Basic CU Information
What is a Credit Union?
Credit unions are financial institutions formed by an organized group of people with a common bond. Members of credit unions pool their assets to provide loans and other financial services to each other.
Credit unions differ from other banks in several ways:
- Not-for-profit cooperatives
- Owned by members
- Operated by mostly volunteer boards
Other Financial Institutions
- Owned by outside stockholders
- Owned by outside stockholders
- Controlled by paid boards
These factors allow credit unions to pay dividends to their members (not shareholders) and offer them lower loan rates, higher savings rates and fewer service fees.
The National Credit Union Administration (NCUA) is the federal agency that charters and supervises federal credit unions. They also insure savings in federal credit uni9ons through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government. In West Virginia, the WV Department of Financial Institutions regulate state chartered credit unions but are also federally insured.
What is the Credit Union Difference?
New federal laws and regulations are changing the structure and face of the financial services industry. In this time of accelerating change, it is important to truly understand how credit unions are unique and different, and why we remain a necessary and extremely popular financial alternative for more than 96 million Americans.
Not-for-profit. Credit unions are not-for-profit financial cooperatives. We exist to serve our members, not to make a profit. Unlike most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to our members in the form of lower loan rates, higher interest on deposits, and lower fees.
Taxation. Credit unions do pay taxes – payroll taxes, sales taxes, and property taxes. Congress exempts credit unions from federal income taxes. The exemption was established in 1937, affirmed by statute in 1951, and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:
"Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means."
Ownership. Credit unions are economic democracy. Each credit union member has equal ownership and one vote -- regardless of how much money a member has on deposit. At a credit union, every customer is both a member and an owner.
Volunteer Boards. Each credit union is governed by a board of directors, elected by and from the credit union’s membership. Board members serve voluntarily.
Membership Eligibility. By current federal statute, credit unions cannot serve the general public. People qualify for a credit union membership through their employer, organizational affiliations like churches or social groups, or a community-chartered credit union.
Financial Education for Members. Credit unions assist members to become better-educated consumers of financial services. Additionally, CUNA is partnering with the National Endowment for Financial Education, a not-for-profit foundation, to expand financial education among high school students. A national study shows that just ten hours of personal finance education can positively affect students' spending and savings habits for a lifetime.
Social Purpose: People Helping People. Credit unions exist to help people, not make a profit. Our goal is to serve all of our members well, including those of modest means – every member counts. Our members are fiercely loyal for this reason. They know their credit union will be there for them in bad times, as well as good. The same people-first philosophy causes credit unions and our employees to get involved in community charitable activities and worthwhile causes – just ask us.
Basic Information on Credit Unions
Overview: Overall, more than 96 million U.S. consumers are member-owners of, and receive all or part of their financial services from the nation's 6,900 credit unions. Credit unions are not-for-profit financial cooperatives, serving members who share something in common: employment, association membership, or residence in a particular geographic area. As not-for- profit cooperatives, credit unions generally offer more attractive savings and loan rates, and low or no fees. Surveys consistently rank credit unions first among financial institutions in consumer satisfaction.
Philosophy and Structure: Credit unions are democratically owned and controlled institutions, based on "people helping people" principles. Credit union boards of directors are elected by members; each member has an equal vote, regardless of how much he or she has on deposit. Only members may serve as directors, and directors serve without remuneration. Volunteers are an important credit union resource. Presently, more than 94,000 Americans volunteer for their credit unions, serving as board members, committee members, or providing other assistance. Finally, credit unions have no outside stockholders, so after reserves are set aside, earnings are returned to members in the form of dividends on savings, lower loan rates, or additional services.
Safety and Soundness: Credit unions primarily engage in consumer loans and, to a lesser degree, residential real estate loans for their members. Due to prudent lending and management practices, credit unions were not adversely affected by the economic downturn of the late 1980s, early 1990s, and last several years. Because credit unions are portfolio lenders and are member-owned cooperatives, they were not part of the recent widely-reported sub-prime crisis. Credit union asset quality remains very high, with overall loan delinquencies at 1.20 percent at mid-year, 2012. Credit union capital is 10.1 percent of total assets, and the equity ratio of the federal insurance fund, National Credit Union Share Insurance Fund (NCUSIF), has operated with an equity-to-insured share ratio of at least 1.24 percent for 20 consecutive years.
Insurance Fund: Since 1984, credit unions have operated their own federal deposit insurance fund on a pay-as-you-go basis. In that year, credit unions voluntarily deposited 1.0 percent of their insured member savings in NCUSIF, to bring its equity ratio up to 1.0 percent. This recapitalization resulted in a one-time reduction in the federal deficit. Each year, credit unions deposit sufficient funds to ensure that the fund's equity ratio is maintained at or near 1.3 percent. While the NCUSIF is backed by the full faith and credit of the U.S. government, the structure of the insurance fund ensures that only if all of the capital in the credit union movement were exhausted, would any taxpayer funds be spent on credit unions. Like other deposit insurance funds, NCUSIF protects members’ savings up to $250,000 and individual retirement accounts (IRAs) and Keoghs up to $250,000. No member has ever lost a penny of federally insured funds held in a credit union. The voluntary recapitalization of NCUSIF before problems occurred, and the mechanisms in place to keep the fund highly capitalized, illustrate credit unions' commitment to safety and soundness.
Regulation and Supervision: Federally chartered credit unions are regulated by the National Credit Union Administration (NCUA), an independent agency. NCUA's three board members are nominated by the President and confirmed by the Senate. State chartered credit unions are regulated by their state credit union department. NCUA administers the National Credit Union Share Insurance Fund (NCUSIF), and all federally-insured credit unions are subject to insurance examinations as well. No taxpayer money is used for regulating and overseeing credit unions, as all activities of NCUA and NCUSIF are funded by credit unions.
U.S. Organization: Nearly 90 percent of credit unions, both federally and state chartered, are affiliated with the Credit Union National Association (CUNA), and its state-based affiliates (leagues). CUNA maintains offices in Madison, Wis., and Washington, D.C.
Market Share: Credit unions are a small but constant presence in the financial services industry. In 2012, credit unions held about 1.7% of household financial assets, a market share that has not changed significantly in more than 25 years.
Political Involvement and Grassroots: In order to maintain the highest level of effectiveness for advocating on behalf of the needs of their consumer-owned financial institutions, credit unions have developed a strong political and grassroots network, with the ultimate goal of ensuring a voice for credit unions in the political process.
The Credit Union Legislative Action Council (CULAC), our national Political Action Committee (PAC), raised more than $4 million raised during the 2011-12 election cycle, reflecting the greater understanding among credit union activists of the importance of contributing to credit union causes and the new tools to make contributing easier to do.
Through the League and CUNA sponsored Hike The Hill program, credit unions have also maintained a constant grassroots presence on Capitol Hill with regular visits to Washington by league and credit union staff and volunteers. Visits to members of Congress have been very beneficial as issues like regulatory relief and data security have been debated on the Hill. Project Zip Code is another innovative tool in credit unions' political arsenal that was started after the passage of H.R. 1151. Project Zip Code is a software program, run by each participating credit union which counts the number of credit union members in each state and federal legislative district. The program loads counts for each district to a central Web-based database where the numbers are merged with totals from other credit unions that have run the program. By 2012, about 79 million credit union members had been identified by Project Zip Code and nearly 3,400 credit unions had participated. Identifying millions of members and presenting those numbers to elected officials continues to be extremely effective.
Promoting Economic Development at Home and Abroad: The credit union philosophy of "not for profit, not for charity, but for service" is illustrated by credit unions' commitment to fostering economic development and helping individuals attain self-sufficiency. CUNA and its members support the development work of the National Credit Union Foundation, a philanthropic organization that raises funds, makes grants, manages programs, and provides education empowering consumers to achieve financial independence through credit unions.
How To Join a Credit Union
Credit unions are for everyone, but the law places some limits on the people they may serve. A credit union's charter defines its "field of membership," which could be an employer, church, school, or community. Anyone working for an employer that sponsors a credit union, for example, is eligible to join that credit union.
If you don't belong, here's how to find a credit union to join:
- Visit aSmarterChoice.org. Credit unions are the smarter choice for financial services, and today just about everyone is eligible to join a credit union. A new consumer web site, www.aSmarterChoice.org, will give you the basics about credit unions, and its powerful online locator tool will help you find a credit union you can join.
- Call the state League. A representative will tell you about credit unions in your area that you are eligible to join.
- Ask your boss or HR Department. Your company may sponsor a credit union, or may be a select employee group (SEG) that has access to a credit union. Many employers offer direct deposit of payroll to your credit union.
- Poll your family. Does your spouse's employer sponsor a credit union? Most credit unions allow credit union members' families to join. Each credit union, however, may define "family" differently. At some, only members of your immediate family are eligible. At other credit unions, family may include extended family members, such as cousins, uncles, and aunts.
- Quiz the neighbors. Some credit unions have a "community" field of membership, serving a region defined by geography rather than by employment or some other association. Ask friends in the community if they know of a credit union you may join.
- Read the yellow pages. Some credit unions rarely advertise, so you might not know about them unless you look them up. A yellow pages display ad may state a credit union's field of membership. If not, at least you'll know what number to call to ask about membership eligibility.
- Call the Credit Union National Association. They can help you find a credit union by calling (800) 358-5710. You'll hear an electronic message that includes the name and telephone number of a person at the credit union league in your state who can help you find a credit union to join.
- Check the online database of credit unions.