WHAT IS A CREDIT UNION
Although credit unions have certain characteristics in common with banks and thrifts, they are clearly distinguishable from these other depository institutions in their structural and operational characteristics. Many banks or thrifts exhibit one or more the following five characteristics; but only credit unions display all five together.
First, Credit unions are member-owned, and each member is entitled to one vote in selecting board members and in certain other decisions. Although other mutual institutions are also member owned, voting rights are generally allocated according to the size of the mutual member’s deposits, rather than being “one member, one vote”.
Second, credit unions do not issue capital stock. Credit unions create capital or net worth by retaining earnings. Most credit unions begin with no net worth and gradually build it over time.
Third, credit unions rely on volunteer, unpaid board of directors whom the members elect from the ranks of membership.
Fourth, credit unions operate as not-for-profit institutions, in contrast to shareholder-owned depository institutions. All earnings are retained as capital or returned to the members in the form or interest (dividends) on share accounts, lower interest rates on loans, or otherwise used to provide products or services.
Fifth, credit unions may only accept as members those individuals identified in a credit union’s articulated field of membership. Generally, a field of membership may consist of a single group of individuals that share a common bond; more than one group, each of which consists of individuals sharing a common bond; or a geographical community. A common bond may take one of three forms: an occupational bond applies to the employees of a firm; an associational bond applies to members of an association; and a geographical bond applies to individuals living, working, attending school, or worshiping within a particular defined community.
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