The Loan Man: How Building and Loans Actually Worked
Six years into Colorado Springs, Walter Davis quit being a stenographer and became a moneylender. By 1912 he was calling himself “The Loan Man” in the city directory. He still listed himself as an attorney, too. He was not an attorney.
But the loan shark business wasn’t going to get him where he wanted to go. So he found something better. Something that looked respectable on the outside but could work just like loan sharking on the inside.
Building and loan associations.
What B&Ls were supposed to be
Building and loans started as a genuinely good idea. They migrated from England to America as self-help cooperatives for working people. The folks who joined them couldn’t get loans from commercial banks. Banks didn’t want their business. They were too poor, too risky.
So working-class people pooled their money. They met monthly in churches, community halls, or taverns. No fancy offices. No salaried officers. Every member got one vote regardless of how many shares they held. The whole point was simple: help each other buy homes.
Here’s how it worked. You’d buy shares in a local association. Then you’d borrow against those shares to finance a house. You’d pay monthly installments. After eight or nine years, the debt was paid off. Your home was yours.
Before B&Ls, buying a home meant saving up the full amount first. For a white-collar worker earning $1,000 a year, that could take fifteen years. Building and loans changed that by inventing what we’d now recognize as the amortized mortgage. Monthly payments instead of one giant lump sum. For a lot of families, this was the only way homeownership was possible.
By 1893, there were nearly 6,000 B&Ls operating across every state and territory. 1.4 million members. $473 million in assets.
The cooperatives died. The businesses thrived.
But here’s the problem. In the late 1880s, businessmen started creating “national” building and loans. These weren’t cooperatives anymore. They were for-profit companies run by wealthy industrialists. They had headquarters in one city and branch offices across multiple states. They paid huge salaries to officers and promoters. Regular members had no real power.
The nationals lured people in with dividend rates three to four times higher than traditional B&Ls offered. For people looking to make fast money, they were hard to resist. For the operators, the real profits came from hefty fees, fines, and payment structures designed to push borrowers into foreclosure.
It went badly. The depression of 1893 killed more than half of all nationals. By 1910, basically every single one had folded. Working-class members lost an estimated quarter of a billion dollars in savings.
And after the nationals collapsed? The B&L industry successfully fought off any federal oversight. State regulations remained pathetically weak. In Colorado, there was no B&L law on the books until 1897. And even that law required no reserves and didn’t stop officers from paying themselves commissions. Twenty-five states set no minimum capital requirement to start an association.
The B&L industry’s trade group lobbied Congress to exempt thrifts from corporate taxes by arguing they were “semi-charitable” institutions. At the same time, the group urged operators to make their offices look like banks. Get marble. Install brass fixtures. Add a teller’s cage. Fudge the line between what you actually are and what people think you are.
The loan shark becomes a “banker”
Walter Davis bought the City Savings Building and Loan Association in 1914. It was tiny. Fewer than thirty shares in force. A reserve fund of one dollar.
Within a few years, it was the leading B&L in Colorado Springs.
How? Davis ran it like a loan shark operation wearing a suit. He made himself president and treasurer. His wife Lula became secretary. The only other board member was a friendly attorney. The bylaws said just two board members needed to be present for decisions. So Walter and Lula could run everything themselves.
He charged borrowers $10 just to apply for a loan (about $220 in today’s money). If you missed payments for three months, the board could demand full repayment of everything. And borrowers signed over deeds to their property as security. When they defaulted, Davis took their homes.
One example: P.J. Hecox, a seventy-eight-year-old gardener, lost his ramshackle house on East Yampa Street after failing to make payments on a $1,500 loan. He ended up renting a space behind a shoe repair shop, where he raised chickens.
Davis also kept running chattel loans through the B&L. This was completely at odds with what building and loans were supposed to do. One auditor was shocked to discover it. But nothing happened. The state’s B&L inspector had no staff and barely any budget. Colorado spent $30,693 on bank regulation and $4,997 on B&L oversight. And the first B&L commissioner took direction from an unofficial cabinet of operators that included Davis himself.
Faking it all the way
The real trick was making people think they were putting their money in a bank. Davis handed out passbooks like a bank would. He told customers face-to-face that his business was a bank. In court records, he once claimed his “banking business” was separate from his B&L.
An eighty-one-year-old chiropractor named Dr. Woody “loaned” Davis $15,000 in 1929. When Woody got nervous and confronted him about whether the City was really a bank, Davis talked him into putting in another $2,000 the very next day. Four years later, Woody’s estate was suing for $17,500.
And Davis wasn’t alone in this. Across the country, building and loan operators were filling up with wheeler-dealers and former loan sharks. Echols points out that even some early scripts for It’s a Wonderful Life acknowledged this. At least two drafts featured two Georges: the good George Bailey and the corrupt version he could have become. Those scripts captured reality better than the final film did.
By 1916, two years after buying the City, Davis moved his family from their modest house to a four-bedroom Victorian in the fashionable North End. He was becoming exactly what he always wanted to be: a respectable man of means.
But the respectability was a performance. And the money was other people’s savings.
Book: Shortfall: Family Secrets, Financial Collapse, and a Hidden History of American Banking by Alice Echols (ISBN: 978-1-62097-304-2)
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