A credit union is a cooperative financial institution, owned and controlled by the people who use its services. These people are members. Credit unions serve groups that share something in common, such as where they work, live or go to church. Credit unions are not-for-profit, and exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates. Credit unions, like other financial institutions, are closely regulated. They are operated in a very prudent manner.
What makes a credit union different from a bank or savings and loan? Like credit unions, these financial institutions accept deposits and make loans — but unlike credit unions, they are in business to make a profit. Banks and savings and loans are owned by groups of stockholders whose interests include earning a healthy return on their investments.
Credit Union Philosophy
The credit union idea is a simple one: People should be able to pool their money and make loans to each other. It's an idea that evolved from cooperative activities in 19th century Europe. Since that time, the idea's guiding principles have remained the same:
- Only people who are credit union members should borrow there;
- loans are made for "prudent and productive" purposes;
- a person's desire to repay (character) is considered more important than the ability (income) to repay.
Members are, after all, borrowing their own money and that of their friends. These principles still govern most of the world's credit unions.
Who Can Join a Credit Union?
A credit union exists to serve a specific group of people, such as a group of employees or the members of a professional or religious group. This is called a "field of membership." The field of membership may include where they live, where they work or their membership in a social or economic group.
A Brief History of Credit Unions
As the 20th century began, the credit union idea surfaced in Canada. Canada's successful efforts profoundly influenced two Americans: Pierre Jay, the Massachusetts banking commissioner, and Edward A. Filene, a Boston merchant.
The two men helped organize public hearings on credit union legislation in Massachusetts, leading to passage of the first state credit union act in 1909. Growth was slow, however. Fewer than 10 states passed credit union laws, many unworkable. The Massachusetts Credit Union Association grew slowly.
In 1921, Filene created the Credit Union National Extension Bureau and hired a Massachusetts attorney, Roy F. Bergengren, to help him. Bergengren and the Bureau sought effective credit union laws in all states and at the federal level. When Bergengren began his efforts, there were only 199 U.S. credit unions, but during the next 13 years, the credit union movement grew dramatically.
Filene poured more than $1 million of his own money into the project. Bergengren appeared before state legislators, laws were passed and volunteer organizers were initiated into the "movement." By 1925, 15 states had passed credit union laws and 419 credit unions were serving 108,000 members. By 1935, 39 states had credit union laws and 3,372 credit unions were serving 641,800 members.
Credit unions banded together into leagues on a state-wide basis. Leagues provided financial and legal advice, organizing know-how and an instrument for credit unions to seek favorable state legislation. But something more was still needed.
A National Movement
By 1934, credit unions and leagues recognized the need for a national organization. At a meeting at Estes Park, Colo., the Credit Union National Association (CUNA) was formed as a confederation of state leagues.
In the same year, Congress finally passed a federal credit union act, which permitted credit unions to be organized anywhere in the United States. The legislation allowed credit unions to incorporate under either state or federal law, a system of dual chartering that persists today.
Almost immediately after its organization, CUNA recognized a need for credit-union-oriented insurance services and standardized office supplies. So in 1935, CUNA formed the CUNA Mutual Insurance Society.
After the War Years
World War II halted progress of the U.S. credit union movement, but the war's end brought renewed credit union growth. In 1945, there were 8,683 credit unions in the country; by 1955, there were 16,201; and by 1969, the U.S. movement reached its peak of 23,876 credit unions.
Since then, the number of credit unions has declined, as many smaller credit unions have merged into larger ones that usually offer more services. Membership, however, continues to climb. The number of credit union members doubled during the 1970s to more than 43 million. Today, nearly 85 million Americans are credit union members.
Growth and Challenge
Credit unions now have expanded around the globe. And their spectacular growth has made them an important part of the nation's financial system. CUNA and the state leagues work to protect the gains credit unions have made and to prepare them to operate in the financial world of the future without losing their unique tradition of service to people.
Through this cooperative effort, credit unions of all sizes can offer members sophisticated financial services, coordinate their marketing, upgrade their management and technical skills, and speak with one powerful voice in Washington, D.C. On the national level, CUNA provides credit unions with the products, services and leadership needed to compete in today's financial marketplace.
The credit union idea has grown to millions of people, but there is no limit to what the movement can achieve in terms of growth, service and, most important, as an instrument of cooperation and harmony between people everywhere.