Credit Unions: What We Are, Why We Exist, Why Bankers Don't Like Us
What We Are
A credit union is a cooperative financial institution, owned and controlled by the members who use its services. These people are considered member-owners. Typically, credit unions serve groups that share something in common, such as where they work, live, or go to church. They may also serve a specific town, county or geographic area.
Credit unions are not-for-profit, and exist to provide a safe, convenient place for member-owners to save money and to get loans at reasonable rates.
Credit unions, like other financial institutions, are very closely regulated. And they operate in a very prudent manner.
What Makes Us Different from a Bank or Savings and Loan?
Like credit unions, these financial institutions accept deposits and make loans. But unlike credit unions, they are in business to make a healthy profit for their shareholders. Credit unions exist to serve their member-owners.
Why We Exist
President Franklin D. Roosevelt signed into law the Federal Credit Union Act in 1934.
The stated purpose was to “promote thrift and thwart usury.” ¹ The legislators who wrote this Act realized that the only way to “thwart usury” was to remove the reason for usury: profit.
Credit unions exist for a simple reason: To provide people with a choice to receive their financial services from an institution that is NOT designed to maximize the profit made off their transactions.
Credit unions do measure return on investment and profits from products and reserve capital. But, the purpose of those actions is to ensure that the credit union creates enough income and has the reserves necessary to stay open and remain able to serve the members.
Why Bankers Don't Like Us
Bankers don't like credit unions for the same reason that we exist: Credit Unions provide people with a choice - a choice to receive their financial services from an institution that is NOT designed to extract profits from their transactions to benefit stockholders or investors. The only “investors” a credit union serves are the members who use the products and services.
As long as credit unions remain in existence, people have a choice.
They can walk away from for-profit banks and become a member of a credit union. Bankers would prefer consumers not to have that choice.
Think of the current news stories you hear about the effect of for-profit banking on consumers. The disastrous mortgage issues currently impacting our entire economy were created by for-profit lenders.
The “fee harvesting” credit card offerings that have pushed already-poor consumers into debt, destroyed credit ratings, and prompted Congress to establish rules intended to protect consumers were perpetrated by for-profit lenders.
If these abuses can exist in a business landscape that does include credit unions, how much worse would it be if that choice was gone?
America's Credit Unions:
Where people are worth more than money
¹ Source: Credit Union National Administration (CUNA.org)