Reporter's Guide to Credit Unions
Are not-for-profit, member-owned credit unions really different from banks? Yes, they are!
The Credit Union Difference
Mission - Credit unions are organized to pool the financial resources of the membership in order to provide affordable services to members. This approach underscores the credit union movement’s philosophy of People Helping People®, without regard to gender, age, race, ethnic background, politics or religion.
Structure - Credit unions are not-for-profit financial cooperatives; credit unions are not banks. Instead of being structured to operate like banks, which maximize profits for an outside group of investors, credit union services are designed to benefit members only. Earnings on loans remain within the credit union to improve services and facilities, to build reserves, to keep rates competitive and to return dividends to members.
Cooperative Ownership - Credit union members are the only owners of their financial institution. Every member, regardless of account balance, owns an equal share of the credit union and has an equal vote in electing a board of directors. Credit union directors consist of members only, so members have democratic control of credit union operations.
Member Base - Credit unions are the only financial institutions that are not allowed to serve the general public — membership must meet common bond eligibility requirements. In order to use the services, people must fall within the credit union’s field of membership, which consists of groups with common bonds. These membership groups are reviewed and approved/declined by government regulators that oversee credit union operations.
Just the Facts (as of 9/30/13)
- Number of credit unions in Pennsylvania - 489
- Number federally chartered - 88%
- Number state chartered - 12%
- Assets - $38 Billion
- 3.8 million members
The Inside Story
Financial cooperatives were formed in Europe during the mid-1800s to help farmers recover from a poor growing season. These cooperatives helped farmers buy seed and provide for their families without paying the high interest rates charged by loan sharks. The first credit union in this country was opened in 1909 in New Hampshire.
The credit union movement in Pennsylvania organized in the late 1920s. Postal employee groups were among the first to organize financial services for members. Employee groups from a variety of manufacturing areas also saw the benefits of starting credit unions and interest swelled. In 1933, Governor Gifford Pinchot signed the Pennsylvania Credit Union Act making the Commonwealth the 38th state to allow financial cooperatives to form.
In 1934, the signing of the Federal Credit Union Act by President Roosevelt allowed credit unions to have either a state or federal charter. The Act also paved the way for widespread growth of the credit union movement across the country. During the Great Depression, when trust in some banks waned, credit unions were seen as consumer-friendly, safe places to save.
To better organize a state movement, credit unions formed the Pennsylvania Credit Union Association in 1934. Hundreds of credit unions were started during the middle part of the century to serve groups sharing occupations, associations and communities.
As more people learned about the ways credit unions help members to grow financially, membership soared. And as consumer acceptance of credit unions grew, so did congressional support. Federal insurance for credit union share (savings) accounts and the right for credit unions to offer share draft (checking) services was approved by Congress. Congress was so impressed with the success of credit unions that it formed its own financial cooperative to serve its members.
The number of credit unions in Pennsylvania peaked at 1,593 in 1980, with membership reaching 1.74 million. While the consolidation trend in the business community during the 1980s and 1990s impacted the credit union movement membership climbed to more than 3.8 million at mid-year 2012.
Membership continues to reach record levels each year. An annual consumer survey conducted by the Gallup Organization for the American Banker newspaper has consistently rated credit unions ahead of banks, S&Ls and thrifts for service satisfaction. Consumer value and high quality personal service keeps the credit union movement going strong in America.
Cooperation extends beyond members at individual credit unions. Credit unions often work together to help each other strengthen service delivery. To keep the movement united, most credit unions are members of state leagues and the Credit Union National Association (CUNA). Leagues provide legislative, educational, operational and public relations support to credit unions in their state.
The Credit Union system also supports the World Council of Credit Unions, which helps developing countries use financial cooperatives to build economies. Credit unions are being used to provide economic growth for people in Kenya, Sri Lanka, Latvia, Poland, Bangladesh, the former Soviet Union, Korea and other countries that need help saving for the future.
At the local and state levels, nationally and worldwide, credit union cooperation allows people in one region to benefit from the success of credit unions elsewhere. Again, it’s the movement’s not-for-profit, People Helping People® philosophy at work improving lives.
Setting the Record Straight
Credit unions can serve anyone.
This is not true. Unlike banks, credit unions cannot serve the general public. Credit union membership is limited to persons who share a common bond of employment, association or community.
A credit union’s field of membership is restricted by law. The banking industry has been trying for years to deny consumers and employees of small businesses access to credit unions. At a time when banks are experiencing record breaking profits, it is evident that the prosperity of credit unions and their ability to serve millions of consumers has had no impact on bank’s bottom line.
Credit unions do not pay taxes.
Credit unions do, in fact, pay taxes. They pay property, county, school, municipal, and employer taxes. But, because credit unions are not-for-profit, returning all profits to their members in the form of higher rates on savings, lower loan rates and low- or no-fee services, they do not pay corporate income taxes.
On the contrary, banks must pay corporate income tax because they are in business to maximize profits and return them to stockholders, not customers. For that reason, banks are subject to the same income taxes as other for-profits businesses.
Credit unions look and act like banks.
It is true that credit unions offer financial services similar to those offered by banks. But, credit unions, smallest to largest, subscribe to a business philosophy and retain a structure that is very different from banks.
Credit unions give consumers the option of owning the institution where they do their financial business. Therefore, credit union members are not just another customer – they have an equal vote in determining the direction taken by the institution. Credit unions cannot issue stock, so, and, most importantly, they return all earnings to their members.
Banks, on the other hand, are for-profit and have stock-holdings by outside investors, who essentially own them and hold voting rights. Banks exist to enrich stockholders, usually to the expense of their customers.
Credit unions don’t insure investments.
This could not be further from the truth. Credit unions have their own federal insurance program covering member savings accounts. Today, all credit union share accounts in Pennsylvania are insured up to $100,000 by the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF is administered by the National Credit Union Administration (NCUA).
No taxpayer monies, or monies from other federal deposit insurance programs, are used to fund the NCUSIF. Credit unions pay a percentage of their deposits to build the fund. And, like other financial service providers, credit unions are regulated and audited either by state or federal agencies.
For More Information
When seeking comment from a credit union official, you will want to speak with the credit union president/CEO. At smaller credit unions, this person often holds the title of manager and may also serve in another capacity, such as treasurer. Credit union boards are led by a chairperson or president.
Credit union CEOs/managers can usually be reached at the credit union office. Small credit unions may have limited office hours because the contact person may be a volunteer who works outside the credit union or only part-time in the credit union office.
While they may have fewer services, small credit unions are just as important to members as larger cooperatives. In fact, the importance of smaller credit unions is even greater in areas that have been vacated by other financial institutions. Pennsylvania has five community development credit unions designed specifically to provide affordable financial services in low-income areas, and other credit unions that serve also low-income people.
The Pennsylvania Credit Union Association can provide reporters with mid-year and year-end statistics for credit unions in specific areas, the state as a whole or on a national level. Credit union lists can be organized by asset size or membership size.
For more information, to arrange an interview with a credit union, or to speak with a credit union expert, contact the Pennsylvania Credit Union Association’s Communications Department.
Pennsylvania Credit Union Association
4309 N. Front Street, Harrisburg, PA 17110
(717) 234-2695 (fax)
Patrick C. Conway
President & CEO
|Credit Union National Association
National Credit Union Administration