When
some people hear the words "credit unions," they think
of labor unions. Others mistakenly believe them to be credit bureaus.
They are neither. Credit unions are not-for-profit financial cooperatives
that provide affordable financial services to 3.22 million Pennsylvanians.
They serve an important economic and social role in our Commonwealth
by providing a good place to save and borrow. Credit unions give
people in all economic classes the power to improve their financial
standing, their lives and their lifestyles.
Here's a brief explanation of what credit unions are and how
they operate.
Q.What is a credit
union? A. As financial cooperatives, credit
unions are owned by their members. Member savings form a pool of
money from which low-cost loans are made to other members. Once
overhead and other expenses are paid and reserves set aside, income
from loans is returned to members in the form of dividends on savings,
expansion of services and a larger cushion against loss.
After a credit union has met its other goals, it may give any remaining
surplus back to the members as bonus dividends on savings or loan
interest rebates. For example, in January 2001, Pennsylvania State
Employees CU in Harrisburg provided $2.5 million in bonus dividend
rebates to its members.
Q. What makes credit unions different from other
financial institutions?
A. It's their unique structure. Credit unions are democratically
controlled by their members. The members, themselves, elect a board
of directors from among the membership, which is responsible for
setting policy. Day-to-day operations are handled by paid professionals,
or in the case of a small sized credit union, by volunteers.
Credit unions do not make a profit for a select group of stockholders.
While a credit union needs income to provide services and benefits
such as dividends on savings, its primary purpose is to serve members.
Consequently, credit unions tend to have lower overhead costs and
expenses, and are usually able to offer lower interest rates
on loans and higher dividends on members' shares (savings).
Credit unions promote thrift and welcome young savers. They advocate
the wise use of credit and will make small loans that other financial
institutions would consider too small for processing.
Q. Who may join a credit union?
A. Not everyone may join a credit union.
Each credit union serves a specific field of membership as defined
by its charter. Anyone who falls within the common bond of the credit
union may join and share in its ownership.
A common bond can be defined as the employees of a company, members
of a civic or church group, residents of a community or numerous
groups together. Generally, persons within a member's family, by
blood or marriage, may also join.
Fewer new credit unions are being organized these days, but in 2000,
two new credit unions were organized to serve low-income residents
in Harrisburg and Philadelphia.
Q.
Who governs credit unions?
A. A credit union receives its authority
to operate by obtaining a federal or state charter. State chartered
credit unions follow the regulations set by the State Credit Union
Act; federally chartered ones fall under the Federal Credit Union
Act.
Annual examinations and oversight is conducted by the supervisory
agencies — the National Credit Union Administration (NCUA)
for federal credit unions — and the Pennsylvania Department
of Banking for credit unions chartered under Pennsylvania laws.
Q. Are savings insured?
A. Member savings accounts at all Pennsylvania
credit unions are federally insured up to $100,000 by the National
Credit Union Share Insurance Fund, which is administered by the
National Credit Union Administration (NCUA).
This fund is backed by the full faith and credit of the U.S. government.
No taxpayer funds are used to support the NCUA or the credit union
insurance fund.
Q. Are there any current legislative issues affecting
credit unions?
A. Yes. At the state level, credit unions are actively
supporting two legislative initiatives — state credit union
parity and wage garnish-ment. The parity proposal would grant state
chartered credit unions powers equivalent to those enjoyed by federal
credit unions. Wage garnishment would allow judgement creditors
(after the judicial process is completed) to garnish an employee's
wages for payment of a delinquent obligation.
At the federal level, credit unions hope to see bankruptcy reform
legislation approved by the Congress. Credit unions, particularly
the smaller ones common in Pennsylvania, have been badly hurt by
the growing level of bankruptcies. Credit unions would like to see
bankruptcy reform requiring debtors with sufficient income to repay
at least some of their debts.
Q. Are credit unions politically active?
A. Yes. Thousands of credit union staff, board members
and volunteers and a large corps of members are passionate about
maintaining their credit union's ability to thrive and grow
under laws that are reasonable and equitable.
In increasing numbers, credit union officials and members are supporting
the election campaigns of legislators who have demonstrated that
they support an atmosphere that's conducive to credit union
growth.
Generally, credit unions do not interfere in laws that affect other
financial institutions. In fact, credit unions and banks fall on
the same side on issues such as bankruptcy reform.
However, in the face of increased attacks by banking groups, credit
unions are fighting back to preserve their rights. In 1998, Pennsylvania
credit unions accounted for nearly one-sixth of the 6,500 crowd
that gathered in Washington, D.C. to support the Credit Union Membership
Access Act. Despite vehement opposition by bankers, the Act was
signed into law in July, 1998, giving credit unions the ability
to expand their membership bases.
Credit Union Statistics
Pennsylvania
Number: 692 federal chartered and 83 state chartered
Assets: $15 billion
Loans: $9.03 billion
Members: 3.22 million
United States
Number: 10,800
Assets: $407 billion
Loans: $255 billion
Members: 74.6 million
A note about institution size: Credit unions hold only 2.1% of the
nation's financial assets, but they play a large role in providing
people with an alternative to traditional financial institutions.
Most of Pennsylvania's credit unions are small compared with other
financial institutions: 73% have less than $10 million in assets;
39% have less than $2 million in assets.
For
more information about credit unions, contact:
Pennsylvania Credit Union League
4309 North Front Street
Harrisburg, PA 17110
717-234-3156
