History of Credit Unions

Formed to Provide Credit to People of Small Means

 

From their early 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. However, in the mid-1800's Germany was the home of the first credit unions as we know them today:

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 goal was to provide credit to farmers. Raiffeisen 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 on April 15, 1909. The Massachusetts law has 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 to 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. By 1930, that number grew to 32 states with a total of 1,100 credit unions.

 

In 1934, President Roosevelt signed the Federal Credit Union Act into law, authorizing the establishment of federally chartered credit unions in all states. The purpose of the federal law was "to make more available to people of small means credit for provident purposes through a national system of cooperative credit..."

In the Congressional debate over the Federal Credit Union Act, neither the Comptroller of the Currency nor the Federal Reserve Board wanted to oversee federal credit unions. Eventually the Farm Credit Administration agreed to take the responsibility. Regulatory responsibility shifted over the years to include bureaus within the Federal Deposit Insurance Corporation, the Federal Security Agency, and the Department of Health, Education and Welfare.

Credit unions grew steadily in the 1940s and 1950s, and by 1960 credit union membership amounted to more than 6 million people at over 10,000 federal credit unions.

In 1970, the National Credit Union Administration was created to charter and supervise federal credit unions and the National Credit Union Share Insurance Fund (NCUSIF) was organized to insure credit union deposits. In the independent credit union spirit, the NCUSIF was created without tax dollars and capitalized solely by credit unions.

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 near bankruptcy, the credit union community called on Congress to approve a plan to recapitalize the Fund.

In 1985, federally insured credit unions recapitalized the NCUSIF by depositing 1 percent of their shares into the Share Insurance Fund. Backed by the "full faith and credit of the United States Government," the National Credit Union Share Insurance Fund has three "fail safe" features:

Since the recapitalization, the NCUA Board has only charged credit unions a premium once. In 1991, the Fund dropped to a 1.23 percent equity level and credit unions were asked to pay a premium.

Credit unions today have been healthy and growing. Credit union failures have declined steadily throughout the decade and the Share Insurance Fund has prospered.