his shares.

In the early associations it will be seen that as soon as the last man was provided with the funds to build his home the object of the club

had been accomplished and the association was ready to disband. In like manner, after the introduction of the depositing member, the association ran a certain course and then would wind up its affairs, the investors taking their shares in cash, while the borrowers had their mortgages released and their homes freed from debt. These were called terminating societies, because in a certain definite sense their affairs were terminated. It was often found, however, that after the original association was started others in the community wished to become members at a later date. Originally this could not be done, and the only recourse was to form a new association; but as this was cumbersome and expensive, it was not long before associations were formed which allowed members to join at stated intervals, these intervals being sometimes a year apart, sometimes six months, and sometimes three months, according to the number of new members that could be secured. These were called serial associations, and each group of members constituted a series. Each series was in reality a terminating association, having its loans matured, the borrowers having their mortgages canceled, and the investing members receiving the value of their shares in cash. The serial association had many advantages over the terminating society; it became more of a feature of the community, better methods of accounting were introduced, and its officers became more experienced and, consequently, more competent.

About the year 1870 in the city of Dayton, Ohio, there appeared a modification of the serial plan, which has since become known as the Dayton or permanent plan. In the serial association the man who wanted to join at any time between the regular dates for opening a series must either wait until the next series was opened or he must pay back dues from the time the last series was opened. This was not always convenient or advisable, and the permanent plan allowed a person to become a member at any time and take as many shares of stock as he would. Each member could thus mature his own shares independently of anybody else, and each borrower could likewise pay off his own debt in the same way. Fines and premiums were reduced; more liberal provisions for withdrawals were made and members were permitted to retire at any time, taking their share of the net profit with them. The liberality of this plan appealed to the general public, and it has superseded the terminating and the serial plans almost entirely in Ohio, and many of its features are being adopted in other states. It is still a battle royal whether the serial

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