Pennsylvania Credit Union Association

Historical Overview of the Credit Union Movement

General Overview
The Consumer Advantage
Credit Unions: Safe and Sound

General Overview

The not-for-profit credit union approach to providing financial services is based on a philosophy of "People Helping People©.” Credit union history dates back to Germany in the mid-1800's when townspeople pooled their savings to provide loans to farmers hurt by a poor growing season. This cooperative approach helped farmers avoid paying the high rates being charged by loan sharks. Today, credit unions continue to offer low-cost financial services that allow members to be good consumers by getting the best service and value.

Credit union members are part-owners of their financial institutions, also referred to as financial cooperatives. Each member has one vote regardless of their account size. Since credit unions are democratically controlled, members may run for election to the volunteer board of directors having direct input on credit union operations.

Credit unions consist of member groups that share common bonds. Credit unions in the United States have common bonds based mostly on occupations, government service, associations, churches or service providers. In Pennsylvania, most credit union common bonds are based on occupation. The National Credit Union Administration (NCUA) monitors/regulates federally-chartered credit unions and the Pennsylvania Department of Banking regulates state-chartered credit unions.

Nationally, there are 7,234 federally-insured credit unions with more than 93million members. The Credit Union National Association (CUNA) is the national trade association for credit unions. In addition, each state has representation in a state credit union leagues/Associations.

The credit union movement is growing throughout the world, including in third-world countries and Europe where people need assistance with setting up consumer finance systems. There are over 49,000 credit unions worldwide in 97 nations, with over 184 million members. Credit unions in Kenya, Poland, Sri Lanka, Bangladesh, the former Soviet Union, Korea and other countries have helped provide citizens with a system to manage their finances. The World Council of Credit Unions provides assistance to groups in foreign nations looking to develop credit unions.

The Consumer Advantage

Credit unions receive high marks for consumer value since cooperatives don't try to maximize income by using high fees. "The fee difference (between credit unions and banks) is striking and helps explain why consumers repeatedly rate credit unions more highly than banks," said Consumer Federation of America (CFA) Executive Director Steve Brobeck during a news conference on fee comparisons among financial institutions.

The CFA recommends that consumers check into credit unions for good loan and savings rates. The CFA noted that compared to credit unions, banks pay significantly lower rates on savings accounts and CDs, but they charge higher consumer loan rates. "The reason credit unions offer better rates is that they are non-profit, member-owned, cooperative institutions that work for the benefit of their members," said Brobeck. "Credit unions don't have to pay dividends to stockholders or directors. Another factor is that credit unions' operating expenses are considerable lower than the operating expenses of banks."

In addition to basic share accounts and personal loan programs, many credit unions offer share draft (checking) services, credit cards, ATM cards, money orders, IRAs, account insurance, special savings club accounts, student loans, mortgage and vehicle loans and financial planning services.

Credit unions also give members access to low-cost life, savings and loan insurance through a company that only serves credit unions and members. The CFA has praised credit union insurance loan products as some of the best values around.

Credit Unions: Safe and Sound

Credit union share accounts are insured by the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). This fund, separate from the FDIC, is supported by credit unions, not tax-payer dollars. The fund has never had a negative balance and remains extremely healthy with the legal limit being held in reserves.

Not only can the NCUSIF be tapped to pay for credit union failures, but the fund is replenished by credit unions if large losses occur. NCUSIF's structure of prepaid premiums by credit unions "aligns the incentive of (government) bureaucrats, politicians and credit unions to minimize NCUSIF loss exposure better than the pay-as-you-go systems used by the other two federal funds," wrote Boston College Finance Professor Edward Kane.

Credit unions continue to be safe, consumer-friendly financial service providers that offer consumers with alternatives to for-profit financial institutions. And for many low-income people who cannot afford the fees and high minimum balances required at some banks, credit unions are their only source for affordable loans and a good return on savings.

To locate a credit union to join, click here.