Incorporated: 1933 as Navy Department Employees' Credit Union
NAIC: 52213 Credit Unions
SIC: 6061 Federal Credit Unions; 6062 State Credit Unions
Navy Federal Credit Union has been the world's largest credit union since the early 1960s. With assets of more than $11 billion, it is a financial powerhouse that serves nearly two million members and symbolizes the growth of the thrift industry in the United States. Once a source of emergency savings for those unable to find credit elsewhere, Navy Federal has come to offer car loans and home mortgages, placing it in direct competition with commercial banks resentful of credit unions' privileges as nonprofit institutions.
The early 1930s were not prime years for banking. Yet, from the midst of the Great Depression grew what would become the largest credit union in the world. An informal emergency pool put together by employees of the Navy Department in Washington, D.C., led to the incorporation on January 17, 1933 of the Navy Department Employees' Credit Union of the District of Columbia (NDCU). Its 'working title' was equally cumbersome: Navy Department Branch of F.E.U. No. 2, Credit Union of the District of Columbia. Membership in the Federal Employees' Union (FEU) was the 'common bond' requirement for the credit union, which by law was limited to serving a specific group of persons with a united interest. Ten thousand shares were offered at $10 each. The membership fee was 25 cents. Loans were limited to $25 each, at a maximum interest rate of one percent a month. William L. Harrison, president of the Navy Department Branch of the FEU, presided at the first NDCU meetings. The only office space the credit union could obtain at the Navy Department building was a desk next to the lobby, after hours.
The credit union concept itself was just then maturing. Washington, D.C., had only passed legislation allowing them in June 1932, against the protests of traditional bankers. NDCU started operations in February and had to shut down for the 'banking holiday' Roosevelt declared the next month to stop panicking investors from closing their accounts en masse. In spite of the obstacles, membership crept upwards and so did the demand for loans. At the end of 1933, it had 49 members and 18 borrowers. Assets were $450. The next year, the thrift had 250 members and about $2,700 in assets. It paid its first dividend in 1936--three percent, which rose to six percent by 1940, when assets reached $80,000. By the next year, it had attracted nearly a thousand members.
Although NDCU had finally gained some credibility and the accompanying perquisites--its own office, money to hire personnel, and promotional support--World War II changed the playing field substantially. Congress introduced legislation (Regulation W) to curb access to consumer credit. The Soldiers' and Sailors' Civil Relief Act--which prevented creditors from executing judgments during wartime--and conscription combined to give the credit union a serious collections problem. Federal examiners criticized the institution for excessively lenient lending policies which led to massive writeoffs in 1943. Dividends were subsequently suspended, and membership began to wane.
The thrift was rechartered under more flexible federal rules in June 1947. Paul Boyer, formerly treasurer, became president. Now the Navy Department Employees Federal Credit Union (NDEFCU), its potential membership expanded to include military and civilian Navy personnel in the Washington area. Robust growth in assets and membership followed the reorganization. This growth, however, soon led to another delinquency crisis.
The board named William A. Hussong, Jr., as the credit union's first office manager in October 1951. This marked the beginning of the professionalization of the thrift. Hussong, who had helped start the Railway Employees Federal Credit Union, at first found himself in a tug-of-war with the board, who were reluctant to share power. They ultimately relented when faced with rising delinquencies and possibility of federal censure for lax bookkeeping. Fifteen percent of the bank's loans were delinquent in 1952.
Although NDEFCU introduced improvements such as a keysort card system and mail-in payment coupons, membership fell with the Korean War and the bank's inability to maintain decent dividends. Against this backdrop, in 1954 the credit union decided to extend membership beyond Washington, to all Navy employees worldwide. Payroll deductions would make this plan workable. Officers, deemed more stable and creditworthy, were the first to become eligible. The thrift changed its name to the Navy Federal Credit Union (NFCU), and the next year, moved its expanded operations into the Navy's 'N' Building.
NFCU increased its range of services as membership, savings, and loans swelled in the last half of the decade. The membership pool now included naval aviation cadets and noncommissioned officers, and most members lived outside the Washington area. NFCU ended the decade with $10 million in assets and 23,000 members. The credit union was reorganized, and salaries and benefits brought in line with those of military employees. Most of the membership was made up of military employees by this time, and one by one high-ranking military officers began to be picked for the board of directors. After Hussong's replacement Tom Landers stepped down to enter a consulting career, in 1963 the board chose Richard Cobb, a retired Navy captain, as the next manager. Formerly head of the Navy's Procurement Policy Division, he would remain at NFCU for nearly 20 years.
As expansion and new accounting requirements multiplied NFCU's administrative workload, Hussong pushed for an investment in a new computer system. In 1960, the board fired the autocratic but influential Hussong, ostensibly over the controversy surrounding the new computer. After months of frustrating tests, the board finally settled on an IBM 1401 (with 4K of memory) in 1962. NFCU had become the world's largest credit union by this time, propelled largely by new car loans, which in a few years had come to represent a majority of its business. NFCU's headquarters were moved to Building 143 in the Navy Yard Annex in 1964, the same year enlisted personnel were offered membership privileges.
A series of mergers with other credit unions at Navy bases began in 1967 with the Washington Navy Yard Federal Credit Union. Some smaller credit unions, championed by the Credit Union National Association (CUNA) and a few politicians, protested against NFCU's growing dominance. At the same time, the thrift industry was under attack from commercial banks, resentful of their tax-exempt status. At the end of the 1960s, NFCU boasted more than 100,000 members and assets of $120 million.
The 1970s saw wildly cyclical supplies of capital and competition for savings accounts. A staff of hundreds at NFCU serviced about 20 locations each at home and abroad, including on board the USS Little Rock. The variety of services proliferated as well. Cobb was named to a position on the board, treasurer, in the early 1970s. Cementing the role of Navy officers on the board, Vice Admiral Vincent A. Lascara served as chairman for most of the 1970s.
NFCU moved to an impressive, spacious new headquarters in Vienna, Virginia, in 1977. A new mainframe computer system was installed to handle the records of 450,000 members. Soon after the move, new legislation allowed credit unions to begin offering mortgage loans. However, as the differences between commercial banks and thrifts became harder to distinguish, the latter found themselves subject to more banking regulations, while banks were freed to pay more competitive rates on savings. NFCU also had to contend with newly liberal bankruptcy laws of the time. To help influence the regulatory climate, NFCU rejoined CUNA, the leading thrift industry trade group, in the late 1970s.
Cobb stepped down as manager in August 1980, to be replaced by Rear Admiral Joe G. Schoggen, who had joined NFCU after serving in the Navy's Resale Systems unit. NFCU ended the year with assets of $866 million. Credit unions received their long desired deregulation in 1982. Some consolidation in the industry followed as NFCU's membership continued to grow, reaching 692,000 in 1985. NFCU's assets approached $2 billion, up from $1.6 billion in 1984. Tom Hughes became president and CEO of NFCU in 1988, as savings and loans institutions began venturing onto the turf of credit unions by offering consumer loans.
NFCU ended 1990 with $4.6 billion in assets, and passed $8 billion in the mid-1990s. It operated 56 domestic branches and 26 overseas. The thrift dropped out of CUNA again after the trade group sued the federal government over a regulation (ending shared management between corporate credit unions and trade groups). The Navy practice of loaning cash to its branches in Spain and Italy prompted an outcry over lending public money to a private institution. NFCU also operated about 200 automated teller machines (ATMs)--all of them without a surcharge. It supported the Department of Defense's efforts to ban surcharges at all ATMs on military installations.
Hughes retired in 1996, leaving command to Brian McDonnell, a 26-year NFCU veteran. NFCU spent $60 million to expand its headquarters as membership continued to grow. It approached two million in the late 1990s as assets topped $11 billion. Mortgage and equity loans doubled to $3 billion between 1997 and 1998.
At the end of the century, NFCU's extensive Y2K compliance measures caught the attention of CNN. It had begun preparing in 1991 to accommodate substandard communications infrastructure in the countries where it did business. Its solutions incorporated redundant lines of communication, including cellular telephones, to keep in touch with its many far-flung branches.
Principal Competitors
Citigroup; Wachovia Corporation; Bank of America.
Further Reading
Arndorfer, James B., 'Navy Federal Threatens to Quit CUNA Unless It Drops Challenge of New Rule,' American Banker, March 20, 1995.
Cope, Debra, Robert M. Garsson, and Linda Corman, 'Choppy Water for Credit Union Admiral,' American Banker, October 15, 1990, p. 10.
Donovan, Sharon, 'Management Profile: Rear Admiral Joe G. Schoggen,' Credit Union Management, September 1985, pp. 6ff.
Gentile, Paul, 'Navy Federal Credit Union Featured on CNN Y2K Report,' Credit Union Times, http://www.cutimes.com/y2k/1999/yr08119-4.html.
Gilpatrick, Kristin, 'Worldwide Ready,' Credit Union Management, August 1999, p. 14.
Glassman, Harvey, 'Navy Federal Again Tops Credit Unions; Leads Nation in Assets, Deposits, Share Accounts,' American Banker, May 26, 1982, p. 1.
Martin, Kenneth R., Home Port: A History of the Navy Federal Credit Union, Bryn Mawr, Pa.: Dorrance & Co., 1983.
Mazzolini, Joan M., 'As Credit Unions Grow, Competition Heats Up with Banks, S & Ls,' American Banker, January 21, 1988, pp. 16ff.
McAllister, Bill, 'Navy Told to End Cash Advances to Four Overseas Credit Unions,' Washington Post, February 5, 1996, p. F8.
McDonnell, Brian, 'Defense CUs Are Helping Members Use Credit Wisely,' Credit Union Magazine, July 1998, pp. 14-16.
Molvig, Dianne, 'Envisioning Leadership,' Credit Union Management, April 1996, p. 14.
'Navy Federal Keeps Delinquencies Low,' National Mortgage News, August 23, 1999, p. 28.
Nelson, Jane Fant, 'Credit Unions in Transition,' United States Banker, May 1984, p. 55+.
O'Brien, Jeanne, 'Navy Federal Credit Union Keeps Ship-Shape with Enterprise View,' Bank Systems & Technology, January 1999, p. 52.
Patterson, Maureen, 'Operating Efficiently,' Buildings, May 1999, pp. 70-74.
Schwartz, Susana, 'Navy Federal Moves to Client/Server System,' Bank Systems & Technology, May 1999, p. 57.
Slater, Robert Bruce, 'Banks' Credit Union Crusade,' Bankers Monthly, December 1992, p. 13.
Young, Renee, 'Anchors Aweigh,' Building Design & Construction, June 1998, pp. 96-100.
— Frederick C. Ingram
