Credit Unions

= Credit Unions are multi-service cooperative financial institutions. Though many try to look just like capitalist banks, they are democratic, member-controlled, not-for-profit organizations. [1]

Description

1.

"Credit Unions: these depositor-owned financial institutions provide a ready alternative to the corporate banks that wreak havoc on economies. People who deposit money in the credit union own the business, in shares equivalent to their deposit. Such institutions can set up fair and equitable fees, interest rates, salary structures, and other policies. Credit unions are quite common in the US, although some are more democratic and responsive to their dispersed owners than others. There is currently a movement to develop another alternative to privately held banks: that of state-owned banks." (https://www.initiativeforequality.org/index.php/2011-11-22-23-04-42/new-economic-models)

2.

"Credit unions and financial cooperatives are social innovation examples creating a framework for an alternative financial system that is member-owned, with the potential to operate a profound change in traditional economic systems.

Credits unions and cooperatives emerge with the aim of funding economic activities which have a positive social impact, by giving support to social, ecological, cultural and humanitarian projects and to persons who do not have access to traditional financial tools.The signs of their societal impact are the increase in projects with a high social value being funded worldwide, and organizations and people becoming their clients, as well as their increasing penetration in the traditional economic system.

Credit Unions emerged in order to allow disenfranchised groups as well as highly valued societal projects to have access to the necessary funding. It also responded to the growing discontent with the separation between real social needs and the philosophy of the traditional financial actors. Credits unions can be used by any cooperative, association, social institution or small business interested in carrying out socially-oriented economic projects." (http://www.transitsocialinnovation.eu/resource-hub/credit-unions)

Discussion

Dorienne Robinson:

"Credit unions were developed in the UK in the 19th century by the father of the British socialist movement, Robert Owen, in a bid to engage privileged and underprivileged alike in common and mutual financial support. They are run as cooperatives, with each member having one vote that is not linked to the amount of savings, or shares, owned by that member. The majority of credit unions are run on a voluntary basis by their members and are accountable to the Financial Services Authority (FSA), with members’ shares being covered by insurance.

Each credit union has a board of directors whose role is management, formulating policy and ensuring that the organisation operates legally. In addition to the Board of Directors there is a credit and a supervisory committee. The credit committee assesses loan applications and monitors the savings accounts.

The supervisory committee acts as an internal auditor to the credit union, reporting to the board of directors and the members at the AGM.

Credit unions base their membership on a ‘common bond’, which is exactly what it says – something that binds the membership together. Most often this is geographical, usually applying to an existing community, but it can also mean the commonality of a workplace such as a police force, a hospital or county council offices. This common bond establishes a degree of mutual accountability amongst the membership, which minimises the risk of default on loans as well as encouraging active support.

Credit unions are essentially not for profit, but this doesn’t mean that savings don’t earn money. All profits are shared among the membership, and the amount received depends on the amount of shares saved. Each credit union sets its own dividend figure annually and bases it on how well it has performed the previous year. There is a legal obligation to keep a reserve of money, called liquidity, against defaulting loans. Once the liquidity figure has been established and all overheads and running costs accounted for, profits are returned to the members as a dividend.

Loans are normally required to be supported by shares, generally to about one third the value of the loan.

In some cases instant loans are possible and these are decided on, case by case, by the loans committee.

This is often where the common bond is advantageous to the credit union, as loan applicants are often known in the community and their risk levels are thus more easily assessed.

Credit union loans are decided on an individual basis and repayment terms are set to ensure continuity.

Unlike in high-street banks, the monthly repayments are taken from the loan before interest is added, which makes a significant difference to the amount of overall interest paid. Additionally, unlike high-street bank loans, a loan can be paid off in full before its finish date with no penalties. Many other financial institutions require a percentage, if not all, of the interest they would have earnt if the loan had gone full-term.

Credit unions come in different sizes, although most fall into one of two categories: Type 1 is small, offers savings and loans facilities, has no paid workers, usually pays a dividend of between 0% and 3% and in addition probably has funds of up to £50,000.

Type 2 is large, has paid employees, offers mortgages and operates direct debits, standing orders and cashpoint facilities.

Type 2 is not dissimilar to a high-street bank, although the cooperative ethos and sharing of profits as a dividend remain the same as in smaller credit unions. However, the reliance on fossil fuels and a steady power supply is nearly the same, which is another reason, for those with a sustainability ethos, that the smaller credit unions are becoming a serious contender to the high-street bank, especially amongst the growing number of Transition communities.

The smaller credit unions really are bottom-up and community-run, do not need the internet, can be maintained on a laptop (which can be solar-powered), and can keep funds on the premises.

As post peak oil and climate change impact on all our lives there will be a need to travel less and source more locally. This will result in an increase in the start-up of a wide range of small local businesses, most of which will need financial input in the early stages. What could be better than knowing that the money you have deposited in your savings account with your local credit union has gone directly to another member of your community (or common bond area) to help others become viable and to enhance the services available to that community?"

Credit Unions and their relation to Cooperative Development in the U.S.

Matthew Cropp:

"With over a trillion dollars in assets and more than 100 million members, it is clear that credit unions must play a pivotal part of any effective strategy aimed at bringing the co-op model to full scale in the American economy. At first glance, one would assume that their obvious role would be as the financial backbone of the co-op movement, providing financial services and loans to existing co-ops, while offering incubation and start-up capital to new ones.

While such a vision of credit unions being “one spoke in the great wheel of co-operation” was very much present for early credit union leaders like Roy Bergengren, it ceased to be a focus after he was pushed out of CUNA in the mid-1940s. At that point, the conservative faction of “business credit unionists,” who saw credit unionism as more of a human resources function than a social movement, rose to power, and the credit unions’ connections to the rest of the cooperative movement were largely severed for decades.

In more recent times, there has been a rapprochement between the credit union sector and the rest of the co-op movement, but that strengthening of ties has not translated into strong credit union support for cooperative development. Unlike the 1940s, the present cause has been more regulatory than ideological. As credit unions have grown in scale through consolidation, the banking lobby has worked hard to limit credit unions’ penetration into their profitable business lending turf. As a result, credit unions may legally lend out no more than 12.25% of their assets to member businesses, and face copious other requirements that often make lending to other co-ops challenging.

However, not all credit unions are created equal. In most states there is a “dual chartering” system, in which a credit union can either choose to be incorporated by its state or by the Federal Government. This situation means that there exists a certain amount of diversity in the details of different states’ enabling legislation, and, it turns out, one of those details offers a potentially exciting opportunity for greater credit union involvement in the financing of co-ops.

In my state (Vermont), as well as Arkansas, Illinois, Kentucky, Montana, Nevada, New Jersey, and New Mexico, it turns out that state-chartered credit unions are authorized to invest surplus funds." (http://www.coopwatercooler.com/discussions//capitalizing-the-co-op-movement-with-equity-the-credit-union-opportunity)

More Information

• To find a credit union near you or to set one up, visit www.abcul.org

See articles at:

1. http://www.truth-out.org/way-occupy-bank-own-one/1324741915
2. http://www.truth-out.org/public-option-banking-another-look-german-model/1318444344
3. http://www.thenation.com/article/161253/oregon-grassroots-campaign-state-bank

=Case Study

• Dumitru, A.; Lema-Blanco, I.; García-Mira, R.; Haxeltine, A. and Frances. A. (2015) Transformative social innovation narrative of Credit Unions. TRANSIT: EU SSH.2013.3.2-1 Grant agreement no: 613169 [2]