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September 16, 2019

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The role of credit unions throughout history

AFCU credit union history

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Credit unions began as a grassroots commitment to improving the financial prospects of underprivileged people. Though today credit unions serve members from all social and economic standings, the founding principle remains the same—strengthening and empowering communities through access to fair banking services. Here is a look at where credit unions began and how that shaped their identity today.

The earliest credit unions

  • Franz Hermann Schulze-Delitzsch, often considered to be the father of the modern cooperative movement, founded the first credit union in 1852. His union allowed its members to make small deposits in exchange for a proportional amount of credit.
  • In 1849, Friedrich Wilhelm Raiffeisen established a credit society in Flammersfeld, Germany—a rural area in the midst of widespread famine—that allowed members to buy bread on credit. By 1864, Raiffeisen’s original model had evolved into the first cooperative lending institution, giving poor farmers access to scalable low-interest loans.

Credit unions in North America

Credit unions were gaining momentum in Europe but it wasn’t until 1900 that the first credit union was brought to North America. Alphonse Desjardins founded La Caisse Populaire de Levis (The People’s Bank of Levis) in Quebec, Canada, to offer members of lower socioeconomic classes an alternative to cripplingly high interest rates and the inability to secure loans.

During this time, Massachusetts banking commissioner Pierre Jay and department store owner Edward Filene began organizing public hearings to support credit union legislation in the state. In 1909, Desjardins founded the first credit union in the United States, and the first comprehensive credit union law—the Massachusetts Credit Union Act—was passed. From there, the Credit Union National Extension Bureau was created in 1921 to advocate for credit unions at the state and federal levels.

The foundation of credit unions within the American infrastructure

In 1934, during the Great Depression, President Franklin D. Roosevelt signed the Federal Credit Union Act, which instituted federal oversight over a national credit union system with the intent of helping low-income citizens. Prior to the act, Congress estimated that private, high-interest entities were lending $2 billion annually to low-income borrowers, illustrating the need for reasonably priced credit, reportsAmerican Banker. As part of the legislation, the Federal Credit Union Division (later renamed the Bureau of Federal Credit Unions) was created and tasked with overseeing the system.

The Credit Union National Association was founded in 1934, and still provides legal support and advocacy for credit unions to this day. In 1970, two more organizations were formed to aid credit unions in the U.S. and around the globe—the National Credit Union Administration and the World Council of Credit Unions.

Protesting the for-profit system

When the 2008 financial crisis hit and rampant abuses of the banking system were uncovered, negative public sentiment toward for-profit banks grew. By 2011, citizen-led protests, like Occupy Wall Street, were calling upon people to transfer money away from banks and into not-for-profit credit unions. The public rallied around this call and between September 29 and November 5, 2011, about 440,000 people transferred nearly $5 billion into credit unions, reports CUNA.

Credit unions today

For almost 200 years, credit unions have set out to solve problems associated with traditional banking and offer members financial assistance they would not otherwise have access to. As this cooperative system continues to thrive, it helps meet the financial needs of countless individuals, families and businesses around the world.

 

Source: NCUA, CUNA, Nevada Credit Union League, California Credit Union League, American Banker, Lending Tree.