IRC

THE MASSACHUSETTS CREDIT UNION ACT

by Gabriel Kirkpatrick, CUNA Archivist

ARCHIVES ALMANAC

In the early years of the twentieth century, loan sharking was a thriving business in most parts of the United States and had a particularly strong hold on urban areas. In Boston, Massachusetts, loan sharks were charging up to 500% interest on small loans, and collection tactics too often included harassment and physical assault. Wage attachment was a common practice, and the borrower sometimes found more than half his paycheck going to the loan shark.

On April 25, 1906, Massachusetts Governor Curtis J. Guild, Jr. appointed Pierre Jay as the state's first commissioner of banks. Jay was an excellent choice for the post as he had served as vice president of Old Colony Trust Company of Boston and had a history of distinguished service in the banking industry. Charged with the supervision of all financial institutions in the state, Jay made a commitment to deal with the problem of loan sharks and with the deeper problem of making small loans to borrowers at reasonable rates.

Jay approached everything he did with determination and thorough research. Busy as he was in his new position, the loan shark problem was one he could not put aside. Waiting for his train home one evening, he stopped in the Boston Public Library to browse in their banking collection and found Henry W. Wolff's book, People's Banks. He was so intrigued by Wolff's premise of economic self-help through cooperation, that he began an in-depth study of cooperative banking. His research led him to the work of Alphonse Desjardins and the Caisse Populaire of Levis, Quebec. In early 1907, Jay wrote Desjardins for details on the operation of his caisse populaire. For nearly a year, the two men corresponded regarding cooperative banking and the law which made the organization of such banks possible.

Finally, Desjardins invited Jay to meet him in Ottawa in July 1908. Desjardins was a legislative reporter and was thoroughly familiar with the drafting of laws and with winning legislative support for them. He encouraged Jay to begin drafting a law for Massachusetts and offered whatever assistance he could give.

The following November, Desjardins traveled to Manchester, New Hampshire to help Father Pierre Hevey and his parishioners at St. Mary's Church to organize a credit union, the first in the United States. He also took the opportunity to meet with Jay in Boston where the drafting of the Massachusetts credit union law was in progress.

Desjardins made another trip to Boston in February 1909 to confer with Jay and prominent Boston businessmen, Edward A. Filene and Felix Vorenberg, who were strong advocates of the new law. Discussion centered on the Quebec Credit Union Law which served as the model for the Massachusetts Act. Desjardins, Jay and James F. Curtis of the Massachusetts Attorney General's office, drew up a final version of the law, and Jay presented it to the state legislature for consideration.

The State Senate Committee on Banks scheduled a hearing on the bill for February 19, 1909. The committee heard strong supporting testimony from Desjardins, Filene and Vorenberg. The report of the committee was generally favorable, but they asked for some changes. Jay and Curtis redrafted the bill and submitted it to Desjardins for comment. The final bill incorporated Desjardins' suggestions, and the resultant draft went back to the banking committee. Jay, who was planning to resign as bank commissioner, wanted to get the law passed before his resignation took effect.

The Boston Merchants Association wielded considerable influence in getting the bill passed. "As a large employer," wrote Association member, Edward A. Filene, to the legislature, "I have long felt that some provision should be made by which people of small means can, in case of necessity or distress, borrow at reasonable rates of interest and under thoroughly honest and fair conditions." On April 15, 1909, the Massachusetts Credit Union Act became law. It served as the model for similar acts passed in other states, as well as for the Federal Credit Union Act passed in June 1934.

Filene was eager to get credit unions organized all over Massachusetts. He regarded them not only as a means of defeating loan sharks, but also as a way of promoting his theories of economic democracy – giving the wage earner control of his own finances. Jay was a little more cautious. "It is very desirable to have this sort of banking stimulated," he wrote, "but I question the wisdom of getting a lot of associations started all over the country by people who do not know very much about the subject without any state supervision or regulation to guide them." From the viewpoint of a bank commissioner, Jay's remarks were understandable.

While the credit union idea did not spread as quickly as Filene had hoped, the enactment of the Massachusetts Credit Union law opened the way for nationwide expansion. As soon as Filene committed substantial funds to the movement and hired Roy F. Bergengren to lead what Bergengren called his "crusade for economic democracy," the credit union movement began slow, steady progress across the United States.

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