A group of workers in Rochdale, England organized the first cooperative in 1844. That same year in Germany, Victor Aime Huber developed some of the early European cooperative theories. The idea of credit societies was a part of this effort.
Raiffeisen and Schulze-Delitzsch
In 1849, Friedrich Wilhelm Raiffeisen founded a credit society in Flammersfeld, but it depended on the charity of wealthy men for its support. Hermann Schulze-Delitzsch and Raiffeisen created the first true credit unions in Germany in 1852. In 1864, Raiffeisen organized a new credit union along principles still fundamental today. Germany's credit societies and similar institutions that Luigi Luzzatti founded in Italy were the forerunners of today's large cooperative "banks" in Europe.
In 1871, credit union legislation was considered in Massachusetts-- but 19th century attempts to start U.S. credit unions weren't very successful.
In 1900, Alphonse Desjardins organized a credit union (caisse populaire) in Levis, Quebec. As in Germany 50 years before, people were poor, interest rates were financially crippling, and the credit union offered a way out.
That first Canadian credit union was small by modern standards. The first savings deposit was only 10 cents; the first collection from all the members totaled only $26. Even today, in some countries, credit unions start small.
But Desjardins persevered and devoted a good part of his life to credit union development in North America. He founded other credit unions, including the first one in the United States, in 1908 in New Hampshire.
St. Mary’s Cooperative Credit Association
By the beginning of the twentieth century, thousands of immigrants pursuing work and a better life found their way to the mills of the largest textile-manufacturing center in the nation - Manchester, New Hampshire.
Although gainfully employed, they were denied the privileges of savings and credit. On a hillside overlooking the mills stood St. Marie's Church. As pastor, Monsignor Pierre Hevey knew that many of his parishioners worked in these mills and needed a safe place to save their money and gain access to reasonable credit.
With counsel and guidance from Canada’s credit union movement leader, Alphonse Desjardins, and the commitment of local attorney Joseph Boivin to serve as the first president and house the credit union in his home, Monsignor Hevey and his parishioners established the first credit union in the United States in 1908.
As banking commissioner, Pierre Jay studied unauthorized banking practices in Massachusetts, he learned that several groups of employees had started their own savings and loan organizations. These groups resembled what Henry Wolff, a European, had described as "people's banks." Jay believed that these small associations were providing a needed service, but he wanted to recommend a way to make them legal.
From Wolff's writings, Jay turned to the work of Alphonse Desjardins and others. He began a chain of correspondence with Desjardins. This resulted in a 1908 conference in Boston in which Desjardins, Jay, Edward Filene, and other public-spirited citizens participated. Working with Desjardins, Jay prepared the legislation for what was to become the first general state credit union act in the United States.
Edward Filene discovered credit unions in a village in India in 1907. He had stopped in Calcutta and met a government official who took Filene out into the countryside. There Filene first observed a village credit union in operation and immediately was interested. Back home again, he began reading about credit unions to strengthen his knowledge.
Filene was perhaps the ideal American to give the credit union idea a push. He was a progressive thinker for his time. He had begun profit-sharing plans for his employees, instituted fringe benefit programs, was the founder of the "bargain basement" idea in department store operation, allowed his employees to engage in collective bargaining and arbitration, established minimum wages for female workers, and advocated a five-day, 40-hour week. In the early 1900s, such ideas were revolutionary. Besides his creative approach to business, Filene was also one of the founders of the U.S. Chamber of Commerce.
In 1921, Filene created the Credit Union National Extension Bureau and hired a Massachusetts attorney, Roy F. Bergengren, to help him. Bergengren and the Bureau sought effective credit union laws in all states and at the federal level.
When Bergengren began his efforts, there were only 199 U.S. credit unions, but during the next 13 years, the credit union movement grew dramatically.
Filene poured more than $1 million of his own money into the project. Bergengren appeared before state legislators, successfully advocated for the passage of laws, and volunteer organizers were initiated into the "movement." By 1925, 15 states had passed credit union laws; 419 credit unions were serving 108,000 members. By 1935, 39 states had credit union laws and 3,372 credit unions were serving 641,800 members.
Credit unions banded together into leagues on a state-wide basis. Leagues provided financial and legal advice, organizing know-how, and an instrument for credit unions to seek favorable state legislation. But something more was still needed.
By 1934, credit unions and leagues recognized the need for a national organization. At a meeting at Estes Park, Colorado, the Credit Union National Association (CUNA) was formed as a confederation of state leagues.
CUNA replaced the Credit Union National Extension Bureau and Roy Bergengren became CUNA's first managing director.
In 1936, CUNA formed CUNA Supply Cooperative to supply forms and other materials to credit unions. Starting with only three employees in a basement shop, CUNA Supply is now part of CUNA Strategic Services, Inc., which provides needed products and services to credit unions.
Great Crash and Great Depression
Early in the 20th Century the United States faced one of its most challenging times. The Wall Street Crash of 1929, also called the Great Crash or the Crash of '29, started on October 24 ("Black Thursday") and continued through October 29, 1929 ("Black Tuesday"), when share prices on the New York Stock Exchange (NYSE) collapsed. However, the days leading up to the 29th had also seen enormous stock-market upheaval, with panic selling and vast levels of trading interspersed with brief periods of recovery.
The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, even borrowing money to buy more stock. Banks lent heavily to fund this share-buying spree. But, after the crash, the banks which had lent heavily to fund share buying, found themselves saddled with debt.
From the end of October 1929 through March 1933, when Congress passed the Emergency Banking Act under the leadership of Franklin D. Roosevelt and his “New Deal” plan, nearly 10,000 banks had failed.
In 1931, the Pecora Commission studied the causes of the crash. Based in part on the Commission's findings, the United States Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, whose activities involved the taking of deposits and making loans, and investment banks whose role was the underwriting, issuing, and distributing stocks, bonds, and other securities.
Credit Unions and Congress
After the crash, and during the Great Depression, the Presidents and members of Congress searched for solutions to a failing financial system. In was during this time that attention was focused on an alternative financial institution structure that had survived, the nation’s credit unions.
In 1932 Congress began hearings and debates regarding credit unions. During 1933 Congress developed and created legislation regarding credit unions. Hearings in the Senate Committee of Banking and Currency, began with the introduction of a bill to establish a Federal credit union system, by Senator John Sheppard of Texas, to help “stabilize the credit structure of the United States.”
Finally, in 1934, Congress passed the Federal Credit Union Act, which permitted credit unions to be organized anywhere in the United States, and President Roosevelt signed it into law on June 26, 1934. The legislation allowed credit unions to incorporate under either state or federal law, a system of dual chartering that persists today.
CUNA Mutual Insurance
CUNA recognized a need for credit-union-oriented insurance services so, in 1935, CUNA formed the CUNA Mutual Insurance Society. Declaring, "The Debt Shall Die With The Debtor," CUNA Mutual developed a Loan Protection Insurance policy followed shortly by Share Life Insurance. These programs provide for specified compensation to the beneficiaries of deceased or disabled credit union members.
Begun with a $25,000 loan from Edward Filene, CUNA Mutual had receipts of only $145 during its first month of operation. Three months later, it was faced with its first claim, for $40, and had to borrow money to pay it.
World War II halted progress of the U.S. credit union movement, but the war's end brought renewed credit union growth. In 1945, there were 8,683 credit unions in the country; by 1955, there were 16,201; and by 1969, the U.S. movement reached its peak of 23,876 credit unions.
Although the number of credit unions has declined, as many smaller credit unions have merged into larger ones to offer more services, membership continues to climb. The number of credit union members doubled during the 1970s to more than 43 million. Today, nearly 90 million Americans are credit union members.
World Council of Credit Unions
In 1954, CUNA established an international services department (World Extension) to extend its reach beyond North America. There was, as yet, no central worldwide organization of credit unions.
This changed in May, 1964, when CUNA revised its charter to become CUNA International, taking under its wing credit unions and associations in Canada, Latin America, and elsewhere. But events called for the creation of an independent, worldwide organization for credit unions.
The rapid growth of credit unions in other parts of the world and in emerging nations led to the creation in 1970 of the World Council of Credit Unions. CUNA once again became a national organization and joined confederations in Canada, Africa, Asia, Australia, Latin America, and the Caribbean as members of the World Council.
National and regional confederations concentrate on development and guidance of credit unions in their areas; the World Council emphasizes overall progress and continuing unity of the worldwide movement.
Credit unions now have expanded around the globe. And their spectacular growth has made them an important part of the world's financial system.
CUNA and the state leagues work to protect the gains credit unions have made and to prepare them to operate in the financial world of the future without losing their unique tradition of service to people.
Through this cooperative effort, credit unions of all sizes can offer members sophisticated financial services, coordinate their marketing, upgrade their management and technical skills, and speak with one powerful voice in Washington, D.C.
On the national level, CUNA provides credit unions with the products, services, and leadership needed to compete in today's financial marketplace.
The credit union idea has grown to millions of people, but there is no limit to what the movement can achieve in terms of growth, service, and most important, as an instrument of cooperation and harmony between people everywhere.