Credit Union History

Credit Unions, Usury, and the Rise of Consumer Credit in the United States

2015-05-22T14:57:00.003-04:00

Guest Post from Paul Thompson

Credit unions were one of a number of American institutions that tackled the credit problems of the urban working class in the early 20th Century. Taken together, these institutions helped to demonstrate that industrial and salaried workers were safe credit bets, opening the door to consumer lending by commercial banks and helping to foster our "consumer culture."

The question of credit for Jane and Joe worker was bound up with the issue of usury. "Usury" narrowly defined means the charging of interest on a loan, but more broadly it can mean "excessive" interest, illegal interest, or simply dishonest or abusive lending practices.

The Judea-Christian heritage frowned on the charging of interest, particularly on loans to individuals in need. In Exodus (22:25 RSV) we read: "If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest."

Nehemiah (5:1-6), hearing the complaints of the people of Israel in a time of famine, scolds the nobles and says, "Let us abandon this exacting of interest. Return to them this very day their fields, their vineyards, their olive orchards, and their houses, and the percentage of money, grain, wine, and oil you have been exacting from them." As a result of such teachings, Jewish law forbade charging interest on loans, except loans to non-Jews.

The New Testament also encouraged generosity in lending without expectation of gain and voiced suspicion of accumulated wealth. The Christian church continued the ban on lending at interest, but, of course, such bans could not prevent people from having to borrow, nor lenders from getting around the bans in one way or another. One escape hatch was the proviso in Jewish law that Jews could lend to non-Jews. This led to some Jews, excluded from most occupations, becoming lenders to Christians, ranging from pawnbroking to financing wars.

With the Industrial Revolution, starting in England in the 18th Century, it became more and more evident that credit was a necessary lubricant for business and trade. Economists like Adam Smith saw interest as a useful tool, although he advocated limits on how much could be charged. The churches themselves, especially the Protestants, began conceding that some interest was morally allowable. England eventually abolished its usury limit of 6 percent in 1854, leaving control to market forces. (Borrowers who feel an interest charge is exorbitant can take the lender to court, but this obviously doesn't happen often. In recent years, consumer advocates have pushed for usury limits to protect borrowers.)

Credit and Usury in America

In colonial times and following independence, most Americans were farmers. Money (coins, ordinarily) was scarce due to an imbalance of trade with England. Trade was often done through barter, the exchange of goods such as furs, tobacco, and livestock, or services. A doctor might be paid in butter or by chopping his firewood.

Another substitute for money was credit. A Philadelphia cabinetmaker reported that 92 percent of his sales were on credit. Obviously, to stay in business, he had to know his customers well and be willing to postpone payment when necessary. And he, in turn, had to have good credit with his suppliers. Grocers and other merchants would allow customers to have "book credit," to be repaid in thirty days or at irregular intervals. In short, the economy ran on credit. Mostly it was "friendly credit" among people who knew each other. Reputation and record of repayment counted for a great deal in whether you would be granted credit.

Despite the country's reliance on credit, moralists preached that debt was the road to ruin. Benjamin Franklin typified the divergence between preaching and practice. His publications praised thrift and staying out of debt. He told his friend, Dr. Benjamin Rush, that credit produced idleness and vice and that he wished all debts were irrecoverable under law. Yet, Franklin borrowed and lent freely during his business career.

Having inherited Britain's colonial usury limits, states tried to restrict interest rates, typically setting the legal limit at around 6 percent per year. But enforcement was weak and these limits were widely evaded, especially in the frontier states. One popular evasion noted by Abraham Lincoln when he was entering politics was "note-shaving," deducting various "expenses" from the amount turned over to the borrower, which put the real interest rate above the legal rate.

During the 19th Century, America shifted from a rural economy to a capitalist industrial economy. The nation adopted paper currencies, and money became more plentiful. While the farmhand might be paid mainly in room and board, city workers were paid cash wages, and many financial transactions were carried out in cash. But credit remained a key economic factor on all levels.

Cities were flooded with newcomers, some fleeing the privations of farm life, others arriving from Europe seeking what has come to be called the "American Dream." The new economy provided wealth to the "robber barons" like Rockefeller and Carnegie, but was not so kind to most Americans, many of whom lived in squalid conditions and toiled for long hours in dangerous and dirty jobs at low wages.

Americans continued to have contradictory attitudes toward credit. When a millionaire borrowed to build a factory, it was considered praiseworthy "productive" debt. When a housewife borrowed to feed or clothe her family, that was "consumptive" credit, which did not contribute to society but wasted its resources. ("Consumption" was the name used for what we call tuberculosis, and the term "consumptive credit" carried connotations of illness and disease.)

Commercial banks catered to the needs of business and the wealthy. They did not attempt to provide credit to ordinary working people, for a number of reasons.

Bankers shared the popular prejudice against "consumptive credit."
Banks needed to maintain high liquidity to guard against "runs," and restricted their lending to short-term notes. This prevented them from extending long-term credit like mortgages.
It was hard to judge the creditworthiness of working people. In addition, workers were vulnerable to layoffs, illness, and workplace accidents, which could interfere with their prompt repayment of loans.
Workers borrowed small amounts, which were uneconomical to lend without violating state interest rate ceilings.

Who Was Lending to Working People?

The emphasis on thrift was natural in a society where scarcity was the norm, and where the growing industrial economy needed savings to invest. But production by itself means little if nobody is consuming products. As early as 1855, an article in the magazine DeBow's Review argued that "if all men practiced the precepts of (Franklin's) "Poor Richard," society would not advance, since the consumption of all the vast variety of unnecessary commodities would cease." The nation could not sustain its commercial growth without a buying public. That realization would eventually lead to a greater understanding of "consumptive credit."

Meanwhile, a variety of institutions arose to meet the credit needs of working people. Of course, borrowing from family or friends continued to be a source of credit, but this put strains on relationships. For many, including immigrants dealing with an unfamiliar culture, the easiest and quickest source of credit was the pawnshop, where a piece of jewelry, an article of clothing, a piece of furniture, or some other portable object could be pawned for cash and later redeemed. Most pawners were women who needed to stretch their husband's often meager pay. Many customers made regular visits to "my uncle," as they referred to the pawnbroker. The typical loan was five dollars or less, which meant the pawnbroker needed a high rate of interest to make any money. States and municipalities allowed pawnbrokers to charge more than the typical usury ceiling, but often the pawnbroker tacked on extra charges that raised the real interest rate much higher.

Pawnbrokers were attacked as parasites preying on the poor and thriftless, but there is not a great deal of evidence that they profited more than any other business. In hard times, they failed as often as other types of enterprises. Because many pawnbrokers were Jewish, the pervasive anti-Semitism led to the popular image of the pawnbroker as a grasping "Shylock."

Up next in the socio-economic scale of credit came the small loan companies. These arose in the mid-19th Century as the industrializing economy fostered an army of wage and salary earners. The lenders were men who had some capital and used it to make loans of 10 to 40 dollars for short periods of time. At a legal usury rate of 7 percent per year, a loan of $20 for a month, would yield the lender a profit of 10 cents. Obviously, this would not cover the expenses involved in making the loan. Either lenders simply charged illegal rates, or worked around the law by charging separate fees, giving the borrower less than the face amount of the loan, or requiring the borrower to buy a painting or piece of jewelry at an inflated price. The small loan firm catered to a variety of borrowers, ranging from newspapermen to civil service employees to factory and railroad workers. In New York, one investigator found that two-thirds of the city's personal lending came from small loan brokers.

Small loan offices were tucked away from public sight but they boldly advertised in newspapers. They were seldom prosecuted. Most of their employees were women, because they could be paid less than men and were less likely to be assaulted by unhappy customers.

The small loan agencies loaned on two forms of security -- "chattels," such as pianos or jewelry that could be seized in case of default, and salary assignments, in which the borrower pledged his or her future salary as security. The reliability of the borrower was investigated, elaborate questionnaires were filled out, and legal-looking documents signed. Cosigners might be required. Some of this was for show, because the transaction could not be legally enforced.

The borrower undertook to make regular weekly payments until the loan was repaid. If the borrower fell behind in payments, collection tactics started out with reminder letters, then telephone calls, then personal visits. Physical violence was not used. (That came into play when big city mobsters got into loansharking in the 1950s, but even there, heavy violence was rare.) But the agency might use a "bawlerout," a woman who would confront the borrower in front of his or her co-workers or family and accuse the hapless debtor of being a deadbeat. Because many employers would fire any worker who fell into debt, there was great pressure on borrowers not to default on loans.

Some lenders charged what we might consider reasonable interest for such loans, albeit illegal under the usury limits, others gouged their customers. Like modern-day payday lending, the small loan firm made most of its money not from the occasional borrower but the repeat customer who fell behind in his or her payments and continued to pay interest but not the principal.

Like the pawnbroker, the small loan broker was castigated as a "loan shark," and the trade was periodically subject to journalistic exposes and attacks by crusading district attorneys. But it continued to flourish because it was needed.

The next rung up the credit ladder, and increasingly important as the19th Century progressed, was installment credit. As noted earlier, retail merchants often offered "book credit" to good customers. Installment credit arose when sellers of farm equipment found farmers reluctant to buy the new machines being invented, like threshers. If they let the farmer pay in installments, the sale became easier. Next came the manufacturers and retailers of sewing machines, pianos, encyclopedias, and other goods that typified the "good life" for upward-striving families. Eventually, almost anything could be purchased on the installment plan, and merchants found installment credit not only increased sales but the interest they could charge was a profitable sideline. When automobiles came along, manufacturers and dealers at first demanded cash payment but eventually found that installment purchase was the most profitable way to go.

An emotionally significant variant of installment credit was the home mortgage, where the buyer put down a hefty down payment, typically 30 percent of the price of the home, and then paid off the remainder of the price and interest in regular monthly payments over a period of four to 10 years. These mortgages were provided by savings banks, individuals, and savings and loan associations.

Installment lending, more than any other form of credit, raised the question of what was productive and what was consumptive credit. Was a sewing machine productive or a useless luxury? How about a phonograph or radio that increased a family's well being? Or a car that could be used both for a trip to the seaside and to drive to work? More and more purchases came to be classed as productive. By the 20th Century, it was increasingly recognized that there was no rational way to assign worth to one or another form of credit. And as the new field of home economics focused on wise purchasing by housewives, and as organizations like consumer leagues were formed to advance the cause of buyers, the term "consumptive credit" gave way to a less negative term, "consumer credit."

Reform Movements Affect Credit

The late 19th and early 20th centuries saw civic-minded reformers attacking business practices on all levels, from the Standard Oil Trust down to sweatshops and small loan brokers. This period has been dubbed the Progressive Era. Some business reformers focused on working conditions and child labor. Still others focused on the credit problems of the poor and low-paid workers, especially the high interest rates they had to pay, which were seen as contributing to poverty.

Two philanthropists played significant roles in the effort to make small loans more affordable to working people: Mrs. Russell Sage of New York and Edward A. Filene of Boston.

Mrs. Sage was the widow of a hard-headed, miserly railroad and financial speculator. A clue to Russell Sage's character can be found in an incident in which a crazed broker came into his office with a satchel of dynamite and demanded $1,200,000. Sage seized a clerk and used him as a shield. The satchel exploded, killing the bomber and one of Sage's secretaries. The clerk, by the name of Laidlaw, lost a leg, while Sage escaped with minor injuries. Laidlaw, who said he was now indigent, sued Sage for compensation. The millionaire refused and the courts upheld him.

In contrast to her husband, Mrs. Sage was interested in charity work and social reform. When the old skinflint died in 1906, he left $65 million to his wife, who embarked on a life of philanthropy. Among other things, she established the Russell Sage Foundation, which began investigating the problem of credit for the masses.

Mrs. Sage's foundation hired a young man named Arthur Ham in 1910 to promote more equitable credit for working people Early efforts included helping create credit unions in New York State, but soon Ham and the foundation focused on raising state usury limits for small loans to allow lenders to make a reasonable but not exorbitant profit. That would allow the more honest lenders to be licensed to operate legally and attract capital into the business and undercut the usurious unlicensed lenders, it was thought. Any loan of $300 and under was considered a small loan, although most loans were under $100. Working together with small loan companies that wanted to emerge from the legal shadows (like the one that became Household Finance Corporation), Ham and the Foundation were successful in reforming many state laws governing small loans. While loansharking obviously never vanished completely, this led to the thriving consumer finance industry of today.

Credit Unions

Edward A. Filene, a shy young man who walked with a limp and suffered from eczema, was forced to abandon plans for college when his father became ill. Instead, he began working in the family's clothing store in Boson. His talent and leadership helped turn the store into a leading retail establishment in the city. Having made a fortune in retailing, Filene embarked on a career of philanthropy and civic reform.

He became interested in the fledgling credit union movement, which was growing only slowly in a handful of states, including Massachusetts. Filene, a non-practicing Jew, later said part of his motive in seeking credit reform was to fight the popular image of Jews as usurers. In 1920, he plunged fully into supporting the young movement by hiring a lawyer, Roy Bergengren, to form what they called the National Credit Union Extension Bureau (CUNEB) and to work to spread the movement nationally. Bergengren turned out to be a natural for the job -- idealistic, yet practical, a tireless promoter and advocate.

The credit union was a cooperative in which members pooled their savings to make small loans to each other at legal rates. Depending largely on volunteer labor and often operating out of a desk in the workplace, its expenses were low. Although most well-defined groups could start a credit union if the state permitted it, the most successful credit unions were formed in factories and government offices. Defaults were kept at a minimum because the borrowers were usually known to the committee that approved loans, the borrower often had to have co-signers, and there was pressure from fellow workers whose savings were at risk.

Under Bergengren's leadership, with Filene's financial support, state after state passed credit union laws, and hundreds of credit unions were being organized across the nation. The passage of the Federal Credit Union Act in 1934 made it possible to organize credit unions in any state that did not have a credit union law or had an inadequate one, and credit unions proliferated throughout the Depression. By 1939, the nation had more than 8,000 credit unions serving some 2.3 million members. The U.S. credit union movement has turned out to be one of Edward A. Filene's most lasting achievements, today serving more than 100 million Americans, with assets in excess of $1 trillion.

We could mention other efforts to combat loan sharks, but they were less significant than the credit union movement and the campaign to raise interest rates for small loans.

Commercial Banks Enter the Field

The 1920s were a time of rising prosperity and mass-produced products like automobiles. With increasing wages and convenient credit now available to many households, the United States found itself with the world's first mass market. Consumer debt skyrocketed, to the accompaniment of jeremiads that the nation was abandoning the old virtues. But it turned out that Americans were usually careful in their use of credit and repaid loans on time. Consumer debt, it turned out, was as much a taskmaster as the meanest Victorian boss, requiring hard work, budgeting, and its own kind of thriftiness.

A few banks began to test the waters. In 1928, National City Bank in New York established a consumer loan department. The Depression led more banks into the field when business lending fell sharply and it became clear that, even in the greatest downturn the nation had ever experienced, most consumers faithfully paid their debts. Interestingly, after a falloff in consumer borrowing following the Crash of 1929, consumer borrowing rose through the Depression.

Banks' deposits gave them a low-cost source of funds that enabled them to charge lower interest rates than many competitors. The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC), which largely eliminated the fear of bank runs and encouraged banks to start making longer range loans like mortgages. By 1939, 20 percent of commercial bank loans were going to households. The market was bifurcated, however, with banks catering to white collar workers and professionals and credit unions and finance companies serving a less affluent clientele.

The Glass-Steagall Act also set the credit mission of each type of depository institution. Banks provided commercial and consumer loans. Savings banks and Savings and Loans provided home mortgages. Credit unions provided consumer loans.

By the 1940s, commercial banks were the leading consumer lenders, a position they have held since, but credit unions and finance companies have continued to flourish. In 1980, credit unions gained their own deposit insurance fund, which encouraged consumers to make greater use of these institutions. Additional legislation and regulatory changes have made it easier for credit unions to expand membership either through expanding fields of membership or by mergers, and have eliminated most restrictions on the products and services they can offer, putting them into direct competition with other lenders.

Consumer Credit Today

Before 1970, most consumer loans were held by the institutions making them. But increasingly, holders began "securitizing" their debt assets, starting with mortgages but then extending to a wide variety of other assets ranging from credit card receivables to student loans to royalties anticipated from David Bowie's songs. These instruments were known collectively as Collateralized Debt Obligations, or CDOs.

The basic idea of a CDO is simple: a group of similar debts is combined into one package and sold to another institution. The seller receives an immediate payment that it can use to make more loans. It also is absolved of any risk connected with the loans in the package.

The buyer receives an instrument that will pay a regular income over the life of the loans in the package. To protect against possible defaults on the loans, the buyer has the CDO evaluated by the credit rating agencies and also receives various guarantees, either from the federal government or private insurers.

Securitization had many advantages, and it became a profitable industry in itself. American CDOs were purchased by banks and other financial institutions all over the world. But as the instruments became more and more complex, many buyers did not fully understand what they were purchasing, and regulators were asleep at the switch. The securitization industry turned out to be a house of cards as higher than expected defaults on CDOs of sub-prime mortgages cast doubt on all other CDOs, which began to tumble in market value. In turn, credit in general froze up, so even the most creditworthy institutions could not borrow.

The Great Recession of 2007-08 had begun, and it would take billions of dollars in government "bailouts" and years for the U.S. economy to recover. The economies of many other nations were also shaken. But while consumers retrenched somewhat during the recession, it became clear that consumer borrowing would bounce back and continue to be the principal driver of the American capitalist system.

Consumer Credit Protections

The last half-century has seen passage of a number of federal and state laws designed to protect Americans in their borrowing. One is the Truth in Lending Act, which among other disclosures, requires lenders to state interest in terms of the Annual Percentage Rate (APR) so consumers can compare terms of various lenders. The Equal Credit Opportunity Act prohibits credit discrimination on the basis of race, color, religion, national origin, age, sex, or marital status.

In the wake of the Great Recession, Congress created the Consumer Financial Protection Bureau (CFPB) with the mission of setting up new protections for borrowers, which could include the customers of "fringe bankers" (see below).

Credit Bureaus, New Products

The first credit bureaus arose in various cities in the 19th Century to serve the needs of businesses who wanted to determine the creditworthiness of their business customers, who might be located in distant locations. Since the 1970s, national credit bureaus have made it easier for lenders to check the ability of individuals to meet their obligations.

New consumer credit products have come into existence, most notably credit cards, student loans, home equity loans, adjustable rate mortgages, and sub-prime mortgages. The nation is awash in consumer credit, with a consequent rise in consumer debt, making consumers more vulnerable to unexpected events like the Great Recession of 2007-08.

Many non-credit financial products have also become available, from debit cards to money market funds to IRAs to annuities to long term care insurance This bewildering array of choices is forcing consumers to take on greater responsibility for their financial future. This has been called "Do It Yourself" consumer finance.

There is a great need for consumer education, and this is a role very suited to credit unions, which have emphasized member education since their founding days. Many credit unions have taken up the challenge.

The question of usury has not gone away. In the 1990s, after lobbying for more relaxed state usury laws, a new set of "fringe bankers" emerged, including the payday lenders and check cashing outlets. They offer small loans difficult for mainline institutions to make at reasonable rates. Once again, there is an outcry against "predatory lenders" who are said to be parasites upon the poor. Some credit unions are taking up the challenge of offering small loans at rates below those charged by the fringe bankers. The rise of risk-based lending, in which credit unions charge higher rates of interest on loans to less creditworthy borrowers, is helping them offer credit to members that have low credit scores from the rating agencies. However, there is push-back from credit unionists who believe that members should be treated equally as far as loan rates are concerned.

Sources

Financing the American Dream: A Cultural History of Consumer Credit, Lendol Calder, 1999, Princeton University Press. A widely-praised, detailed look at the rise of consumer credit.
Consumer Finance: A Case History in American Business, 1970, Irving S. Michelman, Augustus M. Kelly, New York. An entertaining look at the Russell Sage Foundation's efforts to bring small loan businesses into the legal market. It also deals with the rise of consumer finance in general.
In Hock: Pawning in America from Independence through the Great Depression, Wendy A. Woloson, 2009, The University of Chicago Press.
A Brief Postwar History of U.S. Consumer Finance, Andrea Ryan, Gunnar Trumbull, and Peter Tufano, Autumn, 2011, Business History Review, p. 461-498, Harvard College. Spells out the need for greater consumer education.
Money and Credit: A Sociological Approach, Bruce G. Garruthers and Laura Ariovich, 2010, Polity Press.
The Credit Union Movement: Origins and Development 1850 to 1980. J. Carroll Moody and Gilbert C. Fite, 1981, Kendall/Hunt Publishing Company. The standard history of the origins of the U.S. movement.

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Paul Thompson, CUDE, is author of "Development of the Modern U.S. Credit Union Movement 1970-2010" and "What You Need to Know About Today's Credit Union," a manual for new credit union employees and volunteers. Both available from www.lulu.com.

The Future of America's Credit Union Museum in Peril?

2014-08-30T22:48:00.002-04:00

When I first got into credit union history, one of the few resources I could easily locate was America's Credit Union Museum in Manchester, NH. I reached out to the director, Peggy Powell, who had helpful reading suggestions, and I ended up spending two days in the Museum's reading room working my way through some rare literature. Given the dearth of institutional support for credit union history in general, the Museum is an incredibly valuable resource.

As such, I was taken aback to receive the following message from Peggy on Tuesday:

Thank you for sending a copy of the article you wrote for Financial History magazine. I have added it to the reading room.

I want you to know that I am retiring from my position as Executive director of the Museum effective this Friday [8/29/2014]. Thank you for the support you have provided over the years and for your interest in the Museum.

Never lose your passion for credit unions.

Best wishes to you in the future.

Peggy

As I'd been thinking about visiting New Hampshire in the near future to meet with a food co-op organizing group, and was considering taking them on a field trip to the Museum, I wrote Peggy back inquiring as to what the Museum's next steps would be in her absence. She replied:

At this point a new Executive Director has not been hired which means the Museum will be temporarily closed until a replacement has been found. I do not know how long that will be. I suggest you call the Museum at 603-629-1553 prior to your trip to see if someone is in place. If nothing else there should be a message with a phone number of a person to contact.

The fact that there is no-one lined up to replace her is definitely a worrisome turn of events that might suggest that the future of the museum itself could be in peril. I poked around the website to see if any statement has been posted, but there's no mention of the change, and the last newsletter was sent out in August of 2012. I've sent a message to the Board President, Michael L'Ecuyer, through his credit union's contact page to inquire as to the museum's next steps, and I'll update this post if he responds.

###UPDATE - 9/2/2014###

Received this response this morning, which suggests things will be back to a semblance of normalcy by November:

I received your inquiry to Michael L’Ecuyer about the accessibility of the America’s Credit Union Museum in Manchester, NH. The Museum is temporarily closed during the change of Executive Directors.

We hope that the Museum will be open within the next six to eight weeks. As soon as we have the re-open date finalized, I will be in contact so that you can continue your plans to visit. I’m sorry for any inconvenience this has caused.

Thank you for your interest in America’s Credit Union Museum.

Lori

America’s Credit Union Museum, Board Secretary

Article in Financial History Magazine!

2014-07-31T00:15:00.003-04:00

I'm pleased to report that I had an article published on the coming to America of credit unions in the Spring, 2014 issue of Financial History magazine! They've expressed interest in a follow-up piece on the controversy surrounding the creation of National Credit Union Share Insurance Fund (NCUSIF) during the Nixon years, so I'd welcome any source suggestions on that topic!

Dora Maxwell Banker Joke from January, 1940

2014-06-19T21:59:00.002-04:00

Did you ever hear the one about the ex-banker who opened up a gas station after his bank failed? Every time a fellow drove in and asked for ten gallons of gas the banker asked, "Won't five do?" The gas station failed too. It reminds me of some people I know on credit Committees.

--Dora Maxwell, The Bridge. January, 1940.

Book Review - Soul: A Fourth Credit Union Book by Roy F. Bergengren

2014-04-13T20:34:00.000-04:00

Photo from the cover page of Soul

Written in 1938 very much in response to the death of his confidant and early financial supporter Edward Filene, Soul: A Fourth Credit Union Book represents a departure from the practical nuts-and-bolts approach and subject matter of Roy Bergengren's earlier writings. Where his previous books tended to function as mixtures of how-to guides and reports as to the legislative progress of the organized movement, the agenda of Soul is self-consciously philosophical. Comprised primarily of a series of speeches interspersed with excerpts from the Credit Union Bridge and a few poems, Bergengren lays out the volume's agenda in his explanation of its name:

Hunting 'round for a name for this collection of prepared speeches I have decided to call it "Soul". My old dictionary says that, "the soul is the essence, heart or animating force of anything--the spirit, meaning, or significance of things." The animating force which motivates the credit union is the one thing I am hunting for in these pages. And there is another meaning of the word "Soul," long since lost through disuse. In provincial English the word was used to mean, "a relish, eaten with bread." Possibly this book may indeed be a sort of relish, taken with the bread, the very staff of the cooperative movement, to-wit, the operating principles on which the plan of cooperative association is based. (Pg. 8-9)

In his quest to lay bare the soul of credit unionism, Bergengren covers a variety of topics. The collection begins with the memorial speech to Edward Filene that he delivered to dozens of meetings around the United States over the course of 1937, and an he then proceeds to a discussion of the "immortality" of the underlying mission of credit unionism, which he summarizes as "to prove on Earth that the brotherhood of man is something more than a fine principle; we prove its practicality and we make it work." (pg. 35) Bergengren then goes on to provide an overview of the historical background of the movement, its place in the larger international context, and the important role of that he believes young people have to play in its long-term success.

While all of these essays are important and interesting, one that most clearly and explicitly fulfills Bergengren's stated mission of locating the "soul" of credit unionism is titled "Fundamentals." In it, he breaks down and discusses what he understands to be the key values at the core of the credit union idea. He begins with a discussion of the motivation of credit unionists, which he argues must come from a desire to serve, rather than accumulative, materialistic motivations. As he puts it:

The purpose of the organization is simply the maximum service to the membership; we exist solely for service; let that burn itself into your very soul; not for profit, not for charity--but for service! If the system of capitalism has failed--and certainly right now it is under critical scrutiny--it is solely because of wrong motivation. We have been trying to build an economic society on the basis of the survival of the smartest, the shrewdest, the cleverest, the most unscrupulous of our number; that the highest objective of the right life is the accumulation of things, regardless of the effect of such accumulation on society as a whole. This is the established principle of the jungle; it has no place in civilized society. The results of any system must be the justification of that system. I make no attack on capitalism; I am not interested in it. But the perpetuation of capitalism depends entirely on a prompt reformation of motive. (pg. 62)

Once correct intention is established, Bergengren goes on to identify and discuss four fundamentals of the credit union project. First, he affirms the cooperative character of the movement, and highlights the importance of not just being cooperative in name, but also "cooperative in fact." (pg. 63).

Second, he notes the diversity of communities that have found use in the credit union model, and argues that the movement must remain ecumenical. To foster and maintain such broad-based participation, credit unionism must retain its autonomy and neutrality; it "must never become the tail to any particular kite. There are enough differences in the world, enough conflicting principles which drive men apart. Let us build one great credit union solidarity on this principle of cooperative credit on which we are agreed[.]" (pg. 64)

Third, he argues for the importance of maintaining "simplicity of operation and control" of credit unions. While Bergengren sees the credit union project as having disproved early naysayers who believed that "the fundamental weakness of the credit union was its assertion of the power and right of working people to manage their money," (pg. 60) he also perceives a risk inherent in the movement's success. He argues that "as we increase and multiply and grow in strength and in power ... there will be those who cannot refrain from attempting our exploitation. We shall be told that we must employ experts for this and that; that we must delegate to those who might exploit us the opportunity for such exploitation." (pg. 64-5) To counter this dynamic of what present-day economists refer to as "management capture," he recommends that credit unionists "not become prone to call in professionals who, not knowing how to think credit-union-wise, will drag into our councils all of the bad thinking on which so many professional thinkers are trained." (pg. 65) While some professionalization might be unavoidable, Bergengren concludes that "the right credit union is the credit union wherein the average member has understanding of his credit union in all phases of its potentialities of service." (pg. 66)

Finally, he argues that a commitment to education is essential if the movement's fundamentals are to be successfully transmitted to successive generations of credit unionists. Bergengren argues that the league chapters will be key institutions for advancing the educational agenda, and he holds up as worthy of emulation examples of work being done by the Antigonish Movement, which boasted an extremely extensive cooperative educational program in Nova Scotia.

In most of Roy Bergengren's "A Credit Union Book" series, the question of values tends to take a back seat to the concerns of the moment and the conveyance of the practices and techniques necessary for the hands-on work of building the credit union movement. In Soul, however, Bergengren takes a step back and addresses the 'why' of the credit union movement head on; what was it that motivated literally million of people of modest means to devote their volunteer time and energy to the collective task of constructing a system of cooperative finance. His explanation of the "soul" of credit unionism both serves to deepen the reader's understanding of the subjective side of the movement's origins, and offers an opportunity for reflection on the ways in which contemporary credit unions have both lived up to, and fallen short of, the aspirations of the people who laid the foundations of the modern credit union system. Covering all this ground in under 100 pages, Soul is a must-read for anyone who cares about credit unions.

Roy Bergengren on the Dangers of Credit Union Professionalism

2014-04-10T19:06:00.000-04:00

Excerpted from Roy F. Bergengren's 1938 Soul: A Fourth Credit Union Book (pg. 65-66). Original emphasis in italics, my emphasis in bold:

"[I]t seems to me, among the fundamentals [of the credit union movement] is the basic simplicity of what we are trying to do. We learn in credit unions how to manage our own business; we are brave enough not to accept bad practices just because of their antiquity. Much precedent is nothing but uncorrected bad habit. We pioneer when we have to. We try--and successfully to--to build men and women in their self respect, in their capacity to reach out and up and to accomplish what they have hitherto never dreamed to be within the realm of their latent capacities. We belong with the masses of the people, not working on a level which is beyond their reach but working with each other and helping each other up to new levels which we thought to be unattainable. As we increase and multiply and grow in strength and in power; as our accumulation becomes increasingly great and our army swells to many millions--there will be those who cannot refrain from attempting our exploitation. We shall be told that we must employ experts for this and that; that we must delegate to those who might exploit us the opportunity for such exploitation. Some of our leaders will not know how to grow with the growth of their respective responsibilities. They will forget their humble origins and, forgetting how they emerged from the ranks, they may easily fall into the pitfalls of those who, not knowing how to use power, abuse it. We must not get lost to accountants, and lawyers and bankers; we must not become prone to call in professionals who, not knowing how to think credit-union-wise, will drag into our councils all of the bad thinking on which so many professional thinkers are trained. There must not be too many rules for in the complicity incidental to too many rules comes confusion as to the fundamentals. The credit union is the true democracy; it is the real hope of working people because it comes from and belongs to working people.

...

I know some splendid credit union treasurers whose credit unions are well managed, one man shows. The directors are rubber stamps; the credit committee sits idly by and leaves the matter of determining credit to the treasurer. Everyone leans on him and no one knows anything about the credit union except as he interprets the credit union, and, too often in the process of his interpretation proves conclusively that he doesn't know what a credit union is. The right credit union is the credit union wherein the average member has an understanding of his credit union in all phases of its potentialities of service.

If we are understanding we will not make mistakes like one I heard recently debated in a credit union league meeting; it was proposed that the law be amended to relieve the credit committee of all its obligations on unsecured loans and to give the treasurer arbitrary power to determine all loans up to one hundred dollars. The meeting hooted down the suggestion and we must be aware of suggestions for changes in our basic law which violates principles which are a part of the fundamental character of which I have been speaking."

Book Review - "Minding Our Own Business: Community, Consumers, and Cooperation" by Jennifer E. Tammi

2014-03-31T01:44:00.001-04:00

While doing some research on the roots of the contemporary banker campaign against the credit union tax exemption, I stumbled upon reference to an organization called the "National Tax Equity Association" (NTEA) in an old copy of the Credit Union Bridge from the 1950's. Curious for more information, I Googled the NTEA; the results were pretty slim pickings, with one exception: a link to a 50+ MB PDF file of a fascinating and engaging 2012 Columbia University PhD dissertation on the rise and decline of the organized consumer cooperative movement movement in the first half of the 20th century.

In Minding Our Own Business: Community, Consumers, and Cooperation, Dr. Jennifer E. Tammi starts off by examining the roots of the American co-op movement in the experiences of the labor and farmers' movements in the late 19th century, as well as in self-help efforts among marginalized populations such as African Americans and immigrants. She then goes on to discuss the establishment of the Cooperative League of the USA (CLUSA) in 1916 as a umbrella organization to advance the agenda of "Cooperative Democracy," which, according to founder Dr. James P. Warbasse, "is to be reached not by voting, not by sabotage, not by the general strike, nor through revolution or the class struggle, but by putting into operation co-operative democracy – first on a small scale, and then ever increasing and expanding." (pg. 90)

Tammi then proceeds to chronicle the fight between Warbasse's faction and the Communist Party (CPUSA) over the principle of political neutrality in the 1920's, as well as the rapid growth of the organization as the Great Depression drove people looking for alternatives to the existing economic order to form co-ops in unprecedented numbers. She then examines the rise to hegemony of a centralizing, bureaucratic, and increasingly conservative agenda among the leadership of the CLUSA that, she argues convincingly, eroded the local, particular social foundations of the constituent co-ops upon which the long-term viability of the cooperative movement rested. As a result, by the early 1960's the consumer co-op movement was in steep decline, and the CLUSA (which changed its name to the National Cooperative Business Association in the 1980's) was a shadow of its former self.

While reading Tammi's work, I was repeatedly struck by the parallels between the trajectory of the primarily consumer co-op movement represented by the CLUSA and the credit union movement. First, both got underway around the same time, and both experienced substantial growth during the Depression of the 1930s. Second, both movements saw influence shift from leaders with a "movement" orientation to leaders with a "business" orientation by the 1940's, when Warbasse acceded to the centralizing agenda being pushed by CLUSA executive director E.R. Bowen and Roy Bergengren was pushed out of CUNA and into exile in Vermont. Finally, much of Tammi's description of the collapse in member involvement in the consumer co-ops as the movement consolidated in the 1950's could just as easily be describing the member involvement crisis faced by the contemporary credit union movement, where organizations with hundreds of thousands of members often have to rely on employees just to met annual meeting quorums. On that topic, I found the following passage particularly striking:

E.R. Bowen and others failed to understand that when they sought to reorganize [and centralize] the movement, cooperators who were most loyal to their cooperatives would feel alienated. The most successful cooperatives also tended to be homogeneous. Sharing similar backgrounds and cultures made it relatively easy for the members to work together and make group decisions, and for leaders to engage members in local issues and neighborly events. In other words, it made grassroots democratic participation accessible. But somewhere along the line, leaders and cooperators alike forgot how essential it was to the success of the movement overall. The shift to the top-down structure eliminated the very things that made cooperatives beloved, and therefore successful.

Once the movement stopped fostering the bonds of community and the local values that made cooperation so enticing in the first place, it lost much of its potency as an agent of social and economic change. As the cooperative movement’s national and international aspirations grew, it served less to unite all consumers according to their shared interests as consumers, but rather to erase the elements of cooperation – social, cultural and economic – that had endeared them to their members and in turn gave them strength. (pg. 194-5)

In sum, Minding Our Own Business is a critical contribution to the generally sparse American co-op history literature, offering an accessible starting point for anyone interested in digging into the origins of the consumer cooperative movement prior to the 1970's "2nd Wave" of food co-ops. Additionally, given the strong parallels, a knowledge of the CLUSA's development is vitally important to understanding the historical trajectory of its sister credit union movement, especially in light of the extensive correspondence carried on between Bergengren and Warbasse, as well as other leaders. On top of all that, Tammi is a skillful writer and peppers the text with interesting photographs and quotations, making the read not only educational but positively enjoyable. Given all this, Minding Our Own Business should be at the top of the reading list of anyone interested in co-op and credit union history.

Labor Unions in the African American Credit Union Experience: Oral History Tour Take-away #1

2014-03-25T20:57:00.001-04:00

After a month on the road interviewing African American credit union elders (and doing some archival research on the side), I finally returned home to Vermont last Friday with my head full of ideas, observations and insights gleaned from the journey. While I have a feeling I'll be continuing to process the full implications of what I've just experienced for some time to come, I figured I'd write a few posts in the coming days on some of my take-aways. First up: Labor Unions in the credit union movement.

When thinking about credit unions for which the place of employment is the common bond, prior to the trip I'd mostly bought into the assumption that they essentially fulfilled a human resources function for employers. While the credit union I wrote my Masters thesis about was founded by a labor union, I'd assumed it was an anomaly, and that most employer common-bond CUs were rooted in a certain level of employer paternalism.

However, as my trip progressed, it became increasingly clear that the significance of the role played by labor unions in at least African American credit union history, and possibly the history of credit unions more generally, has been distinctly under-recognized. Upon reflection, I believe that this is partly the fault of the fact that the most easily accessible documentary sources from the early movement, such as many of Roy Bergengren's books, were often promotional materials aimed at convincing employers to offer credit unions free space in their facilities, and thus played up the human resources angle.

However, a theme that emerged in many of the interviews I conducted over the course of my trip was the important role played by labor unions in both the establishment and governance of many of the credit unions I encountered. To start with, my very first interviewee, Milton Carr, was not only the former president of the Arabi Sugar Workers FCU, but had also been a union officer prior to his retirement. One has to be a member of the union at the plant to join the credit union, and he was quite explicit about the ways in which the credit union benefits the bargaining position of the union by contributing to the financial stability of the members, as he lays out in the following clip concerning his credit union's "strike fund" savings program:

After leaving New Orleans, my next encounter with the credit union/labor union connection was in Shreveport, where I interviewed Martha Morris, who is a VP at Shreveport FCU. Ms. Morris got her start as a worker at a plywood plant in northern Louisiana, and learned about credit unions while on a union-sponsored trip to Wisconsin. She then got involved with helping get the credit union started, and ran it out of her living room for the first several years, the experience of which launched her into a credit union career.

Also in Shreveport, I learned a bit about how credit unions could cut both ways in terms of workplace power dynamics. When present Shreveport FCU CEO Helen Godfrey-Smith started with that credit union in the early 1980s, its primary common bond was municipal employees. To get a loan at that time, an employee would need to obtain a signed permission slip from a supervisor, which provided those managers with an useful tool for enforcing workplace discipline. Ms. Godfrey-Smith eliminated that requirement as one of her first acts as manager, but its existence suggests how credit unions have served as a point of conflict in struggles between labor and management.

Such a conflict became quite explicit in the case of the Municipal Employees Credit Union of Baltimore, Maryland. According to board chair (and retired Baltimore Fire Chief) Herman Williams, Jr., his credit union has traditionally reserved a board seat for a representative of each major city department, and the person filling that role has tended to be the head of that department. However, a number of years back, as part of a conflict between the police union and the police commissioner, a union representative ran against the commissioner for the police seat and won.

An even more robust role is performed by unions in the case of the Municipal Credit Union of New York City. While I did not get a video of our conversation, MCU board member Mark Brantley and I discussed the topic over lunch while I was in New York. According to him, the unions' ability to mobilize their members to vote in board elections means that they wield substantial influence over the governance of that credit union.

The fact that about half of the people I interviewed over the course of my trip mentioned labor unions' involvement in their credit unions in some way seems to suggest against the conventional wisdom that the only thing the two institutions share is a name. To the contrary, both were created with the goal of improving the economic lot of working people and, upon consideration, it makes sense that their histories would be intertwined. Just how intertwined they were, and whether those connections were more common in the African American credit union experience than in other wings of the movement, remains unclear, however, which suggests some interesting future lines of inquiry...

Oral History Tour Stop 3: Helen Godfrey-Smith and Martha Morris of Shreveport FCU

2014-03-10T22:38:00.001-04:00

March 4th, 2014

In the preparation for the trip, one person I’d been in extensive contact with was the CEO of Shreveport FCU, Helen Godfrey Smith. One of the founding members of the African American Credit Union Coalition, Ms. Smith took an interest in African American credit union history several years ago, and was the driving force behind the exhibit at America’s Credit Union Museum. Given that the community of people in the U.S. who are doing work on the history of the credit union movement can be counted on one hand, I was excited to have the opportunity to meet Ms. Smith in person, and rolled out from Jackson towards Shreveport for a late afternoon meeting.

When I arrived, the location stood in stark contrast to that of my last interview; instead of half a shipping container, the Shreveport FCU headquarters occupies a substantial two-story building in a commercial part of town. After checking in at the front desk, I was ushered up stairs and to Ms. Smith’s office, where she and VP Martha Morris awaited me. After briefly discussing my project and previous interviews, I set up my camera and began my interview with Ms. Smith, which covered a great deal of ground, including, among other topics, her background, maintaining a sense of community in the face of growth and consolidation, segregation in the early movement, the African American Credit Union Coalition, and the challenges of the regulatory structure.

Once we concluded, Ms. Smith encouraged Ms. Morris to fill me in a bit about the process by which her credit union had merged with Shreveport, and I did a short interview with her, during which we also discussed how she first got involved with credit unions when she ran one as a volunteer while working at a unionized plywood plant, and her sense of the challenges facing the contemporary movement.

Oral History Tour Stop 2: Clarence Hall, Jr. of the Issaquana County FCU

2014-03-06T15:51:00.000-05:00

March 3rd, 2014

For the second interview of my African American elder oral history tour, I headed west from the Jackson home of my gracious CouchSurfing hosts into rural Mississippi. Upon turning north off I-20 near Vicksburg, I found myself on a road that tracing the contours of the enormous earthen levees that shield the area’s expansive, seemingly endless cotton fields from the excesses of the Mississippi river. After about an hour in which the major road hazard consisted of flock of birds lazily congregating on the road, I arrived in Mayersville.

Consisting of a few hundred houses clustered literally in the shadow of the levee, the town is the modest seat of one of the poorest and least densely populated counties east of the Mississippi. The largest building in town is the County correctional facility, and as I turned into town, the signs quickly made it apparent that much of the newer housing stock had been been built with federal money. I pulled into the parking lot of the University of Mississippi Agricultural Extension building and gave a ring to Sherida, the credit union book-keeper who’d been my contact in setting up the interview. It turned out that she worked right across the street, and I followed her car a few blocks to the Issaquana County Federal Credit Union.

Housed in a small trailer about half the size of a shipping container that barely contains two desks, the credit union has been in operation since 1969, when its current 89 year old President, Clarence Hall, Jr. helped establish the institution. Sherida introduced me to Clarence then headed out. It being an unseasonably cold day for Mississippi (in the mid-20s), he had an ancient electric space heater running, and so we huddled our chairs around it, chatted for a few minutes about my project, and then began the interview:

CU Oral History: Milton J. Carr, Jr. of the Arabi Sugar Workers FCU

2014-03-01T22:36:00.001-05:00

Yesterday marked the start of my African American credit union oral history tour, and I was fortunate to kick off the project by meeting with Milton J. Carr, Jr., the former president of the Arabi Sugar Workers Federal Credit Union. In addition to being a retired sugar refinery worker, union officer, and credit union volunteer, Mr. Carr is quite the history buff who has been building a second career over the last decade as an historical tour guide. As a result, over the course of our discussion at his dining room table, he provided a fascinating historical sketch of the African American experience in the city and his native Lower Ninth Ward which offered invaluable context for better understanding the dynamics and story of his credit union. We covered a lot of ground in our conversation; check it out!

Discussing the Upcoming Credit Union Oral History Tour on Cooperative Vermont

2014-02-23T23:40:00.003-05:00

Support the project!

1956 - Credit Union Democracy Cartoon

2014-02-22T22:09:00.001-05:00

A cartoon addressing the perennial credit union challenge of member participation in governance from the January 1956 issue of the Bridge:

Coming African American Oral History Tour!

2014-02-19T14:30:00.000-05:00

Watch out, dear reader, this blog is about to get quite active! Last week I finished up at my day-job and, to celebrate, I will be embarking on a journey through the South to conduct oral history interviews with African American credit union elders. My trip will start in New Orleans at the beginning of March, and will then proceed through Mississippi, Alabama, Atlanta, North Carolina, Richmond, Va., and Washington D.C. I've already obtained some good leads for interviewees, but if anyone has suggestions as to people to at to my itinerary, please get in touch!

My plan is to take video of the interviews and, after some light editing, post the videos to my Youtube channel. I will also try to write a short summary of my experience at each of my stops which, along with embedded video, will be posted on this site.

Finally, while I'm going to be doing everything I can to minimize expenses, this project will cost some money, so if you are interested in the topic and could kick in a few dollars towards train fare, etc., you can visit the crowd-funding page here and Bitcoin donations can be sent here: 16uLVGBZk45UEmTKYhdqWaviE5zJKA12R4

Onward!

Martin Luther King, Jr., Credit Unionist

2014-01-20T16:46:00.002-05:00

While reading Paul Thompson's historical novel The Credit Union Woman a while back, I was struck by an aside about how, during the Montgomery Bus Boycott, an attempt was made to form a credit union. Since then, I've been wondering about what came of that initiative, and today being Martin Luther King Day felt like a good reason to do a bit of research on the topic.

The boycott itself persisted from December 1, 1955, when Rosa Parks refused to give up her seat, until December 20th, 1956, when the Supreme Court ruling ending bus segregation took effect. In that time, African Americans in Montgomery got intensely organized under the umbrella of the newly formed Montgomery Improvement Association (MIA), which held regular mass meetings and brought together leaders from a broad cross-section of the community. While the impetus for that organization's establishment was handling the logistics of the boycott, it also became a vehicle for advancing other civil-rights related projects, one of which was a credit union.

The first mention I could find of the MIA advancing the idea of forming a financial institution is in a May 24th, 1956 document entitled "Recommendations to MIA Executive Board," in which King lays out a series of restructuring suggestions for the organization. Among these ideas, which were approved by the Executive Board on May 30th, includes the recommendation that:

In order to valuably utilize the present relaxed phase of the bus situation and capitalize on the prevailing enthusiasm and amazing togetherness of the people, a strong emphasis shall be placed on ... increasing our economic power through the establishment of a bank. ... The Banking Committee [co-chaired by Ralph David Abernathy] shall meet immediately and make application for a charter through the Federal Home Loan Bank in Greensboro, North Carolina. If the charter is denied at this level a committee shall be immediately sent to Washington to appeal for a charter through the head office of all savings and loan banks. The program committee shall be requested to allot more time in the mass meeting to the voting and banking committees for purposes of the idea over to the people.

In the months that followed the idea of forming black-owned financial institutions apparently continued to percolate. In an essay written immediately following the Supreme Court decision that ended legal racial segregation on the buses in December, King expressed that two of the MIA's six "continuing goals" had to do with finance:

1. To establish the first bank in Montgomery to be owned and operated by Negroes. We have found that in the present situation many Negroes who are active in the protests have been unable to secure loans from the existing banks.

2. To organize a credit union. As a result of the protest, there is a strong desire among the Negroes to pool their money for great cooperative economic programs. We are anxious to demonstrate that cooperation rather than competition is the way to meet problems.

According to a footnote in the May 24th document, the MIA abandoned the idea of chartering a bank shortly thereafter, having learned that they would be required to front $400,000 to obtain a charter. The credit union project continued apace, however, and on February 24th, 1957, a widely circulated Associated Press article reported that "Rev. Harold Clement[s], chairman of the MIA's credit union committee, said an application has been filed for a federal charter and 'we expect to get approval in two weeks or so.'"

Unfortunately, Clements was overly optimistic, and their application was rejected by the Bureau of Federal Credit Unions in 1957, and again in 1959 due to, according to another footnote, "policies prohibiting charters for civic groups." Despite these setbacks, however, King's interest in the credit union model remained strong. When he took up as pastor of Atlanta's Ebeneezer Baptist Church in 1960, he made the following recommendation to the congregation:

In order to instill the idea of thrift in our members and reveal the concern of the Church for the economic life of man, a committee shall be appointed to organize a Credit Union. [emphasis in original] This Committee will immediately seek to secure a federal charter. It is hoped that every member will become associated with this Credit Union, and that it will become a powerful economic agency in the community. The need for such an institution in our Church is unquestioned. It will serve as a channel through which members can save money, and it prevents them from having to go to downtown finance companies to make loans for exploitative interest rates. Actually when the individual makes a loan from the Credit Union of which he is a member, he is borrowing from himself.

The project apparently didn't come together immediately, King's father and co-pastor reiterated the call in his recommendations for the 1968-1969 year, stating that "in order to instill the ideas of thrift in our members and reveal the concern of the church for the economic life of man, a committee shall be appointed to organize a credit union." As a result, the Ebeneezer Credit Union was established in 1971 as part of a wave of Black Church Credit Unions that took root in that era.

In any case, the above was about what I was able to track down with Google and an afternoon's work, so there's much left that I'm curious to learn more about, especially where the papers of the MIA's Credit Union Committee might be housed, and what happened to the Ebeneezer Credit Union. Fortunately, I will hopefully have a chance to find some answers on my coming trip in March, when I plan to take a train across the South conducting oral history interviews with African American credit union elders. If you, dear reader, happen to have any relevant information as to sources (or interviewees) please leave a comment or otherwise get in touch!

The McCarthyite Roots of the Campaign to Tax Credit Unions.

2014-01-10T22:05:00.001-05:00

While working my way through Dorfman's masterful history of the credit union movement in Pennsylvania, I came across the following passage, which I think provides some useful historical context to the current political scrape over the tax-exempt status of credit unions:

Through the early 1950s, CUNA ... faced two major legislative issues. Most critical was an attack on the tax-exempt status of credit unions led by various private groups that opposed cooperatives in general and tax-exempt cooperatives in particular. Simultaneously, many state and local governments looked at credit unions as potential sources of additional tax income.

Attempts to repeal the tax exemption of federal credit unions were made in 1951 and 1953. This campaign may have been related to the general "red scare" of McCarthyism that swept the nation during and after the Korean confrontation. In any case, the two bills attacking the tax-exempt status of federal credit unions introduced in the 82nd Congress were not successful. (315)

This narrative seems to lay bare the hypocrisy of the present American Bankers Association campaign to tax credit unions. At the moment, the primary banker argument is that the tax exemption is "outdated" and was originally intended to benefit small credit unions, so they have been proposing that only mid-to-large asset-size credit unions should be taxed. However, back in 1951, when the credit union movement was made up almost entirely of the former type of small-scale organizations, the bankers not only wanted them taxed, but were willing to stoop to McCarthyist demagoguery to advance that goal.

This fact that bankers have been gunning for the credit union tax exemption since the days when most credit union "staff" were volunteers and a "branch" was more likely to be a lock-box in a church basement than a brick-and-mortar store-front belies the lip service they've recently been paying to small credit unions in their attacks on the movement. For several generations, it seems, a major goal of the banking lobby has been to maximize their shareholders' profits by hobbling the spread of the democratic, cooperative model of finance. They were able to bring the mutual savings banks to heel by the 1950s, and the 1980s saw the demise of the S&Ls, but credit unions not only survived, but are growing, and now provide 96 million Americans with a direct stake in their financial institution. As such, the above quote demonstrates that most recent banker campaign should not simply be understood as an isolated controversy primarily driven by the needs of the moment, but it should rather be seen as the latest skirmish between the forces of economic oligarchy and economic democracy in a conflict over the structure of the financial system that is more than a century old.

John McCullough on the Ultimate Goal of the Credit Union Movement (1960s)

2013-11-30T22:04:00.000-05:00

From "Credit Union Philosophy: Some Implications" by John McCullough, who was the president of the Pennsylvania Credit Union League from 1966-1968. Published some time in the 1960s, found excerpted on page 353 in But For Service: A History of the Credit Union Movement in Pennsylvania by Mark H. Dorfman.

The ultimate goal of the credit union movement is that each man should be master of his economic situation rather than its servant. It is where economics and democracy come together that the credit union can exist; it is to keep these two together that the credit union does exist.

The democratic nature of the movement must be preserved. It can and should be implemented in such a way that it will achieve economic efficiency. The movement as a whole can and should offer to credit unions and their members all the services they need, including the unique informational service of the credit union and all the collateral services which are usually offered by other financial institutions.

Our task then is to keep our organized movement both democratic and efficient."

Primary Source: Roy F. Bergengren's Death Certificate

2013-09-23T18:18:00.000-04:00

Given his place in the history of the American credit union movement, I found myself thinking this morning that it'd be appropriate to do something the commemorate Roy F. Bergengren's birthday. However, after poking around a bit, I realized that such a date was nowhere to be found on the internet. Fortunately, I knew he died in Vermont, so, after a bit of poking around, I was able to find a copy of his death record, which reveals that he was born on June 14th, 1879 in Gloucester, Massachusetts, and that he was buried in Forest Hills Cemetery in Boston. Any fellow history nerds want to join me on a pilgrimage to Massachusetts next June to honor "the Chief"?

1951 - Quote on the Purpose of the Credit Union "Common Bond"

2013-06-17T21:08:00.001-04:00

The following quote is excerpted from Richard Y. Giles' 1951 history Credit For the Millions: The Story of Credit Unions, which bears the endorsement of the Credit Union National Association (CUNA):

The purpose of limiting membership is to create a little community in which people know each other well enough so that they can lend money to each other on character without paid investigators, collections agents, and the usual paraphernalia of the small loan business. Democratic control of the credit union is safeguarded by the fact that each member has only one vote, thus avoiding domination by a few large investors. This, too, helps make it intimate.

There are credit unions in large industrial plants with thousands of members and equally large credit unions serving municipal employees in big cities. Here the intimacy of the membership does not amount to much. Office space is rented, real estate taxes are paid, and paid employees may number several score. Still the credit union is able to charge the same low interest rates, pay reasonable dividends on saving, and provide insurance on loans and shares, simply because despite its size the credit union is motivated by the desire to serve its members rather than make a profit from them. The directors and officers continue to serve as volunteers out of the public spirit. Among the elected officers only the treasurer's work is paid. (25)

Book Review: The Black Church Credit Union by Perry E. Henderson, Jr.

2013-06-03T23:15:00.000-04:00

Written by an African-American Baptist pastor for his Doctor of Ministry dissertation at the end of the 1980s, The Black Church Credit Union is an incredibly rich and fascinating source. Its author, Perry E. Henderson, Jr., was the latest in a long lineage of prominent black clergymen that stretched back to the Civil war, and his father was instrumental in launching the church’s credit union. Motivated in part by the fact that the institution was put on probation for a high numbers of defaulting loans in the catastrophic economic environment of downtown Dayton, Ohio in the early 1980s, the book is structured around a twelve week long “consumer education workshop” that Henderson designed for his capstone project.

The book begins by providing an overview of the historical forces, such as the experiences of slavery and racism, that uniquely shaped the communities that congregated in black churches. African Americans are unique, he argues (following a line of thinking that stretches back to W.E.B. Dubois), in that they have been both “forbidden to be African and never allowed to be American,” (14) so a great deal of their sense of belonging and community has been provided by their churches. As a result, the centrality and influence of those churches means creates an imperative that they take a leading role in facilitating the healing and advancement of their communities, for which task the credit union model is eminently suited. He then goes on to make arguments in favor of the credit union model within the frameworks of the Christian concept of "Stewardship" and traditional African communalism.

As a result, the curriculum of Henderson’s workshop (a detailed outline of which serves as the book’s conclusion) goes far beyond the standard sorts of courses that many credit unions offer to their members. In addition to the predictable discussions of “budgeting” and “applying for a job,” participants delved into topics such as Black Theology, the history and practice of the credit union model, and “One Covenant Under God Sharing Economic Resources.” Drawing on the complex history and identity of his church's community, the course not only aims to make its participants more informed consumers (and thus better credit risks), but also to make them more knowledgeable and committed members of the community that forms the credit union's common bond.

This sort of symbiotic relationship between the credit union and its founding community, in which strengthening one strengthens the other, is characteristic of what historian Ian MacPherson has referred to as the "populist culture" in credit unions, which is interesting to see in the context of the late 1980s. The number of credit unions in the United States peaked in 1969, and the movement's further growth came in the form of consolidation, as credit unions merged to achieve economies of scale, which had the unintended consequence of diluting their attachments to their founding communities.

As such, Henderson's promotion of populist credit unionism during a period of its precipitous decline is particularly interesting. Although a great deal more study is needed on the topic of African American credit unionism, the book hints at the possibility that the developmental trajectory of African American credit unionism may have differed substantially from that of the white-dominated movement. As David Beito notes in From Mutual Aid to the Welfare State, while white fraternal mutual aid organizations were largely crowded out by the welfare state starting in the 1930s, the racist socio-economic order meant that black fraternal orders and churches were taking an almost exclusive role in meeting the needs of African Americans in the South well into the 1960s. Could a similar dynamic have been at play in the credit union world, delaying the onset of managerial domination that had pretty much consolidated itself in the main-line credit union movement by the early 1990s?

Despite its brevity (weighing in at a mere 118 pages), The Black Church Credit Union is an incredibly rich source. Bouncing between discussions of the Deuteronomic Covenant, African communalism, credit union history, the historical roots of black theology, and economics, Henderson offers the reader a fascinating window into a branch of the credit union movement that is too-often omitted from the official histories. Not only should it be considered essential reading for those interested in further investigation of the history of African American credit unionism, but it also offers useful insights to anyone interested in cultivating a deeper understanding of the dynamics "populist" credit unionism in any context.

A Few Updates

2013-05-06T08:23:00.001-04:00

As I've been recently busting my butt getting Cooperative Vermont (a cross-sector initiative) off the ground, Credit Union History has been back-burnered as of late. However, in the last few months there have been some interesting credit union history related developments, so I figured I'd throw out a few quick updates:

Paul Thompson's new book on recent credit union history is out! I reviewed the manuscript a little while back, and the final product is a solid work of history that should be on the reading list of every American credit union board member and employee.
Jeff Hardin has started a project looking into the history of African American credit unionism in North Carolina. Check out this CUiNsight post for more info.
"The American Credit Union Industry Still Embodies Its Founding Values" by Stuart Levine is an interesting essay that draws a strong connection between an understanding of CU history and the movement's present values.

As for this site, one of my goals for the summer is to really delve into the pile of old issues of the Credit Union Bridge that have been occupying my book-shelf, so stay tuned for any gems that might turn up... :)

Time Banks: A Powerful Tool for Building Social Capital in Credit Unions and Cooperatives?

2012-12-08T23:53:00.000-05:00

As I've discussed previously in greater detail, the strength of the sense of community that members experience in their credit union/co-op has a huge impact on their level of identification with the organization. This level is important because, the more that members internalize the fact that they are member-owners of an organization rather than its customers, the more their skills, energy, and relationships can be mobilized in support of their co-op's goals and interests. For example, a member who barely identifies with his or her co-op will be much less likely to, say, contact his or her Congressional delegation to encourage them to support Member Business Lending legislation than a member who has a clear sense of ownership of, and belonging to, the organization.

As such, I believe that one of the most important challenges facing contemporary credit unionists is the development of methods by which the collapse in the social capital that accompanied the post-1969 trend of credit union professionalization can be reversed. In the above-linked essay I proposed one strategy: democratizing community giving. In this piece I will propose a second, parallel opportunity: time banking (see the below video for a brief introduction to the concept).

I made this connection at the Vermont New Economy Conference last week, when, after the Cooperative Vermont convergence, I decided on a whim to attend the session on time banking. I'd heard of the concept before, but had never really given the model much thought. Happily, the presentation and subsequent discussion were extremely illuminating, and it quickly became apparent to me that time banks could be a powerful tool for strengthening the web of members' social inter-relations (i.e., social capital) within a cooperative organization.

Practically, a co-op/credit union time bank could work as follows. Using one of several existing open-source platforms, the organization would set up a time bank on a section of its website and create accounts for all of its members. Members would then have the opportunity to post both services they'd be willing to perform, as well as things they need done, and they would be able to use the site to keep track of how many hours they'd given to, and received from, others. As all of the participants would be co-op/credit union members and the system's infrastructure would be administered by the institution, every helping act facilitated by the time-bank would thus serve to increase the salience of the participating members' relationship with their co-op, while also increasing the organization's overall social capital by fostering new intra-membership relationships that had not previously existed.

In any case, the proof will be in the pudding; at the end of the session, a group of folks from my town got together and decided to develop a proposal to attempt to implement such a system through one of our local cooperative organizations. We'll be pitching it to the board on the 17th, so keep your eye out for updates as the project progresses!

Artifact: New Jersey Credit Union League "Little Man" Glass

2012-10-26T12:15:00.001-04:00

Knowing my love of all things credit union, my partner recently went on Etsy to find me a birthday present. After a bit of browsing, she stumbled upon a New Jersey Credit Union League glass that some crafty person had turned into a scented candle. Probably made in the 1960s or before (since the "Little Man with the Umbrella" was retired as an official logo in the middle of that decade), the glass is a nifty window into the past, and I'm looking forward to using it to toast the memory of Bergengren once the candle is kaput...

North America's First Credit Union: Reflections on a Visit to the Maison Alphonse Desjardins

2012-08-26T13:42:00.001-04:00

Ever since I first became interested in the history of the credit union movement, I've wanted to visit Levis, a suburb of Quebec City and home of the very first credit union in North America. Founded by Alphonse Desjardins in his home as the Caisse Populaire de Levis in 1900, the model pioneered in Quebec quickly spread and was instrumental in the establishment of the American movement.

However, in American historiography, the French Canadian element of the credit union story is treated as something of a prologue, and tends to conclude with Desjardins' meeting with, and inspiration of, Edward Filene in 1908. After that moment, the focus of the dominant narrative shifts to the work of the Filene / Bergengren team in the United States. While their story is vitally important to understanding the nature of credit unionism in the US, I've been quite curious to learn more about the work, life, and legacy of Desjardins.

Happily, I got just that chance during a recent family vacation to Quebec City, when I was able to convince my parents and partner (with promises of micro-brews and chocolate) to accompany me on a ferry ride across the St. Lawrence to Levis. The town itself, situated at the top of a steep cliff, has long been a working-class suburb of the provincial capital and, after climbing the long set of stairs leading up from the ferry dock, we headed towards the steeple of the Catholic church.

The stately white house's location at the edge of the church green was clearly convenient for members whose common bond was the parish, and the building is now prominently marked with a sign identifying it as "Maison Alphonse Desjardin." When we arrived, we were greeted at the door by an enthusiastic and knowledgeable bi-lingual docent named Patrick Lafrance, who took us on the (free) tour as soon as we arrived.

The house itself has been restored, thanks to the financial support of the Desjardins Caisse Populaire federation, to how it would have looked in 1906, and our guide mixed a great deal of fascinating Quebec social history into the tour, including a discussion of the distribution of electric lamps in the house (electricity was put first in rooms that could be seen from the street) and the black cross hanging in the kitchen (a symbol of the Catholic temperance movement, of which Desjardins was a supporter). Many of the artifacts in the house were original, and in each room our guide filled us in on the origins, functions, and social meaning of a great diversity of items, from cutlery to furniture to wallpaper.

The First CU Office!

After touring the other rooms in the house, through which the social, economic, and cultural context of North America's first credit union was established, our final stop was the small office out of which Desjardins and his wife, Dorimene, ran the Caisse Populaire de Levis in its formative years. Our guide made a point to emphasize how critical Dorimene was to its success, since Alphonse's job as the French language reporter for the Canadian Parliament meant he lived six months out of the year in Ottawa. As a result, Dorimene was primarily responsible for the successful operation of the Caisse for long periods of time, and she is now remembered as its co-founder.

Toking for Economic Democracy?

On the original desk sits the original ledger-book, a handsome, leather-bound volume that covers the years 1901-1908. Also heavily present in the office (and scattered around other parts of the house as well) are numerous pipes. According to our guide, it is believed that Desjardins bought himself a pipe for each Caisse he helped successfully found, which was well in excess of one hundred. Many of the books in the space are also original, although his correspondence has been moved to the archives of the Desjardins federation (which is also in Levis).

After thanking Patrick, purchasing pretty much everything available in the gift shop, and getting some amazing chocolate-dipped ice-cream at Chocolat Favoris, a shop a couple blocks from the museum, we hopped on the ferry and returned to Quebec City. However, leaving Levis did not mean our encounters with Desjardins' legacy were over; rather, unlike the American credit union pioneers, he has achieved a significant and recognizable place in Quebec's historical consciousness.

Fancy seeing you here...

The first real indication of this came as we walked through the streets of the old city from the Ferry back to our hotel. En route, we encountered an enormous, multi-story mural portraying historically important people from various eras on the streets of Quebec. It was quite the spectacle, so we stopped for a few minutes to take it in. As we examined it, we suddenly noticed a familiar face, and went over to look at the guide. Sure enough, Alphonse Desjardins was standing next to Samuel de Champlain, the French explorer widely credited as one of the founders of Quebec. In an American context, this would be like seeing Edward Filene or Roy Bergengren portrayed in a mural as a figure of equivalent importance to Lewis and Clark or George Washington.

This sense of the prominent place of Desjardins and the caisses populaires in the historical identity of Quebec was further confirmed the following day when we visited the Quebec history exhibit at the Museum of Civilization. In an exhibit whose subject stretched from the indigenous pre-history of the First Nations to the recent near secession from Canada, fully half of the display on the development of banking in Quebec was focused on the caisse populaire movement (including an original teller counter, sample checks, passbooks, ledgers, etc.), and visitors could listen to an audio version of one of Desjardins' speeches.

While I learned a great deal about the history of the Quebec credit union movement and Desjardins in particular, the biggest revelation to me from my journey was the weight given to the man and movement in the popular understanding of the province's history. In the United States, credit union history can hardly command a footnote in obscure academic journals, while, in Quebec, the movement's founder can be found painted larger than life in public murals and is well featured in the province's most prestigious history museum. Why the difference?

While there is much in-depth comparative work to be done, I think the relative historical prominence of the two societies' cooperative banking movements can be attributed to two major factors. First, the caisse populaire movement in Quebec was given nationalist meaning by many Francophone people itching under the domination of Anglophones. As the first Canadian banks were owned by the English elite and tended to put those interests above the interests of more working-class Francophone Quebecers, the caisses populaires were not simply ways for working class people to obtain credit, but they were also understood to be building a francophone financial system that could challenge the economic hegemony of Anglophone elites. Add to that the early movement's deep ties to the Catholic Church, which was a core Francophone institution (Anglo elites tended to be Protestant), and it is easy to see how credit unions in Quebec have gained historical importance due to their connection to one of the province's most long-running and central social tensions.

Second, it seems that the Quebec movement has promoted its historical importance in a much more intentional and strategic way than has the American Credit Union movement. Where the American movement's history museum was founded only recently, and is so woefully underfunded that its director spends much of her time doing financial, rather than historical, education, the Mouvement Desjardins has been solidly and consistently promoting its history for decades. Not only is their museum well funded enough to have full-time docents available to greet all comers, but they also employ two full-time historians whose research on Desjardins and the movement have yielded numerous resources both scholarly and popular (including comics books on Desjardins in both French and English). Without similar institutional support for their history, American public understanding of the deeply meaningful contributions credit unions have made to our society is virtually non-existent, and our movement's public standing is thereby substantially lessened.

In sum, I highly recommend a visit to the Maison Alphonse Desjardins, should you ever get the chance. Not only does it leave its visitors with a deeply enriched understanding of the origins of the North American credit union movement, but it also demonstrates the opportunities that can be cultivated when a movement decides to take the task of stewarding its legacy seriously.

The view from Levis ain't bad, either... All photos courtesy of Allison Curran

Roy Cropp and the Lawrence Educators Credit Union

2012-08-02T20:19:00.000-04:00

Though my professional interest in the history and organizational dynamics of credit unions developed later in my life, my first awareness of the existence of the cooperative institutions was the result of my paternal grandfather, Roy Cropp. A high school guidance counselor by profession, Roy spent several decades as the part-time manager of the Lawrence Educators Credit Union of Lawrence, Kansas, and his going out to work in the office several nights a week was a consistent element of my father's childhood. Since becoming interested in credit union history, I've been meaning to sit down with my grandfather and discuss his experience as a credit unionist, and my recent trip to Kansas presented just that opportunity.


Roy and Matt at the entrance of the original LECU

As with many credit union people of his generation, Roy Cropp became involved in the movement through his work. Having grown up on a Kansas farm during the Great Depression and Dust Bowl, he began his career at Lawrence High School in 1954 teaching vocational agricultural technology while simultaneously working on his masters degree in guidance and counselling. He was offered a job as a guidance counselor at LHS when he finished his degree in 1957, and he continued in that post until his retirement in 1990.

The office was on the second floor

A few years later, the Lawrence Educators Credit Union was founded to promote thrift and make credit available to the teachers of Lawrence's school system. The district provided the credit union with some office space on the second floor of the administrative building adjacent to LHS, and members would stop by to conduct their business from 4-6pm on Mondays and Wednesdays.

After five years of service to the credit union, its first manager retired, and the board approached Roy to ask if he'd take over. He agreed, but later recalled to me that he often regretted the decision during the first two years of his tenure. The previous manager had left the organization mired in debt, and Roy's first major challenge was getting the LECU back in the black. With some careful financial management, he was able to retire the debts within a few years, and he pledged to never again have the credit union borrow money. That conservative position sometimes put him at odds with the central credit union, which encouraged institutions with more loan demand than deposits to borrow to make up the difference, but Roy held firm and the LECU only lent from deposits for the whole of Roy's time as manager.

The LECU is now part of the KUCU.

By the mid-1980s, the growing scale of the credit union's operations, as well as the needs of the school district, led to the transfer of the LECU's operations from its little second floor office to another free, school district-owned facility about six blocks away. Nearing his retirement from his guidance counselling career, Roy stepped down as the LECU's manager in 1988. Shortly thereafter, the credit union followed the national trend and merged with a credit union affiliated with the telephone company. That credit union, in turn, joined the 66 Federal Credit Union, known locally in Lawrence as the KU Credit Union which, as of 2011, had 56,000 members and $595 million in assets.

When reflecting on his decades of experience in the credit union movement, Roy hit on few key points. First, he repeatedly emphasized the "people helping people" element of credit unionism. For instance, at several moments in his career he approved, despite the inherent risk and uncertainty, loans to female members going through messy divorces which helped them bridge the financial gap at an incredibly hard time in their lives. Even decades after his retirement, Roy mentioned that he is still regularly approached and thanked by people who received vital assistance from the credit union when they had no place else to turn.

Second, he emphasized that member ownership is the key element that has contributed to the success of credit unionism. For him, loyalty to that principle is what has allowed the "little man" to actively participate on equal footing with big players in building a secure financial life, and it also connects the credit union project to that of the larger cooperative movement.

This latter realization was driven home for Roy in the early 1980s when he and my grandmother, Wilma, went with a group on a two week tour of Scandinavia. While also visiting the usual tourist sites, Roy made a point of dropping in on a number of cooperatives and credit unions, and he was deeply impressed by the impact they had on the lives of people in those countries. Having been raised in a farm family and still deeply connected to agriculture, he quickly developed a solid appreciation for the positive influence of cooperative credit on farmers in those countries, and he observed in our conversation that "cooperatives were essential to the success of many of the people who I met there."

In sum, Roy Cropp's career as the part-time manager of the Lawrence Educators Credit Union from 1966 to 1988 serves as an example of what the Canadian cooperative historian Ian Macpherson has described as "populist" credit unionism. Driven by the volunteer (or minimally compensated) labor of people who believed in credit unions as more of a cause than a career (as they usually had other careers), it was the enthusiasm and hard work of countless people like Roy that transformed the credit union movement from a promising idea into a powerful network of institutions that has made economic democracy a part of the daily lives of tens of millions of Americans. Hearing the stories of such people has the potential to powerfully deepen our relationship with the rich inheritance that is the credit union movement.