Credit Union Banking Laws


A credit union is chartered by either a state or the federal government and is a financial institution that is owned by its customers. A credit union offers lower rates on loans and pays higher rates on deposits than do most commercial banks. And from time to time, it will pay its excess profits to its customers as dividends. More than 3,000 credit unions, or about 40 percent of the total, are state chartered and are supervised by the National Association of State Credit Union Supervisors (NASCUS). The remainder are federally chartered and are supervised by National Credit Union Administration, a federal agency.


The credit union movement began in Europe where they were established to encourage savings by their members. In 1903, credit unions were introduced to the United States when the first two were established in Massachusetts and New Hampshire where many people either were not being served by traditional banks or were charged high interest when they borrowed money. In 1934, the Federal Credit Union Act was passed by Congress; and soon thereafter, the predecessor of NCUA was established. In 2008, more than 85 million people were members of credit unions that had deposits in excess of $600 billion.


By law, credit union can be established to serve people who have a common affiliation such as employment, the area where they live, or the university they attend. For instance, a company can establish a credit union for its employees and anyone related to them. As a member of that affinity group, a person can become one of the owners of the credit union by making a small deposit, often only $5 or $10. When a dividend is paid, it will be pro-rated to members based on the size of their deposits.


Commercial banks and credit unions are managed differently. Credit union members are in control of how it is managed by electing a volunteer board of directors. The board then elects the officers and other supervisors from the credit union's membership. Membership requirements are spelled out not only in the CUNA by-laws, but also in the by-laws of NASCUS.

Deposit Guarantees

Almost all the money deposited in both state and federally chartered credit unions are guaranteed by the National Credit Union Share Insurance Fund (NCUSIF) that covers the first $100,000 of any account. The remaining 162 state chartered credit unions are insured by American Share Insurance (ASI).


When a company establishes a credit union as opposed to a commercial bank, as provided by law, it creates an important fringe benefit for its employees. By creating a self-funded credit union, it can provide such services as direct deposit of its employees' paychecks, a service that it pioneered almost 30 years ago. Furthermore, credit unions tend to be more understanding of the needs of its membership than are commercial banks.

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