Economic Democracy: The Credit Union as an Asset of Community Economic Development

For quite some time I have been interested in credit unions as an alternative to commercial banks. I have been, however, a lifetime customer of J.P. Morgan Chase Bank simply because my father worked for Chase and I never really understood the rationale of a credit union. While I was growing up the only credit union I remember seeing was the Indiana Members Credit Union located on East 82nd Street, but I did not pay it much attention. Similar to other community based and sustainability practices, I did not engage in them because they were not the norm and no one had informed me of their benefits.

As a sophomore undergraduate at Indiana University, I somehow decided to major in nonprofit management at the School of Public and Environmental Affairs. In my first nonprofit course, V221 The Nonprofit and Voluntary Sector, taught by Rebecca Nannery, we discussed the different types of IRS tax-exempt organizations. To my surprise, credit unions were in fact tax-exempt, just like public charities and political advocacy groups. According to the IRS, Federal Credit Unions, corporations organized under act of congress, are 501(c)(1) organizations, while state-chartered credit unions are 501(c)(14) organizations. Both types of credit unions are tax-exempt, meaning they are generally not subjected to state sales, payroll, property, federal income, and other taxes.

Although I did not learn anymore about credit unions in my other nonprofit classes, my interest and respect for the nonprofit sector intensified. This respect combined with my father ending his career with Chase after 25 years, my seasoned political views, and the 2008 financial crisis has driven me to the point where I feel obligated to transfer what little money I have in savings to a credit union. If I had made this decision earlier in my college career I probably would have given the IU Credit Union a try; however, it is not too late to use it as a resource to finding out more about making the change.

Since Roseland emphasizes the use of local credit unions as an important tool for promoting community economic development, it seemed appropriate to highlight some key features of these financial institutions and why they are important. Roseland declares that “[community economic] development without growth can be encouraged by supporting existing businesses and increasing the number of times each dollar circulates within the community” (214). Considering that major commercial banks—J.P. Morgan Chase, Bank of America, Wells Fargo—extract capital from communities in form of deposits, its understandable that state and other local credit unions are more likely to increase local economic development by keeping more money in the community. Due to the tax-exempt status of credit unions, these institutions do not distribute profits to shareholders, as do commercial banks. Like all other nonprofits, when a credit union makes any type of profit the money is reinvested in its operations, resulting in lower loan interest rates, higher interest on deposits, and little to no service fees.

It is widely understood that to be a part of a credit union a person must become a member. Membership is usually based on a shared connection such as profession or a geographic region. Fortunately for those who are not teachers or firefighters, you are able to become a member of your city or town credit union if you have decent credit history. As a result, you will own a portion of the union through a mutual trust bond with other members. Credit unions have therefore been described as economic democracies, meaning that each member has equal ownership and therefore a say in how the voluntary board operates the union. According to the United States Census Bureau, there were approximately 500,000 federal credit union members and 40,000 state credit union members in 2010. The number of members in each type of union has risen dramatically since 1990.

These two informational videos go into further detail about the benefits of being a credit union member:

My favorite part of this video is when Ms. Gibbons says that credit unions were not caught up in the 2008 subprime mortgage fiasco, thus credit union loan portfolios are now increasing rather than declining. I find it baffling that she says that 90 million citizens are credit union members—a number that conflicts with that of the U.S. census.

Mr. Lee makes me happy to hear that if I do not like the way my credit union is being operated then I am able to vote for new board members or even run as a board candidate. This gives me a feeling a great control over my deposits and how they are being used. I also appreciate how he outlines the importance of credit union customer service. He discusses how this can build healthy relationships, contributing to the social capital that Roseland stresses as a key component of effective community economic development.

Are any of you credit union members? Are they all they are cracked up to be? The only downside I can think of is that credit union ATMs are not widespread, making it difficult to avoid service charges from commercial bank ATMs when you are in another city.

Roseland states that most contemporary “community economic development initiatives focus on augmenting individual and community self-reliance through collaborative action, capacity-building and returning control of business enterprises, capital, labor and other resources from the global market to communities” (216). If that is the case, credit unions meet all three points of Roseland’s concept of community economic development. In the truest sense, credit unions epitomize local self-reliance and financial security. If you are considering switching banks anytime soon, it may be a good idea to find your local credit union and live more sustainably.