Credit unions in the United States

Credit unions in the United States are special kinds of banks that help people save and borrow money. In 2014, they served 100 million members, which is almost half of all working people in the country. These credit unions are not-for-profit, meaning they don’t try to make money for owners. Instead, the people who use them are also part-owners, or partners, in the credit union.

Credit unions often focus on helping people who live near each other or who share something in common, like working for the same company. As of March 2020, the biggest one in the U.S. was Navy Federal Credit Union. It serves people who work for or are related to the U.S. Department of Defense, and it had over $125 billion in assets and more than 9 million members.

Even when there was a big money problem in 2008, called the 2008 financial crisis, most credit unions stayed strong because they are smaller and don’t always do the same kinds of risky business that bigger banks do. But two large credit unions, U.S. Central Credit Union and WesCorp, had to be helped by government officials in March 2009 because they ran into money troubles.

History

St. Mary's Bank in Manchester, New Hampshire was the first credit union in the United States. It was started on November 24, 1908, by French-speaking immigrants from Canada. A leader of St. Marie's church, Monsignor Pierre Hevey, helped create it, and a lawyer named Joseph Boivin managed it as a volunteer from his home.

Two important people, Pierre Jay, a banker, and Edward Filene, a merchant, helped create laws in Massachusetts in 1908 to support credit unions. Another person, Roy Bergengren, worked hard to help credit unions grow across the United States. Most U.S. credit unions started because employees at the same workplace joined together.

In 1934, a group called the Credit Union National Extension Bureau was formed in Estes Park, Colorado. This group later became the Credit Union National Association. Two women, Dora Maxwell and Louise McCarren Herring, helped start many credit unions, especially for people with limited resources.

The number of credit unions was highest in 1969, with 23,866 institutions. A museum about credit union history, America's Credit Union Museum, opened in Manchester, New Hampshire, in 2002.

Constitution and regulation

Credit unions in the United States can be approved by the federal government ("federal credit unions") or a state government. In some states like Delaware, South Dakota, and Wyoming, credit unions need a federal approval to operate. Most credit unions have a special safety net called "share insurance" that protects up to $250,000 for each member. This safety net is backed by the United States government and managed by the National Credit Union Administration.

By the end of 2016, this safety net covered over $1 trillion kept in more than 5,785 credit unions. For comparison, a similar safety net for banks covered more than $13 trillion in about 5,980 banks. Both safety nets are managed by independent agencies supported by the United States government.

Membership restrictions

Main article: Bond of association

In the United States, credit unions often started in places like churches, workplaces, or small towns. People could only join if they were part of that group. A law from 1934 said credit unions could only include people who shared a common job, group, or lived in a certain area.

Later, in 1982, rules changed to let credit unions grow and include members from many places. But banks disagreed, and a court case happened. Congress then made a new law to allow the change. Today, credit unions must still follow rules about who can join. They can serve people from certain jobs, groups, or areas. Families of current members can usually join too. Credit unions try to keep members even if they move or change jobs, but they can sometimes remove members who cause problems.

Underserved and low-income areas

Some credit unions in the United States can ask to be called "Low-Income Credit Unions." To be called this, most of their members need to have low incomes. This special status helps these credit unions get extra support so they can help people who might not easily get loans or banking services.

Credit unions are different from banks. Banks sometimes ignored poor areas in the past, but credit unions focus on helping all kinds of people in their communities. They do not have to follow special rules that banks do to make sure they serve poor areas, because their work already helps many people. Credit unions often help their neighborhoods grow.

In 2006, credit unions approved more loan requests from people with low or medium incomes compared to other lenders. They also approved more loans for people from minority groups. Credit unions try to make sure people can pay back their loans and do not allow unfair lending practices. They also cannot charge extra fees if people pay their loans early.

Interest rates

Credit unions in the United States usually offer better interest rates on deposits and lower rates on loans compared to banks. Since members are also owners, the interest they earn is called dividends and their deposits are called shares.

Credit unions are run by a group of volunteers called a Board of Directors. These volunteers are chosen by the members to decide on important matters, including interest rates.

Leagues and associations

Credit unions in the United States work together through special groups. They connect with state groups and also join a big national group called the Credit Union National Association in Madison, Wisconsin. Some federal credit unions are part of another group called the National Association of Federal Credit Unions (NAFCU).

Credit unions can also be part of something called a credit union service organization (CUSO). This helps them share things like phone centers and expert teams. Some credit unions focus on helping people with lower incomes and may join a group in New York, New York that supports these special credit unions.

Credit unions vs banks

Joining a credit union usually needs a small amount of money, often between $5 and $30, to open an account. This small deposit is called a share and makes you a member with full rights in the credit union.

Credit unions and banks have always been different. Credit unions are owned by their members and do not aim to make a profit, while banks are for-profit businesses. Because credit unions are not-for-profit, they do not have to pay some taxes that banks might pay, though members still pay taxes on their earnings from the credit union.

Many credit unions work together to help members access more services. They often join networks like the CO-OP Network, which lets members use thousands of ATMs without extra fees. Members can also visit branches of other credit unions in the network for basic services without extra cost.

Credit union-to-bank conversions

Since 1995, more than 30 credit unions in the United States have changed from being credit unions to becoming banks. These changes usually start from the leaders of the credit union, not from the everyday members, and have caused a lot of debate in the credit union world. Some people wonder if these changes are really the best for the members of the credit union.

When credit unions change to banks, the leaders and managers can make a lot of money. For example, a firm that helps with these changes has said that leaders could earn over $1.2 million each, and the top leader might even get much more.

Members of some credit unions have worked together to stop these changes. They say that while the leaders make a lot of money, the members lose their share in the credit union and often end up paying higher fees and getting lower returns on their savings after the change. Some groups include Save Columbia Credit Union and Save First Basin Credit Union.

The National Center for Member Trust is a group that helps protect credit union members during these changes. There are also groups that support the change to banks. Professor James Wilcox from UC Berkeley has studied this issue and shared his findings in a report titled "Credit Union Conversions: Ripe for Abuse... and Reforms."