Credit unions in the United States

Credit unions in the United States
Banking in the United States

Monetary policy
The Federal Reserve System


Credit card

Deposit accounts
Savings account
Checking account
Money market account
Certificate of deposit

Deposit account insurance

Electronic funds transfer (EFT)
ATM card
Debit card
Bill payment
Wire transfer

Check Clearing System
Substitute checksCheck 21 Act

Types of bank charter
Credit union
Federal savings bank
Federal savings association
National bank

v ·
RTP Federal Credit Union in Research Triangle Park, North Carolina.

Credit unions in the United States served 89 million members as of 2008, comprising 43.7% of the economically active population.[1] U.S. credit unions are not-for-profit, cooperative, tax-exempt organizations.[2]

Credit unions in the United States may either be chartered by the federal government ("federal credit unions")[3] or a state government.[4] The states of Delaware, South Dakota, and Wyoming do not regulate credit unions at the state level; in those states, a credit union must obtain a federal charter to operate.[5] All federal credit unions and 95% of state-chartered credit unions have "share insurance" (deposit insurance) of at least $250,000 per member through the National Credit Union Share Insurance Fund (NCUSIF).[6][7] This deposit insurance is backed by the full faith and credit of the United States government and is administered by the National Credit Union Administration.[7] As of December 2006, the NCUSIF had a higher insurance fund capital ratio than the fund for the Federal Deposit Insurance Corporation (FDIC).[8] U.S. credit unions also typically have higher equity capital ratios than U.S. banks.[8]

As of the end of 2007, the National Credit Union Share Insurance Fund insured more than $560 billion in deposits at 8,101 not-for-profit cooperative US credit unions.[9] For comparison, the FDIC insured more than $4 trillion in deposits at 8,560 banks and thrift institutions.[10] The NCUA and the FDIC are both independent federal agencies backed by the full faith and credit of the US government.

United States credit unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks.[11] Credit unions therefore often have a higher cost of assets (i.e. interest expense as a percentage of average assets) than commercial banks, with aggregate U.S. credit union cost of assets being higher than the aggregate U.S. bank cost of assets in eight of the thirteen years between 1995 and 2007.[12] Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency.

Due to their small size and limited exposure to mortgage securitizations, credit unions have weathered the financial meltdown of 2008 reasonably well. However, two of the biggest corporate credit unions in the United States (U.S. Central Credit Union and Wescorp) with combined assets of more than $57 billion were taken over by the federal government National Credit Union Administration[13] on March 20, 2009.


Membership restrictions

In the United States, as elsewhere, credit unions were historically formed around a single church, place of work, labor union, or town. Membership was limited to those who were in the field of membership. The Federal Credit Union Act of 1934 limited membership to "groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community or rural district."[14]

A 1982 federal regulation during Ronald Reagan's presidency allowed many credit unions to grow their memberships and expand into multiple states. Credit union membership reached 71 million members by 1997, more than double the number of members in 1991.[14] This expansion prompted banks to challenge the 1982 regulation as illegal, a challenge upheld in a 1998 U.S. Supreme Court decision, NCUA v. First National Bank & Trust[14][15] Within five months, both houses of Congress passed a bill signed by President Clinton to overturn the Court's decision.[16]

As of 2003, U.S. governmental regulatory agencies require that credit unions restrict their membership to defined segments of the population, such as people who live, work, worship, or attend school in a well-defined geographic area; employees of specific companies or trades; members of specific non-profit groups, including labor unions, alumni associations, conservation or other advocacy organizations, lodges, churches, or the like; or a particular occupational group, such as teachers, doctors, etc..[17] In the U.S., this is referred to as a credit union's "field of membership." Internationally it is referred to as the bond of association.

Credit unions may typically be chartered to serve a specific employee or associational group or groups (often called a Select Employee Group or "SEG Charter"), all members of a trade, industry, or profession (a "TIP Charter"), or have a "Community Charter" (typically a field of membership of anyone who lives, works, goes to school, or attends religious services in a particular city, county, or counties).[18] When a credit union converts to a Community Charter from a SEG Charter or TIP Charter, it can continue to serve its existing members as well as anyone who lives, works, worships, or attends school within its new geographical field of membership, but cannot admit new members from its former SEG(s) or TIP (unless the group in question is located within "the new community credit union's boundaries").[19] Similarly, a credit union that converts to a TIP or SEG charter from a different charter type can no longer admit new members from its old field of membership.[18]

Typically, members' families – such as immediate family or household members – can also join the credit union.[18] In the United States, the National Credit Union Administration or a state regulator – depending upon whether or not the credit union is chartered by the federal government or by a state – decides whether or not to approve or deny proposed field of membership expansions or charter conversions to other credit union charters.[17]

Mergers of smaller credit unions with disparate membership bases often result in a credit union with a wide variety of ways to qualify to join; thus, a credit union may have a much broader "field of membership" than that credit union's name would imply.

Credit unions generally follow the principle of "once a member, always a member", which allows a member with a current credit union membership to remain a member even if s/he would otherwise no longer qualify to be such, such as leaving the company with whom s/he initially gained membership or moving outside the credit union's defined geographic area. However, many credit unions reserve the right of expulsion against a member who causes a financial loss.[20] Some credit unions also have expelled members, including elected Board and Supervisory Committee volunteers, for making whistleblower complaints against credit union management.[21][22][23]

Underserved and low-income areas

Federal credit unions may apply to the NCUA for Low-Income Credit Union or LICU status. To qualify for LICU status, the majority of the credit union's membership meet specific requirements in order to be considered "low-income". This LICU status allows the credit unions to benefit from certain NCUA programs to enhance its capacity to serve underserved populations who may otherwise lack access to credit or other financial services. In addition, some state regulators also provide for similar low-income designations.

Unlike banks, which were caught redlining underserved areas in the 1970s, credit unions are not subject to federal "community reinvestment" requirements, essentially because credit unions, by their nature and mission of "people helping people," already meet the financial needs of a broad spectrum of people that fall within their fields of membership, and play an active role in community development and growth.[citation needed] Credit unions, with the support of Republicans[16] have successfully lobbied to exempt themselves from the (U.S. federal) Community Reinvestment Act, the law that forces banks to provide services in low-income areas.

2006 Home Mortgage Disclosure Act data shows that U.S. credit unions approved 69% of low- and moderate-income borrowers' mortgage applications that they received, versus a 47% low/moderate-income borrower approval rate for other U.S. mortgage lenders, and also that U.S. credit unions approved 62% of minority members' mortgage applications, versus a 51% minority approval rate for other U.S. mortgage lenders.[24] The 2006 Home Mortgage Disclosure Act data also shows that 25.2% of all U.S. credit union mortgage originations were mortgages for low- or moderate-income borrowers, versus a 20.6% low- or moderate-income borrower mortgage origination percentage for other U.S. mortgage lenders.[25] The NCUA, however, has long discouraged U.S. credit unions from giving members loans that they may not be able to afford to repay and has forbidden other types of predatory lending and abusive credit practices.[26] Federal credit unions are also forbidden from charging prepayment penalties on loans.[27]

Credit unions vs banks

Establishing an account at a credit union usually requires a smaller deposit than that of a bank; credit unions usually require $5-$30 to open an account, while major banks sometimes require $50-$100 deposit. The required minimum deposit to join a credit union is called a share and establishes the depositor as a member with full ownership rights.

Tension has always existed between member-owned cooperative credit unions and for-profit banks in the US. When credit unions were first organizing in the United States in the early 20th century, the banking industry was opposed, remaining so ever since. Banks and bank trade associations consistently put anti-credit union legislation at the top of their agendas.[28]

Due to their status as not-for-profit, member-owned financial institutions with no source of secondary investment capital, credit unions in the United States are exempt from federal and state income taxes (but not from other forms of tax, such as payroll, sales, or property taxes). Credit union members themselves pay income tax on dividends earned through financial participation in the credit union; this is similar to the taxation structure enjoyed by many banks incorporated under Subchapter S of Chapter 1 of the Internal Revenue Code.[29]

ESL Federal Credit Union in Rochester, New York

Given their smaller asset size, credit unions are unable to match the geographical coverage of ATMs and branches that big banks offer their customers. To extend their member service reach, many credit unions participate in shared ATM and branch networks. Shared branching is a cooperative venture whereby members of one credit union can perform basic transactions at no additional cost at any branch owned by other credit unions within the network.

Bank holding companies and their affiliates aggressively compete to provide services to credit unions through their ATM networks, corporate checking accounts, and certificate of deposit programs. In 2007, the American Bankers Association barred credit union employees from attending ABA-sponsored educational seminars. This includes online classes that require registration. Based on the pretext that the ABA only wants to serve its members, the American Bankers Association continues to attempt to weaken credit unions and take back the market share that credit unions currently[when?] hold.[30]

"People not profit"

Generally speaking, credit unions see themselves as "nobler" or of "higher moral ground" than banks; they feel that they are "community-oriented", and "serve people, not profit".[31][32][33][34][35] Credit unions maintain that no matter their size or field of membership, the fact that they are owned by their members and not shareholders makes them fundamentally different from banks.[36] Credit union members elect their boards of directors, with each member having equal voting rights. The required minimum deposit to join a credit union is called a share and establishes the depositor as a member with full ownership rights.

Credit union-to-bank conversions

Since 1995, over 30 US credit unions have converted from credit union charters to bank charters.[37] These conversions are generally initiated by a credit union's leadership team, rather than from the rank-and-file membership, and have created sharp controversy within the credit union industry.[38] Some have questioned whether these conversions are in the best interests of the credit union members, and have compared them to the mutual savings bank conversion raids of the 1980s.[39]

Like the mutual savings raids, credit union conversions have been very lucrative for executives and directors of converting credit unions.[39] CU Financial, a consulting firm that helps credit union management execute these conversions, has explained in marketing materials that if a credit union with $50 million in capital converts to a stock bank, under certain conditions a payoff in the “$1.2 million range for each director is not out of the question," while executives might also expect additional stock compensation that "could lead to a $10 million plus ownership stake for a capable CEO".[40]

Members of at least six credit unions have organized to oppose their management's conversion proposals, objecting that this insider enrichment comes at the detriment of credit union members. They point out that while insiders have made windfall profits, most members have lost their ownership stake without compensation, and face worse rates and fees after the conversion.[41] Comparisons of interest rates show that credit unions that have converted to banks now charge their members more for loans, and pay less for savings.[42][43] Member groups have included Save Columbia Credit Union, Save First Basin Credit Union, and DFCU Owners United.

The National Center for Member Trust is a consumer protection non-profit "formed to support the member-owners of credit unions that are attempting to convert to banks."[44] The Coalition for Credit Union Charter Options is an advocacy group for converting credit unions. UC Berkeley Professor of Financial Institutions James Wilcox is an expert who has released a number of studies on the issue.[45] His findings are summarized in Credit Union Conversions: Ripe for Abuse ... and Reforms, published in the Credit Union Times July 2006.


  1. ^ 2008 statistical report World Council of Credit Unions.
  2. ^ See, e.g., 26 U.S.C. § 501(c)(14)(A) for state-chartered credit unions and 26 U.S.C. § 501(c)(1) for federally chartered credit unions, available at; CUNA Model Credit Union Act § 0.20 (2007); see also 12 U.S.C. §§ 1751 note, 1752(1), 1768, available at
  3. ^ 12 U.S.C. §§ 1751-1772d. National Credit Union Administration.
  4. ^ See, e.g., Massachusetts General Laws chapter 171, §§ 1-84 (2008).
  5. ^ Texas Sunset Commission report on the Texas Credit Union Commission
  6. ^ "NASCUS State-Chartered Credit Union Facts & Figures" (PDF). National Association of State Credit Union Supervisors. 2007-12-31. Retrieved 2008-07-19. 
  7. ^ a b See NCUA, "Share Insurance,"; see also 12 U.S.C. §§ 1781-1790d, available at
  8. ^ a b See CUNA, "Frequently Requested U.S. Credit Union/Bank Comparisons;"
  9. ^ "National Credit Union Administration Annual Report 2007" (PDF). Alexandria, VA: National Credit Union Administration. Retrieved 2008-07-07. [dead link]
  10. ^ "FDIC: 2007 Annual Report". Federal Deposit Insurance Corporation. 2008-02-15. Retrieved 2008-07-14. 
  11. ^ CUNA Ratedex comparing bank and credit union rates
  12. ^ See CUNA, "CU and Commercial Bank Cost of Assets," available at
  13. ^ Clifford, Catherine (2009-03-20). "U.S. seizes 2 big credit unions". CNN. Retrieved 2010-04-30. 
  14. ^ a b c High Court Restricts Credit Union Membership, a February 1998 article from the Los Angeles Times
  15. ^ National Credit Union Administration v. First National Bank & Trust Co. et al. from a Cornell Law School website
  16. ^ a b Congress OKs Bill on Credit Union Membership, an August 1998 article from the Los Angeles Times
  17. ^ a b See, e.g., National Credit Union Administration, "Chartering and FOM Manual," IRPS 03-01 (2003), as amended by "Organization and Operations of Federal Credit Unions," IRPS 06-01 (2006), available at
  18. ^ a b c See, e.g., National Credit Union Administration, "Chartering and FOM Manual," IRPS 03-01 (2003), as amended by "Organization and Operations of Federal Credit Unions," IRPS 06-01 (2006), available at
  19. ^ See, e.g., National Credit Union Administration, "Chartering and FOM Manual," IRPS 03-01 (2003), at 2-44, as amended by "Organization and Operations of Federal Credit Unions," IRPS 06-01 (2006), available at
  20. ^ "Member Expulsion Policy". Retrieved 2010-07-11. 
  21. ^ [1][dead link]
  22. ^ Morrison, David (2008-05-21). "Del Norte Dispute Remains Unsettled". Retrieved 2010-07-11. 
  23. ^ [2][dead link]
  24. ^ Mike Schenk, Vice President for Economics and Statistics, CUNA, "Commercial Banks and Credit Unions: Facts, Fallacies, and Recent Trends," at *31 (2007), available at
  25. ^ Mike Schenk, Vice President for Economics and Statistics, CUNA, "Commercial Banks and Credit Unions: Facts, Fallacies, and Recent Trends," at *33 (2007), available at
  26. ^ See, e.g., NCUA, Letter to Credit Union No. 05-CU-15 Enclosure (2005), available at; NCUA, Risk Alert No. 05-RISK-01 (2005), available at; see also 12 C.F.R. pt. 706, available at
  27. ^ 12 U.S.C. § 1757(5)(A)(viii), available at
  28. ^ Burger, Carol Anne; David Morrison (2008-02-06). "ABA Priorities Draw CUNA’s Ire". Credit Union Times (Highline Media). Retrieved 2008-07-09. 
  29. ^ 26 U.S.C. §§ 1361-1379, available at; see Mike Schenk, Vice President for Economics and Statistics, CUNA, "Commercial Banks and Credit Unions: Facts, Fallacies, and Recent Trends," at *22-*25 (2007), available at
  30. ^ American Bankers Association, "Industry Issues: Operation Credit Unions,"
  31. ^ [3] - Lanier Federal Credit Union (typical example of a small credit union), motto: "Where people are worth more than money."
  32. ^ [4] - Credit Union National Association, "The Credit Union Difference" - "Credit unions exist to help people, not make a profit. Our goal is to serve all of our members well, including those of modest means - every member counts... The same people-first philosophy causes credit unions and our employees to get involved in community charitable activities and worthwhile causes..." ... [5] - "Credit unions are not-for-profit financial cooperatives. We exist to serve our members, not to make a profit. Unlike most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to our members..."
  33. ^ [6] - "The Christian Credit Union" - In our effort to fulfill the vision of making a positive difference, Christian Community Credit Union is committed to give you outstanding member service through these higher service standards: We promise to treat you in a God-honoring way...
  34. ^ [7]
  35. ^ [8] MSN MONEY: "Converts sing praises of credit unions" (Archived by WebCite® at
  36. ^ Why Credit Unions are tax exempt, from the governmental affairs section of CUNA's web site.
  37. ^
  38. ^ [9][dead link]
  39. ^ a b "For Years, Consultants and Greed Have Driven Coops in Other Industries to go Stock-owned; CU Wave May be Just Starting", Credit Union Times, March 17th, 2004.
  40. ^ Albert B. Crenshaw, Banks Look to Make Converts Of Credit Unions, Washington Post, February 11, 2006, page D1
  41. ^ "Save First Basin Credit Union! - The Issues". Retrieved 2010-07-11. 
  42. ^ Jeff Heinrich and Russ D. Kashian (2010-07-06). "EconPapers: Credit Union to Mutual Conversion: Do Rates Diverge?". Retrieved 2010-07-11. 
  43. ^ [10][dead link]
  44. ^ "National Center for Member Trust". Retrieved 2010-07-11. 
  45. ^ "Jim Wilcox's Home Page". Retrieved 2010-07-11. 

Further reading

  • Ian MacPherson. Hands Around the Globe: A History of the International Credit Union Movement and the Role and Development of the World Council of Credit Unions, Inc. Horsdal & Schubart Publishers Ltd, 1999.
  • F.W. Raiffeisen. The Credit Unions. Trans. by Konrad Engelmann. The Raiffeisen Printing and Publishing Company, Neuwid on the Rhine, Germany, 1970.

See also

External links

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