For much of their early history, banks functioned primarily as deposit institutions. When they did give loans, they were only to “people of property,” and banks expected people to pay the money back in a lump sum at the end of the term. Back then, a person had to have money for a bank to loan him money.

Then the economy started to shift. In the 1920s, assembly lines brought about mass production, and suddenly the average person had access to a wider range of goods than ever before. Automobiles topped that list, and the demand for them grew quickly as roads improved and expanded.

Banks weren’t ready to loan money for these kinds of purchases—they viewed automobiles as a luxury and loans for them as unsound—and the average person couldn’t afford them on their own. Car companies had to get creative.

Ford Motor Company offered a layaway plan where buyers could make weekly installment payments and take home their car at the end. General Motors, however, took it a step further and set up its own finance company to offer installment loans. By 1924, sources say as many as 75% of automobiles were purchased with installment loans.

Seeing they were missing potential income got banks’ attention. Still, they remained skittish about the risk involved. Their concern only increased following the collapse of the economy in the Great Depression.

In 1934, the government began insuring mortgage loans from banks through its newly created Federal Housing Administration (FHA), offering banks a way to enter the installment loan arena at minimal risk. Up to this point, loans to purchase a home featured a single payment at the end of a three- to five-year term. Banks started to understand how to run an installment loan program of their own and their attitude shifted.

Lake City Bank, the only bank of Warsaw’s original five to survive the Great Depression, embraced the change. Under John Sloane’s leadership (president 1930-1953), the bank adopted the Kosciusko County Bankers Association’s Schedule of Fair Trade Charges in 1935. With fees established for handling loans and evaluating credit, Lake City Bank entered a new era of banking.