History of Credit Unions
From their origins, credit unions were unique depository institutions created
not for profit, but to serve members as credit cooperatives. The earliest
financial cooperatives date back to the beginning of 19th century in
England. In the mid-1800's, Germany was the first home of credit unions
as we know them today:
• Democratically governed;
• Each member has one vote;
• Member-elected board of directors; and
• Volunteer based.
These early German credit unions were organized by
Herman Schulze-Delitzsch and Friedrich Raiffeisen. The crop failure
and famine of 1846 caused Schulze-Delitzsch to organize a cooperatively-owned
mill and bakery which sold bread to its members at substantial savings.
Schulze-Delitzsch took this cooperative notion to address the needs
of credit. In 1850, he organized the first cooperative credit society,
known as the "people's
bank."
Raiffeisen’s goal was to provide credit to farmers.
He formed the Heddesorf Credit Union in 1864 to help German farmers
purchase livestock, equipment, seeds and other farming needs.
In 1900, the credit union concept crossed the Atlantic
to Levis, Quebec, where Alphonse Desjardins organized La Caisse Populaire
de Levis. A court reporter, Desjardins became aware of the outrageous
interest being charged by loan sharks and organized the credit union
to provide relief to the working class.
In 1909, Desjardins helped a group of Franco-American
Catholics in Manchester, New Hampshire, organize St. Mary's Cooperative
Credit Association--the first credit union in the United States.
Spurred by the attention of Edward Filene, a merchant
and philanthropist, and Pierre Jay, the Massachusetts Banking Commissioner,
the Massachusetts Credit Union Act became law April 15, 1909. The Massachusetts
law served as a basis for subsequent state credit union laws and the
Federal Credit Union Act.
With the upswing of the U.S. economy in the 1920's,
the credit union movement became increasingly popular. People had more
money to save and were able to afford products such as automobiles
and washing machines. However, they needed a source of inexpensive
credit. Because commercial banks and savings institutions were not
generally interested in providing consumer credit, credit unions began
growing.
In 1920, Roy Bergengren, a poverty lawyer, was hired
by Edward Filene to manage the Massachusetts Credit Union Association
and promote the development of credit unions in that state. Within
a year, Massachusetts chartered 19 new credit unions.
Encouraged by this success, Filene organized and
Bergengren managed a national association to promote credit unions
throughout the country, the Credit Union National Extension Bureau.
By 1925, 26 states had passed credit union legislation and by 1930
that number grew to 32 states with a total 1,100 credit unions.
President Roosevelt signed the Federal Credit Union
Act in 1934, forming a national system to charter and supervise federal
credit unions. Credit unions grew steadily in the 1940s and 1950s and
by 1960 credit union membership amounted to more than 6 million people
in over 10,000 federal credit unions.
In 1970, the National Credit Union Administration
(NCUA) became an independent federal agency and the National Credit
Union Share Insurance Fund was formed to insure members’ deposits.
The 1970s brought major changes in the products offered by financial
institutions and credit unions found they too needed to expand their
services. In 1977, legislation expanded services to credit union members,
including share certificates and mortgage lending. The 1970s were years
of tremendous growth in credit unions. The number of credit union members
more than doubled and credit union assets tripled to over $65 billion.
Deregulation, increased flexibility in merger and
field of membership criteria and expanded member services characterized
the 1980s. High interest rates and unemployment in the early '80s brought
supervisory changes and insurance losses. With the Share Insurance
Fund experiencing financial stress, the credit union community called
on Congress to approve a plan to recapitalize the Fund.
In 1985, federally insured credit unions capitalized
the National Credit Union Share Insurance Fund by depositing 1 percent
of their shares into NCUSIF, a federal fund backed by the "full
faith and credit of the United States Government."
During the 1990s and into the 21st century, credit
unions have been healthy and growing. Credit union failures are low
and the Share Insurance Fund prospers.
Approximately 9,300 federally insured credit unions
now serve 83 million members with deposits exceeding $528 billion
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