Credit union

A credit union is a nonprofit cooperative financial institution that primarily provides consumer credit LOANS to its members, with funds deposited by its participants. Credit unions are mutually owned and run by their members, with a BOARD OF DIRECTORS, elected by the members, which sets policies and procedures. Most credit unions in the United States are members of the National Credit Union Association (NCUA), created to charter and supervise the industry; and participate in the National Credit Union Share Insurance Fund (NCUSIF), which insures credit union depositors.
The first credit unions were created in Germany during the 19th century. The first U.S. credit union was established by a group of Franco-American Catholics in Manchester, New Hampshire, in 1909. While banks provided business loans, and SAVINGS AND LOAN ASSOCIATIONS provided home MORTGAGE loans, credit unions grew to meet consumer-borrowing needs. In 1934 President Franklin D. Roosevelt signed the Federal Credit Union Act (FCUA), authorizing the establishment of federally chartered credit unions in all states.
After the FCUA was passed, Congress debated over which regulatory agency would preside over credit unions. Neither the COMPTROLLER OF THE CURRENCY (Treasury Department) nor the Federal Reserve Board wanted oversight of credit unions, so initially the Farm Credit Administration was responsible for managing them. Oversight then passed to bureaus within the Federal Deposit Insurance Corporation (FDIC); the Federal Security Agency; and the Department of Health, Education and Welfare. As the number of credit unions grew, responsibility for the system was shifted to the NCUA in 1970.
Because credit unions are nonprofit organizations, their INTEREST RATES on loans are typically lower than competing, for-profit, financial institutions. With DEREGULATION of the financial industry in the 1980s, credit unions expanded into mortgage and other lending activities. Like the savings and loan institutions, many credit unions failed during the 1980s, bankrupting the National Credit Union Share Insurance Fund (the credit union equivalent of Federal Deposit Insurance, FDIC). In 1985 the NCUSIF was recapitalized with deposits of member credit unions. The NCUSIF has three fail-safe features.
• Federal credit unions must maintain a one-percent deposit with the NCUSIF.
• Premiums are levied by the Board if necessary.
• When the equity ratio exceed 1.3 percent ($1.30 on deposit for every $100 insured), the Board sends a DIVIDEND to credit unions.
In 2001 there were over 12,000 credit unions with over $300 billion in ASSETS and 70 million members. Membership in credit unions is based on the principle of having a common bond. Workers in a particular factory, members of a local community or organization, or some other mutual relationship is usually required in order to join a credit union. During the 1990s credit unions greatly expanded membership, often redefining or relaxing the definition of the common-bond requirement. For-profit financial institutions challenged the actions of credit unions, and in 1998 the U.S. Supreme Court ruled against credit unions, stating government regulators too loosely defined the “field of membership” rule. In response, Congress passed the Credit Union Membership Access Act (1998), fostering local credit unions and expansion within “reasonable proximity” of existing credit-union service areas. Critics contend the NCUA continues to ignore and loosely interpret field of membership rules.