What is a Credit Union and Why Do We Exist,
What is a Credit Union and Why Do We Exist
What We Are
A credit union is a cooperative financial institution, owned and democratically controlled by the members who use its services. These people are considered member-owners. Typically, credit unions serve groups that share something in common, such as where they work, live, or go to church. They may also serve a specific town, county or geographic area.
Credit unions are not-for-profit, and exist to provide a safe, convenient place for member-owners to save money and to get loans at reasonable rates.
Credit unions, like other financial institutions, are very closely regulated. Federally insured credit unions are regulated by the National Credit Union Administration and backed by the full faith and credit of the United States government. Federally insured credit unions are regulated by the National Credit Union Administration and backed by the full faith and credit of the United States government. The National Credit Union Share Insurance Fund (NCUSIF) is the federal fund created by Congress in 1970 to insure member's deposits in federally insured credit unions. In 2010 The Dodd-Frank Wall Street Reform and Consumer Protection Act increased the share insurance coverage up to $250,000.
When Credit Unions Began
For more than 100 years credit unions have provided financial services to their members in the United States.
The first true credit unions were founded in Germany in the 1850s and 1860s during the famine to access affordable credit. This model of people helping people became the model for today’s credit unions. Distinguishing features of these early credit unions included:
Democratic governance; each member has one vote
Member-elected, volunteer board of directors
The first credit union in the United States opened its doors in 1909 in Manchester, New Hampshire and the credit union movement quickly caught on.
By 1934, President Franklin D. Roosevelt signed the Federal Credit Union Act into law, the stated purpose was to "promote thrift and thwart usury."1
What Makes Us Different from a Bank or Savings and Loan?
Like banks, credit unions accept deposits and make loans. But credit unions are not-for-profit organizations that exist to serve their member-owners. Banks are in business to make a healthy profit for their stockholders. Unlike banks, credit unions return surplus income to their members in the form higher dividends, better rates on loans, and lower fees. Every member is an owner with an equal vote in the cooperative.
Why We Exist
President Franklin D. Roosevelt signed into law the Federal Credit Union Act in 1934.
The stated purpose was to "promote thrift and thwart usury."1 The legislators who wrote this Act realized that the only way to "thwart usury" was to remove the reason for usury: profit.
Credit unions exist for a simple reason: To provide people with a choice to receive their financial services from an institution that is NOT designed to maximize the profit made off their transactions.
Credit unions do measure return on investment and profits from products and reserve capital. But, the purpose of those actions is to ensure that the credit union creates enough income and has the reserves necessary to stay open and remain able to serve the members.
Why Bankers Don't Like Us
Bankers don't like credit unions for the same reason that we exist: Credit Unions provide people with a choice - a choice to receive their financial services from an institution that is NOT designed to extract profits from their transactions to benefit stockholders or investors. The only "investors" a credit union serves are the members who use the products and services.
As long as credit unions remain in existence, people have a choice.
¹ Source: Credit Union National Administration (CUNA.org)