In his annual report for the year ended October 31, 1915, Comptroller Williams stated that in the autumn of 1914, after the stock exchanges of the principal cities of the country had been closed as the result of the European war, a number of the banks in these cities arbitrarily raised the rates of interest on their loans secured by stocks and bonds from the ante-war rates of two or three per cent, to eight, nine or ten per cent., and in a few cases as high as twelve per cent, per annum.
On November 1, 1914, the Comptroller sent telegrams to all national banks in New York City and certain other large cities, requiring them to report the maximum rates of interest which they were at that time charging on loans, and when a reduction to a six per cent, rate might be expected if they were charging in excess of that amount.
In consequence of these telegrams, the Comptroller stated, nearly all the banks which were charging a rate in excess of six per cent, promptly reduced the rate to that figure.
In New York City three of the larger banks took exception to the Comptroller's attitude and referred to it as an attempt to force upon the banks a policy which they might not consider correct, claiming that there was a class of debtors not of prime standing and not having prime collateral who were not entitled to acommodation on the same terms as others more desirable.
The effect of the Comptroller's action, however, was the reduction in the high rate of interest by a number of banks to a uniform rate of six per cent.
After securing a reduction of the rates of interest charged by the large city banks, the Comptroller directed his attention to the rates being charged by the smaller banks throughout the country, and all banks were required to furnish the information called for in the reports of condition as hereinbefore indicated.'
An analysis of the reports received from the banks in response to the call for this information showed, the Comptroller stated, that some national banks in nearly every section of the country were charging rates of interest on some of their loans not only illegal and usurious, but injurious to the community, unfair and burdensome.
The Comptroller stated that these excessive and usurious rates were being charged mostly by the small banks in rural sections of the South, Southwest, West and Northwest.
Perhaps no administrative action on the part of Comptroller Williams aroused as much opposition and criticism among the bankers as his requirement in regard to interest charges to be shown in reports of condition called for December 31, 1915, in furtherance of his anti-usury campaign. The bankers complained that every form of condition report sent out by Comptroller
Williams contained a number of new questions and requirements, entailing additional clerical work, research and expense to the bank and delving into details to such an extent as to seriously handicap and interfere with the conduct of the bank's current business.
Some bank officers, under advice of their board of directors, flatly refused to furnish the information in the detail required, stating that it was physically and practically impossible for the work to be done within the five days allowed by law. Many banks protested that it was impossible to carry on the current business and at the same time do the work involved in the preparation of the information called for by the Comptroller, as it would require a separate interest calculation on every note, varying in amounts and dates of maturity, some on a discount and some on an interest basis, some with a recording fee and taxes added or deducted, depending upon whether paid by the bank or by the borrower, often changing the rate one per cent, or more, and many of the notes being for small loans of five or ten dollars for one week to one month. In short, the requirements of the Comptroller, it was contended, necessitated an acute examination of all the loans of the bank for an entire year, which was practically impossible without additional clerical help and serious interference with the bank's current business.
The annual report of the Comptroller for 1915 contained a long list of loans made by national banks for the period from August 1, 1914, to November 27, 1914, on which a greater rate of interest than eight per cent, was charged. This list gives the date and amount of each loan, the date of maturity and the rate of interest charged or collected, but omits the names of the banks. The names of the States in which the banks were located were given.
The annual report of the Comptroller contained a communication six and a half pages in length from an ex-judge of the County Court of Sequoyah County, Oklahoma, on the subject of "The Crimes of the Usurer in Oklahoma". It was charged in this communication that almost every bank in Oklahoma, without exception, state and national, was engaged in the business of exacting usurious rates of interest.
The writer stated that when he first went to Oklahoma he made a study of the subject of usury "not for profit but because it preyed on his mind," to such an extent that he delivered lectures and wrote essays on the subject.
By way of illustration he proceeded to weave a very pathetic story around some poor unfortunate farmer who, it was alleged, had become entangled in the meshes of one of those excessive interest-charging banks and was fleeced of all his worldly possessions.
This farmer's whole stock in trade, it appears, consisted of four mules, a horse or mare, five oxen, six yearlings, one or two wagons, etc., all of which were pledged as security for a loan and were eventually sold by the bank under foreclosure to satisfy the farmer's debts, leaving him penniless and a pauper.
Another instance was narrated of a man who also "went the road," as this correspondent expressed it. This man was old, with a family of six children. He was noted for his hard-working qualities "up to the time the bank began to pinch him". He had a good reputation which "went down as he went down," but his creditors never made inquiry, it was stated, "as to how he went to the bottom and became a beat." He took sick and died and the county had to bury him.
The failure of both of these men and their subsequent poverty and misfortune were all charged to their dealings with an unscrupulous bank which mercilessly exacted of them usurious interest on small loans and sold their chattels to satisfy their debts when they were unable to pay otherwise.
This letter and many others of a like tenor were received by Comptroler Williams in commendation of his efforts to compel the banks to observe the law in respect to interest charges.
The publicity given the activities of Comptroller Williams in connection with his efforts to break up usurious interest practices on the part of the banks seemed to strike a responsive chord in the mind of every individual in the country who ever had any difference with a bank or was denied an accommodation or forced to pay a loan, and many letters were received at the Comptroller's office of a nature similar to that of the Oklahoma judge.
The unusual and remarkable feature in connection with the letter from the judge was its publication in the annual report of the Comptroller and the implied authenticity which such publication gave the allegations of the writer without verification by investigation of the details recited, or his standing and reputation in the community.
Complaints against banks, of a varying nature, were frequently received at the Comptroller's office, and while many of them related to transactions which did not come under the Comptroller's supervision, as a rule, all were investigated, either by correspondence with the banks or by an examiner at the time of his regular examination.
With very few exceptions such complaints were found to be without justification, the transactions complained of coming clearly within the rule of recognized banking practices or of legal procedure. Rarely were any complaints received against banks of the nature of usurious interest charges.
The practice was almost universal in some sections of the country for banks to make a minimum charge of from twenty-five cents to one dollar on small loans for short periods. It was claimed by the banks that such loans were more of an accommodation to the borrower than of profit to the banks, and no complaints were made to the Comptroller by borrowers of this class that the banks had charged them excessive or unreasonable rates for the loans. To restrict the banks to the legal rate of interest on such loans, it was claimed, would have required them to make the loans at a loss or to refuse the borrower the accommodation.
In recognition of this fact the Comptroller subsequently modified his requirements by advising the banks that no loans need be reported on which a minimum rate of not more than fifty cents was charged.
The determination of Comptroller Williams to put an end to usurious interest charges by national banks was commendable and met with the approval of the best elements in banking. But the aspersions which were cast upon the banks as a whole by the publication of the letter of Judge McNabb in his annual report and other statements of similar import which appeared in the public prints were calculated, to create the impression that the isolated cases cited were fair illustrations of many of a like nature and that the national banks of the country generally were engaged in a nefarious loan shark business, when this condition was far from being the case.
If Mr. Williams had quietly instructed the national bank examiners to investigate at the time of their regular examinations and report to him any and all banks that were engaged in the practice of charging usurious and exorbitant interest on loans and then required these particular banks to discontinue their unlawful and reprehensible practices under the penalty of exposure and prosecution if they did not comply, instead of creating the impression in the public mind that nearly all the banks were engaged in this practice, it was believed much more beneficial results would have been accomplished and the evil consequences of unwarranted and unjust reflections upon the banks as a whole would have been avoided.