As a member or potential member of a credit union, it’s essential that
you understand what type of organization you are conducting business with to safeguard
your financial assets.
For the purposes of this text we have defined a credit
union to be a group of people who have cooperatively and democratically organized a
resource that provides a varied range of financial services to benefit all members of the
group. It’s difficult to determine precisely when and where this
"cooperative banking" concept originated, however most believe it was developed
from a need that a lower class of people had for financial services, but were unable to
obtain these services through traditional sources. It wasn’t until the 1800’s
when co-operative banking reached Europe and finally in the 1900’s credit unions had
found their way to North America.
By definition a credit union is a group of people. An
existing common bond that determines the credit union’s field of membership usually
identifies this group. Historically this common bond might have been the group’s
place of employment, place of worship, residential area, trade or some other unique trait.
In order to stay competitive in the financial markets, during the past two decades credit
unions have found it necessary to expand their field of memberships to include a wider
number of consumers. As a result, a credit union's field of membership may be defined one
of three ways, by a single-sponsor, a multi-group sponsorship or by community. A
single-sponsor, the least common of the three, allows membership eligibility when some one
is employed by the single sponsor organization. The multi-group sponsorship is also known
today as SEG’s or small employee groups. A credit union with a multi-group field of
membership will allow member eligibility if anyone is employed at any of the companies
defined by the credit union field of membership. While there are no limits on the number
of companies that comprise a credit union's field of membership, typically the number
could range from 50-500 different companies. The final way to define a credit union's
field of membership is through a specific community. A community may be a particular
neighborhood(s), town(s), state(s) or nation(s).
Because credit unions have created a structure that is
democratically controlled by its members, some governments around the world have come to
recognize credit unions as tax-exempt or non-profit organizations. This distinction has
afforded credit unions the opportunity to provide services more efficiently. Today, the
myth about credit unions is that they are becoming more like banks because they are
growing in assets, assessing fees to members, owning buildings with drive-up service and
offering real estate loans. The fact is, credit unions are different from banks in one
only aspect. Credit unions are owned by all of its members and banks are owned by
their stockholders. Each credit union member is given one vote through a democratic
process that determines who will serve as its board of directors.
Because credit unions are becoming more of an integral
part of the financial markets, it is essential they offer the credible protection members
demand from any institution safeguarding their financial assets. For this reason,
governments have found it prudent to insure funds on deposit with credit unions. In the
United States for example, members’ deposits are insured up to $100,000 by the
National Credit Union Administration (NCUA), a branch of the federal government. In return
for this governmental share insurance, credit unions are required to comply with federal
Rules and Regulations. The NCUA Rules and Regulations specifically describe what credit
union practices are permissible. In addition to these regulations, credit unions must
comply with the Federal Credit Union Act, Federal Credit Union Bylaws and NCUA’s
Accounting Manual for Federal Credit Unions.
