Updated June 27, 2019 | Originally published July 1, 2016
While banks and banking are widely understood, the term credit union is still unknown to many. Is it just another name for a bank? Is it a credit card company? Do you have to be in a union to join? Nope.
Credit union is another name for a financial co-operative.
A co-operative is an autonomous group of people who voluntarily come together to meet their common economic, social and cultural needs and aspirations. They do this through a jointly-owned and democratically-controlled enterprise based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity.
Co-operative members believe in the ethical values of honesty, openness, social responsibility, and caring for others.
That’s why you often hear about credit unions supporting their local communities and making decisions based on the needs of their members. For example, Canada’s credit unions were the first financial institutions to lend to women in their own name without a male co-signer.
There are actually seven co-operative principles that guide how co-operatives put their values into practice.
What better way to learn about the principles than through a song? Watch this video to hear it.
So to recap, the seven co-operative principles are:
- Voluntary and open membership
Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
- Democratic member control
Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. People serving as elected representatives are accountable to the membership.
- Member economic participation
Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative.
- Autonomy and independence
Co-operatives are autonomous, self-help organizations controlled by their members.
- Education, training and information
Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives.
- Co-operation among co-operatives
Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.
- Concern for community
Co-operatives work for the sustainable development of their communities through policies approved by their members.
A bit of history
The credit union model sprang up in Germany in the 1850s and by the end of the 19th century they had taken root across Europe (where they are still very popular). These upstart financial institutions, which drew inspiration from co-operative successes in other sectors including retail and agriculture, went by a variety of names like people’s banks, co-operative banks and credit associations.
While these early credit unions had slightly different names, they were all best identified by their adherence to the co-operative principles, especially those related to membership and control.
North American credit unions were established in the early 20th century, emerging at a time when banks made it difficult for the average citizen to borrow or invest. The first credit union in North America, the Caisse populaire de Lévis in Quebec, began operations in 1901 with a 10¢ deposit. Founder Alphonse Desjardins (a former journalist and the French-language stenographer for the House of Commons), was moved to take up this mission in 1897 when he learned of a Montrealer who had been ordered to pay nearly $5,000 in interest on a loan of $150 from a moneylender.
Drawing extensively on European precedents, Desjardins developed a distinctive parish-based model for Quebec: the caisse populaire. The literal translation of caisse populaire is “popular cash register,” which speaks to providing access to cash and credit to people with limited income. These people were considered as less desirable customers by the established banks, who were in business to turn a healthy profit.
The Vancouver movement
In the beginning most credit unions formed around a common bond such as a workplace, trade, church or ethnic affiliation. This made sense given that the original idea behind credit unions was to lend money on the basis of character rather than wealth or property. The common-bond credit unions increased access to credit, but left out those who didn’t belong to one of these groups.
In the 1940s, a few credit union activists in Vancouver began promoting the idea of an open or community-based credit union that would allow any resident of the city to join. Although it was a rather unorthodox idea at the time, supporters of the idea were passionate. These activists eventually founded Vancouver City Savings Credit Union, known today simply as Vancity.
Although the word ‘credit’ might make you think that the earliest credit unions offered only credit services, they usually also offered savings services and sometimes payment and insurance services.
The word ‘union’ can also be confusing. You may think that members of a credit union need to be member of a labour union, but that’s not the case. Members are simply united because they share a similar situation. This can be where they live, work or what they believe in.
Interested in becoming a credit union member? Open a Vancity account online today.