Money at Two Hundred Percent

...The credit union serves to bring the members of a group into a more neighborly spirit and this cannot but assist the Church in her spiritual mission...

...Its reported loans for the last year amounted to $8,448...

...It was to revise the iniquitous operation of the law of supply and demand as affecting small loans that the Raiffeisen and Schulze-Delitsch loan associations were started in Germany three-quarters of a century ago and that similar people's banks were later spread over Europe...

...E. A. Filene of Boston undertook the financing of a bureau to spread the credit union message in the United States...

...In the words of the pastor, Reverend J. M. Campbell, The savings of our members average nearly $100 for the year...

...More successful have been the postal credit unions the first of which was started in 1923 with assets of $18.50 and which in 1928 numbered 190 with assets of nearly $2,000,000 owned by 25,397 shareholders...

...It has reduced the losses of the lender, legitimatized the business and those engaged in it...

...From October, 1928, to October, 1929, the membership of this credit union increased from twenty-two to forty-four...

...The Committee also hopes to enlist the aid of Catholics who have had experience in credit union work so that it may be able to supply proper assistance to any parish desiring to organize credit along these lines...

...Because of the widespread existence of usurious practices in connection with small loans the Russell Sage Foundation as far back as 1907 undertook a serious and exhaustive study of the salary and chattel loan business which, in the language of a report of the Foundation, . . . showed the business of lending small sums on security of pledge or mortgage of personal property or the assignment of wages to be an extensive one...

...Its deposits increased from $1,300 to more than $4,000...

...whereas the lending of small sums to fellow-parishioners is not an overhead cost to the credit union...

...Saint Andrew's Parish Credit Union was organized in August, 1927, with forty-seven members...

...It was because of this success that Mr...

...As a result of the discussion at the Des Moines Conference a Parish Credit Union National Committee has been formed for the purpose of carrying on an educational campaign to bring the credit union to the attention of the parishes in the thirty-six states where credit union laws are now in force...

...Up to the present time this Uniform Small-Loan Law has been adopted with a few modifications in some twenty-four states...

...It is fraught with spiritual values that form not the least of the surplus from which the members get their dividends, while it adds no interest to the rate that borrower-parishioners must pay on badly needed funds...

...This paper states: We find from our scores of reports from all sections of the South that buying on "time prices" in an average state in the South is equivalent to paying interest at the rate of 70 percent per annum...

...The conditions seem to warrant a conclusion that this law is better than the passive policy of making no provision for small-loan companies, but that the terms of the law might be modified, in the light of ten years' experience, to the benefit of the small borrower...

...It is an asset rather than a liability...

...MONEY AT TWO HUNDRED PERCENT By FRANK O'HARA THE average prosperous citizen with satisfactory banking connections would probably be astonished to learn that throughout the length and breadth of the land there are less fortunate fellow-citizens who are compelled to borrow money and who are unable to borrow it except at the rate of a few hundred percent...

...But after debating the interest rate with the American Association of Small-Loan Brokers, the representatives of the Russell Sage Foundation came to the conclusion that "a flat rate of 3½ percent per month without fees or other charges would be necessary to supply the capital to meet the demand for loans in small cities...

...In August, 1929, it had 202 members and deposits amounting to $10,851...

...Among the advantages claimed for the enterprise by the spokesman of this credit union were that it fostered thrift among the parishioners, that it secured loans to members of the parish for provident and protective purposes at the relatively low rates of from 6 percent a year to 1 percent a month on unpaid balances, and that it tended to make more stable the membership of the parish since there is less need of moving than formerly...

...After all, 3½ percent a month is 42 percent a year, or rather 51 percent a year if the interest is reinvested monthly...

...At least $2,000,000 is due loan sharks by small borrowers in Iowa...

...Following the Quebec experience a few credit unions have been established with marked success by French-Canadian groups in New England...

...The members here and there have been bettered by the influence of the credit union...

...It was to furnish similar relief to the hard-pressed small borrowers in the province of Quebec that Al-phonse Desjardins organized the first of the cooperative credit unions in Levis thirty years ago...

...One of the parish credit unions reported upon was that of Saint Andrew's parish on the outskirts of St...

...A second parish credit union described at the Des Moines Conference was that of Saint Cecelia's parish at Ames, Iowa...

...The credit union really enables the priest to do much more fully the work that he is fitted to do...

...In this case the borrower paid $21.60 a year on an original loan of $5.00 or interest at the rate of 432 percent...

...In answer to the argument that this is the lowest rate permitted by the law of supply and demand it may fairly be objected that the law of supply and demand needs revision in this particular respect...

...The Court of Appeals of Alabama in 1921 held that a loan was usurious where the plaintiff signed a note for $5.00 stating on its face a rate of interest of 8 percent per annum, but in fact was required orally to agree to pay $1.80 per month for the use of the money and did pay such amount...

...A few years ago the editor of the Progressive Farmer, Raleigh, North Carolina, made an investigation of the cost of credit to farmers who were compelled to buy on time...

...I give the credit union my own heartiest approval and hope that it may find its way into every Catholic parish in this country...

...Louis, Missouri...

...and that under the conditions which governed it, a considerable proportion of borrowers were being exploited instead of relieved...

...It has substituted respect for disrepute...

...In the June, 1929, number of the American Economic Review there is a scholarly study of Connecticut's experience with the Small-Loan Law by Professor Clyde Olin Fisher of Wesleyan University...

...The bill authorized licensed lenders to charge on loans of less than $300 an interest rate of 2 percent monthly, to be computed on unpaid balances as instalment payments were made, with a small additional fee to cover the cost of drawing and recording necessary instruments...

...At the meeting of the Catholic Rural Life Conference, held in Des Moines in October, some of the results of these experiments were presented and were later published in the December and January numbers of the Conference's monthly publication, Catholic Rural Life...

...Putting the rate at a minimum, it averages about 10 percent per month or 120 percent per annum, which means $2,400,000 is being paid to the loan concerns by small borrowers for the use of this sum...

...Because of the difficulty of safeguarding the fee charge an alternative provision of a flat rate of 3 percent per month without fees was substituted, and in spite of determined opposition several states were induced to enact the bill into law...

...In some thirty-six states legislation has been enacted making possible the organization of credit unions upon favorable terms...

...During the past three or four years two Catholic organizations have been studying and experimenting with parish credit unions, namely, the Central Verein and the Catholic Rural Life Conference...

...Professor Fisher arrives at the conclusion that The small-loan act has probably saved the community from the greater evil of the loan shark...

...The Legal Reform Bureau to Eliminate the Loan-Shark Evil, Incorporated, is authority for the statement that in Iowa in 1921, Some money lenders are now extorting as much as 24 percent per month from small borrowers in this state...

...In many cases our members have never saved anything before...

...But the full story of the material service that we have been able to render is not told in terms of loans and savings...

...It is reported that thousands of similar loans varying from $2.00 to $50.00 are made every month in the large centres of population of Alabama at rates of 300 percent or higher...

...An important difference between the case for the loan shark and that for the credit union is that the difficulty of making small loans represents an overhead cost to the loan shark who is compelled to get this added cost back in a higher rate of interest...

...Thereupon the Foundation drafted a bill which required all lenders charging more than the banking rate to submit to license and frequent examination by the state banking department...

...According to the Foundation, The law has reduced unnecessary borrowing and lightened the burden of the deserving borrower...

...An interesting fact is that some of the members began with deposits as low as $1.00 a month but in a short time increased their deposits to $10.00 and $20.00 a month...

...The priest is able also to do a great deal of missionary work in building up respect for credit, because credit is the basis for the service of the credit union...

...It has saved the borrowing public from the payment of excess interest running into many millions of dollars...

...Under the influence of this bureau a number of credit unions were organized a few years ago in North Carolina but apparently they have been only moderately successful...

...Throughout a considerable part of the western world these popular banks are furnishing credit to small borrowers -but they do not charge 51 percent...

...The credit union is, however, more than an agency rendering material services...

...And while 51 percent may be necessary to keep the lenders of small loans within the law it seems to be a pretty severe penalty on the borrower...