For more than 100 years, credit unions have provided financial services to their members in the United States. Credit unions are unique depository institutions created not for profit, but to serve their members as credit cooperatives.
(Information courtesy of the NCUA)
The earliest financial cooperatives date back to the beginning of 19th Century in England. A few decades later, credit unions took root in Germany. Organized by Herman Schulze-Delitzsch and Friedrich Raiffeisen, early credit unions were models for today’s credit unions in the United States, sharing these distinguishing features:
- Democratic governance
- One vote per member regardless of deposits
- Member-elected board of directors
- Volunteer based leadership
The crop failure and famine of 1846 caused Schulze-Delitzsch to organize a cooperatively-owned mill and bakery that sold bread to its members at substantial savings. He took this cooperative notion to address need for credit when in 1850 he organized the first cooperative credit society, known as the people’s bank.
Raiffeisen sought to provide credit to German farmers, and in 1864 he formed the Heddesorf Credit Union help them purchase livestock, equipment, seeds, and other farming needs.
In 1900, at the start of the 20th century, the credit union concept crossed the Atlantic to Levis, Quebec. Alphonse Desjardins, a court reporter, became aware of loan sharks charging outrageous interest. In response, he organized La Caisse Populaire de Levis, the first credit union in North America to provide affordable credit to working class families.
Nearly a decade later, Desjardins helped a group of Franco-American Catholics in Manchester, New Hampshire to organize St. Mary’s Cooperative Credit Association. This first credit union in the United States opened its doors in 1908.
The efforts of merchant and philanthropist Edward Filene and Massachusetts Banking Commissioner Pierre Jay brought into law the Massachusetts Credit Union Act on April 15, 1909. The measure served as a basis for subsequent state credit union laws and the Federal Credit Union Act, passed twenty-five years later.
During the 1920s, the U.S. credit union movement became increasingly popular. Families had more money to save and could afford products like automobiles and washing machines. Still, they needed a source of inexpensive credit to purchase these goods, and commercial banks and savings institutions generally showed limited interested in offering such consumer loans.
In 1920, Edward Filene hired Roy Bergengren, a poverty lawyer, to manage the Massachusetts Credit Union Association and to promote the development of credit unions. Within a year, Massachusetts chartered 19 new credit unions. Encouraged, Filene organized and Bergengren managed a national association—the Credit Union National Extension Bureau—to promote the establishment of credit unions throughout the United States. By 1925, 26 states had enacted laws to charter credit unions. By 1930, 32 states had adopted credit union laws with a total 1,100 credit unions.
In 1934, President Franklin Delano Roosevelt signed the Federal Credit Union Act into law, creating a national system to charter and supervise federal credit unions. The credit union movement grew steadily over the next two decades, and by 1960 credit union membership reached more than 6-million individuals belonging to more than 10,000 federal credit unions.
In 1970, the National Credit Union Administration (NCUA) became an independent federal agency. Congress also created the National Credit Union Share Insurance Fund (NCUSIF) to protect deposits at credit unions.
The 1970s also brought major changes financial products, and credit unions found they needed to expand their services. Federal legislation passed in 1977 allowed U.S. credit unions to offer new services to their members, including share certificates and mortgages. The number of credit union members more than doubled during the decade, and credit union assets tripled to more than $65 billion. Today, there are more than 6,500 credit unions nationwide.
Credit Union FAQs
What is a credit union?
A credit union is a community-based, member-owned financial institution. Credit unions do not exist to make a profit, but rather to serve their member-owners. Any earnings the credit union makes are returned to the membership in the form of lower loan rates, higher deposit rates, and much lower fees.
How do credit unions work?
Credit unions are funded by their members, who place their money in checking, savings, money market and other deposit accounts. There are no outside investors or shareholders. The funds loaned by credit unions to members are literally the money of other members.
What are the Seven Cooperative Principles?
Envisioned by a group of weavers in Rochdale, England in 1844, the Seven Cooperative Principles serve as the guidebook for credit unions and cooperatives throughout the world. The principles have been modified through the years but are still very close in spirit to those originally envisioned so long ago.
Principle and its meaning:
- Voluntary and open membership. Membership is open to all people who are eligible to join the credit union, without exception.
- Democratic member control. Each member has equal say in the operation of the credit union (one member, one vote).
- Member economic participation. The more members use the credit union, the more both the members and the cooperative benefit.
- Autonomy and independence. Credit
union members elect board members who set policy. Relationships with
outside companies are developed with the understanding that members
control the cooperative.
- Education, training, and information. Credit unions provide financial education to their members as well as the communities they serve.
- Cooperation among cooperatives. Credit unions work together to improve services to members and build sustainable communities.
- Concern for community. Since credit unions are locally owned financial institutions, they are committed to investing in the community.
What are the advantages of credit unions?
Credit unions are the best choice for consumers in the marketplace! They are managed by their members, operated for the benefit of their members, do not have outside shareholders, and their board of directors are not paid. As a result, credit unions offer the best value.
How many credit unions are there?
According to CUNA's most recent U.S. CU Profile review, there are approximately 6,213 credit unions in the US (as of third quarter 2015), including some 80 in North Carolina and 69 in South Carolina (see State by State Bank/CU Overviews). Find more data and statistics at CUNA.org here.
Can I join?
Most people can find a credit union to join. Check out the web site A Smarter Choice to see if there is a credit union near you.
Are credit unions convenient?
Yes! Though typically small local or regional organizations, credit unions work together nationwide to provide mainstream financial services. For example, many credit unions have relationships with ATM networks to provide members free, nationwide access to their funds.
Some credit unions also participate in shared branching, through which members can transact business at more than 5,300 locations across the country.