The Ins And Outs Of A Credit Union

Lea este artículo en español

A little bit of history

Credit unions, which are financial cooperatives, have been around since the 1850s. In Europe they were organized by farmers who pooled their money to lend to those in need to purchase seed, shared machinery, and other needs to see them through bad years.

In the Americas the first credit union was started in Canada to offer farmers, impoverished workers and immigrants an honest chance to credit, as an honest alternative to loan sharks.

How they are today

Since then, credit unions have evolved into complex financial institutions that offer the same

range of services as banks. However, credit unions exist to offer those services to people who under regular circumstances would have difficulties obtaining them from regular banks.

Whereas banks are run by paid boards, financed via the issuance of stock shares and the charging of fees for everything, credit unions thrive on sharing.

To summarize: banks serve banks, credit unions serve people.

How the whole cooperative thing really works

When you become a member, you deposit $5 into a regular share account. Those five dollars are your share of the credit union, and you need not buy more. Now you belong -and own- part of the credit union.

For every dollar you deposit you receive dividends (interest), as a thank you for your investment and trust. Everyone’s savings are part of a symbolic shared pool.

If you, or another member, need a loan, the funds of that loan are granted from that shared pool of money. The interest that this member pays on the loan goes to pay the dividends on your deposits.

Of course, this is a simplified view, but you get the idea. I can talk about the more complex operations some other time.

Credit unions are run democratically

This is what makes credit unions unique. Your share in the credit union entitles you to vote; one member, one vote. Your vote elects the board of directors and the credit committee. They are all volunteers:

•  The Board of Directors guides the hand of the credit union: major policy changes,
  
  hiring, and investing, budgeting, etcetera must all go through them. They also appoint the non-elected committees that help run things more smoothly: supervisory, asset-liability, governance, technology, elections committee, etc. 
• The credit committee deals with the loans. They review, approve or sometimes deny our loans. They make sure that our shares money is lent out wisely, with the intent of helping the members who need those loans, while also watching out for the best interests of the credit union.