Loan societies, institutions established by the purpose of advancing money on loan to the industrial classes, and receiving back payment for the same by instalments, with interest. They are exempt from the provisions of the Money Lenders Act, 1900.
By the (English) Loan Societies Act, 1840 (3 & 4 Vict. c. 110 (continued by 21 & 22 Vict. c. 19, and made perpetual by 26 & 27 Vict. c. 56), forms of proceeding of a similar nature to those prescribed in the Acts regulating savings banks and friendly societies are requisite to enable loan societies to avail themselves of this Act, and see 51 & 52 Vict. c. 41, and 59 & 60 Vict. c.25, s. 2, as to certification of Rules by the Registrar of Friendly Societies.
These societies are entitled to issue debentures for money deposited with them (otherwise than by way of gift), and these as well as all other notes and instruments given in pursuance of the Act are exempted from stamp duty. They are also placed on the same footing with savings banks, in the event of the death of a claimant intestate who is entitled to less than 50l., the production of a will or letters of administration not being requisite.
The amount which a society may advance is limited to 15l.; and no second loan can be granted until the first is repaid. The society is permitted to receive by way of discount, at the time of the loan, interest under its enrolled rules, not exceeding 12l. per cent. and to receive the principal by such instalments as the rules specify, so that the first repayment shall not be sooner than the eleventh day from the time of the advance.
With respect to the recovery of loans, the act has provided a form of note to be signed by the borrower and two sureties; and upon failure in payment, the person liable may be summoned before any justice of the peace, who may levy by distress and sale of the goods. The society (by its treasurer) may proceed against the person liable, in any county Court having jurisdiction, and where the sum due happens to exceed the amount for which the Court has jurisdiction, may recover such part of the debt as that Court can give judgment for, in lieu of the whole.
An abstract of the accounts is to be made out yearly to the 31st December, and sent during January to the proper authority, to be laid before Parliament. Loan Societies Act, 1840 (English) (26 & 27 Vict. c. 56, 21 & 22, Vict. c. 19)
Loans, means when a banker makes an advance in a lumpsum the whole of which is withdrawn and is supposed to be repaid generally wholly at one time is called a loan. If the customer repays the same either wholly or partially and wishes to have accommodation subsequently, the latter will be treated as a separate transaction to be entered into if the bank agrees to do so and subject to such term as the bank may like to impose. Thus the bank does not suffer any loss of interest as a result of carrying excessive cash which is necessary in the case of cash credits and overdrafts. Loan accounts are said to have a lower operating cost than cash credits and overdrafts because of the larger number of operations in the case of the latter as compared to the former and consequently a lower rate of interest on loans appears to be justifiable than in the case of overdrafts and cash credits, Tanner's Banking Law & Practice in India, 18th Edn., Canara Bank v. P.R.N. Upadhyaya, (1998) 6 SCC 526.