The Beginnings of Credit Unions

Author:     Tuesday, August 26, 2014 12:00 AM

The Beginnings of Credit Unions

Credit unions started as a cooperative movement in the mid-1800s and has grown to more than 7,000 branches with a record of membership of 91.8 million, according to the National Credit Union Administration (NCUA). They continue to expand as they offer more financial services and customer features. Yet, while working in the highly risky and competitive financial markets, credit unions stay true to their humble roots.

It Started with A Bakery

Financial cooperatives were considered in Europe in the early 1800s, but the real start of the credit union movement is attributed to a German businessman named Schulze-Delitzsch. In 1846, he designed a cooperative bakery and mill that sold goods to its members at a reduced price. Seeing the benefits of this business model, in 1850 he created the first people's bank to work with the credit needs of people in a similar way.

Another businessman, Raiffeisen, started similar people's banks in rural Germany to help farmers purchase machinery and supplies. These rural credit unions were often staffed by a single paid-employee and many volunteer workers. His people's banks served many of the poorer people in the community and had to operate quite lean.

While Schulze-Delitzsch's credit union model was focused on the urban community and Raiffeisen's on the rural population, their philosophies were similar and formed the foundations by which current day credit unions operate:

  • managed by Democratic governance
  • board of directors is elected by the members
  • every member has one vote
  • participation in the board is voluntary

From Europe to North America

Alphonse Desjardins, a staff member in the Canadian parliament, became concerned when he discovered the high interest rates being charged by local moneylenders in Quebec. In 1901 he opened the Caisse Populaire de Lévis to serve the population's credit needs. His goal was to help the working class obtain credit at a much lower rate.

In 1908, Desjardins visited with French-speaking immigrants living in Manchester, New Hampshire. From these meetings came the St. Mary's Cooperative Credit Association, the first credit union in the United States. A pastor of the St. Mary's church, Monsignor Pierre Hevey, lead the effort to open this credit union, assisted by attorney, Joseph Boivin, who managed it as a volunteer. It was initially run out of Boivin's home until they could secure a physical space.

The 1920s saw rapid growth of credit unions due to families wanting credit to purchase big ticket items such as automobiles and washing machines. At that time, the other financial institutions of the day, commercial banks and savings and loans, had little interest in providing these consumer loans. By 1930, there were more than 1,100 credit unions located in 32 U.S. states.

President Franklin Roosevelt put the Federal Credit Union Act into law in 1934 to create a national body to oversee federal credit unions. The growth of credit unions was steady and by 1960, there 10,000 operating credit unions. The National Credit Union Administration (NCUA) was established in 1970 followed by the National Credit Union Share Insurance Fund (NCUSIF), which works like the FDIC to insure deposits of the credit union members.

Modern U.S. Credit Unions

The 1980s saw changes in the financial world and credit unions began to merge and consolidate services. Unemployment brought many changes, as well. Growth continued through the 1990s and into the 2000s, until the major economic downturn in 2008 and 2009. The NCUA worked with the U.S. government to protect the credit union system. The results of these actions were to keep further credit union closures from happening and safeguards put in place to warn when potential problems could happen.

The economic downturn in the mid-2000s caused credit unions to restructure themselves to be better resources for the consumer while protecting their financial assets. Today, credit unions continue to serve the needs of the consumer for inexpensive credit and a safe place to save.