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The Credit Union Movement:
A Rich Heritage, a Bright Future
Credit unions have been known by different names in different cultures, and their roots can be traced deep into antiquity. The concept is simple: A group of people pool together their resources to provide low-interest loans to each other. The borrowers pay a reasonable rate of interest, which is then used to provide a fair return to the savers. Unlike other financial institutions, however, credit unions are cooperatively owned and democratically controlled by their depositors. Credit union depositors are therefore not customers — as at a bank — but member/owners.
What could be termed the modern credit union movement originated in Germany in the middle of the 19th Century. It was then that Friedrich W. Raiffeisen and other leaders began developing cooperative financial organizations to help alleviate the crushing poverty they saw in many rural areas and towns.
After spreading across much of Europe, the credit union idea reached the shores of North America when a Canadian, Alphonse Desjardins, organized a credit union in Quebec in 1900. Desjardins was also instrumental in organizing the first U.S. credit union eight years later in Massachusetts. Banks at the time were extremely reluctant to lend money to average working people, and the consumer loan so common today was virtually non-existent. Early pioneers saw credit unions as an ideal way to fill this void created by the banks and, by creating a pool of funds for prudent consumer loans, help people of small means better themselves economically.
The credit union idea was soon taken up and championed by department store magnate Edward A. Filene, who founded and financed the Credit Union National Extension Bureau. The Bureau’s director, Roy F. Bergengren, enthusiastically tackled the job of promoting legislation at both the state and federal levels that would enable credit unions to expand from coast to coast.
Credit Unions Arrive in Michigan
Legislation enabling credit unions to be organized in Michigan grew out of correspondence between Bergengren and Robert Peden, who was interested in organizing a credit union for employees of the Mueller Brass Metal Company in Port Huron. Bergengren had an acquaintance serving in the Michigan Legislature, fellow attorney George C. Watson of Capac, who agreed to introduce a credit union bill, but the legislation quickly came up against a wall of skepticism, indifference and hostility. Powerful groups, including state bankers and manufacturers, opposed the legislation, and the Watson bill appeared doomed.
Soon afterward, however, a quirk of fate intervened. An influential lobbyist for the powerful Michigan Manufacturers Association, which had strongly opposed credit union legislation, had a purely chance meeting with Filene in Europe during an International Chamber of Commerce convention in early 1925. The conversation quickly turned to credit unions, and the enthusiasm for cooperative credit of so eminent and successful a businessman as Filene deeply impressed the lobbyist. The Michigan Manufacturers Association dropped its opposition to the bill, and before the end of the year Peden’s efforts were rewarded when the Michigan Legislature passed the Michigan Credit Union Act. Soon afterwards, Mueller Credit Union received the state’s first charter, soon to be followed by several others representing teachers, postal workers and other groups.
The Michigan Credit Union League is Born
Filene, Bergengren and other pioneers had long envisioned the creation of a national organization for the credit union movement, based on state organizations that would in turn grow out of regional chapters and individual credit unions. This was less an experiment in participatory democracy than a practical plan for maintaining the energy that was already at work expanding the credit union idea across the country.
Michigan credit unions organized an informal committee in 1930 with a view toward the creation of a “league\" — the goal being to establish a statewide organization once 50 credit unions were chartered in Michigan. Events, however, accelerated the timetable. The Great Depression had arrived, the nation’s economy was in a disastrous free-fall and banks were failing by the hundreds. The credit union idea — which promised to be a key element in the national recovery — received heightened attention in the nation’s capital. Congress passed the Federal Credit Union Act in June 1934, making it possible to charter a credit union anywhere in the United States.
Two months later, the nation’s credit union leaders establish the Credit Union National Association, or CUNA, to carry on the work of the Extension Bureau in organizing new credit unions and aiding their development. To participate in this new national organization, Michigan would need a state credit union association of its own — a league. Thus a group of credit union leaders and visionaries gathered at Cass and Warren Avenues in Detroit on October 4, 1934, and organized the Michigan Credit Union League. Sam Smith of Detroit Federal Employees Credit Union, who led the drive to form the Michigan League, became the organization’s first president.
War, Peace — and Unprecedented Credit Union Growth
There were only 41 Michigan credit unions when the Michigan Credit Union League was organized in 1934. But by the end of the year, the original goal of 50 had been reached and surpassed, and in 1935 total Michigan credit union assets topped the $1 million mark. By the end of the decade, there were more than 200 credit unions in Michigan, and nearly 300 were operating toward the end of 1941.
It was then, however, that credit union organizational work and consumer credit in general were interrupted by U.S. entry into World War II. All peace-time pursuits receded into the background as Americans focused on one primary goal — winning the war. As believers in democracy, freedom and voluntary cooperation, America’s credit unions wholeheartedly joined the fight against militarism and fascism.
Allied victory in the war saw much of Europe and Asia in ruins, and the United States entered the post-war era with fully one-half of the entire world’s productive capacity. Fears of a post-war depression proved unfounded as pent-up consumer demand quickly drove the U.S. economy into high gear and fully utilized the American people’s traditional ingenuity and industry. Interrupted only by a short but tragic war in Korea, the United States entered an era of peace, prosperity and dynamic population growth. No state benefited more from the boom than Michigan, one of the nation’s leading manufacturing centers.
An Idea Whose Time Had Come
In the decade immediately following World War II, the Michigan credit union movement resumed the organizational campaign that had been interrupted by the war. In 1945, there were actually fewer Michigan credit unions than there had been in 1941, and wartime restrictions (such as Regulation W, governing consumer credit) had yet to be retired. Credit unions were serving a limited number of people in limited ways.
Ten years later, credit unions were an influential force in the Michigan economy, accounting for $200 million in total assets and helping to finance the purchases that created the post-war boom. What is perhaps more remarkable about this explosive growth is that it was carried out almost exclusively by unpaid volunteers. Compensated staff — even at the Michigan League — were few in number. Only a few credit unions had grown to the point where a full-time executive was required for operations, and elected officials, as always, served without pay.
The numbers tell the story of their glittering success. At the end of World War II, there were 250 credit unions in Michigan and 100,000 credit union members. Directing new energies into organizational efforts, leaders of the Michigan credit union movement raised the figures to a remarkable 858 credit unions and 500,000 members just 10 years later. In 1954, the peak year of credit union growth, 93 new credit unions were organized in just 12 months.
Consolidation and Innovation
As the boom years of the 1950s drew to a close, the emphasis was gradually shifting from organizing new credit unions to developing and consolidating those already in existence. New products and services were explored and launched, and new records were constantly being set — 1,000 Michigan credit unions in 1957, $500,000,000 in assets in 1962 and a doubling of assets to $1 billion just four years later.
Michigan credit unions were now demanding new services and expanded resources for training and information — things they believed could best be supplied by their League. The League responded, expanding products and services and growing in size and sophistication. In 1957, the Michigan League moved into its first new self-owned and self-constructed headquarters, located at 13235 Woodrow Wilson in northwest Detroit. In less than a decade, the League outgrew this site and broke ground at 15600 Providence Drive in Southfield for another new location that would open its doors in 1967.
Several key developments during this period would have a profound impact on the future of Michigan credit unions. One of these was the formation of an entity separate from the League that could provide credit unions with specialized products and services on a fee-supported basis. Recognizing that the distinctions had grown sharper between dues-supported and fee-supported activities, the Michigan League organized the “MCUL Corporation\" in 1964. A for-profit subsidiary of the League, the MCUL Corporation later became “League Services Corporation\" and today operates as “CUcorp,\" providing credit unions with fee-supported services ranging from specialized training, employee benefit support, marketing and printed materials.
In 1960, the Michigan credit union movement entered the insurance field, with the goal of providing group life insurance to members at reasonable cost. The League Life Insurance Company was an outstanding success, holding more than $1 billion of insurance in force in just three years. By 1969, the League General Insurance Company made its appearance to provide credit union members with group automobile insurance.
Share Drafts and Share Insurance
In the 1970s, credit unions once again experienced a period of profound change, and once again they emerged strong, successful and with their principles intact. By 1978, all Michigan credit unions had converted to federal share insurance under the auspices of the National Credit Union Administration, the government agency with regulatory authority over federal credit unions.
The conversion did not come without controversy, and it was not due to any failure on the part of “Stabilization,\" the private insurance fund funded and operated by Michigan credit unions. On the contrary, while the Stabilization program operated, no Michigan credit union member ever lost a penny due to a credit union failure, and many credit unions faced with unforeseen problems, such as a plant closing or labor dispute, were rescued by its efforts. Federal insurance has continued this proud record, and today’s consumers can rest assured that there is no safer place to put their money than in a Michigan credit union.
As credit unions became more prominent, the Michigan Legislature and Congress took a fresh interest in their operations. A key legislative victory in the 1970s was the establishment of legal authority for credit unions to offer their members a check-like instrument — the share draft. Credit unions knew that electronic direct deposit was the wave of the future, and that consumers would be extremely reluctant to designate a credit union as their depository institution if they couldn’t access their funds without a trip to the credit union office. Significantly, given Michigan’s traditional role as a credit union leader and innovator, the first federally and state-chartered credit unions to pilot share drafts were both located in Michigan.
The U.S. and Michigan economy presented its own challenges during this time, too. Double-digit inflation raised concerns about the stability of the greenback, while energy shortages and foreign competition had many traditionally dominant U.S. industries reeling. Plants closed and by the early 1980s, unemployment had reached its highest national levels since the Great Depression. Despite the turmoil, credit unions found ways to ride out the storm through consolidations, charter expansions, member loyalty and prudent management. By the end of 1984, the Michigan Credit Union League could celebrate its 50th anniversary year with more than 3 million credit union members and with total credit union assets zeroing in on the $6 billion mark.
Technology Makes Its Presence Felt
As the 1980s wore on, personal computers, ATMs and electronic funds transfer (EFT) became dominant forces in a financial services marketplace increasingly driven by quick access, fast response and consumer convenience. Despite a growing number of attacks from the banking industry, credit unions posted numerous legislative victories and maintained their unique status as not-for-profit, member-owned financial cooperatives.
The long-anticipated electronic revolution began to take shape during this period, fueled by the expanding capability and declining relative cost of technology, and growing consumer demands for security and convenience. Once viewed as a novelty and toy, the home PC had, as the 1990s drew to a close, become a common appliance among nearly half of U.S. households.
Direct deposit, the ever-present ATM, credit and debit (or POS, Point of Sale) cards began to make many Americans infrequent visitors to the lobby of a financial institution. The Internet allowed consumers to comparison shop in ways that would have been physically impossible just a short time ago. Different credit unions have adapted to this changing environment in different ways and at different rates, but as member-owned/member-driven organizations, all have felt the tug of this new way of doing business. Technology, however, has not supplanted the traditional credit union values of member ownership, volunteer control, cooperation and service to members before profit.
The growing size and success of the credit union movement have certainly gained credit unions more attention and prominence — not all of it desirable. During this time credit unions have increasingly come under the glare of banks and their trade associations, who have spared no effort or expense in attempting to deny American consumers access to cooperative savings and credit. Again and again, credit unions have withstood attacks on their federal corporate income tax exemption, on the independence of their regulatory agency and insurance fund, and on their ability to expand their fields of membership and reach out to new members. By the end of the century, Total Michigan credit union assets had topped $20 billion and membership was well over the 4 million mark — better than one-in-three of all Michiganians.
Facing the Future with Confidence
The next chapter in the Michigan credit union story is being written today by the millions of loyal credit union members, thousands of hard-working credit union volunteers and professionals, and the dedicated staff of the MCUL, CUcorp and affiliated organizations.
The credit union idea continues to grow and advance for the simple reason that credit unions work — for their members, for the volunteers who help guide the organization, for the professionals who carry out the daily tasks.
As the historical record clearly shows, the Michigan credit union movement has been a dynamic story of growth and progress. The success of credit unions has been a great triumph for the treasured values of democracy and cooperation. Credit union pioneer Roy Bergengren once defined the purpose of the credit union movement as demonstrating, in some small way, the “practicality of the brotherhood of man.\" With more than 4 million credit union members in Michigan and nearly 80 million nationwide, Bergengren’s vision is our reality. Top |
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