Federal Credit Unions (1934)

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President Franklin Roosevelt signed the Federal Credit Union Act into law on June 26, 1934. The purpose of the law was “to establish a further market for securities of the United States and to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States” [1]. In more colloquial terms, FDR and others wanted to advance the growth of credit unions so that working-class and lower-income Americans could have an alternative to the many lending institutions practicing usury on the financially vulnerable [2].

Credit unions began in Europe during the 1800s (and, arguably, long before that in Asia) as a tool to address the financial needs of people not well-served by traditional banking – chiefly, the poor. The first credit union in the United States was the St. Mary’s Cooperative Credit Association, opened in Manchester, New Hampshire, April 6, 1909. Further development of American credit unions was driven largely by Edward A. Filene, a wealthy Boston businessman and philanthropist, who became known as the “Father of U.S. Credit Unions” [3]. By the time of the Federal Credit Union Act, thirty-eight states and the District of Columbia had similar legislation [4].

Oversight of federal credit unions was placed in the Farm Credit Administration (FCA), an earlier New Deal creation. The FCA described credit unions as “cooperative thrift and loan associations designed to supply their members with a simple and convenient system for saving and to make it possible for them, with their own savings and under their own management, to meet their short term credit requirements at reasonable rates of interest” [5]. The FCA also described the early rules and operations of federal credit unions: personal loans were to be drawn from the savings of the entire membership; membership was limited to people with a common bond such as occupation; loans were issued to members only; and investment of surplus funds was restricted to federal or federally-backed securities and obligations [6].

Franklin and Eleanor Roosevelt were both strong supporters of the credit union movement [7], and in 1934 Eleanor pointed out that credit unions had a history of sound management, minimal losses from bad loans, fair interest rates, and served a “public which ordinarily must turn to charity or the loan sharks” [8]. True to the First Lady’s words, credit unions endured the Great Depression better than many other financial institutions and flourished through the rest of 1930s [9].

At the end of 1936, there were about 1,500 active federal credit unions with a quarter million members and a share balance of $6.5 million [10]. By the end of 1941, the numbers were up to 4,000 federal credit unions, 1.3 million members and a balance of $99 million [11]. Most impressive was the loan and repayment performance of the credit unions and their members. From 1934 to 1941, 3.3 million loans had been issued for $349 million and $280 million had been repaid; only $266,772, or .00008%, of the total was written off for non-payment [12]. Cooperative banking, with New Deal assistance, had proven highly effective.

In 1942, oversight of federal credit unions was given to the Federal Deposit Insurance Corporation (FDIC) [13]. In the decades since, federal credit union administration and legislative directives have changed, but federally-backed credit unions continue to play an important role in American finance. The National Credit Union Association reported on June 30, 2021 that there were 5,029 federally insured credit unions with 127.2 million members and total assets of nearly $2 trillion [14].

SOURCES

(1) “Act of June 26, 1934 (‘Federal Credit Union Act’), Public Law 73-467, 48 STAT 1216,” National Archives and Records Administration (accessed September 12, 2021).  (2) “Congress Sends Credit Union Bill to Roosevelt,” The Indianapolis Star, June 17, 1934, p. 7.  (3) “Historical Timeline,” National Credit Union Administration (accessed September 12, 2021).  Also see, “History of Credit Unions,” Harvard University Employees Credit Union (accessed September 12, 2021).  (4) Second Annual Report of the Farm Credit Administration, 1934, Washington, DC: U.S. Government Printing Office, 1935, p. 76.  (5) Ibid.  (6) Third Annual Report of the Farm Credit Administration, 1935, Washington, DC: U.S. Government Printing Office, 1936, pp. 116-117.  (7) See, e.g., “A Condensed History of Credit Unions,” InRoads Credit Union (accessed September 12, 2021); “Congress Sends Credit Union Bill to Roosevelt,” The Indianapolis Star, June 17, 1934, p. 7; and “Credit unions – a grass roots movement,” Sioux City Journal (Sioux City, Iowa), October 17, 1991, p. B-2.  (8) Eleanor Roosevelt, “The Credit Union Grows,” Asheville Citizen-Times (Asheville, North Carolina), June 17, 1934, p. B-3.  (9) See, e.g., “Credit Unions Spread Quickly Throughout U.S.,” The La Crosse Tribune (La Crosse, Wisconsin), July 4, 1937, p. 12, and “Credit Unions,” The Tampa Tribune, July 31, 1939, p. 4.    (10) Fourth Annual Report of the Farm Credit Administration, 1936, Washington, DC: U.S. Government Printing Office, 1937, pp. 113 and 202.  (11) The 9th Annual Report of the Farm Credit Administration, 1941, Washington, DC: U.S. Government Printing Office, 1942, pp. 133-137, 254-256. (12) Ibid., p. 135.  (13) Annual Report of the Farm Credit Administration, 1947-1948, Washington, DC: U.S. Government Printing Office, 1949, p. 68, citing FDR’s Executive Order 9148, May 16, 1942.  (14) National Credit Union Administration, “Quarterly Credit Union Data Summary, 2021 Q2” (accessed September 15, 2021).

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