Updated October 2021
What is a credit union?
Credit unions are not-for-profit financial cooperatives, serving members who share something in common: employment, association membership or residence in a particular geographic area. As member-owned, not-for-profit cooperatives, credit unions generally offer more attractive savings and loan rates and lower fees. They return earnings not needed for reserves or to invest in operations to the members through better rates and lower fees. This is an important distinction from how corporations are structured and generate taxable net income. Surveys consistently rank credit unions first among financial institutions in consumer satisfaction.
Philosophy and Structure
Because they are not-for-profit cooperatives, credit unions are democratically controlled by their member-owners. Credit union boards of directors are elected by members; each member has an equal vote, regardless of how much he or she has on deposit. Only members may serve as directors, and most directors serve without remuneration. Volunteers are an important credit union resource. Presently, more than 62,000 Americans are credit union officials.
Credit unions have no outside stockholders, so the focus is on providing the best possible value and service to the members, not generating profits for a different purpose. Credit unions’ mission is to support their members’ dreams through financial services that put their best interests first. That is the not-for-profit, cooperative spirit, and is what drives credit unions to be their members’ best financial partner every day. Credit unions continue to be the only financial services partners that put the financial well-being of the people they serve ahead of the bottom line.
Credit Union Facts
- 2.8 million Hoosiers are members of Indiana’s 147 credit unions.
- In Indiana there are 109 federally chartered credit unions and 38 state-chartered credit unions.
- Assets held in Indiana credit unions (6/30/21): $38.4 billion
- Loans made by Indiana credit unions (6/30/21): $25.2 billion
- Because they are not-for-profit cooperatives, Indiana’s credit unions provided their members $274 million in direct financial benefits during the 12 months ending March 31, 2021, through higher savings rates, lower loan rates, and lower fees compared against bank savings rates, loan rates, and fees.
- Indiana credit unions employee approximately 7,900 people.
- Nationally, more than 122 million Americans are credit union members. There are nearly 5,200 credit unions that provided members $14 billion in direct financial benefit during the 12 months ending March 31, 2021.
- Worldwide, credit unions in 118 countries are a stabilizing force that gives more than 291 million diverse members the opportunity to apply democracy and self-help principles within a member-owned organization. Credit unions stimulate economic growth by offering members safe and affordable access to credit and savings services.
Credit unions are locally rooted in their communities with deposits and loans staying local. The percent of bank deposits in our state controlled by out-of-state banks has risen to nearly 40%. Nationally, the 100 largest banks now control 75% of assets of all depository institutions, a percent that has increased from 41% in 1992. The credit union market share has increased from 5.6% to 7.8% during that period, so the community banks have lost their market share primarily to the large regional and mega banks.
Federal Tax Exemption
All Credit unions pay payroll taxes and property taxes, and Indiana state-chartered credit unions pay the same state Financial Institution Tax and sales taxes paid by banks. Congress exempts credit unions from federal income taxes. The exemption was established in 1937, affirmed by statute in 1951 and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:
"Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means."
Credit unions’ tax status is based on their structure—not their size. The Internal Revenue Code acknowledges that credit unions are recognized as tax exempt because they issue no capital stock and are organized and operated for mutual purposes. Under the IRS comments for 501(c)(14), Credit Unions and other Mutual Financial Organizations, the IRS provides a very clear link between tax exemption and the lack of capital stock.
The federal tax exemption helps credit unions provide a tremendous financial benefit to Hoosiers ($274 million in the 12 months ending March 31, 2021) and is a cornerstone of how credit unions operate as member-owned, not-for-profit cooperatives. It makes the benefits to consumers possible. The federal tax exemption is a great investment only “costing” the federal government $42 million in forgone potential tax revenue from Indiana credit unions. Nationally, if credit unions had been taxed in 2020, the receipts would have accounted for only .05 percent of 2020 federal spending funding federal government operations for only 4.3 hours.
Safety and Soundness
Because of their focus on their member-owners, credit unions not only pass on benefits directly to members, but they also are risk averse as the cooperative structure discourages excessive risk taking. Credit unions are less affected by the business cycle and are in a position to serve an important counter cyclical economic role in their communities when the economy faces hard times, as happened during the most recent financial crisis. Credit unions continued to lend to consumers, homebuyers, and small businesses when other lenders were unable or unwilling to do so.
Regulation and Supervision
Federally chartered credit unions are regulated by the National Credit Union Administration (NCUA), an independent agency. NCUA’s three board members are nominated by the President and confirmed by the Senate. State-chartered credit unions are regulated by the Indiana Department of Financial Institutions (DFI). No taxpayer money is used for regulating and overseeing credit unions, as all activities of NCUA and the DFI are funded by credit unions.
Credit union asset quality remains high. As of June 30, 2021, credit union capital, or net worth, was 10.06 percent of total assets for Indiana credit unions, while 7 percent is considered to be “well capitalized.”
Credit Union Services
Credit unions are full-service financial services providers. They were created to enable people to pool their financial resources to help themselves and others. In response to members’ growing financial services needs, credit unions’ products offered have expanded over decades to include a wide variety of low-cost, high quality financial services such as auto loans, real estate loans, member business loans, debit and credit cards and much more. Each credit union offers the services that are the most important to its own members.
For youth: Credit unions in Indiana take creative approaches to educating young Hoosiers about financial issues. For example, a Central Indiana elementary school has an on-site credit union, staffed by fourth graders, which is open one day each week. Several credit unions have student-run branches inside Indiana high schools and middle schools. In other communities, at the high school level, credit union staff members volunteer to teach curriculum they have developed themselves or curriculum provided by the National Endowment for Financial Education (NEFE). Credit unions have a national partnership with NEFE, an organization that provides a multi-part program, free of charge to schools, that includes curriculum on savings, lending, balancing a checkbook/account, an introduction to the stock market, how to buy insurance and other topics that are important foundation-builders to improve financial literacy.
For adults: Credit unions work with their members and partner with community organizations across the state to provide financial education to thousands of Hoosiers each year. Free seminars are the most common and popular way for credit unions to share various pieces of financial information with members. Presented by a combination of credit union personnel and community experts, the sessions are part of the foundation of financial literacy education for credit union members around the state.
Credit unions are deeply involved in their communities across Indiana. Indiana credit unions collectively support Riley Hospital for Children, the only hospital in the state associated with the Children’s Miracle Network (CMN). Indiana credit unions have been involved in Credit Unions for Kids for 20+ years and collectively contributed nearly $120,000 to the hospital last year. Charity organizations, school groups, food banks, literacy programs, and shelters of all kinds have also been the recipients of the generosity of Indiana’s credit unions. The Indiana Credit Union Foundation is the charitable arm of the Indiana Credit Union League, using contributions from individuals, credit unions and other organizations to fund projects, which benefit Hoosier credit unions including staff and volunteer training and disaster relief.