Credit
Unions
A credit union is a cooperative financial
institution
that is
owned and
controlled
by its
members.
Credit
unions
differ from
banks and
other
financial
institutions
in that the
members who
have
accounts in
the credit
union are
the owners
of the
credit
union.
Credit union
policies
governing
interest
rates and
other
matters are
set by a
volunteer
Board of
Directors
elected by
and from the
membership
itself. Only
a member of
a credit
union may
deposit
money with
the credit
union, or
borrow money
from it. As
such, credit
unions have
historically
marketed
themselves
as providing
superior
member
service and
being
committed to
helping
members
improve
their
financial
health.
Credit
unions may
be viewed as
non-profit
organizations,
or
alternatively
as
for-profit
enterprises
charged with
making a
profit for
their
members (who
receive any
profits
earned by
the
cooperative
in the form
of dividends
paid on
savings,
which are
taxed as
ordinary
income, or
reduced
interest
rates on
loans).
This debate
reflects
credit
unions'
unusual
organizational
structure,
which
attempts to
solve the
principal-agent
problem by
ensuring the
owners and
the users of
the
institution
are the same
people. In
any case,
credit
unions
generally
cannot
accept
donations
and must be
able to
prosper in a
competitive
market
economy.
In the
United
States,
credit
unions
typically
pay higher
dividend
(interest)
rates on
shares
(deposits)
and charge
lower
interest on
loans than
banks.[1]
Credit union
revenues
(from loans
and
investments)
do, however,
need to
exceed
operating
expenses and
dividends
(interest
paid on
deposits) in
order to
maintain
capital and
solvency.
Often credit
unions have
a lower cost
of funds due
to a higher
proportion
of non/low
interest
bearing
deposits,
than typical
commercial
banks.
Credit
unions offer
many of the
same
financial
services as
banks, often
using a
different
terminology;
including
share
accounts
(savings
accounts),
share draft
(checking)
accounts,
credit
cards, and
share term
certificates
(certificates
of deposit)
and online
banking.
Credit
unions exist
in a wide
range of
sizes,
ranging from
volunteer
operations
with a
handful of
members to
institutions
with several
billion
dollars in
assets and
hundreds of
thousands of
members.
Global
dispersion
Based on
data from
the World
Council of
Credit
Unions, at
the end of
2006 there
were 46,377
credit
unions in 97
countries
around the
world.
Collectively
they served
172 million
retail
members and
controlled
US $1.1
trillion in
assets.[2]
Note that
the World
Council does
not include
data from
co-operative
banks, so
that for
example some
nations
generally
seen as the
pioneers of
credit
unionism
(including
Germany,
France,
Holland and
Italy) are
not included
in their
data. The
European
Association
of
Co-operative
Banks
reported 34
million
members in
these four
countries at
the end of
2005 [3]
The nations
with the
greatest
credit union
activity are
highly
diverse.
According to
the World
Council,
nations with
the greatest
number of
credit union
members
included the
United
States (87
million),
India (20
million),
Canada (11
million),
South Korea
(4.7
million),
Japan (3.6
million),
Mexico (3.6
million),
Australia
(3.5
million),
Kenya (3.3
million),
Ireland (3.0
million),
Thailand and
Brazil (2.6
million
each).
Countries
with the
highest
percentage
of members
in the
economically
active
population
were
Dominica
(147% --
that is, the
average
person is a
member of
more than
one credit
union),
Ireland
(110%),
Barbados
(72%),
Trinidad &
Tobago
(57%),
Canada
(48%), the
United
States
(43%), Benin
(27%),
Australia
(26%),
Senegal and
Mali (19%
each).
In the
United
Kingdom
Credit
Unions are
regulated by
the
Financial
Services
Authority,
or FSA. UK
credit
unions are
classified
under two
types, type
1 are the
smaller CUs
while type 2
are larger.
From
November
2006 many
type 2 CUs
will be
offering
their
members
debit card
accounts.
For the
first time
this will
enable CU
members to
obtain funds
from any
Link ATM. UK
CUs will not
be offering
cheques as
these are
generally
being phased
out for many
UK financial
transactions.
Many CUs are
offering
most of the
services
available
from other
financial
institutions
such as
direct
debits and
standing
orders.
Currently
there is a
government
financial
initiative
mainly being
operated by
Credit
Unions to
bring
financial
services to
the
disadvantaged
of society.
One aim is
to
significantly
reduce the
influence of
door step
lenders
where a £300
loan over 30
weeks
involves
paying back
around £450.
A credit
union loan
would
require
paying back
around £325.
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