SIC 6062

This industry classification includes cooperative thrift and loan associations (accepting deposits) organized under other than a Federal charter to finance credit needs of their members.

NAICS Code(s)

522130 (Credit Unions)

A credit union is a collective, cooperative financial institution created by its members for the benefit of these members. These members share a bond of employment or affiliation, which the credit union is designed to serve. In 1997, there were 11,629 credit unions in the United States, of which about 4,100 held assets in excess of $10 million. According to industry data, credit unions serve 70 million Americans, but hold less than 2 percent of each member's total financial assets. Credit union loans to consumers were mainly in the auto and credit card sectors.

Credit unions are owned by their members. Typically, these institutions collect the savings of their members and make loans to members from these accumulated savings. Unlike other financial institutions, such as commercial banks, credit unions are non-profit organizations that focus on serving their members. The primary objective of a credit union is not profit maximization, as no individual can claim any residual profit. Instead, credit unions attempt to maximize the economic and social interest of its members. The formation of credit unions was encouraged by a broad cooperative movement in the early years of the industrial revolution.

Membership in a credit union is limited to individuals or groups who are members of the organization (employer, association, residence, etc.) specified in the charter. These credit union membership criteria are collectively known as the common bond provision. An individual who is qualified under these provisions may submit an application and, if approved, becomes a member with voting rights similar to those of a shareholder in a public corporation.

The common bond provisions of credit unions have a number of operational benefits. These include lower information costs, lower collective loan default risk, operating subsidies, and mitigation of the borrower verses saver conflict. It has been argued, however, that the deregulation that took place in the late 1980s will erode some of these benefits. Indeed, in February 1997, the U.S. Supreme Court agreed to hear a case that tested whether credit unions could serve multi-occupational memberships without violating common bond requirements. The attempt by some credit unions to broaden their membership base beyond a single occupation stems from a search for greater liquidity in an increasingly competitive financial marketplace.

State credit unions are chartered under the state's credit union provision. In general, these laws are similar to the federal law, premised on the Federal Credit Union Act. The federal act was largely based on the preceding state provisions.

Leading state credit unions include the Food Lion Credit Association, headquartered in Salisbury, North Carolina; and State Employee's Credit Union, based in Raleigh, North Carolina. Other large state credit unions include the Golden 1 Credit Union of Sacramento, California; Granite State Credit Union in Manchester, New Hampshire; Patelco Credit Union of San Francisco, California; and Delta Employees Credit Union of Atlanta, Georgia.

Credit unions, by nature, tend to be small. In 1997, there were 1,990 with less than 5 employees, 1,296 with 5 to 9 employees, and only 57 with over 100 employees.

Further Reading

Aaron, Kris. "The Credit Union Year in Review." Credit Union Management, December 1992, 9-10, 22. Available from .

Hagaman, T. Carter. "Credit Unions: A Force for Today." Management Accounting 74, no. 3 (March 1993): 51.

Dun's Census of American Business 1997. Parsippany, NJ: Dun & Bradstreet, 1997.

Ward's Business Directory of U.S. Private and Public Companies, 1999. Farmington Hills, MI: Gale Group, 1999.

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