The birth of credit unions
Credit unions began in Germany in the mid-1800s. Hermann Schulze-Delitzsch, a civil servant, began organizing credit cooperatives to help working people respond to the shortage of goods and money that resulted from the crop failure and famine of 1846. At about the same time, Friedrich Raiffeisen, mayor of a small village, wanted to help people avoid the loan sharks that were taking advantage of the economic situation. In 1864, he opened the Heddesdorf Credit Union.

Credit unions come to North America
The idea of credit cooperatives spread to North America by the turn of the century. Alphonse Desjardins, a Canadian journalist, worked to develop cooperatives in his country, where poor people were at the mercy of money lenders who charged as much as 1200 percent interest. His work caught the attention of a group of Catholic priests in Manchester, New Hampshire. At their invitation, he helped establish the first credit union in the United States, the People’s Bank of St. Mary’s, in 1909.

Edward Filene, a wealthy department store owner in Boston, also was watching Desjardins’ work. He met with Desjardins and Pierre Jay, the Massachusetts state bank commissioner, to discuss how to bring more credit unions to America. Jay drafted a law providing credit unions with a legal foundation, and by April 1909, Massachusetts became the first state to enact a credit union law.

From the turn of the century to 1920, little progress toward credit union development occurred in Indiana or anywhere else in the country. After World War I, however, America entered a period of prosperity. Consumers had more money to save and spend, but few banks were willing to serve them. So credit unions grew in popularity.

In Massachusetts, still the only state with a credit union law, Filene formed the Massachusetts Credit Union Association to promote the credit union movement. He hired Roy Bergengren in 1920 to serve as its managing director.

Bergengren threw himself into his work and gave the struggling movement life and vitality. He organized 19 credit unions in Massachusetts in 1921. Filene felt so good about credit union growth there that he decided to develop and finance the credit union movement nationally. In July 1921, Filene created the Credit Union National Extension Bureau — or CUNEB — and Bergengren agreed to head it. CUNEB’s goal was to create credit unions around the country.

Pioneers work to get credit unions started in Indiana
Filene and Bergengren appointed three Indianapolis men — attorney Leo Kaminsky and department store owners Gustave Efroymson and Frederick M. Ayres — to serve as Indiana’s representatives to CUNEB. These men were chosen because of their sincere interest in credit unions. In addition, Efroymson and Ayres had the financial resources to help the fledgling movement.

Kaminsky worked with Filene and Bergengren to draft legislation allowing the formation of credit unions in Indiana. Kaminsky’s bill was introduced to the Indiana legislature during its 1923 session. The bill was sent to the committee on banks, where its chances of passing seemed dim. Representatives from small loan companies who sat on the committee bitterly opposed the bill and spoke against it.

Fearing it wouldn’t pass, Kaminsky wired Bergengren for help. Bergengren and Filene rushed to Indianapolis, where they attended a Chamber of Commerce meeting to persuade several businessmen to testify before the Banking Committee in support of the bill.

In an ironic twist, most of the bill’s opponents on the committee were hit with the flu. While they lay sick in bed, the rest of the committee reported the bill favorably to the Senate. The bill passed both houses, and the governor signed it into law in March 1923, making Indiana the first Midwestern state with a law permitting credit unions.

Following the passage of the Indiana Credit Union Act, Kaminsky worked with Efroymson to organize a credit union for the employees of Efroymson’s department store, the H.P. Wasson Co. Wasson Credit Union, which opened in October 1923, was the first credit union in Indiana and in the Midwest.

It was followed by several more, including South Bend Post Office Credit Union in May 1924, which today is Indiana’s oldest existing credit union.

Although credit unions were springing up across the state, no formal organization existed to support their efforts. Consequently, a group of people interested in credit union development met at the Ayres Tea Room in downtown Indianapolis in April 1925 to discuss the formation of a state credit union association.

Within a few months, the Indiana Credit Union League (ICUL) was born. On October 9, the Indiana League held its first meeting and elected its first board of directors. It was the first league in the Midwest and one of only a few in the country.

By the end of 1927, there were 18 credit unions in Indiana that served more than 3,000 members and held assets exceeding $225,000.

Credit unions weather economic downturns and WW II
Just as things were looking up for credit unions, the stock market crashed in 1929, plunging the country into the Great Depression. But the fledgling credit union movement grew during this trying economic period. As bank after bank closed, people lost faith in the existing financial system and welcomed the credit union alternative.

Credit unions did so well during the Depression that Bergengren sought federal legislation allowing the formation of credit unions in any state in the country. An extensive grassroots campaign culminated in the passage of the Federal Credit Union Act, which was signed into law by President Franklin D. Roosevelt on June 27, 1934.

With the passage of federal legislation, it was time to develop a national credit union support mechanism. Bergengren drafted a constitution and bylaws for the prospective organization, which he wanted to call the Credit Union National Association (CUNA). In August 1934, 52 credit union representatives from 21 states, including Leo Kaminsky from Indiana, met for four days at Estes Park, Colorado, to form CUNA.

In October that year, the Indiana League voted to join the newly organized CUNA and become an official part of the national credit union system.

Despite the Depression, the 1930s was a good period for credit unions. However, World War II was about to bring some big changes to the credit union movement.

By 1941, much of the world was at war. Although the United States was not yet directly involved, the country already was feeling the effects, as defense production spurred the economy.

That summer, the League warned credit unions not to take the economy for granted and to plan for a downturn. Unfortunately, the warning didn’t come soon enough. President Roosevelt issued Regulation W, which restricted consumer credit, to control the nation’s economy.

Although credit unions struggled with the regulation, nothing was more difficult to accept than the news that Pearl Harbor had been attacked. From that point, all business and personal activities took a back seat to the war effort.

During this extremely difficult time, everything unrelated to the war, including credit union growth, came to a halt. But credit unions pitched in by selling war bonds. Hoosier credit unions sold approximately 4 million of them in 1942.

On August 15, 1945, the war ended. Credit unions did everything they could to help servicemen and their families get back on their feet financially.

The 1970s bring changes to credit unions
The credit union movement grew vigorously for the next 25 years, both in size and scope. But the 1970s brought many changes.

President Nixon signed the Separate Agency Bill into law in 1970, creating the National Credit Union Administration, or NCUA. Many credit union leaders viewed this bill as one of the most significant developments since the original Federal Credit Union Act was signed in 1934. With the creation of the NCUA, the federal government recognized the need for credit unions to have their own regulator that understood the unique structure and philosophy of the credit union movement.

Credit unions began expanding their service offerings in the 1970s, beginning with share draft accounts. Offering these accounts, which are similar to checking accounts at for-profit financial institutions, was a great step forward because many credit unions needed this important service to attract and retain members.

In 1973, the country’s economy soured, and credit unions got caught in a serious credit crunch. With increasing inflation, consumers increased their borrowing in fear interest rates would continue to climb. In addition, people began transferring their money to places where they could get better returns.

Credit unions’ liquidity suffered, and they had to borrow money from banks to meet their members’ needs. The banks, however, did not want to lend to credit unions or even give them access to their own accounts.

In response, the credit union movement began plans to form a system that would allow credit unions to borrow and deposit money within the movement rather than deal with outside sources. In 1975, U.S. Central began operating in Wichita, Kansas. It was created as an umbrella organization for state corporate credit unions. A couple of years later, the Indiana Corporate Federal Credit Union — or INDICORP — opened for business to provide liquidity management for Hoosier credit unions.

Congress hears from credit unions
The 1980s arrived with newly enacted legislation — the Depository Institutions Deregulation and Monetary Control Act — designed to deregulate the financial industry over a six-year period. The new law opened a lot of doors for credit unions but created a lot of challenges, too. Credit unions were given authority to expand their fields of membership as well as the services they offered.

News broke in early 1989 that major problems in the S&L industry culminated in the collapse of the Federal Savings and Loan Insurance Corporation. Unfortunately, the banking industry took advantage of the situation to perpetuate myths that credit unions were the next S&L crisis waiting to happen. Consequently, the Indiana League, CUNA and credit unions spent much of the year educating Congress and the public about the differences between credit unions and banks.

CUNA organized a massive grassroots lobbying campaign called Operation Grassroots. The purpose of Operation Grassroots was to thwart bankers’ political efforts to discredit credit unions and to adopt a positive national campaign to emphasize the credit union difference.

More than 15,000 people, including 251 Hoosiers, gathered in Washington D.C. on February 28, 1991. That same day, almost 1,000 people attended 14 rallies at congressional offices throughout the state. Two hundred and sixteen credit unions in Indiana collected 182,000 petition signatures, which were delivered to Indiana’s congressional delegation. The rally attendance and petition signatures made a strong impression on lawmakers.

Credit unions today
Today, credit unions - and consumers - are again facing challenges from banks. In October 1996, a federal judge issued an injunction against the National Credit Union Administration's policies that allow occupational federal credit unions to add select employee groups to their fields of membership. Late in the year, a federal appeals court granted a partial stay of the injunction, which allowed those credit unions to continue accepting as members people who worked in the employee groups already within their fields of membership.

The injunction bars millions of people from joining many federal credit unions. In response, the nationwide credit union movement appealed to the U.S. Supreme Court, which agreed to review the original lawsuit that gave rise to the injunction. The Supreme Court is expected to review the case during its 1997-98 term.

At the same time, the credit union movement pushed for a legislative solution. In March 1997, lawmakers who recognize the importance of preserving consumers' choice between for-profit banks and not-for-profit credit unions introduced the Credit Union Membership Access Act. The bill would clarify wording in the Federal Credit Union Act to explicitly state that occupation-based federal credit unions can accept select employee groups within their fields of membership. Indiana Congressman Dan Burton was one of the original co-sponsors of the legislation. As of April 1997, Congress had not yet scheduled the bill for a hearing.

Despite these challenges, credit unions have continued to prosper. Although the number of credit unions nationally and in Indiana is dropping, the number of people who call themselves credit union members grows each year.

Throughout the periods of growth and change, the underlying structure, principles and philosophy of credit unions have remained unchanged. They are still member-owned cooperatives that exist to serve their members.