Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-08-07
CREDIT BUSINESS
WEATHERS SLUMP
Reports Show Stock Market
Break Had Little Effect
on Contracts.
BY PRESTON S. KRECKER.

Special Dispatch to The Star.
NEW YORK, August 7.-Installment
credit, long anathema to old-schooi
bankers, has weathered the business
slump, if the record of one of the larg-
est installment finance companies In
the business is an index. The Com
mercial Investment Trust has reported
this week the largest net profits ever
earned in a six months period for
the half year ended June 80 last.
When the stock market panic broke
like bolt out Of the blue last Autumn
and pessimists were trying to think Of
every possible repercussion from that
untoward event they picked on the
installment credit situation as a poterl-
tial factor of great evil. Attention was
drawn to the enormous amount of bank.
credit, estimated at between two and
three billions of dollars, tied up in in.
stallment paper, and wholesale defaults
were visualized.
Borrowing Trouble.
It seems, however, that those who
professed such great fears were Dor
rowing trouble. One of the most favor
able features of the present banking
situation Is the manner in which hum
dreds of thousands of small borrowers
who buy goods on the partial payment
plan have met their obligations. It is
AZ SlIlCe Tic SUCK ILdEkcJ DIehk
precipitated the most acute business
depression the country has experienced
in nearly 10 years, and the public has
yet to hear of the collapse of INSTALL
ment credit
1t might be contended that insult
| ficient time has elapsed to reach any
| final conclusion. The experience of
| finance companies, however, has been
that the average installment credit runs
for year or less. Nearly all, If not
all, of the mstallment paper now OUT,
standing is paper that has been drawn
since the depression set in. It Is evil
dent, therefore, that the peak of the
test has been passed. 49,.
One of the fallacies popularity enter
| tanned about the instalIment credit
business is that people rush in to buy
| on the installment plan when they are
out of work or are fer other reasons
unable to buy for cash. The facts
seem to be that when times are hard
the public economies on installment
| buying, just as it does on cash pur-
chases. In the case of the company,
| in question the volume of sale of In.
| stallment credit fell off al per cent?
i, during the first six months of the year
| 1t is significant that this is about the.
| average percentage of decline In total
volume Of business.
Defaulted Payments.
Another popular fallacy is that when.
men are out of work or are on reduced
| income they default in their payments.
That also Is disproved by statistics. OF
course, there has been more than the
normal amount of defaults, hut it has
not been found necessary for finance
| companies to make any startling in
creases in the amount of reserves set
up to cover losses from defaults. Such
| reserves set up as of June 80 by the
large finance company mentioned were
! only 1876 per cent of the total volume
| of paper outstanding. In other words
| the company at the worst does not ex-
pect as much as per cent defaults.
One secret of the strength of the
installment, credit business Undoubtedly
is it's diversity. Moreover, it is widely
scattered geographically and occupa-
tionally-puFchasers including, doctors,
merchants, statesmen, farmers, me-
cfanics and housewives, with no great
percentage in one line of employment.
With the risk so thoroughly spread, the
ultimate loss is bound to be small.
@ Copyright. 1901