How Credit Unions Began: The Origin of the Not-For-Profit Financial Institution
For those curious, the difference between a not-for-profit institution and a non-profit institution lies in fundraising and taxes on any surplus revenue generated. A non-profit charity is reliant on donations or interest on an initial endowment, while a not-for-profit organization can charge fees and interest for services. This not-for-profit status means that credit unions are exempt from many of the federal taxes levied on banks; they still pay state and county taxes.
Banks, which rely on commercial lending as their bread and butter, have been trying to get that federal tax exemption changed since late 2011, when Occupy Wall Street caused many customers to close their bank accounts and join credit unions instead. Credit unions hold roughly 6% of the savings in the United States, compared to banks holding 93%; the banks claim that the federal tax exemption creates an unfair advantage for credit unions.
Community Focused Mission
Most credit unions have membership charters. To become a member and open an account, you have to be tied to whatever membership requirement the credit union has. Credit unions are tied to labor unions, educational institutions, geographical regions, military service members, and other affiliations. Credit unions are also restricted in the percentage of their assets they can use as collateral for business loans, which causes them to be quite selective in who they lend to among their membership.
Most of the benefits of a credit union comes from their mission of promoting thrift: They don’t spend great amounts on advertising, like banks do. For the most part, credit unions are dedicated to providing community-based service to their shareholders, running a small surplus, and maintaining a steady business. Because they’re not publicly traded companies, there is no distortion of their core mission by the whims of shareholders, or executive teams, trying to make a quarterly profit.
Founding Of The Movement
Among the first people asking “what is a credit union?” were the residents of Eilenburg and Delitzch in Germany, back in 1852. The first credit unions were formed there, after expanding the idea of a builder’s association, which was a financial service that allowed builders to pool capital and make loans to one another for construction projects. With a few tweaks to the portfolio of lending services to better serve rural members, credit unions spread across Germany, then to France, Italy and England by 1888.
The first credit union founded in the Western Hemisphere was founded in 1901 in Montreal, and in Manchester, New Hampshire in the US in 1908. Now, nearly 44% of all US checking accounts are drawn on credit unions, with membership benefits of a credit union extended to over 95 million American citizens.
Worldwide, credit unions are very popular financial services providers, with over a billion members worldwide in over 100 countries. While the benefits of a credit union are many, they vary from country to country, and the strict legal definition (including membership affiliation and not-for-profit status) can vary.
If you’re looking for a financial institution that will treat you like a member, not an account-holder to be gouged with monthly fees and service charges, look to a credit union. Membership, to quote the old slogan, has its benefits.