Credit union
From Wikipedia, the free encyclopedia
A credit union is a cooperative financial institution that is owned and controlled by its members. Credit unions differ from other financial institutions (banks, savings and loan, etc.) in that the members who have accounts in the credit union are the credit union's owners.
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 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.
Credit unions offer many of the same financial services as banks, including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit) and online banking.
Due to their status as not-for-profit financial institutions, credit unions in the United States are exempt from federal and state income taxes.
Credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members, operated out of a shoebox, to institutions with several billion dollars in assets and hundreds of thousands of members.
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[edit] 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." In the UK it is referred to as the "Common Bond."
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 changing professions or moving outside the area). However, if the member closes his/her account, the member 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 are allowed to change their charter to a "Community Charter". The new 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. This field of membership can then be expanded with the approval of the National Credit Union Administration.
[edit] 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.
[edit] 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 Credit Union (WesCorp) in San Dimas, California and Southwest Corporate Federal Credit Union in (Plano, Texas).
[edit] History
Credit union history dates back 1864, when Friedrich Wilhelm Raiffeisen founded the first credit union in Heddesdorf (currently known as Neuwied) in Germany. By the time of his death in 1888 credit unions had spread to Italy, France, the Netherlands, England and Austria, among other nations.
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 the Maritime Provinces of Canada in November 1908.
Pierre Jay, a central banker and Edward Filene, a Bostonian merchant, were instrumental in establishing enabling legislation in Massachusetts in 1908.
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 in her lifetime 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.
Early credit unions were viewed as the “poor man’s bank” because they would extend credit to people who otherwise would not qualify for credit. However, today, credit unions are no longer lacking in prestige and are used widely, for example, among university employees and large telecommunications corporations.
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.
[edit] 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.
[edit] North American statistics
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 2005 there were 568 member caisses and 5.4 million retail members in the Caisses Populaires Desjardins federation. According to data from Credit Union Central of Canada on the same date there were 10.7 million retail members controlling CAD $180 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[1]. 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.
Credit unions are not required to provide services to persons with low incomes and the average income of the membership of many credit unions is high, in some cases above the national average. Almost half of credit union members are upper income and credit unions provide less service to low- and moderate-income persons than banks do. Credit unions have successfully lobbied to exempt themselves from the (U.S. federal) Community Reinvestment Act, the law that requires 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.
[edit] Credit Unions and Banks
Tension has always existed between credit unions and banks. When credit unions were first organizing in North America in the early twentieth century, the banking industry was opposed to it, and has remained 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[2]. 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 than banks, and therefore continuing to deserve their non-profit, tax-exempt status.[3]
[edit] References
- ^ 2005 statistical report from the World Council of Credit Unions
- ^ Credit Union Competition, from the American Bankers Association web page regarding industry issues.
- ^ 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.
[edit] See also
[edit] External links
- US: Credit Union National Association is a trade association for US credit unions
- US: Current Issues in Credit Unions is a podcast about credit unions and the challenges they face daily.
- US: Searchable Credit Union Database is a database containing all Credit Union data, searchable by City and State.
- US: National Credit Union Foundation is the charitable arm of the credit union industry
- US: National Credit Union Administration regulates all Federal credit unions and insures most US credit unions (through its National Credit Union Share Insurance Fund, aka NCUSIF).
- US: Credit Unions Online is a credit union directory providing searches of credit union Web sites worldwide.
- US: "How to Join a CU" finds US credit unions by location, employer, or affiliation
- US: Bankrate lists US credit unions by state
- US: CreditUnions.com is a community portal and financial/contact data resource for all U.S. credit unions]
- INTERNATIONAL: World Council of Credit Unions is a trade association for credit unions worldwide headquartered in Madison, WI.
- INTERNATIONAL: Credit Union Exectives Society is an individual association for credit union leaders worldwide
- UK: Association of British Credit Unions largest national body for British Credit Unions
- Canada: Department of Finance Canada
- Canada: Credit Union Central of Canada
- Canada: Credit Union Central of British Columbia
- Canada: Credit Unions of British Columbia
- Ireland: Irish League of Credit Unions representative and services agency.
- Australia: "Cuscal Ltd" Credit Union Services Corporation, Australia, Limited represents 85% of the credit unions.
- Australia: Abacus - Australian Mutuals represents Credit Unions and Mutual Building Societies.
