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Credit Unions: Tracing Their History as Trusted Institutions

Credit Unions: Tracing Their History as Trusted Institutions

Modern credit unions have been around for more than 200 years. There’s good reason for their longevity, too.

In this post, we’ll discuss the:

  • Basics of credit union history
  • Structure of credit unions and why it’s important
  • Security FAQs (Are credit unions safer than banks? Are credit unions insured? Etc.)

By the end, you’ll have a solid overview of credit unions’ origin story and why people today love and trust their credit unions.

The Birth of Credit Unions

Banking dates back to about  2000 BCE in Mesopotamia. Societies have always conducted trade — and needed a systematized way of lending, borrowing, making and receiving payments, and accounting for it all.

While organized approaches have likely been in place, in some form or another, since the beginning, let’s fast-forward to the dawn of 19th-century England. That’s when and where the seeds of contemporary credit unions are thought to have germinated.

The Early Days of Community Banking

In England, families and residents of towns began to band together to form financial cooperatives. As a collective, they had greater and more stable access to money. Often, it was easier and less costly to take a loan.

These financial co-ops were the ancestors of what we know of today as “credit unions,” and they were very popular. As with anything trendy and beloved, this concept spread to other areas of the world.

Eventually, modern-era credit unions came into being.

Are credit unions insured

What Makes a Credit Union a Credit Union

Credit unions are nonprofit financial institutions that are owned and operated by their members. Membership eligibility is generally based on a shared common bond — like living in the same area or being in the same profession. This is one of the main differentiators between credit unions and conventional banks.

However, just like banks, members enjoy a wide range of financial products and services. Credit unions offer everything from checking and savings accounts to student loans and mortgages to credit cards and certificates of deposit.

In the US, credit unions are usually either federally chartered or state chartered. Where the credit union is chartered dictates the rules and regulations it’s subject to.

The Need for Credit Unions

Credit unions came onto the scene because traditional banks weren’t meeting the needs of their communities. Regular banking options excluded a lot of folks — because they had little money, weren’t in the right social tier, had smaller and less frequent transactions, etc.

The premise behind credit unions is that these underserved people could improve their standards of living and quality of life if they joined financial forces. By pooling their resources and issuing loans to family, neighbors, and coworkers, they were supporting and elevating their communities as a team.

History of Credit Unions — Timeline Highlights

  • Early 1800s — Financial cooperatives, the precursors to credit unions, became popular in England.
  • 1845 — Idea of credit unions spread, leading to Spolok Gazdovský in Slovakia, the first cooperative financial institution in continental Europe.
  • 1850s-1860s — The first “true” credit unions began opening up in what is now Germany.
  • 1860s-1880s — Credit unions were established in other European nations, such as Italy, France, the Netherlands, England, and Austria.
  • 1892 — Asia’s first credit union was introduced in the Philippines.
  • 1901 — The first North American credit union opened its doors in Lévis, Quebec, Canada.
  • 1908 — The US’s first credit union was founded in Manchester, New Hampshire.
  • 1909 — Passage of the Massachusetts Credit Union Act paved the way for state-chartered credit unions.
  • 1930Salem Postal Credit Union, one of VCU’s forerunners, was formed.
  • 1934 — The Federal Credit Union Act, which regulates US federal credit unions, was passed.
  • 1940s-1960s — Promoted by the Catholic church, credit unions sprang up throughout Latin America. 
  • 1942 — Oversight for US federal credit unions was transitioned over to the Federal Deposit Insurance Corporation (FDIC).
  • 1951 — Credit unions become exempt from federal income tax.
  • 1955 — The first credit union in Africa was started in Ghana.
  • 1957 — Salem General Credit Union, another predecessor to VCU, was started.
  • 1970 — In the US, the National Credit Union Administration (NCUA) and the National Credit Union Share Insurance Fund (NCUSIF) were created.
  • 1996 — Salem Postal Credit Union and Salem General Credit Union merged to form VCU. 
  • Today — There are more than 5,280 credit unions in the US (and 86,000 credit unions worldwide across 118 countries).

The Unique Structure of Credit Unions

Understanding how credit unions are organized and function is key. It’s fundamental to how and why members can confidently bank with credit unions. 

It’s no fluke that credit unions developed as they did. Their history and ultimate structure explains much of their trustworthiness. For example:

  • Member-ownership is more democratic and is driven by community priorities.
  • Unlike regular banks, at credit unions, people take precedence over profits because the shareholders and customers are one and the same.
  • Credit unions generally have fewer fees, lower interest rates, more flexible and favorable terms, etc., which underscores their commitment to members. Essentially, credit unions are piping wouldbe-profits back into the wallets of their members.

Are credit unions safer

The Rise of Credit Unions

Given the structure and benefits of and the motivations for credit unions, it’s not surprising that this model for financial institutions took off. Or that the environments in which credit unions exist have continued to change, necessitating credit unions to adjust.

So, how safe are credit unions? All in all, when you put your money and faith in a reputable credit union, you’re likely making a sound decision. Credit unions have gotten more secure over the years — such that they’re on par with banks.

Plus, surveys of credit union members indicate deep satisfaction. They trust their credit unions — finding them to be reliable, transparent, and service-oriented. 

Evolutions in Banking Regulation

As credit unions came into their own, governments crafted and enacted laws to provide oversight, guidance, and security. Here are some of the biggies to take note of:

  • Massachusetts Credit Union Act of 1909. This was the first piece of American legislation to give legal recognition to credit unions. It paved the way for future governance. 
  • Federal Credit Union Act of 1934. This played a major role in formalizing credit unions as a legitimate type of financial institution. It provided a legal framework for credit unions’ operation and helps ensure their adherence to cooperative principles, financial stability, and consumer protection.
  • Federal Credit Union Act of 1951. Amending and modernizing the 1934 Act, this legislation made credit unions exempt from federal income tax. (Currently, mainstream banks are challenging this, arguing that — like them — credit unions should have to pay.)
  • Federal Credit Union Act of 1970. The National Credit Union Administration and National Credit Union Share Insurance Fund came out of this law. NCUA and NCUSIF boosted regulatory oversight and provided for depository insurance (up to $250,000 per account), both of which help protect the savings of credit union members. 

Humble Beginnings to Hi-Tech Solutions

The legal landscape isn’t the only thing that morphed over time to bolster the security of credit unions.

The technological tableau has shifted and credit unions (at least in Valley Credit Union’s case), have kept pace by upping their game. Credit unions safeguard systems and savings in our digital age by leveraging state-of-the-art hardware and software systems.

As a customer, you’d see this in the form of robust and convenient mobile and online banking features as well as secure transaction processes (e.g., direct deposit capabilities, contactless payment mechanisms, etc.).

On the back-end, where you can’t peek, credit unions employ industry best practices, advanced encryption, and more. By continually investing in these systems, training, and protocols, credit unions are able to protect members from threats like identity theft and consumer fraud.

A modern and well-managed credit union is just as safe as your average bank. In many instances, the same tools and techniques are running in the background to mitigate cyber risks.

In Credit Unions We Trust (Even in Tough Times)

Not only are credit unions a solid choice when it comes to tech-related security. It’s been reported that credit unions are more resilient than their bank counterparts.

Credit unions tend to deal with smaller entities (be it businesses or individuals) and smaller sums. This means less overall risk. And more stability in the event of economic turbulence.

Working with professionals

VCU, a Model of Safety & Trust in Credit Unions

Valley Credit Union has been an established and esteemed financial institution for almost 100 years. We’ve stuck around and grown because our members love the service, products, security, and value they get from VCU.

The best way to take advantage of this for yourself is to join today. To apply, or learn more, connect with us online, over the phone, or in person.

About the Author

 Pat ForcePresident and CEO

Pat Force has been President and CEO of Valley Credit Union since 2016. He has worked in banking for over 30 years and has an MBA. Pat is passionate about credit unions and their “people helping people” philosophy. He enjoys collaborating with others to arrive at a result that works for the common good. Away from the office, Pat likes to spend time with family, travel, read and go for a nice, long hike.

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