CREDIT UNION

Credit unions were not-for-profit financial institutions formed by people who, joined by a common interest, pooled their savings and made loans to each other at below market rates. There were three fundamental differences between credit unions and savings and loan associations. First, credit union members usually worked at the same company, lived in the same community, or belonged to some other common organization, like a church. The second difference was that the money that credit unions loaned was generally used for prudent, short-term consumer loans, such as medical procedures, car purchases, emergencies, or home improvements. Finally because credit unions were based on the notion that their members shared community ties, they took a more flexible, personal approach to evaluating the creditworthiness of those they loaned to.

The first credit unions appeared in Germany in the middle of the nineteenth century, but it wasn't until 1909 that the first credit union was established in the United States. In that year a credit union opened in Manchester, New Hampshire, and Boston businessman Edward Filene successfully convinced his state legislature to legalize credit unions in Massachusetts. In 1921 Filene founded the Credit Bureau National Extension Bureau (CBNEB) to promote credit union expansion nationwide.

The CBNEB was replaced in 1934 by the Credit Union National Association, and 41 of the 48 U.S. states made it legal to operate credit unions. In the same year the Federal Credit Union Act made it possible for credit unions to be established anywhere in the United States, and by 1969 there were almost 24,000 credit unions nationwide.

In 1970 two federal agencies helped to further legitimized the credit union industry. The National Credit Union Share Insurance Act extended federal deposit insurance coverage to include credit union assets. The National Credit Union Administration was also established to regulate the credit union industry. Following federal moves to strengthen public trust in credit unions, the number of U.S. credit unions dwindled as smaller unions consolidated to offer more services. Nevertheless, the number of individual credit union members increased. By 1999 credit union membership in the United States had climbed to more than 72 million.

See also: Savings and Loan Association