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Credit union

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A credit union is a not-for-profit co-operative financial institution that is owned and controlled by its members, through the election of a volunteer Board of Directors elected from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it.

A credit union differs from a traditional financial institution (banks, savings and loan, etc.) in that the members who have accounts in the credit union are the credit union's owners. Since a credit union is a co-operative institution, its policies governing interest rates and other matters are set to benefit the interests of the membership as a whole; for example, credit unions often pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans. Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to remain in business, and this excess is used to expense loan losses and build capital.

Credit unions offer many of the same financial services as banks, including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit).

The for-profit banking industry has a conflicted relationship with credit unions. Bank trade associations are opposed with the tax-free structure on earnings that credit unions enjoy and American Bankers Association has identified the revocation of credit union’s tax free benefits topping its political agenda in 2004 and 2005. However bank holding companies and their affiliate aggressively compete to provide services to credit unions through their ATM networks, corporate checking accounts and Certificate of Deposit programs.

Membership restrictions

Governmental regulatory agencies require that credit unions restrict their membership to defined segments of the population, such as people who live, work, worship, or attend school in a well-defined geographic area, employees of specific companies or trades, members of specific non-profit groups (alumni associations, conservation or other advocacy organizations, lodges, churches, or the like) or a particular occupational group (teachers, doctors, etc.) In the U.S., this is referred to as a credit union's field of membership, in the U.K. it is referred to as the Common Bond

Mergers of smaller credit unions with disparate membership bases often result in a credit union with a wide variety of ways to qualify to join, thus a credit union may have a much broader field of membership than that credit union's name would imply. Credit unions generally follow the principle of “Once a member, always a member” which allows credit union membership to continue even if the individual is no longer associated with the qualification under which they joined the credit union.

Corporate credit unions

The majority of credit unions serve consumers. "Corporate" credit unions (also known as "Central Credit Unions") also exist, but instead serve the needs of credit unions with operational support, funds clearing tasks as well as product and service delivery - in effect, they serve as the credit union's credit union. The largest Corporate Credit Union in the United States is US Central Credit Union of Lenexa, Kansas.

Credit unions in the United States

St. Mary's Bank Credit Union holds the distinction as the first credit union established in the United States and is based in Manchester, NH. St. Mary's was founded by French-speaking immigrants to Manchester from the Maritime Provinces of Canada in 1908. Massachusetts was the first state to enact a credit union law. Department store magnate Edward Filene is credited as being the father of credit unions in the United States.

Early credit unions were viewed as the “poor man’s bank” because they would extend credit to people who otherwise would not qualify for credit. In 1934, those interested in seeing credit unions grow as an industry gathered in Estes Park, Colorado. From the Estes Park Conference, the Credit Union National Extension Bureau (the forerunner of CUNA) was established. Attendees at the meeting included Dora Maxwell who would go on to helping to establish hundreds of credit unions and programs for the poor in her lifetime and Louise Herring, whose work to form credit unions and ensure their safe operation earned the title of “Mother of Credit Unions” in the United States.

Credit unions in the United States have traditionally employed a state/national trade association relationship that aligns credit unions with state “Credit Union Leagues” followed by national affiliation with the Credit Union National Association (CUNA) of Madison, Wisconsin. Federal credit unions may also be members of the National Association of Federal Credit Unions (NAFCU)

Credit unions in the United States may be chartered under one of two governmental authorities:

    • Federally chartered credit unions (those with “Federal Credit Union” in their names) are chartered under the authority of the National Credit Union Administration. Federal credit unions insure their members share accounts through the National Credit Union Share Insurance Fund (NCUSIF), which guarantees the safety and soundness of the credit union.
    • State chartered credit unions may exist in states that allow for the chartering of financial institutions under the authority of the state. Unlike Federally chartered credit unions, state chartered credit unions in some states may choose to insure their assets through either the NCUSIF, or through private insurers such as American Share Insurance (ASI).

As of the end of 2004, the National Credit Union Administration (NCUA) insured more than $500 billion in deposits at 9,000 nonprofit cooperative US credit unions. The Federal Deposit Insurance Corporation (FDIC) insured more than $3,000 billion in deposits at 8,900 banks and thrift institutions. The NCUA and the FDIC are both independent federal agencies backed by the full faith and credit of the US government.

North American statistics

Canada is the country with the highest per capita use of credit unions, with over a third of the population enrolled in one. They are concentrated in Quebec, where they are known as caisses populaires (people's bank), and on the Western prairies. In Canada, trade association memberships for credit unions is required. Canada has a 100% affiliation of its credit unions in their trade associations, referred to as credit union leagues.

The United States has nearly 85 million credit union members, however less than 1 in 7 people who qualify for a credit union know that they qualify for membership. In United States, Federal credit unions may apply to the National Credit Union Administration for Low-Income Credit Union or LICU status. To qualify for LICU status, the majority of the credit union's membership must be low-income. This LICU status allows the credit unions to benefit from certain NCUA programs to enhance its capacity to serve underserved populations who may otherwise lack access to credit or other financial services. In addition, some state regulators also provide for similar low-income designations.

See also

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