Building and Loan Associations

cooperative unions designed to receive the savings of many wage-earning members and loan them to a few members for the building of houses. The system originated in Philadelphia about 1835. It has spread over a large part of the United States, until the various associations are credited with doing not less than $750,000,000 worth of business annually. The gist of the plan and the secret of its success lies in low expenses and the putting of many small savings at interest promptly. On the other hand, the moneys are loaned on good security to be returned, interest and principal, usually in weekly payments running through a term of ten to fourteen years. Though the total amount returned by the borrowing member may not exceed the principal and interest for the entire term at, let us say six percent per annum, the rate of profit to the association will be at least twice six per cent. In the first place, the borrower returns part of the principal out of his first week's wages, which he can do quite as well as to hold his savings for a large payment. On a fourteen-year plan, he holds only the last installment of principal fourteen years with an average time of seven years. Interest is also paid weekly instead of being held for an annual payment. The wage earner is far more certain of himself in making many small payments than in trying to accumulate for large payments. So, without hardship to the borrower, in fact, while helping him, the non-borrowing members of the association are encouraged to save and receive from three to five times as much interest as savings banks could afford to pay them.

The success of local societies has encouraged the organization of associations that operate over large territory. Many of these from the first have been mere schemes to despoil the depositor. Salaries and other expenses have eaten up all possible dividends, and recklessness in placing loans has caused loss. Others, organized in good faith, have not been successful. In general it may be said that a building and loan association should remain local, and confine its business to loans that may be looked after by a committee of members, or, at most, by a trusted secretary acting under the direction of an executive committee.

There were in the United States in 1909 5,599 building and loan associations, having 1,920,257 members and assets valued at $784,175,753.