loans to members; determine the maximum individual share holdings, and the maximum individual loan which can be made with and without security, except that no loan in excess of $50 shall be made without adequate security; and transmit to the members recommended amendments to the by-laws. For the purposes of this subdivision an assignment of shares or deposits or the indorsement of a note shall be deemed security. (d) CREDIT COMMITTEE.-The credit committee shall hold meetings, of which due notice shall be given to its members, to consider applications for loans to members of the corporation, and no loan shall be made unless all members of the committee who are present when the application is considered and a majority of all the committee approve the loan. Applications for loans shall be on forms prepared by such committee, which shall set forth the purpose for which the loan is desired, the security, if any, and such other data as may be required. (e) SUPERVISORY COMMITTEE. The supervisory committee shall make an examination of the affairs of the credit union at least quarterly, including an audit of its books; shall make an annual audit and report to be submitted at the annual meeting of the corporation; by a unanimous vote may suspend any officer of the corporation, or any member of the credit committee or of the board of directors until the next members' meeting, at which time the suspension shall be acted on by the members; and, by a mojority vote, may call a meeting of the shareholders to consider any violation of this subchapter or of the by-laws, or any practice of the corporation deemed by the committee to be unsafe or unauthorized. The said committee shall fill vacancies in its membership until sucessors to be elected at the next annual meeting have qualified. RESERVES SEC. 12. All entrance fees and fines provided by the by-laws and, before the declaration of any dividend therefrom, 20 per centum of the net earnings of each year, shall be set aside as a reserve fund against bad loans, which fund shall be kept liquid and intact and not distributed except in case of liquidation. DIVIDENDS SEC. 13. At the annual meeting a dividend may be declared from net earnings on recommendation of the board, which dividend shall be paid on all paid-up shares outstanding at the end of the preceding fiscal year. Shares which become fully paid up during such year shall be entitled to a proportional part of said dividend calculated from the first day of the month following such payment in full. EXPULSION AND WITHDRAWAL SEC. 14. A member may be expelled by a two-thirds vote of the members of the corporation present at a special meeting called for such purpose, but only after an opportunity has been given him to be heard. The credit union may require sixty days' notice of intention to withdraw shares and thirty days' notice of intention to withdraw deposits. Expulsion or withdrawal shall not operate to relieve a members from any remaining liability to the credit union. All amounts paid in on shares or deposited by expelled or withdrawing members prior to their expulsion or withdrawal shall be paid to them in the order of their withdrawal or expulsion, but only as funds become available and after deducting any amounts due from such members to the credit union. MINORS SEC. 15. Shares may be issued and deposits received in the name of a minor or in trust in such manner as the by-laws may provide. The name of the beneficiary shall be disclosed to the credit union. TAXATION SEC. 16. Credit unions, but not the members thereof, shall be exempt from Federal and District of Columbia taxation except taxes upon real property. SEC. 17. It shall be unlawful for any individual, partnership, association, or corporation, except corporations organized in accordance with this act, to transact business in the District of Columbia under any name or title containing the words "credit union," or to transact business at any place in the United States under any name or title containing the words " credit union " and "District of Columbia or "Federal" or United States or other words indicating that the business is transacted pursuant to authority of any act of Congress. Any Individual, partnership, association, or corporation violating this section shall upon conviction thereof be subject to a fine not in excess of $100 for each day during which the violation continues. 66 The CHAIRMAN. Now, we will take up two bills that have to do with the subject of short time loans in the District of Columbia. The first one was introduced by me some six months ago, known as the credit union bill, and it comes back to us with a favorable report from the Commissioners of the District of Columbia and from many of the citizens associations. Mr. Bergengren, of the Credit Union National Extension Bureau, of Boston, is probably better posted on this proposed legislation than anyone else. I think a short statement, Mr. Bergengren, as to what is contemplated would be helpful to the committee. STATEMENT OF R. F. BERGENGREN, REPRESENTING THE CREDIT UNION NATIONAL EXTENSION BUREAU, BOSTON, MASS. The CHAIRMAN. You said you represented the Credit Union National Extension Bureau. Tell us just what that is. Mr. BERGENGREN. The Credit Union National Extension Bureau is a part of the public service work of Edward A. Filene, of Boston, which I have been carrying on for several years. Mr. Filene encountered these credit unions abroad twenty years ago or so, and they were doing such fine work abroad, particularly in Germany, for small-salaried people, particularly in the rural districts, that for some years he has been spending quite liberally of his means to develop, or to foster in the United States a development of these credit unions. It is a completely disinterested service. We have no return direct or indirect for any work we do, our work being the promotion of these unions as a means of promoting this, and particularly of taking care of the credit problems of workers who are otherwise without resources available for use in their financial necessity. The CHAIRMAN. The effort of the credit union is to afford the worker an apportunity to invest funds, as well as to borrow? Mr. BERGENGREN. I think the purpose can be best illustrated by first defining credit unions. A credit union is a coorperative society organized within and limited to, in each case, a specific group of people, such as employees of a given post office, or the members of a given church parish, or the members of a given labor organization, or the employees of a given store or factory or mill, or something of that sort; self-managed Senator KEAN. What do you mean by "self-managed"? Mr. BERGENGREN. I mean it is managed by a board of directors chosen from and by the group served. Senator KEAN. In other words, this is somewhat on the line of a building and loan association? Mr. BERGENGREN. It is, except that it operates within small groups and takes care of, instead of the building problem, the home building problem, of these difficult short term credit problems. Senator CAREY. What is the security of the borrowers? Mr. BERGENGREN. The law works out a pretty careful plan of operations. I might say incidentally that this bill is based on 32 State enactments which have been in operation for some time. In other words, there are credit unions operating in 32 States. Senator KEAN. Which ones? Mr. BERGENGREN. Do you want me to recite them all? Mr. BERGENGREN. I have a list, and I think it will save time if I submit that list to the clerk of the committee afterwards. (Mr. Bergengren subsequently submitted the following:) The folowing States have credit union laws: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin. Mr. BERGENGREN. Let me illustrate, in answer to your question, the thing in this way: There are, for example, 247 credit unions of postal employees right now in these 32 States that have laws. Each one of these credit unions is limited to the employees of-well, in my city of Boston, to the employees of the Boston post office. It gets its charter from the State and operates like any bank under the supervision of the State Department of Banking. To belong to a credit union I must first agree to buy at least one $5 share, paying for it in cash, or 25 cents each pay day. If I want to subscribe for two shares, I will pay 50 cents each pay day, or 5 or 10 or so on. It helps the person who can save the least, and then helps the person who can save the most. This money is banked in some bank, chosen by the board of directors of the individual credit union and is used under the regulations contained in the law, and the by-laws to create credit resources for the members of that group and for them exclusively. The law provides that if a member wants to borrow up to $50, and a credit committee which is chosen from his group decides he is a good risk up to $50, they can loan it to him without any security. Over $50 the security varies with the size of the loan. It consists principally of indorsements, perhaps the assignment of his shares in the credit union, or some other security. Senator CAREY. Do you intend to loan a man more than he has put in? Mr. BERGENGREN. Oh, yes. A great many times in a credit union a man has not joined at all until he wants to borrow. I think perhaps I can illustrate this whole credit-union situation better by one simple story. Senator CAREY. It is based largely on the moral risk? Mr. BERGENGREN. Yes. For instance, I was in a credit union in the Middle West, in Cedar Rapids, Iowa, the other day, and a letter carrier wanted to tell me his experiences with a credit union. This particular man had a child-this is where we are interested-who was sick in a hospital. It had been sick at home for eight months and then sick in the hospital for eight weeks; had had three major opera tions and died. When the treasurer of the credit union learned of the man's condition, he owed $3,200 to five loan companies in Cedar Rapids. He had got to the point where it was absolutely impossible for him to extricate himself. The treasurer of the credit union, in the first place, had this man join. That means he subscribed to one share and made his first payment on it. Then the treasurer went around and made an agreement with his creditors whereby, in view of the various circumstances, some of the lenders operating illegally, they were able to compromise that claim for $800. That was still a pretty large loan for a credit union to make, because most of their business ranges from $5 up to $300. Then the treasurer came back to the letter carrier, made out a credit union note for him and said, "We are going to lend you twice as much as we ever loaned anybody else; that is, $800, but we don't want to have any losses and therefore we have got to be careful," and he advised the young man to go out and see what he could do. He went out and when he came back the note had 48 endorsements on it. It had as many endorsements as could be crowded on the back of the note, and the only reason somebody else did not endorse was because there was no white space left. In other words, what that man was able to do was to negotiate his standing with his fellows in the post office who were utterly unwilling that he should suffer any more after the difficulties he had had. In the Postal Service alone the credit unions, starting with the first one I organized seven years ago, in Brockton, with $18.50, in the postal credit unions alone in the United States we have already 40,000 members; over $3,000,000 in savings, and they have made over 100,000 loans aggregating more than $12,000,000 with their own money and under their own management. I have organized in the last 10 years a little over 1,100 credit unions. Not one of them has gone through the process of involuntary liquidation, and not one, in spite of the frightful times we have been going through, has failed, and in not a single one has a treasurer ever been obliged to have the security company make good on his bond. Senator KEAN. You have not heard of any cut in the wages of Government employees, have you? Mr. BERGENGREN. No; I haven't heard of any, but I can say this about postal employees Senator KEAN. I say, you have not heard of any cut. All I am getting at is the hard times have not affected them. Mr. BERGENGREN. No, but, for instance, I had a report before I left home of the 28 credit unions on the Rock Island Railroad. The largest of them is in Illinois, where the shop has been closed up for 28 months, and yet these credit unions show a very appreciable increase for that period. In other words, the credit unions seem to have a capacity for surviving hard times. Part of the reason for that is each credit union is limited to a specific group. It is a personal sort of affair and the credit union helps the individual member so much that they think of it as their show and do not abuse it. Senator KEAN. What rates of interest do you charge and what rates of interest do you allow? Mr. BERGENGREN. The limit provided in all our laws is 1 per cent. per month on balances; that is, 1 per cent a month on the money a man has the use of for the month, without any service charges. That is the limit. Each credit union decides for itself within that limit what rate of interest it will charge. Of course, it must be borne in mind what becomes of the interest charge. It goes back to the members as dividends, dividends on what they put in, and as sur plus, they being obliged to set aside each year 20 per cent of their net earnings as indivisible surplus. The CHAIRMAN. What is the limitation as to the amount anyone can invest in a credit union? Mr. BERGENGREN. That varies in the various laws. I am not so certain that there is any limitation in here. My recollection is that there is not. That generally is provided in the by-laws. This law provides that the supervisory authority has also the determination of the by-laws, and therefore there are a great many further safeguards contained in the average credit union by-laws. Of course, from the very nature of the case nobody has very much money in a credit union. The CHAIRMAN. I was wondering-say a man who had means to invest and who wanted to put, say, five or ten thousand dollars in these credit unions and draw out 12 per cent interest, is that possible? Mr. BERGENGREN. I don't see how he could possibly do it, because in the first place the earnings of a credit union would not warrant it, and, in the second place, if there was any real danger of that it would be better to so word the provisions of this bill that nobody could have in a credit union more than a reasonable amount of money, because that is not what a credit union is for. If a man has eight or ten thousand dollars to invest there are plenty of places for him to invest it. We do not like in a credit union to have the group composed of investors on one side and borrowers on the other. A credit union is an organization of members, some of whom from time to time become necessity borrowers. It is some time since I read over this law. But if there is any such possibilty of that happening, that of course could be very easily provided for by setting a limit. For instance, in Massachusetts, we revised our law a few years ago after we had it in operation for 15 years, and the maximum a member may have in a credit union is $4,000, and we think that is rather large. But very rarely does anybody get that amount, because the credit union is not an attractive proposition for anybody who has large resources. It is for a person, if he would save at all, must save in small individual units. As to what would happen if a person tried to put too much money in a credit union as an investment, I was thinking back over our experience in Massachusetts for 24 years. I think the average earnings were something like 6.2 per cent. I have never heard of a case where anybody thought it worth while to try to use a credit union for that purpose. Of course, every credit union is carefully limited to a simple group within some well prescribed limits, and it is not very often within these groups there are folks who have appreciable sums that are looking for investments. Most of the folks here to-day are folks representative of the sort of groups we have. For intance, Doctor O'Hare of the Catholic National Welfare Conference is familiar with the work we have done in the Middle West in organizing these credit unions in the little parishes, where the limitation is a parish. Some of these folks represent the central labor union. For instance, in Springfield, we have them limited to the members of the Sprinffield Central Labor Union. Mr. Brehm over here repre |