Editor’s Note: This is the third in a five-part series of articles this week by Paul Thompson, author of “What You Need to Know About Today’s Credit Unions,” that is aimed at new CU employees and volunteers and which offers a background on the history of credit unions.
By Paul Thompson
Two philanthropists played significant roles in the effort to make small loans more affordable to working people: Margeret Olivia Slocum Sage, also known as Mrs. Russell Sage of New York, and Edward A. Filene of Boston.
Mrs. Sage was the widow of a hard-headed, miserly railroad and financial speculator. When the old skinflint died in 1906, he left $65 million to his wife, who embarked on a life of philanthropy. Among other things, she established the Russell Sage Foundation, which began investigating the problem of credit for the masses.
Mrs. Sage's foundation hired a young man named Arthur Ham in 1910 to promote more equitable credit for working people Early efforts included helping create credit unions in New York State, but soon Ham and the foundation focused on raising state usury limits for small loans to allow lenders to make a reasonable but not exorbitant profit. That would allow the more honest lenders to be licensed to operate legally and attract capital into the business and undercut the usurious unlicensed lenders, it was thought. Working together with small loan companies that wanted to emerge from the legal shadows (like the one that became Household Finance Corp.), Ham and the Foundation were successful in reforming many state laws governing small loans. This led to the thriving consumer finance industry of today.
Edward A. Filene, a shy young man who walked with a limp and suffered from eczema, was forced to abandon plans for college when his father became ill. Instead, he began working in the family's clothing store in Boson. His talent and leadership helped turn the store into a leading retail establishment in the city. Having made a fortune in retailing, Filene embarked on a career of philanthropy and civic reform.
Debut of the CUNEB
He became interested in the fledgling credit union movement, which was growing only slowly in a handful of states, including Massachusetts. In 1920, he plunged fully into supporting the young movement by hiring a lawyer, Roy Bergengren, to form what they called the National Credit Union Extension Bureau (CUNEB) and to work to spread the movement nationally.
The credit union was a cooperative in which members pooled their savings to make small loans to each other at legal rates. Its expenses were low, since it depended largely on volunteer labor and often operated out of a desk in the workplace. The most successful credit unions were formed in factories and government offices where workers received a regular wage. Defaults were kept at a minimum because the borrowers were usually known to the committee that approved loans and often had to have co-signers, and there was pressure from fellow workers whose savings were at risk.
Under Bergengren's leadership, and with Filene's financial support, state after state and then the federal government passed credit union laws. By 1939, the nation had more than 8,000 credit unions serving some 2.3-million members. The U.S. credit union movement has turned out to be one of Edward A. Filene's most lasting achievements, today holding nearly 10% of the nation's installment credit and serving more than 100-million Americans.
Tomorrow, we'll look at how banks entered the consumer loan field.
Paul Thompson, CUDE, is a former speechwriter with CUNA. His book, "What You Need to Know About Today's Credit Union," can be found on lulu.com.