There are some domestic building and loan associations whose expense account is far in excess of that permitted by law. The auditor's raport of the building and loan associations furnishes an interesting study. It shows some domestic local associations conducting their business at almost a nominal expense-some as low as one-half of one per cent of the receipts. Many of the domestic building and loan associations, however, show the expenses to be far in excess of the amount received for the expense fund, which is, in my judgment, violation of the law. Other associations have made investments of funds in a manner not authorized by law, which jeopardizes not only the earning capacity of the home builder's fund, but also the principal which he has paid in from his savings. Other associations fail to show the amount of salaries of their officers, but report thousands of dollars of traveling expenses, office help, etc., which aggregate the full amount of the expense dues. One association masks together under the title of "Sundries," over $40,000 of unclassified disbursements. One association, with total assets of less than $2,000, shows expenses for salaries of nearly $900, and general expense of 8400. Some associations pay large salaries far in excess of the service rendered, it seeming to be the problem how best to "pluck the goose without making it squawk." Other associations show a praisworthy moderation in this respect. The Auditor's report furnishes food for reflection. It cannot, however, disclose the tears of the widow who has paid for years what was recognized as an exorbitant interest on a loan, and made payments on stock which she understood were payments on the principal, to find after years of privation that she owes as much as she did in the first place. It cannot tell of the blasted hopes and bitter disappointments of the young man, and maiden, the hired girl, and the laborer, who have, through years of privation, paid of their hard earnings into an association which promises so much and fulfills so little.

What are the remedies?

This is a difficult problem. I can only make tentative suggestions.

First-The law should forbid any part of the principal paid in by the stockholder to be used for expenses. Most associations deduct from 11 to 13 per cent of the amount paid in on installment stock, and apply the same to the expense fund The expenses should, in my judgment, be paid out of the profits A proposition made by one business man to another: "Let me take your money and invest it for you; I will secure you remunerative returns, but I will take, to pay for managing the affair, 13 per cent of the money you place in my hands," would be met with derision. Yet that is what nearly every building and loan association in the state does.

Second-There should, in my judgment, be a limit upon the expenses of the associations Most of the domestic local associations are now very moderate in their expenses; but not so with many of the others.

Third-All guarantee stock or preferred stock under any and all names which receives a fixed dividend, whether profits have been earned or not, should be entirely eliminated. If the associations are mutual in name and liability, there should be a mutuality of the profits. It is desirable that associations have the power, when there is a temporary demand for loans, to secure the money with which to supply the demand. This can be done by issuing paid up stock, with a limit placed upon the dividend it shall

receive, which amount shall in no case exceed the dividend earned by the other stock. Such stock should be called in when the funds of the association will permit, and it should not have a vote on amending the articles of incorporation.

Fourth. The power to impose fines and forfeitures upon persons who fail to pay the installments on their stock ought to be removed. There can be no good reason why a person making savings deposits from year to year should lose what he has already deposited in case misfortune should prevent him from depositing further; or that the amount deposited should be charged with fines and penalties because of his inability to deposit

more.

Fifth-How it will benefit the poor man or wage earner to permit him to enter into a contract to pay an interest which under the general law would be usurious, is something that surpasses comprehension. The exemption of building and loan associations from the law of usury, works a hardship which I am convinced was not foreseen by the former general assemblies.

Sixth. The executive council ought, in my judgment, to be given more plenary powers, including the power to revoke the certificate authorizing the association to do business.

Seventh.—Provision should be made by which money paid on stock by the party who has borrowed thereon, in case of foreclosure, should be treated as an absolute payment on the money borrowed, together with the profits, if any, credited on such stock.

Eighth.-Some provision should be made to enable associations to go into voluntary liquidation, with suitable provision for the protection of the borrowing member. In this connection it might be well also to authorize the assignment of the loans made by the liquidating association to some association of similar character, subject to the rights of the borrowing member to have the amount paid on his stock credited on such loan. It might be well to permit two or more associations to consolidate by a three-fourths vote of the stock of the respective associations, on terms which the execu tive council or some officer of the state should approve as equitable to all concerned.

Ninth. The effect of chapter 48, laws of the Twenty-seventh General Assembly, was to make new and different contracts for those affected thereby, which has worked a hardship in very many instances. In my opinion justice demands the repeal of said chapter, leaving all parties in their original contractual relations.

The amendment of the law along the lines above suggested would relieve the system of many of its inequitable features. It will be urged against some of the suggestions that no new association could be started depending upon the profits to pay the expenses, and that there would be no inducement for capitalists to put money into the stock of an association in case some or all of these suggestions should be incorporated in the law. If it is remembered that the building and loan association law was not made for the benefit of capitalists, but for another class of persons altogether, the suggestion loses much of its force. It is true, unquestionably, that such a law as above outlined would deprive associations of a source of profit; but at the same time it would strip them of the speculative features which have in

the past enabled the men of means to secure exorbitant returns for the use of their money at the expense of the very men and women whom it is the policy of the law to encourage and help. The plea in favor of liberal laws, so called, for such associations was made on the ground of their beneficial results to the wage earner and man of moderate means. They are claimed to be quasi benevolent associations. If they have ceased to be such, and become instruments of oppression, they have failed to demonstrate their right to live. If such associations cannot live under restrictions that will prevent the abuse which I apprehend is recognized as a crying evil, then they ought not to live; but I do not apprehend that the suggestions above made, if engrafted in the law, would seriously interfere with domestic local and worthy domestic associations. All unworthy ones should not be fostered by the state at the expense of the welfare of its citizens.

II.

AS TO INSURANCE COMPANIES.

The present law appears to give sufficient authority to the auditor with reference to companies organized to do the kind of insurance referred to in chapter 4, title 9 of the code, inasmuch as the articles of incorporation must be approved by the auditor after the same shall have been submitted to the attorney-general, and the forms of all policies issued are required to be submitted to the auditor for his approval. In regard, however, to companies referred to in chapter 5, title 9 of the code, formerly known as farmers' mutuals, there are few restraints upon their manner of doing business. The articles of incorporation and the form of policy are subject to the approval of the auditor, and if an examination of the auditor shows that the association is in an unsound condition, or doing an unsafe business, he may revoke the certificate of authority to do business. If such associations were limited to the county of their principal place of business, or counties contiguous thereto, the absence of legal restraint upon their acts would not be so objectionable. Such associations, when their business is confined to a neighborhood, are usually subject to the scrutiny of their members, and I think experience shows that the business is conducted honorably, cheaply, and to the entire satisfaction of the members.

But state associations are very different. There is no reason why what are called state associations under said chapter 5 should not be required to comply with chapter 4 of said title. There is just as much necessity for a state association organized under chapter 5, to have $25,000 of available assets, and be subject to the same inspection and restrictions as other mutual companies doing business under the provisions of chapter 4. The business which they actually do is the same. It is actually done in the same manner by premium notes, etc. The liability of the public to be defrauded is just as great. There are more complaints coming to this office in regard to the wrong doing and fraud perpetrated by the state associations than in regard to the mutual associations doing business under the provisions of chapter 4.

AS TO LIFE INSURANCE.

The laws of Iowa with reference to life insurance are in an anomalous condition. We have level premium companies, natural premium companies, stipulated premium associations, assessment associations, benevolent associations, fraternal associations; in fact, insurance companies of all descriptions, and some nondescripts Life insurance of all shades and complexions can be written under the laws of this state as they now stand. There is not, in my judgment, sufficient authority given to those who approve the articles of incorporation of the different insurance companies to prevent them doing a business not contemplated by the laws, or contrary to public policy. Only stipulated premium and assessment associations are required to submit their articles to either the auditor or attorney-general for approval, and the authority given such officers by the law appears to be very limited. The insufficiency of the law will appear when we consider the evils which are done under the law as it now stands.

AS TO THE EVILS.

The state control over some classes of associations is sufficient to induce the public to believe they are under state control, but that control touches so lightly that the associations do practically as they please. In such cases the state control is a delusion and a snare. An inquiry was received at this office from a man in Texas enclosing an advertisement by some agent of an Iowa company, in which it was stated that the state of Iowa guaranteed the payment of the policies.

Companies and associations are organized, and policies are issued, which should be accompanied by the company's private glossary or key to enable the members to understand the meaning of the terms employed. A policy was issued by an association, now happily deceased, which "accepted the policy holder as a general partner and member in said association to the extent of shares in its combination ten-year indemnity and accumulative cash surrender value securities limited to the aggregate benefit value of $100 per share," which may mean one thing to the company, another to the policy holders, and to the average citizen is gibberish.

Companies doing business on what is called by the statute, "level premium," or "natural premium plan," more commonly called old line companies, are not required to submit their articles of incorporation to any person whomsoever for approval; nor are such companies required to submit their policies to the auditor or any officer of the state for approval. Practically the only control over such companies organized in this state is that of the auditor, who is made the depositary of the capital stock of $25,000 and the net cash value of the policies in force, otherwise the reserve, but his authority is very limited.

The auditor can examine whether such companies are insolvent, and "if found to be insolvent, or the condition such as to render their further continuance in business hazardous to the public, or to the holders of its policies," to turn the matter over to the tender mercies of the attorney. general.

There is no provision of law authorizing the auditor, or any other officer, to call a halt upon the kind of business that such companies may

do, or to require the contracts which they may make with the public to be submitted to any officer of state for inspection and approval.

So-called old line insurance companies have been incorporated, and more are endeavoring to be incorporated, which have few or none of the characteristics of life insurance, and which are not conducted on life insurance principles, but whose principal business smacks loudly of the features of bond companies, which have been condemned everywhere as against public policy. They are insurance companies in name, and not in fact. A man of sixty is insured at the same rate as a child of five. No medical examination is required. The amount agreed to be paid in case of death is entirely incommensurate with the so-called premium paid. The so-called policy or bond is to mature in ten years, and 10 per cent of the face thereof is required to be paid by the holder every year. At the end of ten years, the promise is to repay the holder the amount that has been paid in by him to the company, and a share of the speculative accumulations arising from the lapses and forfeitures enforced against those who are unable to pay longer.

To state the proposition concretely: The company enters into a contract with the so-called policy holder to pay $1,000 at the end of ten years, in consideration of the policy holder paying for each of the ten years to the company the sum of $100. If the so-called policy holder fails to pay any year, even if he has already paid 3700, or 8800 or 8900, he loses and forfeits all that he has paid to said company. The company promises, in case the so-called policy is not forfeited or lapsed, that the holder shall receive a benefit from these lapses. I have seen statements made by the agents of such companies that the investor or policy holder will receive, at the end of ten years, double the money he has paid, and if he dies before the expiration of the ten years, he receives a small sum as life insurance. Statements are published showing a large percentage of lapses, and enormous profits are predicted because of the many lapses which will inure to the benefit of those who are the persistent members. Such companies take for their own use all of the first payment of $100. They set aside about 91 per cent of all the subsequent payments, which is invested, and from such sum they expect to realize enough to pay the amount which is absolutely promised.

Thus it will be seen that more than 18 per cent of all the payments made by the policy holders inures directly to the benefit of the corporation. One such company, during the year 1898, shows a total premium income of $148,000, and a death loss of $1,200. It shows commissions, bonuses to agents of over $66,000; salaries to officers and home office employes, over $1,000; total expenses over $83,000. The receipts from the new business were nearly $107,000. If we deduct the total disbursements of the company for expenses and death losses from the amount of the first year's premium, over $22,000 remains, which is a very handsome profit on a paid up capital of only $25,000. Whether such companies will be able, after deducting over 18 per cent of the total amount paid by the members, to fulfill their absolute promises of repayment of the total amount paid in, is very doubtful; but in no possible contingency will the company be able to pay the amount which the agents and officers represent to the policy holders they will receive. The average amount of insurance for the whole ten years does not exceed three-fourths of the amount which will be paid by the policy holder