= cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

Description

0. From the Wikipedia:

"A credit union is a cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. Many credit unions exist to further community development or sustainable international development on a local level. Worldwide, credit union systems vary significantly in terms of total system assets and average institution asset size since credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members. Yet Credit unions are typically smaller than banks; for example, the average U.S. credit union has $93 million in assets, while the average U.S. bank has $1.53 billion, as of 2007.

The World Council of Credit Unions (WOCCU) defines credit unions as "not-for-profit cooperative institutions." In practice however, legal arrangements vary by jurisdiction. For example in Canada credit unions are regulated as for-profit institutions, and view their mandate as earning a reasonable profit to enhance services to members and ensure stable growth. This difference in viewpoints reflects credit unions' unusual organizational structure, which attempts to solve the principal-agent problem by ensuring that the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union. A credit union's policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Credit unions offer many of the same financial services as banks, often using a different terminology; common services include: share accounts (savings accounts), share draft (checking) accounts, credit cards, share term certificates (certificates of deposit), and online banking.Normally, only a member of a credit union may deposit money with the credit union, or borrow money from it. As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health. In the microfinance context, "[c]redit unions provide a broader range of loan and savings products at a much cheaper cost [to their members] than do most microfinance institutions."

In some places, credit unions are called by other names; for example, in many African countries they are called "savings and credit cooperative organizations" (SACCOs), "to emphasize savings before credit." in Spanish-speaking countries, they are often called cooperativas de ahorro y crédito, but in Mexico they are typically called a caja popular. French terms for "credit union" include caisse populaire and banque populaire. Afghani credit unions are called "Islamic investment and finance cooperatives" (IIFCs) to comply with Islamic lending practices."

(http://en.wikipedia.org/wiki/Credit_union)

1.

"Credit Unions: these depositor-owned financial institutions provide a ready alternative to the corporate banks that wreak havoc on economies. People who deposit money in the credit union own the business, in shares equivalent to their deposit. Such institutions can set up fair and equitable fees, interest rates, salary structures, and other policies. Credit unions are quite common in the US, although some are more democratic and responsive to their dispersed owners than others. There is currently a movement to develop another alternative to privately held banks: that of state-owned banks."

(https://www.initiativeforequality.org/index.php/2011-11-22-23-04-42/new-economic-models)

2.

"Credit unions and financial cooperatives are social innovation examples creating a framework for an alternative financial system that is member-owned, with the potential to operate a profound change in traditional economic systems.

Credits unions and cooperatives emerge with the aim of funding economic activities which have a positive social impact, by giving support to social, ecological, cultural and humanitarian projects and to persons who do not have access to traditional financial tools.The signs of their societal impact are the increase in projects with a high social value being funded worldwide, and organizations and people becoming their clients, as well as their increasing penetration in the traditional economic system.

Credit Unions emerged in order to allow disenfranchised groups as well as highly valued societal projects to have access to the necessary funding. It also responded to the growing discontent with the separation between real social needs and the philosophy of the traditional financial actors. Credits unions can be used by any cooperative, association, social institution or small business interested in carrying out socially-oriented economic projects."

(http://www.transitsocialinnovation.eu/resource-hub/credit-unions)

Discussion

Dorienne Robinson:

"Credit unions were developed in the UK in the 19th century by the father of the British socialist movement, Robert Owen, in a bid to engage privileged and underprivileged alike in common and mutual financial support. They are run as cooperatives, with each member having one vote that is not linked to the amount of savings, or shares, owned by that member. The majority of credit unions are run on a voluntary basis by their members and are accountable to the Financial Services Authority (FSA), with members’ shares being covered by insurance.

Each credit union has a board of directors whose role is management, formulating policy and ensuring that the organisation operates legally. In addition to the Board of Directors there is a credit and a supervisory committee. The credit committee assesses loan applications and monitors the savings accounts.

The supervisory committee acts as an internal auditor to the credit union, reporting to the board of directors and the members at the AGM.

Credit unions base their membership on a ‘common bond’, which is exactly what it says – something that binds the membership together. Most often this is geographical, usually applying to an existing community, but it can also mean the commonality of a workplace such as a police force, a hospital or county council offices. This common bond establishes a degree of mutual accountability amongst the membership, which minimises the risk of default on loans as well as encouraging active support.

Credit unions are essentially not for profit, but this doesn’t mean that savings don’t earn money. All profits are shared among the membership, and the amount received depends on the amount of shares saved. Each credit union sets its own dividend figure annually and bases it on how well it has performed the previous year. There is a legal obligation to keep a reserve of money, called liquidity, against defaulting loans. Once the liquidity figure has been established and all overheads and running costs accounted for, profits are returned to the members as a dividend.

Loans are normally required to be supported by shares, generally to about one third the value of the loan.

In some cases instant loans are possible and these are decided on, case by case, by the loans committee.

This is often where the common bond is advantageous to the credit union, as loan applicants are often known in the community and their risk levels are thus more easily assessed.

Credit union loans are decided on an individual basis and repayment terms are set to ensure continuity.

Unlike in high-street banks, the monthly repayments are taken from the loan before interest is added, which makes a significant difference to the amount of overall interest paid. Additionally, unlike high-street bank loans, a loan can be paid off in full before its finish date with no penalties. Many other financial institutions require a percentage, if not all, of the interest they would have earnt if the loan had gone full-term.

Credit unions come in different sizes, although most fall into one of two categories: Type 1 is small, offers savings and loans facilities, has no paid workers, usually pays a dividend of between 0% and 3% and in addition probably has funds of up to £50,000.

Type 2 is large, has paid employees, offers mortgages and operates direct debits, standing orders and cashpoint facilities.

Type 2 is not dissimilar to a high-street bank, although the cooperative ethos and sharing of profits as a dividend remain the same as in smaller credit unions. However, the reliance on fossil fuels and a steady power supply is nearly the same, which is another reason, for those with a sustainability ethos, that the smaller credit unions are becoming a serious contender to the high-street bank, especially amongst the growing number of Transition communities.

The smaller credit unions really are bottom-up and community-run, do not need the internet, can be maintained on a laptop (which can be solar-powered), and can keep funds on the premises.

As post peak oil and climate change impact on all our lives there will be a need to travel less and source more locally. This will result in an increase in the start-up of a wide range of small local businesses, most of which will need financial input in the early stages. What could be better than knowing that the money you have deposited in your savings account with your local credit union has gone directly to another member of your community (or common bond area) to help others become viable and to enhance the services available to that community?"

Credit Unions and their relation to Cooperative Development in the U.S.

Matthew Cropp:

"With over a trillion dollars in assets and more than 100 million members, it is clear that credit unions must play a pivotal part of any effective strategy aimed at bringing the co-op model to full scale in the American economy. At first glance, one would assume that their obvious role would be as the financial backbone of the co-op movement, providing financial services and loans to existing co-ops, while offering incubation and start-up capital to new ones.

While such a vision of credit unions being “one spoke in the great wheel of co-operation” was very much present for early credit union leaders like Roy Bergengren, it ceased to be a focus after he was pushed out of CUNA in the mid-1940s. At that point, the conservative faction of “business credit unionists,” who saw credit unionism as more of a human resources function than a social movement, rose to power, and the credit unions’ connections to the rest of the cooperative movement were largely severed for decades.

In more recent times, there has been a rapprochement between the credit union sector and the rest of the co-op movement, but that strengthening of ties has not translated into strong credit union support for cooperative development. Unlike the 1940s, the present cause has been more regulatory than ideological. As credit unions have grown in scale through consolidation, the banking lobby has worked hard to limit credit unions’ penetration into their profitable business lending turf. As a result, credit unions may legally lend out no more than 12.25% of their assets to member businesses, and face copious other requirements that often make lending to other co-ops challenging.

However, not all credit unions are created equal. In most states there is a “dual chartering” system, in which a credit union can either choose to be incorporated by its state or by the Federal Government. This situation means that there exists a certain amount of diversity in the details of different states’ enabling legislation, and, it turns out, one of those details offers a potentially exciting opportunity for greater credit union involvement in the financing of co-ops.

In my state (Vermont), as well as Arkansas, Illinois, Kentucky, Montana, Nevada, New Jersey, and New Mexico, it turns out that state-chartered credit unions are authorized to invest surplus funds."

(http://www.coopwatercooler.com/discussions//capitalizing-the-co-op-movement-with-equity-the-credit-union-opportunity)

Why Credit Unions Avoided the Meltdown

Ralph Nader:

"Credit Unions have no shareholders nor stock nor stock options; they are responsible to their owner-members who are their customers.

There are even some special low-income credit unions—thought not nearly enough—to stimulate economic activities in these communities and to provide “banking” services in areas where poor people can’t afford or are not provided services by commercial banks.

According to Mike Schenk, an economist with the Credit Union National Association, there is another reason why credit unions avoided the mortgage debacle that is consuming the big banks.

Credit Unions, he says, are “portfolio lenders. That means they hold in their portfolios most of the loans they originate instead of selling them to investors….so they care about the financial performance of those loans.”

Mr. Schenk allowed that with the deepening recession, credit unions are not making as much surplus and “their asset quality has deteriorated a bit. But that’s the beauty of the credit union model. Credit unions can live with those conditions without suffering dire consequences,” he asserted.

His use of the word “model” is instructive. In recent decades, credit unions sometimes leaned toward commercial bank practices instead of strict cooperative principles. They developed a penchant for mergers into larger and larger credit unions. Some even toyed with converting out of the cooperative model into the shareholder model the way insurance and bank mutuals have done. The cooperative model—whether in finance, food, housing or any other sector of the economy—does best when the owner-cooperators are active in the general operations and directions of their co-op. Passive owners allow managers to stray or contemplate straying from cooperative practices.

The one area that is now spelling some trouble for retail cooperatives comes from the so-called “corporate credit unions”—a terrible nomenclature—which were established to provide liquidity for the retail credit unions. These large wholesale credit unions are not exactly infused with the cooperative philosophy. Some of them gravitate toward the corporate banking model. They invested in those risky mortgage securities with the money from the retail credit unions. These “toxic assets” have fallen $14 billion among the 28 corporate credit unions involved.

So the National Credit Union Administration is expanding its lending programs to these corporate credit unions to a maximum capacity of $41.5 billion. NCUA also wants to have retail credit unions qualified for the TARP rescue program just to provide a level playing field with the commercial banks.

Becoming more like investment banks the wholesale credit unions wanted to attract, with ever higher riskier yields, more of the retail credit union deposits. This set the stage for the one major blemish of imprudence on the credit union subeconomy.

There are very contemporary lessons to be learned from the successes of the credit union model such as being responsive to consumer loan needs and down to earth with their portfolios. Yet in all the massive media coverage of the Wall Street barons and their lethal financial escapades, crimes and frauds, little is being written about how the regulation, philosophy and behavior of the credit unions largely escaped this catastrophe.

There is, moreover, a lesson for retail credit unions. Beware and avoid the seepage or supremacy of the corporate financial model which, in its present degraded overly complex and abstract form, has become what one prosecutor called “lying, cheating and stealing” in fancy clothing."

(http://www.onthecommons.org/content.php?id=2391)

More Information

Credit Commons
Status report, Summer 2009 by Yes magazine, at http://www.yesmagazine.org/article.asp?ID=3505

To find a credit union near you or to set one up, visit www.abcul.org

See articles at:

Case Study

Dumitru, A.; Lema-Blanco, I.; García-Mira, R.; Haxeltine, A. and Frances. A. (2015) Transformative social innovation narrative of Credit Unions. TRANSIT: EU SSH.2013.3.2-1 Grant agreement no: 613169 [1]

Credit Union

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