What is a Credit Union?

[cman@IO.COM (Douglas Barnes)]

I received this very good question from one of the list readers, and
thought it might be of some interest to those following the Digital
Credit Union discussion:

> 
> Doug,
> 
> Could you tell me what a Credit Union *is*?  I don't know enough about
> USAan culture.

Actually, they started out in Germany, where I believe they still exist.
They are one of the earliest forms of institutionalized cooperation, one
of the founding pillars of the cooperative movement of the 19th c.

Basically, they were a reaction to the big landowners and manufacturers
controlling all the financial institutions; they have their roots in
somewhat informal 'lending societies' which were groups of folks who would,
rather than put their money in banks, pool it and lend it to members of
their group. (A practice still common in Asia; even my students at various
banks there engaged in this practice, and in fact were quite discursive on
how they operated.)

Nowadays Credit Unions are sanctioned by the government; however they still 
retain many of their desirable features. They can be created with as few as
300 members, they (legally) require only $1,000 starting capital, they are 
democractically controlled by their members, they are essentially non-
competitive (old ones are often glad to help a new one get started), and they
already operate as a national network to combine buying power for many
third-party transaction processing services.

Generally, Credit Unions are able to provide credit at rates lower than
banks, and have generally had a much more customer-focused approach than
traditional banks, although many large banks are catching on to this and
have maintained parity on some of the technical innovations; it's hard 
though to duplicate the lending ecnonomies and general coziness of a bank 
that is owned by its members, all of whom either know each other or share 
a common bond.

Also, to be a federally sanctioned CU, you have to have deposit insurance; 
the most common provider of CU insurance is the National Credit Union 
Asssociation, which also devotes a large part of its resources to assisting
new or troubled Credit Unions. So, if for some odd reason I forget 
round fractional cents in transactions, I can pick up the phone and ask.

Doug