Savings and Loan Association

• Author: Jeffrey Lehman, Shirelle Phelps

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A financial institution owned by and operated for the benefit of those using its services. The savings and loan association's primary purpose is making loans to its members, usually for the purchase of real estate or homes.

The savings and loan industry was first established in the 1830s as a building and loan association. The first savings and loan association was the Oxford Provident Building Society in Frankfort, Pennsylvania. As a building and loan association, Oxford Provident received regular weekly payments from each member and then lent the money to individuals until each member could build or purchase his own home. Building and loan associations were financial intermediaries, which acted as a conduit for the

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flow of investment funds between savers and borrowers.

Savings and loan associations may be state or federally chartered. When formed under state law, savings and loan associations are generally incorporated and must follow the state's requirements for incorporation, such as providing articles of incorporation and bylaws. Although it depends on the applicable state's law, the articles of incorporation usually must set forth the organizational structure of the association and define the rights of its members and the relationship between the association and its stockholders. A savings and loan association may not convert from a state corporation to a federal corporation without the consent of the state and compliance with state laws. A savings and loan association may also be federally chartered. Federal savings and loan associations are regulated by the OFFICE OF THRIFT SUPERVISION.

Members of a savings and loan association are stockholders of the corporation. The members must have the capacity to enter into a valid contract, and as stockholders they are entitled to participate in management and share in the profits. Members have the same liability as stockholders of other corporations, which means that they are liable only for the amount of their stock interest and are not personally liable for the association's NEGLIGENCE or debts.

Officers and directors control the operation of the savings and loan association. The officers and directors have the duty to organize and operate the institution in accordance with state and federal laws and regulations and with the same degree of diligence, care, and skill that an ordinary prudent person would exercise under similar circumstances. The officers and directors are under the common-law...