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Credit Union Operations

Please also see Credit Union Regulation, Credit Union Financial Statement analysis and
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National Credit Union Administration Regulations

National Credit Union Administration Regulations (March 2010)

On September 24, 2010, the National Credit Union Administration indicated that it would provide a federal guarantee for the wholesale / corporate credit union system in the amount of approximately $30 billion after the placement of Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, and Constitution Corporate Federal Credit Union into conservatorship.
www.ncua.gov/news/press_releases/2010/MA10-0924NCUACorporateReforms.pdf (.pdf format)

On Friday, March 20, 2009, the National Credit Union Administration (NCUA) placed both U.S. Central Corporate Federal Credit Union (Lenexa, KS), and Western Corporate Federal Credit Union (San Dimas, CA) into conservatorship. The two corporate credit unions combined reported $57 billion in assets at the time of the takeover. The takeover was determined to be necessary after additional mark-to-market losses in both entities' mortgage- and asset-backed securities portfolio had increased. www.ncua.gov/news/press_releases/2009/MR09-0320.htm

On October 3, 2008, Share accounts in federally insured credit unions had the Standard Maximum Share Insurance Amount (SMSIA) increased to $250,000 as per the terms of the Emergency Economic Stabilization Act of 2008. The increase in coverage was in effect until December 31, 2009, and then extended to December 31, 2013. www.ncua.gov/news/press_releases/2009/MR09-0526.htm

In the United States, Credit Unions are not-for-profit financial institutions that are owned by its membership (depositors) and are either federally chartered or state chartered and are regulated by the National Credit Union Administration (NCUA). Credit Unions were originally designed to offer banking and financial services to a specific group:

Teachers

Municipal employees

Employees of a large corporation

Farmers

Fraternal and religious organizations

Rural communities where the citizens of a state are distantly removed from convenient centers of business or easy access to financial agencies

all which are known as segments. However, regulations have been revised to allow credit unions to offer their services / membership to the residents of its immediate geographical region as long as the person or entity lives, works, attends school or worships within the border of that geographic area. As a not-for-profit organization, credit unions return excess earnings to its membership in the form of higher deposit rates, lower loan rates, fewer and lower fees and diverse services at lower cost. Membership is usually obtained by opening a share savings account or member's savings account for a nominal deposit of $5.00. Within the United States, net income earned by credit unions is not taxed however credit unions do pay property, local and employer taxes.

In most states of the United States, a small amount of residents of the state may apply to the administrator / supervisor of the state's credit union ddministration for permission to organize a credit union. After the the bylaws of the organization are approved, the credit union may then:

receive the savings of its members either as payment on shares or as deposits

make loans to members

deposit in state and national banks, savings and loan associations, the accounts which are insured by the Federal Savings and Loan Insurance Corporation or the Federal Deposit Insurance Corporation, and of other credit unions

usually invest in any investment legal for savings banks

make loans to other credit unions

borrow funds from any source and to give its note therefor

assess each member a recurring or nonrecurring membership fee

and most state credit unions are usually authorized to engage in any activity in which the credit union could engage were the credit union operating as a federally chartered credit union.

Credit unions may operate across state lines and under the terms of the Nationwide Cooperative Agreement for the Supervision of State Chartered Credit Unions (NASCUS) Interstate Branching Agreement the supervisor of the home state shall remain the primary regulator of the credit union.

Credit unions also tend to cooperate with each other rather than compete. The shared branching approach allows a member of one credit union to carry out financial transactions (deposits, withdrawals, transfers, payments, etc.) at another credit union, even in another state, just as if they were in their home credit union as long as both credit unions participate in the system. The Credit Union Service Network (CUSN) is the shared branching provider in Colorado and surrounding states, other networks include Credit Union Service Corp. (CUSC) and UsNet.

Unlike other depository institutions, credit unions are exempt from federal corporate income taxes. Congress originally granted tax-exempt status to credit unions in 1937 because of their similarity to other mutually owned financial institutions that were tax-exempt at that time. While the other institutions lost their exemption in the Revenue Act of 1951, credit unions specifically remained exempted. The act's legislative history is silent regarding why the tax-exempt status of credit unions was not revoked. More recently, the Credit Union Membership Access Act of 1998 indicates that credit unions continue to be exempt because of their cooperative, not-for-profit structure, which is distinct from other depository institutions, and because credit unions historically have emphasized serving people of modest means.

Recent legislative and regulatory changes to credit union membership restrictions and allowable products and services have blurred some of the historical distinctions between credit unions and other depository institutions. As a result, some observers have raised questions about whether tax exemption provides credit unions with an advantage over other depository institutions and whether the original basis for tax exemption is still valid. Arguments for taxing credit unions center on creating a level playing field since credit unions now compete more directly with banks. Proponents also point to associated potential tax revenues, with federal estimates ranging from $1.2 billion to $1.6 billion per year. Opponents of taxation argue that credit unions remain distinct, organizationally and operationally, from other financial institutions and taxation would impair their capital levels. U.S. Government Accountability Office (GAO) research has found that relatively large credit unions offer many of the same services that same-sized banks offer, while smaller credit unions tend to provide more basic financial services.

Federal Credit Unions

A federal credit union is a financial cooperative chartered by the federal government and owned by its members. Each federal credit union's charter specifies who is eligible to join. Membership is limited to groups or people with a common bond of employment, association, or residence specified in its charter. Eligible people must submit a membership application and purchase one share to join. By depositing usually $5 to $10, members actually purchase and own a share in their credit union and can vote in officer elections.

Member deposits in federal credit unions are insured up to $100,000 per account by the National Credit Union Share Insurance Fund (NCUSIF) and backed by the full faith of the U.S. government. Savings are also protected by a number of provisions in the Federal Credit Union Act and the Standard Bylaws.

Federal credit unions operate in compliance with this and all other federal consumer protection laws, including the Equal Credit Opportunity Act.

All federal credit unions are chartered, supervised and examined annually by the National Credit Union Administration (NCUA), which is the independent federal agency that charters and supervises federal credit unions. The NCUA also operates the National Credit Union Share Insurance Fund (NCUSIF). The NCUA main office is located in Alexandria, VA, and there are also several regional offices. The NCUA is responsible for annually examining all federal credit unions, participating in the supervision of federally insured state chartered credit unions in coordination with state regulators, and insuring credit union member accounts through the NCUSIF. There is also a National Association of Federal Credit Unions (NAFCU), which is a trade group.

Federal Credit Unions are allowed to have subsidiaries that allow them to enter new lines of businesses that in turn allow them to provide increased / enhanced services to its membership. This subsidiary is known as a CUSO (Credit Union Service Organization). CUSOs are designed to also offer services to other credit unions that do not have the resources to enter into additional business sectors. CUSO functions include:

Underwriting and servicing residential mortgages

Underwriting and servicing member business loans

Point-of-sale auto loans

Secondary market purchase of credit union originated mortgages and loans (wholesale and correspondent conduit)

Credit / Debit card issuance and account servicing

Investment advisory / mangement services for either the credit union's investments or for credit union member (annuities, mutual funds and other investment products, brokerage services)

Life and health insurance products

Payroll processing services for credit unions and their employees or for credit unions to offer as business services to clients

Web site development, network design and security

Business continuity services

Federal Credit Unions offer Business Services to the employess of corporations such as direct deposit, on-line banking and consumer credit products. The same credit union will also offer directly to the corporation business checking, credit cards, and loans (secured and unsecured revolving credit facilities, term loans for acquisition of automobiles and equipment, and commercial real estate acquisition and refinancing). These business services are offered to companies who become Business Partners. Commercial lending activities by credit unions are referred to as Member Business Loans (MBL).

State Chartered Credit Unions.

There is a dual chartering system in the United States that allows each state to charter and supervise credit unions to be operated within the respective state's jurisdiction.

The advantage to be chartered by the state is a lower annual assessment compared to federally chartered credit unions and the state charter can be expanded to include additional communities.

Similar to federally chartered credit union a state chartered credit union is also a cooperative society that offers membership to residents having a common bond of occupation or association such as workers, farmers, unions, fraternal and religious organizations, or to groups within a well-defined neighborhood, community or rural district, especially communities that may be located a distance from centers of business or have easy access to financial agencies.

Each state has its own body of law, in addition to NCUA guidelines, regarding the organization, chartering (approval and revocation), supervision, examination and operation of a state chartered credit union.

All state chartered credit unions must also have Federal share insurance, which is provided by the National Credit Union Administration (NCUA).

There is a National Association of State Credit Union Supervisors (NASCUS), which authorizes state supervisory agencies to charter state credit unions.

State credit unions, with the permission of their state Department of Banking, may convert to a federal credit union.

Every state in the United States has a either credit union league or association that covers all credit unions, state and federal, that are domicilled in that state. There is also an American Association of Credit Union Leagues (AACUL).

Corporate Credit Unions.

On December 9, 2008, the NCUA announced a plan to assist corporate credit unions who had suffered losses from investing in mortgage-backed securities. The Credit Union System Investment Program (CU SIP) was created because the Central Liquidity Facility (CLF) was not authorized for corporate credit union borrowing. The procedure is for the natural person credit unions (retail credit unions) to enroll in the program through their corporate credit union. The credit union applies for / receives a loan from the CLF (the rate on the CLF advance is equal to the greater of the primary credit rate at a Federal Reserve Bank discount window or the rate on a comparable maturity Treasury security plus 12.5 basis points). The funds must be invested in a CU SIP note issued by the respective corporate credit union. The note has an NCUSIF guarantee, a maximum one-year term, and has a guaranteed return equal to the advance rate plus 25 basis points (0.250%).
www.ncua.gov/CLF/CU%20SIP%20Notes%20Term%20Sheet%2012%2009%202008.pdf (.pdf format)

Since December 2008, there has been resistance by the retail creidt unions to comply with the capital call to bail out the Central Corporate Credit Union, which was announced in January 2009. The regulators indicated that they wanted all of the retail credit unions in the United States to contribute a total combined $4.7 billion into a temporary National Credit Union Share Insurance Fund (NCUSIF) to assist in covering Central Corporate Credit Union's losses (and any other corporate credit union), which was being pushed by the NCUA to account for impaired investments by marking-to-market and taking the resultant charge against earnings.
www.ncua.gov/CorporateStabilizationProgram.html

Corporate credit unions provide business services to member credit unions (not the general public). Corporate credit unions can be either state or federally chartered. However, National Credit Union Administration (NCUA) Rules and Regulations apply to all federally chartered and state chartered corporate credit unions. Federal and state examiners jointly examine state chartered corporate credit unions. There is also a national Association of Corporate Credit Unions (ACCU), which is a trade group.

Corporate credit unions include:

Central Corporate Credit Union
Central Credit Union Fund
Constitution Corporate Federal Credit Union
Corporate America Credit Union
Corporate Central Credit Union
Corporate One Federal Credit Union
Eastern Corporate Federal Credit Union
First Carolina Corporate Credit Union
First Corporate Credit Union
Georgia Central Credit Union
Iowa Corporate Central Credit Union
Kansas Corporate Credit Union
Kentucky Corporate Federal Credit Union
Louisiana Corporate Credit Union
Members United Corporate Federal Credit Union
Mid-Atlantic Corporate Federal Credit Union
Midwest Corporate Federal Credit Union
Missouri Corporate Credit Union
Northwest Corporate Federal Credit Union
Southeast Corporate Federal Credit Union
Southwest Corporate Federal Credit Union
SunCorp Corporate Credit Union
Treasure State Corporate Credit Union
TRICORP Federal Credit Union
VACORP Federal Credit Union
Volunteer Corporate Credit Union
West Virginia Corporate Credit Union
Western Corporate Federal Credit Union

Information Resources

Association of Corporate Credit Unions (ACCU) www.theaccu.org/

Credit Union National Association (CUNA) www.cuna.org/

Credit Union Service Corporation (CUSC) www.cusc.net/

Credit Union Service Network (CUSN) www.cusn.com/

CU Service Center www.cuservicecenter.com/

National Association of Credit Union Supervisory and Auditing Committees (NACUSAC) www.nacusac.org/

National Association of Federal Credit Unions (NAFCU) www.nafcunet.org/

National Association of State Credit Union Supervisors (NASCUS) www.nascus.org/

National Credit Union Administration (NCUA) www.ncua.gov/
NCUA Administrative Orders www.ncua.gov/administrative_orders/Admin/administrative.html

UsNet (CO-OP Shared Branching) www.universalsharing.com/

World Council of Credit Unions (WOCCU) www.woccu.org/

Credit Union Leagues

Alabama Credit Union League www.acul.com/

Alaska Credit Union League www.alaskacreditunions.org/

Arizona Credit Union System www.azcreditunions.org/

Arkansas Credit Union League www.acul.org/

Association of Vermont Credit Unions www.vermontcreditunions.com/

California Credit Union League www.ccul.org/

Connecticut Credit Union League www.ctcua.org/

Credit Union Association of Colorado www.colocu.com/

Credit Union Association of New Mexico www.cuanm.org/

Credit Union Association of Oregon www.cuao.org/

Credit Union Association of Rhode Island www.riculeague.org/

Defense Credit Union Council www.dcuc.org/

Delaware Credit Union League www.dcul.org/

Florida Credit Union League www.fcul.org/

Georgia Credit Union Affiliates www.gcua.org/

Hawaii Credit Union League www.hcul.org/

Idaho Credit Union League www.idahocul.org/

Illinois Credit Union League www.iculeague.coop/

Indiana Credit Union League www.icul.org/icul.asp

Iowa Credit Unions www.iowacreditunions.com/

Kansas Credit Union Association www.kcua.org/

Kentucky Credit Union League www.kycul.org/

Louisiana Credit Union League www.lcul.com/

Maine Credit Union League www.mainecul.org/

Maryland & District of Columbia Credit Union Association www.mdcul.org/

Massachusetts Credit Union League www.maleague.org/

Michigan Credit Union League www.mcul.org/

Mid-America Credit Union Association www.midamericacua.coop/

Minnesota Credit Union Network www.mncun.org/

Missouri Credit Union Association www.mcua.org/

Montana Credit Union Network www.mcun.org/

Nebraska Credit Union League & Affiliates www.nebrcul.org/

New Hampshire Credit Union League www.nhcul.org/

New Jersey Credit Union League www.njcul.org/

New York State Credit Union League www.nyscul.org/

North Carolina Credit Union Network www.ncleague.org/

Ohio Credit Union System www.ohiocul.org/

Oklahoma Credit Union League www.okleague.org/

Pennsylvania Credit Union Association www.pcua.coop/

South Carolina Credit Union League www.sccul.org/

Tennessee Credit Union League www.yourleague.org/

Texas Credit Union League www.tcul.coop/

Utah League of Credit Unions www.ulcu.com/

Virginia Credit Union League www.vacul.org/

Washington Credit Union League & Affiliates www.waleague.org/

West Virginia Credit Union League www.wvcul.org/

Wisconsin Credit Union League www.theleague.coop/

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