Credit unions are member-owned, not-for-profit cooperative financial institutions formed to permit
those in a field of membership to pool their savings, lend them to one another, and own the organization where they save,
borrow, and obtain related financial services. Members are united by a common bond and democratically operate the credit
union under state or federal regulation.
The History and Purpose of Credit Unions
Credit unions originated in Germany, during its depression of the 1840's. In 1900, the first credit union in North America
was established in Canada. A community charter credit union was the first formed in the United States in 1909 in Manchester,
New Hampshire. (This charter is still in business today.) Credit unions flourished during the early 1900's because they
assisted the urban working class by giving them access to consumer credit. This population had been largely ignored by
other financial institutions.
The Federal Credit Union Act (FCUA) was enacted in 1934, allowing the federal government to charter credit unions. In the
twenty-five years between the first state charter and the FCUA however, there were 2,028 state charters in 38 states. The
credit union movement has grown steadily while other financial industries have seen tumultuous times. Today, there are
approximately 12,600 credit unions across the US, with 297 state-chartered credit unions in Ohio.
Historically, the fundamental philosophy of credit unions has been in helping one's friends, neighbors and co-workers.
Credit unions consider themselves part of a movement and not an industry. Credit unions do not exist for profit, but for
service. The movement is based in voluntarism, as directors and committee members do not receive compensation or salaries.
The purposes, for which credit unions are organized, are to promote thrift among their members and establish on a
cooperative basis, facilities for savings, credit for provident purposes, assistance to members, and all incidental
activities. Credit unions execute articles of incorporation and code of regulations or bylaws for the governance of
their operations. They have boards of directors, executive officers or managers, and may have supervisory/audit committees,
and credit committees. Credit unions are limited to servicing only those within their field of membership and are required
to obtain share guarantee insurance.
Credit unions have the option of a state or federal charter. In Ohio, state-chartered credit unions may have federal share
insurance or private share insurance. State credit union regulators, such as the Ohio Division of Financial Institutions
(Division), and the National Credit Union Administration (NCUA), the federal chartering agency, are responsible for chartering
natural person credit unions and corporate credit unions. The Division also has the responsibility of regulating credit union
service organizations and credit union share guaranty corporations. The NCUA also administers the National Credit Union Share
Insurance Fund.
The Division makes fee assessments on its state-charters, in January and July of each year. These supervisory fees are based
on a percentage of the gross assets of the credit union as shown by its last December 31 annual financial report. The total
amount of each semiannual billing to all credit unions and corporate credit unions combined equals one-half of the Division's
appropriation as made by the Main Operating Appropriation Act for the regulation of state-chartered credit unions.
The Field of Membership
The most important concept relating to credit unions is that of "field of membership". Credit unions are not permitted to
have customers like those which banks and savings associations serve. Credit unions are limited to marketing their services
to only those within their field of membership. Those persons and organizations are specified in the credit union's charter
as eligible to join. If eligible by virtue of being in a group within the field of membership, an individual simply applies
to join and purchases one membership share, costing as little as five dollars. Additional groups may be included into the
field of membership provided that the people within the group have their own "common bond." A common bond is a unifying
factor or characteristic among persons, natural or corporate, that simultaneously links them together and distinguishes them.
There are three types of common bonds: common bond of occupation, common bond of association, and common bond of community.
The members of a group with a common bond of occupation are all employed by a single corporation or are employed in the
same industry. Groups with this type of common bond should be restricted to a geographic limitation. (E.g.The employees
of Datafile, Inc. who work in Canton, Ohio.)
A common bond of association exists when the members of the group are members of a recognized association, club or
organization. They have common interests, participate in activities together, have common loyalties, pay dues, hold
meetings and vote on matters before the club. Typically these associations are governed by a charter or bylaws. (E.g.
The regular members of the Cleveland Bar Association, Cleveland, Ohio, who qualify for membership in accordance with
the charter and bylaws in effect on October 25, 1995.)
The third type of common bond, the common bond of community, exists when a group of people either reside, work or own
property in a well-defined neighborhood, community or rural district. These people must regularly interact and co-mingle
with one another. The area must be recognized by the group and others as a distinct neighborhood or community. The geographic
boundaries must be clearly defined. The community can be defined in terms of political jurisdictions, trade areas, shared
facilities, etc. Residents of a large metropolitan area would not have a common bond of community because the sheer numbers
prevent the residents from commingling with one another on a regular basis. Individual neighborhoods or communities could
be easily carved out of a metropolitan area to form community charters. Residents of a rural area who shop and sell their
produce in a town central to all could have a common bond of community, although the area is geographically as large as the
metropolitan area, because these people share a common commercial center.
A credit union, if provided for in its articles of incorporation, may permit family members of its credit union members to
become part of its field of membership. A Division rule defines family members as the following: persons related by blood,
adoption or marriage to or living in the same household with a person having a common bond, as well as surviving spouses of
persons who have left the field of membership in good standing. When a credit union member leaves the field of membership,
all persons who are members by virtue of that person's membership may continue as members. Some credit unions adopt a policy,
in their articles of incorporation, of "once a member, always a member." This policy allows those who were members of the
credit union but left the field of membership (E.g. job change) to maintain their membership in the credit union.
Unlike banks and savings associations which may market products to any consumer to increase its business, credit unions may
only expand its business by expanding its field of membership. Credit unions may choose between two procedures when adding a
new group to their field of membership. They can expand by either 1) amending their articles of incorporation to include the
particular group, or 2) by filing a select group application. A credit union may not use the select group application unless
the procedure is permitted within its articles of incorporation. Both procedures are subject to the approval of the Division.
In either situation, a credit union must clearly define the group it wants to include, although the group need not have any
similarity with the common bond of the credit union's initial group. The application must also establish the potential
membership size of the group, the dispersion of the group, availability of payroll deduction for the group, distance of the
group from the credit union (with an operational area limitation of 25 miles), the group's request for service from the
credit union, proof that the credit union is financially and organizationally sound to increase its membership, and any
additional evidence that the Division may require, especially concerning any situations where an overlap of credit union
services exist. Occasionally a group in a field of membership desires to disaffiliate from the credit union. Select groups
may vote themselves out of the field of membership, while groups added through an amendment to the articles of incorporation
must request release from the entire membership of the credit union.
Credit unions may expand their field of membership across state lines. The credit union must notify the Division of its
intention so that the Division may seek approval of the interstate expansion with the state supervisors which are affected
by the expansion. Interstate expansion is usually permitted if the other state has laws which are substantially similar to
the Ohio Credit Union Act.
Ohio's Credit Union Council
Senate Bill 162 which became effective in October, 1995 added Sections 1733.329 and 1733.3210 to the Ohio Revised Code,
creating the Credit Union Council. The Council consists of the Deputy Superintendent for Credit Unions, who votes only on
advisory matters, and five other members. No more than three of the members may be from the same political party. Three
members must be either a CEO, director or committee member at a state-chartered credit union, with at least five years of
experience, and must maintain that position while serving on the Council. Of those three industry members, at least one must
represent a privately insured credit union, a federally insured credit union and a credit union with less than two million
dollars in assets. The remaining two members must represent the public. The Council members serve staggered five year terms.
The powers vested in the Council range from advising the Governor and Superintendent of Financial Institutions, to conducting
the public hearings for the Division's rulemaking, and, most significantly, hearing appeals on decisions regarding field of
membership applications. After the Division makes its determination on an application to expand a field of membership
application, the decision is final unless the applicant files an appeal with the Council within fifteen days. Within those
fifteen days, the Division may reconsider and issue a revised determination. The Council has twenty-eight days after receiving
the Division's record to review the record and issue a written determination affirming, modifying, vacating, or reversing the
determination. The applicant credit union may appeal an adverse decision in accordance with Chapter 119 of the Ohio Revised Code.
Share Guarantee Insurance
State-chartered credit unions are required to obtain share guarantee insurance either through a private insurer or the
federally insurer, the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF is managed by the NCUA. It insures
all federal credit unions, and state-chartered credit unions which choose and qualify for federal insurance. The acronym
FISCU is used to refer to federally insured state-chartered credit unions. The NCUA can regulate FISCUs to the extent the
regulation relates to federal insurance only. All federally insured credit unions are insured by NCUSIF up to $100,000 per
member account. The fund is capitalized through the maintenance of a deposit by each insured credit union equaling 1% of its
insured shares. The NCUA may assess an annual premium of 1/12th of 1% of insurance procured. Federally insured credit unions
have rarely paid a premium in recent years and have received dividends because the NCUSIF exceeded its normal operating level
of 1.3% of shares insured.
The NCUA, as administrator of the fund, has the responsibility for protecting the interests of the NCUSIF. Therefore, it has
the responsibility of conducting insurance reviews and on-site contacts with FISCUs in Ohio. The Division and the NCUA have
a formal joint examination and insurance review agreement. The agreement states that the NCUA will not normally participate
in the Division's examinations except in these five instances: (a) the credit union has assets over $100 million and is rated
a CAMEL composite of 1 or 2; (b) the credit union has assets over $20 million and is rated a CAMEL composite of 3, 4, or 5;
(c) the credit union has less than $20 million in assets and is rated a CAMEL composite of 4 or 5 and the Division and the
NCUA mutually agree to NCUA participation; (d) the credit union has not been examined by the Division in 18 months; or (e)
the two regulators have mutually agreed to a joint examination.
Ohio state-chartered credit unions have the option of obtaining insurance from a private share guaranty corporation, which
is regulated by both the Division and the Ohio Department of Insurance under Ohio Revised Code Chapter 1761. The sole share
guaranty corporation currently in Ohio is American Share Insurance Corporation (ASI). Privately-insured credit unions must
post a conspicuous notice that "member accounts are not insured or guaranteed by any government or government-sponsored agency."
ASI insures up to $250,000 per account. ASI also has a subsidiary corporation, Excess Share Insurance Corporation (ESI),
which sells up $250,000 in excess share insurance per account to credit unions, including federally insured credit unions.
Both ASI and ESI do business is several states throughout the United States. ASI is examined by both the Division and the
Ohio Department of Insurance. When the DFI performs its annual review of ASI, regulators from other states where ASI does
business are invited to participate in the annual examination.
ASI and ESI require their member credit unions to submit monthly financial statements. The Division and ASI coordinate their
examination schedules so that the one entity may accompany the other at the examination. ASI prepares its own examination
report for the credit union. Currently, approximately 39% of Ohio's credit unions have primary share insurance by ASI.
Differences Between Credit Unions and Other Financial Institutions
Credit unions, as discussed above, are not open to the public. They are restricted to servicing only those from the credit
union's field of membership, who obtain a membership share. With the purchase of one share, a member is given one vote.
Because credit unions are cooperatives, each member is given a single vote regardless of the amount of money he or she has
deposited with the credit union. The members control the governance of their institution; the credit union is not controlled
by holding companies or stock holders.
Credit unions have non-profit tax status. In 1937, Congress exempted federal credit unions from federal and state income
taxes because of the credit union structure. Congress came to the realization that because credit unions are "cooperative
organizations operated entirely by and for their members...taxation should be levied on the members rather than on the
organization itself."
Member services are very similar to those provided by other financial institutions, but there are a few nuances. Many
credit unions are small in size and offer very basic services. Loans to members are credit unions' major investment.
These loans are consumer type loans, primarily home equity, automobile, and residential real estate loans. Credit unions
often offer higher interest rates on savings and lower loan rates than other lenders and deposit takers because they save
money due to their non-tax status and volunteer boards and committees. While many credit unions offer most of the same
services as the other financial institutions, the accounts are named differently. Share draft accounts, share certificates,
and regular share accounts are comparable to checking, certificates of deposit, and saving accounts.
Corporate Credit Unions
A corporate credit union is a credit union in which eligibility for membership is being a credit union qualified to do
business in this state. A common bond of association is recognized by statute for those credit unions who desire membership
with a corporate credit union. Corporates, therefore, are the credit unions' credit union. Corporate credit unions capitalize
the Central Liquidity Facility, which is a temporary, emergency lending fund for credit unions. There are currently 37 state
and regional corporate credit unions in the country. Ohio has only one, the Corporate One Credit Union. It is approximately
the eighth largest corporate in the US. The credit union for corporates is the US Central Credit Union.
Credit Union Service Organizations
A credit union service organization, or CUSO, is a for-profit corporation invested in by credit unions which provides
operational services such as: credit card and debit services, ATM, EFT, check cashing, wire transfers, internal audits
for credit unions, data processing, shared service centers, sale of repossessed collateral, sale of fixed assets, personnel
training, marketing services, record retention services, debt collection, credit analysis, and loan processing. CUSOs also
provide financial services to credit unions such as: planning and counseling on retirement, investments, securities brokerage,
estate planning, income tax preparation, estate administrators, real estate brokerage services, travel agency services,
and insurance agents.
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