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The main principles and most approved form of organization of Credit Unions may be outlined as follows:

a) FUNCTIONS OF A CREDIT UNION

1. It encourages thrift by providing a safe, convenient, and attractive medium for the investment of the savings of its members through the purchase of shares and the making of savings deposits.

2. It promotes industry by enabling its members to borrow for productive and other beneficial purposes.

3. It eliminates usury by providing its members, when in urgent need, with a source of credit at reasonable cost, which they could not otherwise obtain.

4. It trains its members in business methods and self-government, endows them with a sense of social responsibility, and educates them to a full realization of the value of co-operation.

b) BASIC PRINCIPLES

1. Equality. All members share equally in privileges and ratably in profits.

2. Democracy. The one-man-one-vote principle is fundamental. Each member has but one vote irrespective of the number of shares he may hold.

c) WHERE AND BY WHOM ORGANIZED

Any number of persons may combine to organize a Credit Union in a city, town, or rural community. In states that have Credit Union legislation a certain number of the incorporators must be citizens of the United States and of the state. Where a Credit Union is organized as an unincorporated or voluntary association this is not necessary.

d) BASIS OF MEMBERSHIP

The basis of membership in a Credit Union must be some common bond or community of interest. This may take a number of forms. It may be a neighborhood. It may be common occupation, employment by the same establishment, or membership in the same church, club, lodge, labor union, or other organization. In rural communities the church, parish, school district, or local grange furnishes a satisfactory foundation for membership.

e) QUALIFICATIONS FOR MEMBERSHIP

1. Identification with the basic unit upon which the Credit Union is founded the church, the club, the business establishment, etc.

2. Good moral character and a reputation for honesty, sobriety, and industry.

f) CAPITAL REQUIREMENTS

1. Capital consists of payments of members for shares and of unpaid dividends credited thereon.

2. There should be no limit to total number of shares.

3. Limitation upon number of shares held by one person is wise. 4. Par value of $5.00 is desirable.

g) FUNDS IN ADDITION TO CAPITAL

A Credit Union may accept the savings deposits of its members, and may borrow from members and others.

Interest on savings deposits should not be more than 1 per cent in excess of savings bank rates in the community.

Borrowing by the Union is merely an emergency measure and should be employed only when absolutely necessary to meet the credit demands of its members.

h) EMPLOYMENT OF FUNDS

Except for the Guaranty Fund, which the law may require to be invested in a particular manner, the funds of a Credit Union are primarily to be used for the purpose of making loans to members. Surplus funds should be deposited in banks or invested in prime securities.

i) WHO MAY BORROW

All members in good standing, except the Board of Directors, officers, and members of the Credit Committee and Supervisory Committee.

j) PURPOSES FOR WHICH LOANS MAY BE GRANTED

"It is essential that a Credit Union should loan only for productive purposes, purposes that will effect a saving, supply an urgent need, or that will otherwise prove of benefit to the borrower."

k) RATE OF INTEREST ON LOANS

As a matter of principle the interest charged on loans should be no greater than is required to pay the operating cost, a moderate rate of interest on deposits, to provide for a reasonable reserve or guaranty fund, and to pay a moderate dividend on shares. It is well to fix the maximum interest rate in the By-Laws. This rate should as nearly as possible approximate the banking rate of interest. (In New York the maximum rate of interest that a Credit Union may charge is 12 per cent per annum.) Care should be taken that the total charges upon loans do not exceed the maximum allowed by law.

1) DURATION OF LOANS

The By-Laws may fix a general maximum, but the time of individual loans should be fixed by the Credit Committee with due regard for the nature of the employment in which the members are engaged, their ability to repay, and the objects for which loans are made. A maximum of one

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

sum.

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.

174. THE BLESSINGS OF CO-OPERATIVE BANKS1

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

1 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 mai! 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 STATES'

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, 1906-II, 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

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