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Facts About Federal Credit Unions

What A Federal Credit Union Is

A federal credit union is a member-owned cooperative organized to promote thrift among its members and to make loans to its members from these accumulated savings. It is not in business for profit, but for service. Thus, it is a unique financial institution. It is also a corporation chartered, supervised and insured by the federal government through the National Credit Union Administration (NCUA).

What A Federal Credit Union Does

Credit unions encourage their members to accumulate savings out of income as a means of building economic security for themselves and their families. In addition, credit unions provide consumer and, in some cases, home mortgage loans. With these and other benefits credit unions help their members to help themselves to a greater degree of financial stability.

Credit unions are not new. The credit union movement in the United States is dated from 1909, when Massachusetts passed the first State credit union law. Since then most of the States have passed similar laws. Cooperative credit societies, however, have been known in Europe and Asia for more than a century.

Membership In A Federal Credit Union

Membership in a federal credit union is limited to those groups or persons with a common bond of employment, association or residence as specified in its charter.

To become a member, one must first be eligible under the common bond provisions as specified in the credit union's charter and submit a membership application. Some federal credit unions may charge a nominal entrance fee. Upon approval of the membership application and payment of at least the first installment toward the purchase of a share one becomes a member with voting rights.

Number of Federal Credit Union Members

Extent Of Growth

In size and amount of business transacted federal credit unions have shown a steady growth. At year end 1991 there were in excess of 8,229 operating federal credit unions with over 32 million members and more than $143 billion in assets.

Federal Act

The Federal Credit Union Act was passed in 1934. It provides for the chartering and supervision of federal credit unions. Its general provisions are similar to those of many State credit union laws and are based on the best experience gained under the State laws that preceded its passage by Congress.

The Federal Credit Union Act has been amended periodically to keep it a modern credit union law. The Depository Institutions Act of 1982 contained a number of modernization amendments to the Act which position federal credit unions to meet the challenge of the 1980's. A contemporary law coupled with a deregulatory thrust by the National Credit Union Administration Board enables federal credit unions to offer a variety of services to meet the financial needs of their members. For example, many federal credit unions offer share drafts, share certificates, Individual Retirement Accounts and other special accounts in addition to a regular passbook type share savings account. Also, in recent years many federal credit unions have expanded their lending services to include real estate, commercial lending, and guaranteed student loans as well as the more traditional consumer loans. Generally new credit unions do not, of course, offer this vast array of services during the first months of operation. However the potential for becoming such a full service organization provides additional incentive for the officials of new federal credit unions to actively promote and develop their credit union.

Member Savings In Federal Credit Unions

How A Federal Credit Union Operates

Cultivation of the habit of systematic saving is a basic purpose of credit unions. Saving regularly, therefore, is encouraged. Savings by members may be made in small or large amounts.

Out of funds accumulated from these savings, loans may be made to members of the credit union. The board of directors of each federal credit union has authority to fix the limits for loans and to revise them as the credit union grows. The interest rate on these loans is also established by the credit union's board of directors. The interest and other finance charges are disclosed in total and as an Annual Percentage Rate in compliance with the Truth in Lending Act. Federal credit unions operate in compliance with this and all other federal consumer protection laws, including the Equal Credit Opportunity Act. The latter requires that credit be made available to all members without regard to sex, marital status, race, age or other prohibited bases.

Control and Management

Control of management is in the hands of the members of the credit union. A volunteer board of directors is elected at the annual meeting of the members. Each member has one vote regardless of the number of shares owned. The board elects the officers from its own membership and appoints a supervisory committee.

Experience has shown that the credit union can depend upon the unselfish service of these unpaid volunteer officials. Even the treasurer very often serves without pay, or for only a nominal salary in the first year or two of the credit union's life.


Net earnings from loan operations or other sources may be distributed to the members in the form of dividends, except that a portion of the gross income is set aside in the reserve for loan losses. During 1991 federal credit unions paid more than $7.1 billion in dividends to their shareholder members. The board of directors of each federal credit union has wide latitude in determining the credit unions dividend rate(s) and terms.

Loans Outstanding At Federal Credit Unions


Member share accounts in federal credit unions are insured up to $100,000 per account by NCUA. Savings have additional protection through a number of provisions in the Federal Credit Union Act and the standard bylaws. Some of these are:

  • All persons handling or having custody of credit union funds must be bonded.
  • The affairs of the credit union and the records of the treasurer are audited by the supervisory committee.
  • The Act and the bylaws provide for the setting aside of a reserve for uncollectible loans.
  • The surplus funds of the credit union may be invested only in specified investments.
  • All federal credit unions are supervised and are periodically examined by the National Credit Union Administration.

Benefits To Employer or Other Sponsor

Credit unions do not require outside financial support, and there is no necessary cost to any employer whose employees organize a credit union. Many employers, however, find credit unions so beneficial in maintaining employee morale and efficiency that they are glad to provide space on the premises to serve as a credit union office. Thus the credit union can become an important fringe benefit.

In addition, when the employer is willing to permit payroll deductions for credit union payments, experience has shown that operations are simplified and that the credit union serves a larger number of members.

Many employers permit employees to spend some official time conducting credit union business, especially during the first few months of operation. The personnel office and the credit union can be mutually helpful in assisting employees to help themselves and in making the credit union generally effective as an employee service organization. In fact, educating members to maintain their own financial affairs is the third basic function of credit unions - the other two being the promotion of thrift and providing credit. There are similar benefits to other types of sponsors.

How To Start A Federal Credit Union

If you think a federal credit union would help you and the others where you work, or the members of an association to which you belong, or the people in your community, first discuss the need with members of the group. Second, if the group is interested, write or call the appropriate regional office of the National Credit Union Administration. That office will be pleased to provide further information and, in many instances, will send a representative to talk to your group and answer questions. If your group is eligible, NCUA's regional staff will help you prepare an application for a charter and see that your group receives help in getting your federal credit union started.

The services of the National Credit Union Administration are available at no cost or obligation.

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