Morris Plan Banks were part of a historic banking system in the United States created to assist the middle class in obtaining loans that were often difficult to obtain at traditional banks. They were established by Arthur J. Morris (1881–1973), a lawyer in Norfolk, Virginia, who noticed the difficulty his working clients had in getting loans. The first was started in 1910 in Norfolk, and the second in Atlanta in 1911.
The plans established installment credit for customers. Lending required the borrower to provide references and proof of earnings to establish the borrower's credit worthiness. The banks gave depositors interest to secure funds for the loans. The banks were eventually organized as a New York-based banking organization (holding company) and made small loans to moderate income families through banks in more than 100 U.S. cities. In 1917, credit life insurance plans were offered. Morris Banks made 1,760,000 loans in its first 12 years, amounting to about $320 million.
The banks were affected by the Great Depression and changes to the banking industry in its aftermath.
Origins of the concept
In 1910, attorney Arthur J. Morris (1881–1973) opened the Fidelity Savings and Trust Company in Norfolk, Virginia, which made small loans to working people under a concept he called "Morris Plan". Under this lending approach, would-be borrowers had to submit references from two people of like character and earnings power who would guarantee the borrower's creditworthiness, and agreed to repay the loan through the purchase of Installment Thrift Certificates in weekly installments that would repay the face value of the loan. Morris Plan Banks expanded to more than 100 locations in the United States. At the time Morris Plan banks first appeared in 1910, few institutions existed for provision of consumer credit to low-and middle-income individuals.
Morris Plans pioneered the use of automotive financing (through arrangements between the Morris Plan Company of America, essentially a holding company for Morris Plan banks, and the Studebaker Corporation). The associated Morris Plan Insurance Society similarly pioneered credit life insurance (as it allowed for the loan to be repaid if the borrower died during the term of the loan, with any residue going to the estate).
History
Morris Plan banks expanded relying on state charters just as did the nascent credit union movement. By 1931, there were 109 Morris Plan banks operating in over 100 cities with an annual loan volume about $220,000,000.
“Walter W. Head, past president of American Bankers Assn., was elected president of Morris Plan Corp. of America, succeeding Austin L. Babcock. Morris Plan Corp. has large stock holdings in all the Morris Plan banks, the largest industrial banking system in the U. S. In the last 21 years these banks loaned $1,750,000,000 to 7,000,000 people, and now do about $200,000,000 annual business with 800,000 customers.”
Morris Plan banks pioneered the use of automotive financing through arrangements between the Morris Plan Company of America, the holding company for Morris Plan banks, and the Studebaker Corporation. In 1917 through the subsidiary Morris Plan Insurance Society, credit life insurance was offered to pay off any outstanding loan balance if the borrower died. Any insurance left over went to the borrower’s estate.
Morris Plan
Morris Plan Bank of Virginia
Opened in July 17 of 1922, the Morris Plan Bank of Virginia made loans based on “Character as the Prime Collateral.” Solicitors soon obtained over 2,000 savings accounts, and the volume of loans to individuals began to develop. The great majority of loans were made to persons seeking to borrow $100 to $300, who offered their notes, in keeping with the bank’s regulations, to run for twelve months, endorsed by two friends, relatives, or fellow-workers. At the same time the borrower agreed to open a savings account at the end of a week or two weeks or a month, as determined at the time of the loan. He agreed to deposit in the account at regular intervals 1/50 or 1/24 or 1/12 of the amount of his loan, so that at the end of twelve months there would be on deposit an amount, exactly equal to his note. He agreed in writing not to withdraw any funds from this savings account, but assigned it to the bank as additional collateral to his loan for the protection of his co-makers as well as the bank. That, then, was "The Morris Plan".