Morris Plan Bank

What Is a Morris Plan Bank?

A Morris Plan Bank is a type of bank that lends money to individuals who cannot obtain loans from mainstream banks. The name comes from Arthur Morris, a Virginia lawyer who established the Fidelity Savings & Trust Corporation in 1910. By 1931, there were over 100 Morris Plan Banks. This number declined after the economy recovered from the Great Depression, as commercial banks began offering similar loans.

Key Takeaways

• Morris Plan Banks catered to poor and working-class customers.
• Established in 1910, they were named after lawyer Arthur Morris.
• Morris opened the first Morris Plan Bank in Norfolk, Virginia, and expanded to more than 100 locations in various cities.
• Morris Plan Banks focused on the character and community standing of loan applicants rather than collateral assets.

Understanding Morris Plan Banks

Morris Plan Banks employed a lending approach that benefited poor and working-class borrowers. In 1910, lawyer Arthur Morris opened the first bank in Norfolk, Virginia, with just $20,000 in capital. The model proved successful, and by 1931, 109 Morris Plan Banks were operating under the Morris Plan Co. of America across 100 different cities.

Unlike modern banks, Morris Plan Banks did not require collateral for loans. Instead, they evaluated applicants based on character and community standing, with two peer references needed. Applicants also filled out an application covering character, financial history, employment, and wages.

If approved, borrowers paid interest and fees from the loan balance, committing to purchasing Class C Installment Thrift Certificates weekly to repay the loan.

When Morris Plan Banks first started, consumer credit for poor and working-class borrowers was unavailable elsewhere. However, by 1924, other commercial banks began offering small loans to this demographic. As the economy recovered from the Great Depression, commercial banks increasingly offered consumer credit products. The popularity and availability of installment credit and credit cards in the postwar period rendered Morris Plan Banks obsolete.

$100

The average debt taken through Morris Plan Banks by customers was $100, with loans provided in $50 increments.

Special Considerations

The Morris Plan required two personal references who would assume responsibility for the debt if the borrower defaulted.

With its success, Morris Plan Banks were among the first to offer auto financing in partnership with Studebaker. These banks also introduced credit life insurance, allowing loans to be repaid if the borrower died during the term. These policies were offered through the Morris Plan Insurance Society.

However, Morris Plan Banks faced criticism for not lending to many women, potentially due to the difficulty of finding two cosigners and lower earning power compared to men.

Example of a Morris Plan Bank

Here’s a hypothetical example illustrating how Morris Plan Banks operated. Suppose a borrower takes a $150 Morris Plan loan at 6% interest with a $1 fee. The customer would pay $9 in interest and the $1 fee from the loan balance, receiving $140 initially.

Each week throughout the loan period, the customer would purchase a Class C certificate. At the end, these certificates would be redeemed for cash to repay the loan.

The Bottom Line

Morris Plan Banks emerged in the early 1900s to lend money to individuals overlooked by most banks. Their model considered an individual’s character for lending instead of solely focusing on repayment ability. Although Arthur Morris expanded beyond Virginia, his model did not revolutionize the lending industry. Morris Plan Banks faced increasing competition from commercial banks that adopted modern credit standards after the Great Depression.