Building Societies are societies established for the purpose of raising, by periodical subscriptions, a fund to assist members in obtaining heritable property, freehold or otherwise. In the United Kingdom, they were formerly regulated by an act passed in 1836. After an elaborate inquiry by Royal Commission, with which the name of Sir Stafford Northcote (Lord Idesleigh) is connected, a new act was passed in 1874 (the Building Societies Act, 1874), and was amended in 1876 and 1877. Regulations are issued from time to time by the Home Secretary, as in 1876 and 1882, and the Court of Session has framed an act of sederunt regulating the liquidation proceedings of Scottish societies in the Sheriff Court. All societies established after 1874 must be governed by these later acts, and those which were in existence in 1874, called 'old societies,' may adopt them, but it is not compulsory upon them to do so. The Act of 1836 declares that it shall be lawful to establish such societies, for the purpose of enabling the members to erect and purchase dwelling-houses, or acquire other real or leasehold estate, which shall be mortgaged to the society until the amount or value of the shares drawn on shall be fully repaid with interest and all other appropriate payments. A share is not to exceed in value £150, and the corresponding monthly subscription is not to be more than twenty shillings. A majority of the members may make rules and regulations for the government and guidance of the society, such rules not being repugnant to the provisions of the act or to the general laws of the realm; and for offences against these rules and regulations, fines, penalties, and forfeitures may be inflicted. No member shall be allowed to receive any interest or dividend on his share until the same has been realised, except on the withdrawal of such member according to the rules of the society.
The Act of 1874 considerably enlarges the scope and powers of building societies. Section 13 declares that any number of persons may establish a society, either terminating or permanent, for the purpose of raising, by the subscriptions of the members, a stock or fund for making advances to members out of the funds of the society, upon security of freehold, copyhold, or leasehold estate, by way of mortgage; and any society under the act shall, so far as is necessary for the said purpose, have power to hold land, with the right of foreclosure, and may from time to time raise funds by the issue of shares of one or more denominations, either paid up in full or to be paid by periodical or other subscriptions, and with or without accumulating interest, and may repay such funds when no longer required for the purposes of the society. It will be seen that the restrictions of £150 and twenty shillings have disappeared, the contributions and ultimate value of a member's interest being at his own discretion. The liability of members, in respect of shares upon which no advance has been made, is limited to the amount actually paid or in arrear thereon; and in respect of shares upon which advances have been made, is limited to the amount payable under any mortgage or other security, or under the rules. Societies are empowered to receive deposits or loans, from members or other persons, corporate bodies, joint-stock companies, or terminating building societies, provided, in the case of permanent societies, that the total amount owing at one time shall not exceed two-thirds of the amount for the time being secured to a society by mortgages from its members; and in the case of terminating societies, shall not exceed two-thirds as aforesaid, or a sum not exceeding twelve months' subscriptions on the shares for the time being in force. Societies established under or adopting the Act of 1874 are bodies corporate, having perpetual succession and a common seal, thus dispensing with the cumbrous and inconvenient system of trusteeship. Their rules must specify the society's name and place of meeting; mode of raising funds, with their purposes and mode of investment; terms of withdrawal and repayment; manner of alteration of rules; the appointment, remuneration, and removal of officers; provisions as to general and special meetings, and the settlement of disputes, custody of seal, mortgage deeds, and securities, powers of directors and other officers, fines, and mode of dissolution. Societies may unite with others, or one society may transfer its engagements to another. They may purchase, build, hire, or take on lease any building for conducting their business. Minors may be members, but cannot vote or hold office during nonage. Accounts are to be furnished to members and loan depositors annually. The societies are exempt from stamp-duties of every kind, except those upon mortgages; while those which continue under the Act of 1836 retain their former exemption from stamp-duty upon mortgages up to £500. It is not probable that this difference will be permitted to continue long; and even now the slight gain is more than counterbalanced by the privileges of incorporation, &c. conceded by the Act of 1874. Receipts indorsed upon mortgages are sufficient discharges without reconveyance.
Two great divisions of building societies exist, the terminating and the permanent, but the latter are rapidly superseding the former. In the best-conducted societies, subscriptions are received at any time and to any amount, at the option of the member. The majority of members pay from ten to twenty shillings per month, and others pay smaller or much larger sums as convenient. Very large sums are received in some societies. The National Permanent of London receives £783,000 in the financial year from 11,395 members, and the Bradford Third Equitable receives £596,000 from 8148 members. Other large towns in the provinces are not far behind, and in London the societies are numerous, and in the main prosperous. The Royal Commissioners, in 1872, assumed that building societies had a subscribed capital of over £9,000,000, a loan or deposit capital of over £6,000,000, over £17,000,000 total assets (of which £16,000,000 was advanced on mortgage), and an income of over £11,000,000. In 1885 the number of societies in England and Wales was 2044, with a subscribed capital of £32,235,452, a loan or deposit capital of £15,655,162, assets amounting to £49,472,827, and total receipts in that year of £21,093,977. These figures are below the mark, as 200 societies made no return. The total membership is probably above 600,000. In Scotland there are only 50 incorporated societies on the register, with a subscribed capital of £696,803, a loan capital of £278,120, assets amounting to about £1,000,000. There are also 153 unincorporated societies. The largest Scottish societies are the Paisley Heritable and the Bon Accord of Aberdeen. In Ireland there are 40 societies, with a subscribed capital of £672,585, loan capital of £416,065, assets amounting to £1,108,000. Much the largest of these is the Irish Civil Service of Dublin, with annual receipts of £330,801, but there are also thriving societies in Belfast, Derry, Cork, and elsewhere.
The theory of these institutions is very simple. Money is collected in comparatively small sums from large numbers of people, and lent to others who borrow upon real security, either to build or trade, or for any other purpose. There was a time when members were only permitted to subscribe fixed sums at stated times, and every departure from rule was visited by heavy fines. Now, in the best-conducted societies at least, every facility is given for varying powers of investment to find a place for capital; and entrance and withdrawal are equally easy. In most cases, the repayments are upon a scale calculated to pay off both principal and interest in a certain number of years, usually about fourteen, but advances on private mortgage or repayable at the borrower's convenience are becoming more frequent every year. In fact, the almost limitless adaptability of the building society system has only been appreciated of late years, and every decade sees changes and improvements in it. Under the new legislation the societies may look forward to a still more prosperous future. Unfortunately the bad draughtsmanship of the acts has led to much litigation. The practical points raised have been chiefly as to the right of withdrawal on one month's notice by 'unadvanced' members—i.e. members to whom no advance has been made; the liability of borrowing members, who share in profits, also to share in losses; the rights attaching to 'matured' shares—i.e. fully paid up; the jurisdiction of courts of law, whether effectually excluded by the arbitration clause in the rules. The Starr-Bowkett Society is one form of the terminable building society. In the original Bowkett Society the subscriber lends the society a small sum annually for a very long time, say 31 years, and the society lends him a large sum for a short time, nominally without interest. In the Starr form, after a member has repaid money lent to him on property, he has to pay an increased subscription, so as to make the society terminate sooner. The advantage of these societies depends on whether the member gets his loan early or late.
In the United States, especially in and near Philadelphia, the number of building associations, as they are usually called, is very great, there being many thousands in all. The usual periodical instalment paid for shares of stock is one dollar per share each month. The funds are lent to borrowing members, a premium for the privilege being paid by such members in addition to interest. Small fines for non-payment of dues are sometimes exacted. Experience shows that in well-managed associations, the returns for money paid in is considerably in excess of simple interest.
See the four reports of Royal Commission on Building Societies from 1871 to 1874, with the local reports of assistant-commissioners; annual reports of the Registrar of Friendly Societies, Monthly Gazette of the Building Societies, and works by Davis, Wrigley, Scratchley and Brabrooke, Starr, &c.