About Credit Union Co-Ops
As not-for-profit financial cooperatives, credit unions exist to serve the financial needs of members-owners, who benefit from reduced fees, higher interest on savings, and lower loan rates. Anyone can join a credit union as long as they are within the institution’s field of membership. This common bond between members can be an employer, geographic location, or membership in a group and is often extended to family members. By law, credit unions are limited in their business lending. However, credit unions designated as “low income” by the National Credit Union Administration (NCUA) may receive approval to exceed that cap for loans that generate economic growth and opportunities within low-income urban, rural and reservation-based communities.
WHAT IS A CREDIT UNION CO-OP?
A credit union co-op is an organization providing transactional, protective and loan products to its members, who own and govern the association.
While the co-op typically offers the same services as traditional banks, several characteristics distinguish it. For example, publicly traded banks are usually national and exist to create value for their investors. These stakeholders generally vote in proportion to their ownership — the more equity they have, the more power they can wield. Conversely, credit unions are frequently local, nonprofit agencies giving each member one vote. Participants use this voice to choose the organization’s leadership and influence its operation.
HOW DOES A CREDIT UNION CO-OP WORK?
Members who meet the eligibility requirements voluntarily join a credit union cooperative by placing equity in the organization. This is typically done by depositing and maintaining a minimum sum, called a “share.” Members can take advantage of credit union benefits as soon as they’ve joined, including attending membership meetings and casting their vote. As long as a member owns a share of the co-op, they can remain a member, even if their eligibility status changes after joining.
Like a bank, the co-op uses these share deposits to extend credit to other members and charges interest and fees to make money. The organization is exempt from paying federal taxes on this income as a nonprofit, keeping more of what the credit union earns. The co-op funnels this money directly back into improving member services and benefits, such as no-fee checking accounts.
By offering these perks, credit unions foster competition in their local economies. This competition can even benefit nonmembers by encouraging other financial institutions to reduce their fees to attract customers. Many credit unions also belong to Shared Branching and ATM networks, allowing their members to get services and conduct transactions at other participating co-ops and over 30,000 ATMs.
BENEFITS OF CREDIT UNION CO-OPS
Members join credit union co-ops for the many advantages they offer.
MEMBER-FOCUSED MISSION
The primary benefit of belonging to a credit union co-op is the organization’s priority — the financial well-being of its members. The cooperative doesn’t have to concentrate on profit-making, so it can better emphasize service and value. This enables the co-op to deliver a more personalized experience and products that its members want and need at lower costs.
Although they may be smaller than national banks, credit union co-ops still provide valuable services and tools their members expect. Many offer electronic solutions, cash-back credit card options and fringe benefits like discounts on tax filing software. They also create free financial education resources to improve their members’ overall economic health.
SHARED COMMUNITY VALUES
Since credit union co-ops operate more locally, they are run by people from the same communities their members live and work in. The assets stay local, translating into substantial influence over the quality of life in nearby neighborhoods.
Today’s credit unions provide support for numerous community initiatives. Branches may sponsor local youth sports teams, food and clothing drives, or other charitable fundraisers. Many also support broader-reach efforts like Credit Unions For Kids, benefitting children’s hospitals.
EXAMPLES OF CREDIT UNION CO-OPS
There are numerous credit union co-ops throughout the country, including:
- Navy Federal Credit Union
- Alliant Credit Union
- PenFed Credit Union
- Consumers Credit Union
- The Boeing Employees’ Credit Union (BECU)
- America First Credit Union
Many states also have dedicated State Employees’ Credit Unions (SECU) serving their workforces. North Carolina’s SECU is one of the largest, with over $50 billion in assets and more than 2.5 million members. By contrast, the Pennsylvania State Employees Credit Union (PSECU) manages between $7 and $8 billion and serves just under 500,000 members.
KEY FACTS ABOUT CREDIT UNION CO-OPS
Interesting facts about credit unions include:
- Canadian journalist Alphonse Desjardin began North America’s first credit union in Levis, Quebec, with a deposit of 10 cents.
- The first credit union cooperative in the United States opened in Manchester, New Hampshire, in 1909.
- Credit unions originated on a large scale with President Roosevelt’s signing of the Federal Credit Union Act in 1934 to encourage thriftiness during the Great Depression.
- Credit union co-ops have their own deposit insurance called the National Credit Union Share Insurance Fund, overseen by the National Credit Union Administration (NCUA).
- The World Council of Credit Unions helps these financial cooperatives celebrate International Credit Union Day on the third Thursday in October.
- The almost 5,000 active credit unions in the U.S. today hold over $2 trillion in assets and serve over 132 million members.
- The Navy Federal Credit Union is the nation’s largest, with over 11 million members.
The ABCs of Credit Union Co-op Impact
Access: Sharing resources to serve members—rather than amassing them to benefit shareholders—allows credit unions to punch above their weight when it comes to providing members access to financial services. While credit unions range in asset size from more than $100 billion to less than $10 million, on average they have less than 1/10th the total assets of traditional financial institutions and a median size of less than $35.77 million each. Still, these cooperative financial institutions not only deliver convenience, but they also deliver direct financial benefits to members in the form of lower fees and interest rates on loans than their investor-owned counterparts. The financial benefit of these differences totals over $13.8 billion per year, or about $118 per member or $248 per household.
Business Sustainability: As lenders, both credit unions and banks confront risk on a daily basis. However, aggregate data from their insurance funds show that these two forms of financial institutions approach risk very differently. During the financial crisis of 2008-2009, the banking sector’s FDIC insurance fund plummeted. In contrast, the credit union sector’s National Credit Union Administration (NCUA) insurance fund held steady throughout the recession, providing strength and stability amid tremendous financial upheaval. During the same time, credit unions experienced far fewer loan delinquencies than banks did.
Community Commitment: Many credit unions focus on engaging vulnerable populations within their membership, such as immigrants or young people, helping them enter the mainstream economy and achieve their personal financial goals. Both the individual and the community benefit from the trust credit unions build by being local institutions driven by member services rather than short-term profit. These benefits range from higher home ownership rates for lower-income credit union members to stronger credit scores for individuals enrolled in a credit builder program. Almost all credit unions o er tools and resources to help their members navigate financial challenges. And at the state and national levels, credit unions advocate for policies that protect all consumers.
Democratic Governance And Empowerment: Because credit union members elect their board directors, leadership is responsive to their needs. For many employment-based credit unions, this means offering branch hours before and after the typical workday. A credit union serving California teachers o ers a credit card with the option to skip a payment during the summer when funds are scarce; zero-interest loans to help teachers purchase school supplies; and special low-down payment, and low-fee mortgages. Another serving active duty service member provides comprehensive online services, branches in eleven countries and support for members navigating deployment or reentry.
Equity, Diversity, And Inclusion: Community Development Credit Unions (CDCUs) target communities that are underserved by other financial institutions, which frequently overlap with minority populations. CDCUs fight inequality through high-impact products such as payday lending alternatives, microloans, credit builder loans and financial counseling. There are more than 300 CDCUs serving over 10 million members, concentrated primarily in locations where poverty rates exceed 20 percent and/or median incomes are below 80 percent. All credit unions count at least some low-income communities among their membership, and many have followed the lead of CDCUs by adopting more inclusive policies and products.
Financial Security And Investment: By emphasizing long-term member interests, credit unions create stability that benefits all employees. Credit unions hire almost twice the number of employees per $1 million of assets than banks,—partly because they tend to be smaller, but also because of their higher level of customer service. The CEO compensation package at credit unions, too, contributes to stability for employees and financial security for members. While there is no statistical difference between credit unions and banks in terms of either CEO base pay or retirement income, performance-based income is five times as high in banking. “Other” income, too— like perks, club dues, etc.—was three times as high for bank CEOs. There is substantial evidence that such performance-based incentives contributed to the extreme risk-taking and unethical behavior that led to the financial crisis of 2008-2009.
Growth: Credit unions boast virtually the same yield on total assets as the banking sector and a similar net worth (the percentage of funds that stay with the institution—held in reserve for emergencies). Yet the net income for the sector is consistently 20- 30 percent below that of banks. Where does the extra money go? In the banking sector, profits go to shareholders. In credit unions, these “excess” funds are instead returned to local members in the form of higher rates on savings, lower rates on loans, and a more comprehensive and inclusive array of services. All of these factors contribute to the role of credit unions as anchors of economic growth.
Case Study
DC Credit Union: A Powerful Model For Growth & Inclusivity
DC Credit Union (DCCU) leadership believes “financial equity is a right, not a privilege,” and its customer services, financial products and community relations put that belief into practice. First established to serve a largely low- and middle-income African-American city government workforce, the cooperative took a big step toward focusing on financial inclusivity when it was asked by regulators to take over the charter of a small, struggling Latino-based credit union. Washington, DC is a city of disparities. Its expansive public spaces, ornate buildings and cultural treasures mask income disparities and pockets of deep poverty. DC is home to 20 percent more “unbanked” residents than the national average.
Nationally, the median family wealth for white families is ten times more than African-Americans families and eight times more than Hispanic families. With a membership made up of people of color, DCCU was motivated to bring underserved communities into the financial mainstream. DCCU meets its members where they are. Branch hours are designed to accommodate the work schedules of members and include bi-lingual stain primarily Spanish-speaking areas. The credit union has accounts that do not require social security numbers, allowing undocumented immigrants and minors without responsible adults to act as account custodians to access financial products and services.
Working with the Government of the District of Columbia, DCCU provides all participants in the District’s youth summer employment program with automatic direct deposit into their own non-custodial accounts. The credit union couples access to financial products with education resources.
>Participants in the summer youth employment program receive education in basic budgeting. Credit union members have access to guides and classes on topics like rebuilding credit, saving for a major purchase and fraud protection. Dedicated sta help participants access opportunities like free tax preparation services or navigate the unfamiliar world of finance. Recognizing that members may not have collateralizable assets, DCCU has partnered with the city, local nonprofits and religious institutions to o er a variety of unsecured loans.
These include “citizenship” loans to help front the costs of legal services for immigrants working with approved partner nonprofits, seasonal loans for faith-based neighborhood civic clubs, and loans to cover the down payment required on home purchases. With $65 million in assets and 11,359 members, DC Credit Union punches above its weight by responding to the needs of its members, maintaining close ties with city and community institutions, and providing underserved communities with opportunities through access to financial services.
CREATE A STRONGER COMMUNITY WITH NCBA CLUSA
We’ve provided educational resources and support to co-ops for over 100 years and have advocated worldwide for cooperative business organizations since 1953. Our team of co-op experts collaborates with leaders and the public to build inclusive communities through collective activities.
