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credit union


n.

A cooperative organization that makes loans to its members at low interest rates.


 
 
Investment Dictionary: Credit Union

Member-owned financial co-operative. These institutions are created and operated by its members and profits are shared amongst the owners.

Investopedia Says:
As soon as you deposit funds into a credit union account, you become a partial owner and participate in the union's profitability. Credit unions are formed by large corporations and organizations for their employees and members.


 
Banking Dictionary: Credit Union

Not-for-profit financial cooperative that makes personal loans and offers other consumer banking services to persons sharing a common bond, typically employment at the same firm. Deregulation in the banking industry since the late 1970s has allowed credit unions to offer many of the same banking services as commercial banks, savings banks, and savings and loan associations. Federally chartered credit unions can write residential mortgages and issue credit cards. Many credit unions also offer interest-bearing transaction accounts (called a Share Draft Account). Credit unions can charge below-market rates on loans while paying higher rates to savers, as they are exempt from federal and state taxes. The Credit Union Membership Access Act of 1998 permits credit unions to expand their potential membership by soliciting members from more than one occupational group, as long as each member group is limited to 3,000 individuals. Credit unions get their operating funds from shares purchased by individual owners, who are called members, and pay dividends (representing the payment of interest) out of earnings.

The National Credit Union Administration an independent federal agency chartered in 1970, is the primary regulator of national (federally chartered) credit unions. It also operates the National Credit Union Share Insurance Fund, which offers share deposit insurance up to $100,000 per account for qualifying federal and state credit unions, and the Central Liquidity Facility, a lender-of-last resort for credit unions. See also Share Account; Share Draft.

 
Britannica Concise Encyclopedia: credit union

Credit cooperative formed by a group of people with some common bond who, in effect, save their money together and make low-cost loans to each other. The loans are usually short-term consumer loans, mainly for automobiles, household needs, medical debts, and emergencies. Credit unions generally operate under government charter and supervision. They are particularly important in less developed countries, where they may be the only source of credit for their members. The first cooperative societies providing credit were founded in Germany and Italy in the mid-19th century; the first North American credit unions were founded by Alphonse Desjardins in Lévis, Quebec (1900), and Manchester, N.H. (1909). The Credit Union National Association (CUNA), a federation of U.S. credit unions, was established in 1934 and became a worldwide association in 1958.

For more information on credit union, visit Britannica.com.

 
US History Encyclopedia: Credit Unions

The first 190 credit unions in the United States, organized between 1909 and 1921, differed from other depository institutions in the following ways: (1) officers were volunteers; (2) members were skilled artisans and thus had a common occupational bond; (3) the purpose was to help members accumulate capital so that they could set up their own businesses; and (4) they were democratic. Deposits took the form of dividend-paying share accounts. Regardless of the amount deposited, each of the 72,310 members of the first credit unions had only one vote in the elections of the committees that decided on loans and investments.

Credit unions did not have any full-time, professional staff until the National Extension Bureau was established in 1921, then reorganized as the Credit Union National Association (CUNA) in 1934. Arguing that employees with home mortgages and consumer installment credit are less susceptible to "bolshevism" and other forms of radicalism (for example, labor unions), the Extension Bureau staff lobbied the nation's leading industrialists to subsidize credit unions (for example, with free office space). Consequently, by the time of the 1929 stock market crash, an additional 784 credit unions were organized for 192,598 new members. However, this growth came at a price: not only had the purpose of credit unions changed but the common bond among members had changed too. Now members simply shared the same employer.

Without government intervention, mortgage defaults during the Great Depression would have bankrupted the credit unions. Largely through the Federal Credit Union Act of 1934, the government established the National Credit Union Association to regulate the credit unions and serve as their lender of last resort. It exempted the credit unions from taxes and subsidized their expansion among government employees. And the government imposed interest rate ceilings on commercial bank deposits that were lower than what credit unions offered for deposits. As a result, credit unions mushroomed in the postwar period, to a peak 22,533 in 1976. Largest by far was the Navy's credit union, with $568 million of the total credit union assets of $45 billion (the $45 billion itself being about 5 percent of total commercial-bank assets at the time).

However, the rapid postwar growth of credit unions came at the expense of actively discriminating against the poor and others without steady employment. Having thus abandoned their progressive roots, the credit unions became vulnerable to attacks by commercial banks. By emphasizing the word "union" in their name, the American Bankers Association argued that credit unions contributed to the spread of socialism in America. In response to the banks' lobbying, sections that rendered credit unions largely indistinguishable from other depository institutions were put into the Interest Rate Control Act of 1977, the Depository Institutions Deregulation and Monetary Control Act of 1980, and the Garn–St. Germain Act of 1982.

In particular, the elimination of interest rate ceilings that favored credit unions at the expense of commercial banks caused a hemorraging of deposits from, and thus a major consolidation of, credit unions under the auspices of CUNA. As a result, individual credit unions became little more than branch offices of CUNA. While individual credit unions still collect deposits and originate loans, these loans are now pooled by CUNA for issuing mortgage-backed and other types of securities. CUNA's asset managers invest the excess funds of the credit unions. CUNA also uses the individual credit unions as branches for offering stock brokerage services, money market accounts, ATMs, electronic fund transfers, credit cards, IRA and Keogh retirement accounts, and even some commercial loans.

Nonetheless, many progressives see the democratic origins of credit unions as a potential model for keeping local money in the local economy. They thus envision a role for credit unions in strategies for sustainable development that could displace the current tendency toward corporate-led globalization. There is a precedent for this progressive vision of credit unions. In the 1960s, 672 credit unions were established in poor urban areas. The Office of Economic Opportunity subsidized 245 of them, so that they could lend money for food and rent.

Bibliography

Moody, J. Carroll and Gilbert Fite. The Credit Union Movement. Lincoln: University of Nebraska Press, 1971.

Pearce, Douglas. "Recent Developments in the Credit Union Industry." In Contemporary Developments in Financial Institutions and Markets. Edited by Thomas Havrilesky and Robert Schweitzer. Arlington Heights, Ill.: Harlan Davidson, 1984.

—Edwin Dickens

 
Columbia Encyclopedia: credit union,
cooperative financial institution that makes low-interest personal loans to its members. It is usually composed of persons from the same occupational group or the same local community. Funds for lending come from the sale of shares to members and from the members' savings deposits. Cooperative banking originated in Germany in the middle of the 19th cent.; it was developed by Hermann Schulze-Delitzsch and later was particularly adapted to rural communities by F. W. Raiffeisen. In the United States, the Credit Union National Association (founded 1934) has been instrumental in organizing credit unions. Credit unions are important because they provide loans to blue-collar workers and small farmers, who would otherwise have difficulty securing credit at reasonable interest rates. Under provisions of the Credit Union Act of 1934, U.S. credit unions are chartered by their respective states or by the federal government.

Bibliography

See R. F. Bergengren, Credit Union, North America (1940); J. Dublin, Credit Unions: Theory and Practice (2d ed. 1971); J. C. Moody and G. C. Fite, The Credit Union Movement (1971).

 
Law Encyclopedia: Credit Union
This entry contains information applicable to United States law only.

A corporation formed under special statutory provisions to further thrift among its members while providing credit for them at more favorable rates of interest than those offered by other lending institutions. A credit union is a cooperative association that utilizes funds deposited by a small group of people who are its sole borrowers and beneficiaries. It is ordinarily subject to regulation by state banking boards or commissions. When formed pursuant to the Federal Credit Union Act (12 U.S.C.A. § 1751 et seq. [1934]), credit unions are chartered and regulated by the National Credit Union Admini- stration.

A credit union can be distinguished from other financial institutions by the fact that membership is ordinarily restricted to individuals who meet certain residential or occupational criteria. In addition, it can make loans of a more diversified nature than certain institutions, such as building and loan associations.

 
Economics Dictionary: credit union

An organization formed by employees of a company or institution to make personal loans at low interest rates to all employees of that company or institution.

 
Wikipedia: credit union
Financial market
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Investors

Speculators
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Institutional investors
Insurance companies
Investment banks
Hedge funds
Mutual funds
Pension funds
Private equity funds
Venture capital funds
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Credit Unions
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Financial market
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Corporate finance
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Public finance
Banks and Banking
Financial regulation

A credit union is a cooperative financial institution that is owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union.

Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it. As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health.

Credit unions may be viewed as non-profit organizations, or alternatively as for-profit enterprises charged with making a profit for their members (who receive any profits earned by the cooperative in the form of dividends paid on savings, which are taxed as ordinary income, or reduced interest rates on loans).

This debate reflects credit unions' unusual organizational structure, which attempts to solve the principal-agent problem by ensuring the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

In the United States, credit unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks.[1] Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency. Often credit unions have a lower cost of funds due to a higher proportion of non/low interest bearing deposits, than typical commercial banks.

Credit unions offer many of the same financial services as banks, often using a different terminology; including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit) and online banking.

Credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members.

Global dispersion

Based on data from the World Council of Credit Unions, at the end of 2006 there were 46,377 credit unions in 97 countries around the world. Collectively they served 172 million retail members and controlled US $1.1 trillion in assets.[2] Note that the World Council does not include data from co-operative banks, so that for example some nations generally seen as the pioneers of credit unionism (including Germany, France, Holland and Italy) are not included in their data. The European Association of Co-operative Banks reported 34 million members in these four countries at the end of 2005 [3]

The nations with the greatest credit union activity are highly diverse. According to the World Council, nations with the greatest number of credit union members included the United States (87 million), India (20 million), Canada (11 million), South Korea (4.7 million), Japan (3.6 million), Mexico (3.6 million), Australia (3.5 million), Kenya (3.3 million), Ireland (3.0 million), Thailand and Brazil (2.6 million each). Countries with the highest percentage of members in the economically active population were Dominica (147% -- that is, the average person is a member of more than one credit union), Ireland (110%), Barbados (72%), Trinidad & Tobago (57%), Canada (48%), the United States (43%), Benin (27%), Australia (26%), Senegal and Mali (19% each).

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." Internationally it is referred to as the 'common bond' or 'bond of association'.

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 current credit union membership to continue even if the individual would no longer qualify to be a member (such as having changed professions or moved outside the area). However, if the member closes his/her account, they may or may not be eligible to rejoin, depending on the credit union's policies and government regulations.

Credit Unions may be chartered to serve a specific employee group, but may, for example in the USA, be allowed to change their charter to a "Community Charter". Such a charter allows them to not only serve the original employee group, but now anyone who lives, works, worships, or attends school within a geographical field of membership. In the US, this field of membership can then be expanded with the approval of the National Credit Union Administration or state regulator, and similar options are available in some other countries.

Credit Union Leagues and Associations

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).

The biggest UK Credit Union trade association is the Association of British Credit Unions Limited, more commonly known as Association of British Credit Unions, ABCUL. Scottish Credit Unions are represented by the Scottish League of Credit Unions (SLCU) which has headquarters in Glasgow.

Corporate credit unions

The majority of credit unions are known as natural-person credit unions, and provide service to individual consumers. Corporate credit unions (also known as central credit unions in Canada) 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 a credit union's credit union. The largest corporate credit union in the United States is U.S. Central Credit Union of Lenexa, Kansas, which serves as a central clearing house for corporate credit unions. The two largest corporate credit unions that serve only natural-person credit unions are Western Corporate Federal Credit Union (WesCorp) in San Dimas, California and Southwest Corporate Federal Credit Union in Plano, Texas.


History

Main article: credit union history

Credit union history dates to 1852, when Franz Hermann Schulze-Delitzsch consolidated the learning from two pilot projects, one in Eilenburg and the other in Delitzsch in Germany into what are generally recognized as the first credit unions in the world. He went on to develop a highly successful urban credit union system.[4]

F.W. Raiffeisen
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F.W. Raiffeisen

In 1864 Friedrich Wilhelm Raiffeisen founded the first rural credit union in Heddesdorf (currently known as Neuwied) in Germany.[5] Although Schulze-Delitzsch can claim chronological precedence, Raiffeisen is often viewed as more important today. Rural communities in Germany faced a far more severe shortage of financial institutions than the cities. They were viewed as unbankable because of very small, seasonal flows of cash and very limited human resources. The organizational methods Raiffeisen refined there, which levered what is today called social capital, have become a hallmark of the global credit union identity.

By the time of Raiffeisen's death in 1888 credit unions had spread to Italy, France, the Netherlands, England and Austria, among other nations. The Raiffeisen name is still used by Raiffeisenbank, the largest banking group in Austria (with subsidiaries throughout Central and Eastern Europe), Rabobank (Netherlands) and similarly-named agricultural credit unions in Germany.

The first credit union in North America, the Caisse populaire de Lévis in Québec, Canada, began operations on Jan. 23rd, 1901 with a ten cent deposit. Founder Alphonse Desjardins, a reporter in the Canadian parliament, was moved to take up his mission in 1897 when he learned of a Montrealer who had been ordered by the court to pay nearly $5,000 in interest on a loan of $150 from a moneylender. Drawing extensively on European precedents, Desjardins developed a unique parish-based model for Québec: the caisse populaire.

In the United States, St. Mary's Bank Credit Union of Manchester, NH holds the distinction as the first credit union. Assisted by a personal visit from Alphone Desjardins, St. Mary's was founded by French-speaking immigrants to Manchester from Quebec in November 1908.

Pierre Jay, then Massachusetts Commissioner of Banks and Edward Filene, a Bostonian merchant, were central in establishing enabling legislation in Massachusetts in 1909.

Filene also created the Credit Union National Extension Bureau, the forerunner of the Credit Union National Association, which was formed as a confederation of state leagues at a meeting in Estes Park, Colorado in 1934. Attendees at the meeting included Dora Maxwell who would go on to help establish hundreds of credit unions and programs for the poor 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.

In the same year, Congress passed the 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.

United Kingdom

In the United Kingdom Credit Unions are regulated by the Financial Services Authority, or FSA. UK credit unions are classified under two types, type 1 are the smaller CUs while type 2 are larger. From November 2006 many type 2 CUs will be offering their members debit card accounts. For the first time this will enable CU members to obtain funds from any Link ATM. UK CUs will not be offering cheques as these are generally being phased out for many UK financial transactions. Many CUs are offering most of the services available from other financial institutions such as direct debits and standing orders.

Currently there is a government financial initiative mainly being operated by Credit Unions to bring financial services to the disadvantaged of society. One aim is to significantly reduce the influence of door step lenders where a £300 loan over 30 weeks involves paying back around £450. A credit union loan would require paying back around £325.

North American statistics

Credit unions are called caisses populaires in French speaking communities of Canada. This one is located in Shediac, New Brunswick.
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Credit unions are called caisses populaires in French speaking communities of Canada. This one is located in Shediac, New Brunswick.

Canada has the highest per capita use of credit unions in North America, with more than a third of the population enrolled in one. (ref: World Council of Credit Unions) They are concentrated in Quebec, where they are known as caisses populaires (people's banks), and on the Western prairies. As of Dec. 31 2006 there were 549 member caisses and 5.8 million retail members in the Caisses Populaires Desjardins federation. According to data from Credit Union Central of Canada on the same date there were 10.8 million retail members controlling CAD $193 billion in assets across all of Canada.

In the United States, credit unions have 86 million members, which is 43.47% of the economically active population[6]. In the US, 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 meet specific requirements in order to be considered "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.

Unlike banks, which were caught redlining underserved areas in the 1970s, credit unions are not subject to federal "community reinvestment" requirements -- essentially because credit unions, by their nature and mission of "people helping people," already meet the financial needs of a broad spectrum of people that fall within their fields of membership, and play an active role in community development and growth. Because of that, credit unions have successfully lobbied to exempt themselves from the (U.S. federal) Community Reinvestment Act, the law that forces banks to provide services in low-income areas.

As of the end of 2005, the National Credit Union Administration (NCUA) insured more than $515 billion in deposits at 8,695 nonprofit cooperative US credit unions. For comparison, 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.

Credit Unions and Banks in the United States

Tension has always existed between credit unions and banks. When credit unions were first organizing in the United States in the early twentieth century, the banking industry was opposed, remaining so ever since. These tensions have only been exacerbated as many credit unions have grown, expanded their fields of membership to include large communities and whole states, and in the eyes of some, are indistinguishable from banks[7].

Due to their status as not-for-profit financial institutions, credit unions in the United States are exempt from federal and state income taxes (but, not from employment or property taxes, among others). Additionally, credit union members pay income taxes on dividends earned through financial participation in the credit union; this is similar to the taxation structure enjoyed by many banks incorporated under Chapter S.

In the United States bank trade associations are opposed to the tax-free structure on earnings that credit unions enjoy and the American Bankers Association has identified the revocation of credit unions' tax-free status as topping its political agenda in 2004 and 2005.[citation needed] However, bank holding companies and their affiliates aggressively compete to provide services to credit unions through their ATM networks, corporate checking accounts, and Certificate of Deposit programs. In 2007, the American Bankers Association barred credit union employees from attending ABA sponsored educational seminars. This includes online classes that require registration. Based upon the pretense that the ABA only wants to serve its members, the American Bankers Association continues to attempt to weaken credit unions and take back the 6% market share that credit unions currently hold.

Credit unions maintain that no matter their size or field of membership, the fact that they are owned by their members and not shareholders makes them fundamentally different from banks[8]

References

  1. ^ [1]
  2. ^ World Council of Credit Unions, 2006 Statistical Report.
  3. ^ European Association of Cooperative Banks, Annual Statistical Report, 2005
  4. ^ J. Carroll Moody & Gilbert C. Fite. The Credit Union Movement: Origins and Development 1850 to 1980. Kendall/Hunt Publishing Co., Dubuque, Iowa, 1984, p. 4
  5. ^ J. Carroll Moody & Gilbert C. Fite. The Credit Union Movement: Origins and Development 1850 to 1980. p. 8
  6. ^ 2005 statistical report from the World Council of Credit Unions
  7. ^ Credit Union Competition, from the American Bankers Association web page regarding industry issues.
  8. ^ Why Credit Unions are tax exempt, from the governmental affairs section of CUNA's web site.
  • Ian MacPherson. Hands Around the Globe: A History of the International Credit Union Movement and the Role and Development of the World Council of Credit Unions, Inc. Horsdal & Schubart Publishers Ltd, 1999.

See also

External links


Co-operatives
Types of Cooperatives

Agricultural cooperative | Building cooperative | Credit union | Consumers' cooperative | Cooperative banking
Cooperative federation | Cooperative union | Cooperative Wholesale Society | Housing cooperative
Mutual insurance | Retailers' cooperative | Social cooperative | Utility cooperative | Worker cooperative
The Rochdale Principles

Voluntary and open membership | Democratic member control | Member economic participation
Autonomy and independence | Education, training, and information | Cooperation among cooperatives
Concern for community
Political and Economic Theories

Cooperative federalism | Distributism | Owenism | Socialism
Social enterprise | Socially responsible investing
Key Theorists

Robert Owen | William King | The Rochdale Pioneers | G. D. H. Cole
Charles Gide | Beatrice Webb | Friedrich Raiffeisen | David Griffiths
Organizations

List of cooperatives | List of cooperative federations | International Co-operative Alliance
Co-operativesUK | Co-operative Party

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Dictionary. The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2007, 2000 by Houghton Mifflin Company. Updated in 2007. Published by Houghton Mifflin Company. All rights reserved.  Read more
Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
Banking Dictionary. Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Britannica Concise Encyclopedia. Britannica Concise Encyclopedia. © 2006 Encyclopædia Britannica, Inc. All rights reserved.  Read more
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Columbia Encyclopedia. The Columbia Electronic Encyclopedia, Sixth Edition Copyright © 2003, Columbia University Press. Licensed from Columbia University Press. All rights reserved. www.cc.columbia.edu/cu/cup/  Read more
Law Encyclopedia. West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved.  Read more
Economics Dictionary. The New Dictionary of Cultural Literacy, Third Edition Edited by E.D. Hirsch, Jr., Joseph F. Kett, and James Trefil. Copyright © 2002 by Houghton Mifflin Company. Published by Houghton Mifflin. All rights reserved.  Read more
Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Credit union".  Read more

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