About Credit Unions

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What is a credit union?

A credit union is a not-for-profit financial cooperative, owned by the people who save in it and borrow from it. Every member is an owner with an equal vote in the election of the credit union’s board of directors. Credit unions function exactly like banks, with the important difference that they are non-profit. Credit unions are also regulated by the federal agency National Credit Union Administration, which is comparable to the Federal Deposit Insurance Corporation that regulates banks. Most importantly, funds deposited in most* credit unions are fully guaranteed by the U.S. Government.

What benefits do credit unions offer?

As not-for-profit financial cooperatives, credit unions are managed by volunteer boards of directors who are not paid for their efforts. Rather than focusing on profits for paid directors and stockholders, credit unions return earnings back to their members in the form of lower rates on loans, higher dividends on savings, and fewer and lower service fees. When credit union members pool their savings so that other members can borrow, they are supporting in the credit union philosophy of “people helping people.”

How did credit unions get their start?

The idea for credit unions was based on the simple principle that ordinary people could pool their money and make loans to each other. This concept evolved in early 19th century Europe with the first financial cooperative being organized by a group of workers in Rochdale, England in 1844. In the 1850s and 1860s, Hermann Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen were responsible for creating the first credit unions in Germany. In 1871, credit union legislation was considered in Massachusetts, however efforts in the 19th century to develop credit unions in the United States were not very successful.

The concept, however, continued to grow and in 1900, a Canadian named Alphonse Desjardins organized a credit union in Levis, Quebec. Desjardins devoted a large part of his life to credit union development in North America and organized the first credit union in the United States in 1909 in New Hampshire. Two Americans were profoundly influenced by Desjardins’ efforts: Pierre Jay, the Massachusetts banking commissioner; and Edward A. Filene, a Boston merchant. In 1908, a conference was held in Boston, which included Desjardins, Jay, Filene and other concerned citizens. Working with Desjardins, Jay prepared the legislation for what was to become the first general state credit union act in the United States. In 1921, Filene decided that the only way to promote the development of credit unions was to seek federal legislation and additional state legislation. He created the Credit Union National Extension Bureau and hired a Massachusetts attorney, Roy F. Bergengren, to help him. Bergengren and the Bureau were charged with developing effective credit union laws in each state and also at the federal level.

Filene and Bergengren hoped to create a nationwide association of credit unions to provide leadership and services to existing credit unions, and to organize new credit unions. By 1935, 39 states had credit union laws and 3,372 credit unions were serving 641,800 members. During the formative years of the credit union movement, credit unions banded together to create associations in each state. In 1934, the Credit Union National Association (CUNA) was formed as a confederation of state associations.

During this same year, Congress passed the Federal Credit Union Act of 1934, which facilitated the organization of federal credit unions across the United States. Today the credit union movement includes 11,369 credit unions nationwide serving over 77 million members. It is one of the strongest financial networks in the world with over 37,600 and 100 million members worldwide. Through cooperative efforts, credit unions of all sizes are able to offer their members a broad range of services to meet their financial needs.

* There are some credit unions that are privately insured.