What is a credit union?
Credit unions are not-for-profit financial cooperatives, serving members who share something in common: employment, association membership, or residence in a particular geographic area. As member-owned, not-for-profit cooperatives, credit unions generally offer more attractive savings and loan rates and lower fees. They return earnings not needed for reserves or to invest in operations to the members through better rates and lower fees. This is an important distinction from how corporations are structured and generate taxable net income. Surveys consistently rank credit unions first among financial institutions in consumer satisfaction.
Philosophy and Structure
Credit unions are member-owned, not-for-profit financial cooperatives that are democratically controlled. They were founded on "people helping people" principles. Credit union boards of directors are elected by members; each member has an equal vote, regardless of how much he or she has on deposit. Only members may serve as directors, and most directors serve without remuneration. Volunteers are an important credit union resource. Presently, more than 88,000 Americans are credit union officials. Credit unions have no outside stockholders, so the focus is on providing the best possible value and service to the members, not generating profits for a different purpose. In Indiana, approximately 6,500 people are employed by Indiana credit unions.
More than 96 million Americans are credit union members. There are more than 6,800 credit unions nationally.
2.25 million Hoosiers are members of Indiana’s 176 credit unions.
In Indiana there are 132 federal credit unions and 44 state-chartered credit unions.
Assets held in Indiana credit unions: $21.5 billion
Loans made by Indiana credit unions: $13.1 billion
Figures current as of 10/31/13
Credit unions in 100 countries are a stabilizing force that gives more than 188 million diverse peoples the opportunity to apply democracy and self-help principles within a member-owned organization. Credit unions stimulate economic growth by offering members safe and affordable access to credit and savings services.
Regulation and supervision
Federally chartered credit unions are regulated by the National Credit Union Administration (NCUA), an independent agency. NCUA's three board members are nominated by the President and confirmed by the Senate. State-chartered credit unions are regulated by the Indiana Department of Financial Institutions (DFI). No taxpayer money is used for regulating and overseeing credit unions, as all activities of NCUA and the DFI are funded by credit unions.
Safety and Soundness
Credit unions engage in consumer loans with some also offering member business loans to business owners in their communities. Due to prudent lending and management practices, credit unions were not as severely affected by the economic downturns of the late 1980s, early 1990s, and last several years. Because credit unions are primarily portfolio lenders and are member-owned cooperatives, they were not part of the sub-prime mortgage crisis. Credit union asset quality remains high. Credit union capital is 10 percent of total assets while 7 percent is considered to be “well capitalized.”
Insurance Fund Details
Since 1984, credit unions have operated their own federal deposit insurance fund on a pay-as-you-go basis. In that year, credit unions voluntarily deposited an amount equal to one percent of their insured member savings in the National Credit Union Share Insurance Fund (NCUSIF), to bring its equity ratio up to one percent. The NCUSIF is backed by the full faith and credit of the U.S. government. NCUSIF protects members’ savings up to $250,000 and individual retirement accounts (IRAs) and Keoghs up to $250,000. No member has ever lost a penny in a federally insured credit union. The voluntary recapitalization of NCUSIF, and the mechanisms in place to keep the fund highly capitalized illustrate credit unions' commitment to safety and soundness. NCUSIF’s current equity-to-insured deposit ratio is 1.32 percent while the comparable ratio for the FDIC is 0.12 percent after having run negative for several quareters following disruptions in the financial markets and the large number of bank failures in recent years.
Federal Tax Exemption
Credit unions pay payroll taxes and property taxes. Congress exempts credit unions from federal income taxes. The exemption was established in 1937, affirmed by statute in 1951, and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:
"Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means."
Credit unions’ tax status is based on their structure—not their size. The Internal Revenue Code acknowledges that credit unions are recognized as tax exempt because they issue no capital stock and are organized and operated for mutual purposes. Under the IRS comments for 501(c)(14) Credit Unions and other Mutual Financial Organizations, the IRS provides a very clear link between tax exemption and the lack of capital stock.
The federal tax exemption helps credit unions provide a tremendous financial benefit to Hoosiers. It is estimated that credit union members in Indiana benefit by $90 million per year by using credit unions instead of banks. This financial benefit to Hoosiers is more than five times what the federal government would receive if credit unions were taxed. So, the credit union federal tax exemption benefits people because of the way credit unions operate as cooperatives.
Credit Union Services
Credit unions were created to enable people to pool their financial resources to help themselves and others. In response to members’ growing financial services needs, credit unions’ products offered have expanded over decades to include a wide variety of low-cost, high quality financial services such as auto loans, real estate loans, member business loans, debit and credit cards and much more. Each credit union offers the services that are the most important to its own members. This financial benefit to Hoosiers is eight times more than what the federal government would receive if credit unions were taxed. So, the credit union federal tax exemption benefits people because of the way credit unions operate as cooperatives. State-chartered credit unions pay Indiana’s Financial Institutions Tax and sales tax.
A unique alliance: shared branching
Arguably, nothing represents the cooperative spirit of credit unions like the shared branching program. The concept is simple: credit unions pool resources to serve one another’s members. In Indiana, the League manages 9 stand-alone service centers throughout the state where members from any participating credit union can come in and transact business just as if they were in the lobby of their own credit union. In addition to the stand-alone service centers, there are 202 “outlets” located in Indiana. These are offices of one credit union that are conveniently located that operate just like a stand-alone service center, allowing members from any participating credit union to come in and transact business. This keeps individual credit unions from having to maintain additional branch offices and offers a convenience to credit union members. Indiana’s locations are among more than 4,000 locations that are available throughout the U.S. and eight other countries to shared branch participants. Members of Indiana’s shared branch network conduct more than one-half million transactions per month at network locations.
For youth: Credit unions in Indiana take creative approaches to educating young Hoosiers about financial issues. For example, a Central Indiana elementary school has an on-site credit union, staffed by fourth-graders, which is open one day each week. Several credit unions have student-run branches inside Indiana high schools and middle schools. In other communities, at the high school level, credit union staff members volunteer to teach curriculum they’ve developed themselves or curriculum provided by the National Endowment for Financial Education (NEFE) in classrooms around the state. Credit unions have a national partnership with NEFE, an organization that provides a multi-part program that includes curriculum on savings, lending, balancing a checkbook, an introduction to the stock market, how to buy insurance and other topics that are important foundation-builders to improve financial literacy.
For adults: Credit unions work with their members and partner with community organizations across the state to provide financial education to thousands of Hoosiers each year. Free seminars are the most common and popular way for credit unions to share various pieces of financial information with members. Presented by a combination of credit union personnel and community experts, the sessions are part of the foundation of financial literacy education for credit union members around the state.
Indiana credit unions collectively support Riley Hospital for Children, the only hospital in the state associated with the Children’s Miracle Network (CMN). Indiana credit unions have been involved in Credit Unions for Kids for more than a decade and have collectively contributed an average of $40,000 to the hospital in each of the last three years. Credit unions have been recognized among the leading fundraisers for CMN nationwide. By participating collectively we are able to employ our “People Helping People” philosophy and contribute in a meaningful way that none of the credit unions could do individually. Community relations projects in credit union communities are too numerous to list here. Charity organizations, school groups, children’s homes, eldercare programs, food banks, literacy programs, youth sports events, neighborhood revitalization efforts and shelters of all kinds have been the recipients of the generosity of Indiana’s credit unions.Stories, pictures and information that show credit unions' commitment to their communities is available here
The Indiana Credit Union Foundation is a charitable arm of the Indiana Credit Union League, using contributions from individuals, credit unions and other organizations to fund projects, which benefit Hoosier credit unions. These include scholarships and grants, financial literacy initiatives and other programs as approved by its board of directors including credit union development, community education programs and disaster relief.