What Is A Credit Union?

Credit Unions are not your typical businesses that are run on a for-profit basis. In fact, they are very different from other financial firms like banks or fund houses. A Credit Union is usually a "co-op." A Co-op is a shorter word for a cooperative which means that it is an organization run by its members usually for the benefits of its members.

A credit union provides many financial services to its members – like checking accounts, credit at low or reasonable interest rates, and financial counseling for its members. They also offer various tools like online shopping tools for automobile purchasing, online banking, and even equity loans and mortgages.

The History of Credit Unions

Germany was the first country to have fully functional credit unions which operated on the same principles as those of the credit unions today. Herman Schulze-Delitzsch and Friedrich Raiffeisen could be considered the Fathers of the Credit Union. They started the earliest ones in Germany for farmers who were facing adverse conditions. In 1850, Schulze-Delitzsch started the "People's Bank", one of the earliest cooperative credit institutions. Raiffeissen formed his credit union in 1864 to help farmers purchase farming equipment and livestock.

Reaching America

The credit unions reached North America, when a Frenchman named Desjardins started the first Credit Union in Quebec, Canada when he found out the outrageously high rates of interest that were being charged to the working class by loan sharks.

The first Credit Union in the United States began in 1909. This was also the work of Desjardins, who started the St. Mary's Cooperative Credit Association in New Hampshire. Three other names need to be mentioned when it comes to the development of Credit Unions in America: Edward Filene, Pierre Jay and Roy Bergengren. These three gentlemen helped establish the Credit Union National Extension Bureau or the CUNEB. This organization was chartered to ensure the development of credit unions across the country and in every state.

The Modern Credit Union

It was President Roosevelt who signed the Federal Credit Union Act to help charter and regulate federal credit unions nationally. The act was signed in 1934. By the 1960's over 6 million people were members of over 10,000 credit unions all across the United States. The next big change came in the 1970s with the establishment of the National Credit Unions Administration (NCUA). New legislation was passed expanding the services offered by credit Unions to now include mortgage lending and share certificates. 1980 saw the deregulation of credit unions allowing them to recruit members beyond their original core group. Today's credit unions have over 90 million members in the United States. There are 7,950 federally insured credit unions with an active status. Credit Unions have about $700 Billion in deposits.

How Credit Unions Differ from Banks

A bank is a for-profit organization whose motivation is to make money for its investors and stock holders, plain and simple. Generally, the bank is backed by a group of investors. These are people who have a large amount of capital at their disposal and they fund the bank. The bank is run by a paid group of people, its Board of Directors, who make all the decisions when it comes to the organization. These decisions are made with the objective of benefitting the organization. The account holders in the bank have very little or no say in the matter.

A credit union, on the other hand, is owned and run by its members. Such organizations are generally designed with the objective of serving their members. Each member has a vote and is allowed to participate in the decision making process. The members are provided financial services which can be similar to the banking services provided by most banks – loans, credit cards, checking and savings accounts, mortgage lending, and automobile loans. Credit unions are designed to promote thrift and offer low or reasonable interest on credit when they service their members.