much as the annual increase in the deposits of the reported savings banks.
These associations are properly made subject to supervision and examination by state officials, in the manner of that exercised over banks. They have been favored by exempting the shares of members and the mortgages held by the associa tions from all state and municipal taxation. As the houses built or paid for are taxed, this is of course just, but it is an exception to the rule of the illogical general property The figures here given and the description of methods apply to the "local" building and loan associations. The success of this kind led to the organization of other associa tions which took the name "National" building and loan as sociations, to carry on a business in a larger field. The num ber of these has always been comparatively small, and their operation is less simple, democratic, and economical than the local associations. They have had more of the nature of or dinary profit-making enterprises. They should not be con fused with the local associations.
§ 11. The main features. A building and loan association is organized by a group of persons in a neighborhood, unit ing to form a corporation under the laws of the state, every member to subscribe for one or more shares. The officers elected all serve without pay, excepting the secretary-treas urer, who receives a small fee for his services. All official meetings are open to all members. The shares vary in de nomination from $25 to $200; the larger figure being common under the serial plan and $100 being usual under the con tinuous (or permanent) plan, described below. Whenever there is a sufficient sum it is lent to one of the members for the purpose of building a house. The borrower must sub scribe for shares to the par value of his loan. Usually the loans made are large enough to cover a large proportion of the cost of the house, but the land on which the house stands must be free from all encumbrance, and its value 9 See eh. 18, § 4.
gives a margin of safety to the association. Then by the method of payment of dues the debt is, from the first month, steadily reduced and the security for the loan therefore grows constantly better.
The receipts of the association are of several kinds.
(a) Interest is received from borrowing members, usually at the rate of 6 per cent, and from banks at a lower rate on the small working cash balances kept on deposit.
(b) Premiums may be charged, either in the form of a higher rate of interest bid by the applicant for a loan, or in the form of additional weekly dues. Dozens of premium plans are in effect or have been tried, but the practice of charging premiums has decreased so that the total premiums now constitute less than 1 per cent of all payments from members.
(c) Fines for delinquency also are less commonly imposed now and constitute a small fraction of 1 per cent of total payments.
(d) Deductions are made on account of withdrawal before the maturity of these shares; under these circumstances it is usual to pay a portion but not all of the accumulated profits, sometimes a proportion increasing as the shares approach maturity.
Different plans have been and still are followed in respect to the method of issuing the shares. Under the terminating plan all the shares begin and mature at the same time (for all members that continue to the end), whereupon the associa tion dissolves or starts anew. The chief difficulty in this plan is that the association has too few funds to lend at the begin ning of its career, and a surplus of unlendable funds as it nears the maturity of the series. It is therefore necessary to encourage or to compel the withdrawal of non-borrowing members on the payment of estimated profits to date.
The better to remedy this difficulty, the serial plan was de vised, by which new series of stock are issued at intervals— yearly, half-yearly, quarterly, and even oftener.
§ 12. The continuous plan. A further development is the continuous plan (usually called the permanent or the Dayton plan), by which much greater flexibility is attained in the organization. Shares of stock may be subscribed for at any time, each man's separate subscription of shares being treated as a separate series, and maturing each at its own time. There is thus, after an association has been for some time in operation, a continuous stream of new members (or new subscriptions) flowing into the association, and a con tinuous outflow of shareholders whose shares have matured. The maturing shares of borrowing members discharge their indebtedness to the association; the maturing shares of non borrowing members are paid in money, or may (if the as sociation has use for the funds) be left as an interest-bearing loan.