savings and loan association, type of financial institution that was originally created to accept savings from private investors and to provide home mortgage services for the public.

The first U.S. savings and loan association was founded in 1831. In 1932, the Federal Home Loan Bank System was created to oversee the savings and loan associations, with deposits to be insured by the Federal Savings and Loan Insurance Corporation (FSLIC). Since 1933 the federal government has chartered savings and loan associations, although they have not generally been required to be federally chartered. After World War II, the associations began a period of rapid expansion. Historically, savings and loan associations could be organized in two ways: either as a mutual or a capital stock institution. A mutual organization would be similar in operation to a mutual savings bank.

The savings and loan institution went through many changes in recent years, primarily due to deregulatory measures instituted in the 1980s by the U.S. federal government, allowing them to offer a much wider range of services than ever before. The deregulatory measures allowed savings and loan associations to enter the business of commercial lending, trust services, and nonmortgage consumer lending. The Depository Institutions Deregulation and Monetary Control Act of 1980 began these sweeping changes, one of which was to raise deposit insurance from $40,000 to $100,000. Many contend that this extension of insurance coverage encouraged savings and loan associations to engage in riskier loans than they might otherwise have sought.

Two years later, the Depository Institutions Act gave savings and loan institutions the right to make secured and unsecured loans to a wide range of markets, permitted developers to own savings and loan associations, and allowed owners of these institutions to lend to themselves. Under the new laws, the Federal Home Loan Bank Board (FHLBB) was given a number of new powers to secure the capital positions of the savings and loan associations. Under these new laws, the FHLBB allowed savings and loan associations to print their own capital, and escape charges of insolvency through such measures as "goodwill," in which customer loyalty and market share were counted as part of a capital base. As a result, a thrift that was technically insolvent could resist government seizure.

Savings and loan associations began to engage in large-scale speculation, particularly in real estate. Financial failure of the institutions became rampant, with well over 500 forced to close during the 1980s. In 1989, after the FSLIC itself became insolvent, the Federal Deposit Insurance Corporation took over the FSLIC's insurance obligations, and the Resolution Trust Corporation was created to buy and sell defaulted savings and loan associations. The Office of Thrift Supervision was also created, in an attempt to identify struggling savings and loan organizations before it was too late. The U.S. government expects it will cost more than $500 billion over 30 years to bail out the savings and loan associations.

loan, in business, sum of money borrowed at a particular interest rate. More generally, it refers to anything given on condition of its return or repayment of its equivalent. A loan may be acknowledged by a bond, a promissory note, or a mere oral promise to repay. Because of biblical injunctions against usury, the early Christian church forbade the taking of interest. In feudal European society, loans were little needed by the great mass of relatively self-sufficient and noncommercial peasants and serfs, but kings, nobles, and ecclesiastics were heavy borrowers for personal expenditures. Merchants and other townsmen, especially the Jews, were the moneylenders, and various devices were found for circumventing the prohibition of usury. With the rise of a commercial society, restrictions on the taking of interest were gradually relaxed. Today, banks and finance companies make most loans, usually on collateral, such as stocks, personal effects, and mortgages on land and other property, or on assignments of wages. Credit unions have attained some importance in making personal loans at relatively low interest rates, and microcredit programs and organizations, which offer small-scale loans, have proved useful, particularly in developing countries, in helping individuals to establish small businesses. A pawnbroker lends money on the security of articles left in his shop.

building and loan association: see savings and loan association.

Home Owners' Loan Corporation (HOLC), former U.S. government agency established in 1933 to help stabilize real estate that had depreciated during the depression and to refinance the urban mortgage debt. It granted long-term mortgage loans to some 1 million homeowners facing loss of their property. The HOLC ceased its lending activities in June, 1936, by the terms of the Home Owners' Loan Act.

Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, privately owned, government-sponsored organization that uses private capital to buy home mortgages as a means to help lower housing costs. A sister institution to the Federal National Mortgage Association, as well as a sometime competitor, Freddie Mac aims to foster liquidity, stability, and affordability in the U.S. mortgage market to give Americans the opportunity to afford housing. Chartered by Congress in 1970, it purchases mortgages from a variety of lenders and issues numerous publicly offered securities backed by those mortgages; it also retains some securities in its portfolio. One of the country's biggest buyers of home mortgages, by the early years of the 21st cent. Freddie Mac had provided help to over 46 million families, or approximately one in every six American homes. However, disclosures in 2003 that Freddie Mac had misstated its earnings for 2000-2002 damaged its credibility. The corporation has its headquarters in McLean, Va.

Financial institution that accepts savings from depositors and uses those funds primarily to make loans to home buyers. Savings and loan associations (S&Ls) originated with 18th-century British building societies, in which workmen banded together to finance the building of their homes. The first U.S. savings and loan was established in Philadelphia in 1831. S&Ls were initially cooperative institutions in which savers were shareholders in the association and received dividends in proportion to profits, but today are mutual organizations that offer a variety of savings plans. They are not obliged to rely on individual deposits for funds but are permitted to borrow from other financial institutions and to market mortgage-backed securities, money-market certificates, and stock. Because high inflation and rising interest rates in the 1970s made fixed-rate mortgages unprofitable, regulations were altered to permit S&Ls to renegotiate mortgages. In the late 1980s, a growing number of S&Ls failed because inadequate regulation had allowed risky investments and fraud to flourish. The government was obliged to cover vast losses in excess of $200 billion, and the Federal Savings and Loan Insurance Corp. (FSLIC) became insolvent in 1989. Its insurance functions were taken over by a new organization supervised by the Federal Deposit Insurance Corp., and the Resolution Trust Corp. was established to handle the bailout of the failed S&Ls.

Learn more about savings and loan association with a free trial on Britannica.com.

Credit cooperative formed by a group of people with some common bond who, in effect, save their money together and make low-cost loans to each other. The loans are usually short-term consumer loans, mainly for automobiles, household needs, medical debts, and emergencies. Credit unions generally operate under government charter and supervision. They are particularly important in less developed countries, where they may be the only source of credit for their members. The first cooperative societies providing credit were founded in Germany and Italy in the mid-19th century; the first North American credit unions were founded by Alphonse Desjardins in Lévis, Quebec (1900), and Manchester, N.H. (1909). The Credit Union National Association (CUNA), a federation of U.S. credit unions, was established in 1934 and became a worldwide association in 1958.

Learn more about credit union with a free trial on Britannica.com.

Small card that authorizes the person named on it to charge goods or services to his or her account. It differs from a debit card, with which money is automatically deducted from the bank account of the cardholder to pay for the goods or services. Credit-card use originated in the U.S. in the 1920s; early credit cards were issued by various firms (e.g., oil companies and hotel chains) for use at their outlets only. The first universal credit card, accepted by a variety of establishments, was issued by Diners' Club in 1950. Charge cards such as American Express require cardholders to pay for all purchases at the end of the billing period (usually monthly). Bank cards such as MasterCard and Visa allow customers to pay only a portion of their bill; interest accrues on the unpaid balance. Credit-card companies get revenue from annual fees and interest paid by cardholders and from fees paid by participating merchants.

Learn more about credit card with a free trial on Britannica.com.

Organization that provides information to merchants or other businesses concerning the creditworthiness of their customers. Credit bureaus may be private enterprises or may be operated on a cooperative basis by the merchants in one locality. Users of the service pay a fee and receive information from various sources, including businesses that have granted the customer credit in the past, public records, newspapers, the customer's employment record, and direct investigation.

Learn more about credit bureau with a free trial on Britannica.com.

Transaction between two parties in which one (the creditor or lender) supplies money, goods, services, or securities in return for a promised future payment by the other (the debtor or borrower). Such transactions normally include the payment of interest to the lender. Credit may be extended by public or private institutions to finance business activities, agricultural operations, consumer expenditures, or government projects. Large sums of credit are usually extended through specialized financial institutions such as commercial banks or through government lending programs.

Learn more about credit with a free trial on Britannica.com.

Short- and intermediate-term loans used to finance the purchase of commodities or services for personal consumption. The loans may be supplied by lenders in the form of cash loans or by sellers in the form of sales credit. Installment loans, such as automobile loans and credit-card purchases, are paid back in two or more payments; noninstallment loans, such as the service credit extended by utility companies, are paid back in a lump sum. Consumer loans usually carry a higher rate of interest than business loans. Seealso credit.

Learn more about consumer credit with a free trial on Britannica.com.