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The History of Credit Unions

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  • The History of Credit Unions

    Credit unions are similar to banks. They provide many of the same services, though their format is a bit different. Credit unions are owned and many times operated by its members. In this way, members can pool their resources in order to provide better access to loans and other financial services to each other. The best part is that the profits are paid out to members as dividends. Most credit unions are non-profit cooperatives and generally directed by volunteer boards of directors. In this way, members can put money back in their own pockets (and the pockets of their fellow credit union members) and keep it in the community. Banks' profits go mainly into the bank accounts of shareholders who may be across the country or across the world.

    How is a Credit Union Different From a Bank?

    Banks and other financial institutions are generally owned by outside stockholders whose main purpose is to earn profits from the services they are providing. Banks are controlled boards of directors who are paid by the stockholders. The responsibility of these boards is to improve the financial institutions' bottom lines. With banks, the profit goes directly to the investors who hold stocks in the institution. Credit unions' profits are paid out as dividends to the members of the credit union. While this next difference is not proven true in every single case, it is a common perception. Many people feel that banking at a credit union lends a certain level of personalized service that larger, public financial institutions simply cannot. Every credit union is different, so you should not expect to receive highly personalized service, but you may be more likely to find it here than at a bank.

    How did Credit Unions Start?

    The very first credit union was started in 1844 by a group of weavers in a town called Rochdale in England. The founders decided to sell shares to members in order to raise enough money to buy goods in bulk at better prices than what was available at retail. This would then allow them to sell the goods to members at better prices than they could get at retail as well. In doing so, the group of weavers became the Rochdale Society of Equitable Pioneers.

    Other groups soon followed suit. In 1850, the movement moved on to Germany. Hermann Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen formed the first actual credit unions in Germany in 1852 and 1864. In 1849, Raiffeisen started a credit society in Flammersfeld, but it was contingent on the charity of rich men for its operation. In 1864, Raiffeisen organized a new credit union based on guiding principles that are still in effect to this day.

    Fifty years later, the first Canadian credit union sprang up when Alphonse Desjardins overcome the poverty that resulted from crippling interest rates. By organizing the first Canadian credit union (caisse populaire) in Levis, Quebec, Desjardins offered members an opportunity to improve their financial situations. In 1909 Desjardins took his credit union concept to the United States and started the first American one in New Hampshire. The success Desjardin enjoyed in Canada caught the attention of New Englanders Pierre Jay and Edward Filene. They worked to promote credit union legislation in Massachusetts.

    The idea of credit unions solidified and evolved over time as groups and organizations made a conscious decision about who would enjoy the profits reaped by the institution. The notion that your financial institution will stand by you rather than standing by shareholders that pay it's board to increase their profits has increased credit union membership all over the world.

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