Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1889-07-31
THEY MUST BORROW.
At Least Members of Some Building
and Loan Associations Must.
RULES OF OTHERS ARE DIFFERENT.
A Clear Explanation of an Important
Financial Question.
THE LAW ON THE SUBJECT OF LOANS

A gentleman of Phillipsburg, Clearfeld
county, writes to THE DISPATCH, inclosing
advertisements of building and loan associa-
tions in Altoona, offering loans by them to
the public to bidders who can give approved
security. The writer complains that he
holds stock in an association in this city,
and every month receives notice that if he
does not borrow the association will borrow
for him and charge interest. He asks:
"Would it not be more consistent for this
association to take this postage money and
advertise the loan in the daily papers? They
say too much money; no one wants it, and
vet will not advertise" One association,
the gentleman states, frightened several
poor women out by such threats. He wants
to know if it can compel them to withdraw,
it claiming that it can. The correspondent
states that many poor people are thus i'm
posed upon, and some are frightened out
He also states that some of the aggrieved
have sought legal advice and asks if they
can be compelled to borrow, and if not can
they be made to pay interest.
TWO WAYS OF IT.
Now all this depends To satisfy the in
quirer it is we'll to state that the explana-
tion following is given by two lawyers.
Premium building and loan associations
sell loans to the highest bidders, and in con-
sequence frequently advertise the offers in
order to make money by increasing compe-
tition. In some mutual associations no loans
are made to outsiders unless there are no
applicants among the members, and then in
some of them the loan under their laws and
regulations must be made through trustee.
There are two ways of issuing stock. One
is to sell all the stock authorized by the
charter, or as much of it as can be disposed
of, at or shortly after organization, and then
run the business until the dues paid and
the profits earned will, together, equal the
par value of the stock as fixed by charter
and bylaws, and then the association winds
up or dissolves. This is called the terminal
ing plan. Some object to this plan, because
the length of time such an association will
have a demand for loans depends on the
number of stockholders who have become
members for the purpose of borrowing.
WHY THEY SHRIvEL.
In all associations some persons take stock
merely as an investment-for the purpose of
getting the par value of the stock in cash
when it natures. If there are many of
these, the demand for loans will cease long
before the stock natures. Many associa-
tions are unable to loan their funds for two,
three or four years before the stock has be-
come par. And during all this time the
money accumulates in the hands of the
treasurer and brings no interest, and hence
requires longer time to bring the stock up
to its full par value than it would if all the
funds were continuously employed earning
profits.
Such associations usually shrivel by reason
Of Withdrawals to less than half the amount
of stock with which they start.
The other way of issuing stock is in
series. Only portion of the shares author
lied by the charter is issued at the time of
commencing business, and the remainder is
issued at intervals thereafter until all the
stock is sold. The payment of dues on each
series begins with the date of issue, thus
making each series a new or separate asso-
citation, and the profits are divided between
the different series in proportion to the
amount of money paid in on each share of
each series, and the length of time it has
been employed in earning profits. This is
known as the serial plan, and gives, prob
ably, better general satisfaction than any
other, where the object sought is mutual
benefit.
The above is sufhclent to give clear
understanding of the subject. Now, sup
pose an association is organized on the
mutual benefit plan, and there is no pro-
vision for starting fresh series from time
to time. so as to relieve congestion when
borrowers are supplied, what remains to be
done with accumulated funds?
THE LIFE OF THE ORGANIZATION
may be so near its close that mortgages
cannot be taken for a period that will suit
borrowers, and the association must be
wound up to give satisfaction. The dues
may either be paid in or the money allowed
to lie fallow in the treasury. 1t is of no use
to advertise loans, for the members of the
association who want them know they can
get them, either on mortgage or on stock
note. As Mr.. @. Boehmer, Secretary of the
Prospect Building and Loan Association,
says, it is manifestly safer to make each
non-borrowing stockholder take a pro rata
proportion of his money back again than to
allow it to lie unproductive in the associa-
tion treasury. For want of employment it
will make no interest there, though it be
ever so honestly guarded, and by forcing q
member to take his money back he can
make some other investment, dispose OF his
money in any way he chooses; all suffer
equally. There is no longer a home market
for their money.
The only remedy seems to be the estab-
lishment of fresh series, or to run the as
sociation on the premium plan, and the lat
tor has not Drnven ponular in procfioa