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FEDERAL CREDIT UNIONS

FACTS ABOUT FEDERAL CREDIT UNIONS

WHAT IS A FEDERAL CREDIT UNION?

A federal credit union is a financial cooperative chartered by the federal government and owned by its members. Federal credit unions offer members a safe place to save and borrow at reasonable rates. Surplus income is returned to members in the form of dividends.

Originating in Europe, credit unions began organizing in America in the early 1900s to promote thrift among their members. Credit unions then and now serve many left unserved by traditional banking institutions and provide an alternative to oppressive loan-rate charges.

Today's credit unions remain unique financial institutions with a philosophy to operate not for profit but for service. Annual polls show that credit unions lead the financial community year after year in providing top-quality personal service to millions of Americans.

Federal credit unions are chartered, supervised, and insured by the National Credit Union Administration (NCUA), an agency of the federal government.

WHAT A CREDIT UNION DOES

Credit unions encourage their members to save regularly to build economic security for themselves and their families. Credit union members provide one an-other with consumer and, in many cases, home mortgage loans from their pooled savings. This benefit and many others help members achieve financial stability.

Credit unions are not new. The credit union movement began in the United States in 1909 when the first credit union was formed in Manchester, New Hampshire.

WHO CAN JOIN AN FCU?

Each federal credit union's charter specifies who is eligible to join. Membership is limited to groups or people with the common bond of employment, association, or residence specified in the charter.

Eligible people must submit a membership application and purchase one share to join. By depositing usually $5 to $10, members actually purchase and own a share in their credit union and can vote in officer elections.

NUMBER OF FEDERAL CREDIT UNION MEMBERS

[image: chart showing growth in the number of federal credit union memebers from 36.2 million in 1990 to 42.2 million in 1995.]

CREDIT UNIONS GROW CONSISTENTLY

Federal credit union deposits and the number of members they serve have grown every year since the first federal credit union was chartered in 1934.

CONGRESS FORMED OUR FEDERAL CREDIT UNION SYSTEM

The U.S. Congress drafted and President Roosevelt signed the Federal Credit Union Act in 1934. This Act established the federal credit union system and created NCUA's predecessor to charter and supervise federal credit unions. The general provisions in the Federal Act are similar to those of many State credit union laws.

The Federal Credit Union Act is amended periodically to evolve and remain a modern credit union law. This contemporary law, coupled with the NCUA Board's commitment to reduce regulatory burden, enables federal credit unions to offer a variety of services to meet the financial needs of their members. For example, in addition to basic passbook share savings accounts, many federal credit unions offer share drafts, share certificates, credit cards, and individual retirement accounts. In recent years, many have expanded their lending programs to include real estate, member business, and guaranteed student loans as well as the traditional consumer loans.

As technology evolves, more and more federal credit unions respond by offering transaction services by telephone and by personal computer via the Internet.

MEMBER SAVINGS IN FEDERAL CREDIT UNIONS

[image: chart of growth in amount of member savings in credit unions from 118 billion in 1990 to 170.3 billion in 1995.]

DEPOSITS ARE SAFE

Member deposits in federal credit unions are insured up to $100,000 per account by the National Credit Union Share Insurance Fund (NCUSIF) and backed by the full faith and credit of the U.S. government. Savings are also protected by a number of provisions in the Federal Credit Union Act and the Standard By-laws. Some protections are:

1. All persons handling or having custody of credit union funds must be bonded.
2. The affairs of the credit union and the records of the treasurer are audited by the supervisory committee.
3. The Federal Credit Union Act and the Bylaws pro-vide for setting aside reserves for uncollectible loans.
4. Credit unions may invest surplus funds only in specified investments.
5. All federal credit unions are supervised and examined annually by the NCUA.

HOW A FEDERAL CREDIT UNION OPERATES

The basic purpose of credit unions is to encourage systematic savings. Whether large or small, the amount is secondary to developing the habit of saving regularly.

Members accumulated savings are used to make loans to fellow credit union members. Each federal credit union's board of directors, elected by the members, has the authority to set loan amounts or loan ceilings as the credit union grows. The interest rate charged on 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 federal consumer protection laws, including the Equal Credit Opportunity Act. This law requires that credit be made available to all members without regard to sex, marital status, race, age, or any other prohibited basis.

CONTROL AND MANAGEMENT

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

LOANS OUTSTANDING AT FEDERAL CREDIT UNIONS

[image: chart of growth in loans outstanding from federal credit unions from 83 billion in 1990 to 120.5 billion in 1995.]

EARNINGS

The credit union's net earnings from loans and other sources, except that portion of gross income set aside in a reserve account for loan losses, may be distributed to the members in the form of dividends. Annually, federal credit unions pay over $5 billion in dividends to their shareholder members. The board of directors of each federal credit union has wide latitude in determining the credit union's dividend rate and terms.

BENEFITS TO SPONSOR ORGANIZATIONS

A credit union is an important fringe benefit, according to various sponsor organizations.

Credit unions do not require outside financial support so there is no direct cost to a sponsor, including any employer whose employees organize a credit union. Many employers, however, find credit unions so beneficial in maintaining employee morale and well-being that they gladly provide space on the premises to serve as a credit union office.

Employers often allow employees to direct-deposit their paychecks into a credit union account. Credit unions pioneered this convenient innovation. Experience shows this simplifies deposit operations and encourages more employees to use credit union services.

Many employers permit employees time to conduct credit union business, especially during the first few months of its operation. The personnel office and the credit union can be mutually helpful in assisting employees to help themselves and make the credit union an effective employee service organization. In fact, educating members to maintain responsible financial affairs is the third basic function of credit unions — the other functions are to promote thrift and provide credit.

HOW TO START A FEDERAL CREDIT UNION

If you think a federal credit union would help you and others where you work, members of an association where you belong, or people in your community, first discuss the need with members of the group. If the group is interested, write or call the appropriate NCUA regional office listed on the back of this brochure. That office will be pleased to provide further information and, in many instances, will send a representative to talk with 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 guidance in getting your federal credit union started.

NCUA service is available at no cost or obligation.

Check the back page to find which of NCUA's six regional offices serves your State.

Additional information about NCUA and federal credit unions can be obtained through NCUA's Internet Web site at http://www.ncua.gov.

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