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The financial implications of the growth of credit unions in California during the period from 1939-1955

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The financial implications of the growth of credit unions in California during the period from 1939-1955

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Content T H E FINANCIAL IMPLICATIONS O F T H E G R O W T H
r h
O P CEEDIT UNIONS IN CALIFORNIA DURING
T H E PERIOD P R O M 1939 - 1955
A T hesis
Presented to
the F acu lty o f the School o f Commerce
The U n iv ersity o f Southern C a lifo r n ia
In P a r tia l F u lfillm en t
o f the Requirements for the Degree
Master o f B u sin ess A dm inistration
by
Wesley Joseph H artley
M \
March 1957
UMI Number: EP43462
All rights reserved
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789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 48106- 1346
This t h e s is , w ritte n by
W E SL E Y JOSEPH H A R T L E Y
under the guidance of the F a cu lty Committee,
and approved by a l l i t s members, has been
presented to and accepted by the F a cility of
the School of Commerce in p a r tia l f u l f i l l
ment o f the requirem ents for the degree of
M A ST E R O F BUSINESS ADMINISTRATION
Date A p ril 2 9 . 1957
Approved
Chairman
TA BLE O F C O N TEN TS
C H A P T E R
I . PRESENTATION O F T H E PROBLEM.........................................
j The problem....... .....................................................................
Statem ent o f the p r o b l e m ...................................
Importance o f the s t u d y .........................................
D e fin itio n s o f terms used ...... ...................................
Saving ...........................................................................
Savings ............................................................................
I
Investm ent . .......................................................
F in a n cia l in s t it u t io n .........................................
Savings in s t it u t io n ................................................
C redit union ..............................................................
S ta te c r e d it unions ................................................
Federal c r e d it unions .........................................
i C redit unions ............................ ............................
I C U N A ..................................................................................
!
! C redit union leagu es ................................................
L im ita tio n of the study .........................................
i The period chosen fo r study ............................
i
j G eographical lim ita tio n .........................................
Types o f c r e d it unions stud ied .
Review o f lit e r a tu r e ................................................
O rganization of the remainder o f the t h e s is .
'chapter
I
I
III. FA C TO R S W H IC H H A V E CO NTRIBU TED T O T H E
I G R O W T H O F CREDIT UNIONS ................................................
I
Purpose o f the chapter ..................................
How the a v a ila b ilit y of funds has c o n tr ib
uted to the growth o f c r e d it unions
Share o w n e r sh ip .............................................................
Investm ent c e r t if ic a t e s .........................................
C redit union borrowings .........................................
Low overhead c o st o f c r e d it union op eration
! Operating expenses and overhead .
i
Tax sta tu s o f c r e d it unions . . . . . .
The r o le o f the C redit Union n a tio n a l
A sso c ia tio n •....................................................................
| Enabling l e g is la t io n and i t s amendments . •
i Federal C redit Union Act ..........................................
J
i The C a lifo r n ia C redit Union Law and
i
; Amendments......................................................................
Labor and management support o f c r e d it
i
j unions.....................................................................................
P a y ro ll d ed u ction s, convenience o f lo c a tio n ,
i
f a m ilia r ity w ith o p era tio n , and scope o f
J se r v ic e ...................................................................... «
j P a y ro ll deductions and convenience of
i
1 lo c a tio n .
iC H A P T E R PA G E
F a m ilia r ity w ith op eration s and scope
o f s e r v i c e .............................................................. 5k-
C o n c lu s i o n s .............................................................. 57
I I I . FA C TO R S W H IC H H A V E LIMITED T H E G R O W T H
O F CREDIT UNIONS IN CALIFORNIA . . . . 61
Purpose o f the c h a p t e r ................................. 61
Management i n c e n t i v e s ......................................... 61
O rganizational personnel ................................... 65
P o te n tia l g r o w t h ................................................ 69
Economy o f op eration because o f siz e . . 73
L iq u id ation record ......................................... . ?8
O pposition o f e m p l o y e r s ................................... 83
C om petitors1 o p p o sitio n . . . . . . 8 1 j.
E ducational problems . . . . . . . 86
C o n c l u s i o n s .............................................................. 88
IV . T H E IM PO R T A N C E O F CREDIT UNIONS IN
CALIFORNIA..................................................................... 93
Purpose o f the c h a p t e r ................................... 93
The growth o f a s s e ts o f c r e d it unions
in C a l i f o r n i a ....................................................... 93
The growth o f savings in C a lifo rn ia . . 95
The growth of savin gs in c r e d it unions
in C a li f o r n i a ....................................................... 98
Suggested reasons fo r the growth o f sav
in g s in c r e d it unions in C a lifo rn ia . 100
jC H A P T E R
I
I
Growth, o f consumer c r e d it in C a lifo r n ia •
The growth of consumer c r e d it extended
by c r e d it unions in C a lifo rn ia .
Suggested reasons fo r the in crea sed con
sumer len d in g by c r e d it unions in
C a l i f o r n i a .................................................... • •
C onclusions
V. S U 1 Y I M A R Y A N D CONCLUSIONS
jBIBLIOGRAPHY . . . .
TA BLE
I .
I I .
I I I .
IV.
V.
i
i
f
I
| VI.
j V II.
I
]
i
j
V III.
*
I
IX.
!
i
1
I
s
I X.
LIST OP TABLES
Loans Outstanding and In v ested Savings in
A ll C redit Unions in C a lifo r n ia • . •
Loans by F ederal C redit Unions in C a lifo rn ia
to Other C redit Unions and Loans Payable
by Federal C redit Unions in C a lifo r n ia . •
Sources o f Borrowed Funds o f F ederal C redit
Unions in Ten S ta te s as o f December y i 9
19514-.........................................................................................
Number, A ctual Membership, and T otal A ssets
o f A ll Federal C redit Unions in the
U nited S ta te s by Type o f Membership
T otal A ssets and Number o f F ederal and
S ta te C redit Unions in C a lifo r n ia .
S erv ices O ffered by C redit Unions ............................
Average Amount o f S a la r ie s Paid Annually
by Each F ederal C redit Union in C a li
fo rn ia and in the U nited S t a t e s ............................
Amount o f League Dues Paid by A ll Federal
C redit Unions and by Those in C a lifo rn ia .
Growth o f P o te n tia l and A ctual Federal C redit
Union Members in C a lifo rn ia as Compared to
P opulation
Percentage o f Income and Expense Item s, A ll
Fede r a l C redit U n ion s in the U nited S t a t e s ,__
I
I
ITABLE
v i i
PA G E
by S ize o f A s s e ts , 1 9 5 5 ......................................... 7 1 +
XX. Loan and Cost A n a ly sis fo r fe d e r a l C redit
Unions, 1955 79
X II. L iq u id ation o f Federal C redit Unions in
the U nited S ta te s During the Period
1935-55 ............................................................................ 81
X III. D o lla r Amount o f A ssets of S e le c te d Sav
in g s I n s t itu t io n s in C a lifo r n ia ,
1939-1955 . 9 1 +
XIV. D o lla r Amount o f Savings Held by In d iv id
u a ls in S e le c te d I n s t itu t io n s in
C a lifo r n ia and the Percentage o f Change,
i
! 1 9 3 9 - 1 9 5 5 ............................................................................. 96
I
| XV. P opulation o f C a lifo rn ia and the United
I
j S ta te s o f January 1 s t , 191+0-1956 • 97
j XVI. Number o f C redit Union Members, D o lla r
I
' Amount o f Investm ent, and Average
i
Amount o f Account per C redit Union
In v esto r in C a lifo r n ia , 1939-1955 . . . 99
XVII. . Consum ers P rice Index and Values o f the
D ollar in C a lifo rn ia from 1939-1955 • * • 102
X V III. Instalm ent C redit in the U nited S ta te s in
Various F in a n c ia l I n s t itu t io n s by Holder . 108
XIX. Consumer C redit O utstanding in S e le c te d
F in a n cia l I n s t itu t io n s in C a lifo r n ia . . I l l
r " v l i i
!
I table page
XX. R atio o f Consigner Loans Charged Off to
Consumer Loans Made in S e le c te d Finan-
j c i a l I n s t itu t io n s 113
XXI. T otal Number o f Federal C redit Unions in
C a lifo r n ia A ctual and P o te n tia l Member
ship 1 9 5 0 -1 9 5 5 ..........................................................................115
C H A PT E R I |
J
PRESENTATION O P T H E P R O B L E M
I
Pounders o f c r e d it unions in the U nited S ta te s were
m otivated by the fa c t th a t m illio n s of people had no money ;
in the bank and m illio n s more were w ithout a source o f
c r e d it except a t u su riou s r a t e s . The c r e d it union movement
was based on the theory that the banking system must be
supplemented by a plan th a t would encourage the sm a lle st
u n its o f savin gs and concern i t s e l f with the problems o f
i
|sm all c r e d it s . C redit unions m ight, th e r e fo r e , be c a lle d
I ;
j "banks in m in iatu re1 1 fo r they aecept sa v in g s, which are
in v ested in very sm all u n it s , and they b rin g c r e d it , a t
reasonable r a t e s , to m asses o f p eo p le.
In no sense was the c r e d it union proposed as a sub
s t it u t e fo r the e x is t in g banking system but rath er as a
| supplem ent, fo r they accepted d ep o sits and made loan s
iwhich, because o f th e ir sm all s iz e , were u n a ttr a c tiv e to
,b a n k s .T h e y endeavor to make d ep o sito rs o f m illio n s and
I
!b rin g c r e d it to more m illio n s in an e f f o r t to d riv e out
i
'forever the u su rer. Most c r e d it unions urge borrowing mem-
i
'bers to add to th e ir share accounts as they repay th e ir
i
I
^Federal C redit Unions accept payments as sm all as
25 c en ts per month on the purchase o f a sh are. In terview
iw ith the T reasurer, Norton A ir Force Base Employees’ C redit
Union.
lo a n s . Thus, persons who jo in a c r e d it union in order to
iobtain lo a n s are encouraged to b u ild up a cushion o f sav-
jin g s, and, not in fr e q u e n tly , such savin gs rep resen t the
^member1s f i r s t su c c e ssfu l attem pts to s e t a sid e a part o f
h is current ea rn in g s.
i
C redit union prom oters have g iv en much thought to j
the sm all savings th a t have been wasted in f,w ild c a tft specu-J
la t io n . They have endeavored to d iv e r t th ese sm all accumu-!
i -
!la tio n s o f funds in to le g itim a te channels which w ill be so
i • • • • ' -
;productive th a t the tem ptation to sp ecu la te w ill be e lim i-
'n ated . C redit union philosophy a lso advocates th e e lim in a -
! '
jtio n o f hoarded savings o f unproductive c a p ita l which can I
i
be d iv er te d to u s e fu l purposes.
I
i n im portant fea tu re o f c r e d it union development i s j
i the ex ten t to which i t has been m otivated by a s p ir it o f
J s o c ia l reform . I t was regarded by i t s le a d ers as nthe way
jof economic b ette rm en t.” T his purpose has been g iv en con-
j sid er a b le emphasis by Roy P. Bergengren in h is books.^
| I t I s argued th a t, by len d in g accumulated funds,
!
’c r e d it unions supply members w ith p resen t purchasing power,
which in cr ea se s th e ir standard o f liv in g by allow in g them
to purchase cu rren tly what they m ight have had to save fo r
I
years to own. This in crea se in the v e lo c it y o f money
I
i
I------------------------
j ^Research C ouncil, American Bankers A sso c ia tio n ,
I C redit U nions, March 1955* P* 19.
i
3,
produces: a higher standard o f l i v i n g ♦
W e have had c r e d it unions fo r more than y e a r s .
Why, then, in the l a s t year or two, have we had so much new
l
in te r e s t in c r e d it unions? In the f i r s t 28 y ea rs o f op era-|
t io n , they were a r e la t iv e ly in s ig n if ic a n t fa c to r in the j
' I
fin a n c ia l w orld. In other words, in 1937, c r e d it union j
loan s in t h is country amounted to l e s s than $ 3 0 0 ,0 0 0 ,0 0 0 , :
and were d ivid ed among some 5,000 c r e d it u n io n s. The nura-
jber o f c r e d it unions in crea sed to 15,071 by the end o f
1 195^4-, ^ d lo a n s amounted to $ 1 ,6 2 2 ,1 9 8 ,7 8 9 , or more than
i ' ■
! fiv e tim es the amount ou tstan din g a t the end o f 1937
I
| The rapid growth o f t h is most dem ocratic o f fin a n - <
I 1
j c ia l in s t it u t io n s i s not only o f in te r e s t to th e ir members ;
and o rg a n izers, but a lso to the o f f ic e r s and d ir e c to r s o f
la r g e r fin a n c ia l in s t it u t io n s who have awakened to fin d
th a t the a c t iv it y , which was once ”too sm a ll” to h and le,
now has le d to a b u sin e ss w ith a s s e ts o f $ 2 ,3 0 2 ,6 9 5 ,6 6 5 at
the end o f 195^* Of t h i s , $232,236,500 was in the S ta te o f
,C a lifo rn ia which lea d s a l l other s ta te s in the c r e d it union'
i
i field.**-
I 3&BA R esearch C ou n cil, C redit U nion, pp. 1 and 19.
W alter B • French, ”The Rapid Growth o f C redit U n io n s,”
Banking, Ju ly, 195^4-•
C r e d it Union N ation al A sso c ia tio n , C redit Union
Yearbook 1955* p . ij.*
I . T H E P R O B L E M
Statem ent o f the problem. The c r e d it union i s
! -unique in i t s com bination o f fu n c tio n s, fo r i t has two
primary fu n c tio n s. One, i t promotes t h r i f t among i t s mem
b ers by p rovid in g them w ith an o u tle t fo r ex cess funds and,
secon d ly, i t serves as a source o f funds fo r the worthwhile
needs o f i t s members. The in c r ea sin g q u a n tita tiv e p o s itio n
;o f c r e d it unions in b oth the f i e l d o f savin gs and o f c r e d it
'ex ten sio n b rin gs fo r th a v a r ie ty o f q u estio n s such ass
|What are the unique c h a r a c te r is tic s o f c r e d it -unions? W hy
i
|have they reached th e ir p resen t sta tu s? What have been the
r e s u lt s o f th e ir growth? Do th ese r e s u lt s j u s t if y th e ir
ex iste n c e? And, what might be th e ir future importance in
the fin a n c ia l c i r c l e s o f t h is country?
This study does not have as i t s purpose the support
or condemnation of c r e d it u n ion s. R ather, i t i s the pur
pose o f t h is study: (1) To in v e s tig a te the a ctu a l fu n c
tio n s o f c r e d it unions; (2 ) to in q u ire in to the importance
o f th e ir growth; (3) to in v e s tig a te the fa c to r s which have
jcon tribu ted to , or lim ite d , the growth o f c r e d it unions;
[and (l\.) to con sid er the p o ssib le fu tu re im portance o f
I
'c r e d it unions in the fin a n c ia l stru ctu re o f our s o c ie t y .
!
I Importance o f the stu d y. The growth o f c r e d it
i
|u n ion s, b oth a s an o u tle t for e x c e s s funds o f in d iv id u a l
i
members and as a source o f consumer c r e d it , ..has been
p a r tic u la r ly rapid in the l a s t decade. In 1953# c r e d it J
i (
|unions in C a lifo rn ia had a g rea ter percentage g a in in sav- |
* I
in g s than did any other o u tle t fo r in d iv id u a l sa v in g s.^ j
!
:At the end o f 1955# th ese in s t it u t io n s ranked behind com
m ercial banks and fin a n ce companies in the f i e l d o f con- j
i
sumer c r e d it , but th e ir percentage in crea se in the p rev io u s|
a !
jfour y ea rs was the g r e a te s t. Thus, the q u a n tita tiv e im- j
!
portance o f c r e d it unions cannot be overlooked in a study j
o f fin a n c ia l in s t it u t io n s , j
i
j By r e c e iv in g the surplus funds o f in d iv id u a ls and j
j d is tr ib u tin g them to oth ers who are seek ing lo a n s fo r con-
!sumer purposes, the c r e d it union a c ts as a tr a n sfe r a g en t, j
By t h is p ro ce ss, the p resen t spending power o f one person
i
Is decreased in retu rn fo r the o ffe r to p lace h is funds 1
where they may earn a good retu rn w ith reason able s a fe ty .
Thus, a chain o f events i s sim u ltan eou sly begun by in c r e a s
in g the purchasing power o f another member o f the union
through a lo a n . The l a t t e r member e ith e r purchases goods
^Por 1953# C a lifo r n ia savin gs and loan a s s o c ia tio n s
showed an in crea se o f 26 .8 per c e n t, time d ep o sits in com
m ercial banks in crea sed 5*2 per ce n t, c r e d it union shares
! in crea sed ij.3*7 per c e n t, and t o t a l liq u id savin gs o f In d i
v id u a ls in the U nited S ta te s in creased 6 .3 per c e n t.
I ^Federal Reserve B u lle t in , February, 1956, p . 1376,
I reported changes in the U nited S ta te s, as a *diole, fo r the
^four years ending December 1955s T otal in stalm en t c r e d it,
up L j .9 per cen t; in stalm en t c r e d it in commercial banks, up
37 per cen t; in s a le s fin an ce com panies, up 8J 4 . per cen t;
in c r e d it u nion s, up 88 per c e n t.
f
I
or s e r v ic e s , thereby in crea sin g economic a c t i v i t y . I t i s
not d i f f i c u l t to see th a t the assem bling and tr a n sfe r r in g
o f funds c a r r ie s -with i t in d iv id u a l, econom ic, and fin a n -
i
c i a l im p lic a tio n s .
C redit unions are d ir e c tly concerned w ith the fin a n
c i a l in te r e s ts o f th e ir members, who are in v e sto r s in or
may be borrowers from th ese in s t it u t io n s . As th ese i n s t i - j
; tu t io n s have grown, the siz e and number o f groups a ffe c te d
;by them have a lso expanded. A lso , as a n a tu ra l development
! «
,of t h is chain r e a c tio n , in d iv id u a l im p lica tio n s have become 1
i i
|s o c ia l and economic im p lic a tio n s . The consumer goods and
i :
:se r v ic e s purchased through c r e d it union lo a n s , the liq u id - |
I
I j
llt y o f investm ent in th e se in s t it u t io n s in which more and
i j
more in d iv id u a ls have en tru sted th e ir sa v in g s, and the !
com p etitive a sp ects o f the savings and len d in g fu n ctio n s o f
c r e d it unions are d e f in it e ly o f economic and fin a n c ia l con
cern . C redit unions have grown to such p rop ortions th a t,
today, they are an im portant fa c to r in any o f th ese co n sid
e r a tio n s ♦
I
I C redit unions have been d iscu ssed p rim a rily , by
|
j stu d en ts, fo r th e ir s o c io lo g ic a l im p lic a tio n s; or by those
i
a f f i l i a t e d w ith the c r e d it unions or th e ir co m p etito rs•
Those a f f i l i a t e d w ith the c r e d it unions and those in com-
|p e titio n w ith them have emphasized the favorab le or u n fa
v o ra b le c h a r a c te r is tie s in v o lv ed . I t i s d i f f i c u l t to make
I
an o b je c tiv e appra is a l on the b a s is of b iased in form ation .
7
L it t le attem pt has been made p rev io u sly to b rin g togeth er
the fa c tu a l m a teria l v i t a l to such an a p p r a isa l. The bulk
o f in form ation a v a ila b le on the su b ject i s d ir e c te d to one
who i s w illin g to have h is thoughts guided by o th e r s.
L it t le i s a v a ila b le to a student who i s making h is own de
c is io n from a com plete com p ilation o f f a c t s . T his study
was made to provide o b je c tiv e u p -to -d a te inform ation on the
su b ject in order fo r the author to reach a c le a r under
standing o f the q u a lita tiv e and q u a n tita tiv e s ig n ific a n c e
o f c r e d it u n io n s.
I I . DEFINITIONS O F T E R M S USED
In the communication o f one person 1 s thoughts to
another, there are o ften m isin te r p r e ta tio n s because o f a
la c k o f m u tu ality in the understanding o f c e r ta in words or
p h ra ses. T h erefore, i t seems im portant at the o u tse t th a t
c e r ta in terms and words which la ck a common meaning, or are
p ec u lia r to c r e d it union c i r c l e s , be c a r e fu lly d efin ed so
i
as to avoid m isunderstandings la te r in t h is exam ination o f j
c r e d it u n io n s. j
Saving. In th is stu d y, the term nsa v in g ” i s used tO|
in d ic a te the process, by which in d iv id u a ls r e fr a in from \
spending- th e ir en tire n e t income or earnings fo r goods and 1
s e r v ic e s during a sta te d p erio d . In d iv id u a ls r e ta in a J
<
c e r ta in p o rtio n o f th e ir funds fo r use in fu tu re eonsump- !
tio n by the a ct o f sa v in g .
i
S a v in g s. As used in t h is study, the term ftsavings"
in d ic a te s the q u an tity o f funds saved and d ep o sited ■with
savin gs banks, the sa vin gs departments o f commercial banks,
the p o sta l savin gs system , U nited S ta tes savin gs bonds,
e q u itie s in l i f e in su ran ce, or in v ested in c r e d it unions or
savin gs and loan a s s o c ia tio n s . I t i s g e n e r a lly assumed
j
,th a t the person h old in g h is savings in such forms i s prima
r i l y in te r e s te d in the p reserv a tio n o f th e ir liq u id it y so
ith at they may be r e a d ily a v a ila b le fo r future spending.
j
jAnd, furtherm ore, he i s g en er a lly in te r e s te d in s a fe ty o f
|p r in c ip a l as opposed to s t a b i l i t y o f purchasing power or
i
d e sir e for c a p ita l a p p r ec ia tio n .
Investm en t. The term "investm ent" i s used to in d i
cate the process by which funds are p la ced in a b u sin ess or
[ in s tit u tio n fo r a r e la t iv e ly long p eriod in order to r e
ce iv e regu lar retu rn s in a d d itio n to maximum s a fe ty .^
Shares in c r e d it unions a re, th en , in v estm en ts.
j
j F in a n cia l i n s t i t u t i o n . The term " fin a n c ia l i n s t i t u
t i o n ” i s used to r e fe r to an o rg a n iza tio n s p e c ia liz in g in
| assem bling money or claim s to money from in d iv id u a ls or
I
i - ..I
! ?Byrne J . Horton, J u lia n R ip ley , J r ., and M. B.
ISchnapper, D ictio n a ry o f Modern Economics (W ashington,
jD.C.: P ublic A ffa ir s P r e ss, 19if8), p . 181 #
groups, and in tr a n sfe r r in g such funds to oth ers who have aj
current need fo r funds which exceeds th e ir current su pp ly. |
A more productive and e f f e c t iv e d is tr ib u tio n o f funds and
i
i
c a p ita l goods r e s u lts from t h is p ro cess than i f a large
ft
number o f fin a n c ia l middlemen d id not e x i s t . C redit ;
i
unions are thus fin a n c ia l in s t it u t io n s . j
Savings in s t i t u t i o n . The term nsavin gs in s t it u t io n ” i
!in d ica tes a fin a n c ia l in s t it u t io n which has as one o f i t s
i
^primary purposes the dual fu n ctio n s o f a c tin g as an o u tle t
|for in d iv id u a l savin gs and as an in v e sto r o f such funds.
\A savin gs in s t it u t io n i s a means whereby in d iv id u a l savin gs
' t
jreach the market fo r investm ent funds and, as such, become !
j >
an a d d itio n to the country1s t o t a l in vestm en t. Since the :
i
e x iste n c e o f savings in d ic a te s th a t savers are p rim arily I
I
concerned w ith the p reserv a tio n o f the p r in c ip a l amount o f
th e ir funds, a savin gs in s t it u t io n must s t r e s s s a fe ty o f
p r in c ip a l in i t s investm ent program in order to come w ithin
!the lim ita tio n s o f the term as used in t h is study. A sav-
i
|in g s in s t it u t io n thus may be a savin gs bank, a savings
i
'department o f a commercial bank, the p o s ta l savin gs system ,
i
ja l i f e insurance company, a savin gs and loan a s s o c ia tio n ,
lor a c r e d it u nion.
j ® R ollin G. Thomas, Our Modern Banking and Monetary
.System (lew York: P ren tice H a ll, I n c ., 195oT, pp. 7 1-72.
ic n
i
C redit u nion . A " c red it u n ion ” i s d efin ed by c r e d it
--------------------------------------------------------------------------------------------------------------------- I
union lea d ers as a coop erative s o c ie ty organized to promote|
j
t h r if t and savin gs among i t s members, and to make loan s to ■ !
members who have a le g itim a te need fo r current fu n d s.9 |
There are many other d e fin itio n s o f c r e d it u n ion s, but a l l |
seem to agree on the fo llo w in g p o i n t s !
a . C redit unions are co rp o ra tio n s. j
b . They are organized only among groups o f common
'bond.
!
c . Their m otive i s s e r v ic e .
d. Their purpose i s to promote t h r i f t and to pro-
,vide c r e d it fo r p rovid ent or productive purposes.
j e . Ownership and c o n tro l r e s t s in the members. j
j
I These a s s o c ia tio n s are chartered under the laws o f j
I i
■the s ta te or te r r ito r y in which they operate or under
J T itle 12, U nited S ta te s Code, Chapter XIV (The F ederal
i
|C redit Union A ct), as amended.
i
| S tate c r e d it u n io n s. By November 195^* kb s t a t e s ,
‘ the D is t r ic t o f Columbia, and Puerto Rico had passed l e g i s -
i
jla tio n au th orizin g the estab lish m en t o f lo c a l c r e d it
^Roy F. Bergengren, C ooperative Banking (New York:
The MacMillan Company, 1923)* PP. 2 -3 .
R esearch C oun cil, American Bankers A sso c ia tio n ,
C redit U nions, March, 1955* P* 3*
I -^U nited S ta tes Bureau o f Federal C redit U nions,
| Federal C redit Union Handbook, r e p r in t, September, 1954*
Washington 25* D .C ., p . 1 .
[ : 11"!
u n io n s .^ The term M s ta te c r e d it u n ion s” i s used to r e fe r '
I
»
to c r e d it unions e s ta b lis h e d under these law s. Although |
i
the d e t a ils o f the laws d if f e r in many r e s p e c ts , they give
the c r e d it unions e s ta b lish e d under th e ir p ro v isio n s much I
the same power in scope o f o p era tio n . In C a lifo r n ia , a j
C redit Union Act was approved by the governor on March 31, j
1 9 2 7 .12 Although the supervisory a u th o rity d iff e r s by
s t a t e s , in C a lifo r n ia the r e s p o n s ib ility i s fix e d w ith the j
: I
C orporation Commissioner. ,
t
F ederal c r e d it u n io n s. Federal c r e d it unions are
those a s s o c ia tio n s chartered by the Bureau o f Federal
jcred it U nions, U nited S ta tes Department o f H ealth, Educa- j
tio n , and W elfare under the p ro v isio n s o f T itle 12, U nited
i
l
S ta te s Code, Chapter XIV. (The F ederal C redit Union Act o f;
1
\193k- as amended.)
I
I
C redit u n io n s. This term i s used to r e fe r to th a t
■ ■ ■ ■ * ■ ■ ■ ■ I
group o f in d iv id u a l fe d e r a l and s ta te c r e d it unions o p era t- ,
1
ing in a given a rea . In d iv id u a lly , c r e d it unions do not
1
in e c e ssa r ily conform to the p a ttern o f c r e d it unions as a
1
w hole.
| ^ R esea rch C oun cil, American Bankers A sso c ia tio n ,
j C redit U nions, March, 195?> P« 3*
! l^The C red it Union Act i s contained in the F in a n c ia l
ICode, S ta te of C a lif o rn ia .
12 1
i
CUNA. C redit Union la t io n a l A sso c ia tio n (CUNA) i s
l
lo c a te d in the F ile n e House, 1617 Sherman Avenue, Madison, |
W isconsin. In 1931}., c r e d it union lea d ers in the U nited j
I
S ta te s gathered at E stes Park, Colorado, and formed a na-
i
tio n a l a s s o c ia tio n o f c r e d it u n io n s. Their g o a ls in
i
t
forming t h is a ss o c ia tio n were;
1 . To promote th e o rg a n iza tio n o f new c r e d it
i
u n io n s.
i
[ 2 . To p e r fe c t c r e d it union la w s.
i
| 3 . To improve methods and op eration s o f c r e d it
I-unions •
Ij.. To coordinate and d ir e c t the e f f o r t s o f a l l j
i
!c r e d it unions in th e ir prime o b je c tiv e —the e lim in a tio n o f
t
I I
usury in the p ersonal finan ce f i e l d . i
i
C redit Union N ation al A sso c ia tio n membership con
s i s t s o f e le c te d r e p r e se n ta tiv e s o f c r e d it union le a g u e s,
Jbut where there i s no league in a s t a t e , the c r e d it unions
may jo in C U N A d ir e c tly u n t il enough c r e d it unions are
organized in th a t area to make a league p r a c t ic a l.
t
I
C redit union le a g u e s . T his term was used to r e fe r
jto the a s s o c ia tio n s organized in most s ta te s and t e r r i -
'to r ie s to coordinate and d ir e c t the e f f o r t s o f a l l c r e d it
■unions in th e ir sta te or t e r r it o r y . They rep resen t the
jmember c r e d it unions a t CUNA. These leagu es have the main
jr e s p o n s ib ility fo r c r e d it union o rg a n iz a tio n , se r v ic e ,
. _ _ . (
ed u cation, and inform ation in th e ir own s ta te or te r r it o r y . J
C U N A i s fin an ced by dues paid by the member le a g u e s, and j
the le a g u e s, in turn, c o l le c t dues from th e ir member c r e d it
13
unions in p roportion to th e ir s i z e . • * '
Leagues have worked to ob ta in passage o f s ta te
c r e d it union law s, and they h elp c r e d it unions m aintain
good r e la tio n s w ith th e ir governm ental su p ervisory author-
l i t i e s . Leagues hold co n feren ces, c l i n i c s , and sch ools for
i
c r e d it union o f f ic e r s . They is s u e regu lar p u b lic a tio n s to i
I ’ ■ !
i t
a s s i s t c r e d it unions and operate supply depots to make
! *
i
[a v a ila b le to a l l c r e d it unions in th e ir area lo w -co st book-,
!
|keeping form s, su p p lie s, and a d v e r tisin g m a te r ia l.
j I I I . LIMITATION O P T H E STUDY |
!
The period chosen fo r stu d y . This study i s con
cerned w ith the period o f time from 1939 through 1955
This p eriod was chosen so th a t emphasis could be placed on !
p resen t developm ents, as w e ll as allow in g fo r a review o f
the p a st six te e n y e a r s. S t a t is t i c s p rio r to 1 9 3 9 .on c r e d it
j union growth were rath er inadequate, but many men in the
■ fin an cial f i e ld look back to 1939 as the la s t "normal”
| ^ C r e d it Union N ation al A sso c ia tio n , The C redit
Union Yearbook, 1951a.. P llen e House, Madison 1 , W isconsin,
p T T p T
j ^ I n th is study, s t a t i s t i c s as o f December 31, 1955*
iwere u sed fo r r e fere n c es to the " p re se n t.”
y e a r . A lso , in the years p rio r to 1939, t h is country was
recoverin g from the g rea t d ep ression which was at i t s
depths in the 1930’ s ,
The s e le c tio n of t h i s s ix te e n -y e a r p e rio d provided
an o p p o rtu n ity to study c r e d i t unions under a v a r ie ty of
economic c o n d itio n s . F i r s t , t h i s p erio d in clu d ed somewhat
normal c o n d itio n s . This was follow ed by a phase o f h ig h
jle v e ls of incomes and liq u i d savings b ro u g h t about by World
'War I I . N ext, the p e rio d o f study in clu d ed a post-w ar
jboom, a le v e lin g - o f f p e rio d , and th en a p e rio d of h ig h em
ploym ent and income stim u la ted by our en tran ce in to the
i
'Korean h o s t i l i t i e s . Since the c e s s a tio n of the Korean
j f ig h tin g , we have e n te re d a new and even h ig h e r p e rio d o f
employment, income, and p e rso n a l sa v in g s. Throughout the
y e a rs covered by t h i s study, we have w itn essed a changing
a t titu d e toward sa v in g s. T h is, in p a r t, was due to th e
changing supply of consumer goods and to a re c o g n itio n of
i
the co n tin u in g decrease in the purchasing power of th e
d o lla r . Throughout most of the p e rio d , th e re was a lso a
i
Ig reat p o p u la tio n in c re a se in C a lifo rn ia , which a f fe c te d a l l
;phases o f f in a n c ia l and economic l i f e .
The p erio d from 1939 through 1955 was, th e r e f o r e , a
p a r t i c u l a r l y i n te r e s ti n g and im portant one in which to
study the a c t i v i t i e s of a f in a n c ia l i n s t i t u t i o n which grew
jw ith the development o f C a lif o rn ia .
15'
I
G eographical l i m i t a t i o n . This study i s p a r t i c u l a r l y 1
i
concerned w ith c r e d i t unions in C a lif o r n ia , There are many!
i
in s ta n c e s , however, when i t seemed im p o rtan t to use d a ta j
i
r e l a t i v e / to the U nited S ta te s as a whole because o f the
a v a i l a b i l i t y of d a ta , or in order to compare tre n d s in
I
C a lif o rn ia w ith the n a tio n as a whole, !
j
i
Types o f c r e d i t unions s tu d ie d . There are two ty p e s !
i ~
I
!of c r e d it unions o p e ra tin g in C a lif o rn ia : A f e d e r a lly
•ch artered c r e d it union, and c r e d i t unions c h a rte re d under j
I
;the s ta te s ta t u t e s through th e Commissioner o f C orporations.
j
! Although th ese two types o f c r e d i t unions are b a s ic --
|a l ly the same, the ex a ct d e t a i l s of t h e i r powers to borrow I
i
land lend are somewhat d i f f e r e n t .
! This study in c lu d es both types o f c r e d it u nions, b u t'
emphasis i s p laced upon the f e d e r a lly c h a rte re d c r e d i t
union because of the more a c c u ra te s t a t i s t i c s a v a ila b le a n d ’
i - i
Ibecause they outnumber the s ta te c r e d i t u n io n s.
I
! IV. REVIEW OF LITERATURE
I
!
| There i s abundant w r itte n m a te r ia l concerning c r e d it
junions, and w hile much o f i t has been u s e fu l in t h i s study,
i
j i t i s f e l t th a t much was w ritte n by those a f f i l i a t e d w ith
c r e d i t unions or by t h e i r co m p etito rs and was, th e re fo r e ,
;b ia se d to a g re a t e x te n t. Many o f the books which con-
i ‘
jearned them selves w ith c r e d it unions were more d e s c rip tiv e
th an a n a ly tic a l and tr e a te d c r e d it unions as a whole r a th e r j
than by p a r tic u la r a r e a s , \
i
In 1931+, c r e d it unions marked a great m ilesto n e w ith!
I
the passage of the F ed eral C re d it Union A ct. T his l e g i s l a - j
i
tio n le d to the form ation of many c r e d i t unions under th e
1
same law ra th e r th an d i f f e r i n g laws o f the s e v e ra l s t a t e s , i
!
Books and stu d ie s w ritte n p r i o r to 193k- SLre o t value in th e J
study of today*s c r e d i t unions only in s o f a r as a l l h is to r y
;c o n trib u te s to the u n d erstan d in g of the p re se n t by examin- ;
i
1 ’
|ing the p a s t . :
| B esides Roy F. Bergengren*s books, two s tu d ie s o f
; c r e d it unions have been w ritte n sin ce passage o f the
1
Federal C redit Union A ct. In 1939, only f iv e years a fte r
passage o f th e A ct, Harvard U n iv e rsity Press pub lish ed 1
jJoseph L. Snider* s C redit Unions in M assach usetts. This
| study has been outdated by the f a s t growth of c r e d it unions
i
over the p a st s ix te e n y e a rs , and, a ls o , most o f the study
1
Ideals w ith s t a t i s t i c s g ath ered b efo re the e f f e c t s o f the
'F e d eral Act were re c o g n iz a b le . I n 19V7, Columbia U niver-
1
js i ty P re ss p u b lish ed E l i Shapiro*s study on C re d it Union
i
iDevelopment in W isconsin. This volume, alth o u g h more c u r-
l " ~
|r e n t, a lso d eals w ith in fo rm atio n g ath ered w ith in a lim ite d
jgeographical a re a and did n o t in c lu d e th e ra p id post-w ar
!
'expansion. Roy F. Bergengren*s books e x p la in the h is t o r ic a l
!
|background of worldwide c r e d i t union growth, t h e i r funda
m e n tals, and b io g ra p h ic a l s tu d ie s of c r e d it union f o u n d e r s .,
17 1
Being so c lo s e ly connected w ith the growth o f t h is move- [
ment, and w ith h is extreme adm iration fo r i t s foun ders, he
could not h elp but be biased# H is l a s t p u b lic a tio n i s
q u ite recen t but covers a period ending some seven years
b efo re p u b lic a t io n .^
Pew authors w ritin g on investm ents or fin a n c ia l in
s t it u t io n s have devoted s e c tio n s to c r e d it unions# Where
they have included t h is su b je c t, the m a te ria l i s la r g e ly
d e sc r ip tiv e rath er than a n a ly tic a l. S in ce changes are con
sta n t in fin a n c ia l s u b je c ts , the m a teria l i s outdated even
b efore i t i s p u b lish ed .
P e r io d ic a ls d ea lin g w ith fin a n c ia l m a tter s, such as
Burroughs C learing House, B u sin ess Week, Journal o f B u si
n e s s , and The Journal o f F inance, p u b lish curren t a r t ic le s j
concerning c r e d it unions and d iscu ss various phases o f the j
c r e d it union f i e l d . Although th ese a r t ic le s are current
and some are a n a ly tic a l, they are o fte n inadequate and only:
1
i
cover p a r tic u la r a re a s.
CO TA, through i t s monthly m agazine, C redit Union
lA
B rid ge, p u b lish es a r t ic le s o f current in te r e s t to c r e d it j
union members and o f f i c i a l s . This magazine a lso con tain s
^R oy F. Bergengren, Crusade—The F ight fo r Economic
1 Democracy in Worth America, 1921-45 (Hew York: E x p o sitio n
P ress, 19527.
•^ C redit Union Bridge i s an o f f i c i a l p u b lic a tio n o f
!the C redit Union N ation al A sso c ia tio n , Madison, W isconsin.
18
a r t ic le s r e la tin g to the te c h n ic a l fu n ctio n in g o f in d iv id
u a l c r e d it unions and o p era tio n a l problems th a t have been
s u c c e s s fu lly met by c r e d it union o f f i c i a l s .
The Annual Beport o f the Bureau o f Federal O redit
U nions, S o c ia l S ecu r ity A dm in istration , U nited S ta te s De
partment o f H ealth, E ducation, and W elfare, g iv e s e x c e lle n t
s t a t i s t i c a l m a te ria l on c r e d it union developm ent. Inasmuch
as t h is agency has been gath erin g s t a t i s t i c s on fe d e r a l
jcred it unions only sin ce 19^8 and on s ta te chartered c r e d it
|unions sin ce A pril 1953, c o n tin u ity o f s t a t i s t i c s and u n i-
jform ity o f rep ortin g i s la c k in g .^ A valu able source o f
i
:c r e d it union s t a t i s t i c s i s a v a ila b le in the C redit Union
^Yearbook, published annually by the C red it Union N ation al
i
i
A sso c ia tio n , Madison 1 , W isconsin. These sources o f in fo r
m ation and th e ir p red ecessor rep o rtin g agen cies were r e lie d
iupon con sid erab ly in conducting th is stu d y .
j In d iv id u a l c r e d it unions do not p u b lish much ma-
!
I t e r ia l, probably because o f the co st in volved and the low
overhead they endeavor to m ain tain . The c r e d it union
leagu es and C U N A have a g rea t deal o f inform ation in c ir c u
la t io n which i s o f in te r e s t in the prom otional asp ects but
jis inadequate fo r the purposes of an o b je c tiv e ev a lu a tio n
i
o f c r e d it u n ion s.
•^ Supervision o f F ederal C redit Unions was tr a n s
fer r ed from the Federal D ep osit Insurance Corporation to
the Department o f H ealth, E ducation, and W elfare in 191+8 •
Thus i t i s seen th a t a f a i r q u a n tity o f in fo rm atio n
concerning c r e d i t unions has been p u b lish e d . T his study i s
i
undertaken in an attem pt to provide a sin g le source o f ,
c u rre n t and unbiased in fo rm atio n on c r e d it union growth |
I
w ith in s p e c if ic l i m i t s . I t i s p rep ared in the form of an
a n a ly s is in th e hope th a t i t may be a c o n trib u tio n to s t u
d en ts of fin an c e who are in te r e s te d in the ro le c r e d it i
i
i
mnions are p la y in g in the U nited S ta te s today, p a r tic u la r ly i
I :
'in C a lif o rn ia .
\ I
i
! i
! V. ORGANIZATION OF THE REMAINDER OF THE THESIS
I
i
Chapter I I was an in v e s tig a tio n of the f a c to r s w hich 1
have c o n trib u te d to the growth o f c r e d it unions in C a li-
!
I f
jfo rn ia . To accom plish t h i s , the ch a p ter d e a lt w ith the j
j a v a i l a b i l i t y of funds; the sources of lo an ab le fu n d s; the '
i
Jlow overhead and c o s ts fo r c r e d i t unions and th e ta x s ta tu s
|of c r e d i t u n io n s. This c h a p te r a lso d e a lt w ith th e ro le o f ;
j c U N A , enab lin g l e g i s l a t i o n and i t s amendments, and trad e
| uni on and management support of the c r e d i t union movement.
i 4
A ll of th e se have been f a c to r s which have encouraged the
^expansion of c r e d i t u n io n s.
I Chapter I I I co n sid ered the f a c to rs th a t have tended
I
to l i m i t the growth of c r e d i t u n io n s. Such f a c to r s as th e
la c k of s k il le d p ersonnel to organize c r e d i t unions and the
!i n a b i l i t y of c r e d it unions to o f fe r generous com pensation
| A
as an in c e n tiv e to good management t a l e n t were in v e s tig a te d
" 2 o 1
as lim itin g f o r c e s . T his c h a p te r a ls o d e a lt w ith th e scope!
i
o f membership and c r e d i t u n io n liq u i d a ti o n r e c o r d . A lso j
i
i
in v e s tig a te d was th e r e lu c ta n c e o f company management to
allo w e s ta b lis h m e n t o f c r e d i t u n io n s o r to o f f e r them
m onetary a s s is ta n c e , inhere t h i s re lu c ta n c e i s found in |
company management, th e re i s seldom much hope o f e s t a b l i s h
in g a c r e d i t u n io n which would embrace th e firm 1 s em ployees.
i
C hapters I I and I I I in v e s tig a te d the fo rc e s w hich
jhave c o n trib u te d to and lim ite d th e grow th o f c r e d i t u n io n s;
.This was done to p ro v id e a background f o r a c l e a r e r u n d e r- '
!sta n d in g o f th e f in a n c ia l im portance o f c r e d i t u n io n s in
!C a lif o r n ia as an aly zed in C hapter IV . The r e l a t i v e q u a n ti-
i ;
t a t i v e im portance o f c r e d i t unions in th e f i e l d s o f s a v in g s ,
and consumer le n d in g in C a lif o r n ia was an aly zed i n t h i s I
c h a p te r. The p ro b ab le re a so n s f o r th e in c re a s in g s i g n i f i - |
eance o f c r e d i t u n io n s in C a lif o r n ia was a ls o an aly zed in ,
C hapter IV . ;
i
I :
C hapter V was d evoted to a summary o f th e in v e s tig a - :
ti o n and c o n c lu sio n s re a c h e d as a r e s u lt, o f th e fin d in g s o f
J t
't h i s stu d y .
!
j A s e le c te d b ib lio g ra p h y o f so u rces o f in fo rm a tio n
jused in t h i s in v e s tig a tio n fo llo w ed C hapter V.
CHAPTER I I
FACTORS “ W H ICH H AV E CONTRIBUTED TO
THE G R O W T H OF CREDIT UNIONS
Purpose o f the c h a p te r . The purpose o f t h i s c h a p te r
i s to in v e s tig a te s e le c te d f a c to r s w hich seem to have con
t r i b u te d to th e grow th o f c r e d i t u n io n s in C a lif o r n ia and
to an aly ze t h e i r e f f e c t upon t h i s g ro w th .
I . H O W TH E AVAILABILITY OF FUNDS HAS CON
TRIBUTED TO THE G R O W T H OF CREDIT UNIONS
Share o w n ersh ip . One o f the two m ain p u rp o ses o f
c r e d i t u n io n s , as ad v o cated by th e fo u n d e rs, i s th e promo
tio n o f t h r i f t among th e members. Under th e in flu e n c e - o f
a c tiv e prom otion and a d v e r tis in g , sav in g s i n c r e d i t un io n s
have grown, and th e average s iz e of in d iv id u a l sh are ac -
co u n ts h as in c re a s e d . W ith th e grow th o f sa v in g s, c r e d i t
unions have had more money to lo a n in alm o st ev ery y e a r
sin c e t h e i r fo u n d in g .
Whereas banks m ust h o ld b o th prim ary and secondary
!re s e rv e s a g a in s t w ith d raw al demands, c r e d i t u n io n s , lik e
i s a le s fin a n c e and sm all lo a n com panies, lo a n alm ost a l l and
som etim es more th a n a l l o f th e funds in v e s te d w ith them .
^Table IV, page 38, shows t h is growth in c r e d it
unions in C a lifo r n ia .
- -- - -- - ■ - - - 221
I
As seen l a t e r in t h i s c h a p te r, c r e d i t u n io n s borrow and in |
some cases have lo a n s to members o u tsta n d in g which exceed
sav in g s p la c e d w ith them b y + members.
| As Table I , page 25, in d ic a te s , c r e d it unions in
C a lif o r n ia have been ab le to in c re a s e t h e i r lo a n volume :
from #10,200,000 in 1 % 2 to #250,700,000 in 1955. T h is i s j
I
p ro b ab ly p a r t i a l l y because o f th e in c re a s in g demand fo r j
■loans, the in c re a s in g amount o f sa v in g s, and the in c re a s in g !
i
ipercentage o f sav in g s th a t i s lo a n e d . T h is ta b le a ls o r e -
I
i ;
f l e e t s th e sh o rtag e o f consumer goods and c r e d it r e s t r i e - ;
tio n s d u rin g W orld War I I , which r e s u lte d in a n atio n -w id e
in c re a s e in sav in g s and a d e c re ase in consumer c r e d i t . I f •
I i
l i t were n o t fo r th e c o n s ta n t grow th o f sav in g s and th e
i ;
a v a i l a b i l i t y o f borrow ed fu n d s, c r e d i t u n io n s would have to i
i
h o ld s u f f i c i e n t l iq u i d a s s e ts to m eet w ith d raw als i f w ith - !
draw als were to be g ra n te d upon demand. W ith sa v in g s on an
in c re a s e , in alm ost ev ery y e a r sin c e c r e d i t u n io n s were j
e s ta b lis h e d , lo an s co u ld be in c re a s e d c o n tin u a lly w ith o u t
much lo s s o f l i q u i d i t y . To show th e e x te n t to w hich sm all
ic re d it u n io n s le n d sa v in g s, two sm all c r e d i t u n io n s were
i
jpicked a t random, and t h e i r lo a n s and sh a re s o u ts ta n d in g
■were as fo llo w s f o r s e le c te d y e a rs :
23
H u n tin g to n Beach C ity Employees C re d it Union
(Organized January 1953)
P a r tia l F in a n cia l Statem ent as o f May 31, 195k-
Loans R eceivab le $17,627
Shares O utstanding $18,806
P a r tia l F in a n cia l Statem ent as o f December 31, 19514-
Loans R eceivable $32,929
N otes Payable—Bank $ 3 ,0 0 0
Shares O utstanding 3 2 ,l|5 l
P a r tia l F in a n cia l Statem ent as o f July 31, 1955
Loans R eceivable $55,914-9
Notes Payable
Bank $ 3,000
Other C redit Unions 5 ,000
Shares O utstanding 1^5,922
P a r tia l F in a n cia l Statem ent as o f Ptebruary 29, 1956
Loans R eceivable $66,389
Notes Payable
Bank $ 1,000
Other C redit Unions 5 ,000
Shares Outstanding 60,9^5
2 lf
Im perial Community F ederal C redit Union
(Organized in 1950)
P a r t i a l F in a n c ia l S tatem en t as o f June 3 0 , 1 9 5 3
Loans R eceiv ab le $ 3 8 , 1 6 7
Loans Payable
Other C redit Unions N il
Shares Outstanding $lj.0,lljlj.
P a r t i a l F in a n c ia l S tatem en t as o f O ctober 31* 195^1-
Loans R eceiv ab le $51*388
Loans Payable
Other C redit Unions $ 6,666
Shares Outstanding lj.9*i|36
P a r t i a l F in a n c ia l S tate m en t as o f December 31* 195^ 1-
Loans R eceiv ab le $55*870
Loans Payable
Other C redit Unions $ ij.,999
Shares Outstanding 51*675
P a r t i a l F in a n c ia l S tatem en t as o f May 31* 1955
Loans R eceiv ab le $ I j 5 * 7 7 2
Loans Payable
Bank $ 833
Share s Out s tan ding I 4 . 7 ,075
TABLE I
LO A N S O UTSTANDING A N D
CREDIT UNIONS
(M illio n s
INVESTED SAVINGS
IN CALIFORNIA
o f D o lla rs)
IN A L L
i
Year End
Loans
ou tstan din g
Share
investm ent
Percentage
o f in v ested
c a p ita l loaned
1914-2 # 1 0 .2 $ 20 .0 5 1 . 0$
1914-3 7 .9 2 0 . 1 ; 3 3 . 2#
191A
)
7 .8 2 2 .3
31;. 1#
19145
8 .2 2 3.1
3 5 .5 #
I 9I 46
114..5 2 7 .5 5 2 .7 #
1914.7
21;. 8
31;. 0 72 .9fo
1914-8 36.1; 142.8 85. 0#
1924-9
1;9.3
5 7 .0
8 6 . 5#
1950 69.1; 7 5 .0 9 2 .5 #
1951 75 .7 9 3.2 8 1. 2#
1952
105.7 123.1;
85.7#
1953 165.9 177.2; 93.1;#
1952; 203.3
211.2 9 6 .2 $
1955 250.7 2 6 9 .1 ; 93.0$
SOURCE: Monthly Labor Review p ub lish ed s t a t i s t i c s
annually on s ta te c r e d it unions u n t il 1953* when the U nited
S ta tes Bureau o f Federal C redit Unions began accum ulating
th ese s t a t i s t i c s fo r p u b lic a tio n in the S o c ia l S ecu rity
B u lle t in ; Reports on O perations o f Federal C redit U nions,
p u b lish ed annually by the U n ited lT ta tes Bureau o f Ftederal
C redit U nions.
261
I
As th e se sta te m e n ts in d ic a te , some c r e d i t u n io n s j
le n d more th a n th ey have re c e iv e d from th e sh a re s o u ts ta n d -j
in g to members. However, lo a n s g e n e ra lly exceed sav in g s
o n ly where th e c r e d i t u n io n i s b o rro w in g . The m a jo rity o f
\
funds lo a n ed by a c r e d i t u n io n , how ever, a re o b ta in e d from |
members1 in v estm en t in s h a re s . Because sa v in g s in c r e d i t
u n io n s has in c re a s e d r a p id ly , lo a n s co u ld be e x te n d e d in
:g r e a te r volum e. W ithout the grow th of sa v in g s, lo a n volum e'
i
!co u ld n o t have been in c re a s e d as r a p id ly as i t h a s i n th e !
i
jp a s t. '
i
I t i s p ro b ab le th a t some o f th e grow th o f share
i
;ow nership i s a t tr i b u t a b l e to th e L ife Savings In su ra n ce j
program which i s a v a ila b le to many c r e d i t u n io n members.
Under t h i s p la n , a c r e d i t u n io n buys l i f e in su ra n c e * from j
C U M A M utual In su ra n c e S o c ie ty on the liv e s o f i t s members !
in an amount eq u a l to t h e i r sav in g s up to $ 1 ,0 0 0 .^ The !
c r e d i t u n io n p ro v id e s t h i s in su ran c e o u t o f e a rn in g s to j
encourage members to save r e g u la r ly and to p ro v id e in s u r - •
ance p r o te c tio n to a m em bers fa m ily . On December 31,
1 9 5 5 , l l , i j . 7 2 o u t o f th e 1 6 , 0 1 1 c r e d i t u n io n s in th e U n ited
!S ta te s were c a rry in g $ 8 7 6 , 2 9 8 , 6 9 1 i n L ife S avings In su ra n ce
on th e l iv e s o f t h e i r m e m b er s . 3 D uring 1 9 5 5 ? C U U A M utual
^The G re d it Union Y earbook, 1956, og. c i t . , p . lj.3.
^Loc. c i t .
2? '
I
p a id claim s on L ife Savings In su ran ce to ta lin g $3*576,736.^*1
T his sum was added to th e sav in g s o f in su re d members who
d ie d and p ro v id ed a d d itio n a l s e c u r ity f o r t h e i r f a m ilie s .
I
In e s s e n c e , th e B ureau o f F e d e ra l C re d it Unions recommends i
!
th a t t h i s in su ra n c e be c a r r ie d by c r e d i t u n io n s, fo r th e y j
i
i
su g g est th a t th e im portance o f the program be p re se n te d to I
th e members a t an annual o r s p e e ia l m e e tin g . They f u r th e r
j su g g est th a t a lth o u g h th e b o ard o f d ir e c to r s can c a n c e l '
| such in s u ra n c e , such a c tio n cannot be tak en w ith o u t i t s b e -
I £
lin g p re s e n te d to th e members f o r v o te B ecause t h i s
governm ental agency e x p re s se s such a p o s itiv e p o s itio n , i t
I
I
1 seems p ro b ab le t h a t many c r e d i t u n io n s are c a rry in g L ife
S avings In su ra n ce which m ight n o t have o th e rw ise d e s ire d to |
I
p a r t ic i p a t e in t h i s program . j
i Because i t i s h an d led on a n a tio n a l s c a le , th e L ife !
i
S avings In su ra n c e program i s much le s s c o s tly to o p e ra te
th a n i t would be i f i t were h an d led on a s t a t e o r lo c a l
i i
jb a s is . By p ro v id in g t h i s in su ra n c e th ro u g h one n o n - p ro f it
i
I o rg a n iz a tio n w hich o f f e r s t h i s type o f in su ra n c e to c r e d i t
i
'u n io n s th ro u g h o u t th e U n ited S ta te s and i t s t e r r i t o r i e s ,
i
premiums are h e ld to th e lo w est p o s s ib le le v e l s h o rt o f
,governm ent a l sub s id y .
! f y -Ib id . , p . Ijlj..
j ^U n ited S ta te s Bureau o f F e d e ra l C re d it U nions,
I F e d e ra l C re d it Union Handbook, W ashington, D .C ., J u ly ,
l1936, p . 11*.. _ ~ _ _
In v estm en t c e r t i f i c a t e s . A lthough f e d e r a l c r e d i t
u n io n s o b ta in funds only th ro u g h iss u a n c e o f sh a re s o r by
bo rro w in g , c r e d i t u n io n s o rg a n iz e d under th e C a lif o r n ia
i
s t a t u t e have a t h i r d method o f o b ta in in g funds* T h is i s
accom plished th ro u g h th e iss u a n c e o f In v estm en t C e r t i f i
c a te s * ^ These c e r t i f i c a t e s resem ble p r e f e r r e d sto c k in a
c o rp o ra tio n b ecau se: (1) The i n t e r e s t i s p a id a t a fix e d
r a t e e s ta b lis h e d by th e b o ard o f d ir e c t o r s , ( 2 ) h o ld e rs
have no v o tin g r i g h t s , (3 ) th e re i s no o b lig a tio n to rep ay
p r in c ip a l, and (I4 .) i n t e r e s t i s p a id only i f earned* Be-
|cau se some people lik e th i s ty p e o f in v e stm e n t, C a lif o r n ia
1
c r e d i t u n io n s have o b ta in e d some funds by th is m ethod. No
s t a t i s t i c s are a v a ila b le , b u t in q u iry in d ic a te s t h a t
p ro b ab ly h a l f o f th e s ta te c r e d i t u n io n s i n th e Los A ngeles
a re a have In v estm en t C e r t i f i c a t e s o u ts ta n d in g . T here seems
!
!to be no re a so n to b e lie v e th a t t h i s r a t i o does n o t h o ld
tr u e th ro u g h o u t the s t a t e ; how ever, no s u b s ta n tia l sum
seems to have been o b ta in e d th ro u g h t h i s m ethod.
C re d it u n io n b o rro w in g s. C re d it unions o rg a n iz e d
under e i t h e r f e d e r a l or C a lif o r n ia s t a t e law can borrow
t
»
I from any source in an a g g re g a te amount n o t to exceed 5 > 0 p e r
^P arag rap h I 4 ., S e c tio n 3 , o f th e C a lif o r n ia C re d it
Union A ct a u th o riz e s iss u a n c e o f th e s e c e r t i f i c a t e s .
29
cent o f p a id -in and unimpaired, c a p ita l and surplus.*^ As
Table I I , page 30, in d ic a te s , fed e ra l c r e d it unions in
C a lifo rn ia have made su b s ta n tia l use o f t h is method o f ob
ta in in g funds. O n December 315 1955, th e ir borrowings
to ta le d $1 4 .,563, 211, or an in crea se o f 155*2 per cent over
1955- E lim inated from th ese fig u r es were ”day lo a n s” fo r
cheek cashing op eration s which, although su b s ta n tia l a t
1
|tim es, are of short d u ration . The Bureau o f Federal C redit
|Unions c a lle d fo r s p e c ia l inform ation as o f December 31,
j l 953, so th at they could analyze c r e d it union borrow ings.
iThey found th a t in C a lifo r n ia , which reported the h ig h est
!
■dollar volume o f lo a n s payable o f any s t a t e , 3$*2 per cent
o f th e ir borrowed funds were from commercial banks, 50 Pe3 ?
cent were from other c r e d it u nion s, and the rem aining 11.8
per cen t were from savin gs and loan a s s o c ia tio n s and
in d iv id u a ls . 8
Borrowing by c r e d it unions from commercial banks i s
encouraged by the Bureau o f Federal C redit U nions, and they
1
|s ta te th a t most banks expect to extend loan s to a c r e d it
1
union on an unsecured b a s is .^ Bankers, on the other hand,
1
] ^Paragraph ( 9 ) , S ectio n 1757, Chapter XIV, T itle 12,
!o f the U nited S ta te s Code; and S ectio n 3 , Paragraph 7 , o f
|th e C a lifo r n ia C redit Union A ct.
! 8
°Report on Operation o f Federal C redit U nions, 1953,
U nited S ta te s Bureau o f F ederal C redit U nions, p . 8 .
9Federal C redit Union Handbook, U nited S ta tes Bureau
o f Federal C redit U nions, p . 21.
TABLE I I
LOANS BY FEDERAL CREDIT UNIONS IN CALIFORNIA TO
OTH ER CREDIT UNIONS A N D LOANS PAYABLE BY
FEDERAL CREDIT UNIONS IN CALIFORNIA
Y ear End
Loans to o th e r
c r e d i t u n io n s Loans P ayable
1 9 5 0 1 , 0 1 2 , 5 9 k 1 , 788,272
1 9 5 1 1 , 0 2 9 , 1 7 1 9 1 0 , 7 9 7
1 9 5 2 1 , 9 3 8 , 6 8 0 2 ,!}.82, 721j.
1 9 5 3 2 , k 9 7 , 5 5 5
3 , l 6 6 , k 9 8
1 9 5 k 3 , 2 9 5 , 6 6 6 3 , 0 7 5 , k 2 6
1 9 5 5 k , 2 1 0 , 0 ^ 3 k , 5 6 3 , 2 1 1
P ercen tag e o f in c re a s e
1 9 5 0 to 1 9 5 5 3 1 5 . 6 $ 1 5 5 . 2 $
SOURCE: R ep o rts on O p eratio n s o f F e d e ra l C re d it
U nions, p u b lis h e d a n n u a lly by th e U n ited S ta te s B ureau o f
|F e d e ra l C re d it U nions.
b e lie v e th a t c r e d i t u n io n s should have some funds in r e
s e rv e to m eet w ith d raw al demands ( g e n e r a lly U n ited S ta te s i
i I
i
jGovernment B onds), and th e y p r e f e r to len d on th e s e c u r ity
o f t h i s re s e rv e i f th e borrow ed funds are to be used fo r
i
i \o
re le n d in g to c r e d i t union members. However, w hether i t j
i
1 1 1
i s : ( 1 ) becau se o f t h e i r b ro ad c a p i t a l b a s e , o r ( 2 ) b e
cause c r e d i t u n io n s idiich h o ld governm ent bonds g e n e ra lly
o f f e r them as c o l l a t e r a l (th u s o b ta in in g a low er i n t e r e s t
r a t e ) , o r (3) b ecau se c r e d i t unions w eath ered th e G reat De-
i p i
^p ressio n b e t t e r th a n any o th e r f i n a n c i a l i n s t i t u t i o n , - 1 -^ |
banks have ex ten d ed s u b s ta n tia l c r e d i t to t h e i r c r e d i t |
u nion c u sto m e rs. T his borrow ing i s s im ila r to t h a t o f i
i
i
s a le s fin a n c e com panies in t h a t la r g e r s a le s fin a n c e com- j
ip an ies borrow u n secu red from banks as do c r e d i t u n io n s,
w hereas sm a lle r s a le s fin a n c e com panies and c r e d it u n io n s
;are g e n e ra lly r e q u ir e d to pledge c o l l a t e r a l . ^ I f i t had
i I
n o t been fo r b o rro w in g s, sm all c r e d it u n io n s, s im ila r to !
10In terv iew w ith Harry S , M eily, V ice-P resid en t i
S e c u r ity -F ir s t N ation al Bank o f Los A n g eles. !
I
l
*^C. L. M ille r , w Lending to C redit U n io n s,” Banking, j
A p r il, 1955, P. 5 7 . j
1 -^The Department o f Economics and S o c ia l I n s titu tio n !
o f P rin ceton U n iv er sity has summarized a study on the sub- |
Iject by sayin g, ”26 out o f every 2? c r e d it unions in opera-'
tio n in 1929 were s t i l l going in 193&.”
I -^The Southern C a lifo r n ia T eachers’ C redit Union and
the Los A ngeles Firemen’ s C redit Union, fo r example, both
la r g e a s s o c ia tio n s , each have $800,000 unsecured lin e s held!
a v a ila b le by th e ir banks.
those shown on pages 23 and 24, could n o t have extended
loan s t o ta lin g more than the savings p la ced w ith them and
i
consequently would have grown at a slow er r a t e .
Federal c r e d it u n io n s, although e s ta b lis h e d in 1934,
[could not lend to other c r e d it unions u n t il 1 9 3 7 Inter
fere d it union lo a n s have sin c e become the predominant source
o f borrowed funds fo r c r e d it u n io n s. As Table I I I , page
33, in d ic a te s , in e ig h t out o f the ten la r g e s t c r e d it union
i
s t a t e s , which accounted fo r 69 per cen t o f the t o t a l loan s
ou tstan din g to members by a l l fe d e r a l c r e d it unions in the
U nited S ta tes as o f December 31, 1953? more than o n e-h a lf
o f th e ir borrowed funds were from other c r e d it u n ion s.
Both because c r e d it unions have found th a t i t i s e a s ie r to
;ob tain a loan from another c r e d it union than from any other
!so u r c e ,1^ and because the R egional C redit Union System i s
!
i s t i l l an u n o b ta in e d g o al o f CUNA, a number o f b i l l s have !
i j
been introduced in to Congress to e s ta b lis h R egional C redit :
16
U nions. In newly e s ta b lish e d c r e d it u n ion s, the demand
i !
j - - - - - - - - - i
; *^P. L. 1^.16, 75th C ongress, authorized Federal j
!C redit Unions to make loan s to other c r e d it unions not to
iexceed 25 per cen t o f c a p ita l and su rp lu s. j
•^ In terview w ith Garth Ludwig, C a lifo r n ia C redit :
jUnion League, Los A ngeles o f f i c e . j
i
1 A l
I xoIn the l a s t two C ongresses, two b i l l s were in tr o - i
jduced; S . 2890, 2nd S e ssio n , 83rd C ongress, and S. 3539,
2nd S e ssio n , 84th C ongress, were R egional C redit Union
Amendments to th e F e d e ra l C re d it Union A c t. No a c tio n was
taken on e ith e r p ro p o sa l.
TABLE I I I
SO U R C ES O F B O R R O W E D FU ND S O F FED ER A L
CREDIT UNIONS IN TEN STATES
AS O F D E C E M B E R 31, 195*4-
P ercen tag e o f
borrow ed funds
o b ta in e d from
o th e r c r e d i t
S ta te u n io n s
P ercen tag e o f
borrow ed funds
o b ta in e d from
com m ercial
banks
P ercen tag e o f
borrow ed funds
sav in g s and
lo a n a s s o c ia
tio n s
C a lif o r n ia 5 0 .0 $ 38. 2$
3 . 9$
C o n n ecticu t 5 6 .3 1*1.9
*6
Kansas
6 7 .5 16 .9
—
M ichigan
75 .k 21.7 1 .1
New J e rs e y
k& .k
3 8 .1 3*6
New York
5 6 .3
38 .2
*3
Ohio 62.7
2 6 .8 2 .8
P en n sy lv a n ia 5 6 .6 30 .2 ij. .1
Texas I 4 .O.8
1*9.7
1 .2
W ashington
5Jf.5 2*0.3 5 .2
SOURCE: Report on O perations o f Federal C redit
U nions, 1953# U nited S ta te s Bureau o f Federal C redit
iUnions, p . 8 .
r 3 1 +
i
jfor loans o fte n exceeds members1 sh a res. In these c r e d it
I
[unions, banks fin d l i t t l e c o lla t e r a l a v a ila b le fo r lo a n s,
I
jbut older c r e d it unions are w illin g to len d to newer ones
on an unsecured b a s is . There seems to be a d e fin ite r e la -
17
tio n sh ip between the age o f a c r e d it union and i t s s i z e . '
Loans to c r e d it unions by savings and loan a s s o c ia
tio n s accounted fo r only 3*9 per ce n t, or $123,l]-9 3 , o f the
year-end borrowings o f fe d era l c r e d it unions in C a lifo r n ia
i ft
as o f December 315 1953* Although t h is i s a r e la t iv e ly
i
sm all source o f borrowed fun ds, which i s g en er a lly for
!sm aller sums, i t Is one other source o f borrowed funds for
! j
[cred it unions w ith in s u f f ic ie n t funds to meet loan de- i
19
mands. Borrowing from savings and loan a s s o c ia tio n s i s
probably brought about because o f c r e d it union ownership o f
1
^savings and loan a ss o c ia tio n sh a res. In C a lifo r n ia , Fed- [
| 1
[eral C redit Unions owned $ li|, 983,ll-27 worth o f th ese shares |
i j
i 1
l?The old er c r e d it unions as a whole are the la rg er
iones.i Report on O perations o f Federal C redit U nions, 1955?
lunited S ta tes Bureau o f F ederal C redit U nions, p . 2 . I
' iS Report on O perations o f Federal C redit U nions, j
!1953, U nited S ta tes Bureau o f Federal C redit U nions, p . 8 . j
I j
^ L o c * c i t . (Ho borrowings of more than $ 2 5 , 0 0 0 1
were reported from savings and loan a s s o c ia tio n s in th is !
survey. j
1
1
i ? 0
las o f December 31, 1955* Most o f th e lo a n s from sa v in g s
land lo a n a s s o c ia tio n s have been on sh o rt m a tu r itie s as w e ll
! 21
'as f o r sm a lle r am ounts.
W ithout th e 2 1 0 ,0 ij .3 borrow ed by f e d e r a l c r e d i t
u n io n s in C a lif o r n ia as o f December 3 1 , 1 9 5 5 , th e y would
have had to in c re a s e members1 in v e stm e n t by a t l e a s t a lik e
sum to m eet lo a n and w ithdraw al demands o f members. Be
cause o f i n t e r - c r e d i t u n io n b orrow ings and borrow ings from
banks and o th e r s , new ly e s ta b lis h e d c r e d i t u n io n s, and
o ld e r c r e d i t un io n s te m p o ra rily s h o rt o f liq u i d fu n d s, have
been ab le to meet th e w ith d raw al demands o f s h a re h o ld e rs .
I
[This l i q u i d i t y , becau se of th e le v e ra g e o f borrow ed fu n d s,
h as allow ed c r e d i t un io n s to ex ten d lo a n s alm ost e q u a l to
sh are in v estm en t and y e t have liq u i d a s s e ts to m eet w ith
draw als from share a c c o u n ts.
Many c r e d i t un io n s have c o l l a t e r a l to o f f e r fo r
lo a n s , which i s a t t r a c t i v e to a le n d e r . C re d it u n io n s in
jth is p o s itio n a re u s u a lly th e o ld e r ones who f in d t h a t i t
jis ch eap er to borrow th an to s e l l U n ited S ta te s Government
Bonds or sav in g s and lo a n a s s o c ia tio n sh a re s to m eet peak
i 1 1 .............
| ^ P . L. 337, 82nd Congress (1 9 5 2 ), authorized
|fe d e r a l c r e d it unions to in v e s t in shares o f savin gs and
|loan a s s o c ia tio n s insu red toy the F ederal Savings and Loan
jInsurance C orporation. Many sta te s ta tu te s have not been
'amended to a llo w fo r such in vestm en t.
^ R eport on O p eratio n s o f F e d e ra l C re d it Unions;,
1953, U n ite d S ta te s B ureau o f F e d e ra l C re d it U nions, p . 8 .
w ith d raw al demands, such as C h ristm as o r V ac atio n Club w ith -
i
idrawals, or sea so n a l demands such as are found in te a c h e r s1
[cred it unions in the summer m onths. In C a lifo r n ia , as o f j
[December 31* 1955* fe d e r a l c r e d it unions owaed U nited
S ta te s Government Bonds t o ta lin g $ll,l|7lj.,86£|. and savin gs
and loan a s s o c ia tio n shares t o t a lin g $Uj.,983,1|.27*^ These
t
s e c u r it ie s are o fte n o ffe r e d to c o lla t e r a liz e c r e d it union
borrowing in order to ob tain a lo a n q u ick ly from a bank and
!
to reduce the amount o f in t e r e s t charged by the bank.
I I . L O W O V ERH EA D GOST
OF CREDIT UNION OPERATION
i
I
O p eratin g expenses and o v erh ead . E xcept f o r th e j
tr e a s u r e r o r m anager, no o f f i c e r , d i r e c t o r , o r member o f !
i
any committee o f a c r e d it union may r e c e iv e com pensation I
fo r h is s e r v i c e s . T herefore, the persons who would n or- j
'
jmally r e c e iv e the h igh er s a la r ie s in a comparable b u sin e ss j
i
iserve w ithout com pensation in c r e d it union a c t i v i t i e s . j
j C le r ic a l em ployees are h ired when the workload w arrants and j
i I
|when th e income o f a c r e d it union j u s t i f i e s such exp en d i- j
| i
tu r e s . C redit com m ittees spend many hours studying loan !
t
'a p p lic a tio n s; one la rg e c r e d it u n ion ,rep orted an average o f :
i
i
on O p eratio n s o f F e d e ra l C re d it U nions,
p . X ll
^ F e d e r a l C redit Union Handbook, U nited S ta te s
Bureau o f Federal C redit U nions, p . 195 & & & S e c tio n 16 o f
the C a lifo r n ia C redit Union A ct.
1955, op. c i t .T
37
l , 8 8 l p e rs o n a l lo a n s p e r m onth, and m onthly av erag es o f 700
to 800 a re common. ^ Some c r e d i t com m ittees m eet a t lu n ch
1
each day to h an d le a p p lic a tio n s . The su p e rv is o ry com m ittee
|m ust a u d it th e books r e g u la r ly , and in a m illio n d o lla r
c r e d i t u n io n , t h i s i s a m ajor t a s k . The b o ard o f d ir e c to r s
' ~ j
h as g e n e ra l r e s p o n s i b i l i t y fo r th e c r e d i t u n io n and se rv e s
w ith o u t co m p en satio n . As a s e lf - h e lp a s s o c ia tio n , o rg an -
I iz e d i n a group o f common bond, members have a d i r e c t
[ i n t e r e s t i n i t s su ccess and a re w illin g to work f o r i t s j
1 .
advancem ent. In t h i s way, c o s ts are h e ld down and d i v i - j
dends are f a i r l y h ig h .
!
F e d e ra l c r e d i t u n io n s can r e c e iv e fre e space in any :
f e d e r a l b u ild in g where such space i s a v a ila b le , and no re n t!
i s ch arg ed f o r o f f ic e space o r u t i l i t i e s A lthough t h i s
u se o f f r e e space h as been a v a ila b le sin c e 1937» l i t t l e use
I ap p ears to be made o f i t . P erhaps t h i s i s becau se o n ly i
c r e d i t u n io n s w ith f e d e r a l employee m em berships d e s ir e such/
jlo c a tio n s .
1
! As T able IV , page 3 8 , I n d ic a te s , th e predom inant
! * 1
j grow th in f e d e r a l c r e d i t u n io n membership i s In th e o ccu - !
1 j
p a tio n a l g ro u p s, where 2 ,3 8 6 ,9 2 2 members have jo in e d j
! f e d e r a l c r e d i t u n io n s i n th e U n ited S ta te s s in c e 19l|.2. I t i‘
!
1 .......................
2^-John T. G ro teau , ^The Large C re d it U n io n ,1 1 The
Jo u rn a l o f Finance t Septem ber, 1956, p . 360.
2^ P # L . 197, 7 5 th C o n g ress.
TABLE IV
NUM BER, ACTUAL MEMBERSHIP, A N D TOI’ AL ASSETS OP ALL FEDERAL CREDIT UNIONS IN
THE UNITEI STATES BY TYPE £ )F MEMBERSHIP
A s s o c ia tio n a l Groups O ccu p atio n al Groups R e s id e n tia l Groups
No. o f A ctu a l Ho. o f A ctu a l No. o f A c tu a l
C re d it No, o f T o ta l C re d it No. o f T o ta l C re d it No. o f T o ta l
Y ear Unions Members A s s e ts Unions Members A sse ts Unions Members A sse ts
191+2
2+93
90,681+ #5,1+82,151
31+85
1,21+2,170
#112,839,259 92 15,665 # 906,583
191+3
1+69 89,952+ 6,591+, 993 3305 1 ,1 9 8 ,3 5 0 119,366,200 85 15,059 986,892
1955
1+73
96,061 8 ,2 6 1 ,1 5 8
321+9 l,19l+ , 520 135,765,932 73
13,320 1,239,066!
191+5
581
100,998 1 0 , 587,576 3203 1 ,1 0 2 ,3 5 6 151,350,319 73 13,271 1,175,2251
191+6
1+95
109,919 1 2 ,875,581 3192
1 , 178,603 158,896,785
75
13,610
1, 395,193
191+7 525
120,382 15,980,121+ 322+1 1 , 310,579
192,699,921 8©
15,955
1 ,6 9 5 ,5 2 6
191+8 567 131+.350 19,601+, 61+0
3510 1 , 2 + 77,805 236,795,898 81 16,185 2 , 011,198
191+9
61+2 152,921 2 3 ,660,901 3761+ 1 , 657,525 290,053,168
89 19,160
2 ;658,535
1950
713
179,602 30,01+8,598 5 l6 2 1 , 925,366 3 72,585,550 109 21,855
3 , 202,028
1951
770 202,831 3 6 ,668,050 1+509 2 , 235,929 5 6 3 ,6 5 5 ,2 1 k 119 26,138 5 ,5 0 3 ,3 2 6
1952 851 233,952 57,608,1+89 1+938 2 , 587,570
608,759,008 136 31,819 6 ,0 5 1 ,3 7 2
1953 965 275,603 62,150,61+0 51+10
2 , 953,551
785,061,890
153
37,268
8,019,577
1952+
1080
321,855 77,576,777
5992 3 , 235,638
955,078,163 155 52,297
1 0 , 525,102
1955
1166 371+,022 96,027,378 61+75 3 ,6 0 9 ,0 9 2 1 ,1 5 8 ,2 3 8 ,1 3 8
165
59,106 13, 161,529
SOURCE: R ep o rt on O p eratio n o f F e d e ra l C re d it U nions, p u b lis h e d a n n u a lly by th e
U n ited S ta te s B ureau o f F e d e ra l CredTt U nions.
jis p ro b ab le t h a t much o f t h i s grow th in m em bership h as been
ibecause many em ployers c o n s id e r c r e d it, u n io n s as a v a lu a b le
i . . .
!em ployee b e n e f it and have a s s is te d c r e d i t u n io n s form ed
!w ith in t h e i r f irm s . C re d it u n io n s form ed w ith in com m ercial
o r i n d u s t r i a l co n cern s a re o fte n g iv e n f r e e space by th e
firm ; a ls o , f re q u e n tly equipm ent and s a l a r i e s are p a id by
th e firm , e s p e c ia lly d u rin g the e a r l i e r s ta g e s o f the
c r e d i t union* s developm ent• ^ I t was e s tim a te d t h a t b u s i
n e ss o r em ployer s u b s id ie s o f t h i s type to c r e d i t u n io n s in
1950 exceeded $ £ 0 ,0 0 0 ,0 0 0 fo r a l l f e d e r a l and s t a t e c r e d i t
u n io n s in th e U n ite d S t a t e s . ^ Not o n ly have em ployers
a s s is te d c r e d i t u n io n s by p ro v id in g sp a ce , equipm ent, and
p e rs o n n e l, b u t th e re are in s ta n c e s where firm s have p aid
d e f a lc a tio n s w hich were n o t co v ered f u l l y by s u re ty bond
and which o th e rw ise would have r e s u l t e d in liq u i d a ti o n o f
p Q
th e c r e d i t u n io n a t a lo s s to th e sh a re h o ld e rs ♦
P riv a te b u s in e s s s u b s id ie s o f c r e d i t u n io n s a ffo rd
them a c o m p e titiv e advantage o v er p r o f i t e n t e r p r is e s such
as b anks, s a le s fin a n c e , and sm all lo a n com panies. P riv a te
PA
^ C re d it U n io n s, a stu d y p re p a re d by B ankers Com
m itte e f o r Tax E q u a lity , C o n tin e n ta l I l l i n o i s Bank B u ild
in g , C hicago, I l l i n o i s , p . 2 .
^ L o c . c i t .
^ W a lte r B. F ren ch , "The R apid Growth o f C re d it
U n io n s," B anking, J u ly , 1951}., p . i}3; and John T . C ro te a u ,
" F e d e ra l C re d it Union L iq u id a tio n , 1935-51*1 1 Jo u rn a l o f
B u sin ess o f th e U n iv e rs ity o f C h icag o , J u ly , 1952* p p . 18?'
!e n te r p r is e in tlie le n d in g f i e l d tdiich does n o t have t h i s
i
1 su b sid y m ust charge a h ig h e r i n t e r e s t r a t e to o b ta in com
p a ra b le e a rn in g s ; and by so d o in g , th e y cause b o rro w ers to j
tu r n to c r e d i t u n io n s f o r lo a n s , th u s adding to th e grow th
p a t te r n o f c r e d i t -unions.
, i
I
Tax s ta tu s o f c r e d i t u n io n s . L ike o th e r co o p e ra
t i v e s , c r e d i t u n io n s are exempt from f e d e r a l and s t a t e
income ta x and pay only r e a l and p e rs o n a l p ro p e rty ta x e s .
I t was e s tim a te d th a t ta x exem ptions saved c r e d i t u n io n s in]
1 i
| the U n ite d S ta te s $22 ,5 0 0 ,0 0 0 in 1 9 5 0 .^ ° T h is sav in g i s I
jn o t a v a ila b le to b an k s, s a le s fin a n c e , and sm a ll lo a n com- j
j (
j p a n ic s w hich are n o t c la s s e d as c o o p e ra tiv e s , and th ey m ust j
I
pay income and o th e r forms o f b u s in e s s ta x e s . 1
I I I . THE HOLE OF THE CREDIT
UNION NATIONAL ASSOCIATION ;
i :
I ;
I
I
j The C re d it Union N a tio n a l A s s o c ia tio n , o r CUNA, was j
form ed i n 193^, and a l l o f th e b u s in e s s o f i t s p re d e c e s s o r,
|
C re d it Union N a tio n a l E x te n sio n B ureau, was t r a n s f e r r e d to i
1 ■ !
I OT i
| th e new o rg a n iz a tio n on March 1 , 1935. T h is o rg a n iz a -
I
; t i o n , p roposed by Edward A. PLlene and o th e r fo u n d ers o f ■
1 !
I
i
^ (
; 2 9 p # ip.6, 7 5 th C o n g ress. I
3Q c re d it U nions, B ankers Committee on Tax E q u a lity ,
op. c i t . , “ p7T£7
33-Roy F . B erg en g ren , Crusade (New Y ork: E x p o s itio n
P re s s , 1 9 ?2 ) , p . 257.
n _ ' ’ " " " ” ’ * i p .
the c r e d it union movement in the U nited S ta t e s , had as i t s
purposes: ( 1 ) promoting the o rg a n iza tio n o f new c r e d it
.unions, ( 2 ) ob tain in g new c r e d it union law s, ( 3 ) improving
i
jand stan d ard izin g c r e d it union o p era tio n , and (I4 .) coordina-
l
Ition and d ir e c tio n o f the e f f o r t s o f a l l c r e d it unions in
th e ir f i e l d o f e n d e a v o r . 32
G U N A i s fin an ced by dues from member le a g u e s, who in
turn are fin an ced by dues from chapters and in d iv id u a l
|c r e d it u n io n s.33 Some o f the s e r v ic e s C U U A provides are:
J
( 1 ) summer cou rses fo r c r e d it union p erso n n el, ( 2 ) f i e l d
1
ir ep resen ta tiv es to a s s i s t member leagues in promoting the
c r e d it union movement, ( 3 ) & bonding se r v ic e to in d iv id u a l j
i
c r e d it unions to 1 cover d e fa lc a tio n s ( t h is i s a 100 per cen t
bond to a maximum o f $1 , 000, 000) , (Ij.) a monthly magazine
j which was sta r te d in 192ij., (5 ) a supply depot which p rin ts
l
and d is tr ib u te s standard form s, and ( 6 ) L ife Savings and
i
Loan P ro tec tio n Insurance and autom obile insurance through !
s u b s id ia r ie s . Through i t s variou s departm ents, G U H A sup-
1
p l ie s group se r v ic e s to the c r e d it union movement th a t the j
I
iin d iv id u a l c r e d it union might n ot otherw ise be ab le to j
1 !
* 1
j a ffo r d . The insurance programs, when handled on a n a tio n a l j
! 1
s c a le , are much l e s s c o s tly than i f underw ritten by a 1
I
i !
j - - - - - - - - - - - - - - - - - - - - - - - - - - I
: 32ip]ae c r e d it Union Yearbook, 1956, o £ . c i t . , p . 2 1 . •
33ln 1955, fe d e r a l c r e d it unions in C a lifo r n ia paid
league dues o f $>10lf, O O lj., and a l l fe d e r a l c r e d it unions in
th e country paid a t o t a l o f $1 , 2 1 4 .0 ,761 in le a gue dues . ______
sm aller area o f r i s k . The supply depot p r in ts forms by the j
i
thousands th at an in d iv id u a l c r e d it union would fin d p ro - i
i
i j
Ih ib itiv e in c o st i f purchased in sm all q u an tity from a
i
'lo c a l p r in te r . In summary, C U N A 1 s a c t i v i t i e s provide s e r -
|v ic e s at low co st to the group, and they coordinate the
n a tio n a l movement. The C O T A Supply C ooperative had t o t a l
a s s e ts at the end o f 1955 o f $399,997 and n et s a le s fo r the
year o f $67lj.,606. Loan P r o tec tio n Insurance a t th e end o f
1955 to ta le d $ l,l|3 3 ,0 0 1 ,7 l5 and was ca rried by 15,096
c r e d it u n io n s. In t o t a l at the end o f 1955, C O T A Mutual j
i
1
had insurance o f a l l types in fo rce to ta lin g $ 2 ,3 5 2 ,8 0 6 ,8 5 8 \
and had a s s e ts o f $15,033,3^ 7 j
I
I C O T A had i t s o r ig in a l fin a n c ia l g i f t from Mr. j
P ile n e , who gave some $800,000 o f h is own money and alm ost
an e n tir e lif e t im e o f se r v ic e in the esta b lish m en t o f the
io r g a n iz a tio n .35 Such a w e ll planned and c e n tr a liz e d organ-1
I |
iz a tio n has made i t s e l f f e l t on the whole c r e d it union
i
movement. There i s no method o f measuring the e f f e c t o f
t
I C O T A upon the growth o f c r e d it u n io n s, but because o f i t s |
i
■broad scope o f a c t i v i t i e s and the nature o f i t s s e r v ic e s , j
i
i t seems probable th at i t has co n trib u ted s u b s ta n tia lly to
! 3Urhe C redit Union Yearbook, 1 9 5 6 , op. c i t . , pp. 2 l t - i
! 35jjearing b efore a Subcommittee o f th e Committee on
'Banking and Currency o f the U nited S ta te s S en a te, 73rd
I C ongress, p . 1 9 * j
1*3
the growth o f c r e d it unions in t h is country*
IV, E N A BLIN G - LEGISLATION
A N D ITS A M E N D M E N T S
Federal C redit Union A ct. Three b i l l s were in tr o
duced in to Congress in 1933 fo r the estab lish m en t o f a j
fe d e r a l c r e d it union s y s t e m . ^6 There was nothing new in
the proposal o f a dual system , fo r sta te and n a tio n a l banks
loperated in the same com m unities, s ta te and fe d e r a l savin gs
|
and lo a n a s s o c ia tio n s were not o b je c tio n a b le , and c r e d it
union promoters b e lie v e d th a t there should be a uniform law
which would provide fo r a nationw ide c r e d it union system .
i
O rigin al le g is la t io n was f in a l ly enacted by P. L. lj.67, 7^thj
j
Congress, and sign ed by the P resid en t on June 26, 193^-•
Since the enactment of t h is law , n ot a s in g le s e s s io n o f
Congress has met w ithout hearing an attem pted amendment.^
I i
i •
'Eleven laws amending or adding to the Act were adopted from;
1X936 to 1 9 3 5 .38 I
Most o f the amendments have in crea sed th e scope o f j
! !
I
c r e d it union op eration s or lib e r a liz e d r e s t r ic t iv e c la u s e s .j
I 3% . 1639 was to e s ta b lis h a system o f Federal j
C redit Unions; S . I6ij.0 was to amend the Federal Reserve Act!
iso th a t Federal Reserve Banks could r e c e iv e c r e d it union i
d e p o sits; and S . I61p. was to au th orize the P o sta l Savings |
System to accep t c r e d it union d e p o s its .
37John T. Croteau, tfThe Federal C redit Union System ,”7
S o c ia l S ec u rity B u lle t in , May, 1956, p . 11.
3®Loc* c i t .
Unsecured loan s under the o r ig in a l Act could not exceed
if£0. In I 9I 4 .O, t h is was in crea sed to f 100, in 191^.6 to
|f 300,^ ° and in 19ij-9, i t was r a ise d to i t s p resen t maximum
o f ft.00.^ * In 19379 the Bureau o f F ederal C redit Unions
was authorized to conduct resea rch in coop erative t h r i f t j
»
and c r e d it f i e l d s .^2 By t h is amendment, the Bureau o f
Federal C redit Unions was a lso au th orized to prepare r e
p orts on th e ir in v e s tig a tio n s and to p u b lish and d issem i- |
nate them. Because the rep o r ts have been favorab le toward |
1
c r e d it u n ion s, the Bureau o f Federal C redit Unions in
r e a lit y has ca rried out a broad prom otional campaign by
p u b lish in g these rep ort s . ^ * 3 These rep o rts and pamphlets j
1
have str e sse d the advantages o f c r e d it unions; and, being
jpublished by a governm ental agency, they tend to appear
Imore a u th o r ita tiv e .
In 19^2, su p erv isio n o f the Bureau o f F ederal C r e d it i
Unions was tra n sferred from the Farm C redit A dm in istration !
\ 1
to the Federal D ep osit Insurance C o r p o r a tio n .^ In I 9I 4 .8, j
i
l
• j
39p. 630, 76th C ongress. I
j
j ^ P . L. 57fy, 79th C ongress. !
W-P. L. 376, 8 l s t C ongress.
^ P . L. lp.6, 75th C ongress.
| ^ 3 cred it U nions, Bankers Committee fo r Tax E q u a lity ,
op. c i t . , p . l i .
^ E x e c u tiv e Order 9II4 .8 , A p ril 27, 19l}-2.
r e s p o n s ib ility fo r the Bureau o f F ederal C redit Unions was
tra n sferred to the F ederal S ecu rity Agency, which became i
jthe Department o f H ealth , E ducation, and W elfa re. The
jla tte r tra n sfe r was made because: (1) FDIG, a s e l f - s u p - ’
j
jporting agency, had su ffe r e d a lo s s o f about $200,000 a
year w hile handling c r e d it union a c t i v i t i e s , ^ ( 2 ) i t was
extraneous fo r FDIC to both su p ervise and examine fe d e r a l
c r e d it unions,^*® ( 3 ) c r e d it unions were designed as eco
nomic se c u r ity fo r the in d iv id u a l and the fa m ily , (I4 .) C O T A
wanted more from the government su p erv isio n than ju st an
im p a rtia l exam ination, and (5 ) C O T A o u tlin e d a program
wherein the Bureau o f F ed eral C redit Unions could operate
w ithout fe d e r a l aid in a sh ort time
The o r ig in a l F ederal C redit Union A ct proposal was
based on the v is io n o f a system o f co o p era tiv e p eo p le1s
1
hanks in te g r a te d in to c e n tr a l banks and connected w ith the j
! i
: money m arket. Sponsors o f the o r ig in a l A ct, however, had I
I
attem pted to break new ground w ith t h is p ro p o sa l, and they
'had to back down to a system t ie d to g eth er by ed u cation al J
and sym pathetic bonds rath er than fin a n c ia l integration.^-® !
1 i
_____________________ I
i
I ^ C ro tea u , op. c i t p. llj.. !
1
! f a l d . , p . 1 5 . |
W sin ce the end o f 1953# the U nited S ta te s Bureau o f
Federal C redit Unions has been a se lf-su p p o r tin g organ iza
tio n and requ ired no fe d e r a l b udget. Report on Operations
o f Federal C redit U nions, 195i|., p* 3 .
^-®Crojteau, op. c i t . , p . 11 . ___ _____________________
Thus, they accepted a lim ite d Act which allow ed fe d e r a l
'c r e d it unions to borrow from any sou rce, but v ir tu a lly
'n u llif ie d t h is a u th o rity by n ot allow in g a fe d e r a l c r e d it
i
i
u n io n to hold as an investm ent a note from another c r e d it
u nion . I t was not u n t il P . L. 1^1.6, 75th C ongress, th a t
fe d e r a l c r e d it unions could loan to other c r e d it u n io n s.
Since th e passage o f th a t le g is la t io n in 1937, fe d e r a l
c r e d it unions have ob tain ed passage o f a l l but one p iece o f
le g is la t io n th a t was o r ig in a lly sought, so th a t they would
be a system o f coop erative banks w ith a t i e to the money
Imarket. The needed le g is la t io n was the cr e a tio n o f the
I j
|system o f c e n tr a l c r e d it union banks. In order to o b ta in
p r e s id e n tia l approval o f the C redit ..Union Act o f 193^* i t !
was n ecessary to d e le te the c e n tr a l c r e d it unions from the
b i l l Xn alm ost every s e s s io n o f Congress sin ce th a t
j tim e, a b i l l to e s t a b lis h such a system has been in tr o -
|
duced; but because o f i t s h ig h ly c o n tr o v e r sia l n atu re, i t i
unions has tended to give to c r e d it unions most o f the
has never been rep orted out o f Committee, although hearings
have been h eld on t h is le g is la t io n from time to time.-*®
Whereas governm ental le g is la t io n a ffe c tin g oth er
savings and len d in g e n te r p r ise s h a s, fo r many y e a r s , tended
to retard th e ir freedom s, le g is la t io n a ffe c tin g c r e d it
4 9 ib id ., p. 10.
amendments they d esired and governm ental co n tro ls have been
r e la x e d . They have re ce iv ed broad freedom o f management
w ith a minimum o f c o n tr o l. With such favorab le l e g i s l a
tio n , i t seems probable th a t c r e d it unions have expanded
more than would have been p o s s ib le in a more r e s t r ic t iv e
l e g i s l a t i v e c lim a te .
The C a lifo r n ia C redit Union haw and Amendments.
L e g is la tio n a ffe c tin g C a lifo r n ia c r e d it unions has changed
very l i t t l e sin ce the C a lifo r n ia C redit Union Act was f i r s t
i
!approved in 1927. There have been only f iv e amendments to
!
[the o r ig in a l A ct, and these have served fo r the most part
jto c la r if y a d m in istra tiv e p o in ts . U nlike the F ederal
(
j C redit Union A ct, which has been amended to keep pace w ith
|in f la t io n , the o r ig in a l C a lifo r n ia C redit Union A ct pro
v id ed fo r maximum lo a n s o f #300 unsecured and #3,000 se -
!
;cured, and th ese lim it s have never been changed. These
amounts are now low er than the maximum allow ed by the Fed-
t
iera l C redit Union A ct, which provides fo r unsecured loans
I
'to a maximum o f #ij.00 and secured lo a n s to members to a
maximum o f 10 per cen t o f p a id -in and unim paired c a p ita l
and su rp lu s. .
1
I t i s probable that the C a lifo r n ia C redit Union Act
has not been amended to keep pace w ith the fe d e r a l law , be
cause C U N A has d ire cted i t s p r in c ip a l l e g i s l a t i v e e f f o r t s
toward fe d e r a l le g is la t io n sin ce 193^4-• The o r ig in a l s ta te
law was, o f cou rse, very lib e r a l on many requirem ents; and
i t has not been u n t il re cen t y ea rs th a t the fe d e r a l law
I !
I gave fe d e r a l c r e d it unions any p a r tic u la r advantages over
jsta te c r e d it unions* Because the o r ig in a l s ta te law was
I
q u ite broad and exam ination fe e s and procedures are sim i
la r , there has been no major rech a rterin g o f s ta te c r e d it
unions to fe d e r a l s ta tu s , although such changes can be made
by law . I t I s the g en era l tren d , however, fo r new c r e d it
i
!unions to apply for fe d e r a l rath er than s ta te c h a r te r .
I i
j This trend i s in d ic a te d in Table V, page lj.9, which shows !
i I
| th a t the t o t a l a s s e ts o f fe d e r a l c r e d it unions have grown j
j fa s te r than s ta te c r e d it unions in C a lifo r n ia , and the rate!
o f growth fo r number o f sta te c r e d it unions has been !
i
la r g e r . The fo llo w in g are s e le c te d comparisons o f v a r ia
tio n s in requirem ents between th e fed era l and s ta te law s:
i 1 . S ta te c r e d it unions must s e t a sid e 20 per cen t j
o f net p r o f it s each year in a r e se r v e , whereas fe d e r a l I
I " I
1 i 1
I c r e d it u n ion s, sin e e 19q9, have s e t a sid e 20 per cent o f ■
! i
n e t .p r o f it s only u n t il the reserv e eq u als 10 per cen t o f \
i i
i i
it o t a l sh a re s.
I !
I 2 . Each s ta te c r e d it union pays a l l o f i t s c o st o f j
i •
being examined, whereas fe d e r a l c r e d it u n ion s, sin ce 1937, *
| ■ !
j are charged in accordance w ith t h e ir a b ilit y to pay. Thus j
!
!exam ination f e e s o f sm aller fe d e r a l c r e d it unions are gen -
l
je r a lly le s s than the exam ination fe e s charged s ta te c r e d it
unions o f comparable s i z e .
TABLE Y
TO T A L ASSETS AID N U M B E R O F FEDER A L A N D STATE
CREDIT UNIONS IN CALIFORNIA
F ederal C redit Unions S ta te C redit Unions
Year Humber T otal A ssets Humber T otal A ssets
1942 352 11»354>©45
156 n ot a v a ila b le
191+3
290 12,439,598
163
n n
191(4
283 14 ,179,531
168
11, 730,952
1945 274
1 4 ,100,709
170
1 2 ,8 8 5 ,7 5 3
1946 279 1 6 ,2 6 5 ,1 3 9 171
15 ,932,996
1947 292 20 ,175,995
178
20 ,127,233
1948
312 2 5 ,816,730 198 2 4 ,8 4 5 ,1 7 2
1949 35© 3 5 ,1 7 9 ,4 3 4
212 3 1 ,000,000
195©
382 4 8 ,4 9 1 ,7 6 8 221 3 9 ,2 1 7 ,8 0 4
1951
426 60,714,358
258
4 5 ,6 4 8 ,3 5 5
1952 500
8 4 ,0 9 4 ,4 4 5 295
5 7 , 743,138
1953 585 111,903,275 365 7 4 ,683,147
1954
672 143,361,422
-
not reported
1955 759
180,862,760 470 1 20,000,000
SOURCE: Report on O perations o f Federal C redit
U nions, U nited S ta te s Bureau o f Federal C redit U nions.
Monthly Labor Review p ublished s e le c te d c r e d it union s t a
t i s t i c s by s ta te s u n t il 1952; su b seq u en tly, the S o c ia l
S ecu rity B u lle tin has annually rep orted s t a t i s t i c s on sta te
c r e d it u n io n s.
3 . S tate c r e d it unions may make loan s o f any m atur- j
i t y , whereas fe d e r a l c r e d it unions* loan s are r e s t r ic te d to :
i
a th ree-y ea r m a tu rity , 1
i
1±. S ta te c r e d it union laws have never been amended
^ i
to perm it them to loan to other c r e d it u n ion s, whereas
fe d e r a l c r e d it unions can lo a n to fe d e r a l or s ta te c r e d it
u n io n s. T herefore, s ta te c r e d it unions can borrow from any!
source but cannot loan to another c r e d it u nion. Thus,
i
i
|th e ir borrowings from other c r e d it unions m ust, o f n e c e s-
I I
s i t y , be obtained from fe d e r a l c r e d it u n ion s. !
5 . S ta te c r e d it union law s permit loan s secured by
i '
r e a l p rop erty, whereas fe d e r a l law precludes th is type o f j
i i
! c o l la t e r a l.
i
t
! V. L A B O R A N D M A N A G E M E N T
j SUPPORT O F CREDIT UNIONS
I
Many b u sin e ss and in d u s tr ia l firm s f e e l th a t an em
ployee cannot do h is b e st work i f he i s harassed by fin a n
c i a l problem s, and they fu rth er f e e l th a t they should a s s is t
I him as much as p o ssib le w ith h is monetary d if f ic u lt ie s .^ *
i
Many companies recogn ize the lo y a lty th a t a c r e d it union
se r v ic e in sp ir e s in an em ployee, and thus they con sid er a
!c r e d it union as p a rt o f the worker1 s b e n e fits and are w i l l -
i
S i c . H. L each , f!A C r e d it U nion i s a V a lu a b le Worker
B e n e f i t , ” T e x t ile W orld, Jun e, 19lj.9f p . 221}..
51
in g to co n trib u te to i t s a d m in istra tiv e c o s t s *^2 fh ig i s a
[fortunate s itu a tio n fo r i t fr e e s th e c r e d it union from the
burden o f overhead c o s t s , e s p e c ia lly in the e a r ly sta g e s o f
'd evelop m en t.„ Sponsoring firm s freq u en tly absorb th e $25
i
; char te r fe e ; and, although i n i t i a l su p p lies can be pur-
I
chased on c r e d it from COTA, sponsoring firm s o fte n pay fo r
them. An extrem ely low percentage o f c r e d it union a s s e ts
are in v e ste d in fix e d a s s e t s . Only 13 o f 103 la rg e c r e d it
|unions con tacted by a survey rep orted th a t they owned th e ir
|own o f f ic e b u ild in g .^ By th e ir very nature o f o p era tio n ,
ifix e d c o s ts need never become a very la rg e p o rtio n o f
c r e d it union o p era tio n s. I t i s probable that there i s a
|s e l f i s h sid e in t h is a ss is ta n c e to c r e d it unions because
jpersonnel d ir e c to r s are a b le , i f there i s a c r e d it union in
i
ithe p la n t, to know an em ployee’ s fin a n c ia l circu m stan ces.
I f he has money problem s, they can cou n sel the em ployee,
a s s i s t in budgeting h is income, and, through the c r e d it
j union, loan money which i s required and a lso h elp him s e t
'up a system atic savin gs p la n , o fte n through p a y r o ll deduc
t i o n s . ^ Firms are o fte n able to keep an employee whom
ithey might otherw ise l o s e , i f they are able to a s s i s t him
! 52I b id . , p . 226.
5 3John T. Croteau, "The Large C redit U nions,"
Journal o f F inance. September, 1956, p . 351*
5^Leach, op. c i t . , p . 226.
in fin a n c ia l d i f f i c u l t y . ‘ Where a c r e d it union i s lo c a te d I
'in a firm , personnel managers fin d th at le s s time i s l o s t j
by em ployees having to be absent from work to arrange a
i
|
bank or fin an ce company lo a n . There are s t i l l many workers
in th is country who are awed by the a u s te r ity o f la rg e j
banks and who d is t r u s t the s im p lic ity o f sm aller o n e s . ,
\
O n the con trary, they know the em ployees in th e ir plant* s j
c r e d it union and the surroundings are part o f th e ir working-
day l i f e . In t h is fa m ilia r atmosphere, management fin d s 1
th a t employee fin a n c ia l problems can be solved and employ- '
e e ’ s lo y a lty r a is e d .
| Employees who are fr e e from fin a n c ia l problems do j
b e tte r work and a lso save a g rea t d ea l o f work fo r manage- j
i
I f
ment, which can be plagued w ith troublesom e wage a tta c h
ments or fam ily adjustm ents for em ployees who have too
heavy a fin a n c ia l burden* As the c r e d it union employees
gain ex p erien ce, they provide p ersonn el managers w ith sp e- ;
c ia liz e d cou n selin g se r v ic e fo r employees w ith fin a n c ia l
problem s•
55croteau , op. c i t *, p . 330*
5 3 1
i
VI. PA Y R O LL DEDUCTIONS, C O N V ENIEN C E '
OP LOCATION, FAMILIARITY W ITH
OPERATION, A N D SCOPE O P SERVICE
P a y ro ll deductions and convenience o f lo c a t io n . N o t j
in fr e q u e n tly , sponsoring firm s provide a p a y r o ll deduction j
i
procedure whereby c r e d it union members can save sy stem a tic-)
i
a lly and/or have loan payments deducted from th e ir wages. j
This procedure i s unique among savin gs in s t it u t io n s , in J
t
, th a t i t i s not provided by banks or savings and lo a n a s s o - :
i
■ i
I c ia tio n s . There a re, o f cou rse, many employers which do
i i
|not sponsor c r e d it unions but allow employee p a y r o ll d ed u c-,
Itio n s fo r the purchase o f U nited S ta te s Savings Bonds. I f
a firm can fr e e i t s personnel d ir e c to r from troublesom e
I
wage garnishm ents or fam ily debt adjustm ents, i t i s proba- .
b le th a t not only are the a d d itio n a l accounting problems of'
! i
(p a y ro ll deductions paying fo r th em selves, but a lso he can
i
a ffo rd to pay other c r e d it union s u b s id ie s .
C redit u nion s, lik e oth er types o f len d in g i n s t i t u
t io n s , operate in an im p erfect com p etitive m arket. To the
member in v e s tin g h is savings in a c r e d it u nion, i t i s not
as much a q u estio n o f how large a dividend he w ill re ce iv e
i
jas i t i s how convenient i s the p la ce o f s a v in g s. Conveni-
i
en ce, not rate o f retu rn , seems to be the c r u c ia l elem ent
jin an in d iv id u a l’ s s e le c tio n o f a savings i n s t i t u t i o n . ^
i
i
------------------------------- i
I ^C onsum er S u rvey o f S a v in g s H a b its , U n ite d S t a t e s
'S a v in g s and Loan L eagu e.
' ' ' 5k
C redit unions which operate in or near th e company property,!
i
or employers th a t u t i l i z e a p a y r o ll d ed uction p la n , have a |
com p etitive advantage in t h is con n ection .^ ' In a survey
conducted by the P h ila d elp h ia Saving Fund S o c ie ty , i t was
!
found th a t savers in various savin gs in s t it u t io n s picked \
I
th a t p a r tic u la r in s t it u t io n , not because o f I n te r e s t ra te
I
or type o f in s t it u t io n , but because o f i t s convenience o f i
j
j lo c a t io n .^ I f t h is i s tr u e, then c r e d it unions are in the >
I
m ost s tr a te g ic lo c a tio n to a t tr a c t sa v in g s. I t would ap- |
ipear th a t, as a c o r o lla r y o f t h i s , borrowers ob tain loan s I
!
[from the most convenient le n d e r . With c r e d it unions so
co n v en ien tly lo c a te d , I t seems probable th a t they have a ,
I 1
Id efin ite advantage because o f lo c a tio n . ,
i
F a m ilia r ity w ith op eration s and scope o f s e r v ic e . 1
i
C redit union members are part o f a group bound to g eth er by 1
a common in t e r e s t , and they are made to f e e l th a t the cr e d it
union belongs to them. Monthly balance sh ee ts and income
statem ents are posted so th a t a l l members can know how
i
jth eir c r e d it union i s o p era tin g . The o f f ic e r s and commit
te e members are th e ir fe llo w w orkers, and there i s nothing
i
about the c r e d it union th a t i s not made known to a l l o f i t s
I 57croteau , tfThe Large C red it U n ion ,1 1 op. c i t . ,
! p * 358.
!
| £^For d e t a i l s o f th e su r v e y , se e B u s in e s s Week,
iSeptem ber 22, 1958, p . 66.
members. This i s q u ite d iffe r e n t from other types o f
fin a n c ia l in s t it u t io n s or loan companies where d ep o sito r s
or borrowers have sm all acquaintance w ith management or
income sta tem en ts. There i s no reason fo r a c r e d it union
member to f e e l other than na t home” in h is c r e d it u n ion .
O n the other hand, there are s t i l l those who do n ot f e e l
f,a t home” in other types o f fin a n c ia l in s t it u t io n s .
I Table 71, page £6, in d ic a te s th ir ty se r v ic e s a v a il
a b le through c r e d it unions oth er than the u su al len d in g and
| saving fun ction * Of cou rse, n ot every c r e d it union o ffe r s
j a il o f th ese s e r v ic e s , but they are found in a m ajority o f
the la r g e c r e d it u n io n s. Omitted from t h is ta b le are
t r i v i a l or ex cep tio n a l s e r v ic e s ; and, o f cou rse, c r e d it
i
unions are p ro h ib ited from carryin g on gen eral banking
b u sin e ss. I t would appear from th is l i s t th a t p ersonn el
t
d ir e c to r s o f a la rg e firm can fin d in a c r e d it union a
^valuable a d d itio n to th e ir w elfare programs.
In an alyzin g fa c to r s which have con trib u ted to the
growth o f c r e d it u n ion s, i t m ight be im portant to n o tic e
j th at the organ izer gain s l i t t l e or no fin a n c ia l b e n e fit
jfrom h is e f f o r t ; in f a c t , h is standing m ight even be d e
c r e a s e d by h is o r g a n iz a tio n a l e f f o r t s . The founder o f a
I
|c r e d it union probably fin d s in h is work a s a t is f a c t io n o f a
i
i
;d esire fo r p r e s tig e and power or a fu lf illm e n t o f a s o c ia l
I
j
I
T A B IE VI
SERVICES O PE B R E D BY CREDIT UNIONS
1. Automobile Insurance 16. Group H ealth Insurance
2 . Automobile L icen ses
17.
Income Tax C o lle c tio n s
3 .
Bond Safekeeping 1 8 . Income Tax Reports
Brokerage S erv ices 1 9 . Issu e Bonds
s .
Budget A n alysis 20. L ife Insurance
6 • Cash. Checks 21. Money Orders
T.
Cash Bonds 22. Monthly Paper
8 . Christmas Clubs 23. Notary S erv ice
9 .
Consumer R esearch P ile 2ij.. Pay-day Loans
10. Death B e n e fit Fund
25.
P h o to sta ts
1 1 . W ills Drawn 26 . Safe D ep osit Boxes
12. Deeds Drawn
27.
Salary Plan (T eachers)
13.
D riv e rs1 L icen ses 2 8 . T ravelers Checks
1) 4 . F in a n cia l Library 29. U t i l i t y B i l l s
15 .
F ire Insurance 3 0. V acation Clubs
SOURCE: N ational C redit Union Management Conference.
cfo
w elfare id e a l. I t would seem th a t much o f a c r e d it union
o rgan izer1 s reward does n ot depend on p r o f it s , but rath er
h is reward comes through s o c ia l power and p r e s tig e .
C on clu sion s♦ During the p eriod from 1939 through
195?, c r e d it unions in C a lifo r n ia in creased lo a n s to mem
bers in alm ost every y e a r . This i s probably p a r t ia lly
because o f the in c r e a sin g demand fo r consumer lo a n s, the
in crea sin g amount o f sa v in g s in v e ste d in c r e d it u n ion s, and
the in cr ea sin g p roportion o f savin gs loaned by c r e d it
|unions. C redit unions have found th a t a t tim es they are
i
I short o f funds to lend or to meet peak withdrawal demands.
jThese shortages have not c u r ta ile d th e ir o p era tio n s, fo r
|they are g en er a lly able to borrow from other e r e d it unions
|0r from commercial banks. Because they have been able to
borrow, c r e d it unions have found th at they have sources o f
j funds other than from members1 in vestm en ts; and thus th ey
i
I are able to expand f a s te r than would otherw ise be p o ssib le
I
i f they had to r e ly only on funds in v ested by members.
P rim arily, th is i s because they have not had to h old u n in -
Ivested funds to meet p o ssib le withdrawal demand. Whether
i t i s (1 ) because o f th e ir broad c a p ita l b a se, (2 ) because
i
|c r e d it unions which hold government bonds g e n e r a lly pledge
i
ithem as c o lla t e r a l, or (3 ) because c r e d it unions weathered
^ C r o t e a u , 1 1 The Large C r e d it U n ion, 1 1 o p . c i t . ,
P. 359.
the Great D epression b e tte r than any other fin a n c ia l i n s t i - ;
tu t io n , banks, even though c r e d it unions compete w ith them j
in many a rea s, extend c r e d it to c r e d it unions in alm ost the j
isame p roportion as in t e r - c r e d it union loans# |
i
Probably some o f the growth o f c r e d it unions i s i
i
a ttr ib u ta b le to the fa c t th a t in many cases they are s u b s i-i
i
d ized by a sponsoring firm . S u b sid ies in the form o f fr e e |
i
r e n t, s a la r ie s fo r em ployees, and fr e e equipment are e sp e
c i a l l y advantageous to the new c r e d it u nion . This i s
jbecause in i t s f i r s t few years a fte r o rg a n iza tio n i t i s not
[burdened w ith heavy fix e d ch arges. There i s a d e fin ite
r e la tio n s h ip between the age o f a c r e d it union and i t s j
s iz e ; the o ld er a c r e d it union i s , th e la r g er i t grows.
i t
During the f i r s t y e a r s, when most fin a n c ia l in s t it u t io n s ;
|are str u g g lin g w ith o rg a n iz a tio n a l expenses and r e a l e s ta te :
a c q u is itio n , c r e d it unions are able to operate p r o fita b ly
and show a f a s t e r ra te o f growth. The growth o f c r e d it
unions i s probably aided by th e ir p a r t ia lly tax-exem pt
s t a tu s . Although th is tax r e l i e f i s not im perative to
c r e d it union growth, i t probably i s an im portant fa c to r in
the growth o f newer c r e d it unions which have not b u ilt up a
i
strong fin a n c ia l sta tu s through years o f o p era tio n .
Except fo r the trea su rer or manager, no o f f ic e r ,
d ir e c to r , or committee member o f a c r e d it union r e c e iv e s
com pensation for h is s e r v ic e s . These p eo p le, who would
: norm ally r e c e iv e the h igh er s a la r ie s in other typ es o f
I . 59
•\
f in a n c ia l in s t it u t io n s , con trib u te many hours o f th e ir timej
y
because they are a part o f a s e lf- h e lp a s s o c ia tio n organ- |
j i
lized fo r the good o f a l l o f the members* With so much o f '
i
1 c r e d it union op eration b ein g g r a tu ito u s, c o s ts are h eld
I
I down and d ivid en d s are f a ir ly h ig h , This low c o st opera-
|
tio n a ttr a c ts savin gs because o f the r e s u lta n t higher d iv i- .
!
dends, and borrowers are a ttr a c te d because o f low in te r e s t j
r a te s charged on lo a n s, 1
C U N A and i t s league members have conducted a w ell
i
•planned and in te n s iv e a d v e r tisin g , e d u c a tio n a l, and a s s i s - •
jtance program aimed at c o n tin u a lly en la rg in g c r e d it union
i
I
(membership, Because o f i t s broad scope o f a c t i v i t i e s , i t j
i I
!seems probable th a t C U N A has co n trib u ted s u b s ta n tia lly to 1
j i
j the growth o f c r e d it unions in t h is co u n try , j
I Whereas governm ental r e g u la tio n o f most typ es o f
i
|
'fin a n c ia l in s t it u t io n s has tended to reta rd th e ir freedom s,
l
|le g is la t io n a ffe c tin g c r e d it unions has tended to g iv e them;
jmost o f the laws and programs they them selves d e sir e d . The
'o r ig in a l Federal C redit Union Act was somewhat d iffe r e n t
}
:from the law proposed, but amendments sin c e then have given
(cred it unions a l l the d esired le g is la t io n except for the
I
reg io n a l c r e d it union system and i t s t i e to the money mar
k ets* Such broad le g is la t io n has probably con trib u ted to
the a b ilit y of c r e d it unions to expand.
I t seems th a t the most convenient savings d ep ository
!
|or most convenient lend er are the ones most lik e l y to draw
b u s in e s s from an i n d iv i d u a l . T h e r e fo r e , e r e d i t u n io n s i
lo c a te d in or near a member1 s p lace of employment would j
tend to r e c e iv e h is b u sin e ss b efore a bank or other fin a n
c i a l in s t it u t io n . I t I s fortu n ate fo r the c r e d it union
I
t
movement th at many personnel d ir e c to r s in clu d e a c r e d it j
union in th e ir w elfare program. This proxim ity o f c r e d it ;
i
unions to the member1 s work i s probably an im portant con- |
i
tr ib u tin g fa c to r to c r e d it union growth. P ersonnel d ir - 1
I
i
i ec to r s se4m to fin d th a t p a y ro ll deduction plans fr e e them ;
!from wage attachm ents, and thus pay for them selves* There-
i ;
'fo r e , they are w illin g to make them a v a ila b le to employees
!
who are saving or borrowing from the c r e d it u nion . j
t j
| I t i s im portant to note th a t although the organizer 1
l J
o f a c r e d it union stands to g a in l i t t l e in the way o f
fin a n c ia l b e n e f its , he probably fin d s a g rea t d e a l o f p er
sonal s a t is f a c t io n o f a d esir e fo r p r e s tig e and power or
fu lfillm e n t o f a s o c ia l w elfare id e a l. I t would seem th at
imany c r e d it unions are e s ta b lis h e d to f u l f i l l th e se w ish es,
i
i
jand t h is m otivation has con trib u ted to the n a tio n a l growth
!
'o f c r e d it u n ion s.
CHAPTER I I I
FA C TO R S " W H IC H H A V E LIMITED T H E G R O W T H
O F CREDIT UNIONS IN CALIFORNIA
Purpose o f the ch a p ter, I t i s the purpose o f th is
chapter to examine the fa c to r s which seem to have lim ite d
the growth o f c r e d it unions in C a lifo r n ia ,
i
!
i
| Management in c e n tiv e s . There are probably numerous
I
(in cen tiv es which a ttr a c t in d iv id u a ls to p a r tic ip a te in the
management o f c r e d it unions and serve as stim u li to good
(
management. These in c e n tiv e s might be ca teg o rize d as being
e ith e r fin a n c ia l or n o n -fin a n c ia l in n a tu re. N o n -fin a n cia l
m anagerial in c e n tiv e s which might e x is t are numerous, but
the two most commonly m entioned are: (1 ) The d e sir e fo r
p r e stig e and power and (2 ) the d esir e to f u l f i l l a s o c ia l
w elfare m otivation through group s e r v ic e , In most fin a n
c i a l in s t it u t io n s , i t i s probable th a t fin a n c ia l in c e n tiv e s
are a more im portant a ttr a c tio n to competent management
jthan are n o n -fin a n c ia l in c e n tiv e s . In c r e d it u n ion s, how-
i
ev er, w hile fin a n c ia l in c e n tiv e s may e x i s t , a t le a s t in
jsome c a s e s , i t I s probable th a t n o n -fin a n c ia l in c e n tiv e s
'e x ist in alm ost a l l c a s e s . N a tu ra lly , the in c e n tiv e s which
Idraw in d iv id u a ls in to the management o f a c r e d it union and
i
(stim u la te good management d i f f e r a c c o r d in g t o th e i n d i -
i
vid ual*
! The ex ten t to which fin a n c ia l or n o n -fin a n c ia l in -
i
!
icen tiv es determine the q u a lity o f management i s not known. ;
■ i
I t i s o fte n s a id , however, th a t the corp oration s which
o ffe r the g r e a te s t fin a n c ia l in c e n tiv e to management are
i
th ose most l i k e l y to a ttr a c t good management. I f t h is i s
i
always tr u e , then i t would seem th a t c r e d it union manage
ment, which does not r e e e iv e g reat fin a n c ia l in c e n tiv e s , i s
not the b e st management among fin a n c ia l in s t it u t io n s . j
F in a n cia l in c e n tiv e s to the management o f most fin a n c ia l j
!in s t it u t io n s are r e fle c t e d in a number o f ways. These in -
! I
^elude: (1 ) dividends on, and a p p recia tio n in , the valu e o f I
i 1
sto c k , (2 ) s a la r ie s , ( 3 ) bonuses, (I4 .) expense accoun ts, j
l
(5 ) income from b u sin e sse s r e la te d to the p a r tic u la r firm |
1
and in which management has a fin a n c ia l in t e r e s t . In c r e d it
u n io n s, there i s only one fin a n c ia l in c e n tiv e --s a la r y ,
i The a ctu a l s a la r ie s paid by fed er a l c r e d it unions ,
j 1
were p u b lish ed only as a t o t a l o f a l l s a la r ie s paid; and [
1 I
expenses fo r s ta te c r e d it unions are not p u b lish ed . There-j
I |
Ifore, i t was im p ossib le to o b ta in d e ta ile d in form ation on 1
1 . j
tr e a s u r e r s1 s a la r ie s fo r th is stu d y. However, in an ana- j
l y t i c a l study o f la rg e c r e d it unions^* as o f December 3 1 , J
195^4-j 3.^ was found th a t the average tr e a su r e r 1 s sa la r y was '
j ^A c r e d it union i s con sid ered to be w la r g e n when i t s
(a ssets exceed $1 , 000, 000.
$6,ijl|.6 per year and ranged from $3,600 to $13*500.^ From
inform al in form ation , i t was a scerta in ed th at the treasu rer
jo f a c r e d it union in Los A ngeles having t o t a l a s s e ts o f
$672,580 as o f December 31* 1955* and having a membership
i
o f 1 ,6 0 8 , re ceiv ed an annual sa la ry o f approxim ately
$ 6 ,6 0 0 . From th ese f a c t s , i t seems th a t even in the la rg e
c r e d it u n ion s, s a la r ie s are nom inal. Although actuals f i g
u res concerning s a la r ie s paid to c r e d it union trea su r ers
would be h e lp fu l, they would be inadequate in determ ining
the a ctu a l degree o f fin a n c ia l in c e n tiv e .
L itera tu re w ritten by the founders o f the c r e d it
union movement, the- Bureau o f Federal C redit Unions and
COTA, emphasizes the fa c t th a t in d iv id u a ls should be
a ttr a c te d to e r e d it union management n ot by f in a n c ia l in
c e n tiv e s but by n o n -fin a n c ia l in c e n tiv e s . T his seems, to be
borne out by the nominal s a la r ie s in even th e la rg e c r e d it
u n ion s, as m entioned in the preceding paragraph, and by the
sa la ry s t a t i s t i c s in Table V II, page 61].. This ta b le shows
th a t although the average t o t a l amount o f s a la r ie s paid by
fe d e r a l c r e d it unions in C a lifo r n ia has in crea sed in alm ost
every year sin ce 19^2, i t was s t i l l on ly $3,l|-53 in 1955*
I t seems th a t the p r o f it o p p o r tu n itie s provided to the
c r e d it union management i s so nominal th a t n o n -fin a n c ia l
^John T. C roteau, "The Large C red it U nion,1 1 op.
c i t . , p . 353.
TABLE VII
A V E R A G E A M O U N T O P SALARIES PAID A N N U A L L Y
BY EA C H FED ER A L CREDIT UNION IN
CALIFORNIA A N D IN T H E UNITED STATES
Year U nited S ta te s C a lifo r n ia
1942
$ 520 # 811
1943 511
787
1944
527
832
1945 533
802
1946 576 802
1947 692
993
19li.8 890 1 ,3 3 6
194-9
976 1,568
1950 1,103
1,951
1951
1 ,3 2 0
2,318
1952
1,535 2,561
2,810
1953 1,741
1934
1955
1,951
2,185
3,158
3,453
SOURCE: C alcu lated from the Annual Reports on O per-j
1 a tio n o f Federal C redit U nions, U nited S ta te s Bureau o f
Federal C redit U nions.
jin cen tiv es must have been a major q u a n tita tiv e fa c to r to
|cause so many in d iv id u a ls to enter the c r e d it union manage - !
ment fie ld *
In a new c r e d it union, where stro n g , a g g r e ssiv e , and!
capable management i s so im perative to growth, a trea su rer
m ight fin d com paratively l i t t l e fin a n c ia l or n o n -fin a n c ia l
in c e n tiv e . This i s because in the e a r lie r y e a r s, l i t t l e or
ino s a la r ie s can be paid to the trea su rer from meager earn-
! !
jin gs, and i f the c r e d it union should not su cceed , i t would j
'dim inish the treasurer* s p erson al p r e s tig e and power.
jlh e r e fo r e , i t would seem th a t the b e tte r management would
i
* i
ibe a ttr a c te d to the la r g er c r e d it unions where both fin a n - j
e i a l and n o n -fin a n c ia l in c e n tiv e s would be g rea ter .^ I f
t h is trend were tr u e , i t would mean th a t the g r e a te s t d i f
f i c u l t i e s in ob tain in g good management would be in the
newer and sm aller c r e d it u n io n s. The old er and la r g e r a
jcred it union becomes, the fewer are the p o s s i b i l i t i e s o f
i t s liq u id a tio n . There are no records o f a fe d e r a l c r e d it
union liq u id a tin g whose a s s e ts were over one m illio n j
jd o lla r s.^ j
!
; i
j O rganizational p erso n n el. Although the management j
|o f in d iv id u a l c r e d it unions seems to re ce iv e nominal j
! ------- . I
I
j ^Alexander Chm ielewski, "Credit Unionism and Super
v is io n ," Banking, December, 195Ij., p . 5 l .
^-Croteau, lo c . c i t . I
I fin a n c ia l in c e n tiv e s , there i s reason to b e lie v e th at the
members o f the league s t a f f s who g e n e r a lly a s s i s t in organ-
I
liz in g c r e d it unions re c e iv e s a la r ie s which m ight a ttr a c t
|men o f o rg a n iz a tio n a l a b ility * Inform al inform ation in d i
c a t e s th a t one member o f th e C a lifo r n ia C redit Union League
receiv ed an annual sa la ry o f approxim ately $22,000* With
such a sa la r y , i t would seem probable th a t s u f f ic ie n t
fin a n c ia l in c e n tiv e e x is t s to a ttr a c t personnel o f organ!za-
jtio n a l a b ilit y to the employ o f the C red it Union Leagues.
j
As fa b le V III, page 67* in d ic a te s , the C a lifo r n ia C redit
Union League re ce iv ed 8*3 per cent o f dues paid by a l l fe d
er a l c r e d it unions to th e ir leagu es in 1955; and they
receiv ed $l(% ,00l4 . in dues, where the average amount was
on ly | 2 0 , 679* Inasmuch as fe d e r a l c r e d it unions compose
somewhat more than h a lf o f a l l c r e d it unions in C a lifo r n ia ,
i t would appear probable th a t the dues re ce iv ed by the
i
•C aliforn ia C redit Union League annually were a c tu a lly about
t
i
|tw ice the amounts shown in Table V III. Even i f t h is were
I
|tru e, the league could not expend funds fo r more than three
jor four persons in a salary c la s s o f f 22,000 a n n u a lly .
I
if h is i s e s p e c ia lly true when th e C U N A dues are deducted
•from the t o t a l a v a ila b le income re ce iv e d by the League
member.
I t would appear probable th a t c r e d it unions are not
g e n e r a lly sta r te d w ithout some a id from a person e x p e r i
enced in c r e d it union theory and fu n c tio n . Because
TABLE V I I I
A M O U N T O P L E A G U E DUES PAID BY ALL FEDERAL
CREDIT UNIONS A N D BY T H O SE IN CALIFORNIA
Year
T otal amount o f
league duea paid
by a l l fe d e r a l
c r e d it unions
Average amount
o f dues re ce iv ed
by each league
from fe d e r a l
c r e d it unions
T o ta l amount o f
league dues paid
by fe d e r a l c r e d it
unions in
C a lifo r n ia
1951
$ I j .66,698
# 7 ,7 1 1 1 31)-, 059
1952 573,923
9,6i).8
1).6,529
1953
733,621 12,227 57,927
1951).
965,66lj.
16,091).
68,121
1955
1,2^ 0,761
20,679
101)., 001).
SOURCE: C alcu lated from the Annual R eports on Oper
a tio n s o f F ederal C redit Unions, U nited S ta te s Bureau o f
Federal C redit U nions. S t a t is t i c s p rio r to 1951 were not
o b ta in a b le.
! 68"
!
! o f f ic e r s of in d iv id u a l c r e d it unions would not have the
time to aid others in the form ation of a c r e d it union, the
I
burden o f c r e d it union o rg a n iza tio n f a l l s on the lea g u e! s |
i
|s t a f f . In C a lifo r n ia , th is s t a f f in clu d es only s ix men
i
capable o f a s s is t in g in te r e s te d o rg a n iza tio n s in ob tain in g
a c r e d it union c h a rter . With such a sm all s t a f f , whose
d u ties req u ire th a t they tr a v e l over much o f C a lifo r n ia ,
the number o f c r e d it unions th a t can be chartered each year
i s lim ite d . Im m ediately subsequent to the o rg a n iza tio n o f j
i
a new c r e d it union, the league r e p r e se n ta tiv e cannot en
t i r e l y d ivorce h im self from i t s o p era tio n . This i s because|
!
the o f f ic e r s have seldom had any previous c r e d it union man-!
agement ex p erien ce, and fa ilu r e o f c r e d it unions i s h ig h est
I in th e ir e a r ly y e a r s .
t I t appears, th e r e fo r e , th a t i f the c r e d it union j
jleagues must o ffe r a h ig h fin a n c ia l in c e n tiv e to a ttr a c t
jmen o f o r g a n iza tio n a l a b i l i t y , they can employ only a ;
» i
, lim ite d number because o f the lim ite d amount th a t th e i
| i
le a g u e s r e c e iv e in income from member c r e d it u n ion s! dues. '
!
With such a few s k ille d o rg a n iza tio n a l employees a t th e ir |
!d is p o s a l, i t seems th a t the c r e d it union movement has grown'
jat a rapid r a t e . As the t o t a l number of c r e d it unions j
grows, and income in the form o f dues in cr ea se s a t league |
i j
I l e v e l , the o rg a n iz a tio n a l work o f the leagu es w ill in crease!
I !
because o f th e ir a b ilit y to a ttr a c t more s k ille d o r g a n iz e r s\
i 1
i l
th rough in creased fin a n c ia l in c e n tiv e . This growth pattern,;
• 6 9 :
' % i
jalthough perhaps c e r ta in , i s probably slow , e s p e c ia lly whenj
j compared w ith the method by which banks, savings and loan j
a s s o c ia tio n s , and fin an ce companies grow through the ad di
tio n o f bran ch es. Branch op eration i s not authorized by
c r e d it union la w s, and each c r e d it union i s organized and
!
chartered sep arately* Host take the tim e o f a league
o f f i c i a l to a s s i s t them in the o rg a n iz a tio n a l p erio d .
P o te n tia l grow th. To grow in to the m illio n d o lla r
c la s s , a c r e d it union must s ta r t w ith a la rg e p o te n tia l
membership, and they must provide such e f f e c t iv e se r v ic e
th a t they a ttr a c t a su b s ta n tia l p rop ortion o f th e ir poten
t i a l members. Only a few c r e d it unions can exp ect to reach
large s iz e Prom the date th a t a c r e d it union i s chartered,
i t s management knows what the maximum number o f members can
b e . This i s p o ssib le because c r e d it unions are organized
among w e ll d efin ed groups having a common bond o f occupa
tio n , r e sid e n c e , or a s s o c ia tio n .^ j
As Table IX, page 70, in d ic a te s , b oth p o te n tia l and j
a c tu a l fe d e r a l c r e d it union membership has been s te a d ily I
i
in cr e a sin g in C a lifo r n ia . Because no s t a t i s t i c s are com- j
| i
.p ile d on p o te n tia l membership in s ta te c r e d it u n ion s, i t is !
i ;
I
I I
I I
■ ........I I " " ■ ■ ■ ■■ ' ■ — —— — j
| ^Croteau, f,The Large C redit U nion,” op. c i t . , p . 31^8,
! ^ F e d e r a l C r e d it U nion Handbook, U n ite d S t a t e s B ureau
I o f F e d e r a l C r e d it U n io n s, J u ly , 1 9 5 6 , p . 1 .
TABLE IX
G R O W T H O F POTENTIAL A N D A C TU A L FED ER A L CREDIT UNION M E M B E R S
IN CALIFORNIA AS C O M P A R E D T O POPULATION
Year
P opu lation o f
C aliforn ia, on
December 3 1 st
P o te n tia l num
ber o f fe d e r a l
c r e d it union
members
% o f popu lation
who are p oten
t i a l fed era l
c r e d it union
members
A ctual number
o f fe d e r a l
c r e d it union
members
% o f p opu lation
who are a ctu a l
c r e d it union
members
1914.1
7 ,5 0 3 ,1 0 0 not a v a ila b le
m m
121,927 1
191+2 8 , 11+ 3 , 1+70 322,198
3 .9 # 116,077
2 .0
191+3 8,71+6,095 360,725 l+.i 113, 851+ 1 .3
191+ 1 +
9 ,1 5 2 ,2 9 5
329,285 3 .6 107,969 1 .1
191+5
9,1+59,1+60 295,51+8 3 .1 96,391 1 .0
191+6 9 ,6 9 0 ,5 6 0 312,939 3 .2 106,1+11 1 .0
191+7
9 ,9 1 5 ,8 2 0 352,108
3 .5
1 2 k ,070
1 .3
191+8 10,l81+,600 39l+,398 3 .8 11+8,057 1 .3
191+9 1 0 ,586,223 1+33,123
1+.0
177,31+1 1 .7
1950 1 0 , 782,000 50l+,019 k .6
212,751+ 1 .9
1951
11,21+7,000 611+,030
5.1+
256, 171+
2 .2
1952 1 1 ,959,000 730,258 6*1 308,361 2 .5
1953 12,351+, 000
789,801+ 6 .3 365,876 2 .9
1951+ 12, 805,000 887,083
6 .9 1+ 21+ , 985
3 .3
1955
13,1+65,000
1,035,1+25
7 .6 1+89,076 3 .6
j SOURCE: C alcu lated from Reports on O peration o f Federal C redit U nions, pub lish ed j
jby the U nited S ta te s Bureau o f Federal C redit Unions; and P opulation S t a t i s t i c s , c a lc u
la te d by the Research Department, S e c u r ity -F ir s t N ation al Bank o f Los A ngeles*
oi
!not p o ssib le to know the ab solu te t o t a l p o te n tia l c r e d it
i
■union membership fo r C a lifo r n ia , However, th e t o t a l number
|o f s ta te c r e d it unions and th e ir t o t a l a s s e ts i s not a
g reat d eal le s s than fe d e r a l c r e d it unions; so i t would
seem reasonably c o r re ct to assume th a t somewhat le s s than
|l5 .2 per cen t o f C a lifo r n ia 1 s popu lation were p o te n tia l
c r e d it union members a t the end o f 1955 & * id . somewhat le s s
|than 7*2 per cen t were a ctu a l members. Growth o f c r e d it
junions cannot exceed p o te n tia l membership; th e r e fo r e , new
I c r e d it unions must be founded wherever new areas o f common
bond develop i f c r e d it union growth i s to keep pace w ith j
p op u lation in c r e a s e s . As Table IX, page 70, in d ic a te s , in '
19lf2, 3*9 per cent o f C alifornia* s p op u lation were poten
t i a l members and 2*0 per cen t were a c tu a l fe d e r a l c r e d it
union members. These r a tio s in creased so th a t in 1955* j
j7 .6 per eent were p o te n tia l members and 3 .6 per cent were I
I 1
| a ctu a l fe d e r a l c r e d it union members. Although n e ith e r <
s ta te nor fe d e r a l c r e d it union laws s e t a maximum amount o f I
! shares an In d iv id u a l can own in a c r e d it union, in d iv id u a l
c r e d it unions do s e t such a lim it which may be ad ju sted as 1
1
economic and p erson al s itu a tio n s d ic ta te .? This lim ita tio n j
I
(means th a t the maximum p o te n tia l share ownership can only !
I
|be a ccu ra tely c a lc u la te d by each in d iv id u a l c r e d it union |
: i
I
1 ----------------------------------------------------- 1
j 1
| ?Federal C redit Union Handbooka op. c i t . , p . 9; and
The C a lifo rn ia C redit Union A ct.
72
jand not for the c r e d it union movement as a w hole. However,
(because o f the la c k of co n so lid a ted s t a t i s t i c s on th is
i
maximum, i t i s im p ossib le to determine p o te n tia l d o lla r
i
iamount o f share ownership; but from tren d s, the fo reseea b le
1
a ctu a l growth can be c a lc u la te d w ith reason able accuracy.
t
Although the maximum p o te n tia l number o f members can
be a ccu r a tely determined, fo r a l l fe d e r a l c r e d it u n ion s, and
maximum share accounts can be estim ated , the demand fo r
loan s i s a more changeable co n d itio n o f growth. Loans o u t
standing at any one time a re, o f co u rse, lim ite d to the
amount o f shares ou tstan din g p lu s the amount th a t the cred it
union can borrow. In the f i e l d s o f savin gs and consumer
len d in g , there i s the elem ent o f growth fo r fin a n c ia l in
s t it u t io n s th a t i s brought about by savers and borrowers
moving from one in s t it u t io n to another. This i s a c o n trib -
jutant to c r e d it union growth, however, only in so fa r as a
i
p o te n tia l member becomes an a ctu a l member. I t i s probable
(that the lim ita tio n on the scope of membership, imposed by
law, has been a co n trib u tin g fa c to r to the broadening in
the scope o f membership in the more r e c e n tly chartered
c r e d it u n io n s. I t seems probable th a t the o rg a n iza tio n a l
(problems in sta r tin g a c r e d it union having a p o te n tia l mem-
i
: bership o f 10,000 are not much g rea ter than in forming a
icred it union w ith 100 p o te n tia l members, and c e r ta in ly the
!
Itask i s not 100 tim es g r e a te r . Of cou rse, a fte r the c r e d it
[unions are ch a rtered , the c l e r i c a l and m anagerial problems
73
I
|do d if f e r in magnitude; but in o rg a n iza tio n and ch a rterin g ,
|
ithere would be no great d iffe r e n c e ,
1 8
j Economy o f op eration because o f s i z e . I t i s proba
b le th a t one o f the reasons management endeavors to enlarge
i
i
an o rg a n iza tio n i s to ob ta in c e r ta in economies th a t s iz e
a ffo r d s . The r a t io s in la r g e r c r e d it u n ion s, however, do
not d iff e r s u b s ta n tia lly from the e n tir e group o f fe d e r a l
c r e d it u n io n s. The r a tio of income to expense in fe d e r a l
i
; i
c r e d it unions w ith a s s e ts o f over $ 1 ,0 0 0 ,0 0 0 was 3 8 .6 per i
c e n t, and in a l l fe d e r a l c r e d it unions i t was lj.0;3 per cent
in 1955* Under p resen t law s, economic c o n d itio n s, and the j
i
p resen t p o s itio n o f c r e d it unions in our fin a n c ia l str u c - |
!tu re, there seems to be l i t t l e economy because o f s i z e .
i
|The r e la tio n s h ip o f income and c o st o f op eration to s iz e o f
Ifed eral c r e d it unions in 1955 i s shown in Table X, page 7^*
j !
j One rough r a tio o f e f f ic ie n c y in c r e d it union op era-|
jtio n s i s the r a tio o f expenses to incom e. As one might
I |
'exp ect, the sm aller c r e d it unions have a higher one; but i
i I
when c r e d it unions reach $ 2 ,0 00,000 in a s s e t s , c o s ts appear;
i
to in crea se w ith in cr ea sin g s i z e . From Table X, one might j
;contend th at such econom ies as are found in la r g er c r e d it j
i ‘
8 '
Much o f the inform ation in t h is paragraph was ob- '
Itained by b rin gin g up to date the work done by John T.
IC roteau, ”The Large C re d it U n io n ,” The Jo u rn a l o f M nance,
•Septem ber, 1958, p p . 3^7-3&2. The c o n c lu s io n s , “However,
|and s t a t i s t i c s d if f e r in degree from the e a r lie r stu d y.
TABLE X
•P E R C E N T A G E O F IN C O M E A N D EXPENSE ITEMS?' A LL FED ERA L CREDIT U N IO N S
•IN TEE UNITED STATES, B Y SIZE O F ASSETS, 1955
Size of Assets
Income
Income
from
In te re s t Invest-
on Loans ments
Expenses
R atio of
Expenses
Other to Ihddme
T reasu rers1
S alaries
Other
Salaries'
Borrowers•
P ro tectio n
L ife
‘Savings
Insur
ance
League
Dues
Surety
Bond
Premium
Supervision
and Exami
n ation fees
In te re s t
bn Bor
rowed
Other
Less than $5,000 9k. 7 1.1 k.2 66.J
$5,000 to $9,999 94.6 J . l 2.3 48.5
$10,000 to $24,999 95. k 3.7 .9 46.1
$25,000 to $49,999 94.9 4.6 .5 44.5
$50,000 to $99,999 93-6 6.0 .4 42.6
$100,000 to $249,999 92.4 7.3 .3 41.7
$250,000 to $499,999 90*2 8.9 .4 39.5
$500,000 to $999,999 90.1 9*7 -2 3«-9
$1,000,000 to $1,999,999 88.2 11.6 .2 36.5
$2,000,000 to $4,999,999 87.O 12.4 .6 39.2
$5,000,000 and oyer 81.7 17.6 .7 40.0
A ll c re d it unions 90*3 9»3 * 4 40*3
9.9 ■ .5 ^ 8.7
8.1 4.0 13.2 14.3 1.4
39-9
22.4 ’ 2.9 10.6 9*4 4.0
9.3
11.5 1.6 28.3
29.4
4.3
11.2 8.6 4.1 6.0 11.6 2.7 22.1
29.5
, 9.2 11.2 8.0
4*3
4.4 1 0 a 3.2 20.1
28.6 . 14.7 11.4 7.8 4.5 3*2 7.8
3-4 18.0
23.9
23.5
10.8
Z*5
4.5 3.1 5.2
3a 18.4
16.7
33.9
10.9
6.7
4.1 2.6 4.1 2.5 18.5
11.0 41.2 10. s 6.7
3-5
2.0
3-7
2.0 1 9 a
7-5
44.6 10.9
6.2
2*5
1.6
3-5 2.3 20.9
4.8 46.0 10.6
5*7
2.4 1.0 3-2 2.6
23*7
1.1 60*0 6.7
4.4
•7 •5
2.2
2.3
22.1
15.8
33-5 . *
10.8 6.8 3.6 2.5 4.7 2.6
I 9r 7
SO U RCE: ;
C alculated from ”1955 Report on Operation of Federal Credit Unions,” U. S. Bureau of Federal C redit Unions.
iunions are due more to a stron ger b argain in g p o s itio n than
'from o p era tio n a l e f f ic ie n c y . Exam ination f e e s , fo r exam
p le , seem to be s e t r e g r e s s iv e ly in favor o f the la rg er j
c r e d it u n ion s, even though, by law, a b i l i t y to pay should be
con sid ered . There seems to be l i t t l e red u ctio n in league
dues: or borrowers* p r o te c tio n insurance because o f s iz e in
c r e d it u n io n s. L ife Savings Insurance ranges from 9.i|- per
cen t to per ee n t, but the drop in the p rop ortion spent
fo r l i f e savin gs insurance in la r g er groups i s probably
accounted fo r by th e fa c t th a t premiums are n ot paid on j
i i
i i
more than $1,000 in any accoun t. j
| S a la r ie s , the la r g e s t item o f t o t a l exp en ses, in - ,
i !
•'crease as the s iz e o f th e c r e d it union in c r e a s e s . This i s |
q u ite lo g ic a l because in the ea rly days o f a c r e d it union,
much o f the work i s volu n tary, but as a c r e d it union grows
,i t i s able to pay the trea su rer more and i s able to employ
I I
i
more c le r ic a l a s s is ta n c e . When a c r e d it union develops |
in to a fu ll-tim e op eration and i t i s n ecessary to h ir e a
i
'•sta ff, wages and many other expenses w i l l jump. This le v e l!
i
seems to be reached in the $2^0,000 to $ij.99,999 group. j
i
Although i t i s not shown in Table IV, wages seem to s t a b i l - !
1
i
iz e between 20 per cen t and 21 per cent o f t o t a l income in j
j j
Icredit unions w ith more than $5>00,000 in a s s e t s . In th ese
i ;
'larger c r e d it u n ion s, in cr ea se s in wages are about o f f s e t
1
|by in c re a se d e a rn in g s . T h e o re tic a lly , w ith in a s p e c if ic |
I |
larea, an in c re a se i n volume could be handled w ith no i
s ig n if ic a n t in cr e a se in wages. Such a wage b eh avior, how- i
ev e r, i s not shown by c r e d it u n io n s. ;
1 i
1 Another measure o f economy o f s iz e fo r a c r e d it
I
lunion would appear to be the c o s t per lo a n . I f the co st
t
per d o lla r loaned reduced as a c r e d it u n ion ’ s a s s e ts grew, j
then i t would seem probable th a t there would be an in cen
t iv e to grow. One of the g r e a te s t p o s s i b i l i t i e s o f c o s t
Ireduction in a c r e d it union i s the red u ction o f u n it loan
!
jc o s ts . The 3 j 009,0?7 loans made by fe d e r a l c r e d it unions
| i
in 1955 were used to analyze u n it loan c o s t s . Since 9 0 .3 j
|per cen t o f the t o t a l income o f fe d e r a l c r e d it unions comes j
i
i
from lo a n s, i t does not seem unreasonable to charge loan s j
I !
[with 9 0 .3 pei* cent o f ex p en ses. This i s an a rb itra ry <
I I
m ethod, but one which should n o t be fa r o f f in e stim a tin g ,
fo r probably 90 per cen t o f the work in a c r e d it union i s
i
in len d in g to members and 10 per cent o f the work i s in i
j i
management o f in v estm en ts. N inety per cen t o f t o t a l ex- I
penses amounted to $31, 085, 738, which, when d ivided by the 1
I
’t o t a l number o f lo a n s, shows th a t the average c o s t per loan
I
jis $9*61^. At the average rate o f 10.09 per cent per annum
charged by fe d era l c r e d it unions in 1955, t h is would in d i
cate th a t any loan under $177, repayable in tw elve equal
| i
in sta lm e n ts, would not cover i t s own c o s t s . TUrther, i t !
i
would mean th a t a c r e d it union in the a s s e t group o f I
i
j$2 , 000,000 to $ij-,999,999 would not cover i t s c o st on a loan
j
t
prepayable in tw elve equal in sta lm en ts u n le ss th a t loan were
| “ ' “ " 77
fo r a minimum o f $268•
i These fig u r e s need fu rth er ex p la n a tio n , fo r w ith
I f a c i l i t i e s at hand, an a d d itio n a l sm all loan to the same
[member would not n e c e s s a r ily c o s t more than ju s t the c o s t
|of forms used and wages fo r a bookkeeper to p o st the new
i
!
loan on the led g er s h e e t. T his i s the concept o f m arginal
c o s t: th e c o s t o f an a d d itio n a l u n it, once f a c i l i t i e s have
been provided which are adequate to operate a c e r ta in s iz e j
| o r g a n iz a tio n . j
A fin an ce company can s e t i t s own p r o fit margin by j
d e c lin in g to make sm all or otherw ise u n p ro fita b le lo a n s or
by in s is t in g th a t the a p p lica n t borrow more than he needs !
i
ju s t to make the loan a p r o fita b le in vestm en t. Presumably,
fin a n ce companies w ill do t h is to maximize p r o f it s . How
e v e r , in keeping w ith the p r in c ip le s upon which c r e d it
[unions are founded, they w ill n ot i n s i s t nor w i l l they even
.encourage a member to borrow more than he needs i f a
j i
sm aller amount w ill s u f f ic e . Thus, i t i s probable th a t |
c r e d it unions make many sm all u n p ro fita b le lo a n s, esp e -
I
I c ia lly the la r g er c r e d it unions where u n it lo a n c o s ts are J
i |
[h ig h er. There are some c r e d it unions who u t i l i z e m u ltip le |
I |
[ra tes so th at the borrowers o f la r g e r and more p r o fita b le j
I
(
Iloans pay a lower ra te than do borrowers o f sm a ller, l e s s |
[p r o fita b le sums. C redit union le a d ers oppose th is p ra ctice!
i
on the grounds th a t the c r e d it union e x is t s to h elp sm all
borrowers and n ot to maximize p r o f it s . !
| Table X I, page 79, in d ic a te s that the average c o s t
i
jper loan in c r e a se s as the s iz e o f the c r e d it union in
c r e a s e s . Although c o s ts dropped In c r e d it unions w ith
1 a s s e ts over $5 , 000, 000, only s ix such c r e d it unions were
!reported and t h e ir op eration s m ight have been on a lower
i
c o st b a s is . This ta b le a ls o in d ic a te s th a t the average
siz e loan in c r e a s e s as the s iz e o f the c r e d it union in
c r e a s e s . This m ight cause one to ex p ect a lower u n it loan
|c o s t, but the o p p o site has been tr u e . The primary p o in t o f
t
t h is a n a ly sis i s s ig n if ic a n t , for i t shows th a t there are
i
'no economies o f op eration because o f the s iz e o f a c r e d it
i
I uni on. ‘ Where econom ies do e x i s t , they are probably a r e - i
I i
s u it o f bargaining stren g th rath er than op eratin g e f f i
c ie n c y .
L iq u id ation reco rd . In a study o f fe d e r a l c r e d it j
!union liq u id a tio n s from 1935 to 1951, i t was found th a t 1
i
I although the number o f liq u id a tio n s m ight seem la r g e , the :
|lo s s e s were su r p r isin g ly sm all and a su b s ta n tia l o v e r -a ll |
'dividend was p aid .^ This same study concludes th a t the j
i
primary in te r n a l reason fo r liq u id a tio n was the in d iffe r T j
i
jence o f p o te n tia l lea d e rs and members, and the primary I
^John t . Croteau, "Federal C redit Union L iquida-
'tio n , 1935-51," Journal o f B u sin e ss, J u ly , 1952, pp. 187-
1203.
I
TABLE XI
L O A N A N D C O ST ANALYSIS F O R FED ER A L CREDIT UNIONS, 195?
(By S ize o f A sse ts)
!Less than §5,000
if ? ,000 to 19,999
510,000 to §24,999
)2?,000 to §49,999
>50,000 to #99,999
>100,000 to §249,999
>250,000 to §499,999
>500,000 to #999,999
^1,000,000 to § 1 ,999,999
52,000,000 to §4,999,999
>5,000,000 and oven
1A11 fe d e r a l c r e d it unions
Number
o f loan s
Amount
o f loan s
Average
s iz e o f
loan s
90$ o f
expenses
Average
c o s t per
loan
17,0k2 # 1 , 966,180
#115
§ 41,204 # 3.00
36, 60I 4 ,
5 , 458,494 149 109,523
2 .9 8
135,872
28, 044,664
206
601,355 4 .4 2
193,825
5 3 , 550,042 276 1 , 211,221
6.2 7
324,957
111, 270,306
342
2 ,5 9 7 ,7 0 4 8.00
588,125 245, 566,289
418 6,0 0 0 ,6 6 0 1 0 .1 0
536,166
259, 152,511 483 6,003,951 11.15
539,886
272, 904,671 505
6,3 0 3 ,2 6 8 11.72
346,710 194, 280,564 560 4 ,2 0 7 ,2 3 0 12 .1 5
202,072
128, 959,834
638 2,950,641
14 .5 2
87,738 4 2 , 463,369 484
1 ,0 6 0 ,9 8 2
1 2 .0 5
3,009,077 1 ,3 4 3 ,6 1 6 ,9 2 4 447
31,085,738 9 .6 4
SOURCE: C alcu lated from s t a t i s t i c s contained in the Report o f O perations o f
I F ed eral C redit U nions, 1955, Bureau o f Federal C redit U nions.
I
jex tern a l reason was c lo s in g o f p la n t or f i e l d o f opera-
!t i o n . ^ •
| As Table X II, page 8l , in d ic a te s , lo s s e s to members
!through liq u id a tio n o f fe d e r a l c r e d it unions has amounted
I
|to only $167,602 in the twenty years th at fe d e r a l c r e d it
unions have been in o p era tio n . That th ere have been lo s s e s J
cannot be q uestioned; but when compared w ith the many v a lu
able se r v ic e s c r e d it unions have rendered to members before;
! !
•they c lo se d , the lo s s e s seem to be in f in it e s im a l. For j
!
example, as Table XII in d ic a te s , lo s s e s on shares o f fe d - j
e r a ! c r e d it unions liq u id a te d in 1955 amounted to $28, 555, j
as-compared w ith dividends paid by a l l fe d e r a l c r e d it
unions in the same year o f $ 3 5 ,3 8 3 ,2 1 6 . This lo s s amounted
to *002 per cent o f the t o t a l a s s e ts o f a l l fe d e r a l c r e d it
■unions at the end o f 1955* The 39 fe d e r a l c r e d it unions
which liq u id a te d at a lo s s in 1955 accounted fo r *2 j . per
jcen t o f a l l a c tiv e fe d e r a l c r e d it u n io n s. Twenty-one o f
1 •
the 39 fe d e r a l c r e d it unions th a t liq u id a te d at a lo s s in •
1
1955 &ad shares o f l e s s than $1 , 000, and a l l but one had |
shares o f l e s s than $2 5 , 000.^^ :
1
1 There have been a number o f s tu d ie s made o f c r e d it !
!
I
;union liq u id a tio n s ; a ls o , the primary reason fo r lo s s on |
i __________ -
j 10I b id . , p . 200.
J -^ O perations o f Federal C redit O nions, 1955, o£.
s c i t . , p. 1 0 .
TABLE X II
LIQUIDATION O P FEDERAL CREDIT UNIONS IN T H E
UNITED STATES DURING T H E PERIOD 1935-5?
1935-55
1954
1955
Number of fe d e r a l c r e d it unions
$ 2,299 1 94
$ 151
Paid 100$ or more 1,828 76 112
Paid le s s than 100$
4 7 i
18 39
Number o f members
230,957 9,472 17,672
R eceived 100$ or more 186,989 7,516
13,119
R eceived le s s than 100$ 43,968
1,956 4,553
Amount o f shares
14,500,023
828,688 2 , 243,732
Repaid 100$ or more 13,187,809 766,567
2 , 047,688
L iqu id ating dividend 692,646 30,628
75,989
Repaid l e s s than 100$ 1 ,3 1 2 ,2 1 4
62,121 !9 6 ,0 4 4
Losses on shares 167,602
10,059 28,555
SOURCE: O perations o f Federal
U nions, p . 1 0 .
C redit U nions, 1955, Bureau o f Federal C redit
; ’ ' ” 821
sh a res—d e fa lc a tio n —has been the su b ject o f study by v a r i
ous people in te r e s te d in the c r e d it union movement. T his
[alone has probably made many people aware th a t th e ir sav
in g s are n ot as safe as they would be in a commercial bank
i
j I
jw hose d e p o s it s w e re in s u r e d b y th e F e d e r a l D e p o s it I n s u r -
i
i
la n c e C o r p o r a t io n . C o m p e tito r s o f c r e d i t u n io n s h a v e
w r i t t e n a b o u t c r e d i t u n io n lo s s e s i n s u c h a m a n n e r a s t o
im p ly t h a t lo s s e s w e re s u b s t a n t i a l , e s p e c i a l l y b y r e a s o n o f
I -i p
;d e fa lc a tio n . The gen eral p u b lic , who do n ot know the
[h is to r ic a l liq u id a tio n s t a t i s t i c s p e rtin en t to c r e d it unions
I
and who do not know th a t the la rg e fe d e r a l c r e d it unions j
who p o ssess 30 per cent o f a l l fe d e r a l c r e d it union a s s e ts
have never had a liq u id a tio n o f any typ e, probably f e e l
th a t there i s a d e f in ite r is k to savin gs which are p laced
w ith a c r e d it u n i o n . Because there i s no ab solu te f e e l -
i
in g o f s a fe ty o f p r in c ip a l w ith a c r e d it union, i t i s
probable th a t many members have and w i l l continue to in v e st
i
only a p o rtio n o f th e ir savings in th e ir c r e d it u nion .
Thus, c r e d it unions cannot a n tic ip a te growth to the f u l l J
i
ex ten t p o ssib le i f a l l o f the members p lace a l l o f th e ir j
1
; 12Two examples o f t h is can be found in the a r t ic le j
|by W alter B. French, ”The Rapid Growth o f C redit U n io n s,” :
■ Banking, Ju ly, 19$k> P* 10; and ”C redit Unions Gird to j
F igh t Ik e’ s Plan to R egulate Them,” American Banker, Febru-'
ary 2 , 1955. !
^-^croteau, ”The Large C re d it U n io n ,” op. c i t . ,
P. 359.
jsavings in th e ir c r e d it u nion . I t i s , o f cou rse, im p o ssi-
j
h ie to determ ine how much o f a member1 s savin gs he w i ll
iplace w ith h is c r e d it union; and there are probably many
jp o ten tia l members who have in the p a s t, and w i l l in the
!
jfu tu re, save w ith other savings in s t it u t io n s rath er than
i
r is k th e ir sa v in g s w ith a c r e d it u nion , even though, h i s - j
t o r ie a lly , the lo s s experience through liq u id a tio n has been
e x c e lle n t .
I O pposition o f em ployers. Although many employers
i
l
con sid er c r e d it unions as a part o f th e ir w elfare programs,
and th erefo re a c o s t o f b u sin ess chargeable to personnel !
a c t i v i t i e s , i t i s probable th a t many em ployers have con-
I
tra ry b e l i e f s . This i s borne out by a study o f the rea so n s|
fo r fe d e r a l c r e d it union liq u id a tio n , which in d ica ted th at
9
employer o p p o sitio n was the second most common ex te r n a l
I i
Icause fo r fe d e r a l c r e d it union liq u id a tio n during the four
iyears from 191+8 through 1951.^ Employer o p p o sitio n ac
counted for 37 per cen t o f the t o t a l number o f c r e d it
unions liq u id a te d fo r ex ter n a l causes during th at p e r io d .^
I
I f an employer b e lie v e s th at h is personnel should save and j
i
borrow through e x is tin g fin a n c ia l in s t it u t io n s , he would !
!
;not appropriate funds from h is b u sin ess to e s ta b lis h a I
i
i i
_ __________________________ j
^-Croteau, "Federal C redit Union L iq u id a tio n s, 1935-
51," ££• c i t .j p . 200.
^ L o c . c i t . i
I c r e d it union for h is em ployees. Although con ceivab ly a
Jeredit union could be formed over h is o p p o sitio n , i t would
|seem probable that few such c r e d it unions have been formed
|in th is manner. Because no m a teria l has been w ritten on
i
the o rg a n iza tio n o f c r e d it unions a g a in st em ployers1 w ishes,
and a s u b s ta n tia l percentage o f c r e d it u n io n s1 liq u id a tio n
fo r ex tern a l cause has been tra ced to employer o p p o sitio n ,
i t seems th a t the growth o f the number o f c r e d it unions i s
I lim ite d by the number o f em ployers who w i l l encourage or
! - j £
laid th e ir form ation w ith in occu p ation al groups. D Of
cou rse, employer o p p o sitio n i s not a lim ita tio n to expan- |
sio n o f c r e d it unions w ith n on -occu p ation al membership. !
O ccupational c r e d it u n ion s, however, accounted fo r 83 per
cen t o f the t o ta l number and 91 per cent o f the t o t a l
a s s e ts of a l l fe d e r a l c r e d it unions in op eration on Decern-
jber 31, 1955. 17 1
I
i
C om petitors1 o p p o sitio n . Although there are a num- j
ber o f fin a n c ia l in s t it u t io n s which m ight be considered as j
1 1
‘com petitors to c r e d it u n ion s, the only com petitor who has ;
!
I
i------------------------------ |
• ^ C r o t e a u , 0p . c i t . , p . 199, s ta te s th a t o f 132 fe d -,
e r a l c r e d it unions liq u id a te d because o f ex tern a l causes
from 19l|8 to 1951, 38 per cent were liq u id a te d because o f i
employer o p p o sitio n . T his was the second most im portant j
reason , the f i r s t being the c lo s in g o f a p la n t or f i e l d o f !
|o p era tio n , which caused 57 per cent o f liq u id a tio n s . j
| -^ C alcu lated from Report on Federal C redit Union
O perations, 1955, P« 13*
Io p p o s e d c h a n g e s i n t h e F e d e r a l C r e d i t U n io n A c t i s t h e !
I T ft ^
'A m e ric a n B a n k e rs A s s o c ia t io n . The f i r s t s u c h o p p o s it io n j
iwas a l e t t e r read in to a Senate hearing in 19lf6, o b je ctin g
Jto an in crea se in the unsecured loan lim it and a lso o b je c t-
!ing to the ta x exempt sta tu s o f c r e d it unions fin© b i l l
I j
pf)
was p assed , however, and became P ublic Law 5714-.
Subsequent to t h is l e t t e r , the American Bankers
A sso c ia tio n has not been heard in o p p o sitio n to fe d e r a l
;c r e d it union le g i s l a t i o n . In March o f 1956, th e ir Com-
i
jm it t e e o n F e d e r a l L e g i s l a t i o n a d o p te d a p o l i c y w h ic h m ig h t
i
i
jbe s u m m a riz e d a s one w h ic h a p p ro v e s o f c r e d i t u n io n s b u t
o b je c ts to any governm ental p r o te c tio n o f shareholders*
i n t e r e s t s , o r l e g i s l a t i o n t o a l lo w l a r g e r c r e d i t u n io n s t o
make loan s to sm aller c r e d it u n io n s, or to provide fo r the
Pi
e s t a b lis h m e n t o f a r e g i o n a l c r e d i t u n io n s y s te m . A s M r .
i
i
j j . R . D u n k e r le y , S e n io r D e p u ty M a n a g e r o f th e A m e ric a n
I
:B a n k e rs A s s o c ia t io n , p o i n t s o u t , m a n y c r e d i t u n io n s a re !
j
o r g a n iz e d b y b a n k s f o r t h e i r e m p lo y e e s ; b u t t h e r e a re some |
! -^John Croteau* s book, A Study o f the H istory and
E xp erien ces o f Federal C redit Unions in The ir ~ F ir s t 20
! Years o f E x isten ce (New York: Harper B roth ers, 1956), makes
n o m ention o f o p p o sitio n to fe d e r a l le g is la t io n from any
com petitor except the A.B.A.
I -^^Croteau, "The Federal C redit Union System: A
l e g i s l a t i v e H isto ry ," o£. c i t . , p . Ilf.
^ L o c . c i t .
^ L e t t e r fr o m th e A . B . A . in M a rc h , 1956.
86!
m is g i v in g s w hen th e r a n k a n d f i l e o f u n t r a in e d p e r s o n n e l
! 22
ibecom e in v o lv e d i n s p e c i a l iz e d le n d in g f i e l d s . T he
i
lA m e ric a n B a n k e rs A s s o c ia t io n p o l i c y to w a r d c r e d i t u n io n s
!has n o t b e e n o f f i c i a l l y h e a r d b e c a u s e n o C o n g r e s s io n a l
i
I
S h e a rin g s h a v e b e e n h e ld s u b s e q u e n t t o th e e s t a b lis h m e n t , o f
i
i t h e i r p o l i c y . I t w o u ld seem , h o w e v e r , t h a t t h e y w o u ld n o t
o b je c t to c r e d i t u n io n s o r g a n iz e d w i t h i n b a n k s , b u t t h a t
th e y w o u ld o b j e c t t o a n y l e g i s l a t i o n w h ic h m ig h t c h a n g e th e
i
'E e d e r a l C r e d i t U n io n A c t i n a n y w ay t h a t w o u ld a l lo w f o r
! i
| t h e i r g r o w th i n f i e l d s c o m p e tin g w i t h c o m m e r c ia l o r s a v in g s |
b a n k s .
i I
i
E d u c a t io n a l p r o b le m s . T he s o c i a l c o n c e p t o f c r e d i t j
I
u n io n s i s a t g r e a t v a r ia n c e w i t h t h a t o f o t h e r ty p e s o f !
I
f i n a n c i a l i n s t i t u t i o n s . W h e re a s th e s u c c e s s o f m o s t f i n a n
c i a l i n s t i t u t i o n s i s m e a s u re d b y p r o f i t s show n a t y e a r - e n d , ;
c r e d i t u n io n s u c c e s s i s m e a s u re d b y h o w w e l l i t s e r v e s t h e i
i
i
n e e d o f i t s m em bers t o fo r m h a b it s o f t h r i f t a n d b y i t s i
i
s u c c e s s i n k e e p in g m em bers aw ay fr o m h i g h r a t e m o n e y l e n d - j
i
! |
je r s , w h ile s t i l l p r o v id in g m em bers w i t h a h ig h s t a n d a r d o f i
j l i v i n g t h r o u g h p r o p e r c o n t r o l o f t h e i r own f in a n c e s a n d j
!o f f e r i n g th e m lo a n s f o r p r u d e n t p u r p o s e s . S u c h a c o n c e p t !
; |
i s new t o m any p e o p le , a n d t h in g s n o t kn o xm o r c o m p le t e ly j
i :
u n d e r s to o d b y p e o p le a r e . o f t e n n o t r e a d i l y a c c e p te d b y !
I
I
i : ! ........
j p p
j ^ L e t t e r fr o m M r . D u n k e r le y t o th e w r i t e r , d a te d
[O c to b e r 5* 1956.
them. Thus I t Is probable th at many p o te n tia l c r e d it union
members have not become a c tu a l members sim ply because th ey
did n ot understand what the c r e d it union movement r e a lly j
j
i s . There are probably many new c r e d it union members each j
i
year th at have join ed because they have learn ed what makes j
!
t h is in s t it u t io n what i t i s and, through fa m ilia r ity , are j
no lon ger a fr a id o f becoming a sso c ia te d w ith i t . |
|
Perhaps one o f the most im portant and a c tiv e commit-j
jtees in a c r e d it union or in the league o rg a n iza tio n i s thej
i i
jeducational com m ittee. O bviously, th e ir work i s not com-
, i
ip lete u n t il every p o te n tia l c r e d it union member becomes an j
j i
a ctu a l member. The growth o f a ctu a l members, as shown in
Table IV, page 38, and Table IX, page 70, in d ic a te s th at
jeith er many people do not understand c r e d it unions or, i f
I
Ithey do understand them, they are not a v a ilin g them selves
!
|of the opportunity to jo in ; i t appears th a t the former
t
|would be a c o rrect assum ption.
; The slow progress; o f educating masses o f people in
i
the value o f c r e d it union memberships i s probably a d e te r -
I
ren t to the growth of c r e d it u n io n s. There i s probably a
m u ltip lie r e f f e c t in such ed u ca tio n a l programs, fo r when j
'members educate non-members, they In turn educate o th e r s, j
j i
and thus the p u p ils o f one teach er become the tea ch ers fo r j
I 1
1
jmany o th e r s. 1
! 1
Being the sm a llest and one o f the new est o f fin a n - |
jc ia l in s t it u t io n s , c r e d it unions have no long and proud 1
I I
h i s t o r y o r m o n u m e n ta l b u i l d i n g s t o p o i n t t o a s e v id e n c e t o j
t h e i r s u c c e s s . T e x tb o o k s a n d s c h o o l c o u r s e s d o n o t t r a i n !
I
c h i l d r e n i n th e w ays o f c r e d i t u n io n o p e r a t i o n . S c h o o l j
|
c h i l d r e n a r e n o t e n c o u ra g e d t o o p e n s a v in g s a c c o u n ts w i t h |
c r e d i t u n io n s a s th e y a r e w i t h th e s a v in g s d e p a r tm e n ts o f |
b a n k s . A l l o f th e s e f a c t o r s t e n d t o c a u s e c r e d i t u n io n s t o
i n s t i t u t e t h e i r own e d u c a t io n a l p l a n s , w h ic h w i l l g ro w
s lo w ly w i t h t h e g r o w th o f th e w h o le m o v e m e n t. j
T h e re a r e p r o b a b ly m any c r e d i t u n io n m em b ers w ho do j
I
In o t a v a i l th e m s e lv e s o f lo a n s t h r o u g h c r e d i t u n io n s b e c a u s e j
I I
Im em bers o f th e C r e d i t C o m m itte e , S u p e r v is o r y C o m m itte e , o r
i
B o a rd o f D i r e c t o r s w o u ld th e n kn o w a l l o f t h e i r p e r s o n a l j
i
p r o b le m s . A lt h o u g h a l l c r e d i t u n io n o f f i c i a l s a r e b o u n d j
n o t t o v i o l a t e t h e c o n fid e n c e o f m e m b e rs , i t i s p r o b a b le
t h a t m any p e o p le , i n s p i t e o f c r e d i t u n io n t e a c h in g s , w o u ld
!
jr a t h e r p a y u s u r io u s i n t e r e s t t h a n l e t t h e i r f e l l o w w o r k e r s j
l
j I
jkn o w t h e i r f i n a n c i a l p r o b le m s . C r e d i t u n io n s h a v e g o n e f a r |
i n re m o v in g t h e s o c i a l s tig m a c o n n e c te d w i t h f i n a n c i a l I
jp r o b le m s ; b u t i t i s r e a s o n a b le t o a s s u m e , b e c a u s e o t h e r |
! I
'le n d e r s s t i l l a t t r a c t lo a n s a t h i g h e r r a t e s , t h a t c r e d i t |
I i
u n io n s h a v e m u c h m o re e d u c a t io n a l w o rk t o do am ong p o t e n
t i a l m em bers b e f o r e a l l p e o p le n o lo n g e r s e e a n y s tig m a
i
jc o n n e c te d w i t h p e r s o n a l b o r r o w in g s . I
! I
C o n c lu s io n s . T h e re a r e tw o t y p e s o f in c e n t iv e s t h a t
a t t r a c t i n d i v i d u a l s t o p a r t i c i p a t e i n m a n a g e m e n t o f a n y
1 " ■ ......” ~ “ " 89]
! I
(business and serve as stim u li to good management. These 1
: I
in c e n tiv e s may be ca teg o rized as fin a n c ia l and n o n -fin a n cia l
in nature* I t i s o fte n sa id th a t businesses! which o ffe r
the h ig h e st fin a n c ia l in c e n tiv e s are the ones th a t a ttr a c t
j
|the b e st management. I f t h is i s tr u e , then the management
1
|of c r e d it u n io n s, which r e c e iv e sm all fin a n c ia l in c e n tiv e s ,
i s n ot the b e s t management. However, the q u a lity o f man
agement does not d ir e c tly c o r r e la te w ith the . amount o f
fin a n c ia l in c e n tiv e r e c e iv e d . I t I s probable th at there
l
l
iare more n o n -fin a n c ia l than f in a n c ia l in c e n tiv e s o ffe r e d to
management o f in d iv id u a l c r e d it u n io n s.
j
A lthough the management o f in d iv id u a l c r e d it unions !
i
!
does not r e c e iv e la r g e fin a n c ia l in c e n tiv e s , i t seems I
probable th a t some o f the leagu e s t a f f s do re ce iv e substan
t i a l fin a n c ia l reward. T his i s e s p e c ia lly true in C a li-
jfo rn ia , where the league r e c e iv e s about on e-ten th o f a l l
dues paid to c r e d it union le a g u e s, even though there are
approxim ately s ix ty other le a g u e s. Even w ith the C a li- !
fo rn ia C redit Union League r e c e iv in g so much o f the n a tio n -j
wide league dues, i t appears th a t the s t a f f . i s s t i l l not
adequate to organize new c r e d it unions at a rate much in
ex cess o f th a t shown in the p ast decade. Although the rate
o f c r e d it union growth in C a lifo r n ia might in crea se some,
I !
th e a d d itio n a l o rgan izers required for an a c c ele ra ted
growth could not be employed because o f the higher budget
required and the lim it ed fin a n c ia l resou rces o f the lea g u e.
I B e c a u s e c r e d i t u n io n s c a n n o t fo r m b r a n c h e s a n d b e -
I
^ca u se e a c h c r e d i t u n io n m e m b e rs h ip i s l i m i t e d t o a w e l l
i
[ d e f in e d h o m o g e n e o u s g r o u p , g r o w t h o f c r e d i t u n io n m e m b e r-
!
[ s h ip m u s t b e a c c o m p lis h e d b y : ( 1 ) f o u n d in g new c r e d i t
[u n io n s a n d ( 2 ) e n c o u r a g in g p o t e n t i a l m em bers, t o becom e
I
l
a c t u a l c r e d i t u n io n m e m b e rs . A lt h o u g h C a l i f o r n i a n s h a v e
jo in e d c r e d i t u n io n s fr o m b o t h o f th e s e s o u r e e s , t h e r e h a s
[b e e n n o r e m a r k a b le s u rg e t o j o i n c r e d i t u n io n s ; a n d i t
[w o u ld seem t h a t , a lt h o u g h t h e p e r c e n ta g e o f p o p u la t io n who
[a r e c r e d i t u n io n m em b ers w i l l c o n t in u e t o in c r e a s e , i t w i l l
ib e m any y e a r s b e f o r e e v e n o n e - f o u r t h o f C a l i f o r n i a ' s p o p u -
' I
j l a t i o n h a v e becom e a f f i l i a t e d w i t h a c r e d i t u n io n , j
I n m any f i n a n c i a l i n s t i t u t i o n s , i t i s p r o b a b le t h a t
t h e r e a r e e c o n o m ie s o f s iz e w h ic h w o u ld be a d v a n ta g e o u s t o
'm a n a g e m e n t. T h is i s n o t t r u e w i t h c r e d i t u n io n s ; i n f a c t ,
)
it h e o p p o s it e o c c u r s w i t h m any o f t h e i r e x p e n s e s . W it h no
[ f i n a n c i a l a d v a n ta g e d e r iv e d t h r o u g h g r o w t h , t h e r e i s n o
I t
[ i n c e n t i v e f o r m a n a g e m e n t t o s t r i v e f o r a l a r g e r c r e d i t !
I
u n io n e x c e p t f o r t h e n o n - f i n a n c i a l in c e n t iv e s w h ic h m ig h t
i
a c c ru e t o m a n a g e m e n t.
j
j I t i s p r o b a b le t h a t , a lt h o u g h th e l i q u i d a t i o n r e c o r d !
' i
o f c r e d i t u n io n s h a s b e e n e x c e l l e n t , m any p e o p le b e lie v e
i t h a t t h e i r s a v in g s a re s a f e r i n o t h e r ty p e s o f f i n a n c i a l [
I ,
[ i n s t i t u t i o n s . T h is i s p r o b a b ly c a u s e d i n p a r t b y th e n u m -
I
I
b e r o f a r t i c l e s w r i t t e n o n c r e d i t u n io n lo s s e s a n d l i q u i d a
t i o n s . A s lo n g a s t h i s f e e l i n g e x i s t s , c r e d i t u n io n s w i l l
not r e c e iv e any rapid in crea se in the volume o f savings
i
placed -with them by in d iv id u a l members*
i
i The seeond most frequent e x te r n a l cause fo r c r e d it !
union liq u id a tio n i s employer op p osition * Although only I 4 .7 5
jfed era l c r e d it unions in the U nited S ta te s were liq u id a te d !
; i
fo r th is reason from 191+8 to 1951> i t i s a fa c to r which
r e f l e c t s on the ra te o f growth o f c r e d it u n io n s. I t i s
probable th a t t h is ra te w ill d e c lin e as the o v e r -a ll c r e d it
union movement grows, but i t i s s t i l l a fa c to r w h ic h lim its
1
the growth o f c r e d it unions but does not lim it the growth
o f other fin a n c ia l in s t itu t io n s * The impact o f o p p o sitio n
! I
ifrom the American Bankers A sso c ia tio n , i f any, has not as i
j |
•yet been ap p reciab le; but i t i s p o ssib le th a t they m ight <
[ob ject to c r e d it union le g is la t io n in the future w ith such
a strong v o ice that a new lim itin g force w i l l be evid en ced .
In the preceding chapter, i t was p o in ted .o u t th at
one survey showed th a t convenience o f lo c a tio n was the
1 j
primary reason fo r an in d iv id u a l saving w ith a p a r tic u la r j
savin gs in s t it u t io n . Although t h is may be true in most
in s t it u t io n s , i t i s probable th a t many p o te n tia l c r e d it
j union members have n ot become a c tiv e members because o f j
!th e ir la ck o f knowledge o f c r e d it union p r in c ip le s and 1
i I
!fu n c tio n s . The ed u cation al programs undertaken by c r e d it !
unions has brought in many a c tiv e members, but there are
many people in th is country and in C a lifo r n ia in p a r tic u la r
who do not know what a c r e d it union Is or how i t fu n c tio n s.
[ E d u c a t io n a l p r o c e s s e s a re s lo w a n d , a lt h o u g h CUUA, th e j
i I
;B u r e au o f F e d e r a l C r e d it U n io n s , c r e d i t u n io n le a g u e s , a n d j
i
I i n d i v i d u a l c r e d i t u n io n s h a v e done a s p le n d id jo b o f t e a c h - j
| i
jin g th e g e n e r a l p o p u la c e a n d p o t e n t i a l c r e d i t u n io n m e m b e rs
i
|th e p r i n c i p l e s o f c r e d i t u n io n s e r v ic e , t h e r e a r e m any
i i
|th o u s a n d s o f p e o p le s t i l l t o be r e a c h e d . B e c a u s e t h i s
i
p ro c e s s : i s s lo w , c r e d i t u n io n g r o w th w i l l be s lo w ; f o r i t
i s d o u b t f u l t h a t i n d i v i d u a l s w i l l p la c e t h e i r s a v in g s w i t h
c r e d i t u n io n s j u s t b e c a u s e t h e y a r e c o n v e n ie n t w it h o u t r e -
ig a r d f o r some k n o w le d g e o f c r e d i t u n io n f u n c t i o n .
I
A lt h o u g h t h e r e a r e m any f a c t o r s w h ic h r e t a r d th e J
r a p i d g r o w t h o f c r e d i t u n io n s , th e s e f a c t o r s a re p r o b a b ly
a l l h e a v i l y o u tw e ig h e d b y th e f o r c e s p r o m o t in g c r e d i t u n io n
;g r o w t h , as o u t l i n e d i n t h e p r e c e d in g c h a p t e r .
CHAPTER IV
I !
! T H E IM PO R TA N C E O P CREDIT UNIONS IN CALIFORNIA ;
I
Purpose o f the ch a p ter. The c h a r a c te r is tic s o f
c r e d it unions and the fa c to r s th at have con trib u ted to and !
j
lim ite d th e ir growth have been in v e s tig a te d in previous
ch a p ters. This was done p a r t ia lly to provide a b a sis fo r a
clea re r understanding o f the con ten ts o f th is ch ap ter. The
|purposes o f t h is chapter are to examine the importance o f
Icred it unions in the f i e l d o f savings and consumer c r e d it
I
i
jin C a lifo r n ia during the period from 1939 through 1955* I t;
i
j is a lso the purpose o f t h is chapter to analyze th e probable'
i !
. i
(reasons fo r the in creased importance o f c r e d it unions in
! '
[the f i e ld s o f savin gs and consumer len d in g in t h is s t a t e .
i
i
• The growth o f a s s e ts o f c r e d it unions in C a lifo r n ia , j
j As in d ica ted in Table X III, page 9i|_, the t o t a l a s s e ts o f
I i
c r e d it unions in C a lifo r n ia has in crea sed from $ llj.,6 0 0 ,000 !
in 1939 to $313,800,000 in 1955* P ercen ta g e-w ise, t h is
in crea se o f 2,0ij.9 per cen t fa r exceeded the growth o f banks
and even surpassed the rap id expansion o f savin gs and loan
ja s s p c ia tio n s . During the same y ea r s, t o t a l income o f
I
|in d iv id u a ls in C a lifo r n ia in creased from $ 5 ,8 3 9 ,0 0 0 ,0 0 0 to
TABLE X III
' D O L L A R A M O U N T O F ASSETS O F SELECTED SAVINGS INSTITUTIONS
IN CALIFORNIA, 1939 - 1955
(M illio n s o f D o lla rs)
End o f
year
A ll
Commercial
Banks
Per cen t
change
sin ce 1939
A ll
Savings &
Loan A ssn.
Per cent
change
sin ce 1939
' A ll
C redit
Unions
Per cent
change
sin ce 1939
1939 1 5 .7 1 1 .7
—
1 276.9
_
$ 15 .6
_
195.0
5 ,1 8 1 .5 9.97 $ 305.9 10.57$ . 19 .1
3 0 . 82$
195l
5 ,7 5 1 .9
21.86
352.3
23.62 2 3 .8 6 3 . 0 1 .
1952 7 ,1 9 9 .5
5 2 .8 0
355.7
2 8 .10 '
2 3 .5 60.27
195.3 9 ,3 3 2 .7
98.08
511.1 58.57
2 3 .8 63.01
1955-
1 1 ,3 8 3 .9 l 5 l . 6 l 507.2
83.17 25.9 7 7 .5 0
1955 1 3 ,8 6 1 .3 195.19 637.1
130.08 2 7 .0
85.93
1956 1 3 ,7 5 3 .5
191.90 722.7 161.00 32.2
1 2 0.55
1957 1 3 ,9 1 1 .5 195.25 873.1
215.31
5 0 .3
176.03
1958
1 3 ,9 9 3 .5 196.99 1 ,0 2 3 .1 269.58 5 0 .7
257.26
1959 1 5 ,1 3 3 .3
199.96 1 ,2 2 9 .1
353.88 66.2
353.52
1950 1 5 ,1 9 3 .2 222.56
1 ,5 8 3 .5 535.75 87.7
500.68
1951 1 6 ,3 7 9 .7
257.65
1 ,6 9 9 .5
513.72
1 0 6 .5 628.77
1952 1 7 ,7 6 5 .8 277.06 2 ,1 7 8 .1 686.60
l l t l . f 871.23
1953
1 8 ,2 6 5 .0 287.63 2 ,6 7 5 .0 866.05 205.8
1 ,3 0 2 .7 5
1955 1 9 ,6 2 5 .5 316.53 3 ,3 2 6 .7 1 , 101.51 232.2 1 ,5 9 0 .5 1
1955
2 0 ,8 2 9 .2
352.07 3 ,5 2 5 .2
1 , 176.55 313 .8 2 ,0 5 9 .3 2
SO URCE: C redit U nions, R esearch C oun cil, American Bankers A sso c ia tio n , March,
1955; Savings and Loan A nnals, U nited S ta te s Savings and Loan League, annual p u b lic a tio n ;
Q uarterly R ep orts, ffA ssets and L i a b il it ie s o f A ll Operating Commercial Banks, by S t a t e s ,”
p u b lish ed q u arterly by Federal D ep osit Insurance Corporation; The" C redit Union Yearbook, ,
an annual p u b lic a tio n by the C redit Union N ation al A sso c ia tio n , Madison, W isconsin,
$29,l|-38,000,000, a percentage in c re ase o f ij.80.1 Furtherm ore,
average per annum, c a p ita income of in d iv id u a ls in C a li
f o rn ia during the p e rio d from 1939 to 1955 in c re a se d from
$ 8 1 4 .0 to $2771# a - percentage g a in of 171 p er c e n t T h e r e
f o re , p erce n tag e -w ise, the a s s e ts of c r e d i t unions in
i
C a lifo r n ia a lso grew at a more rapid ra te than did the p er
son al income of in d iv id u a ls .
The growth of savings in C a lif o r n i a . As Table
XIV, page 9 6, in d ic a te s , the t o t a l amount o f savings in
|
!s e le c te d savin gs in s t it u t io n s in C a lifo r n ia in creased from
! 1
I $ 5 ,0 0 3 ,2 0 0 ,0 0 0 in 1939 to $2!;, 666,200,000 in 1955. A nura- i
I , ;
,ber o f fa c to r s caused t h is in c r e a se . F ir s t, the population!
in C a lifo rn ia alm ost doubled, the percentage in cr ea se being
alm ost four tim es g rea ter fo r the s ta te than fo r the n a tio n
as a w hole. This p op u lation growth i s shown in Table XV,
page 97. Second, a high le v e l o f sta te-w id e income p re
v a ile d in C a lifo r n ia during most o f the p erio d , p rim arily j
jbecause o f, (1 ) economic a c t iv it y , which r e s u lte d from j
I
m eeting the demands o f an in crea sin g p op u lation ; (2) the j
h igh le v e l of n a tio n a l income which helped to stim u la te j
economic a c t iv it y in C a lifo r n ia ; and (3) the production in I
I
i
....— ........— i
; ^ P e r s o n a l Income of In d iv id u a ls by S t a t e s , ”
jS t a t i s t i c a l A b stra c t of the U nited S t a t e s , p u b lish ed annu-
ia lly by the tfnited S ta te s Department o f Commerce.
p
Iipc* c i t .
TABLE XIV
D O L L A R A M O U N T O F SA V IN G S H E L D Bt INDIVIDUALS IN
S E L E C T E D INSTITUTIONS IN C A LIFO R N IA A N D
T H E P E R C E N T A G E O F C H A N G E ?J1939 - 1955
(M ILLIO NS O F D O L L A R S)
Personal
time Percentage Savings Percentage Savings Percentage Percentage Percentage
deposits change in savings change in change change L ife increase
End of in com*l since & loan since cred it since P ostal since insurance since
year banks
1939
assn.
1939
unions
1939
savings
1939
eq u ities 1944
1939
19W
$2 , 285.6 $ 222.2 $ 12.2 66
■ ..........■
2 ,363.8 3.42 248.7
11.93
. 16.0 31.15
71 7*58
191*1 2,090.3
8.54 278.2 25.20 20.0
63.93 73
10.61
19ns 2,411.6
5.51
282.8 27.27 20.0
63.93 79 19*70
191*3
19W
2 ,960.5
29.53
334.6 50.59
20.4 67.21 105
59-09
3 , 765.8
64.76 l*ll+.S 86.68 . 22.3
82.79
150 127.27 1,928
191*5 4,681.6 104.83 502.7 126.24 23.I
89-34
206 212.12 2,143 11.15
191*6 5 ,220.0 128.39 586.7
164.04
27-5
125.41 234
254,55
2,288
18.69
1 9 1 * 7 5.390.1 135.83
691.1 211.03 34.0
178-69
254 284.85 2,560
32.78
191*8
5.327-3
133-08 819.8
268.95
42.8 250.82 240 263»64 2,870 48.86
19119 5,380.0
135*39 992.4
346.62 57.0 367.21
225
240.91 3.190 65*46
1950 5.359-0 134.47 1 , 159.1 421.65 75-0 514.75
206 212.12 3,496
81*33
1951 5.713-5
149-98 1,386.2 523.85
684.70
93*2 663.93 ■ 173
162.12
3»909
102.75
1952
6 ,206.7 171.56 1,743.6 123.4 911.48
153
131.82 4,438
130.19
1953
6 ,497.6 184.28 2, 210.3
89^*73
177.4 1,354.10
137
IO7. 5S
5,039
161.36
1951*
6,997-6
206. 1 6 ^ 2,71*3.1* 1, 134.65 211.2
1 , 631.15
123
86.36
5.710 196.16
1955 7,301.5
219.46 2,776.1* 1 ,150.45 269.4 . 2,108.20 108 63.64 , 6,640 244.140
S O U R C E *
Quarterly R eports, 1 1 Assets and L ia b ilitie s of All Operating Commercial Banks by S ta te s,” published by Federal Deposit Insurance Corporation; Sav
ings and Loan Annals. U.S. Savings and Loan League, published annually; Monthly Labor Review, published s ta tis tic s on sta te cred it unions u n til
1952. Since th a t date s ta tis tic s on c re d it unions were accumulated by U. S. Bureau of Federal Credit Unions and in the Social Security B u lle tin :
”Annual Report on Operations of P ostal Savings System,” Postmaster General; Life Insurance Fact Book, In s titu te of Life Insurane, published annually
since 19^5*
TABLE X V
POPULATION O P CALIFORNIA A N D T H E UNITED STATES
O N JA N U A R Y 1 s t , 319lj.O-1956
Year C a lifo r n ia U nited S ta te s
1914-0
6 , 907,387
i
131, 669,275
1914-1
7 , 111,800 132, 571,000
19li2 7 , 503,100 133,756,000
191+3
8 , 1143, 1+70 13l+,2l4 lj.,000 1
1 9 1 4 1 }. 8,714-6,095
1 3 3 ,8 7 2 ,0 0 0 1
191+5 9 ,1 5 2 ,2 9 5
132,175,000 !
I 9I 46 9,1+59,1+60 1 3 7 ,227,000 |
1914-7
9 ,6 9 0 ,5 6 0 1141,982,000 |
191+8
9 ,9 1 5 ,8 2 0 1 1 4 1 4 , 918,000 :
191+9
10,1814,600 1147,14142 , 000 :
1950 1 0 ,5 8 6 ,2 2 3 1 50,697,361
1951 1 0 ,7 82,000 152,361,000
1952 11, 2 1 4 - 7 ,0 0 0 l5 l4 ,6149 , 000
1953
1 1 ,9 5 9 ,0 0 0 157 ,1 7 7 ,0 0 0
1951+
12,351+, 000 1 59,817,000
1955
12, 805,000 162 ,8 6 5 ,0 0 0
1956 13,14-65,000 165, 700,000 !
1
Percentage in crea se
1914-0-56 91)-. 9^ 2 5 .8 $
SOURCE: P o p u la tio n , R esearch Department, S e c u r ity - j
F ir s t N ational Bank of Los A ngeles (prepared a n n u a lly ).
.th is s ta te o f a la rg e amount o f m a te ria ls used i n World
'II , the Korean h o s t i l i t i e s , and the program o f n a tio n a l de
f e n s e , As a r e s u lt o f th ese fa c to r s , and d e sp ite a r is in g
c o st of liv in g and higher ta x es which made savin g d i f f i c u l t
fo r many in d iv id u a ls and made many in d iv id u a ls re lu cta n t to
save, the to ta l amount o f savin gs in C a lifo r n ia in creased
su b s ta n tia lly during the 1939 to 1955 period*
The g r o w t h o f s a v in g s i n c r e d i t u n io n s i n C a l i f o r n i a ,
i
!As Table XI?, page 96, in d ic a te s , savin gs in c r e d it unions
i
;in C a lifo r n ia in creased from $ 1 2 ,200,000 in 1939 to
■ |
;$269,l4-00,000 in 1955* P ercen ta g e-w ise, t h is in crea se o f
■
|2 , 108*20 per cent was g rea ter than any other in s t it u t io n in
i
|th is s ta te during th is same p erio d . At the end o f 19555
the d o lla r amount o f savin gs in c r e d it unions s t i l l lagged
fa r behind savin gs in commercial banks and savin gs and loan
a s s o c ia tio n s , but over the y ea r s, th e spread th a t had ex
i s t e d was slow ly v a n ish in g . Of cou rse, the p o p u la rity o f
p o s ta l savings has waned and, whereas they fa r exceeded
savin gs in c r e d it unions in the e a r ly years o f t h is study,
p o s ta l savings are now a r e la t iv e ly in s ig n if ic a n t o u tle t
i
jfor sa v in g s. The sta tu to r y in te r e s t o f two per cent on
!postal savin gs in C a lifo r n ia h a s, o f co u rse, been a major
jreason why in d iv id u a ls tra n sferred th e ir savin gs to a more
1
jlu cra tiv e in vestm en t.
i
I As Table XVI, page 999 in d ic a te s , in 1939 there were
I
I TABLE XVT
l
i NUMBER OP CREDIT UNION MEMBERS} DOLLAR AMOUNT
OP INVESTM ENT, AND AVERAGE AMOUNT OP
ACCOUNT PER CREDIT UNION INVESTOR
j IN C A LIF O R N IA , 1939 - 1955
I
E n d o f
y e a r
N um ber o f
m em bers
A m o u n t o f
s h a re in v e s tm e n t
A v e ra g e a m o u n t
o f a c c o u n t
p e r m em ber
1939 11+5,350 $ 12,192,81+8 1 8 3 .89 !
19&0 176,651 15,972,761+ 90.1+2
191+1 211, 2+23 19,958,1+93
91+.1+0
191+2 199,172 1 9 ,9 1 3 ,5 8 8 99.98
191+3 191,773
20,1+18,860 106.1+7
1 9 1 + 1 ).
181+.969 22,313,271+ 120.63
1914-5 176,391 2 3 ,0 7 2 ,1 6 5
130.80
191+6
191,1+11
2 7 ,5 09,068 li+3.72 :
191+7
219,611
33,865,1+15
15E.21
191+8
251+,587
1+2,81+1+, 966 168.29
191+9 310,892 57,015,1+1+8 183.39
1950 367,706 71+, 971+,1+05
203.90
1951 1+32,291 93,212,1+71 215.62 I
1952 512,203
123,1+31+, 1+22 21+0.99
1953 651+,531+
1 77,352,660 270.96 ]
1951+
61+3,900 211,211+,200 328.02 1
1955
785,000
I
269,385,000 31+3.16
P e r c e n ta g e c h a n g e
1939-1955 l4.39.8g 2 1 1 2 .9g 313. lg
SOURCE: A n n u a l R e p o r ts o n O p e r a tio n o f F e d e r a l C r e d i t
U n io n s ; a n d s t a t i s t i c s o n s t a t e c r e d i t u n io n s p u b lis h e d
a n n u a lly i n th e M o n th ly L a b o r R e v ie w .
1
100 I
1 1 4 . 5*350 c r e d it union members: in C a lifo r n ia whose share
accounts averaged $8 3 , 8 9 . This in crea sed to 785*000 mem-
„ « . g . or *3W.X6 i„ 3,55. Tfc.r . ro „ ,
|the in crea se in the t o t a l amount o f savings in c r e d it
1
lunions r e su lte d as much from a r is e in the number o f mem-
i
bers in th ese a s s o c ia tio n s as from the growth in the average]
s iz e o f in d iv id u a l share accounts in c r e d it u n io n s. As a
jresu lt o f a ttr a c tin g more members who, on the average, in
v e s te d more money in th ese in s t it u t io n s , savin gs in c r e d it |
1 i
I
■unions in C a lifo rn ia in creased more than tw en tyfold between
1939 and 1955* At the end o f 1955* C a lifo r n ia ranked f i r s t j
i
in savings among c r e d it unions in t h is c o u n t r y . 3 . j
f
i j
Suggested reasons fo r the growth of savings in
c r e d it unions in C a lifo r n ia . While th ere may be o th e r s, i t
; seems th a t th ere are two p r in c ip a l and probable reasons why
:c r e d it unions have been claim ing an in c r e a sin g ly la rg er
jproportion o f savin gs in C a lifo r n ia . F ir s t , c r e d it unions j
have paid a higher ra te of return than any other savings j
1 1
I in s t it u t io n on in v ested sa v in g s, and they have provided J
i
many o f the advantages o ffe r e d by sim ila r savin gs i n s t i t u - j
3 c r e d it Union N ational A sso c ia tio n , C redit Union
Yearbook, 1955* P*
1 0 1
tions.^ - Second, c r e d it unions have ca rried on an in c r e a s
in g ly a g g re ssiv e s e l l i n g , campaign. I t i s probable th a t the
i
r a te o f retu rn which a savings in s t it u t io n pays on in v e ste d
savings has become an in c r e a sin g ly im portant element in the
|ch oice o f a savings o u t le t , as in d iv id u a ls have become more
i i
aware o f the d ec lin in g purchasing power o f the d o lla r . As !
Table XVII, page 102, in d ic a te s , the purchasing power o f
the d o lla r in C a lifo rn ia has d eclin ed from $1.6$ to $ .8 6
during the p eriod covered by t h is study.
i Although retu rn i s a stron g elem ent in an in d iv id -
/ .
u a lf s ch oice o f a savings in s t it u t io n , i t i s probable th a t j
the apparent sa fe ty and liq u id it y which a savings in s t it u - j
i
i
tio n can provide fo r h is savin gs are even more im portant !
^During the p eriod covered by th is study, in te r e s t
on p o sta l savings has been 2 .0 $ , and 2 .9 $ on T J. S . Govern
ment Bonds, S e ries M EW , i f h eld to m a tu rity . (The rate i s
now 3 . 0 $ on th ese b ond s.) Prom 1 9 3 9 to 19L|.9, in te r e s t ra te
on savings accounts in commercial banks in C a lifo rn ia
ranged from 3 .8 $ to 1 . 5 $ J from 19ij-9 to 1 9 5 5 i t ranged b e
tween 1 .0 $ to 2 .0 $ ; and from e a r ly 1955 to mid-1958 from
2 . 0 $ to 2 . 5 $ . In terview with-Conrad C. Jamison, V ice-
P resid en t, S e c u r ity -P ir s t N ation al Bank o f Los A n geles.
Between 1 9 3 9 and 1 9 ij.6 , savin gs and loan a s s o c ia tio n s in
C a lifo r n ia paid between 2 . 0 $ and 2 . 5 $ retu rn on in v ested
savin gs; and between 1 9 ^ 7 and 1 9 5 5 * 3 . 0 $ and 2 | . 0 $ . I n te r
view w ith W illiam Purmort, E leven th D is t r ic t , Federal Home
Loan Bank. In 1 9 5 ^ , 2 9 . 1 $ o f a l l fe d e r a l c r e d it unions
paid d ivid en d s at the ra te o f !}.$ to l|-.9$, and 11^.1$ o f
fe d e r a l c r e d it unions paid d ividends o f 5 $ to 6 $ . In 1 9 5 3 ,
1 2 8 . 0 $ paid [{ _ $ to i j . .9 $ , and 1 2 . 9 $ o f fe d e r a l c r e d it unions
ipaid 5% to 6 $ . In 1 9 5 2 , 2 6 . 2 $ paid 1$ to I |.. 9 $ , and 1 ^ . 7 $
!o f c r e d it unions paid 5% to 6$. Reports on the Operations
o f Federal C redit U nions, 1 9 5 2 , 1 9 5 3 , and 1 9 5 ^ •
I
102
TABLE XVII
CONSUMER»S PRICE IN D EX AND VALUES OP THE
DOLLAR IN C A LIFO R N IA PROM 1939-1955
( Y e a r ly A v e ra g e s )
19U-7 - 1 4 - 9 = 100
Y e a r
C a l i f o r n i a
c o n s u m e r's p r ic e
in d e x
V a lu e
o f th e |
d o l l a r !
j
1939
60. 1 4 .
#1.65
1 91 +0 60 .5 1 .6 5
19li-l
6 3 .6
1.57 1
191+2 7 1 .5 1 .3 9
191+3
7 5 .0
1.3 3
191(4
76.2
1.31
191\$ 7 8 .5 1.27
19J+6 81).. 6 1.18
19i)-7 95 .5
1.01+
19I 4 -8 102 .k .97
191^9
102.1 .98
19? 0 102.8
.97 j
1951 111.5 .89
1952
111).. 7
.87 !
19?3 115.7
*86 ;
19?lj- 115.6 .86 !
1935 115.6 .86 |
i
t i
j SOURCE: C a lc u la t e d fr o m d a t a m ade a v a i la b le b y th e
R e s e a rc h D e p a r tm e n t, S e c u r i t y - F i r s t N a t io n a l B a n k o f L o s
k n g e le s .
i
ie le m e n ts . T h e in c r e a s e i n s a v in g s i n c r e d i t u n io n s i n d i - j
h a t e s t h a t t h e r e h a s b e e n in c r e a s e d m em ber c o n fid e n c e i n
jth e s a f e t y o f i n v e s t i n g i n c r e d i t u n io n s . I t i s p r o b a b le ;
J th a t a g r e a t d e a l o f t h i s c o n f id e n c e i s b a s e d u p o n t h e f a c t
t h a t m o s t c r e d i t u n io n s m e e t w it h d r a w a l r e q u e s ts u p o n |
i
d e m a n d .
M o s t p e o p le a re a n x io u s t o h a v e t h e i r s a v in g s
r e a d i l y a v a i la b le i n o r d e r t o p u rc h a s e g o o d s w hen t h e y a r e
jd e s ir e d , o r t o p u rc h a s e g o o d s b e f o r e p r ic e s r i s e f u r t h e r .
Il/tfh ile l i q u i d i t y i s m o re im p o r t a n t t o some p e o p le t h a n t o
J o th e r s , i t i s p r o b a b le t h a t i f c r e d i t u n io n s h a d n o t b e e n
I * f
■ m e e tin g w it h d r a w a l r e q u e s ts o n d e m a n d , fe w e r i n d i v i d u a l s j
jw o u ld h a v e in v e s t e d t h e i r s a v in g s i n th e s e i n s t i t u t i o n s . j
[s in c e c r e d i t u n io n s h a v e b e e n m e e tin g w it h d r a w a l r e q u e s ts
u p o n d e m a n d , th e s e i n s t i t u t i o n s h a v e a p p e a le d t o in v e s t o r s |
s
who s e e k l i q u i d i t y f o r t h e i r s a v in g s a s w e l l as t o th o s e t o |
whom l i q u i d i t y i s a le s s im p o r t a n t c o n s i d e r a t io n . I
f
I n a d d i t i o n t o s a v in g s w h ic h c r e d i t u n io n s w o u ld |
i
h a v e a t t r a c t e d b y m e r e ly s t a n d in g p a s s i v e l y b y as a s a v in g s |
|
o u t l e t , a n a d d i t i o n a l p r o p o r t i o n o f s a v in g s h a s b e e n a t - |
t r a c t e d a s a r e s u l t o f a n a g g r e s s iv e p r o m o t io n a l c a m p a ig n ,
w h ic h i s m a in ly c a r r i e d o n b y t h e s t a f f s o f t h e c r e d i t I
i
i
u n io n le a g u e s a n d c o o r d in a t e d b y th e C r e d i t U n io n N a t io n a l J
A s s o c ia t io n . B y u s e o f v a r io u s p r o m o t io n a l schem es a n d
a d v e r t i s i n g m e d ia , th e le a g u e s h a v e a tte m p te d t o e d u c a te
p r o s p e c t iv e m em b ers i n th e a d v a n ta g e s o f s y s t e m a t i c a l l y ______
! lot), i
l
|
'in vestin g in c r e d it u n io n s. The prom otional campaign has
i
served to make the p u b lic more aware o f th e r e la t iv e ly high
retu rn on savings and the d e s ir a b ilit y o f an in d iv id u a l’ s
!
I system atic savings program than to make them aware o f the
la c k of assurance o f th e immediate liq u id it y o f such funds,
ks a r e s u lt o f such a d v e r tis in g , and because during t h is
p eriod c r e d it unions have g en er a lly provided immediate
liq u id it y fo r in v ested funds, many people have come to lo o k j
i
toward c r e d it unions as though they were savings i n s t i t u - \
;tion s o ffe r in g the same liq u id it y and sa fe ty as a bank. j
Undoubtedly, a large proportion o f funds which would not |
i
i
jhave been saved, or would have been placed in oth er i n s t i
tu tio n s , during t h is period were in v ested in c r e d it u n ion s.
,This seems lo g ic a l because: (1 ) i t i s probable th a t most
members have not been aware o f any p o s s ib ili t y th a t th e ir
jsavings could become n o n -liq u id ; and (2) during the 1939
'through 1955 p eriod , c r e d it unions provided sa fe ty and
i |
liq u id it y to savings alm ost equal to th a t provided by other ■
savings in s t it u t io n s , and most c r e d it unions paid h igh er
retu rn s on savings than did com p etitive in s t it u t io n s . j
I
C redit unions have never made any attem pt to m islead
the gen eral p u b lic in to b e lie v in g th a t they are banks. The
share accounts o f c r e d it union members are not insured by
any government agency, and lea d ers o f the c r e d it union
(movement'have opposed suggestions th a t shares be In s u re d .^
i
i
! R ather than d iv e rt savings from banks to c r e d i t unions,
!the prom oters of c r e d i t unions t r y to tu rn n on-savers in to
I
s a v e rs . They encourage sm all b u t re g u la r savings by mem
b e rs ; and, whereas banks accept minimum term savings de-
i
jp o sits of $1.00, p o s ta l savings accept minimum d e p o sits o f
j $ 5 « 0 0 , ^ c r e d it unions s t i l l accep t and encourage a member
|to save as l i t t l e as 25 ce n ts each month.^ C re d it union
!
'le a d e rs em phasize, in t h e i r ad v ertisem en ts f o r sa v in g s, th e ;
t
| "L ife Savings Insurance" which provides to the h e ir s of a j
sh a re h o ld er, upon h is d ea th , a sum o f money equal to the
amount he has in v e ste d a t th e tim e o f h is d e a th up to |
\ 5
< ;
j$1,000. This in su ra n c e , the co st of which i s p aid by p a r- |
i
|t i c i p a t i n g c r e d i t u n io n s, i s provided a t a very low r a te by
| %ln P re sid e n t E isenhow er's Economic R eport o f Janu- j
ary 1955* i t was suggested th a t insurance of c r e d it union |
! shares m ight be j u s t i f i e d because o f th e growth o f t h i s i
;savings o u t l e t . COTA, in th e August 1956 iss u e o f Bur- j
irough* s C learin g House, p . 1, p u b lish ed a sh o rt answer to |
j t h i s su g g e stio n . They assume the p o s itio n th a t such i n s u r - ,
|ance i s n o t w arranted inasmuch as insurance i s v alu ab le only
Ito i n s t i l l confidence, and they have such a good reco rd of
liq u id a tio n th a t confidence has never been la c k in g .
^A b i l l in c re a s in g the minimum d e p o sit accep tab le
fo r p o s ta l savings from §1.00 to $5•00 was passed by the
Second S essio n , 8lj.th Congress, and subsequently signed by
the P re s id e n t. j
j
j "^Article I I I o f sample by-law s as given in S e c tio n \
301.3 o f the F ed eral C re d it Union Act and F ed eral C red it
|Union Handbook, U nited S ta te s Bureau of F ederal C re d it
(Unions, September, 195k-, P« 2, encourages savings as sm all
jas 2£ c e n ts .
i C U N A Mutual Insurance S o c ie ty and i s adm inistered a t the
[lower l e v e l by the c r e d it union tr e a s u r e r s . !
i
Undoubtedly, th ese prom otional a c t i v i t i e s which have
been ca rried on by the C redit union leagu es have been r e
sp o n sib le for part o f th e in crea se in the sa v in g s in c r e d it
unions in C a lifo rn ia * Since the prom otional a c t i v i t i e s fo r
savin gs have predom inantly emphasized long-term sa v in g s, i t
i s probable th a t most o f the funds are o f a long-term j
!
nature* C redit unions encourage th e ir members to save even!
i
; w hile th ey are repaying lo a n s; and they fu rth er encourage j
■them n ot to d estro y th e ir savin gs program, but to borrow to !
1 * !
m eet ”provident or productive p u rp o ses.” j
I '
i
«
Growth o f consumer c r e d it in C a lifo r n ia . As a r e
s u lt of an in crea sin g p o p u la tio n , p lu s the higher income
le v e l e x is tin g in C a lifo r n ia from 1939 through 1955» an
I . :
lin crea sin g demand fo r durable goods arose in t h is s ta te j
during most o f the p er io d . Employment in the U nited S ta te sj
reached an a ll-tim e h igh in 1955 w ith 61}., 165,000 c i v i l i a n
workers, as compared to 1}.?,520,000 in 19^0.® Automobile
i
p roduction, which dropped to a low le v e l during World War j
I I , rose annually to a peak o f 8 ,0 0 0 ,0 0 0 cars produced In j
^ K e n n e th R . W e lls , I n s t a lm e n t C r e d i t N o te s , A m e r ic a n
N a t i o n a l B a n k a n d T r u s t C om pany o f C h ic a g o , A p r i l , 1956.
j " 1 0 7
1 1 9 5 5 .9 With the production o f autom obiles and oth er dura-
i
;ble goods in cr ea sin g at a rapid r a te , th e ir s a le s were not
!com pletely finan ced by in d iv id u a l savin gs and thus i n s t a l
lment c r e d it demands s te a d ily in crea sed . With mounting
pressure to move autom obiles at any c o s t, len d ers were
being o ffered s a le s co n tra cts w ith lower down payments and
longer m a tu r itie s . Many len d ers gave in to such p ressu re,
and the m a tu r itie s o f consumer c r e d it paper thus le n g th -
I
■ ened. The growth o f consumer c r e d it in the U nited S ta te s
j
‘i s shown in Table XVIII, page 108. As t h is ta b le in d i
c a t e s , t o t a l in stalm en t c r e d it in crea sed from $3,065,000,000
i !
i
|in 1939 to $ 2 3 ,8 6 3 ,0 0 0 ,0 0 0 in 1955, and c r e d it unions had
|th e la r g e s t percentage gain w ith 1,097 per c e n t.
i
\
Much o f the growth in consumer c r e d it in C a lifo rn ia
i s not only due to the in crea se in p o p u la tio n , but a lso due
to h igh consumer e x p ecta tio n s o f fa v o ra b le income in fu tu re
years When consumers fo resee h igh er incomes in the
fu tu r e , they are more prone to co n tra ct debt than i f they
exp ect a decrease o f incom e. The growth o f consumer cr ed it,
th e r e fo r e , i s not only t ie d to in crea sed p op u lation and j
p resen t demand fo r durable goods, but a lso to th e in d iv id -
9I b id ., January, 1958.
IQphe w Annual Survey o f Consumer fin a n c e s” conducted
!by the Board o f Governors o f the Fbderal Reserve System and
|p u b lish ed annually in the F ederal Reserve B u lle tin in d i
cated h ig h consumer ex p ecta tio n s in alm ost every year sin ce
I World War I I .
TABLE X V I I I
INSTALM ENT CREDIT IN T H E UNITED STATES IN
VARIOUS FINANCIAL INSTITUTIONS BY H O L D E R
(M illio n s o f D o lla rs)
End o f Commercial S a le s finan ce C redit
year T otal banks companies unions Other
1939 # 3,065 1 1,079 $1,197 $ 132 $ 657
19l|-0 3,918 1 , 1+52
1,575 171
720
I 9I 4 .I
i+,i+8o 1,726
1,797
198 759
191+2 2,176 862 588 128 598
1945
1,776
71+5
300 102
629
191+6
3,235 1,567
2,625
677 151
840
191+7 5,255 1 ,3 5 5 235
1 ,0 4 0
191+8 7,092
3,529
1,990
331+
1+38
1,239
191+9 9,21+7 l+,l+39 2,950 1,420
1950 11,820 5,798
3,785
590
1,647
1951 12,077 5,771 3,769 .635
1,902
1952 7,521+ 1+.8 33 837
2,216
1953
18,758 8,998
6,11+7 1 ,1 2 4 2,489
1951+ 18,935 8,633
6,1+21
1,293
2,588
1955 23,863 10,31+7
8,938 1 ,5 8 0 2,998
Percentage change
1939 - 1955 678.5$ 858.1$ 6 1 4 .6 . 6$ 1,097$ 356.3$
SOURCE: "Instalm ent Credit" by H older, a ta b le published m onthly in th e Federal
(Reserve B u lle tin ,
H
u a l c o n s u m e r1 s e x p e c t a t io n o f h i s f u t u r e in c o m e . W it h m o re
th a n t w o - t h i r d s o f th e c o n s u m e rs in t e r v ie w e d i n t h e s u r v e y s
i
ic o n d u c te d f o r th e B o a rd o f G o v e rn o rs o f th e F e d e r a l R e s e r v e .
i I
i
System in d ic a tin g ex p ec ta tio n o f the same or h igher income
during alm ost every year from 1939 to 1955, consumer ex
p en d itu res were d e f in it e ly exp ected to in c r e a se . The h igh
liq u id savin gs b u ilt up during World War I I was not g r e a tly
;d ep leted by consumers in t h e ir purchases o f consumer goods,
! i
i
'because o f the ease w ith which c r e d it was ob tain ab le and
a lso the g e n e r a lly low ra te o f in te r e s t p r e v a ilin g during
!most o f the p eriod from 1939 to 1955*
I n 195>lj-, t h r e e - f if t h s o f a l l new and used automo- j
b ile s sold were purchased on c r e d it . Baring the same y ea r,;
i
o n e -h a lf o f a l l major household ap p lian ces were purchased
o n c r e d i t . T h e s e a re a p p r o x im a t e ly th e same p r o p o r t io n s
11
which have been true in recen t y e a r s.
' W it h p o p u la t io n in c r e a s in g r a p i d l y i n C a l i f o r n i a ,
, |
jand w ith the in creased purchase o f consumer goods on j
c r e d i t , t o t a l c o n s u m e r c r e d i t i n C a l i f o r n i a show ed a m a rk e d
in crea se during the p eriod covered by t h is stu d y. j
T he g r o w th o f c o n s u m e r c r e d i t e x te n d e d b y c r e d i t
I
|u n io n s i n C a l i f o r n i a . T he g r o w th o f c o n s u m e r c r e d i t o u t - j
I i
s t a n d in g i n s e le c t e d f i n a n c i a l i n s t i t u t i o n s i n C a l i f o r n i a
l l n Survey o f Consumer F in ances—1955,® Federal
Reserve B u lle t in , May, 1955s PP* 2 and 5 *
j 110
j
a t year-end from 1939 through 1955 i s shown in Table XIX,
[page 111. As t h is ta b le in d ic a te s , loan s granted by c r e d it
unions in C a lifo r n ia in crea sed from $10,233,838 in 1939 to
$250,685,000 in 1955; and w ith t h is in crea se o f 2 , 3 1 4 .9 per
ce n t, they p a r tic ip a te d to an in cr ea sin g ex ten t in the con
sumer c r e d it extended by fin a n c ia l in s t it u t io n s in C a li
fo rn ia during the years covered by t h is stu d y.
1
■ Suggested reasons fo r the in creased consumer lend in g
!
;£X c r e d it unions in C a lifo r n ia . Although th ere may be j
1
lo th ers, i t seems probable th a t th e re are two important r e a -
1
sons fo r the in creased consumer len d in g by c r e d it unions in
j
i
C a lifo r n ia . F ir s t, the loan p o lic ie s o f c r e d it unions have
■ !
been such th a t they have been ab le to meet a large propor
t i o n of the demands o f t h e ir members fo r consumer c r e d it by
1
1 P
extending c r e d it th a t other len d ers would have r e fu se d .
'As a whole, c r e d it unions have been more anxious to lend
funds fo r consumer purchases than have commercial banks or j
even s a le s finan ce c o m p a n i e s .* * -3 C redit unions go much j
fu rth er in the ex ten sio n o f c r e d it than do banks and s a le s !
j
fin an ce companies who take much o f the "cream* o f c r e d it ' I
i
[a p p lic a tio n s. C redit unions not only lend to anyone w ith in |
i
t h e ir f i e l d o f membership, so lon g as the loan i s fo r a |
I
i
•^Richard Y. G ile s , C red it for the M illio n s (New
York: Harper and B roth ers, 1951) 9 174-•
W lb id ., p . 1 9 2 .
I l l
TABLE XIX
CONSUMER CREDIT OUTSTANDING IN SELECTED
F IN A N C IA L IN S T IT U T IO N S IN C A LIFO R N IA
Y e a r F in a n c e C o m m e rc ia l C r e d it
e n d c o m p a n ie s b a n k s u n io n s
191+2 1 37, 328,121 | 156,629,000 1 10, 233,838
1914-3 35, 809,925 115,91+7,000
7 , 818,505
191(4
1 4 .2, 528,576 125,911,000 7 ,7 6 1 ,7 7 8
1955
30, 799, 1 4 .61 175,660,000 8 , 171,810
1946 87, 651, 3 1 4 -2
347,224,000 14, 523,890
1914-7 117, 122,537
4 92,068,000
24, 868,353
194-8 100, 639,310 590,647,000
36, 400,859
1949
130, 814,621 7 45,675,000 4 9 , 306,759
1950 114.0,1+53,770 978, 866,000 6 9, 409,481
1951 195,303,925 954,935,000 75, 723,398
1952 270,300,11+0 1 , 312, 8 1 + 4 ,0 0 0
105, 701,517
1953 305,971+, 145
1 ,4 3 7 ,3 6 0 ,0 0 0 165,939,712
19514- 391,992,077
1 , 298, 480,000 203,267,500
1955
351,191+, 370 1 , 603, 694,000 250,685,000
1
I P e rc e n ta g e c h a n g e
\l9 k2 - 1955 951.5s? 923.9$ 2314-9.5?$
| !
SOURCE: A n n u a l R e p o r ts o f A s s e t s , L i a b i l i t i e s a n d !
[ C a p it a l A c c o u n ts o f C o m m e rc ia l a n d M u tu a l S a v in g s B a n k s ,
j F e d e r a l Depo s i t I n s u ra n c e C o r p o r a t i o n , W a s h in g to n , D .C . ;
tThe C r e d i t U n io n Y e a r b o o k , p u b lis h e d a n n u a lly b y th e C r e d i t
|U n io n N a t io n a l A s s o c ia t io n , M a d is o n , W is c o n s in ; A n n u a l
s R e p o r t o n O p e r a tio n s o f L ic e n s e d F in a n c e C o m p a n ie s , p u b -
j l i s h e d a n n u a lly b y th e D e p a rtm e n t o f I n v e s t m e n t s , D i v i s i o n
o f C o r p o r a t io n s , S t a t e o f C a l i f o r n i a
112
i j
1 j
jsound purpose and the a p p lic a n t s ch aracter i s good, but
| they spend much time h elp in g members stren gth en th e ir
fin a n c ia l h a b it s .1^ Many loan s made by a c r e d it committee
would be o f grave concern to a banker, but the lo s s r a tio
o f .17 per cent in 1955 for fe d e r a l c r e d it unions in C a li-
i
fo r n ia i s hardly a d isg r a c e fu l fig u r e when compared to
banks as shown in Table XX, page 113* Even w ith a s lig h t ly
higher ch a r g e -o ff r a t io , many c r e d it unions are s t i l l ab le
to pay dividends to shareholders at the maximum rate o f s ix
per cent per annum. Few bankers in t h is country would ap-
i
[prove an unsecured loan to a li f e - l o n g customer in the
imoderate or low income b ra ck ets, so th a t he would have
funds to go ahead w ith a dangerous su r g ic a l op eration w ith j
only a sm all chance o f s u r v iv a l. C redit u n ion s, on the
other hand, meet t h is ch a llen g e o f len d in g; and because o f
the Loan P ro tectio n Insurance they carry through C O T A [
» !
| i
iMutual Insurance S o c ie ty , they are able to loan to a sic k j
person w ithout fea r o f l o s s . This in su ra n ce, which pays 1
the loan balance fo r deceased borrow ers, provides another j
to o l to a llo w c r e d it unions to extend many c r e d its which j
other len d ers would d e c lin e . ^ |
i
The second, and perhaps an eq u a lly im portant p r in c i-j
p al reason fo r the in crea se o f consumer len d in g by c r e d it j
^ G i l e s , l o c . c i t .
^ I b id . . p . 171+.
TABLE X X
R A TIO OP CONSUMER LOANS CHARGEB OFF TO CONSUMER
LOANS MADE I N SELECTED F IN A N C IA L IN S T IT U T IO N S
Y e a r
F e d e r a l c r e d i t
u n io n s i n th e
U n it e d S t a t e s
( s in c e d a te o f
o r g a n iz a t io n )
F e d e r a l c r e d i t
u n io n s i n
C a l i f o r n i a
( s in c e d a te o f
o r g a n iz a t io n )
B a n k s w h ic h a re
m e m b e rs o f t h e
W e s te rn G ro u p
(W e s t o f th e
R o c k y M o u n ta in s )
1955 • 15 • 17
•12
19514- .17 ♦19 .14
1953 •14-
.14. .08
1952 . 14.
•14-
.08
1951 •14- ♦15
n o t a v a i la b le
1950 .14- . 14.
n n
1914-9
. 14-
.15
T t t f
194-8
•14- .15
n n
| SOURCE: C a lc u la t e d fr o m s t a t i s t i c s c o n t a in e d i n
R e p o r ts o f O p e r a tio n s o f F e d e r a l C r e d i t U n io n s , U n it e d
|S t a t e s B u re a u o f F e d e r a l C r e d i t U n io n s ; i n t e r v i e w w ith .
I'D . Z . A l b r i g h t , V ic e - P r e s id e n t , S e c u r i t y - F i r s t N a t io n a l
;B a n k o f L o s A n g e le s .
i "" “ ~ ‘ 1341
I !
unions in C a lifo r n ia , i s the rap id in crea se in the amount
o f savings in v ested in c r e d it u n io n s. This was shown in
lia b le XIV, page 96. Promoters o f c r e d it unions advocate j
loan in g as much o f the c r e d it unionf s a s s e ts as p o s s ib le , j
keeping only s u f f ic ie n t cash fo r day to day op eration s and j
16 1
p la cin g the r e sid u a l in government se c u r itie s .■ L O Follow ingj
t h is p r a c tic e , c r e d it unions have expanded th e ir len d in g
each year to keep pace w ith in crea sed savin gs in v ested withj
'them. O n December 31^ 1955, fo r example, c r e d it unions in
'C a lifo rn ia had loan s outstanding o f more than 93 per cent
o f t o t a l in v e ste d s a v i n g s . -^ 7 With t h is h ig h r a tio o f loan s
i
to in v ested sa v in g s, c r e d it u n ion sT loan s a c tu a lly in crea se j
at a h igher ra te than do commercial banks who keep a higher
percentage o f liq u id a s s e ts to meet p o ssib le withdrawal de
mands from d e p o sito r s.
1
! There are many le s s e r , but s t i l l im portant, reasons |
for the growth o f consumer len d in g by c r e d it unions in I
I C a lifo r n ia . F ir s t , the membership o f c r e d it unions has
j !
grown ra p id ly in C a lifo r n ia . This i s shown in Table XXI, i
; I
page 115* With a ctu a l membership in fe d e r a l c r e d it unions j
1 '
|in C a lifo r n ia more than doubled in f iv e y e a r s, the number 1
! !
♦ '
I i
I I I ■ „ ■ ■ II —
I !
•^Federal C redit Union Handbook, U nited S ta te s j
Bureau o f Federal C redit U nions, September, 195b9 P* 10*
^ S h are accounts on December 31, 1955, were I
1269,14.00,000 and lo a n s stood a t # 2 5 0 ,7 0 0 ,0 0 0 . (See Tables;
I I and V II.)
TABLE XXI
TOTAL NUMBER OF FEDERAL CREDIT UNIONS IN C A LIFO R N IA
ACTUAL AND POTENTIAL MEMBERSHIP 1 9 5 0 - 1 9 5 5
.
Y e a r e n d in g
N um ber o f
c r e d i t u n io n s
A c t u a l n u m b e r
o f m em bers
P o t e n t i a l n u m b e r
o f m em bers
A c t u a l a s a
p e r c e n ta g e o f
p o t e n t i a l m em bers
1955 759
14.89,076
1,035,1425
k 7.2
195k
672 14-214,985 887,083 k 7.9
1953
585 365,876 789,80k
k 6.3
1952 500 308,361 730,258 k 2.2
1951
14.26
256,1714 613,030
k i.7
1950 382
212,7514
5 0 k ,156 k 2.2
SOURCE: R e p o r t on O p e r a tio n s o f F e d e r a l C r e d i t U n io n s , p u b lis h e d a n n u a lly b y t h e
U n it e d S t a t e s B u re a u o f F e d e r a l C r e d i t U n io n s .
H
vn
jo f p o t e n t i a l b o r r o w e r s h a s li k e w i s e d o u b le d . ( F e d e r a l j
t
i c r e d i t u n io n s a c c o u n t f o r a p p r o x im a te ly o n e - h a lf o f a l l
c r e d i t u n io n s i n C a l i f o r n i a * a lt h o u g h s t a t e c r e d i t u n io n s i
h a v e g ro w n a t a som ew h a t le s s e r r a t e . ) T h is f i e l d o f j
I
p o t e n t i a l b o r r o w e r s w ho h a v e o b t a in e d lo a n s e ls e w h e re t u r n |
i
t o c r e d i t u n io n s f o r lo a n s w h e n th e y becom e e l i g i b l e
th r o u g h m e m b e rs h ip .
S e c o n d ly * th e a d v e r t i s i n g and p r o m o t io n a l c a m p a ig n
c o n d u c te d b y th e C a l i f o r n i a C r e d i t U n io n L e a g u e h a s b e e n
j
j w e l l p la n n e d a n d w e l l d i r e c t e d . One o f t h e b ig g e s t p r o b
le m s i n a d v e r t i s i n g i s r e a c h in g th e p r o p e r p e o p le a n d
s t i m u l a t i n g th e m t o do w h a t th e a d v e r t i s e r w is h e s . I n m o s t
i
a d v e r t i s i n g , r e a c h in g th e p r o p e r p e o p le i s d i f f i c u l t , and !
i
i
.m uch o f th e a d v e r t i s i n g d o l l a r i s w a s te d on p e o p le w ho a r e
| n o t now n o r w o u ld t h e y e v e r b e p o t e n t i a l c u s to m e r s . I n t h e |
f i e l d o f c r e d i t u n io n a d v e r t is i n g * i t i s q u i t e d i f f e r e n t , j
b e c a u s e e a c h c r e d i t u n io n kn o w s who i t s p o t e n t i a l m em b ers j
|
a re a n d th e nam es o f p e o p le who a re n o t m em b ers b u t a re 1
e l i g i b l e f o r m e m b e rs h ip . E v e r y a d v e r t i s i n g d o l l a r s p e n t b y
a c r e d i t u n io n c a n t h u s b e d i r e c t e d to w a r d p o t e n t i a l mem
b e r s o f e s t a b lis h e d c r e d i t u n io n s . A lt h o u g h p o t e n t i a l
m em bers h a v e n o t b e e n b r o u g h t i n t o a c t iv e m e m b e rs h ip i n !
g r e a t m a s s e s , i f y o u c o n s id e r th e r e l a t i v e l y s m a ll a d v e r -
i
t is in g b u d gets, good progress has been made. As shown in
Table XXI, page 115> the a c tu a l, as a percentage o f poten-
t i a l , members o f fe d e r a l c r e d it unions in C a lifo rn ia has
i 1 1 7 1
i
i
in crea sed from Lj.2.2 per cen t in 1950 to 1^7*2 per cent in
1 1955. When a d v e r tisin g can be w ell d ire cted , as in the |
j
lease o f c r e d it u n ion s, i t can be e f f e c t iv e and a ccu ra tely j
I
jmeasured. J
! I
T h ird ly, the low in te r e s t r a te charged by c r e d it j
unions has been a ttr a c tiv e to many borrow ers. There are
s t i l l p eop le, however, who want " c o n fid e n tia l treatm ent"
iand "no em barrassing q uestions" and are slow to lea rn from
i
ic r e d it unions th at borrowing i s a reasonable request and
|nothing of which to be ashamed. Many people th in k th a t
"bank rates" are low, but at the end o f 1955* most banks in
!C a lifo r n ia charged e ig h t per cent discounted fo r sm all un-
I !
;secured consumer lo a n s, seven per cent d iscou n ted fo r
i
i
!la r g er unsecured consumer lo a n s, and s ix per cen t to s ix
;and o n e-h a lf per cen t d iscou n ted fo r autom obile lo a n s.
I
'When you con sid er that the e f f e c t iv e rate on th ese d is -
!counted n otes i s approxim ately tw ice the d iscou n ted r a te ,
i ■ ]
the threer-fourths per cen t to one per cent per month on the !
unpaid b alan ce, as charged by c r e d it u n ion s, i s d e f in it e ly
a lower r a t e . Small lo a n companies charge two and o n e-h a lf!
per cen t per month on th a t part o f the unpaid p r in c ip a l
balance o f any loan not in ex cess o f $100, and two per cent!
! |
jper month on any rem aining balance up to $500. O n unpaid ]
i
j b alan ces over $500, fin an ce companies may charge only f iv e -
i
s ix th s per cen t per month on th at part o f the unpaid p rin -
c lp a l which exceeds $500_. Thus, on loans o f $500 or l e s s ,_
118 |
]
!
f in a n c e c o m p a n ie s c h a rg e m o re t h a n t w ic e th e r a t e c h a r g e d
b y c r e d i t u n io n s , ¥ h i l e th e lo a n s h a r k i s d is a p p e a r in g , he
i
s t i l l e x i s t s ; "and th e i n t e r e s t r a t e c h a r g e d b y c r e d i t
1 Q
u n io n s i s lo w e r th a n m o s t o t h e r le n d e r s .
E v e n w i t h th e lo w i n t e r e s t r a t e , m any c r e d i t u n io n s j
i
a re now r e f u n d in g p r o f i t s t o b o r r o w e r s a t t h e end o f th e
y e a r w h e n , a f t e r p a y in g t h e i r d iv id e n d a n d r e s e r v in g 20 p e r
c e n t o f p r o f i t s f o r r e s e r v e s , t h e y f i n d t h e y h a v e made
je x t r a p r o f i t w h ic h c a n be r e t u r n e d t o th e b o r r o w e r s b e c a u s e
! i
■ of lo w c h a r g e - o f f r a t i o s . j
i
i
| I n r e v ie w , t h e n , t h e m o s t I m p o r t a n t r e a s o n s f o r i n - i
I i
c r e a s e d c o n s u m e r le n d in g b y c r e d i t u n io n s i n C a l i f o r n i a
!
seem t o b e : ( 1 ) c r e d i t u n io n s h a v e m o re m oney t o le n d , a n d
( 2 ) th e le n d in g p o l i c i e s o f c r e d i t u n io n s h a v e made b o r r o w -
iin g fr o m s u c h i n s t i t u t i o n s a t t r a c t i v e t o m any m e m b e rs .
i
I P a r t o f t h e in c r e a s e d b o r r o w in g s fr o m c r e d i t u n io n s m ay j
! j
ia ls o b e due t o t h e a d v e r t i s i n g , w h ic h h a s c a u s e d p o t e n t i a l j
m em bers t o becom e a c t u a l m em b ers and c a u s e d new c r e d i t
u n io n s t o be fo u n d e d . A n o th e r f a c t o r i s t h e lo w i n t e r e s t
r a t e c h a r g e d o n lo a n s , w h ic h i s c o m p e t it iv e w i t h b a n k s - a n d
le s s t h a n s a le s f in a n c e a n d s m a ll lo a n c o m p a n ie s . ^ The
g r o w th i n p o p u la t io n , in c r e a s e d n u m b e r o f c r e d i t u n io n s ,
a n d t h e in c r e a s e d n u m b e r o f a c t u a l c r e d i t u n io n m em bers
e l i g i b l e t o b o r r o w h a v e b e e n c o n t r i b u t i n g f o r c e s i n th e
-*-^Giles, o £ . c i t . , p p . 1 8 8 - 1 9 7 .
! 1 1 9
jgrowth o f consumer len d in g by c r e d it unions in C a lifo r n ia ,
l
| C on clu sion s. R ecognizing the lim ita tio n s o f a
i
’s t a t i s t i c a l p resen ta tio n in p rovid in g proof fo r any assump-
1 -
!tio n , the s t a t i s t i c a l p o rtio n o f t h is chapter has attem pted
!only to p oin t out th a t c r e d it unions in C a lifo r n ia from
1 1939 through 1955 in crea sed th e ir a ctu a l and r e la tiv e quan
t i t a t i v e p o s itio n w ith regard to th e ir h old in gs o f in d iv id -
I
’ u a l savings and w ith regard to th e ir p a r tic ip a tio n in
: consumer le n d in g ,
j I t appears th at from 1939 through 1955, savin gs in
jcred it unions in C a lifo r n ia in crea sed p rim arily as a r e s u lt
i
Jof: (1) an in crease in p o p u la tio n , (2) economic co n d itio n s
;which provided high incomes and high sa v in g s, (3) higher
i
r a te o f retu rn paid by c r e d it unions than paid by other
savin gs in s t it u t io n s , (I}.) the op in ion o f many savers th a t
i
|th e ir funds were as sa fe and as liq u id in c r e d it unions as
i
I in other savings in s t it u t io n s , and (5) the a d v e r tisin g done
by those in the c r e d it union prom otional area . I t i s
probable th at a g rea ter amount o f savings has been placed
w ith c r e d it unions in t h is s ta te than would have been , had
not th ese in s t it u t io n s , during th is p erio d , provided sa fe ty
I
(and liq u id it y for sa v in g s, A la rg e proportion o f funds
• in v ested in c r e d it unions seems to be o f a long-term
j
i
i
JLel.KJ
n a tu r e .^ There may be some p u b lic d isfa v o r o f c r e d it
unions in some la t e r period i f they are unable to continue
to o ffe r the immediate a v a ila b ilit y o f fun ds. TUture
growth o f c r e d it unions may w ell depend more on the s a fe ty
and liq u id it y provided to savin gs than on the higher ra te
o f retu rn paid fo r savings by c r e d it unions than by other
savings in s t it u t io n s .
I t appears that the p r in c ip a l reasons fo r the
in creased p a r tic ip a tio n o f c r e d it unions in the consumer
len d in g f i e l d in C a lifo r n ia from 1939 through 1955 are;
(1) C redit unions have had more funds to lo a n , (2) th e ir
loan p o lic ie s have been f le x ib le enough to meet the i n
crea sin g demand for consumer c r e d it , (3) the in te r e s t r a te s
on loan s have been lower than most other le n d e r s, (i|.) th e ir
jmembership has expanded so th a t many more people are now
jmembers o f c r e d it u n ion s, and (5) th e ir a d v e r tisin g has
i
j
ibrought many new members in to c r e d it unions and caused many!
new c r e d it unions to be formed.
i
There i s some reason to b e lie v e th a t i f the gen eral i
i
economic co n d itio n s had not been so h igh during the period ;
•*-9()ne ex cep tio n i s found to t h is statem ent in the
Southern C a lifo r n ia Teachers A sso c ia tio n C redit Union where
savings are withdrawn at a h igh rate in the summer months,
in d ic a tin g th a t the member tea ch ers save fo r nine months to
cover th e ir expenses during the th ree summer months, when
most o f them are not r e c e iv in g monthly sa la ry ch eck s.
In terv iew w ith T reasurer, Southern C a lifo r n ia Teachers
A sso c ia tio n C redit Union.
!covered by t h is study, and in d iv id u a l ex p ecta tio n s for
l
'higher income had not been so p rev a len t, consumers would
!not have extended them selves so g r e a tly by in cr ea sin g th e ir
i
iconsumer loan demands. But as long as in d iv id u a ls expect
• I
j to re ce iv e the same or h igh er wages each y ea r, they tend to j
i i
^be w illin g to borrow a d o lla r today to be repaid w ith a
d o lla r o f le s s e r value in the fu tu r e .
! CHAPTER V
I
j SU M M A R Y A N D CONCLUSIONS
From 1927, when the f i r s t c r e d it union law was
enacted in C a lifo rn ia , c r e d it unions grew slowly in t h i s
s ta te u n t i l a f t e r the end o f World War I I . This e a rly
slowness of growth was caused p r in c ip a lly by: (1) the
G reat D epression o f th e e a rly 1930’ s, (2) th e f a c t th a t a
jnew type o f f in a n c ia l i n s t i t u t i o n does n o t im m ediately i n
s t i l l in the p u b lic g r e a t confidence in i t s a b i l i t y to
safeguard, an investor* s savings, and (3) the lack o f p ro
m o tio n a l p ersonnel to educate p o te n tia l members in th e 1
c r e d it union concept and promote the estab lish m e n t of new
c r e d it unions in are a s where homogeneous groups might band
to g e th e r to aid each o th e r b u ild h a b its of t h r i f t and p ro -
1 »
vide c r e d i t fo r prudent and pro d u ctiv e n ee d s, j
Although c r e d it union growth in C a lifo rn ia has been ;
very s ig n if ic a n t p ercen tag e-w ise, i t s t i l l seems th a t j
c r e d i t unions are an alm ost i n s i g n if i c a n t q u a n tita tiv e j
i
fa c to r in a study of f in a n c ia l i n s t i t u t i o n s . From 19kS to \
i
I
1955s ?o r example, the d o lla r amount o f savings w ith a l l j
|c r e d it unions in C a lif o rn ia in c re a se d tw en ty fo ld . In th e
j I
1 e a r l i e r y e a r, c r e d i t unions in C a lif o rn ia h eld one per cent
of in d iv id u a ls ’ sav in g s, and in the l a t t e r y e a r, they h e ld
only th re e per c e n t o f the savings o f in d iv id u a ls in
! 1 2 3 -
(C a lifo rn ia . Although there i s a trend toward the e s ta b
lish m en t o f more c r e d it unions and a trend toward more
t
investm ent in c r e d it u n ion s, i t seems th a t in the p a st
t
decade there has been no major tr a n sfe r o f savings from
other fin a n c ia l in s t it u t io n s to c r e d it u n io n s.
i
C redit unions in C a lifo r n ia provided fiv e per cent j
o f the t o t a l consumer c r e d it extended by fin a n ce com panies,
ibanks, and c r e d it unions combined fo r the year 191^-2. This
percentage in creased to tw elve per cent in 1955* In the
e a r lie r y ea r, consumer c r e d it extended by fin a n ce companies
was about four tim es as g rea t as t o t a l c r e d it union loan s
!
outstan din g; in the la t t e r y e a r , t o t a l loan s ou tstan din g by j
i i
I fin an ce companies were not q u ite h a lf again as much as j
i ;
'to ta l c r e d it union lo a n s. Thus, in the f i e l d o f consumer j
1 I
c r e d it , the q u a n tita tiv e p o s itio n o f c r e d it unions has in - j
i I
creased a t the expense o f fin a n ce com panies. j
i f
C redit unions have emphasized a sy stem a tic savin gs j
i j
program fo r th e ir members, which has in creased th e ir quanti
t a tiv e p o s itio n as an o u tle t fo r the savin gs o f in d iv id u a ls;
but the in crea se has not caused them to move ahead o f any
other savin gs in s t it u t io n , excep t the P o sta l Savings s y s
tem, during the period covered by t h is stud y.
| Whereas c r e d it unions were an in s ig n if ic a n t q u an ti
t a t i v e fa c to r in th e f i e l d o f consumer c r e d it in the ea r ly
i
iyears of t h is study, th e ir p o s itio n has grown so th a t they
i
j
jmight some day r iv a l fin a n ce companies as the second most
im portant in s t it u t io n in the f i e l d o f consumer c r e d it in
C a lifo r n ia . |
l
i !
, Only th ree per cent o f C a lifo r n ia 1 s p opu lation were
j
^ p otential c r e d it union members in 1914-8; w hereas, by 1955*
|e ig h t per cen t o f the p opu lation were e l i g i b l e to become
a ctu a l c r e d it union members. Hot only did p o te n tia l cred itJ
i
union members become a la r g er percentage o f C a lifo r n ia 1s
popu lation in th a t e ig h t-/e a r p erio d , but a c tu a l membership
rose from one per cent to th ree per cent o f C a lifo r n ia 1s
p o p u la tio n . S t a t i s t i c s on c r e d it unions might lead one to
I assume th at membership w ill in crea se because c r e d it union
I
tmembership p rovid es a cheaper and more r e a d ily a v a ila b le j
■ source o f consumer c r e d it . A lso , one might assume th a t j
people g e n e r a lly s t i l l la c k some con fidence in the s a fe ty
o f th e ir savin gs in v ested in c r e d it u n io n s. Doubt as to
savin gs liq u id it y and sa fe ty might be slow to overcome. !
Because the q u a n tita tiv e p o s itio n o f c r e d it unions can in
crease only in d ir e c t proportion to the savin gs in v ested
w ith them, c r e d it union growth, although co n tin u in g , w ill j
not be so rap id as to e c lip s e other fin a n c ia l in s t it u t io n s ..
As a w hole, c r e d it unions have been more anxious to
lend funds fo r consumer purchases than have banks or even
j s a le s fin an ce com panies. Although many loan s made by
i
c r e d it unions would be con sid ered unsound investm ents by
bankers, lo s s e s experienced by c r e d it unions have been
r e l a t iv e ly low . Hot on ly have earn in gs ge n e r a lly o f f s e t___
Ilo s s e s so t h a t d iv id e n d s , t o th e l e g a l l i m i t o f s i x p e r
i
c e n t , c a n b e p a id b y m any c r e d i t u n io n s , b u t m any f e d e r a l i
c r e d i t u n io n s f i n d t h a t , a f t e r t r a n s f e r r i n g 2 0 p e r c e n t o f
p r o f i t s t o th e r e s e r v e a c c o u n t, t h e y c a n s t i l l r e t u r n e a r n -
jin g s t o b o r r o w e r s , w h ic h i s a b o n u s f o r g o o d lo s s e x p e r i -
I
e n c e .
C r e d i t u n io n g r o w th h a s b e e n r e t a r d e d b y m any f a c
t o r s , some o f w h ic h r e t a r d th e g r o w th o f o t h e r f i n a n c i a l j
} !
j i n s t i t u t i o n s as w e l l . P r o b a b ly th e m o s t im p o r t a n t f a c t o r
'h a s b e e n th e s m a ll f i n a n c i a l in c e n t iv e p a id t o t h e c r e d i t I
i
| !
; u n i o n t r e a s u r e r s . The t r e a s u r e r i s t h e o n ly c r e d i t u n io n i
' I
i '
' o f f i c i a l who m ay r e c e iv e c o m p e n s a tio n u n d e r t h e la w . i
jW h e re a s m a n a g e m e n t o f m a n y f i n a n c i a l i n s t i t u t i o n s r e c e iv e j
I !
n o t o n ly h ig h s a l a r i e s b u t m any o t h e r f i n a n c i a l i n c e n t i v e s ,
a c r e d i t u n io n 1 s t r e a s u r e r h a s o n ly one f i n a n c i a l in c e n -
i
i
S t iv e s — s a l a r y . S a la r ie s p a id t o th e s e o f f i c i a l s a re o f t e n
js m a ll; a nd g e n e r a l l y , a n o f f i c i a l i n a n o th e r ty p e o f f i n a n - j
j !
j c i a l i n s t i t u t i o n o f c o m p a ra b le s iz e r e c e iv e s a g r e a t d e a l
m o re t h a n w o u ld a c r e d i t u n io n t r e a s u r e r . A lt h o u g h c r e d i t j
I
u n io n t r e a s u r e r s r e c e iv e n o m in a l f i n a n c i a l i n c e n t i v e , i t i s '
p r o b a b le t h a t c r e d i t u n io n le a g u e s t a f f s r e c e iv e a f i n a n -
t
| c i a l in c e n t iv e c o m m e n s u ra te w i t h t h e i r r e s p o n s i b i l i t i e s .
|H o w e v e r, le a g u e in c o m e i s s u c h t h a t th e le a g u e s t a f f i s
i
i
| s m a ll; a nd t h e i r p r o m o t io n a l and e d u c a t io n a l s e r v ic e s a r e
i
|n o t a v a i la b le o n s u c h a w id e s c a le t h a t th e c r e d i t u n io n
I
|m ovem ent w i l l b e e x p a n d e d r a p i d l y t h r o u g h t h e i r e f f o r t s .
I t w o u ld a p p e a r p r o b a b le t h a t th e e d u c a t io n a l p r o b -
i ■
jle m o f b r i n g i n g c r e d i t u n io n p h ilo s o p h y t o th e m a s s e s i s a
i
r e t a r d i n g f a c t o r t o c r e d i t u n io n g r o w t h . U n t i l p e o p le
u n d e r s ta n d t h i s d e m o c r a tic t y p e o f i n s t i t u t i o n , t h e y w i l l
n o t be i n c l i n e d t o i n v e s t t h e i r s a v in g s i n i t . S c h o o ls
t e a c h c h i l d r e n fr o m a n e a r l y age t o s a v e a n d i n s t r u c t th e m
i n th e f u n c t io n s o f t h e s a v in g s o u t l e t a f f o r d e d b y b a n k s ,
l i f e in s u r a n c e , U n it e d S t a t e s S a v in g s B o n d s , a n d s a v in g s >
a n d lo a n a s s o c i a t io n s ; b u t t h e y s e ld o m , i f e v e r , d is c u s s J
c r e d i t u n io n s . W h e re a s s c h o o l c h i l d r e n o f t e n v i s i t b a n k s ;
i j
;a s p a r t o f t h e i r e le m e n t a r y s c h o o l i n s t r u c t i o n , v i s i t s t o j
( c r e d i t u n io n s a p p e a r to be e x t r e m e ly r a r e . T h u s CTJNA a n d
I th e le a g u e s t a f f s a r e t h e o n ly i n s t r u c t o r s o f c r e d i t u n io n
jp h ilo s o p h y a v a i la b le t o m o s t p e o p le , and t h i s i n s t r u c t i o n j
i u s u a l l y com es t o th e m i n t h e i r a d u l t y e a r s .
i
M o s t fo rm s o f b u s in e s s v e n t u r e f i n d t h a t t h e r e a re
c e r t a i n e c o n o m ie s o f s iz e w h ic h c a u s e m a n a g e m e n t t o s t r i v e
j f o r " b i g n e s s . " T h is d o e s n o t a p p e a r t o be th e c a s e w i t h
c r e d i t u n io n s , w h ose c o s t o f o p e r a t io n in c r e a s e s i n d i r e c t
p r o p o r t io n t o th e g r o w t h i n a s s e ts o f th e c r e d i t u n io n . I t
m ig h t w e l l be t h a t th e m a n a g e m e n t o f c r e d i t u n io n s who f i n d
!
;n o econ om y i n s iz e a re c o n t e n t t o h a v e th e c r e d i t u n io n
^ re m a in s t a t i c a n d n o t e n d e a v o r t o in c r e a s e t h e n u m b e r o f i
i i
a c t u a l m em b ers o r t h e t o t a l a s s e t s o f t h e i r c r e d i t u n io n , j
I
A d v e r t i s i n g a nd p r o m o t io n a l c a m p a ig n s c o n d u c te d b y
! CUUA a n d th e Cal i f o r n i a C r e d i t U n io n L e ague h a v e b e e n w e l l
j —- - - - - - 127
i
!planned and w e ll d ir e c te d . Although the C a lifo rn ia C redit
Junion League seems to r e c e iv e a h igh er income in the form
i
I o f dues from member c r e d it unions than any oth er le a g u e ,
they s t i l l have only a lim ite d amount o f funds, to pursue
th e ir prom otional ta s k . These funds have thus far been
s u c c e s s fu lly expended so th a t C a lifo r n ia has moved to f i r s t
p lace in c r e d it union a s s e t s , sa v in g s, and membership.
Although there may be a m u ltip lie r e f f e c t which would cause
o th ers to form c r e d it unions a fte r observing one op eratin g ;
's u c c e s s fu lly , i t i s probable that most c r e d it unions are
!organized w ith the aid o f a league member. The s t a f f o f |
I
C a lifo r n ia 1 s C redit Union League must cover many square j
m ile s , and i t seems lik e l y th a t th e ir lim ite d number cannot I
;cause the estab lish m en t o f enough new c r e d it unions to
J i
produce a rap id a c c e le r a tio n in the trend toward c r e d it i
i uni on growth in C a lifo r n ia .
• i
j Since the passage o f the F ederal C redit Union Act in i
;193i|-, C U N A has p laced most o f i t s le g i s l a t i v e e f f o r t s b e- ■
i
hind improvement o f the fe d e r a l rath er than the s ta te law s, i
j i
jOne o f the o r ig in a l g o a ls o f c r e d it union lea d ers was the j
i I
|estab lish m en t o f a re g io n a l c r e d it union system to provide ;
c r e d it to member c r e d it u n io n s. T his r e g io n a l c r e d it unionj
system , which was to provide a t i e to the money m arket, w as!
!
jd eleted from the o r ig in a l fe d e r a l c r e d it union le g i s la t io n
because o f p r e s id e n tia l o p p o sitio n . Since then, amendments
;to the Act have been in t r oduced in to alm ost every Congress_
r ■ " 1 2 8
; to p r o v id e f o r s u c h a s y s te m , b u t o p p o s it io n h a s b e e n s u c h
i
I t h a t t h e r e h a s b e e n o n ly o n e C o n g r e s s io n a l h e a r in g o n t h i s
l e g i s l a t i o n , a n d p o s s i b i l i t i e s o f i t s p a s s a g e i n t h e n e a r
f u t u r e a p p e a r l i m i t e d . W it h a p p r o v a l o f s u c h l e g i s l a t i o n ,
t h e r e m ig h t be a r a p i d g r o w t h o f c r e d i t u n io n s i n t h i s
s t a t e b e c a u s e n e w e r c r e d i t u n io n s w o u ld h a v e a r e a d y s o u r c e
o f lo a n a b le fu n d s w h ic h w o u ld s t im u la t e t h e i r g r o w t h b o t h
i n t h e f i e l d s o f m e m b e rs h ip a n d d o l l a r v o lu m e o f c o n s u m e r
!
c r e d i t a n d s a v in g s * W it h o u t t h i s l e g i s l a t i o n , th e g r o w th j
'p a t t e r n o f c r e d i t u n io n s p r o b a b ly w i l l n o t show a n y r a p id ;
i
1 q u a n t i t a t i v e c h a n g e b e c a u s e s a v in g s w i l l c o n t in u e t o i n
c re a s e s lo w ly a n d t h u s p r o v id e f o r a s lo w b u t c o n t i n u a l
g r o w th o f lo a n s * .
I Q u a n t i t a t i v e l y , m e m b e rs h ip am ong o c c u p a t io n a l g r o u p s <
i ■ i
'h a s a c c o u n te d f o r th e p r i n c i p a l g r o w t h i n c r e d i t u n io n m em -;
I
jb e r s . A lt h o u g h t h e r e i s some e m p lo y e r o p p o s it io n t o c r e d i t
(u n io n s , g e n e r a ll y e m p lo y e r s a re t e n d in g t o i n c lu d e , r a t h e r !
f i
i i
it h a n e x c lu d e , c r e d i t u n io n s a s a n i n t e g r a l p a r t o f t h e i r ;
i i
^e m p lo y e e w e lf a r e p r o g r a m s . A s lo n g as e m p lo y e rs c o n t in u e |
i
t h e i r t r e n d to w a r d i n c l u s i o n o f c r e d i t u n io n s i n t h e i r w e l- !
i
i
I f a r e p r o g r a m s , o c c u p a t io n a l c r e d i t u n io n s s h o u ld c o n t in u e
! i
t o g ro w b o t h i n n u m b e r and s iz e * I
i
| I
j C r e d i t u n io n m em b ers f i n d t h a t t h e y a re a b le t o co m -
J p le te m any b a n k in g t r a n s a c t i o n s t h r o u g h t h e i r c r e d i t u n io n
| w it h o u t t a k in g t im e o f f fr o m w o r k . T he D e n v e r N a t io n a l
| i
[B a n k wen t so f a r as t o a p p o in t c r e d i t u n io n c u s t ome r s a s j
a g e n ts f o r th e b a n k , t h u s p r o v id in g t o i n d i v i d u a l c r e d i t
u n io n m e m b e rs , t h r o u g h th e a g e n t, c h e c k in g a c c o u n t p r i v i - ;
jle g e s . A lt h o u g h n o s u c h a rra n g e m e n t h a s b e e n o b s e rv e d i n
i
C a l i f o r n i a , c r e d i t u n io n s d o p r o v id e m any f i n a n c i a l s e r v
i c e s t o m em bers a t a l o c a t i o n c o n v e n ie n t t o t h e i r p la c e o f
e m p lo y m e n t *
A lt h o u g h th e A m e ric a n B a n k e rs A s s o c ia t io n h a s v o ic e d ;
i
I
o n ly s m a ll o b j e c t i o n t o c r e d i t u n io n l e g i s l a t i o n i n th e !
p a s t , i t i s p r o b a b le t h a t b e c a u s e o f th e g r o w in g i n t e r e s t j
i
i n c r e d i t u n io n s , t h e y m ig h t becom e a d o m in a n t f a c t o r i n
a n y f u t u r e l e g i s l a t i v e h e a r in g s t o e x p a n d th e s c o p e o f
I
c r e d i t u n io n a c t i v i t i e s . A n y o p p o s it io n o n th e p a r t o f th e
A m e r ic a n B a n k e rs A s s o c ia t io n w o u ld , b e c a u s e o f t h e n u m b e r
j o f c r e d i t u n io n s o r g a n iz e d w i t h i n b a n k s , be l i m i t e d t o
jh o ld in g l e g i s l a t i o n s t a t u s q u o . O b je c t io n s t o s h a re i n s u r - j
; I
ja n c e , a r e g i o n a l e r e d i t u n io n s y s te m o r o t h e r l e g i s l a t i o n |
! |
ig e n e r a l ly a s s o c ia t e d w i t h p r o t e c t i o n o f a n u n in fo r m e d p u b - j
I i
i
j l i c , w o u ld seem t o be t h e s c o p e o f th e A m e ric a n B a n k e rs j
i
. A s s o c ia t io n 1 s p u b l i c s ta te m e n ts i f l a t t e r p ro p o u n d e d . A I
i
c o m p e t it o r ’ s v o ic e s e ld o m h a s f a r - r e a c h i n g l e g i s l a t i v e im - |
i
:p l i c a t i o n s ; a n d t h u s i t w o u ld a p p e a r t h a t c r e d i t u n io n |
'le a d e r s w i l l r e c e iv e a p p r o v a l o f l e g i s l a t i o n , w h ic h i s !
i j
'g e n e r a l l y c o n s id e r e d g o o d f o r th e f i n a n c i a l s t r u c t u r e o f I
it h e n a t i o n a s a w h o le . S h a re in s u r a n c e p r o b a b ly w i l l n o t
»
becom e a l e g i s l a t i v e is s u e u n le s s c o n f id e n c e i n s h a re i n
v e s tm e n ts d im in is h e s b e c a u s e o f a g e n e r a ll y d e c l i n i n g
'.e co n o m ic c li m a t e . A s lo n g as c r e d i t u n io n s a re a b le t o
jb o rr o w fu n d s n e e d e d f o r p r o v id e n t p u r p o s e s , l e g i s l a t i o n
e s t a b l i s h i n g r e g i o n a l c r e d i t u n io n s s h o u ld n o t becom e a
!
m a jo r C o n g r e s s io n a l q u e s t io n , a n d th u s b a n k e r s g e n e r a ll y
w i l l n o t b e h e a r d fro m as o b j e c t in g t o c r e d i t u n io n s . I t
se e m s, t h e r e f o r e , t h a t a lt h o u g h b a n k s , t h r o u g h th e A m e r ic a n
B a n k e rs A s s o c ia t io n , m ig h t t r y t o h o ld dow n th e g r o w th o f
c r e d i t u n io n s t h r o u g h C o n g r e s s io n a l t e s t im o n y , s u c h o b je c -
i
I
t io n s w o u ld be te m p e re d b y t h e f a c t t h a t c r e d i t u n io n s j
'b r in g t o b a n k s m u c h b u s in e s s t h a t m ig h t n o t o t h e r w is e b e ,
a t t r a c t i v e , and a ls o b a n k s th e m s e lv e s h a v e c r e d i t u n io n s j
i
f o r t h e i r own e m p lo y e e s . j
P e rh a p s t h e g r e a t e s t r e t a r d i n g f a c t o r to th e g r o w t h
|o f c r e d i t u n io n s i s th e f e e l i n g am ong m em bers t h a t t h e i r
's a v in g s a re n o t a b s o lu t e l y s a fe a n d l i q u i d t o th e p o i n t o f
1 i
I
j a v a i l a b i l i t y u p o n d e m a n d . A lt h o u g h t h e r e h a s n e v e r b e e n a
!
i l i q u i d a t i o n am ong th e la r g e c r e d i t u n io n s i n t h i s n a t i o n , j
! !
m u c h h a s b e e n w r i t t e n o n c o n t r o ls t o a v o id d e f a l c a t i o n , I
! !
l i q u i d a t i o n e x p e r ie n c e , a n d lo s s e s t o i n v e s t o r s . A lt h o u g h j
i
th e s e s t u d ie s show u n i f o r m l y g o o d e x p e r ie n c e , th e m e re f a c t !
I
t h a t th e y h a v e b e e n m ade le a d s m any t o f e e l t h a t t h e i r s a v -
jin g s a re m o re l i q u i d a n d s a f e r i n i n s t i t u t i o n s in s u r e d b y
I
(g o v e r n m e n ta l a g e n c ie s , n o m a t t e r w h a t th e t y p e o f i n s u r -
;
a n c e • F u t u r e c r e d i t u n io n g r o w th i s t h e r e f o r e t i e d t o e d u - j
jc a t i n g m em bers and p o t e n t i a l m em b ers i n t h e a d v a n ta g e s o f I
|s y s te m a t1 c a l l y s a v in g t h r o u g h t h e i r c r e d i t u n io n a n d |
I 131
j p a r t i c i p a t i n g i n i t s m a n a g e m e n t t o p r o t e c t t h e i r i n v e s t -
jm e n ts a n d d e v e lo p s o u n d a n d p r a c t i c a l c r e d i t p o l i c i e s w h ic h
i w i l l a id a l l m e m b e rs ,
i
i
| C r e d i t u n io n s i n C a l i f o r n i a h a v e beco m e a n in c r e a s -
i
in g s i g n i f i c a n t f i n a n c i a l i n s t i t u t i o n . T he f u t u r e o f
c r e d i t u n io n s i n t h i s s t a t e i s t i e d i n w i t h f u t u r e e c o n o m ic
c o n d it io n s a f f e c t i n g t h e a b i l i t y o f i n d i v i d u a l s t o c o n t in u e
p a y m e n ts on lo a n s a n d t h e l e v e l o f p e r s o n a l in c o m e ; th e
I
( g r o w th o f p o p u la t io n a n d e c o n o m ic c o n d it io n s w h ic h w i l l
i
! a f f e c t th e dem and f o r c o n s u m e r g o o d s ; a n d th e a b i l i t y a n d
d e s ir e o f i n d i v i d u a l s t o s a ve m o n e y , w h ic h w i l l b e l a r g e l y
|d e te r m in e d b y f u t u r e e c o n o m ic c o n d it io n s a f f e c t i n g in c o m e s .
iO v e r th e s e f u t u r e c o n d i t i o n s , c r e d i t u n io n s h a v e n o c o n -
! t r o l . I f th e p o p u la t io n o f C a l i f o r n i a c o n t in u e s t o g ro w a s
e x p e c te d , i t w o u ld seem t h a t th e w e l l o r g a n iz e d a n d j
. p r o p e r ly m anag ed c r e d i t u n io n c a n c o n t in u e t o g ro w i n im - j
i
jp o r t a n c e i n th e f i n a n c i a l s t r u c t u r e o f t h i s s t a t e . I t j
ja p p e a rs t h a t m any o f th e s e i n s t i t u t i o n s a r e w e l l p r e p a r e d j
t o m e e t e c o n o m ic c h a n g e s , a n d i f t h e i r m a n a g e m e n t c o n t in u e s j
i
t o d e v e lo p , t h e y w i l l a t t r a e t m o re m em bers who w i l l s a v e j
m o re a n d th u s b u i l d a s t r o n g o r g a n iz a t io n . W e ll m a n a g e d
i
i
;c r e d i t u n io n s s h o u ld c o n t in u e t o in c r e a s e i n t o t a l a s s e ts
| a n d n u m b e r o f m em bers a n d t h e r e b y o c c u p y a d e s ir a b le s o c i a l
1
|a n d f i n a n c i a l p o s i t i o n i n th e f i n a n c i a l d e v e lo p m e n t o f
!C a l i f o r n i a .
BIBLIO G R APH Y
BIBLIOGRAPHY
A . BOOKS
Bergengren, Roy P ., C ooperative Banking* New York: The
MacMillan Company, 1923*
Bergengren, Roy F*, C redit U nions; A C ooperative Banking
Book, New York: The Beckman H ill P re ss, 1931
Bergengren, Roy P ., C redlt U nions, North America* New
York: Southern P u b lish e rs, Inc *, 19I 4 -O
Bergengren, Roy P ., Crusade- - The F igh t fo r Economic Democ- \
racy in North America, 19^1- k $ • ~N ew York: E x p o sitio n I
j P ress, 195>2* 1
1
1 I
Croteau, John, A Study o f the H istory and Experience o f
F ederal C redit Unions in T heir F ir s t Twenty Years o f
E x isten ce * New York: Harper B roth ers, 1955 •
! I
F riend, I r v in , In d iv id u a l S a v in g s, i t s Volume and Composi- ;
t io n * New York: W iley, 1954-* j
G ile s , Richard T ., C redit fo r the M illio n s , New York: j
Harper B roth ers, 1951. !
Horton, Byrne J ., J u lia n R ip ley , J r ., and M. B. Schnapper,
D ictio n a ry o f Modern Economics * W ashington, D .C .:
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N e ife ld , M. R ., C ooperative Consumer C redit * New York: ;
j Harper B roth ers, 1935. i
I j
Shapiro, E l i , C redit Union Development in W isconsin. New 1
| York: Columbia U n iv er sity P ress, 1957* j
j Thomas, R o llin G ., Our Modern Banking and Honetary System , j
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1
1
I
i
[ B. PERIODICAL ARTICLES !
1
| I
1
|C hm ielew ski, A lexander, "Credit Unionism and S u p e r v isio n ,”
j Banking, December, 19.5k 9
I"Consumer C red it—Instalm ent C red it--b y H older," S t a t i s t i c s
! in each is s u e o f the F ederal Reserve B u lle tin . 1
■'"Credit Unions Gird to F ight Ik e1 s Plan to R egulate Them,"
American Banker, February 2, 1955*
"Credit Unions R e s is t Share Insurance P rop osal," Burroughs j
C learing House, June, 1956, p. 5 6 . i
iCroteau, John T ., "Federal C redit Union L iq u id a tio n , 1935-
i 1 9 5 1 ,” Journal o f B u sin e ss, U n iv ersity o f Chicago
j P ress, Ju ly, 1952.
Croteau, John T ., "The Federal C redit Union System," S o cia l
S ecu rity B u lle t in , W ashington, B .C ., May, 1956.
C roteau, John T ., "The Large C redit Union," The Journal o f
F inance, September, 1956. I
Bunkerly, J . R ., "C redit Unions Have Four M illio n Members," j
j Banking, January, 1951* - !
■Plechter, F. C ., J r ., "Credit Union Indem nity," Burroughs j
! C learing House, January, 195^4-• I
i
French, W alter B ., "The Rapid Growth o f C redit U nions,"
Banking, Ju ly, 195^-*
"Hazards o f the Growth o f C redit U nions," B u sin ess Week,
September 2l|, 1955*
' i
‘ Leach, C. H ., "Credit Union i s a V aluable Worker B e n e fit," I
| T e x tile World, June, 19ii-9. !
iMcCombs, R. D ., "Credit U nions.are Morale B o o sters,"
' R ational Education A sso c ia tio n Journal, October, 19514-. 1
i . j
M ille r , C. L ., "Lending to C redit U nions," Banking, A p r il, j
1955. |
I * J
"O n In su rin g C redit U nions," Burroughs C learing House, !
August, 1956, p . 1 . |
|Sanbourne, J . K ., "Denver R ation al Bank Cooperates w ith ;
; C redit U nions," Burroughs C learing House, October,
, 1914- 8.
Smith, E rdis W., "Federal C redit Unions: O rigin and B ev el- |
opment," S o c ia l S ecu rity B u lle tin , Uovember, 1955- j
!"Survey o f Consumer F in ances—1955*” Federal Reserve I
B u lle tin , Federal Reserve Board, W ashington, D.C., i
May, 1955.
r 135
i
j
Van V lessin g en , A ., "Progress o f the C redit Union Move
m en t,” Burroughs C learing House, J u ly , 1952.
"Workers Make Good B an k ers,” B u sin ess Week, A p ril 17* 195^*
C. L E G A L REFERENCES
E xecutive Order 9114-6, A p ril 27* 1914-2.
"The C a lifo r n ia C redit Union Act," F in a n cia l Code, S ta te o f
C a lifo r n ia .
"The F ederal C redit Union Act," Chapter XIV, T it le 12 o f
the U. S . Code.
Senate B i l l 2890, 2nd S essio n , 83rd C ongress.
Senate B i l l 3539* 2nd S essio n , 814-th C ongress.
D. REPORTS
|A d m in istration o f Federal C redit U nions, hearing b efore the
I House Banking and Currency Committee, 80th Congress,
I 2nd S e s s io n .
j !
j Amendment to Federal C redit Union Act, hearing b efore the
j Senate Banking and Currency Committee, 82nd Congress,
j 2nd S e s s io n .
1 |
iBureau o f Pbderal C redit U nions, Reports on Operations o f ;
j Federal C redit U nions, W ashington, D.C., 1914-2 througE j
1 1955^ I
t
C redit Union N ation al A sso c ia tio n , C redit Union Yearbook,
Madison, W isconsin, 19514-* 1955* and 1956.
1 1
departm ent o f In vestm en ts, S tate o f C a lifo r n ia , Annual I
Report upon O perations o f L icensed Finance Companies, |
1939 through 1955. '
R e s e a rc h C o u n c il, A m e r ic a n B a n k e r s A s s o c ia t io n , C r e d i t \
U n io n s , M a rc h , 1955- ■
j f
Transfer o f A dm inistration o f the Federal C redit Union Act 1
to the Federal S ecu rity Agency, hearing b efore the
Senate Banking and Currency Committee, 80th C ongress,
! 2nd S e ssio n . !
136
U. S . Savings and Loan League, Savings and Loan t o n a ls ,
1939 through 1955*
E . PA M PH L E T S
Bankers Committee fo r Tax E q u a lity , C redit U nions, C o n ti
n en ta l I l l i n o i s Bank B u ild in g , Chicago, I ll in o i s *
Bureau o f Federal Credit, U nions, Federal Credi t Uni on By-
Laws, (Specimen Copy) W ashington, D.C., 195>0.
Bureau o f F ederal C redit U nions, Federal C redit Union Hand
book, W ashington, D.C., R eprint Ju ly, 195>6.
Bureau o f F ederal C redit U nions, L iq u id ation Procedures fo r
j Federal C redit U nions, J u ly , 195>2.
t
iBureau o f Federal C redit U nions, Manual o f Accounting Pro-
I c e d u re s f o r F e d e r a l C r e d i t U n io n s , W a s h in g to n , D . C . ,
j J u ly , 19F67
P op u lation , Research Department, S e c u r ity -F ir s t R ation al
Bank o f Los A n geles.
F. M ISCELLANEOUS
[Interview w ith Conrad C. Jam ison, V ice -P r esid e n t, S ecu rity-J
: F ir s t R ation al Bank o f Los A n g eles. !
! I
in te r v ie w w ith Garth Ludwig, C a lifo r n ia C redit Union j
League, Los A ngeles Office. i
i
In terview w ith Harry S . M eily, V ice -P r esid en t, S e c u r ity - j
F ir s t R ation al Bank o f Los A n geles. !
| j
iIn terview w ith the Treasurer o f the Norton A ir Force Base ;
Employees1 C redit Union.
L e tte r s from the D irecto r of the W ashington, D.C., office j
! o f C redit Union R ational A s s o c ia tio n . I
! i
[L etters from Mr.. Dunkerly, Deputy Manager o f the American j
Bankers A sso c ia tio n . i
| , !
In terv iew w ith W illiam Purdmont, E leven th D is t r ic t , Federal
I Home Loan Bank.
r - - - 1 3 7
i
W e lls , K e n n e th R . , I n s t a lm e n t C r e d i t N o te s , American
N a t io n a l B a n k a n d T r u s t C om pany o f C h ic a g o . ( M o n th ly
l e t t e r s •)
university of Southern Cali form*

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Asset Metadata

Creator Hartley, Wesley Joseph (author)

Core Title The financial implications of the growth of credit unions in California during the period from 1939-1955

Contributor Digitized by ProQuest (provenance)

Degree Master of Business Administration

Degree Program Business Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, banking,OAI-PMH Harvest

Language English

Advisor Trefftzs, Kenneth L. (committee chair), Martin, G. Preston (committee member), Sultan, Paul E. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-139284

Unique identifier UC11262842

Identifier EP43462.pdf (filename),usctheses-c20-139284 (legacy record id)

Legacy Identifier EP43462.pdf

Dmrecord 139284

Document Type Thesis

Rights Hartley, Wesley Joseph

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA