The Advantages of Membership

In the era of big bank mergers, many Kentuckians are discovering the benefits of belonging to a credit union.

More than 670,000 Kentuckians are now members of a credit union and they’ve entrusted over $2 billion to those institutions. What makes them so popular and why do people join?

"One of the main things is service," explains Gary Wallace, president of Commonwealth Credit Union, which is Kentucky’s largest in terms of assets. "Our goals here are so simple. Our goal is to exceed members’ expectations the majority of the time." Friendly, efficient service is the backbone of credit unions, Wallace notes. "People will go to a financial institution for a more economical package. But they’ll only stay for service."

Statewide, there are 138 credit unions representing various occupational groups, communities and associations. They all serve what is called a "field of membership," or a group of people who are eligible to join a particular credit union.

People who are part of a credit union are called members, as opposed to customers. That’s because credit unions are voluntary, non-profit financial cooperatives. They don’t serve the public at large. They are also tax-exempt in Kentucky at both the state and federal levels.

Since they don’t have stock, they don’t have the pressure of creating stockholder profits. As a result, credit unions can sometimes offer a higher yield on savings or enjoy a lower cost to loan.

The big picture

Today, there are 11,125 federally insured credit unions nationwide with nearly 72.5 million members. Assets nationwide topped $371 billion as of June 30, 1998.

The Kentucky Department of Financial Institutions, which falls under the state Cabinet for Public Protection and Regulation, was charged with regulating state-chartered credit unions beginning in 1922. Its Division of Financial Institutions is comprised of three branches – one of which is the Credit Union Branch.The Department’s 1997 annual report – its latest – shows a total of 52 state-chartered credit unions as of December 31, 1997. That figure is down from 54 in 1996 and 59 in 1994.

Although the number of state-chartered credit unions is down slightly from prior years, assets have actually grown. State chartered credit unions show assets of $782,580,309 as of December 31, 1997, up from a total of $610,893,902 five years earlier.

State chartered credit unions fall under Kentucky Revised Statutes Chapter 290, which sets forth governance and supervisory law. Credit unions have bylaws that establish things like membership requirements, meeting of members, terms and duties of officers and information on shares, loans and the like.

A league of their own

Most Kentucky credit unions are members of the Kentucky Credit Union League, which is based in Louisville. The Kentucky Credit Union League (KCUL) was established in 1934 when 23 credit unions decided to work cooperatively.

Today, the KCUL is comprised of 131 credit union league members and seven non-members. KCUL is a non-profit corporation owned and controlled by member credit unions and their elected representatives. KCUL tracks things like credit union membership, assets, and historical data.

Today, the "average" credit union has 4,873 members and $18,314,528 in assets, according to KCUL data. Lyons, KCUL’s vice president of public relations and governmental affairs, noted that most Kentucky credit unions have occupational-based membership, meaning that their members are often employed by the same company or group of companies.

Commonwealth Credit Union (CCU) is one such example. Its members are state employees and school board personnel who are eligible to participate in the Kentucky Retirement Systems. CCU is based in Frankfort and has a branch office in Lexington. The organization is also looking to expand into other areas.

CCU primarily serves two distinct types of customers, says Wallace. One type looks for personal service when they come into the credit union. The other, which tends to be younger, enjoys the technological advances that allow them to do their banking from their home or office."We try to be creative in finding ways to deliver financial services in the way that the member wants them delivered," Wallace explains.

In Ashland, one will find the Ashland Inc. Employees Credit Union, which was organized in 1942 to serve employees of the Ashland Oil and Refining Company. Today, AIECU serves over 13,000 members in 46 states. Assets total over $80 million with member share deposits of approximately $72 million.

Its membership is still primarily employees of Ashland Inc. and its subsidiaries. But its policies also allow membership to retirees, surviving spouses of a member, and members leaving the employment of sponsor companies that have two years of continuous membership in the credit union.

In Lexington, the University of Kentucky Federal Credit Union serves UK faculty, staff, students, and some alumni association members. It was chartered in 1937 and is independent of the University of Kentucky.

The L & N Federal Credit Union is yet another credit union based in Kentucky. It’s located in Louisville and was chartered over 40 years ago. The L & N Federal Credit Union serves 49,000 employees of over 600 companies.

Under fire

Credit unions did come under fire earlier this decade. In 1990, representatives of the banking industry brought a lawsuit against a credit union in North Carolina that was serving employees of multiple companies. That lawsuit eventually made its way to the United States Supreme Court.

Those in the banking industry argued that credit unions have an unfair competitive advantage since they are not required to pay federal income taxes. They sought to limit expansion of fields of membership. The U.S. Supreme Court sided with the banking industry. However, earlier this year President Bill Clinton signed into law House Resolution 1151, allowing federal credit unions to take new companies into their fields of membership.

Credit unions praised the bill. The L & N Federal Credit Union, in some of its member updates, called the signing "a historic moment for the credit union industry and the American consumer."

(Sidebar)

Humble Beginnings

The idea of credit unions began more than a century ago in a small town in Germany that was suffering from a famine among area farmers. The mayor, Frederick William Raiffeisen, and an associate, Herman Schulze-Delitzsch, decided that the town’s impoverished constituents could benefit by pooling their savings and lending them to each other at a low rate of interest.

So the men organized a cooperative savings institution. Their goal was to provide credit to farmers to help purchase things like seeds, livestock, and other farming essentials.

Their credit union had several key elements that still exist today. It was democratically governed and volunteer based. Each member had one vote and the members elected the board of directors.

The men’s idea later caught on in other parts of the world. In 1900, the first credit union was organized in Levis, Quebec by a court reporter named Alphonse Desjardins. In 1909, Desjardins helped a group of Franco-American Catholics in Manchester, New Hampshire, organize St. Mary’s Cooperative Credit Association. This was the first credit union in the United States.

President Roosevelt signed the Federal Credit Union Act in 1934, allowing credit unions to be organized throughout the United States. The purpose of the federal law was to make credit more available to people of small means.

Regulatory authority of credit unions has shifted to various federal agencies over the years. In 1970, the National Credit Union Administration was chartered to supervise federal credit unions. Shortly thereafter, the National Credit Union Share Insurance Fund was organized to insure their deposits.

As in the past, credit unions share several common characteristics. Members elect the directors of credit unions and only members may serve as directors. There are no outside stockholders and after reserves are set aside, earnings are returned to members in the form of dividends on savings, rebates on loans, or better service.

The federal government insures credit union accounts up to $100,000 per account. The NCUA also examines credit unions annually for safety and soundness.
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