government regulation of loans, investment , and dividends

Credit unions, like commercial banks, are heavily regulated in the services they are permitted to offer, the rates charged for credit, and dividends paid on deposits. Under current federal regulations, these institutions are permitted to make unsecured loans, including credit-card loans, not exceeding 5 years to maturity or secured loans out to 30 years. However, the interest rates on these loans cannot exceed 21 present annually on the unpaid balance. loans to officers and directors of the credit union cannot exceed $2.500 without approval of each association‘s board of directors.
association‘s permissible investments are limited to a list prescribed by either state or federal regulations. In the main, credit unions are permitted to acquire U.S. government securities; make loans to other credit unions not exceeding 25 percent of their capital and surplus; hold savings deposits at savings and loan associations, mutual savings banks, and federally insured credit unions; and purchase selected federal agency securities. Credit unions rely heavily on U.S. government securities and savings deposits in other financial institutions to provide liquidity in order to meet deposit withdraws and accommodate member credit needs.
credit unions pay dividends to their members, who are technically owners rather than credits of the association. These dividend payments may be paid only if sufficient revenues are available after all expenses are met. The maximum annual dividend payable by an association is 7 present. Credit unions are labeled nonprofit associations doing business only with their owners and therefore are classified as tax-exempt mutual organizations. To qualify for tax exemption, however, all earnings except those flowing to equity reserves must be paid out to members.

A strong competitive force for credit unions

Credit unions today represent stiffer competition for commercial banks, savings banks, finance companies, and other financial institutions serving the consumer than was true in the past. Today, one out of every six Americans belongs to a credit union- roughly double the proportion a decade earlier. During the 1960s and 1970s the industry repeatedly demonstrated its capacity for innovation and the ability to compete successfully for both installment loans and small savings accounts. With the authority recently granted associations by the depository institutions deregulation and monetary control Act and by other federal and state laws to make long-term mortgage loans and offer credit cards, transactions accounts, and higher-yielding savings certificates, the credit union is likely to be an even more significant competitive force in offering consumer credit and savings plans in the years ahead.

Credit union membership

Credit unions are organized around a common affiliation or common bond among their members. Most credit union members work for the same employer or for one a group of related employers. In most cases if one family belongs to a credit unions. Other family members are eligible as well. Occupation-related credit unions accounts for about four fifths of all U.S. credit unions. A bout one sixth of American credit unions are organized around a nonprofit association, such as a labor union, a church, or a fraternal or social organization. Common area of residence, such as a city or state, has also been used in recent years as a base from which to get credit unions started.

Size of the credit union

There is strong shift today toward smaller numbers of credit union. For example the number of associations reached an all-time high in 1969 at almost 24,000 and now totals less than 22,000. Meanwhile, the average credit union has increased significantly in size. For example, in 1970 only about one sixth of the nation‘s credit unions held more than $1 million in assets, but today that figure exceeds 40 percent.
The average-size credit union remains relatively small compared with other depository financial institutions, however. Nevertheless, credit union membership continues to grow rapidly, increasing about 3 million a year. There were fewer than 5 million U.S. credit union members in 1950, but this total exceeded 45 million in 1980. Worldwide, there are more than 55 million members associated with 45,000 credit unions operating in 69 countries.

Chartering and regulation of the credit union

In the United States credit unions are charted and regulated at both state and federal levels. Today about 55 percent of all credit unions are charted by the federal government and the remainder by the states. Federal credit unions have been regulated since 1970 by the National credit union (NCUA), an independent agency within the federal government. Deposits are insured by the national credit union share insurance fund (NCUSIF) up to $100,000. State-charted credit union may qualify for federal insurance if they conform to NCUA‘S regulations.