Morris Plan Bank

What Is a Morris Plan Bank?

The term Morris Plan Bank refers to a type of bank that was established to lend money to individuals who could not otherwise obtain loans from mainstream banks. The name is derived from the Virginia lawyer Arthur Morris, who founded the Fidelity Savings & Trust Corporation in 1910. There were more than 100 Morris Plan Banks that operated by 1931. That number declined after the economy recovered from the Great Depression, which was when commercial banks began offering similar loans.

Understanding Morris Plan Banks

The key feature of Morris Plan Banks was their so-called Morris Plan approach to lending, which was designed to benefit poor and working-class borrowers. The first bank was opened by and named after lawyer Arthur Morris in 1910 in Norfolk, Virginia. Morris started that branch with only $20,000 in capital. But the model worked so well that he expanded to 109 Morris Plan Banks that were operating via the Morris Plan Co. of America in as many as 100 different cities by 1931.

Unlike the banks of today, Morris Plan Banks did not require collateral for loans. Instead, they considered the character and community standing of applicants by requiring an applicant to submit two references from peers of similar character and financial status. All three were required to fill out an application covering character, financial history, employment, and wages.

If the loan was granted, the borrower would pay interest and fees out of the principal balance of the loan, and they would then commit to purchasing Class C Installment Thrift Certificates on a weekly basis in order to pay off the loan.

At the time the first Morris Plan Banks began operating, consumer credit for poor and working-class borrowers was unavailable from other banks. But by 1924, other commercial banks started offering small loans to poor and working-class customers. As the economy began to gradually recover from the Great Depression, most commercial banks began offering consumer credit products. The growing popularity and availability of installment credit and credit cards in the postwar period further rendered Morris Plan Banks obsolete.

Special Considerations

The Morris Plan required the use of references. As noted above, these were two individuals that the applicant knew personally. Along with providing character references, these two people also assumed responsibility for the debt in case the borrower defaulted on their financial obligation.

With the success of the model in Virginia, Morris Plan Banks were among the first banks to offer consumers auto financing, through a partnership with Studebaker. They were also one of the first banks to offer credit life insurance to allow a loan to be repaid in the event of the death of the borrower during the loan's term. These policies were offered through the Morris Plan Insurance Society.

But Morris's plan didn't come without criticism. Although Morris Plan Banks said they served the needs of the working class, they didn't lend to many women—if any at all. According to research, this could have been because of the difficulty in getting two cosigners and because of a lower earning power compared to men.

Example of a Morris Plan Bank

Here's a hypothetical example to show how the Morris Plan Banks worked. Let's suppose a borrower takes out a Morris Plan loan for $150, at 6% interest, with a $1 fee. The customer would then pay interest for $9, and the fee of $1, out of the starting balance of the loan. Therefore, they would initially receive $140 from the loan. 

The customer would then purchase a Class C certificate each week for the life of the loan. At the end of the loan period, the borrower would redeem their Class C certificates for cash, which they would use to repay the loan.

The Bottom Line

The Morris Plan Banks that popped up in the early 1900s attempted to fill a gap in the financial market by lending money to individuals that most banks wouldn't consider. Its model was based on lending by considering an individual's character rather than focusing strictly on their ability to repay. Although Arthur Morris expanded beyond his original location in Virginia, his model didn't necessarily revolutionize the lending industry. The Morris Plan Banks of the time began to face increasing competition from commercial banks that began lending to consumers using modern credit standards following the Great Depression.