Credit unions are controlled by their members and to eliminate the principle-agent problem the owners of a credit union are also its members. Commonly known as cooperative financial institutions credit unions are unlike banks and other companies that provide financial services to earn profit out of the customers. The difference that is most prominent is that credit union members own it and that is not the case with banks. The members of the union choose and select some members to form the volunteer board of directors.
Depositing money, taking loans and other credit union services are only allowed to members. These unions are established not only to help their members at the time of need but also to improve their financial conditions. The credit unions in different areas are basically non-profit organizations and they work to earn profits for their members. The interest rates charged by these unions are lower then most banks and they pay more dividends to their members then any bank would on similar investments.
These institutions are not allowed to accept donations and they should be able to sustain and survive in the highly competitive market economy. The services that these unions provide are similar to those of a bank but the names or terminology used is different. A credit union is not limited by size or number of members they can have only a few members and can also have as many as hundreds and thousands of members. The first credit union was established in 1852.
Government regulations require credit unions to have restricted membership that can be restricted using a number of criteria. The membership can be restricted to a group of people working together called workers credit union for example teachers credit union, living together in a certain geographical area called the city credit union, state credit union or the community credit union, attending school together called schools credit union and worshiping together called forum credit union etc in a certain geographical area. Employees working in a company can also form such groups.
In a credit union a person who is once a member will always be a member even if he quits the group on which the membership was based. Only if the member closes his account will he not be a member any more. Although these organizations only serve natural persons some credit unions that serve businesses also exist.
Ever since the first credit union was established banks and other financial sector companies have opposed them. The tension between the banks and unions has only been increasing over the years. As credit unions are non-profit organizations they are exempt from income tax and banks argue that these unions provide the same services as a bank and should be taxed as well. On the other hand unions argue that as their members are owners they are in no way like the banks. This credit union bank disagreement has not been solved for several decades now.
Navy Federal Credit Union
The navy federal credit union was established in 1933 and today it has grown to have over 2.8 million members. This credit union that started with only seven members has remained dedicated to its initial mission of performance excellence. Just like all credit unions this credit union also follows the same rule of once a member always a member. Even after you have left the military, retired and started working with another employer you can continue to be a member of navy federal.
This credit union pays higher dividends and helps people with bad credit repair their credit so that they can get cheaper loans. Navy federal gives you loans even with bad credit but they look for consistency in a borrower and loans are extended more easily to people who have stayed in the same job for the past two years at least. The experts at navy federal suggest that people with bad credit should stop taking loans for some time and wait till they pay back their existing loans and repair their credit rating. This credit union is considered to be one of the largest credit unions in the world and they offer unlimited options to their members.
The services of this organization are open to people from all walks of life but navy officials benefit the most from its services. The navy FCU offers the online services that are considered to be the fastest in the world.