Even though millions of Americans are members of credit unions, many people still don't understand what credit unions are. This section of StreetWise explains what they are and how they compare with other types of financial services.
Credit unions are not-for-profit financial cooperatives serving groups of members who have something in common such as employment at a company, membership in an association, or residence in a particular geographic area. A credit union that may serve anyone who lives or works within a particular geographic area is called a community credit union. A credit union that serves groups of employees or associations is typically called a SEG-based (for select employee group) or a sponsor-based credit union. DCU is SEG-based with a few communities, such as Worcester and Lowell, Massachusetts, in its charter.
More than 92 million U.S. consumers are member-owners of, and receive all or part of their financial services from the nation's 7,535 credit unions. As not-for-profit cooperatives, credit unions generally offer more attractive savings and loan rates and low or no fees. Surveys consistently rank credit unions first among financial institutions in consumer satisfaction.
Credit unions are democratically owned and controlled institutions, based on people helping people principles. Credit union boards of directors are elected by members. Each member has an equal vote regardless of how much he or she has on deposit. At mutual banks, the amount on deposit determines the number of votes. In publicly-held banks, the number of shares of stock determines this.
Only members may serve as directors. They are unpaid volunteers and represent the interests of their fellow members who use the credit union. Board members at other types of financial institutions are paid and represent the interests of the outside owners. Volunteers are an important credit union resource. Presently, about 90,000 Americans volunteer for their credit unions serving as board members, committee members, or providing other assistance. Credit unions have no outside stockholders so, after reserves are set aside, earnings are returned to members in the form of dividends on savings, lower loan rates, or additional services.
Credit unions primarily engage in consumer loans and, to a lesser degree, business and residential real estate loans to their members.
Deposits at federally-chartered and virtually all state-chartered credit unions are federally-insured by the National Credit Union Share Insurance Fund. This fund is administered by the National Credit Union Administration (NCUA). It is backed by the full faith and credit of the U.S. Government. Like other insurance funds, such as FDIC coverage for banks, NCUSIF protects member deposits to $250,000. Get more information on NCUA insurance coverage on your DCU savings on our website.
Federally chartered credit unions like DCU are regulated primarily by the NCUA, an independent federal agency. State chartered credit unions are regulated by their state credit union department. No taxpayer money is used for NCUA regulation as all NCUA and NCUSIF activities are paid for by credit unions. Credit unions are also subject to many other laws and regulations administered by such agencies as the Federal Reserve, Consumer Financial Protection Bureau, Internal Revenue Service, Federal Trade Commission, Department of Justice, Department of Labor, and many other federal and state agencies.
Because of the member-owned, democratically operated, not-for-profit nature of credit unions, the federal government has made credit unions exempt from federal income taxes. Most states have extended this to state income and most sales taxes. Credit unions do pay payroll taxes, property taxes, and some sales taxes. Credit union members pay taxes on their credit union dividends.
This article was prepared with the assistance of the Credit Union National Association.