Morris Plan banks allowed Americans of limited economic means to build credit. The demand for more consumer credit resulted in more than one hundred Morris Plan banks opening during the 1910’s and 1920’s, providing enormous economic opportunities to an untapped consumer group. The Morris Plan banks encouraged financial responsibility for their borrowers and introduced a new approach to lending that proved successful through the Great Depression.

In 1910, Arthur J. Morris, Arthur J.Morris, a Virginia lawyer, founded the first Morris Plan bank, the Fidelity Savings and Trust Company, in Norfolk. Banking;Morris Plan banksMorris understood the need to expand credit to Americans unable to secure banks loans because of their limited economic means. He believed that a combination of character and earning power should determine a person’s credit. Morris declared that through small loans that could be repaid over lengthy periods, borrowers could establish credit, practice thrift, make useful investments, and eventually achieve financial independence. At the time, many borrowers unable to secure loans from banks relied on loan sharks and other unscrupulous sources of credit. Morris demonstrated the Progressive Era desire to improve the lives of the less fortunate, while opening up a huge market for his business plan.Morris Plan banks

Morris developed his model on cooperative industrial banks in Europe and his knowledge of various banking laws in the United States. Potential borrowers could qualify for small loans (customers in 1936 averaged a loan of $250) by securing two cosigners willing to guarantee the payment or by offering acceptable collateral. To avoid state usury laws, the qualified borrower purchased an installment investment certificate from the bank instead of making an actual loan. For a certificate worth $100, the plan carried an approximate interest rate of 8 percent (about double the standard rate of the time). Parties agreed on the length and amount of installment payments, depending on the financial status of the borrower.

By the end of the 1920’s, Morris Plan banks were operating in more than thirty states, with the most locations in Massachusetts. This expansion reflected the great economic success of the banks. During the Depression, the number of Morris Plan banks stabilized at just over one hundred locations in 120 cities across thirty-two states. By the end of the Great Depression, new installment credit programs, credit cards, and competition from other financial institutions banks challenged the Morris Plan banks to remain relevant. During the postwar years, Morris Plan banks focused on consumer loans and abandoned the economic model established by Morris.

• Allen, Larry. The Global Financial System, 1750-2000. London: Reaktion Books, 2001.
• Chapman, Charles C. The Development of American Business and Banking Thought, 1913-1936. New York: Longmans, Green, 1936.
• Herzog, Peter W. The Morris Plan of Industrial Banking. Chicago: A. W. Shaw Company, 1928.

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