Banking Abuses
[284]... Among the many abuses and violations of law and regulations with which the department has to contend are excessive loans; overdrafts; loose and unbusinesslike methods of accounting; excessive borrowings by the banks; investment of the bank's funds in securities not authorized by law; charging of usurious rates of interest; unlawful loans on real estate; excessive loans to officers, clerks, and employés of the bank employing them; loans to a bank's officers or employés and others through "dummies"; loaning money, directly or indirectly, upon the bank's own stock; transaction of a brokerage or commission business by the bank's executive officers, the commissions thus collected being sometimes appropriated personally by the officers and sometimes going directly or indirectly to the bank; false statements of directors as to ownership of stock; false statements made by bank officers, such as including as cash or cash items memoranda of moneys due from one source or another which do not represent actual cash and can not be immediately converted into cash; and failure or refusal when so directed to charge off bad debts and other ascertained losses; delay on the part of directors in taking the oath of office.
For many of the offences indicated the only penalty which can be enforced by the Comptroller's office is the forfeiture of the bank's charter by suit in the United States Court. This in many cases would prove a great hardship to innocent stockholders and depositors, and can only be resorted to with much reluctance by this office....
USURIOUS INTEREST RATES
[285]All the national banks of the country have been required in each report of condition made to the Comptroller's office since January 1 last to state under oath the highest rate of interest they have charged since the preceding report and the average rate of interest charged by them on all loans since the preceding report.
The reports received at the Comptroller's office show indisputably that in some States and sections borrowers, especially small borrowers, have been and are being subjected to extortions and exactions which the average man would consider impossible in this enlightened age.
One thousand and twenty banks in different sections of the country, out of the total of 7,615 banks, admitted that they were receiving an average of 10 per cent. or more—some an average of 18 per cent.—on all their loans.
Those receiving an average of 10 per cent. and upwards included 2 banks in Illinois, 6 in Minnesota, 2 in Missouri, 23 in Georgia, 6 in Florida, 21 in Alabama, 2 in Louisiana, 315 in Texas, 17 in Arkansas, 3 in Tennessee, 90 in North Dakota, 25 in South Dakota, 18 in Nebraska, 5 in Kansas, 38 in Montana, 14 in Wyoming, 37 in Colorado, 25 in New Mexico, 300 in Oklahoma, 12 in Washington, 10 in Oregon, 13 in California, 2 in Utah, 1 in Nevada, and 33 banks in Idaho.
Let me illustrate the methods of some of these bankers by giving you the facts and figures as taken from the sworn statements submitted to the Comptroller's office by the national banks in two particular States in the Southwest.
In one of these States there were 131 banks which reported that they charged a maximum rate of interest ranging from 15 per cent. to 24 per cent. per annum, 67 banks whose maximum rate ranged between 25 per cent. and 60 per cent. per annum, 22 banks which charged between 60 per cent. per annum and 100 per cent. per annum, 18 banks whose maximum rate was from 100 per cent. to 200 per cent. per annum, and 8 banks which owned up to having charged maximum rates ranging between 200 per cent. and 2,000 per cent. Most of these disgraceful and unprecedented rates were for comparatively small loans....
These figures are not results of the rule, applied by many banks, not to pass a loan on their books for less than a dollar.... When we find loans made by national banks for $25, $50, $100, $200, $500, and $2,000 or more, at 40, 50, 100, or 1,000 per cent., it is merely a hideous gamble on how long the borrower can keep starvation from his door and live and work. Yet I am told on good authority that in one State, largely agricultural, reports from nearly 200 banks—lending chiefly or largely to farmers—show losses of only a fraction of 1 per cent. on farmers' loans, while the average interest rate in these particular banks is 12 per cent. to 15 per cent.—and the maximum rate 30 per cent. or 40 per cent., the banks paying large dividends.
We read much of the infernos of the slums of the great cities, of degradation and misery and squalor, of the grinding callousness of tenement landlords and sweatshop operators. Here in the country we find bankers, men in business that should be the most respectable, as it is the most responsible, of all secular avocations, literally crushing the faces of their neighbors, deliberately fastening their fangs in the very heart of poverty....
A well thought out, carefully constructed, conservative system of rural credits for the development of agriculture and the increase of our wealth and resources by offering encouragement and opportunity to the ambitious farmer will come presently. When it comes all of us will share the splendid results....
BANKERS' VIEW OF USURIOUS INTEREST RATES
[286]On February 25 the following statement was "given out" from the office of the Comptroller of the Currency:
The Comptroller of the Currency received to-day from the Farmers' Grain Dealers' Association of Iowa notification of the adoption at the convention of that association in Des Moines, Iowa, on the 17th instant, of the following resolution:
Be It Resolved, By the Farmers' Grain Dealers' Association of Iowa, representing 40,000 members, as follows:
That we are as much opposed to bank discrimination in interest rates as to railroad discrimination in freight rates.
We oppose private control of the public currency.
That we strongly commend the Comptroller of the Currency for his courageous exposure of bank usury; and we unalterably oppose the efforts of the guilty parties to abolish his office.
There has been no better statement of the Comptroller's position than is here given—credit standing and variations of it must have no influence on interest rates and anyone who wishes his office abolished is guilty of usury; or, conversely, only those guilty of usury wish the office abolished.
The statement is inadequate only in the failure to define what is meant by "private control of the public currency."