Credit Unions

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CREDIT UNIONS. The first 190 credit unions in the United States, organized between 1909 and 1921, differed from other depository institutions in the following ways: (1) officers were volunteers; (2) members were skilled artisans and thus had a common occupational bond; (3) the purpose was to help members accumulate capital so that they could set up their own businesses; and (4) they were democratic. Deposits took the form of dividend-paying share accounts. Regardless of the amount deposited, each of the 72,310 members of the first credit unions had only one vote in the elections of the committees that decided on loans and investments.

Credit unions did not have any full-time, professional staff until the National Extension Bureau was established in 1921, then reorganized as the Credit Union National Association (CUNA) in 1934. Arguing that employees with home mortgages and consumer installment credit are less susceptible to "bolshevism" and other forms of radicalism (for example, labor unions), the Extension Bureau staff lobbied the nation's leading industrialists to subsidize credit unions (for example, with free office space). Consequently, by the time of the 1929 stock market crash, an additional 784 credit unions were organized for 192,598 new members. However, this growth came at a price: not only had the purpose of credit unions changed but the common bond among members had changed too. Now members simply shared the same employer.

Without government intervention, mortgage defaults during the Great Depression would have bankrupted the credit unions. Largely through the Federal Credit Union Act of 1934, the government established the National Credit Union Association to regulate the credit unions and serve as their lender of last resort. It exempted the credit unions from taxes and subsidized their expansion among government employees. And the government imposed interest rate ceilings on commercial bank deposits that were lower than what credit unions offered for deposits. As a result, credit unions mushroomed in the postwar period, to a peak 22,533 in 1976. Largest by far was the Navy's credit union, with $568 million of the total credit union assets of $45 billion (the $45 billion itself being about 5 percent of total commercial-bank assets at the time).

However, the rapid postwar growth of credit unions came at the expense of actively discriminating against the poor and others without steady employment. Having thus abandoned their progressive roots, the credit unions became vulnerable to attacks by commercial banks. By emphasizing the word "union" in their name, the American Bankers Association argued that credit unions contributed to the spread of socialism in America. In response to the banks' lobbying, sections that rendered credit unions largely indistinguishable from other depository institutions were put into the Interest Rate Control Act of 1977, the Depository Institutions Deregulation and Monetary Control Act of 1980, and the Garn–St. Germain Act of 1982.

In particular, the elimination of interest rate ceilings that favored credit unions at the expense of commercial banks caused a hemorraging of deposits from, and thus a major consolidation of, credit unions under the auspices of CUNA. As a result, individual credit unions became little more than branch offices of CUNA. While individual credit unions still collect deposits and originate loans, these loans are now pooled by CUNA for issuing mortgage-backed and other types of securities. CUNA's asset managers invest the excess funds of the credit unions. CUNA also uses the individual credit unions as branches for offering stock brokerage services, money market accounts, ATMs, electronic fund transfers, credit cards, IRA and Keogh retirement accounts, and even some commercial loans.

Nonetheless, many progressives see the democratic origins of credit unions as a potential model for keeping local money in the local economy. They thus envision a role for credit unions in strategies for sustainable development that could displace the current tendency toward corporate-led globalization. There is a precedent for this progressive vision of credit unions. In the 1960s, 672 credit unions were established in poor urban areas. The Office of Economic Opportunity subsidized 245 of them, so that they could lend money for food and rent.


Moody, J. Carroll and Gilbert Fite. The Credit Union Movement. Lincoln: University of Nebraska Press, 1971.

Pearce, Douglas. "Recent Developments in the Credit Union Industry." In Contemporary Developments in Financial Institutions and Markets. Edited by Thomas Havrilesky and Robert Schweitzer. Arlington Heights, Ill.: Harlan Davidson, 1984.


See alsoBanking .