A member since 1988, Ms. East encountered troubling times and HCFCU was able to assist her needs. Here is her story.
What Is A Credit Union?
A credit union is a cooperative financial institution, owned and controlled by the people who use its services. These people are members. Credit unions serve groups that share something in common, such as where they work, live, or go to church. Credit unions are not-for-profit, and exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates.
Credit unions, like other financial institutions, are closely regulated. And they operate in a very prudent manner. The National Credit Union Share Insurance Fund, administered by the National Credit Union Administration, an agency of the federal government, insures deposits of credit union members at more than 11,000 federal and state-chartered credit unions nationwide. Deposits are insured up to $100,000.
What makes a credit union different from a bank or savings & loan? Like credit unions, these financial institutions accept deposits and make loans–but unlike credit unions, they are in business to make a profit. Banks and savings & loans are owned by groups of stockholders whose interests include earning a healthy return on their investments.
Credit Union History
The credit union idea is a simple one: People should be able to pool their money and make loans to each other. It’s an idea that evolved from cooperative activities in 19th century Europe.
Since that time, the idea’s guiding principles have remained the same: (1) Only people who are credit union members should borrow there; (2) loans are made for “prudent and productive” purposes; (3) a person’s desire to repay (character) is considered more important than the ability (income) to repay. Members are, after all, borrowing their own money and that of their friends. These principles still govern most of the world’s credit unions.
History of the Credit Union Movement
As the 20th century began, the credit union idea surfaced in Canada. Canada’s successful efforts profoundly influenced two Americans: Pierre Jay, the Massachusetts banking commissioner, and Edward A. Filene, a Boston merchant.
The two men helped organize public hearings on credit union legislation in Massachusetts, leading to passage of the first state credit union act in 1909. Growth was slow, however. Fewer than 10 states passed credit union laws, many unworkable. The Massachusetts Credit Union Association grew slowly.
In 1935, when credit unions were helping Americans through the Great Depression, the treasurer of a Midwestern credit union said that credit unions were “not for profit, not for charity, but for service,” and that philosophy holds true today.
Credit unions continue to look out for their members’ interests and provide a level of service that is not generally available at other financial institutions. Whether it’s providing a loan to help a member cover unexpected medical bills, giving financial counseling to a member whose company closed its doors, or simply offering a better deal on a used car loan, credit unions make a difference for their members and the communities they serve.
The National Cooperative Business Association developed seven cooperative principles, which were adopted in 1995 by the International Cooperative Alliance. The principles are a modified version of the original Rochdale Principles, which were named after the first successful co-op, started in Rochdale, England in the 1840s.
The CUNA Cooperative Alliances Committee expanded on the seven principles in order to more directly reflect for credit unions’ structure and characteristics, including fields of membership, emphasis on member education, and desire to serve members from all walks of life, including people of modest means.
“We feel tailoring the NCBA principles in this way will draw more credit unions to them—and help them better understand the roots and values we share with other co-ops,” said William Herring, chairman of the CUNA Cooperative Alliances Committee and CEO of Cincinnati Central CU Inc.
Seven Cooperative Principles for Credit Unions
1. Voluntary Membership
Credit unions are voluntary, cooperative organizations, offering services to people willing to accept the responsibilities and benefits of membership, without gender, social, racial, political or religious discrimination.
Many cooperatives, such as credit unions, operate as not-for-profit institutions with volunteer board of directors. In the case of credit unions, members are drawn from defined fields of membership.
2. Democratic Member Control
Cooperatives are democratic organizations owned and controlled by their members, one member one vote, with equal opportunity for participation in setting policies and making decisions.
3. Members’ Economic Participation
Members are the owners. As such they contribute to, and democratically control, the capital of the cooperative. This benefits members in proportion to the transactions with the cooperative rather than on the capital invested.
For credit unions, which typically offer better rates, fees and service than for-profit financial institutions, members recognize benefits in proportion to the extent of their financial transactions and general usage.
4. Autonomy and Independence
Cooperatives are autonomous, self-help organizations controlled by their members. If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.
5. Education, Training and Information
Cooperatives provide education and training for members, elected representatives, managers and employees so they can contribute effectively to the development of the cooperative.
Credit unions place particular importance on educational opportunities for their volunteer directors, and financial education for their members and the public, especially the nation’s youth. Credit unions also recognize the importance of ensuring the general public and policy makers are informed about the nature, structure and benefits of cooperatives.
6. Cooperation Among Cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, state, regional, national, and international structures.
7. Concern for Community
While focusing on member needs, cooperatives work for the sustainable development of communities, including people of modest means, through policies developed and accepted by the members.
These seven principles are founded in the philosophy of cooperation and its central values of equality, equity and mutual self-help. They express, around the world, the principles of human development and the brotherhood of man through people working together to achieve a better life for themselves and their community.
Copyright © 2004 – Credit Union National Association, Inc.
Focusing on People, Credit Unions Thrive
One in three Americans now belongs to a credit union, strengthening the system of not-for-profit financial cooperatives that has survived a depression, stock market crashes and many other financial crises.
Credit unions like Harris County Federal Credit Union have become popular among consumers looking for lower loan rates, fewer fees and higher interest rates for savings and other accounts. Membership passed the 100 million mark nationally in June, and grew at the fastest pace in more than 25 years from June 2013 to June 2014, according to the Credit Union National Association.
From the start, credit unions’ focus on people has set them apart.
Credit union beginnings
The idea of a financial institution owned by its depositors and loan customers first took root in 19th-century Germany and spread to Canada and then the United States. The first U.S. credit union opened in 1909 in Manchester, New Hampshire.
In 1934, President Franklin Roosevelt signed the Federal Credit Union Act as a way to make credit available to both the rich and the poor and to promote thrift during the Great Depression. The law authorized federally chartered credit unions in all states.
By 1960, credit union membership had grown to more than 6 million people. Ten years later, Congress created the National Credit Union Administration to regulate, charter and supervise federal credit unions. It also formed the National Credit Union Share Insurance Fund (NCUSIF) as a way to insure share accounts in all federal credit unions, as well as some state-chartered institutions.
Credit union membership used to be open only to a well-defined community, such as a specific town’s residents or the employees of a certain company, but membership criteria loosened in the 1980s, allowing more people to join. Credit unions were also offering more services by then, such as share certificates and mortgages.
The 1990s brought a challenge by banks to those looser membership rules. Federal courts supported those challenges, but the Credit Union Membership Access Act of 1998 restored credit unions’ flexibility.
The Great Recession
During the financial crisis of recent years, Congress took a series of steps to keep banks and credit unions from going under. Among them was a temporary increase in share insurance protection to $250,000 per depositor, up from $100,000 — a change that was made permanent in 2010 with the signing of the banking law known as Dodd-Frank.
While credit union membership barely grew in 2010, it began to increase in 2011 as more and more consumers got fed up with the higher fees banks were charging. This past year, credit unions added 2.85 million members.
Unlike for-profit banks, credit unions are member-owned organizations that operate democratically and are exempt from federal and most state taxes. Earnings are returned to members in the form of lower loan rates and higher interest on deposits. For example, the national average for a 36-month used car loan from a credit union was about 2.7% in the second quarter of 2014, compared with almost 5.3% from the average bank, according to the National Credit Union Administration.
Credit unions typically offer lower overdraft fees as well, at about $28 per item compared with $30 for smaller banks and $35 at the largest in 2013, industry research shows.
Credit unions have a long history of providing Americans with safe and reliable financial products. Able to weather just about any financial storm, these not-for-profit financial cooperatives have a bright future as membership only continues to grow.
Sarah Cooke, NerdWallet