History of Credit Unions in the United States

Credit unions in the United States have a rich history that dates back to the early 20th century. The first credit union in the US was established in 1908 by a group of French-Canadian textile workers in Manchester, New Hampshire, who pooled their resources to provide each other with loans.

These early credit unions were formed to help people who were struggling to access financial services, often due to their low income or lack of credit history. They were also known for their community-driven approach, where members would work together to manage the credit union and make decisions.

The movement gained momentum in the 1920s, with the National Credit Union Administration (NCUA) being established in 1934 to regulate and oversee the growth of credit unions. This marked a significant turning point for credit unions, allowing them to expand their reach and services to more people.

By the mid-20th century, credit unions had become a staple in many communities across the US, offering a range of financial services to their members.

The early years of credit unions date back to the mid-19th century in England, where workers and weavers created a democratic consumer cooperative that established the credit union principles used today.

In 1844, Rochdale, England was the site of this groundbreaking cooperative, which marked the beginning of the credit union movement.

The credit union principles of democratic governance, one vote per member, member-elected boards of directors, and volunteer-led leadership were all established during this time.

A crop failure and famine in 1846 led Hermann Schulze-Delitzsch to establish a cooperatively owned mill and bakery in Germany, offering bread to members at significant savings.

Schulze-Delitzsch extended this cooperative idea to address the need for credit by organizing the first cooperative credit society, known as the people’s bank, in 1850.

Friedrich Raiffeisen, another German pioneer, formed the Heddesdorf Credit Union in 1864 to provide credit to German farmers, helping them purchase livestock, equipment, seeds, and other essentials.

The first North American credit union was established in 1901 by Alphonse Desjardins, who organized La Caisse populaire de Lévis in Lévis, Quebec, with the first deposit being just 10 cents.

The Massachusetts Credit Union Act became law in 1909, serving as a basis for subsequent state credit union laws and for the Federal Credit Union Act, which became law 25 years later.

Here are the key characteristics of the early credit unions:

The early years of credit unions laid the foundation for the unique depository institutions we know today, operating not for profit, but to serve their members as credit cooperatives.

The first credit union in the US, St. Mary's Cooperative Credit Association, opened in Manchester, New Hampshire in 1909, thanks to the efforts of Alphonse Desjardins.

In just a few years, Massachusetts passed the Massachusetts Credit Union Act in 1909, becoming the first state to enact a law for credit unions. This act was championed by Pierre Jay and Edward A. Filene, who earned Filene the nickname "Father of U.S. Credit Unions."

Between 1921 and 1935, 38 states and Washington, D.C. followed suit, enacting laws for credit unions, with the Federal Credit Union Act being signed into law in 1934 by President Franklin D. Roosevelt.

In 1909, a significant milestone was reached in the history of credit unions.

The first U.S. credit union, St. Mary's Cooperative Credit Association, opened its doors in Manchester, New Hampshire on April 6, 1909.

Massachusetts Bank Commissioner Pierre Jay and Edward A. Filene joined forces to make credit unions a reality.

Edward A. Filene earned the nickname "Father of U.S. Credit Unions" for his efforts.

The Massachusetts Credit Union Act, the first general statute for establishing credit unions in the United States, was enacted in 1909.

In 1921, Filene and Bergengren organized the Credit Union National Extension Bureau to promote the formation of new credit unions and enact state laws to charter them.

This association focused on spreading the philosophy of credit unions, which was a significant milestone in their growth.

Between 1921 and 1935, 38 states and the District of Columbia enacted credit union laws, paving the way for widespread adoption.

Massachusetts was the first state to enact a law, the Massachusetts Credit Union Act of 1909, which set a precedent for other states to follow.

Foundation Credit Union was founded in 1933, a testament to the growing momentum of credit unions.

President Franklin D. Roosevelt signed the Federal Credit Union Act into law in June 1934, creating an agency to regulate credit unions.

In 1932, Bergengren met with U.S. Senator Morris Sheppard of Texas to discuss the need for a federal law allowing credit unions to organize under federal law.

Bergengren believed a federal credit union law would provide a blanket insurance policy for state laws, offering an alternative method of organization.

This meeting marked a significant step towards federal recognition of credit unions, which would eventually provide them with greater stability and security.

The rapid growth of credit unions is a fascinating story. From 1921 to 1935, 38 states and Washington, D.C. enacted laws for credit unions.

In 1933, Foundation Credit Union was founded, marking a significant milestone in the growth of credit unions. By 1934, President Franklin D. Roosevelt had signed the Federal Credit Union Act into law, creating an agency in the federal government to regulate credit unions.

The Federal Credit Union Act of 1934 was a major turning point for credit unions. It established a national system to charter and supervise federal credit unions, paving the way for the growth of credit unions across the country.

By 1960, more than 6 million individuals were members of over 10,000 federal credit unions. This rapid growth was a testament to the effectiveness of the credit union model in providing financial services to people who might not have had access to traditional banking.

In 1978, Lawrence Connell was appointed NCUA Administrator. This marked a significant milestone in the growth and expansion of the National Credit Union Administration.

The appointment of Lawrence Connell as NCUA Administrator in 1978 brought a wealth of experience to the role, with a strong background in credit union management.

In 1979, the NCUA Board was restructured to consist of three members, replacing the Administrator as the governing body.

These Board members were nominated and appointed by the President of the United States and required Senate confirmation.

Their staggered six-year terms ensured continuity and stability within the agency.

Not more than two members of the Board could be from the same political party.

The President also designated the Chairman among the Board members.

Lawrence Connell was the first NCUA Board Chairman, serving from 1979 to 1981.

In 2005, Rodney E. Hood was appointed to the Board and served as Vice Chairman until August 2009.

This marked a significant milestone in the organization's growth and expansion.

Rodney E. Hood's appointment brought new expertise and leadership to the Board.

The Board's composition and leadership were crucial in shaping the organization's direction and policies.

In the 1970s, the financial landscape began to change significantly. Federal legislation passed in 1977 allowed credit unions to offer new services to members, such as share certificates and mortgages.

Credit union membership more than doubled during this decade. Assets tripled to exceed $65 billion.

The National Credit Union Administration (NCUA) became an independent federal agency in 1970. This marked a major shift in the governance of credit unions.

Congress created the National Credit Union Share Insurance Fund (NCUSIF) to protect deposits at credit unions.

In the modern era, credit unions have continued to evolve and adapt to changing consumer needs. They have expanded their services to include online banking and mobile apps, making it easier for members to manage their accounts and access financial services on the go.

The introduction of credit union service organizations (CUSOs) has also allowed credit unions to offer a wider range of financial products and services, such as insurance and investment services, to their members. This has helped credit unions to remain competitive with traditional banks.

Today, credit unions are more diverse than ever, with a wide range of sizes, structures, and services.

In 2017, the NCUA Board Chairman position changed hands as President Donald J. Trump designated J. Mark McWatters as Acting Chairman on January 23, 2017, and later as Chairman on June 23, 2017.

Rick Metsger continued to serve as a Board Member until April 8, 2019, alongside Chairman McWatters. The NCUA Board proposed to close the Temporary Corporate Credit Union Stabilization Fund four years ahead of the previously anticipated 2021 closure date on July 20, 2017.

The NCUA announced a restructuring effort on July 21, 2017, aiming to improve efficiency and effectiveness, including consolidating its regional structure and credit union development functions. The agency also closed its offices in Albany, NY, and Atlanta, GA, by the end of 2018.

The NCUA Board approved the closing of the Stabilization Fund on September 28, 2017, which took effect on October 1, 2017. This move was a significant step towards streamlining the agency's operations.

The NCUA Board also enhanced the appeals process for credit unions with issues or concerns about agency decisions and supervisory determinations on October 19, 2017. This change aimed to provide greater transparency and fairness for credit unions.

President Donald J. Trump signed an Executive Order on December 11, 2017, establishing a new official seal for the NCUA, bringing the agency's seal more in line with other federal financial services regulators.

In 1970, Congress created the National Credit Union Administration as an independent agency to charter and supervise federal credit unions.

The National Credit Union Share Insurance Fund was also formed, insuring share deposits at federally insured credit unions up to $20,000.

Lieutenant General Herman Nickerson, Jr. became the first Administrator of the National Credit Union Administration.

President Richard Nixon established the original NCUA seal design with the signing of Executive Order 11580 on January 20.

In 1985, the Asset Liquidation and Management Center in Austin, Texas, was created to deal with problem assets the NCUA acquires from both operating and liquidating credit unions.

The NCUA's Asset Liquidation and Management Center played a crucial role in managing problem assets, and its role expanded over the years to include consulting services on topics such as lending analysis and fraud investigation.

The NCUA introduced the Automated Integrated Regulatory Examination System (AIRES) in 1985, which is still used by federal examiners and state supervisory authorities today.

In 1987, Governor Bruce Sundlun declared a "bank holiday" for 35 state-chartered credit unions and 10 state-chartered banks in Rhode Island.

This event led to a significant increase in insurance applications from privately insured credit unions nationwide, with 432 state-chartered credit unions converting to federal insurance coverage by 1991.

The NCUA adopted the CAMEL Rating System, which assesses credit unions based on their Capital, Asset Quality, Management, Earnings, and Liquidity.

In the modern era, the credit union system was already making significant strides by the end of 1990.

The number of federally insured credit unions had grown to 12,891, providing a vast network for members to access financial services.

This rapid growth was accompanied by a substantial increase in assets, with a total of $223 billion held by credit unions by the end of 1990.

At this point, the credit union system had reached an impressive 61 million members, demonstrating its widespread appeal and adoption.

In 1994, the Washington D.C. District Court made a significant ruling that allowed for multiple groups in one field of membership under the Federal Credit Union Act.

This decision was a major victory for credit unions, as it paved the way for more diverse and inclusive membership structures.

The American Bankers Association and other banking groups appealed the decision to the District Court of Appeals, seeking to limit the flexibility of credit unions.

In 1996, the U.S. District Court of Appeals for the D.C. Circuit ruled that all members of an occupation-based federal credit union must share one common bond.

This decision affected the AT&T Family Federal Credit Union, which was ordered to apply the new rule. The American Bankers Association and other banks also got a nationwide injunction to stop federally chartered credit unions from adding new groups to their field of membership.

Yolanda T. Wheat was appointed to the NCUA Board in 1996, a position she held until 2001.

In 1997, a significant year for the credit union industry, Dennis Dollar was appointed to the NCUA Board. This marked a crucial development in the regulatory landscape.

The U.S. Supreme Court agreed to hear the NCUA's appeal of the Appeal Court's ruling in February 1997. This decision would have far-reaching implications for credit unions.

H.R.1151, the Credit Union Membership Access Act, was introduced in the House of Representatives on March 20, 1997. This bill aimed to allow for multiple common bonds in federal credit union fields of membership, a move that would expand access to credit union services.

In 1998, the Supreme Court ruled that federal occupation-based credit unions must consist of an occupational group having a single common bond.

This decision left millions of credit union members at risk of losing their membership.

The House of Representatives passed the Credit Union Membership Access Act on April 1, 1998, which aimed to restore expansion privileges and provide for multiple common-bond credit unions.

The act also required the NCUA to create a system of prompt corrective action, setting minimal capital ratios that a credit union must maintain and establishing triggers to limit activities if a credit union drops below those levels.

President Bill Clinton signed the Credit Union Membership Access Act into law on August 7, 1998, making it a significant development in the modern era of credit unions.

JoAnn M. Johnson was appointed to the Board in 1998, marking a notable change in the leadership of the credit union industry.

In 2008, the financial landscape underwent significant changes that would have a lasting impact on the world of credit unions and banking. Michael E. Fryzel was sworn in as NCUA Board Chairman on July 29, 2008.

Fannie Mae and Freddie Mac were placed into conservatorship on September 6, 2008, marking a major shift in the mortgage industry. Lehman Brothers filed for bankruptcy on September 15, 2008, often cited as the start of the financial crisis of 2008-2009.

President George W. Bush signed the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2008 on September 30, 2008, temporarily removing a cap on the Central Liquidity Facility. This allowed the facility to borrow up to $41.5 billion to lend to credit unions.

The Emergency Economic Stabilization Act was signed into law on October 3, 2008, creating the Troubled Asset Relief Program with a $700 billion budget. President Bush also temporarily raised FDIC and NCUA deposit insurance coverage to $250,000 per depositor through December 31, 2009.

The NCUA Board approved the Temporary Corporate Credit Union Liquidity Guarantee Program on October 16, 2008, providing a full faith and credit guarantee for participating corporate credit unions. The Treasury bought $125 billion worth of preferred stock of nine banks in its first TARP funding wave on October 28, 2008.

Fannie and Freddie suspended mortgage foreclosures until January 2009 on November 20, 2008, providing a brief reprieve for homeowners. The NCUA Board approved the creation of the Credit Union System Investment Program and the Homeowners Affordability Relief Program on December 9, 2008, to help credit unions weather financial stress.

Nineteen consumer-owned credit unions failed in 2008, resulting in a loss of $232 million to the National Credit Union Share Insurance Fund by December 31, 2008.

In 2009, the National Credit Union Administration (NCUA) Board took significant steps to stabilize the credit union system. The Temporary Corporate Credit Union Share Guarantee Program was announced on January 28, providing a full faith and credit guarantee of uninsured shares at all corporate credit unions through February 2009.

The program also established a voluntary guarantee program for uninsured shares of credit unions through December 2010. This move was a crucial step in maintaining confidence in the credit union system. The NCUA Board approved a $1 billion capital purchase in U.S. Central Federal Credit Union on the same day.

On February 17, President Barack Obama signed the $787 billion American Recovery and Reinvestment Act, which had a significant impact on the economy. The act provided a much-needed boost to the financial sector. The NCUA Board conservated the two largest corporate credit unions, U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, on March 20.

These conservatorships were necessary to manage catastrophic losses on investments and sustain critical liquidity and payment services to consumer-owned credit unions. The NCUA Board revised and extended the Temporary Corporate Credit Union Liquidity Guarantee Program on May 21 to cover unsecured debt obligations issued on or before June 30, 2010, and maturing on or before June 30, 2017.

Debbie Matz became Chairman of the NCUA Board on August 24, serving until May 2016. Michael Fryzel continued to serve as a NCUA Board Member until August 26, 2014. The Fiscal Year 2010 Consolidated Appropriations Act was signed into law by President Barack Obama on December 16.

This act included two provisions for credit unions, securing full lending authority for the Central Liquidity Facility and increasing the appropriation for the Community Development Revolving Loan Fund by $250,000 to $1.25 million.

In 2010, the National Credit Union Administration (NCUA) made significant efforts to stabilize the corporate credit union system.

The NCUA Board announced the Corporate System Resolution Program, a multi-stage plan to stabilize the system and provide funding to resolve a portfolio of troubled assets.

On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, making permanent the $250,000 insurance protection for shares and deposits.

By the end of 2010, 28 consumer-owned credit unions had failed, resulting in $229 million in losses to the National Credit Union Share Insurance Fund.

The NCUA hired national personal finance expert Suze Orman to inform the public about the safety of credit union share deposits insured by the NCUA.

As a result of the public information campaign, more than 190 million Americans learned that federally insured credit unions are a safe place to save.

In 2011, the NCUA established the Office of Minority and Women Inclusion to promote equal opportunities for everyone in NCUA's workforce programs and contracts.

This office assesses the diversity policies and practices of credit unions regulated by the NCUA. The NCUA took a significant step in promoting diversity and inclusion within its own organization and the credit union industry as a whole.

The NCUA launched MyCreditUnion.gov, a website that provides consumers of all ages with in-depth personal finance information. This resource is a valuable tool for individuals looking to improve their financial literacy and make informed decisions about their money.

The NCUA became the first federal financial institutions regulator to file suit in federal court against Wall Street firms to recover losses from sales of faulty mortgage-backed securities. These lawsuits led to significant recoveries, with net recoveries exceeding $5.1 billion to date.

In 2013, the Office of National Examinations and Supervision began operations, overseeing corporate credit unions and those with $10 billion or more in assets. This marked a significant step in credit union regulation.

The NCUA obtained a historic settlement with JPMorgan Chase, recovering more than $1.42 billion in gross recoveries for faulty mortgage-backed securities sold to failed corporate credit unions. This was a major win for credit unions affected by the 2008-2010 failures.

To reduce regulatory burdens, the NCUA changed the definition of a small, non-complex credit union to those with less than $50 million in assets. This shift aimed to make compliance more manageable for smaller credit unions.

Rick Metsger joined the NCUA Board in August 2013, bringing new expertise and perspectives to the agency. His experience would prove valuable in the years to come.

The NCUA filed a lawsuit against 13 international banks, alleging violations of federal and state anti-trust laws through their manipulation of the LIBOR system. This move aimed to hold banks accountable for their actions.

By the end of 2013, the NCUA reported that the entire projected range of remaining assessments was negative, indicating no need for future assessments and potentially paving the way for a distribution of surplus funds.

In 2014, the NCUA Board approved a final rule allowing certain well-managed federal credit unions to utilize derivatives as a risk-management tool on January 23. This change aimed to provide credit unions with more flexibility in managing their risks.

The NCUA Board also adopted a rule requiring stress testing and capital planning for credit unions with more than $10 billion in assets on April 24. This move aimed to strengthen the financial stability of these larger credit unions.

J. Mark McWatters was sworn in as a member of the NCUA Board on August 26, serving until January 23, 2017. He brought a wealth of experience to the role, helping to shape the direction of the NCUA.

Rick Metsger was designated as Vice Chairman of the NCUA Board on September 18, serving until May 1, 2016. His leadership played a crucial role in guiding the NCUA's efforts during this period.

The Stabilization Fund showed a positive net position of $0.2 billion as of December 31, 2014, marking a significant improvement from its peak deficit of $7.5 billion. This was a major milestone for the NCUA, demonstrating the effectiveness of their efforts to stabilize the credit union system.

In 2015, the NCUA Board made some significant changes that affected the way credit unions operated. The NCUA Board approved a final rule that more clearly defined which associational groups qualify for membership in federal credit unions.

This change allowed 12 categories of associational groups to be added to a federal credit union's field of membership without needing to provide extra information. The NCUA Board also eliminated the regulatory cap on investments in fixed assets.

The asset ceiling for small credit unions was raised from $50 million to $100 million, giving them more flexibility to grow. The NCUA Board updated its risk-based capital requirements to better reflect the changing needs of credit unions.

These changes had a positive impact on the credit union industry, enabling them to serve more members and invest in their communities. By the end of the year, credit unions were in a stronger position to meet the financial needs of their members.

In 2016, the NCUA Board made significant changes to its regulations, giving credit unions more flexibility to make commercial lending decisions.

The NCUA Board approved a final rule in February 2016 that changed the agency's regulations governing member business lending, allowing credit unions to make more informed commercial lending decisions.

President Barack Obama designated Rick Metsger as Chairman of the NCUA Board on May 2, 2016, a position he held until January 22, 2017.

The NCUA Board retired two agency performance goals in July 2016, allowing them to schedule exams when needed, rather than every calendar year.

This change provided the NCUA with greater flexibility to manage their workload and allocate resources more efficiently.

The NCUA repaid $1 billion in borrowing from the U.S Treasury on October 24, 2016, leaving a $6 billion borrowing line available for future contingent funding needs.

The NCUA Board approved comprehensive changes to the agency's field-of-membership regulations on October 27, 2016, making more Americans eligible for credit union membership.

These changes expanded the scope of credit union membership, allowing more people to access credit union services.

The NCUA approved an extended examination cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion on November 17, 2016.

In 2020, the NCUA Board decided to delay the effective date of the 2015 risk-based capital rule for one year, from January 1, 2019, to January 1, 2020.

The delay was due to the significant changes in the financial landscape, and the NCUA wanted to give credit unions more time to adapt.

The rule also amended the definition of a "complex" credit union for risk-based capital purposes by increasing the asset threshold in the rule from $100 million to $500 million.

This change aimed to provide more flexibility for larger credit unions, allowing them to operate with more freedom.

In 2019, the NCUA made some significant changes to its operations. The agency consolidated from five to three regions, closing regional offices in Albany and Atlanta.

The NCUA Board approved a $160.1 million equity distribution from the Share Insurance Fund that was paid to eligible credit unions in the second quarter of 2019. This distribution provided a much-needed boost to the credit union system.

Todd M. Harper was sworn in as a member of the NCUA Board in April 2019 and served until January 2021. His expertise and experience were valuable assets to the agency during his tenure.

The NCUA and the U.S. Small Business Administration launched a three-year collaborative effort in April 2019 to bring small businesses and credit unions together. This partnership aimed to expand awareness about SBA programs and promote economic growth.

The NCUA Board raised the threshold for commercial real estate transaction appraisals from $250,000 to $1 million in July 2019. This change helped reduce regulatory burdens on credit unions.

The United States Court of Appeals for the District of Columbia Circuit upheld much of the NCUA’s 2016 field-of-membership regulations changes in August 2019. This ruling provided clarity and direction for credit unions.

The NCUA Board adopted a final payday alternative loans rule in September 2019, enhancing credit unions’ ability to serve members who need short-term, small-dollar loans. This rule helped credit unions meet the financial needs of their members.

The NCUA Board finalized a rule that raised the threshold on the level of public unit and non-member shares a credit union can receive in October 2019. This change allowed credit unions to serve a broader range of members.

The NCUA Board approved a final policy statement in November 2019 that extended “second-chance” opportunities to job applicants with minor, non-violent criminal offenses in their past. This policy promoted fairness and second chances for individuals seeking employment.

In 2022, the NCUA Board approved a proposed rule that would require boards of directors at federal credit unions to establish and adhere to processes for succession planning.

The year also saw significant changes to the asset threshold for assigning federally insured credit unions to the Office of National Examinations and Supervision (ONES), with the threshold being lowered to $15 billion or more in assets.

Todd M. Harper was confirmed by the U.S. Senate to be a member of the NCUA Board for a term expiring on April 10, 2027, and was later sworn in to serve a full term.

Federally insured credit unions were required to notify the NCUA as soon as possible but no later than 72 hours after they reasonably believed that a reportable cyber incident had occurred.

By the end of 2022, the Central Liquidity Facility's agent membership authority, initially authorized under the CARES Act, had expired, drastically limiting the amount of liquidity available to credit unions in the event of a major liquidity crisis.