CREDIH‘ UNION L‘EEGESLATION

\

THESES FOR THE DEGREE OF M. A.-
M’iCHiGAN STATE CC’LLEGE

5.3310 F. SIKORSKI
19135

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0-169

   

CR EDIT UNION LEGISLATION

BY

LEO P. SIKOR SKI

A THESIS
Submitted to the School of Graduate Studies of Michigan
State College of Agriculture and Applied Science

in partial fulfillment of the requirements
for the degree of

MASTER OF AR TS

Department of Economic s

'/(’f

1955

(

Tween-

 

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H’)’99

ABSTRACT

Within the last ten years, credit unions in the United States
have assumed major importance as suppliers of consumer credit,
and as institutions where the working man may invest his savings.
As credit unions have grown in importance, there have arisen. gran-
diose claims for and against credit unions, in regard to their mode
of operation, and the legislation of them. This study was written
in an attempt to examine credit unions in order to substantiate or
refute these claims, with special emphasis being placed on Michigan
credit unions and the Michigan Credit Union Act.

Discussion begins with a section on the historical background
of credit unions, which includes the nature of a credit union, tracing
the development of credit unions in the United States since 1900, and
in Michigan since 1925, and a brief summary of the major provisions
of the Michigan Credit Union Act.

The protection of members‘ funds, provided by the existing
credit union legislation, is next examined by discussion of the credit
union legal requirements relating to membership and capital. loans,

reserves, supervision, and regulation by state or federal authority.

ii

363565

Credit union liquidations, both Michigan-chartered and federal—
chartered, are examined to determine the causes of liquidation in
order to discover whether or not these liquidations could have been
prevented by improved credit union legislation.

Regulation of financial institutions, performing functions sim-
ilar to credit unions, is examined to determine the validity of claims
that credit unions are operating under legislation which favors credit
unions, while discriminating against other similar institutions.

From the information presented and the recommendations
made, the author has endeavored to compile a list of suggested re-
visions applicable to any credit union bill, which, if adopted, would
improve both the safety provided for members' funds and increase
the operational efficiency of credit unions, while not attempting to
stifle their growth potential. The final pages of the study are de-
voted to suggested areas of further study, which the author believes

desirable, for future judgment of credit unions.

iii

ACKNOWLEDGMENT S

The author wishes to express his sincere thanks to Dr. Richard
W. Lindholm, under whose inspiration, supervision, and interest this
investigation was undertaken and to whom the results are herewith
dedicated.

Grateful acknowledgment is also due to Mr. Delmar C. Nagel,

Deputy Commissioner, State Banking Department; Mr. Ralph L.
Stickle, Executive Manager, Michigan Bankers Association; Mr. C.
J. McLanahan, Director of Training, Michigan Credit Union League;
and Mr. David Arsenault, Treasurer-Manager, Wyandotte Chemicals
Employees' Credit Union, all of whom have donated freely of their
assistance and advice.

He is also greatly indebted to his wife, Rita, whose patience,

fortitude, and assistance has made completion of this study possible.

iv

TABLE OF CONTENTS

Page

INTRODUCTION 1
CHAPTER

I. HISTORICAL BACKGROUND ................ 3

Nature of a Credit Union ................ 3

Credit Union Development ................ 5

Michigan Credit Union Legislation .......... 7

II. PROTECTION OF MEMBERS' FUNDS .......... 19

Membership and Capital ................. l9

Loans to Members ..................... 20

Reserves ............................ 23

Regulation by State or Federal Authority ..... 24

Supervision .......................... 2.5

Comments on Protection of Members' Funds . . . 26

Membership and capital ............... 26

Loans ............................ 28

Reserves .......................... 36

Regulation by state or federal authority . . . . I 44

Supervision ........................ 49

CHAPTER

III. CREDIT UNION LIQUIDATIONS ..............
Federal Credit Union Liquidations, 1935-1953
Michigan-Chartered Credit Union Liquidations

IV. REGULATION OF SIMILAR INSTITUTIONS ......
Personal Service Subsidies ...............
Corporate Subsidies ....................
Government Subsidies ...................

Free services ......................

Taxation ..........................

Organization requirements ..............
V. UNIFORM CREDIT UNION CODE .............

VI. SUMMARY, CONCLUSIONS, AND SUGGESTIONS
FOR FURTHER STUDY ....................

Summary ............................
Conclusions ..........................

Suggestions for Further Study .............

APPENDIX A: MICHIGAN CREDIT UNION ACT ........

vi

Page
53
54
63
72
75
75
75
75
76
77
78

84

90

90

100
103
105
107

112

TABLE

III .

IV.

VI.

VII.

VIII.

IX.

LIST OF TABLES

Deve10pment of State-Chartered Credit Unions

in Michigan, 1933-1953 ....................

Development of Federal-Chartered Credit Unions

in Michigan, 1936-195 3 ....................

Relative Development of Credit Union Member-

ship in Michigan, 1933-1953 ................

Number of Charters Issued and Canceled by

Years, as of December 31, 1934-1953 .........

Number, Membership, and Share Balances of

Federal Credit Unions Liquidated, 1936-1953 .....

Number of Federal Charters Issued and
Canceled in Michigan, by Years, as of

December 31, 1936- 1953 ...................

Analysis of Reasons Reported for Liquidations

of Federal Credit Unions, 1948-1951 ..........

Number of State Charters Issued and Canceled
in Michigan, by Years, as of December 31,

1946-1951 .............................

United States Installment Credit by Holder ......

vii

Page

12

l3

14

55

56

58

60

64

74

LIST OF FIGURES

FIGURE Page
1. Total Assets of State- and Federal-Chartered
Credit Unions in Michigan, 1933-1953 ........... l6
2. Loans Outstanding of State- and Federal-
Chartered Credit Unions in Michigan, 1933-
1953 .................................. 17

viii

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INTRODUCTION

As the industrial revolution captivated the American economy,
forcing people off the farm into the industrial centers, wage earners
became dependent on a money income. Whenever the family income
stopped or was strongly subjected to extraordinary demands, credit
had to be found to fill the gap between consumption and income.

Loan sharks were the first to fill the gap, answering the need
for small loans. Operating outside the law, the loan sharks charged
prohibitive rates of interest. It was not very long before these
abuses began to be seen and felt by the public, and agitation for
small loan agencies, which would charge low rates of interest, be-
came the topic of the day.

’One approach to the problem of supplying credit for the masses
was the development of cooperative credit unions. With the passage of
Special credit union enabling acts by the individual states and by the
federal government, credit unions rapidly became accepted by the
American people, to the point where on March 15, 1954, one out of
every nine workers in the United States was a credit union member

in one of the 14,585 credit unions in operation on that day, who had

a combined asset value of over two billion dollars and loans outstand—
ing of $1.5 billion and deposits of over $1.8 billion.

Credit unions did not really reach an important financial status
until the years following World War II. Previous to that time little
attention was paid to the credit unions. But since their rapid growth
more and more persons connected with consumer credit have begun
to look at the operations of credit unions and their legal structures.
The above examinations have given rise to grandiose claims and dis—
paraging countercharges, making credit unions a lively topic of dis—
cussion.

The purpose of this study is to evaluate the legislation govern-
ing credit unions, with emphasis on the Michigan Credit Union Act,
and to suggest possible legislative and administrative improvements

in their operations.

CHAPTER I
HISTORICAL BACKGROUND
Nature of a Credit Union

A credit union is a union of persons, having a common
bond of interest, in a financial association whose principal purpose
is the extension of short-term credit to its members at low rates
of interest, and the promotion of thrift among its members1 by the
systematic sale of shares and acceptance of savings deposits.

The members of a credit union have a common bond of inter-
est, other than the credit union, through having a common employer,
common membership in a fraternal society, religious organization,
or having residence in a well-defined community.

In the United States commercial institutions make consumer
credit available to different strata of borrowers. The credit union
is one of these Specialized consumer credit agencies. Its distin-
guishing appeal lies in the broader basis of self help through co-

operation rather than in the profit motive of other agencies.

 

 

Roy F. Bergengren, Credit Union North America, Southern
Publishers, Inc., Kingsport, Tennessee, 1940, p. 5.

 

3

 

A credit union receives all of its capital in cash from mem-
bers who buy shares and/or make ‘deposits. Each member in effect
becomes a stockholder. His investment in the credit union is evi-
denced by shares which can be bought outright or on installments.
These shares differ from ordinary or common stock of commercial
corporations because they can be turned into the credit union for
cash at the will of the holders.

Many credit unions secure additional working funds by ac-
cepting deposits of members and of their families. Deposits are
more informal investments than shares. They receive a lower fixed
return than the share dividend, and have a prior call on assets, in
the case of failure, than do shares.

Credit unions may borrow additional capital from banks or
other credit unions, but borrowings are intended merely to supple-
ment the paid-in capital.

The funds which are accumulated by a credit union may be
loaned only to its members, or to another credit union, for provi-
dent or productive purposes, at interest rates, in Michigan, not to

1
exceed 1 percent per month on the unpaid balances of a loan. The

 

 

1
Act 285, P. A. 192.5, State of Michigan, State Banking De—
Partment, Lansing, p. 1.

 

amount loaned to any individual or any credit union, and the terms
of the loan are subject to restrictions imposed by law.

Credit unions have a corporate form of organization and
must receive legal authorization to operate from either the federal
government, the District of Columbia, or one of the forty-four states
which have enacted enabling legislation. In Michigan, credit unions
may be organized under the provisions of the state banking law re-
lating to credit unions and are subject to supervision by the State
Banking Department.l Residents of Michigan may also organize
credit unions under the terms of the Federal Credit Union Act, which
is administered by the Bureau of Federal Credit Unions in the Fed-

2
eral Security Agency.
Credit Union Development

Although the history of co-operative credit dates back over
a century, modern credit union history began in 1900 with the or-

ganization of the "People's Bank" at Lewis, Quebec, by Alphonse

 

1
Ibid.

 

Z
Lederal Credit Union Act, June 26, 1934, Federal Security
Agency. Washington, D. C., pp. 1—2.

 

Desjardins, a journalist.1 Aroused by the effects on the poor people
in Montreal of the activities of unscrupulous and usurious money
lenders, he organized credit societies among rural parish groups.
Shares were of small denominations: liability was limited; dividends
were paid to shareholders; deposits were accepted, but only from
members; and "redemptive" as well as “productive" loans were
granted.

Early in 1909, Desjardins came to Boston and aided in draft-
ing the bill which made Massachusetts the first state to authorize
credit unions. Edward A. Filene, a wealthy Boston merchant, played
an important role in the development of Massachusetts credit unions.
While this legislation was being adopted, Desjardins went to Man-
Chester, New Hampshire, where he helped set up one of his "People's
Banks" named La Caisse Populaire Ste. Marie, which enjoys the
distinction of being the very first credit union to be organized in

3
the United States. Massachusetts became the first state to enact

 

l Maxwell S. Stuart, Credit Unions--The People's Banks,
Public Affairs Pamphlet, No. 50, Public Affairs Committee Inc.,

1942, p. 3.

2
Ibid.

 

3 .
Stuart, op. c1t., p. 3.

 

a credit union law, enacting it in 1909 and it became a model for
effective credit unions to follow for twelve years.1 Other states
followed Massachusetts rather haphazardly until 1921. In that year
Edward A. Filene and Roy F. Bergengren established the Credit
Union National Extension Bureau for the purpose of amending those
laws passed by states prior to 1921 which were hopelessly defective,
and for the promotion of a uniform credit law as a basis for any
future enabling legislation. After 1921 state after state passed ena-
bling legislation and in 1934 Roy F. Bergengren wrote a federal bill
which was introduced by Senator Morris Sheppard of Texas, signed
by President Roosevelt, and enacted, enabling credit unions to be

chartered anywhere in the United States and its possessions, by the

fede ral gove rnment.

Michigan Credit Union Legislation

The Michigan credit union law dates from 1925 when Roy
Bergengren was introduced to Bert Cody, Chairman of the Republican

State Committee, of the Michigan Republican Party, which was the

 

1
Ibid., p. 4.

2 Roy F. Bergengren, Crusade, Exposition Press, New York,
1952, p. 82.

majority party at that time. Mr. Cody was able to have George C.

Watson, of St. Clair County, introduce House Bill 110, to provide

for the organization, operation, and supervision of credit unions in
. . 1

M1ch1gan.

The bill passed the House and was sent to the Senate where
it was amended and returned to the House. The House approved the
amendment and presented it to Governor Alexander J. Grosbeck, who
approved it on May 13, 1925, and it became Public Act 2815, to be
effective August 27, 1925.

. . . 3 4

The cred1t union act of 1925 was amended 1n 1929 and 1941.
However, they were very minor changes and the existing law is the
same as that adopted in 1925.

Previous to the passage of the Michigan Credit Union Act,
there were a few credit unions in existence in Michigan. However,

it can reasonably be surmised that the extent of their operations

 

1
Bergengren, Crusade, op. cit., p. 86.
2 Michigan House Journal, Robert Smith Co., Lansing, 1925,
Vol. II, pp. 1098, 1255, 1246.

3 Ibid., 1929, vol. I, p. 536.

4 Michigan Senate Journal, Robert Smith Co., Lansing, 1941,
Vol. II. pp. 1001, 1590.

was small. Without any regulation or state sanction, it is doubtful
that many persons would entrust their savings to a credit union.

Further, in order to pay a competitive dividend and interest
of 5 to 6 percent annually, income would have had to be sufficiently
high to pay the modest expenses as well as interest and dividends.
Borrowers would have to charge about 1 percent a month. This
level was above the interest rate sanctioned by the Michigan small
loan law, Act 228, P. A. 1915, amended 1921.

In 1925, Michigan enacted Act 284, P. A., Section 1 of which
makes it unlawful for any individual person or unincorporated asso-
ciation of individuals to engage in the business of banking such as
accepting deposits or making loans.

After this legislation, it became impossible for a credit union
to develop unless a special credit union act were adopted, since it
would have been difficult for them to raise sufficient capital and com-
mand sufficient knowledge of banking to obtain a banking charter under

3
the requirements of Act 205, P. A. 1887.

 

Roger S. Barrett, Compilation of Consumer Finance Laws,
National Consumer Finance Association, Washington, D. C., 1952, p.

296.
2 Act 284, P. A. 1925, State of Michigan, State Banking De-

partment, Lansing, Section 1.

 

3 Act 205, P. A. 1887, State of Michigan, State Banking De-

partment, Lansing, Section 1.

 

 

10

With the passage of the Michigan Credit Union Act, credit
unions, after a slow start, began to expand very rapidly. The slow
start of credit unions in Michigan was due to the newness of this
type of institution and to the depression years when few people had
funds to place in any savings institution. The period of the "loan
shark" had just passed and the people were skeptical about placing
their funds in an untried institution. However, with a few years'
experience, and a record of few liquidations in the depression, faith
in the credit union expanded as did the credit unions. At the end
of 1933, forty state-chartered credit unions were in operation in
Michigan with assets of $652,449, seven thousand two hundred fifty-
nine members, and $487,999 in loans outstanding.

When the United States entered World War II at the end of
1941, state-chartered credit unions in Michigan numbered 176, with
a combined membership of 67,336, loans outstanding of $6,993,853,
and total assets of $10,750,835.2 During the year of 1941, these

credit unions made total loans of $10,037,446 to 32,581 borrowers

 

l
gmsolidated Statement and List of Credit Unions, Michigan
State Banking Department, Lansing, 1937-1953.

2
Ibid.

 

11
for an average loan of $209. There were 6,184 depositors with an
average depost of $99. and the average shareholding amounted to $138

per member.
During the war the credit union movement was slowed down,
and membership fell off. However, with the cessation of hostilities,

the upward trend was resumed with far greater rapidity. At the

 

end of 1953, membership had grown to 164,627, with 235 state-
chartered credit unions operating in Michigan, with total assets of
$77,979,508 and loans outstanding of $57,708,289.2 During the year
of 1953, these credit unions made 158,807 loans amounting to $63,-
477,170 for an average loan of $399. Depositors numbered 2,562
with an average deposit of $227 while shareholdings amounted to an
average of $395 per member. Total deposits were $581,858, while
total value of shares held by members amounted to $65,143,0623 (see
Tables I, II, and III).

The passage of the Federal Credit Union Act encouraged the
creation of more credit unions. Soon federal—chartered credit unions

surpassed the state-chartered unions in Michigan in both rate of

 

Ibid. Ibid.

 

 

Ibid.

12

 

 

 

 

 

TABLE 1
DEVELOPMENT OF STATE-CHARTERED CREDIT UNIONS
IN MICHIGAN, 1933-1953
No. of
Year No. of Unions Loans A t
Unions Report- Outstanding .sse S
ing

1933 40 40 $ 487,999 652,449
1934 51 51 635,251 836,868
1935 73 73 1,206,448 1,350,578
1936 109 109 1,767,978 2,341,506
1937 137 137 2,806,958 3,290,376
1938 139 139 3,576,407 4,634,077
1939 163 163 5,215,272 6,720,069
1940 162 162 6,330,312 8,943,037
1941 176 171 6,993,853 10,750,835
1942 172 165 5,022,001 11,464,737
1943 165 164 4,491,699 12,742,085
1944 160 157 4,854,041 14,614,933
1945 154 153 5,189,139 16,566,082
1946 148 147 7,938,974 19,215,859
1947 150 150 11,846,818 23,544,913
1948 158 158 18,057,674 29,253,233
1949 161 159 24,154,321 36,049,580
1950 165 165 29,694,887 42,344,111
1951 171 170 32,643,182 48,869,769
1952 177 174 43,170,861 62,296,415
1953 235 210 57,708,289 77,979,508
Source: Compiled from Consolidated Statement and List of Credit

 

Unions, State Banking Department, Lansing, 1938-53.

 

13
TABLE II

DEVELOPMENT OF FEDERAL-CHARTERED CREDIT UNIONS
IN MICHIGAN, 1936-1953

 

 

 

 

 

No. of
Year No. of Unions Loans Assets
Unions Report- Outstanding
ing

1936 50 41

1937 54 44 $ 318,346 $ 413,904
1938 57 50 339,511 482,393
1939 66 53 537,673 736,278
1940 86 73 1,005,983 1,670,398
1941 107 90 1,629,255 3,086,334
1942 110 84 1,133,479 3,643,534
1943 91 79 1,005,442 4,377,185
1944 93 84 1,127,045 5,007,531
1945 94 87 1,200,409 4,699,311
1946 99 93 2,142,375 5,689,292
1947 112 100 3,735,697 7,775,024
1948 123 117 6,127,016 10,402,563
1949 163 157 8,072,050 12,902,638
1950 220 214 12,765,268 18,805,332
1951 297 281 17,622,875 27,168,165
1952 388 369 28,134,389 42,796,951
1953 462 454 48,574,467 66,163,647
Source: Monthly Labor Review, United States Department of Labor

 

U. 5. Government Printing Office, Washington, Vol. 69, No.
3, September, 1949, p. 279; Vol. 76, No. 2, February, 1953,
p. 155.

14
TABLE III

RELATIVE DEVELOPMENT OF CREDIT UNION MEMBERSHIP
IN MICHIGAN, 1933-1953

 

 

 

 

 

Federal State
Year Unions Unions
Report— Members Report- Members
ing ing

1933 40 7,259
1934 51 9,688
1935 73 14,840
1936 41 5,251 109 23,018
1937 44 8,706 137 30,510
1938 50 10,189 139 36,358
1939 53 14,295 163 50,659
1940 73 23,869 162 59,664
1941 90 38,872 171 67,336
1942 84 36,619 165 64,517
1943 79 42,434 164 63,702
1944 84 49,155 157 65,165
1945 87 44,793 . 153 63,840
1946 93 51,157 147 69,673
1947 100 61,715 150 79,880
1948 117 74,330 158 92,354
1949 157 82,973 159 102,561
1950 214 113,391 165 118,484
1951 281 143,977 170 130,482
1952 369 192,471 174 143,814
1953 454 246,476 210 164,627

 

 

 

 

Sources: State-Chartered--Compi1ed from Consolidated Statement
and List of Credit Unions, State Banking Department,
Lansing, 1938-53. Federal-Chartered--Month1y Labor Re-
1193!! United States Department of Labor, U. S. Government
Printing Office, Washington, Vol. 69, No. 3, September, 1949,
p. 279; Vol. 76, No. 2, February, 1953, p. 155.

 

15
growth and aggregate membership. At the end of 1953 there were
454 federal-chartered credit unions in Michigan with assets of $66,-
163,647, loans outstanding of $57,708,289, and membership of 246,476
(see Tables I, II, and III, and Figures 1 and 2).

Since the primary purpose of this investigation is to deter-
mine if the existing regulation by federal and state authorities of
credit unions in Michigan is adequate, I shall limit further discussion
of credit unions to the following questions:

1. Is the existing legislation adequate to provide sufficient
protection to credit union depositors, without stifling their
development ?

2. What has caused credit union liquidations in the past, and
has this been the result of a lack of necessary legislation?

3. How does the existing credit union legislation compare
with that which governs other similar types of institutions?

4. Is there a need for a uniform credit union code such as
those in operation in other similar types of institutions?

Because the Michigan Credit Union Act is of an earlier date

than the Federal Credit Union Act, and would logically seem to be
more in need of revision, primary emphasis will be on the discus—
sion of Michigan-chartered credit unions. However, important areas

of the federal credit union operations will be included.

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18
No doubt there are many other aspects of the credit union
movement that are of equal importance and equally deserving of fur-
ther investigation; as those listed. However, one is limited in the
scope of a study and one must select those areas which seem to

him to be in most need of study.

CHAPTER II
PROTECTION OF MEMBERS' FUNDS
Membership and Capital

Directors of the credit union determine the eligibility of
membership. Persons allowed to join must subscribe to at least
one share of stock, the par value of which must not exceed ten
dollars for Michigan-chartered unions and five dollars for federal-
chartered unions, and which may be purchased in installments of
twenty-five cents each month.1 Thus it is provided that there shall
be no financial barriers to becoming a member. The stock of the
credit union is not like that of a stock in a business corporation.
The purchases of stocks by credit union members may be looked
upon as deposits in a savings bank?‘ The money belongs to the
member and he has the right to withdraw it at any time, or if

needed, the credit union may call for a sixty-day notice of intent

 

1
Model By Laws for State Chartered Credit Unions, Michigan
Banking Department, Lansing, Article II, Section 1.

2
Bergengren, Credit Union North America, op. cit., p. 140.

19

20
to withdraw. However, this notice of intent to withdraw is only used
in case of an emergency.

After a member of a state-chartered credit union has pur-
chased at least one share of stock he may deposit funds with the
credit union in a savings account, or he may continue to make de

. . . 1
p031ts through the purchase of additional shares of stock. Federal-
chartered credit unions cannot accept deposits.

A Michigan-chartered credit union may also borrow from

. Z .
any source a total sum not to exceed 50 percent of its assets. This
compares with the federal provision that the credit union may borrow
from any source an aggregate amount not exceeding 50 percent of its

paid-in and unimpaired capital and surplus.
Loans to Members

A credit union, Michigan- or federal-chartered, may loan
only to members or to other credit unions; however, the loan must
. . 3 .
be for a provident or productive purpose. At least a majority of

the members of the credit committee must pass judgment on all

 

Michigan Credit Union Act, op. cit., Section 5.

2 3
Ibid., Section 4. Loc. cit.

 

21

loans and in order for a loan to be granted, approval of the above-
mentioned majority must be unanimous.

There are several limits on the lending activities of Michigan-
chartered credit unions. First, in addition to any and all security
which may be required, each and every loan or other extension of
credit shall be evidenced by the promissory note of the borrower.2
Second, unsecured loans shall not exceed $400.00. Third, secured
loans, other than real estate loans, shall not exceed $750.00, or 10
percent of the unimpaired capital of the credit union, whichever is

4

greater: Provided, however, that no such loan shall exceed $10,000.00.

Fourth, loans secured by first liens on improved real estate shall be
made on a basis not exceeding 70 percent of the appraised valuation
thereof, as certified by a qualified appraiser in writing, and no real
estate loan shall exceed 10 percent of the unimpaired capital of the

credit union. Such loans shall have a maturity not exceeding ten

years and shall be repayable in at least monthly installments pro—

viding amortization of at least 4 percent of the principal sum annually.

 

l 2

Ibid., Section 10. Loc. cit.
3 .
Loc. Cit.

4 .
Michigan Credit Union Act, op. cit., Section 9.

22

Loans secured by the Federal Housing Administration or guaranteed
by the Veterans' Administration shall be exempt from requirements
as to maturity and appraised value.1 Fifth, the total amount of all
real estate loans, including FHA and VA loans, shall at no time
exceed 33-1/3 percent of the unimpaired capital of the credit union.
Lastly, the unsecured indebtedness of a member shall not exceed in
the aggregate the amount fixed by the unsecured loan limit. The
secured and/or unsecured indebtedness of a member, including lia—
bility as a comaker, endorser, guarantor, or otherwise, shall not
exceed, in the aggregate, the amount fixed as the secured loan limit.

The Federal Credit Union Act is much more restrictive than
the Michigan Credit Union Act in reSpect to loans. Federal credit
unions may only make loans to members with maturities not exceed-
ing three years. Further, no loan may exceed 10 percent of the

union's paid-in and unimpaired capital and surplus, or $400, which-

ever is larger.

 

1 2
Ibid., Section 8. Loc. cit.

3 I
Model By Laws for State Chartered Credit Unions, op. c1t.,
Article XII, Section 8.

 

23

Reserves

Both the federal and Michigan credit union acts provide that
all entrance fees, fines (which may be provided by the by-laws for
failure to make repayments on loans and payments on shares when
due), and each year, before the declaration of a divident, 20 percent
of the net earnings, shall be set aside as a reserve fund, which shall
be kept liquid and intact and not loaned out to members, and shall
belong to the union to be used as a reserve for bad loans and not
to be distributed except in case of liquidation. Loans which are
delinquent and loans which are otherwise uncollectable may be

charged to the reserve fund upon prOper action of record by the

board of directors.

While Michigan-chartered credit unions must transfer 20 per-
cent of their net earnings each and every year to the reserve fund,
The federal act provides that when the reserve fund shall equal 10
percent of the total amount of the members' shareholdings, no fur-

ther transfer of net earnings shall be required except as may be

needed to maintain this 10 percent ratio.

 

1
Ibid., Article XV, Section 3.

24

All credit union bills, including the Michigan act, provide that,
in the event of voluntary dissolution, no amount may be transferred
from the reserve fund to undivided earnings for the distribution to

stockholders, which would bring the reserve balance below that of

outstanding loans.

Regulation by State or Federal Authority

Credit unions chartered in Michigan are under the supervision
of the Commissioner of the State Banking Department. They must
report to him at least annually on or before the thirty-first day of
December, on blanks supplied by him for that purpose. Additional
reports may be required.2 The credit unions must be examined at
least annually by the Bank Commissioner, except that, if a credit
union has assets of less than twenty-five thousand dollars he may
accept the audit of a practicing public accountant. Failure to file
reports when due results in the credit union being compelled to pay

the state five dollars for each day of its delinquency.

 

1
Ibid., Section 7.

2
Michigan Credit Union Act, op. cit., Section 6.

3
Ibid.

 

 

 

25

If the Bank Commissioner determines that the credit union
is violating the provisions of the credit union act, or is insolvent,
the commissioner may serve notice to the credit union of his inten-
tion to revoke the certificate of approval. If the violation continues
for fifteen days or more, the commissioner may revoke the credit
union certificate and take possession of the business and property i
of the credit union and maintain possession until the credit union i
may be permitted to continue business or is liquidated.
Federal-chartered credit unions are under the supervision of
the Director of the Bureau of Federal Credit Unions, in Washington.
Provisions regarding examinations, fines, and insolvency proceedings
are the same as those mentioned above, with the exception of exam-

ination fees, which will be discussed in the next section of this study.

Supervision

 

All credit unions, at their annual meeting, have their members,
each of whom is entitled to one vote, elect a board of directors of

not less than five, a credit committee of not less than three, and

a supervisory committee of three. The directors elect from their

 

Ibid.

 

 

26

own number a vice—president, a president, treasurer, and clerk, of
whom the last two named may be the same individual.

The directors have general management of the affairs of the
credit union. Directors of state-chartered credit unions act on ap-
plications for membership, determine interest rates on loans and
deposits, declare dividends, and declare maximum loans to be made
without security, and the maximum shareholdings of an individual.
The treasurer is the only officer who may be compensated for his
services. Directors of federal-chartered credit unions are charged
with presiding at all meetings of the members, control of the credit
union's funds, securities, and all other assets, making required re-

ports and enforcing the credit union act.
Comments on Protection of Members' Funds

Membership and capital. The limitation of membership to
fellow employees, to members of the same church, lodge, labor union,
or other organization, or to neighbors in a community group, and
the further limitation that loans may be made only to members,
results in the establishment of social pressures on the borrowers

who otherwise might be thoughtless or dilatory in making repayments.

 

 

 

1
Ibid. , Section 9.

27

However, there is a hidden weakness in the idea of a com-
munity of interests. Mutual dependency could easily result in failure
when loans are not diversified, but are centralized in one common
unit. A credit union organized by the workers of a single plant,
with all loans and deposits concentrated in the hands of the workers
in the plant, could suffer a failure if the plant should cease produc-
tion. The reason is simple. The main source of income to repay
loans and make deposits will cease to exist and at the same time
the members would be reducing their deposits and cashing in their
shareholdings .

Of course, if the production stoppage were a long one, earn-
ings would be reduced and consequently less funds would be paid
into the reserve account. At the time when members would most
need funds, or their deposits, they would be unable to get them.
Further discussion of this point will be considered under the topic
of loans.

The maximum number of shares which may be held by any

one person is fixed from time to time by the board of directors.

 

1
Model By Laws for State Chartered Credit Unions, 0L cit.,
Article XII, Section 8.

28

This discretionary power is difficult to administer. If an exceedingly
high limit is set, a credit union may become financially dependent

on a small group of shareholders whose views may carry far more
influence than their numerical number of votes, of one per person.
They would have this additional power because they could ruin the
credit union if they withdrew their capital. If the limit is too low,
however, the incentive to save in the credit union is weakened.
Higher limits may bring in more capital, thus permitting the divi-
dends on shares to be reduced unless this added capital is wanted

for loans. A statutory percentage limit could eliminate this problem.

Loans. In regard to loans, the present Michigan Credit Union
Act would seem to be adequate to protect depositors. Two features
of the act, however, could be safely revised. Because of the risks

due to changing market values, loss of liquidity of investment and

 

unfortunate experience, the Michigan Credit Union Act limits the total

amount of all real estate loans, including FHA and VA loans, to 33-1/3
1

percent of the unimpaired capital of the credit union. A further pro-

vision could require that a certain percentage of real estate loans,

 

1
Ibid. , Section 8.

29
perhaps 20 percent, be of VA and FHA insured loans. There is little
doubt today as to the marketability of the VA and FHA loans, and
the above requirement would be of great value during recession of
business activity.

The main problem regarding loans, as stated before, is the

need for diversification. Credit unions have often been called "fair—

——

weather" institutions, meaning that as long as business conditions are

. L.
‘

good, the credit union will prosper. However, when business condi-
tions are bad, the credit union will fail. In support of their using
the ”fair-weather” label, credit union critics make reference to the
following statistics. During the year of 1953, all federal credit
unions in the United States made 2,475,134 loans with a total value
0f $959,897,119.l Of these, 2,338,538, or 94.4 percent of the loans,
with a value of $888,459,283, or 96.2 percent of the total loan value,
were made to occupational group credit unions.2 Within the occupa-
tional credit union group, six industries, which are tied directly to

the Swing of the business cycle, such as auto production, chemicals,

1953 Report of Operations, Federal Credit Unions, U. S.

Department of Health, Education and Welfare, Washington. 1953. p-
27.

2
Ibid.

 

 

30

construction, machine production, et cetera, account for 24.9 percent
of the occupational loans made and for 23.2 percent of the total occu-
pational loan value.

It is felt that industries such as the six mentioned will in
times of depression be unable to maintain production, thereby making
it impossible for credit union members to repay loans, while forcing
other members to withdraw their savings to meet current expenses.

It is impossible, on the basis of existing data to substantiate
or refute the above argument. Nevertheless, much of the plausibility
of the above argument could be removed if credit unions could diver-
sify their loans. The argument that credit unions must only loan to
their members, since this in fact seems to guarantee the loan being
repayed, due to social pressure exerted on the borrower from other
members who of course wish to protect their investment, is valid
to only a very limited extent. If one looks at the record of a bank
01' a personal finance company, which has little common interest
With its borrowers, one will see that there is as small a percent-
age 0f loan failures as that of credit unions. Pe0ple do not simply

r8pay loans because they have a vested interest in the organization

Ibid.

 

31

from which they borrow. There are many groups that are too small
to organize a profitable credit union themselves, that would be happy
to have use of credit union funds, thereby servicing the borrower
with low rates of interest, and further insuring the solvency of the
credit union by diversifying its loans.

Credit union officials pride themselves on being noted that

their criteria of credit union operation is, "We believe that 99 per—

 

cent of the people are honest." This 99 percent refers to all people,
not just to 99 percent of the credit union's members, and therefore
nonmembers as well as members can be expected to be honest and
repay their loans. Certainly strict rules would have to be estab-
lished to cover nonmember loans to avoid the possibility of officials

loaning funds to organizations or individuals in which they have a

 

vested interest.

Michigan credit unions have a Special need for a diversifica-
tion of their loans over that of other credit unions. This is due to
the extreme importance of the automotive industry as an employer
in Michigan. The economy of Michigan is tied very directly to the
employment in the automotive industry, and likewise the soundness
of credit unions in Michigan is tied to the level of employment in

the automotive industry, as can be seen from the following figures.

 

32
At the end of 1953, there were seventy—seven credit unions in Mich—
. . l
1gan With membership of one thousand or mo re persons. Of these,
thirty-three, or 48.5 percent, were credit unions established in plants
which either produced automobiles directly, or were primary sup-
pliers of automotive firms. These credit unions comprised 22.7 ;

percent of the total credit unions in Michigan. These same thirty-

.. _

vmm—-

three credit unions had loans outstanding of $18.5 million, or 30.4

#124,]

percent of the loans of credit unions with one thousand or more
members, and 17.6 percent of the loans outstanding of all credit
unions in Michigan.

The above figures clearly indicate the need for greater diver—
sification of loans by Michigan credit unions. Any long stoppage of
production by the automotive industry would cut off the ability of
members to repay at least 17.6 percent of the loans outstanding, not
to mention the secondary results upon such firms as department
stores, retail food stores, auto servicers, and other firms dependent

upon the income of the auto workers as their source of income.

Any employment insurance benefits received would be needed for food

 

and shelter expenses, with little if any available for repayment of loans.

 

I
All figures compiled from lst Annual Statistical Yearbook,
Michigan Credit Union League, Detroit, 1953.

 

33

It must not be assumed, from the foregoing, that credit unions
will collapse with every downturn of the business cycle or interrup-
tion of production. A well-run credit union is able to weather almost
any economic crisis. The case of the Wyandotte Chemicals Employ-
ees' Credit Union is given here as an example of a credit union that
was placed under great pressure, yet survived.

At eleven o‘clock on the night of January 30, 1955, members
of Local 12270 decided to strike, resulting in the shutdown of all
plants and the immediate loss of employment for 3,700 hourly paid
employees, 90 percent of whom were members of the Wyandotte
Chemicals Employees' Credit Union.1 This work stoppage meant
that over 60 percent of the credit union's members were unemployed.

The Wyandotte Chemicals Employees' Credit Union, under the
able leadership of David Arsenault, Treasurer and Manager, has
grown to be one of the outstanding credit unions, both in size and
more important in providing service to its members. The officials
of the credit union were able to foresee the strike and realized that
the most important reaction to prevent was panic. Therefore, the

following letter was sent to all striking employees:

 

David Arsenault, Treasurer-Manager, Wyandotte Chemicals
Employees' Credit Union, oral communication.

34

Dear Member:

Due to the controversy between Local 12270 and Wyan-
dotte Chemicals Corporation, resulting in the shutdown of all
plants, it will be necessary for your credit union to adopt the
following policy:

1. Business will be conducted as usual. There will be
no change in office procedures or hours whatsoever.

2. All mortgage loan applications that have not been
placed in the hands of our attorney for processing will be held
in abeyance until the controversy is over.

3. We will continue to make personal loans for provident
and productive purposes.

4. For the duration of the controversy, interest only will
be transferred from savings.

5. All that we ask is that, if you are financially able to
pay on your loan, do so; it will be to your advantage. If you
cannot pay on the principal, pay your interest. If the contro-
versy lasts too long, and no principal or interest can be paid,
it can be made up when you return to work.

6. We are ready and willing to serve you, please feel
free to come in and talk to us.

Very truly yours,

David Arsenault

Treasurer-Manager

The only real change in the credit union's policies was to
withhold action on all real estate loan applications which were not
already in the process of adoption.

At the time of writing, the strike had been on for eleven
weeks. Throughout the period all operations of the credit union had
been directed toward carrying the workers through the strike. Loans
had been made, whenever sufficient reason for a loan had been estab-

lished. All loans for luxury items had been refused. The policy on

35
loans had been to give loans for such items as grocery bills, house
and automobile payments, emergency medical expenses, et cetera.

What effect has the strike had on the Wyandotte Chemicals
Employees' Credit Union? Of course the strike has affected the
credit union. But the effects have been held to a minimum by sound
leadership. A comparison of important features of the credit union‘s
financial statements of December 31, 1954, and of March 31, 1955,

will yield some insight to the strike‘s effects.

 

 

December March

31, 19541 31, 19552
Total assets .......... $4,145,924 $4,124,783
Loans--personal ....... $1,966,833 $2,040,901
Loans--real estate ..... $1,493,910 $1,520,093
Cash on hand ......... $ 265,013 $ 129,880
Notes payable--to banks. . $ 0 $ 50,000
Shares .............. $3,858,909 $3,885,503
Members ............ 5,335 5,485
Borrowers ........... 2,781 2,849

It can be seen from the above statements that the strike has
not had any large effect on the credit union. Personal loans are up
3 percent. Real estate loans are up less than 2 percent. Cash on

hand has decreased. The one significant change has been the borrowing

 

1
Annual Financial Report to Shareholders, Wyandotte Chemi-
cals Employees' Credit Union, Wyandotte, Michigan, 1954.

 

David Arsenault, oral communication.

 

36

of $50,000 from banks. On December 31, the total reserve fund was

1
$88,148.

The credit union was in a very liquid position on March 31,

. . . 2 .

1955. How long the strike Will last, no one can predict. Like-
wise, how long the credit union can continue normal operations is
impossible to predict. But as long as the credit union can function,
it will continue to fulfill its obligations to its members, for which
it was created, that of supplying its members with funds to overcome

a crisis.

Reserves. As of December 31, 1953, Michigan state-chartered
credit unions had reserves of $2,457,546, against total assets of $77,
979.508.3 Loans amounted to $57,708,289, or 74 percent of the as-
sets.4 The reserves required by Section 17 of the Michigan Credit
Union Act amounted to only 0.4 percent of the total assets.5 The
question arises as to whether or not this is sufficient. A compari-
son of the credit union reserve requirements with that of other finan-

cial institutions may shed light on this question.

—‘

2
1 Ibid. The strike lasted 88 days.

 

3 Abstract of Reports of Credit Unions, State Banking Depart-
ment, Lansing, December 31, 1953.

 

4 Ibid. 5 Ibid.

 

 

 

37

Savings and loan associations are required to have at least
6 percent of their assets in reserves, which consists of cash on hand
and government bonds.1 Michigan-chartered unions on December 31,
1953, had government obligations of $8,996,537, cash on hand and in
banks of $5,920,514, and reserves of $2,457,546, for a total of $17,-
374,598, or 22 percent of their assets,2 16 percent greater than the
minimum required of savings and loan associations.

A Michigan—chartered building and loan association is required
to have reserves equal to 5 percent of its assets. It has already
been shown that the Michigan-chartered credit unions had reserves,
cash, and government obligations far in excess of 5 percent of their
assets at the end of 1953.

Commercial and industrial banks, chartered by the State of
Michigan, must keep on hand or on deposit at all times with one or
more legal depositories an actual net balance in cash payable on

demand, to at least equal 12 percent of the amount of its total

 

Savings and Loan Fact Book, United States Savings and
Loan League, Chicago, 1954, p. 55.

2
Abstract of Reports of Credit Unions, 0p. cit., 1953.

3 Act 50, P. A. 1887, Amended, State of Michigan, Secretary
of State, Section 24.

 

38

deposits. As of December 31, 1953, Michigan-chartered credit
unions had deposits of $581,858, and reserves against these deposits
of $2,457,546.2 Reserves were five times greater than deposits. If
we include government obligations and cash on hand, as reserves, it
will raise the reserve ratio to 25 to 1, in favor of the reserves.

The savings deposits are not covered by any type of savings insur-
ance. There have been several attempts to have a bill introduced

in Congress to provide insurance of credit union deposits by the fed-
eral government, as is done through the Federal Deposit Insurance
Corporation for bank deposits. The credit unions, both state- and
federal-chartered, have resisted these attempts on the grounds that
the disadvantages of the government insurance outweigh any possible
advantages. The increased control of a federal insurance agency,
which is already thought of as being too bureaucratic and involved
in too much red tape to reach a decision within a reasonable period.
of time, would reduce the powers of the credit unions which they

now possess Further, it is believed by the credit unions that the

suggestion of an insurance of deposits has been advanced by the

 

Act 341, P. A. 1925, State of Michigan, Section 68.

2 Abstract of Reports of Credit Unions, op. cit., 1953.

b.

 

39
bankers' interests to increase the expenses of credit unions, and
thereby remove some, if not all, of their competitive advantage
which they enjoy over other lending institutions.

The Michigan Credit Union League is currently considering
a pr0posal offered by a commercial insurance agency whereby the
League would, upon notice of any sudden dissolution of a member
credit union, guarantee the purchase of all the outstanding notes of
the union at face value, so that the depositors could get their sav-
ings rapidly. The notes would be turned over to a league collec-
tion agency so that the outstanding loans could be repayed gradually.

The shares of the credit unions are not insured, and are
treated the same as corporate stocks, and the shareholders have the
same rights as do corporate stockholders upon declaration of bank-
ruptcy.

The argument is made that the banks and savings and loan
associations can operate at a smaller reserve ratio because their
deposits are insured by the Federal Deposit Insurance Corporation
and the Federal Savings and Loan Insurance Corporation, respectively.

But simply because a financial institution is insured by the federal

 

Robert Perrin, ”State's Credit Unions Weathering Blow,"
Detroit Free Press, March 20, 1955, p. 8-A.

40

government does not remove the necessity of a sound liquidity posi—
tion. Financial institutions must have a sound liquidity position in
order to be insured.

The reserve requirement comparison has simply shown that
as of December 31, 1953, Michigan credit union reserves were equal
to the ratio as required by law for commercial banks and savings and
loan associations if we include as reserves for credit unions, cash
on hand and in banks, and government obligations.1 The important
consideration at this point is not what are the possible reserves,
but what are the required reserves. Required reserves are the sole
funds set aside to cover bad debts and to pay all obligations in case
of failure. The credit unions were in a favorable liquidity position
at the end of 1953, mainly due to their large holdings of government
bonds and cash on hand. There is nothing to prevent the credit
unions from increasing their loan funds by reducing these holdings
of bond, and thereby reducing their liquidity position relative to
other lending institutions.

Other financial institutions have a limit imposed upon their

reserves in relation to their total assets, which prevents their granting

 

1 Commercial banks in Michigan, on December 31, 1953, had
40.5 percent of their total assets in government obligations, amount-
ing to $2,866,562,000.

41

loans or increasing assets, unless an adequate reserve fund is es-

tablished. Credit unions, however, do not have any such limit im-

posed upon them, and as long as 20 percent of the net earnings each

year are deposited in the reserve fund, they may continue to make

loans while funds are demanded, and while funds are available. That

this is inadequate protection for the funds of the depositors would 1

seem to be evident to anyone familiar with the facts. 1
The present reserve requirement is often termed a ”fair—

weather paradox” requirement. The size of the reserve fund is, for

all practical purposes, solely dependent on earnings, since it is re-

quired that 20 percent of the net earnings be placed in the reserve

fund each year. It is believed that in periods of relative prOSperity

credit union members do little borrowing, and since the main source

of earnings is the interest charged on loans, the reserve fund will

be stable. During a period of recession, when members are borrow-

 

ing a great deal and loans are being repayed, this then is the time
when the reserve fund is supposed to be increased. The above theory
would certainly seem to be logical. Yet a look at the credit union
balance sheets quickly refutes this theory (see Tables I and II). It
has been during the periods of greatest business activity that the

loans have been made, and therefore the reserves increased. It is

42

during the boom periods that the credit union members, confident of
continued prosperity and continuous employment, are willing to bor-
row money from their credit union to purchase autos, appliances,
houses, et cetera, as happened during the boom years following
World War 11.

Of course, past experience is not a guarantee that with a
serious recession the number of loans by credit unions would fall,
and if they did not fall, but increased, the ”fair-weather” reserve
paradox could hold. Financial institutions must strive to be sound
at all times, not only during periods of prOSperity, but especially
during periods of recession, when funds are mo st needed by the
members. As long as the possibility of the "fair-weather" reserve
Paradox exists, statutory regulation of credit unions will not be ef-
fective. In place of the 20 percent of net earnings being required
to be placed in the reserve fund, would not a Ominimum reserve re-
quh'ement of a certain percentage of the assets solve the paradox?
This Would place a maximum loan limit on the credit union in rela-
tion to its assets and reserves, which would function in periods of
prosPerity and depression, to the protection of the credit union de-
Positors. A reserve requirement of 8 to 10 percent of total assets,

t . .
he reserve to consist of government obligations and cash on hand

 

43

and in banks, would give greater protection, without hurting the pres-
ent credit union financial position. Along with the provision for a
reserve requirement of a certain percentage of the total assets, there
is a need for a limit to the size of the individual credit union re-
serve. Credit unions in many cases are being penalized and pre- - ‘ P
vented from increasing their dividend payments by being required to
pay 20 percent of their net earnings into a reserve fund, irrespec- 4,
tive of how large the existing reserve fund has already grown. : J

Senate Bill 1248, introduced to the 68th Legislature of Michi-
gan on March 8, 1955, by Senator Hittle, and sponsored by the Mich-
igan Credit Union League, calls for a change in the reserve require-
ment, whereby 20 percent of the net earnings be set aside in the
reserve fund, but when the reserve fund reaches 10 percent of the
Credit union's assets, no further transfer of net earnings be required
eXcept such amounts, not in excess of 20 percent of the net earnings,
as may be needed to maintain the 10 percent ratio, be transferred.
This provision is a step in the right direction; however, the danger
of in-‘3u.fficient reserves in the early years of a credit union's

eXiStence is not removed. The flat requirement of at least 10

\“

 

195 Senate Bill 1248, 68th Legislature, Michigan, March 8,
5 L
1 p 9.

 

 

 

 

 

44

percent of the total assets, to be held in a reserve fund at all times,
would provide a greater safeguard both in the early years when the
credit union is just starting and in the later years when dividend
payments become more and more important.

Further. although the 10 percent minimum may become a
maximum in the eyes of credit union officials, the requirement is .‘1

at least equal to reserve requirements which have been considered

safe for other financial institutions. 4

Mlation by state or federal authority. Section 6 of the
Michigan Credit Union Act requires that credit unions shall be ex-
amined at least annually by the State Banking Department, and for
each annual examination the credit union so examined shall pay
into the state treasury, to the credit of the general fund, the sum
0f twenty-five dollars.

The State Banking Department has complete control over the
Credit unions and handles all matters pertaining to them such as
audits, reports, and charter issuance. The only direct cost to the

Credit union for this service is the $25 examination fee.

\
l

 

Michigan Credit Union Act, op. cit., Section 6.

 

 

45
A credit union examination requires two men to work approx-
imately three days on each examination. The $25 charge doesn't
. . 1 . .
cover the costs of the examination. The Federal Credit Union
Act provides that the federal credit union pay each year a super-
vision fee in accordance with a graduated scale prescribed by regu-

lation on the basis of assets as of December 31 of each preceding

 

 

2
year.
Total Assets Maximum Fee
$500,000 or less . . . . . . . . .. 30 cents per $1,000.
Over $500,000 ........... $150 plus 25 cents

per $1,000 in excess
of $500,000.

Over $1,000,000 .......... $275 plus 20 cents
per $1,000 in excess
of $1,000,000.

Over $2,000,000 .......... $475 plus 15 cents
per $1,000 in excess
of $2,000,000.

Over $5,000,000 .......... $925 plus 10 cents
per $1,000 in excess
of $5,000,000.

All such fees shall be deposited with the Treasurer of the

United States, for the account of the Bureau, to be expended, by

. . . 3
the Director for administrative and other expenses of superViSion.

\

 

 

l
Delmar C. Nagel, Deputy Commissioner, State Banking De—
Partment of Michigan, oral communication.

Federal Credit Union Act, op. cit., Section 5.

3
Ibid.

 

.-.n.—wa4§—a

A ~m“u\-L‘_-

 

46
The current rate of federal credit union examiners if $7.00 per man
1
per day.
The state banking department receives it funds by appropria—
tion from the state legislature. Funds adequate to insure proper

supervision of credit unions are often lacking.

 

The federal credit union provision regarding supervision of

credit unions is much more reasonable than the state act, and ex—

-.-s—T‘Trfié2f.‘ -

plains why data on federal credit unions are much more adequate ' i
than on state-chartered credit unions. There is no reason why
credit unions should not pay the full costs of their examinations
and other expenses incurred by the banking department in providing
supervision of them.
A state provision patterned after the federal provision re—
garding regulation as to examination, reports, et centera, is needed
to insure adequate inspection of credit union operations. By allow-
ing the commissioner of the State Banking Department to determine

the supervision fees, the funds collected will have some relation to

 

the cost of the supervision. Those receiving the benefits of the

 

Delmar C. Nagel, oral communication.

2
Ibid.

 

47

supervision will be the persons paying for it, rather than diffusing
the cost to the general taxpayers, many of whom are not credit
union members, and the Banking Department will be assured of funds
to properly inSpect, regulate, and report on the credit union activi-
ties. While competing financial institutions might benefit from im-
proved credit union audits, it would be no more so than have the
credit unions in the past from the strict audits of these institutions.
One of the soundest sections of Senate Bill 1248, sponsored
by the Michigan Credit Union League, Section 6, attempts to solve
this problem by providing for the determination of supervision fees
on the basis of the size of the total assets of the credit union exam-
ined, patterned somewhat after the provisions of the Federal Credit
Union Act.1 The bill provides that the examination cost be computed
as .follows: seven cents per $100 or fraction thereof on the first
$1,000,000 of total assets; six cents per $100 or fraction thereof on
the second $1,000,000 of total assets; five cents per $100 or fraction
thereof on the third $1,000,000 of total assets; four cents per $100
or fraction thereof on the fourth $1,000,000 of total assets; three

cents per $100 or fraction thereon on the next $5,000,000 of total

 

See page 45 of this study.

48

assets; one cent per $100 or fraction thereof on all assets in excess
of $10,000,000, or $6.00 per examiner-hour, whichever is lower. Any
credit union so examined shall pay a minimum examination fee of
the sum of $25.00. If the above method of determining examination
fees were adopted, the costs of examining the credit unions would
be placed on a more equitable basis, and credit unions with assets 3
of over a million dollars would not be paying the same amount as i:
credit unions with assets of less than ten thousand dollars.
The one remaining problem regarding proper regulation of
credit unions is the fact that the funds obtained through examining
and chartering the state-chartered credit unions are not placed
aside for the sole purpose of regulating credit unions, but are placed

in the general fund, for the legislature to determine how much should

be alloted for the regulation of credit unions. With the rapid growth

of credit unions in Michigan and the increased amount of effort re-

quired to examine them, some thought should be given to the possi-

-

bility of establishing a separate governing body apart from the State

Banking Department, to be solely concerned with the regulation of

credit unions in Michigan. If the suggested method of examination

 

Total assets of the Detroit Teachers Credit Union on De—
cember 31, 1953, were $18,506,321.

 

 

49
fee determination were adopted, the funds from this activity alone
should be sufficient to cover most of the costs of operating such a
department, and the grant from the general fund could thereby, to
some extent, be reduced, saving the ordinary taxpayer from entirely
supporting the credit union regulatory agency. A separate credit 3
union agency could devote more time to the problems of the credit
unions, and to the examination of their activities, to insure adequate

protection to the depositors and shareholders.

Supervision. Credit unions are thoroughly democratic organi-

 

zations. Each member has one vote regardless of the number of
shares he may own. General meetings of the membership must be
held at least once a year at which time members elect a board of
directors who choose the officers. I have already cited the exten—
sive powers enjoyed by the officers.

To protect the credit union members, all officers are bonded,
and it is provided that no director or officer, or member of the
credit committee, may borrow from the credit union beyond the
amount of his or her holdings in shares or deposits, nor may he
or she endorse, cosign, or guarantee for borrowers. This would
seem to provide a great deal of protection. Yet, the danger does not

seem to be from embezzlement but rather from incompetency.

 

50

Credit unions have no program for training of credit union

officers in the management of loans and investments. Many of the

officers come into contact with financial transactions which they
have little if any knowledge of. There is no doubt that many of

the existing credit union officers are competent, as can be seen from I

the fine record of the credit unions. Nevertheless, there is little .2,

doubt that the officers gained much of their competency, by on—the-

job training, while handling large and foreign transactions. Cer- . . ,J

tainly improvement can be made regarding this condition.
Incompetency of officers may hurt the credit union in two ways.

First, due to their incompetency, officers may tend to be overly con-

servative. Fearing for the solvency of the credit union, directors

may turn down many safe loan applications, thereby failing to serve
the credit union members, and at the same time reducing the credit

union' 5 earnings .

Second, and equally important, officers, while meaning to do

 

well, but due to their lack of knowledge of the loan and investment

business, may make unsafe loans and investments. The supervisory

committee is given the job of examining the credit union affairs at
least quarterly, to determine the efficiency and soundness of its

operations. But the supervisory committee is as uninformed as

are the other officers.

 

q . :iu...“ui%s . 13‘s» maul. ‘

.flfillllnlt. .
[L

 

51

A reasonable solution to the problem of insuring the compe-
tency of credit union officers would be for the Michigan Credit Union
Act and the Federal Credit Union Act to be amended to provide for
a training course and an examination for the officers, upon comple—
tion of the course. A possible list of topics to be studied could be:

1. The provisions of the Michigan Credit Union Act and the f,

IM- s.~ ' .u

Federal Credit Union Act.

=1—__._._.~__.._...

2. What is a financially sound credit union position.

3. How to determine the safety of a loan.

4. How to prepare credit union financial reports.

5. What are adequate reserves.

The Michigan Credit Union League currently provides an edu-
cational program for its members, consisting of week-end institutes,
chapter clinics, and correspondence courses, to acquaint its members
with the proper operational procedures of a credit union. Field
representatives of the League visit newly chartered unions periodically,

to help them overcome any problems they may be encountering. The

 

League, whose members include all but forty—two credit unions in
Michigan, has done much to improve the efficiency of the credit
union officers. However, the League is purely a trade association

financed by the dues collected from the credit unions composing it.

52
There is no way the League can help a credit union that does not
want help. Therefore, examination of credit union officers, required
by law, would insure that each and every credit union officer attained
a minimum of proficiency in his job.

Funds for the above program, if the credit unions were con- :
vinced of its desirability and usefulness, could be obtained by a small ‘
tax, to be paid by the credit unions. Credit unions are currently
paying dues to the League for much the same purpose and should
have no objection to paying for this service by a tax, which would

remove the burden from the League.

CHAPTER III
CREDIT UNION LIQUIDATIONS

It is the purpose of this chapter to examine both federal- and ,
state-chartered credit union liquidations to discover the reasons for

liquidation in order to see if any of the liquidations could have been

..A ...—q. H A
1 - ‘~[.Anl‘!‘s;.:'«.4..
..-

\Il

prevented by improved legislation. Voluntary and involuntary liquida-
tion of a credit union imposes a hardship upon the members in that
the assets are often seized or frozen, and a long period of time may
pass before a member can receive his funds.

The word "liquidation" as used in this study means a final
surrender of charter. It includes mergers or conversions to state
or federal charter and revocations of the charter of a credit union
which has never done any business. This study deals only with
those cases in which the final outcome of the liquidation process
has been determined. It does not include credit unions which are
under suspension or in the process of liquidation.

Liquidations of both state- and federal-chartered credit unions
will be discussed. The section dealing with the federal credit unions,

however, will for the most part be confined to a discussion of

53

 

54

liquidation on a national level only, since information of individual
state liquidations is very scanty. Discussion of the state-chartered
credit unions will deal only with the liquidations of credit unions
chartered in Michigan, to discover any possible improvements that

could be made in the Michigan Credit Union Act.

Federal Credit Union Liquidations, 1935-1953

inmyaamg..-_.__ ,
—‘f'.

f --—. _ ‘27—” -

From the passage of the Federal Credit Union Act in 1934
to the end of 1953, there were organized 9,096 federal credit unions.
Of this number, 2,240, or 22 percent of the total, were liquidated.
Historically, the record of the federal credit union liquidation
from 1935 through 1953 has been very good. The rate of liquidation
was low in the early years of the system, rose sharply from 1943
to 1948, due to wartime controls on credit, and then declined for
a few years, before starting to rise rapidly again during the Korean
War, as can be seen in Table IV. Statistical anlysis reveals that
the small credit unions. measured by the number of members and

shareholders, predominated in liquidations (see Table V). All age

 

l
1953 Report of Qperations Federal Credit Unions, U. S.
Department of Health, Education and Welfare, Bureau of Federal

Credit Unions, Washington, p. 15.

 

55

TABLE IV

NUMBER OF CHARTERS ISSUED AND CANCELED BY YEARS,
AS OF DECEMBER 31, 1934-1953

 

 

 

 

 

Number of Charters Percentage
Year of Total
Granted Canceled Credit Unions

1934 78

1935 828

1936 956 4 0.02
1937 638 69 2.76
1938 515 83 2.75
1939 529 93 2.62
1940 666 76 1.81
1941 583 89 1.86
1942 187 89 2.04
1943 108 321 7.20
1944 69 285 6.70
1945 96 185 4.58
1946 157 151 3.82
1947 207 159 4.00
1948 341 130 3.24
1949 523 101 2.44
1950 565 83 1.79
1951 533 75 1.46
1952 692 115 1.87
1953 825 132 1.92
Total 9,096 2,240

 

 

Source: Bureau of Federal Credit Unions, Annual Report of Opera-
tions (1937-1953).

.__._ -11.... .... i.
F ' -...i "a .4“‘=A~.

 

56
TABLE V

NUMBER, MEMBERSHIP, AND SHARE BALANCES OF FEDERAL
CREDIT UNIONS LIQUIDATED, 1936-1953

 

 

Totals in Liquidations

 

 

 

Year
Unions Members Balances
1936-41 414 19,807 $ 471,877
1942 89 5,777 192,815
1943 321 24,446 964,172
1944 285 24,439 930,745
1945 185 24,607 1,030,845
1946 151 18,499 1,106,742
1947 159 15,487 891,339
1948 130 13,505 912,919
1949 101 17,815 868,454
1950 83 9,013 723,250
1951 75 5,580 410,434
1952 105 12,008 1,235,313
1953 109 12,830 1,688,700
Total 2,054 203,813 $11,427,603

 

 

Source: Bureau of Federal Credit Unions, Annual Report of Opera-
tions (1937-1953).

 

’ a a_
.l A- ”......1 .‘7‘: e .

57

groups were fairly evently represented. Classified by type of occupa-
tional, associational, and residential credit union, the percentages
liquidated were 73.8 percent, 21.6 percent, and 4.6 percent, respec-
tively. Liquidations in the occupational area ranged from 9.5 per-
cent among telephone workers' credit unions to 70 percent in credit
unions organized in hotels and restaurants.

The liquidated credit unions paid to shareholders at liquidation
104 percent of total shareholdings for a net gain of $456,981; 1,640
credit unions paid more than 100 percent; and 414 credit unions
paid less than 100 percent of the amount due.2 Total losses in
liquidation were amazingly small, only $129,048, or about 0.025 per-
cent of the share balances in all credit unions at the end of 1953,
an infinitesimally small percentage of the total amount entrusted to
the care of federal credit unions since 1934.

Since 1934, credit unions in Michigan, operating under a fed-
eral charter, have grown steadily. At the end of 1953, 523 charters
had been granted, of which sixty-one, or 11.6 percent, have been

canceled. A yearly breakdown of charter issuance and cancellation

is given in Table VI.

 

1 2
Ibid., p. 29. Ibid.

58
TABLE VI

NUMBER OF FEDERAL CHARTERS ISSUED AND CANCELED IN
MICHIGAN, BY YEARS, AS OF DECEMBER 31, 1936-1953

 

 

 

 

 

Number of Charters Percentage
Year of Total
Granted Canceled Credit Unions ._.
1936-43 114 24 21.8 T
l
1944 6 4 4.1 1;?
1945 6 5 5.1 ,
1946 8 3 2.9 4'-
1947 14 l 0.9
1948 18 7 5.4
1949 42 2 1.2
1950 59 3 1.4
1951 81 4 1.3
1952 97 6 1.5
1953 77 3 0.6
Total 523 , 61

 

 

Source: Bureau of Federal Credit Unions, Annual Report of Opera-
tions (1937-1953).

 

 

59

It is very difficult to attempt to explain the reasons for a

credit union liquidation. Reasons reported by the examiners--and

they are the chief source of this information--reflect the biases,
the prejudices, or even the lack of interest of a harassed examiner.
In an attempt to clarify this topic, 351 liquidations were stud-
ied which took place in the years from 1948 through 1951, and the
reasons were tabulated (Table VII). The years 1948 through 1951
were selected to avoid the influence of wartime credit controls on
credit union activities, which in the past has been responsible for
many credit union liquidations. The reasons listed must be accepted
as accurate only to a degree: they must be qualified in so far as
they reflect inadequacies in the examiner's reports.
It is evident from Table VII that slightly over one-third of
the liquidations of these four years were due to factors over which

the officers and members had little or no control. The moving of a

plant or the closing of a plant in which the credit union exists nec-

essarily means the liquidation of the credit union. This one factor

accounts for 21.4 percent of all liquidations. The opposition of the
employer, accounting for 13.4 percent of all liquidations, likewise
makes it difficult or impossible for the credit union to continue in

operation. There is very little in this area that legislation can help

to overcome.

 

7" “ ”*TFPW. a. i

.
11“,“
\

 

60

TABLE VII

ANALYSIS OF REASONS REPORTED FOR LIQUIDATIONS
OF FEDERAL CREDIT UNIONS, 1948-1951

 

 

Credit Unions

 

Reasons Reported

 

 

No. Pct.
1. Indifference of potential leaders and
members ........................... 140 39.8
2. Closing of plant or field of operation ....... 75 21.4
3. Opposition of employer ................. 47 13.4
4. Field of membership unsatisfactory ......... 39 11.1
5. Management and operating problems
(internal friction) ..................... 25 7.2
6. Heavy labor turnover ................... 15 4.3
7. Alternative thrift and loan service
available ........................... 8 2.3
8 Miscellaneous ........................ 2 0.5
351 100.0

Total .................................

 

 

Source: John T. Croteau, Federal Credit Union Liquidations, 1935-
1951, Journal of Business, University of Chicago, July,

1952, p. 199.

 

A}: 7m~a.:.m~

 

61

In regard to indifference of potential leaders and members,
which accounted for 39.8 percent of the liquidations, constructive
legislation could prevent this to some extent. The present Federal
Credit Union Act provides that any seven or more natural persons
who desire to form a federal credit union may do so upon applica-

tion. This is hardly sufficient to insure that there is a need for

n . ..fifi‘r‘l’ 1 'i‘

a credit union and that there will be sufficient membership to main-

.--

‘L-.

tain one. An amendment providing that there be a minimum of 100 ..,=,
persons desiring establishment of a credit union, although not insur-
ing ability to sustain operation, would provide greater assurance
than is currently provided. Any act which enables any seven persons
to form an organization to handle funds of depositors, seems to place
a great deal more trust in the inherent ability and honesty of the
pe0p1e applying for a charter, than can be judged wise on the basis
of‘the information available. Charters have often been issued in the
past, where there has been no real need or desire for a credit
union, or where there has been little if any possibility of a credit
union being Successful.
The study of federal credit union liquidations has revealed

little other useful information of the type needed for improving legis-

 

 

lation except that there is a need for establishing some minimum

 

 

 

62

amount of credit union desirability before issuing charters. Although
the number of liquidations may seem to have been large, the losses
were surprisingly small--trivial in all but a few cases. Liquidations
due to the inability of credit union officials could be reduced somewhat
by the enforcement of a training program outlined earlier in this study.

It is safe to say that liquidation of federal-chartered credit

unions has not been due primarily to any inherent weakness of the if“ 1
Federal Credit Union Act, but rather to factors operating outside !

the control of legislation. These factors tend to operate regardless
of any attempts by legislation to stop them. The aim of legislation
should be to reduce the harmful affects which these external factors
may produce, through such provisions as:

1. Requiring a sixty-day advance notice of an employer of
his intention to close or move his plant, whenever pos—
sible.

2. Establishing a level of fines to be levied against em-
ployers who discriminate against employees who join

or foster the establishment of a credit union.

 

63

Michigan-Chartered Credit Union Liquidations

The first legal credit union in Michigan was chartered by the

State of Michigan on November 5, 1925. From the passage of the

Michigan Credit Union Act in 1925 to March 15, 1955, there were

organized 459 state-chartered credit unions. Of this number, 122,

or 26.0 percent of the total, were liquidated.
Information concerning Michigan credit union liquidations is

very scanty. Table VIII gives some idea of liquidations over the

past eight years .

Of the 122 liquidations, all but seven of them were purely
voluntary and it must be assumed that the voluntarily liquidated

credit unions paid to the shareholders at least 100 percent of the

total shareholdings at the time of liquidation. When a credit union

decides to liquidate voluntarily, after a vote of the membership of
which four-fifths of the entire membership must vote to dissolve,

the said credit union must file with the banking commissioner a

statement to that effect.

1 Delmar C. Nagel, oral communication.

2 Ibid.

Many state records were destroyed by fire in 1951.

The commissioner determines whether or

In? _

- p

64
TABLE VIII
NUMBER OF STATE CHARTERS ISSUED AND CANCELED

1N MICHIGAN, BY YEARS, AS OF
DECEMBER 31, 1946-1951

 

 

 

 

 

Number of Charters Percentage

Year of Total i 1

Granted Canceled Credit Unions ,‘ 6'
1946 4 10 6.8 i
1947 6 4 2.7 i .
1948 9 1 0.6 1 if 7'
1949 4 l 0.6 1
1950 6 2 1.2 7
1951 6 0
1952 8 2 l l
1953 63 7
Total 106 27

x
‘

 

Source: Abstract of Repprts of Credit Unions, State Banking De-
partment, Lansing, 1946-1953.

 

65

not the credit union is solvent at the time that the statement is filed.
The test of solvency is whether or not the credit union has sufficient
assets to offset liabilities. If such is the case, the bank commis-
sioner issues a certificate effecting the dissolution procedure. Now
if something should happen whereby loans cannot be collected after
the certificate is issued, there is no way for the commissioner to
know of this. Thus it can only be assumed that the liquidated credit
unions repayed 100 percent to the shareholders.

Only seven of the 122 credit unions liquidated since 125 were
placed in receivership.2 This amounts to 5.7 percent of the unions
liquidated and only 1.5 percent of the total credit unions chartered
since 1925. Of the seven placed in receivership, five of them paid
100 percent of shareholdings to shareholders, one paid 95 percent,
and one paid 70.56 percent. The total loss to shareholders of the
two credit unions paying less than 100 percent of shareholdings
amounted to only $999.39.3

From the above figures it can be seen that although the rate

of credit union liquidation has been high (one out of every four

 

Michigpn Credit Union Act, op. cit., Section 20.

Delmar C. Nagel, oral communication.

3 Ibid.

 

 

66

chartered), the number of unions placed in receivership and the
number of unions sustaining losses, and the losses sustained, were
infinitesimally small.

The reasons for liquidation follow very closely those given
for federal-chartered credit unions. The primary reasons for
liquidations were:

1. Loss in interest on the part of members.

2. Closing or moving of plant in which members worked.

3. Lack of membership and capital with which to Operate.

4. Change to a federal charter or to join a federally char-

tered credit union.

The first three reasons given indicate clearly that there is a
definite need for increasing and/or redefining the requirements to
be met before a credit union charter is granted.

Like the Federal Credit Union Act, the Michigan Credit Union
Act provides that any seven residents may apply to the commisioner
of the State Banking Department for permission to organize “a credit
union.1 Final approval of the application rests with the banking

commissioner, who must decide if it is wise to issue a charter.

 

Michigan Credit Union Act, op. cit., Section 1.

.- :v 1.
1‘

 

67

The law provides no guidepost for the commissioner to employ in
passing judgment on the application. The application need only con-
form with the 1aw and the applying organization should be of benefit
to the members. Some definite provisions are needed to be used as
guideposts in judgment of applications for charters. The State of
Illinois recently revised its credit union act and recognized the need
for these guideposts. The Illinois act provides that the Auditor of
Public Accounts (bank commissioner) shall not issue a certificate
of approval for the incorporation of a credit union unless it is shown

that the field of membership in which the credit union proposes to

operate provides a common bond of interest such as may reasonably

be deemed to assure the success of the credit union. The existence

of such a common bond and potential membership shall be consid-

ered adequate if one ofthe following conditions is met:

1. In the case of an associational credit union, member-
ship is limited to persons belonging to a specific local associa-
tion or organization, including but not limited to churches, labor
unions, clubs or societies, etc., and residing within a reason-
able compact geographical neighborhood, and where membership

of such Credit Unions exceeds 50 persons.z

 

Illinois Credit Union Act of 1953, Auditor of Public Ac-
counts, State of Illinois, 1953.

Loc. cit. (italics mine).

 

68

2. In the case of community credit unions, membership
is limited to persons, their spouses and unmarried children who
are residents of a reasonably compact and well defined neighbor-
hood or community, the popplation of which does not exceed thirty
thousand.1

3. In the case of occupational credit unions, membership
is limited to persons having a common employer, and employed
at one or more locations within a reasonably compact geograph-
ical area, and whose field of membership exceeds 50 persons. 1

A rule-of—thumb method, for use in judging charter applica-

tions, that has some reliability in prediction, as viewed by past f

 

statistics, is given here for consideration. It has been established
by experience that a credit union requires two members to support
each borrower. For example, at the end of 1953 total membership
in Michigan-chartered credit unions amounted to 164,627, while bor-
rowers amounted to 82,448. The average shareholding amounted to
$395, while the average loan amounted to $679 per borrower, or a
2-to-1 ratio of shareholdings to loans. With this rule in mind, if
a group of 100 persons decide to apply for a credit union charter,
each personOPIedging to buy one share of stock with a par value

of ten dollars, $1,000 of capital would be created. Now if the rule
follows that one-third of these people will borrow at the average

loan amount of $395, the rest of the members must be able to place

 

1 2 . .
Loc. cit. (italics mine). Loc. cit. (italics mine).

 

 

69

$679 each into the credit union. Of course this method has many

weaknesses but further study may prove it worth while.

It is readily admitted that the decision of what constitutes
a sufficient common bond of interest to deem a potential credit
union successful is a purely arbitrary matter. However, the provi-

sions of the Illinois Credit Union Act, in attempting to arrive at

‘ 24%: ”£1111: .1: o '.

some yardstick to be used in measuring the potential success of a

1
'..
0“
"2‘5- . ‘

credit union application, has established some guideposts to be con-
sulted before issuing a charter, which would appear to enhance the
success of the credit union more than does the provision that any

seven residents may apply for a credit union charter.

The credit unions will, no doubt, be the first to applaud

the aforementioned provisions of the Illinois Credit Union Act. The

present Michigan Credit Union Act leaves a great deal of discretion

in the hands of the Bank Commissioner as to whether or not the

applicants for a charter receive a charter. The present Banking

Commission has been very cooPerative with the credit unions and

has maintained a recommendable impartial supervisory attitude to-

ward credit unions and applications for charters. However, Michi-

gan state—chartered credit unions have had experience under an anti-

credit union banking commission, when state charters were next to

 

70

impossible to obtain, and charter applicants turned to the Bureau of
. . . 1 . .

Federal Credit Unions for their charters. Justice to the banking

department and to the credit unions requires that some measure of

minimum insurance of credit union success be established and em-

ployed in judging charter applications. .

-uv

__O’C

It must not be inferred from the above suggestion that all
discretion over final approval of charter applications should be re-
moved from the hands of the banking commissioner. The banking 1 1'.
commissioner performs a valuable service to the public, to exist-
ing credit unions, and to applicants when he refuses charters to
unqualified applicants or to applicants who have no justifiable purpose
in establishing a credit union. The majority of applicants for credit
union charters are honest, intelligent people who could benefit from
the establishment of a bredit union. Unfortunately there are some

people, normally termed "go—getters" or "organizers," who desire

the creation of a credit union only to enhance their personal power

and prestige or to secure some special advantage. The banking

commissioner is a defender of unsuspecting persons, and is interested

in protecting the future shareholders of the credit unions.

 

1 C. J. McLanahan, Director of Training, Michigan Credit

Union League, oral communication.

Delmar C. Nagel, oral communication.

 

71
The recommendation mentioned previously, whereby an em—
ployer must file a sixty-day advance notice of intent to move or
close his plant, is equally applicable on the state level as on the
federal level.
The discussion of credit union liquidations, both state- and T— :

federal-chartered, has served to point up weaknesses in the organi—

zation requirements of credit union charter applicants, under the

T'- Wmmmrw
F
J—..__

Michigan Credit Union Act and the Federal Credit Union Act. These
weaknesses must be removed before full confidence of the public

will be placed in the credit unions.

 

CHAPTER IV
REGULATION OF SIMILAR INSTITUTIONS

Credit unions originated in Eur0pe, when German farmers in
1850 organized cooperative banks whereby the farmers could borrow
funds at low rates of interest to purchase needed tools and seed with
which to farm.1 Credit unions developed in the United States for
somewhat the same purpose, to provide so-called remedial or emer‘
gency loans, at low rates of interest, for such things as doctor bills,
burial expenses, and other unexpected large drains on the small wage
earner's pocketbook. Funds were available from banks or loan com-
panies but at exorbitant rates of interest. The credit unions filled
the gap. Few people, if any, realized that the favorable legislation
passed during the nineteen-twenties and thirties would create financial
institutions which would someday have loans outstanding of over a
billion dollars. As long as the credit unions confined themselves

to small remedial loans, other financial institutions payed little

 

Lincoln H. Clark, The Credit-Union Legal Framework,
The Journal of Business, University of Chicago, October, 1943, Jan-

uary, 1944. p. 236.

72

 

"sue,“
k‘n

 

 

 

‘r'm .L.” 0"!0l0'lir .m I

.... iii

73

heed to their petty progress. However, when in the last ten years
credit unions began to provide funds for automobile, appliance, and
real estate purchases, in direct competition with commercial banks
and personal finance companies, the executives began to look more
closely at the legislation that had slipped by unnoticed in the nineteen-

twenties and thirties.

Since 1939 the amount of United States installment credit held

 

111.4. ,_, ‘1

by credit unions has increased more than ten times, a far more rapid

 

rate of growth than was experienced by any other financial institution
or retail outlet. In 1939 credit unions held $132 million of install-
ment credit. By 1953 it amounted to $1,124 million. As of October,

1954, it amounted to $1,270 million (see Table IX).

 

The loudest and the soundest complaint against the credit
unions has been made on the grounds that credit unions have been

subsidized and favored by legislation which favors credit unions but

 

discriminates against other financial institutions. The credit unions
through subsidies have been able to charge lower rates of interest
on their loans in many cases, and because of reduced expenses, made
possible by the subsidies, they are able to declare higher dividend

earnings than can institutions which do not receive these subsidies.

 

74
TABLE IX

UNITED STATES INSTALLMENT CREDIT BY HOLDER
(estimated, in millions of dollars)

 

 

 

Com Sales
Year mercial Finance Credit Retail
Banks Com- Unions Outlets 1'
pames 1
1939 1,079 1,197 132 1,438 ,
1940 1,452 1,575 171 1,596 g
:1
1,
1941 1,726 1,797 198 1,605 f'
1942 862 588 128 990
1945 745 300 102 686
1946 1,567 677 151 937
1947 2,625 1,355 235 1,440
1948 3,529 1,990 334 1,876
1949 4,439 2,950 438 2,269
1950 5,798 3,785 590 2,670
1951 5,771 3,769 635 2,760
1952 7,524 4,833 837 3,274
1953 8,856 6,147 1,125 3,273
1954
Oct. 8,637 6,315 1,270 3,226

 

 

Source: Federal Reserve Bulletin, Board of Governors of the Fed-
eral Reserve System, Washington, December, 1954, p. 1294.

 

 

75

Fe rs onal Se rvice Subi side 5

All operating, supervisory, accounting, and other services are
donated by the members of the credit unions. Salaries are thereby
eliminated, which are a high cost item to other commercial institu-

tions .

Corporate Subsidies

In: "ur‘ch-nw-o o-mn'i‘: ..u
,, ..

Almost all firms in which the employees have organized credit
unions donate office space, heat, and light free of charge to the credit
union. Further, some first provide a check-off system of share col-
lection, whereby the payroll department deducts share payments from

the paycheck of the individual, without charge to the union.

Gove rnment Subsidies

Free services. Both the state banking departments and the

 

Federal Bureau of Credit Unions furnish free forms of incorporation,
reporting forms, and by-laws to the credit unions. State bank com—

missioners and their staffs devote much of their time to giving free

 

advice and assistance to credit unions desiring aid. Further, in
cases where credit unions have been placed in receivership, the

State Banking Department charges no receivership costs to the credit

 

 

76

union.1 Many times, if receivership costs were charged they would
amount to more than the funds remaining to be distributed to the
shareholders, after the sale of assets and payment of liabilities.

This service enables credit unions to repay 100 percent of the share-

holdings to the shareholders, who otherwise might suffer a loss.

Taxation. Section 22 of the Michigan Credit Union Act pro-
vides that a credit union shall be deemed an institution for savings
and, together with all the accumulations therein, shall not be subject
to taxation except as to real estate owned and that the shares of a
credit union shall not be subject to a stock transfer tax when issued
by the corporation or when transferred from one member to another.
Section 18 of the Federal Credit Union Act provides that credit
unions, their property, their franchises, capital, reserves, surpluses,
and other funds, and their income shall be exempt from all taxation
except that any real property and any tangible personal property
shall be subject to property taxes. The above two provisions place
credit unions in a very advantageous position. Michigan-chartered
banks and savings and loan or building and loan associations are sub-

ject to a yearly intangibles tax of 0.04 percent of the face value of

 

Delmar C. Nagel, oral communication.

 

.__. W—Au—I—‘Jfl,.n
a: ‘d‘n 1

Al”;

1"”:

 

77

the assets as it is equal to the amount of its total deposit liabilities,

or in the case of building and loan or savings and loan associations
. . . . 1 .

the amount of its share liabilities. Further, the income earned by

the commercial banks and finance companies is subject to the cor-

porate income tax, which can go as high as 52 percent of the net

income earned.

(griffin-Inset 1'7: '-

33:593- While the state and federal government operate to
keep the expenses of a credit union low on the one hand, they also
make it possible for credit unions to charge a higher rate of inter-
est on their loans to members. Credit unions are allowed to charge
1 percent per month on loans, many of which are based on such fun-
damental security as real estate insured by the Federal Housing Ad-
ministration, or guaranteed by the Veterans' Administration, while
banks are limited to 4 to 6 percent, even though their cost of opera-
tions are higher, and they do not enjoy exemption frbm legislation.
In the case of small loans, excepting credit unions, every small
loan licensee may lend any sum of money not to exceed $500 in
amount and may receive thereon charges at a rate not exceeding

Maurice C. Eveland and Fred M. Alger, Jr., Michigan Fi-
nancial Institutions Act, Lansing, 1951, Section 205.133a, p. 209.

 

78

3 percent per month on the unpaid balance of any loan not in excess
of $50, and 2.5 percent per month of any loan in excess of $50 but

not in excess of $300, and 0.75 percent per month on any remainder

of such unpaid balance.

gpgapization reqpirements. Mention has already been made
of the ease with which credit unions may be organized. No minimum
capital requirement is made for credit unions. In comparison, no
bank can be organized in Michigan with any less capital than $25,000.2
The minimum capital requirement for a bank can be as high as $500,-

000 if the place where its business is transacted happens to be in a

3
city with a population which exceeds 300,000. Applicants for a

 

small loan license must have available for the operation of such a
business liquid assets of at least $5,000 in a city of more than 5,000
pOpulation, or $10,000 in a city of more than 10,000 persons.

The Michigan—chartered credit unions pay no fee for their

charters, and aside from the annual $25 examination fee, pay no

 

Ibid., Section 493.13, p. 399.

 

 

2 Ibid., Section 487.40, p. 24.
3 Loc. cit.

4 Ibid., Michigan Financial Institutions Act, Section 493.2, p.

 

394,

 

79
other fees to cover the cost of supervision. Federal-chartered credit
unions pay a $25 organizational fee and examination fees outlined on
page 45. In comparison, small loan license applicants pay the bank-
ing commissioner the sum of $50 as a fee for investigating the ap-
plication and the additional sum of $150 as an annual license fee
and payment for examination expenses.

Banks in Michigan likewise pay a $50 application fee. Within
30 days after filing its articles of incorporation, the bank must notify
the commission that all its capital and surplus has been paid in,
whereupon the commission examines the condition of the bank to as-
certain the amount of money paid in on account of its capital and
Surplus. All expenses incurred by the commission in making the
examination are paid by the bank. For the annual examination, each
bank must pay into the state treasury for the credit of the general
fund not less than 0.0075 percent of the gross amount of assets, nor
more than 0.025 percent of the gross amount of the assets. The fee
is determined by the commissioner of banking. The minimum fee is

$75.2

 

\ _

1
Loc. cit.

2
Michigan Financial Institutions Act, op. cit., Section 487.14,
P. 12,

- ‘1 ‘mfi 27' ~

s“ .
r. ....

 

 

80

The comparisons made between a few provisions governing
credit unions and other similar financial institutions has clearly

indicated that the credit unions have been afforded special privileges

in many areas. It may be well to stop and define the meaning used
when referring to credit unions, small loan companies, and commer- ,
cial banks as being similar institutions of finance. Many persons, ,
even today, are voicing the opinion that credit unions perform opera- E
tions entirely different from banks and small loan companies, and 1' 3
therefore require special legislation. When credit unions first de- ‘—
velopecl, it is true, that they were Special institutions, making a

special type of loan and their primary purpose was to develop in

their members the habit of thrift and systematic savings. As years

 

passed andipeOple began to carry life and hospitalization insurance,
and pension plans came into effect, the operations of the credit
unions were revolutionized, to the extent that making loans became
their primary purpose. Loans not simply for ”provident" and "pro-
ductive" purposes, but in a majority of cases for the purchase of
”luxury" items, for which the credit union member could not afford

to pay cash, but would have to save for long periods of time, or

borrow money from the normal suppliers of consumer credit. With

the disappearance of the loan sharks, the adoption of small loan

 

81

laws which reduced the interest rate to a reasonable amount, and

the increased supervision placed upon lending agencies, people today

have little need to fear borrowing from the normal suppliers of con-
sumer credit. Further, credit unions have been able to declare divi-
dends of 4 to 6 percent per year on savings, which exceeds that of-

fered by any other savings institution. This higher rate of interest

has attracted people to form credit unions not for the purposes of

a" “Fe—mini..- -.,w-..~-.-. .--

promoting thrift, but only for the purpose of earning higher rates of
interest on their savings.

When the credit unions begin making loans for "luxury goods"
and are established merely to gain the higher earnings on savings,
they lose their uniqueness and become a profit-making corporation,
the same as a bank, sales finance company, or a small loan company.

If it is once admitted that credit unions are organized for
the same purpose as a bank, sales finance company, or a small
loan company, there is little valid reason for government subsidiza-
tion. In fact, the paternalistic attitude of government raises a grave
question. Subsidies indicate a weakness or an inability to cope, un—
aided, with competing organizations. It is inconsistent, therefore, to
advocate participation in an unsound agency, as the most economical

one to use, when the ability to charge lower rates on loans and to

 

 

 

82

declare larger dividends, is dependent, in part at least, on the ex-
emption from obligations that the state imposes upon others.

It is not the aim of the author to favor the removal of
credit unions, or the passage of prohibitive credit union legislation.
The problem seems to boil down to a choice between one of two
alternatives. First, if the credit unions confine their activities to
the operations for which they were originally created, that of provid-
ing remedial loans and promoting thrift among their members, then
there is little need for any serious revision of the credit union acts,
to bring them in line with competing financial institutions. But, if
credit unions continue to expand their operations into the field of
luxury goods purchases, and real estate loans, the only righteous
alternative left is to remove those sections of the credit union
acts which enable them to enjoy unjust advantages over their com-
petitors.

There seems to be little likelihood of credit unions accepting
the first alternative; therefore, recommendations regarding the sec-
ond alternative must be considered. The following recommendations,
if adopted, would remove all the flagrant discrepancies existing be-
tween credit union, bank, and small loan legislation.

1. A uniform examination fee to be charged to all financial

institutions, based on the amount of their assets.

 

 

83

2. Credit unions to be required to pay the full expenses of
any and all banking commission assistance, and super-
vision, at the going rate.

3. A required minimum shareholding of $50 before a credit
union member will be granted a loan.

4. A required capitalization of an amount equal to $100 per
member before granting a credit union charter.

5. Equal taxation, both of gross assets as intangibles and
earnings as corporate income, of all financial institutions.

The above recommendations may indeed seem harsh to a

credit union member or representative, but they may serve to open
the eyes of credit union leaders to the advantages they enjoy over
their competitors, in the way of favorable legislation. Recognition
must be given to the credit unions for the fine job they have done
in the past and for the fine job they are doing today. Their expan-
sion has been nothing short of phenomenal. Nevertheless, it must
be recognized that this expansion has occurred, in part if not en—
tirely, at the expense of others, who have not been placed in an

equally enviable position.

..1r_-- --:-—.*——-—- if

 

173.

 

CHAPTER V
UNIFORM CREDIT UNION CODE

Within the past few years there has developed strong agitation

724‘; .4

for the adoption of a uniform‘ credit union code which would govern

all credit unions. There are many arguments for and against such

(“mw'rxxtr’

a proposal which must be considered before any such action is taken.
Each of the forty-four states granting credit union charters,
and the Federal Bureau of Credit Unions chartering federal credit

unions, have individual legislation governing the organization and

 

operation of credit unions. In these forty-four states, credit unions

can choose between state and federal regulation before incorporation

and, later, if it is found advisable, dissolve, and the switch from

one to the other. The choice depends on whichever of the two laws

appears to be more liberal to the members. Niefield expresses the

View that:

. this makes for competition between the federal stat-
ute and the state statutes. There is no real need or advantage
in having two systems. After satisfactory experience under the

Federal Law, the several states should abolish the local credit

union laws.1

I M. R. Neifeld, Cooperative Consumer Credit, with Special
Reference to Credit Unions, New York, Harper 8: Bros., 1936, p. 174.

84

 

 

 

 

85

Banking department officials have complained of this ”compe—

tition." They feel that it does little if any good for the state legisla-

tures to put some "teeth" into a state credit union code when the

credit unions can avoid the increased regulation by switching to a

federal charter. This switching of charter involves the dissolution

of the old credit union and an application for a new charter. The

proceedings often cause members to lose some faith in the credit

 

union dissolving. Age of operation is a very important factor con-

sidered by a depositor before he places his funds in a financial

institution. There is nothing to prevent a credit union from switch-

ing back and forth from a state charter to a federal charter when-
ever it is felt by the credit union members that some advantage can

be gained. There is little possibility of making either the state

laws or the federal law truly effective as long as credit unions may

change their form of charter at will.

Credit union regulation varies from state to state. Require-

ments regarding acceptance of deposits, maximum interest rate to

be charged, value of shares, taxation, examination fees, and loan

limits are different in almost every state. Progressive credit

 

union states have of course amended their statutes to comply with

the changed conditions which have occurred since the enactment of

 

 

 

 

86

their credit union law. Yet, many states govern credit unions with
the original legislation which was enacted in 1924, 1925, 1929, et
cetera. and have never been amended to this day. Certainly condi—
tions regarding credit union operations have changed sufficiently to
warrant a second look at the existing credit union legislation.

The variability of the individual credit union acts has been a

prime reason for the unavailability of credit union statistics, on the

T‘Tfi’a‘finh-m_ v-1 . . .

state level. It is very difficult for anyone to consult the forty-four
individual agencies in charge of credit unions, for information on
credit union activities. The need of statistics is not a very wise
basis of argument for a uniform credit union code, standing alone.
But further reason and justification of this is given below.

A uniform credit union code has many advantages. In areas
such 'as regulation by a single agency, devoted to credit union oper-
ations alone, uniform consistent requirements, effective management
through standardized procedures of Operation and reporting, and re-
porting to a central agency which can provide valuable statistics not
only on a yearly basis as at present but on a monthly basis, adoption
of a uniform code could prove very beneficial to credit unions and
to all persons concerned.

In times of emergency, such as occurred in September, 1950,

when, under the Board of Governors' Regulation W, each business

 

 

87

engaged in extending credit was required to submit certain credit
data to the regional Federal Reserve Bank, a single credit union
agency could greatly facilitate data collection and conformation to
regulations regarding the furnishing of credit. It is at times such

as this that statistics become very important.

-H. .a
._

A rather farsighted but overlooked argument for a uniform

credit union code is that of facilitating monetary control. Present

1"":- T .s‘J‘n u” we

monetary controls hinge upon the ability of the Federal Reserve
System to control the money supply of the economy through affecting
reserves of commercial banks. One of the principal objectives of
adopting the Federal Reserve System was to mobilize and concentrate
the gold reserves of the country and to introduce greater elasticity
into the money supply, so as to avoid the money stringencies, and
even panics, which had plagued the country at intervals for many

years. If we accept the idea of credit unions continuing their rapid

 

rate of growth and expansion over the coming years, and more and
more funds flow into the accounts of the credit unions, to a point

where their ability to lend approaches that of commercial banks, it

 

"Reserve Requirements of Commercial Banks," Bank Re-
serves-—Some Major Factors Affecting Them, Federal Reserve Bank
of New York, New York, March, 1951, p. 5.

 

88

must be admitted that the ability of the Federal Reserve to affect
monetary policy has been significantly reduced. Credit unions if
placed under a single controlling agency would be more pliable to
monetary policy then they are under the present system of charter
granting and regulation by the individual states.

Regardless of the advantages to be gained by a uniform code
for credit unions, some thought must be given to the two main ad-
vantages accruing to credit unions from a dual system.

Disregarding the political difficulty of abolishing the state
laws, which must be overcome before a uniform code could be es-
tablished, there remains the difficulty of writing a law for credit
unions that would serve the needs and satisfy all local groups all
over the country. The omnipresent difficulty is to determine the
best standard at a given moment which can apply.over a period to
time to many diversified groups of people. The present method
whereby individual states write the laws regarding credit unions,
lends itself to providing individual consideration in a smaller area
than would a uniform code. Nevertheless, if the rule of the majority
is followed, with this majority opinion voiced by chosen representa-
tives, there is no reason why a law cannot be written which will

reflect the opinion of the majority, as evidenced by the success of

the Federal Credit Union Act.

 

 

 

89

Credit unions prize their ability to switch from a state to a
federal charter, or from a federal to a state charter, as the only
effective means they have of combating anti-credit union campaigns
by competing institutions who may have powerful influence on the
state and/or national level.

In weighing both the advantages and disadvantages of a uni-
form credit union code, the author believes that any obstacles stand-
ing in the way of designing an unbiased and equitable uniform code,
can be overcome, and that the gains from improved supervision,
regulation, management, reporting, and especially from improved

emergency controls, make the adoption of a uniform code desirable.

 

 

 

CHAPTER VI

SUMMARY, CONCLUSIONS, AND SUGGESTIONS
FOR FURTHER STUDY

Summary

The competitive world in which credit unions have to operate

has changed since 1907. There was a time when few of the Ameri-

 

can people could get low-rate credit. With the increased volume of
consumer credit, however, commercial banks, small loan agencies,
personal finance companies, industrial banks, remedial loan agencies,
and credit unions answered the need. The credit union has always
possessed one operating advantage over commercial lenders. They
have the ability to supply the very short-term loans, at low rates
of interest. Wage earners wish to borrow with the privilege of

It

repaying their loans in small installments--a little each payday.

costs the lender something to take in and acknowledge receipts of

installment payments. Because most of these small loans entail

added expense of one kind or another, it is not possible for commer-
cial lenders to deal profitably in very small amounts of principal

at low rates. But credit unions when prOperly cooperative are in a

90

 

 

91
position to avoid many of the costs of handling loans. Their loans,
therefore, may in most instances be made for any price that will
return enough to pay for the use of the money itself.

Possessing this advantage, over other lenders, and other
advantages provided by credit union enabling acts of the individual
states and the federal government, the credit unions forged ahead, ,

gaining membership and funds at a very rapid rate until today they

 

stand third in the list of installment lenders, topped only by banks

 

and small loan companies.

Michigan has been an outstanding state in the development
of credit unions. Since 1925, credit unions in Michigan have grown

each year and at the end of 1953 Michigan stood third in the nation,

 

in the number of credit unions, members, and assets.

In the past forty years credit unions have established for
themselves a fine record of service, honesty, and durability. In
Michigan the record of state-chartered credit unions is one of the
best in the country. Seven forced liquidations in over twenty-five
years of operation is a record unmatched by other similar types
of institutions. But credit unions are not perfect. There have been
substantial gains, but there has been dishonesty; there has been in-

competence; and there has been misguided leadership. These

 

92

shortcomings have been experienced by every other institution, re-

gardless of type. In the credit union there is no automatic system

for capturing skill, insuring honesty or avoiding the sweep of eco-

nomic forces.

This study has attempted to look at the credit unions objec-

. ”..-—.... 7‘)

tively and with an open mind. The legislation governing credit

unions was examined to see just how much protection of members'

 

funds was provided by the credit union acts. Shortcomings of the

acts were discussed in an attempt to see if the acts could be strength-
ened to provide greater protection of the depositors and shareholders.
Popular theories were discussed and attempts were made to substan-

tiate them or refute them as the facts warranted. In the next sec-

tion of the study, the author will list suggested reforms which he
believes will aid the development of credit unions and provide in-

creased protection of credit union members' funds.

Before offering suggested reforms in the credit union acts,
the author would like to express his beliefs on what the future holds
for credit unions.

The author firmly believes that the future "can" be very
bright and encouraging for credit union leaders and members.

Whether or not “can be bright" can be changed to "is bright”

 

93
depends solely on the credit union officials and members. In order
to ensure for themselves a bright future, credit union leaders must
be willing to recognize and accept the following principles regarding
credit union operations.

1. Credit unions are essentially small loan agencies. Credit
unions in America are associations of consumers. The membership
is made up of people of limited means. The credit needs that are
best served in such groups are those for small loans. Small loans
offer the credit union a field in which it can excel. These loans
are too small to be made profitably by regulated commercial loan
companies which have to carry operating expenses and pay taxes.

2. Credit unions are limited profit-making organizations.

As they increase in size, credit unions tend to lose their cooperative
and mutual qualities. Income from shares and deposits is offered
as one of the attractions to memberships, and unless such income
materializes. credit unions suffere from withdrawal of capital funds.
In some instances too much stress has been put on the siZe of the
dividend. Limited interest on capital is a fundamental principle of
c00peration.

3. Thrift promotion is the primary function of credit unions.

The purpose of credit unions is not to engage in efforts to di5p1ace

“.....4. _. 5.. _. l,
. .
l

 

 

 

94
existing agencies but to provide services and guidance which these
other agencies do not or cannot provide. Special enabling acts were
passed to allow credit unions to help the small money borrowers who
were subjected to the high rates of illegal money lenders. The orig-
inal idea was for the credit union to help the debt-ridden individual
pay off his debt at a low rate of interest, and then instill in him the
idea of systematic saving to enable him to avoid falling into similar
situations.

4. Size is not the most important factor. In recent years,
credit unions have become engrossed with efforts to increase the
size of their individual credit unions. Effort should be directed
toward providing services honestly, quickly, and efficiently, to the
existing membership. Size alone is no indication of success. Suc-
cess for credit unions lies in the area of providing the services to
their members, which other agencies cannot provide. One of the
cardinal foundations of cooperative enterprises is the individual con-
tacts and friendship which the members are able to cultivate. A
feeling of "belonging” to a group should be felt by every credit
union member. The credit union should stress that the aim of their
economic activity is only to help in satisfying the membership needs.

If credit union leaders accept the above principles there is no

reason why they cannot continue to provide these special services to

 

 

:15. -
..

 

 

95
their members, and the author will then be able to say the future

"isH bright for the credit unions.

Conclusions

‘\‘I

Study of the Michigan Credit Union Act has led the author to
the conclusion that the act is in need of revision to increase the
protection provided for credit union members' funds, and to remove
the no longer justifiable advantages which credit unions received over
similar institutions when the Michigan Credit Union Act was adopted
in 1925. The suggested reforms listed below are equally applicable
to all credit union acts, as they are to the Michigan Credit Union
Act. The suggested reforms have been discussed throughout the
study, and are listed here for easier reference.

1. A maximum share limit should be provided by law. To
prevent a credit union from becoming dependent upon a single or a
few shareholders, due to the largeness of their shareholdings, a
maximum limit should be established by law, expressed as a per-
centage of the total shares outstanding. This would provide a safe-
guard against the possibility of the board of directors setting too

high a limit through ignorance or through desire to give Special

persons coercive powers.

[‘ ." it: man:— “may“... v. .n

 

 

96
2. At least 20 percent of real estate loans should be guar-
anteed loans. Real estate loans are dangerous for credit unions to
hold. They involve large loans, and real estate values fluctuate
widely. Therefore, if credit unions insist upon making real estate
loans, at least 20 percent of these or more should be required to be

insured loans of the VA or FHA type.

3. Diversification of credit union loans is needed. The method

 

 

re a“
\

of solving the problem of diversifying credit union loans is a difficult
one indeed, but one that must be successfully overcome. "Putting
all your eggs into one basket" has never been a sound insurance or
banking policy. The most reasonably acceptable answer to the prob-
lem seems to be one whereby a central agency of the credit unions
is established to insure the purchase of outstanding loans of a credit
union in difficulty. Credit unions on the whole are widely diversified
among the various occupational groups, so that in a period of re-
cession, enough of the members should be employed to be able to
carry the credit unions that are hard hit by unemployment.

4. Credit unions should be subject to a reserve requirement
similar to that imposed on savings banks. The 20, percent of net
earnings reserve requirement is totally inadequate to provide any

real protection of members' funds. Reserves only increase when

 

 

97
loans increase, since reserves are paid out of earnings. A more
logical requirement would be for a reserve ratio of at least 12 per-
cent of total assets, with government obligations to be considered as
qualifying as reserves. This requirement would place more emphasis
on the relation between paid-in capital and reserves. If a conserva- i
tive minimum reserve ratio is enforced there will be no need for i

a maximum reserve requirement.

 

 

5. Funds should be provided for effective regulation. The
services provided by the State Banking Department are for the pro-
tection of the funds which the members have entrusted to the credit
union. If credit union members are willing to place their savings
in the credit union, certainly they should be willing to pay for the

full costs of the protection provided to them by the Banking Depart-

 

ment. Further, the cost of credit union regulation should be borne
only by the credit unions, and should not be diffused upon the. gen-
eral public. Examination, organizational, and supervision rates should
be scaled to cover the full costs of these operations, and the funds
thereby collected should be earmarked for the supervising authority.
6. Credit union officers should be tested for competency.
Credit union officers are often elected to important positions, which

require the handling of large sums of money, with little background

 

 

98
knowledge of such transactions. The credit union act should require
all officials of a credit union to attend a training course for credit
union officials, and to pass a state examination, the cost of this ser-
vice to be paid by the credit unions. This requirement would en-

hance the soundness of the credit union's loans and investments, and

.— mr’zr'e

provide increased protection of the members' funds.

7. A minimum amount of desirability should be established

 

before a charter is granted. Many credit unions fail to survive for
any length of time due to the lack of interest on the part of the mem-
bers or due to a lack of members. Before a charter is issued,
charter requirements should be fulfilled. These requirements should
include: (a) a minimum membership of 100 persons; and (b) a mini-
mum capital of $100 per person before the charter is granted.

8. A separate credit union regulatory agency is needed.
Credit unions have reached the point of maturity where a separate
agency is needed, familiar with credit union problems and operations,
which will be able to devote full time to effectively supervising
credit unions.

9. A uniform credit union code is needed. The existence of
a dual System of charter granting has led to a difficulty in effectively

regulating credit unions. Ability to evade regulation by switching of

 

 

 

 

 

99
charters is undesirable and unnecessary. One equitable law regulat-
ing all credit unions would increase the efficiency of credit union

operations and control .

The remaining conclusions are based on the belief that credit
unions are overstepping the purpose for which they were created,
and therefore a need exists to place them in the same position as
are other financial institutions. It is out of the realm of this study
to discuss the question of whether or not it is socially desirable or
economically desirable for society to encourage the use of consumer
credit and to encourage saving by the average worker. If society
deems it desirable to have low-cost lending and high‘interest-paying
savings institutions, for use by the common laborer, then of course

the following conclusions would be totally out of the question.

10.. Special tax exemption should be removed. Credit unions

should be taxed, both on gross assets as intangibles, and on earnings

as corporate income, as are commercial banks and small loan com-

panies .

11. Corporate and government subsidies should be removed.

Office quarters obtained without charge from an employer or from

the federal government in the case of federal employees' icredit unions,

free payroll deductions, and free supplies should be discouraged as

"f- D “-'l",.5‘.. .'n.

 

S"

”IL.

 

 

 

100
providing the credit unions with an unfair advantage over competing

financial institutions.
Reforms such as these eleven above, written into every credit
union bill. should safeguard the credit union movement and protect

it from any inherent weaknesses. The need for consumer credit is

immense. The resources of all legitimate agencies can find ample

scope for service in this field of finance.

Suggestions for Further Study

Mention has been repeatedly made to the almost complete

lack of credit union statistics. Of late, more and more effort on both

the state and national level has been directed toward the gathering

of more-complete data on credit union activities. As this information

is made available, further research on credit unions is desirable.
The majority of credit union material written in the past has been
devoted either to unsubstantiated theories regarding credit unions or

to only very local coverage of their activities.

A current study of the types of credit union loans is needed
to see for what purposes credit union funds are being made available.
Such a study could refute or enforce the claim that credit unions

are financing purchases of luxury goods, rather than providing re-

medial loans for emergencies.

 

 

 

 

101

While accurate yearly reports are becoming increasingly avail-
able, monthly reports could be of much use if the figures obtained
were related in some way to monthly business conditions. The ma—
jority of the credit unions have never been subjected to a severe test
during an economic crisis. They are untried institutions. A. monthly
study of credit union statistics to discover how changes in business
conditions affect the loans, reserves, deposits, and loan repayments
of credit unions were have important predictive value.

More investigation is needed into the causes of credit union
liquidation, both voluntary and involuntary. Recent causes are de-
sirable, since credit unions have only become important, relatively,
in recent years. The causes of liquidation, no doubt, are rapidly

changing as the nature of credit union operation is rapidly changing.

The growing emphasis placed upon automation by business lead-

ers today no doubt will be of extreme importance to the future of
credit unions. If, as it is commonly believed, continued automation
is adopted by leading manufacturers, requiring mobility of large
amounts of labor from the consumption goods industries to the in-
vestments goods industries, will the credit unions be able to follow
the flow of labor without encountering unsolvable problems of rapid

liquidation or even moderately rapid liquidation? One case in point,

“fig-‘21; r .‘t- . 3;“...7:

'V ‘i.‘ifi
1

 

 

102
although not caused by automation alone, was the credit union at the
Willow Run, Michigan, plant when Kaiser-Frazer moved to Cleveland.
A. snarl deve10ped when suddenly laid-off workers wanted their savings
but found that most of the assets were out on loans. The situation

has not been cleared up today, two years after the layoff.

‘1
...x—Jflan ~. 4
'1

In retrospect, the credit union founders and leaders can look

‘ ‘1;‘ 4”..- 1- a ‘1' u 3
\ . ‘

at the past with a feeling of satisfaction. Helping millions of people

rtJ‘-‘ ‘.

solve their financial problems, without becoming a penny richer, is
indeed observing the golden rule to its fullest extent. But the medi-
tation on the past cannot be extended too long. The crisis of today
is calling. What attitude credit union leaders will assume today will

determine the future of credit unions tomorrow.

 

 

 

 

APPENDIX A

MICHIGAN CREDIT UNION ACT

 

103

 

 

 

4-15-48— 7100

STATE BANKING DEPARTMENT
LANSING, MICHIGAN

CREDIT UNIONS

An Act to Provide for the Organization, Operation and Supervision of
Credit Unions

(Act 285, P. A. 1925.)
The People of thc Stu/c of -llichiguu ('Imct:

Section 1. Organization and Definition. Any seven residents of this state may
apply to the commissioner of the stale banking department for permission ‘to
organize a credit union. A credit union is a cooperative society. incorporated for
the two-fold purpose of promoting thrift among its members and creating a source
of credit for them at legitimate rates of interest for provident purposes. A credit
union is organized in the following manner:

I a) The applicants execute in duplicate a certificate of organization by the terms
of which they agree to be bound. The ccrtiticnte shall stntc:

(1) The name and location of the proposed credit union.

(2) The names and addresses of the subscribers to the ccrtiticntc and the num-
ber of shares subscribed by each.

(:1) The par value of the shares of the credit union which shnll not cxcccd ten
dollars each.

(11) They next prcpnrc and adopt hy-lnws for thc gent-r111 {Itfl't‘l'llllll‘llls of the
Crcdit union consisrcnt with the provisions of this act, and exccuIc rhc same in
duplicate.

(cl The ccrtificntc and the by-lnws are forwarded to the said connnissioncr of
the state banking department.

((1) The said connnissicmcr of the stnl’c bnnking dcpnrtnlcnt shnll. within thirty
dnys of thc rcccipt of said certificate and hy-lnws. detcrminc whether tho}; conform
with the provisions of this act. and whclhcr or not the organization of tho crmlit
union in qucstion would bcncllt the Inclnhcrs of it and be ctmsislcnt with thc pur-
1‘Ioscs off this act. The granting of n ccrtilh-ntc of organization shnll in cnch and
cvcry cnsc ho I‘liscrctionnry with the comlnisshmcr of the state banking: department.

(0) 'l‘hcrcupon the said cmnmissioncr shall notify the applicants of his dccision.
If it is fnvornblc hc shnll issue 11 certificate Of approval, attached to the duplicntc
ccrliticnlc of m'gnnizntion nnd rcturn the some, togcther with the duplicate by—lnws.
to the applicants.

(1‘) The applicants slmll tlu-renpon file the said duplicate of the certificate of
organization. with tho ccrtilicn to of approval nttachcd thereto, with the clcrk of thc
county within which the crcdit union is to do business.

(g) Thermipon thc applicants shall become and he a credit union. incorpm‘nted
in 21L‘COI‘(1:III(‘O with the provisions of this act.

In order to sinnnify the organization of credit unions the said commissioner of the
stale banking dcpnrtmcnt shall. upon the passage. of this act, cause to be prepared
an approved form of certificate of organization and a form of by-lnws. consistent
with this act, which may he uscd by credit union incorporators for their guidancc.
and on writtcn application of any seven residents of the state. shall supply them
without charge with a blank certificate of organization and a copy of said form of
snggcstod Irv-laws.

AIII.10‘29.Act 303.
Am. 10!]. Act 185.

Soc. 22. Ann‘ndmcnts. Any and 1111 amendments to tho by-lnws Inusr hc :Ipprovcd
by tho snid con‘nnissioncr of thc stntc banking dcpnrtmcnt bcforc lln-_v ln-conu-
('Ipcl'zll iVO.

 

 

 

 

PPR:-

 

Sec. 3. Restriction. It shall be. a misdemeanor for any person. association, co-
partnership or corporation (except corporations organized in accordance with the
provisions of this act) to use the words "credit union" in their name or title.

Sec. 4. Powers. A credit union shall have the following powers:

(:1) To receive the savings of its members either as payment. on shares or as
deposits (including the right to conduct Christmas clubs, vacation clubs and other
such thrift organizations within the membership.)

(b) To make loans ‘to members for provident or productive purposes.

to) To make loans to a cooperative society or other organization having mem—
bership in the credit union.

((1) To deposit in state and national banks and. to an extent which shall not
exceed twenty-five per cent of its 'apital. invest in the paid-up shares of building
and loan associations and of other credit unions.

(e) To invest in any investment legal for savings banks or for trust funds in
the state.

It) To borrow money as hereinafter indicated.

Sec. 5. Membership._ (‘redit union membership shall consist of the incor—
porators and such other persons as may be elected to membership and subscribe to
at least one share, pay the initial installment thereon and the cut 'auce fee. Urgani-
zations (incorporated or otherwise) composed for the most part of the same general
group as the credit union membership may be, members. (‘redit union organization
shall be limited to groups (of both large and small membership) having a common
bond of occupation. or association or to groups within a well-defined neighborhood,
community or rural district.

Sec. 6. Reports, etc. Credit unions shall be under the supervision of the com-
missioner of the state banking department. They shall report to him at. least:
annually on or before the thirty-first day of December on blanks supplied by him for
that. purpose. Additional reports may be requirml. Credit unions shall be examined
at least annually by the said commissioner except that. if a credit union has assets
of less than twenty-five thousand dollars he may accept the audit of a practicing
public accountant in place of such examination. For each ammal examination the
credit union so examined shall pay into the state tr Jasury to the credit of the gen—
eral fund. the sum of twenty—five dollars. but no credit union shall be compelled to
pay for more than one examination in any one y ‘tll‘. For failure to tile l't'lmi'ls
when due, unless excused for cause, the credit union shall pay to the treasurer of
the state five dollars for each day of its delinquency. If the said commissioner-
dctermines that the credit union is violating the provisions of this act, or is insolvent.
the said commissioner may serve notice. on the credit union of his intention to
revoke the certificate of appro'al. If. for a period of fifteen days after said
notice. said violation continues. the said commissioner may revoke said certificate
and take possession of the business and property of said credit union aml maintain
possession until such time as he shall permit it to continue business or its ati‘airs
are finally liquidated. He may take similar action if said report remains in arrears
for more than fifteen days.

—

Sec. 1. Fiscal Yeah—Meetings. The fiscal year of all credit. unions shall end
December thirty-first. Special meetings may be held in the manner indicated in
the by-laws. At all meetings a member shall have but a single vote wlmtever his
share holdings. To amend the by-laws. the proposed amendment must be contained
in the. call for the meeting and it must be approved by thrw-t'ourtbs of the members
then present (which number must constitute a quorum) and by the said commis—
sioner of the state banking department. There shall be no voting by proxy. a mem—
ber other than a natural person casting a single vote through a delegated agent.

Sec. R. Elections. At the annual meeting (the organization meeting shall be
the first annual meeting) the credit union shall elect. a board of directors of not
less than five. members. a credit conunittee of not less than three members and a
snpervism-y committee of three members. all to hold otlicc for such terms respectively
as the by-laws provide and until successors quality. A record of the names and
addresses of the members of the board aml eonnnittees and the otlicers shall be tiled
with the commissioner of the state banking department. within ten days of their
election.

See. 9. Directors and Officers. At their first meeting the directors shall 1.1,.”-
from their own number a president. vice-presi(It-mt, treasurer and clerk. of whom
the last two named may be the same individual. It shall be the duty of the

wiation. co-
'e \tith the
tile.

laws or its
and other

vim: Incin-

I shall not
.t' building

: funds in

he incor-
hst't'lbt' [o

ltrgani-
te general
:anization
t common
‘timrhmtti,

the coin-
at least
' him for
xamined
Lg ns‘st‘lh'
{'m'lli'iW-I
{hill the
the .L'““‘
pelted i"
. repul'l“
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”sooner"
lsultt‘llt.
ntion I0
tel' (”iii
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maintain
: affair."

a “1‘3““

mu vwi
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f the

directors to have general management of the affairs of the credit union, particularly:

(at To act on applications for membership.

tht To determine the interest rates on loans aml on deposits.

te) To fix the atnount of the surety bond which shall he required of all otlicers
and employes handling money.

tdt To declare dividends, and to transmit to the members recommemled amend-
ments to the by-laws.

tet 'l‘o till vacancies in the board and in the credit committee until successors
are chosen and qualify.

11': To determine the maximum individual share holdings and the maximum
individual loans which can be made with and without security. subject to such
limitations upon loans as may have been placed upon them by the by-laws previously
adopted and approved by the commissioner of the state banking department.

(at To have charge of investments other than loans to members.

The duties of the officers shall be as determined in the by-laws. except that the
treasurer shall be the general manager. No member of the hoard or of either com-
mittee shall. as such. be compensated.

.\m. 1922:. .\ct 3H3.

Sec. 10. Credit Committee. The credit committee shall have the general super-
vision of all loans to members. Applications for loans shall he on a form. prepared
by the. credit committee. and all applications shall set forth the purpose for which
the loan is desired. the security. if any. ofi'ered. am] such other data as may be
required. Within the meaning of this section an assignment of shares or deposits
or the endorsement of a note may be deemed security. At. least a majority of the
members of the credit committee shall pass on all loans and approval must he
unanimous. The credit committee shall meet as often as may be necessary after
due notice to each member.

Sec. 11. Supervisory Committee. The supervisory committee shall—

ta) Make an examination of the affairs of the credit union at least. quarterly.
including an audit of its books and. in the event said committee feel such action to
be necessary. it shall 'all the members together thereafter and submit to them its
report.

(it) Make an annual audit and report and submit the same at the annual meet-
ingr of the members.

(e) By unanimous vote. if it deem such action to be necessary to the proper
conduct of the credit tmion. suspend any officer. director or member of connnittee.
and call the members together to act on such suspension. The members at said
meeting may sustain such suspension and remove such oth‘cer pernmnently or may
reinstate said otiieer.

By a majority vote the supervisory committee may call a special meeting of the
members to consider any matter submitted to it by said manmittee. The said com-
mittee shall fill vacancies in its own membership.

Sec. 12. Capital. The capital of a credit union shall Consist of the payments
that have been made to it by the several members thereof on shares. The credit,
union shall have a lien on the shares and deposits of a member for any sum
due to the credit union from said member or for any loan endorsed by him. A credit
union may charge an entrance fee as may he provided by the hy-laws.

Sec. 13. Minors. Shares may be issued and deposits received in the name of
a minor or in trust in such manner as the by-laws may provide. The name of the
beneficiary tnust be disclosed to the credit union.

Sec. H. Rates. Interest rates on loans made by a credit union shall not exceed
one per cent a month on unpaid balances.

Sec. 15. Power to Borrow. A credit. union may borrow from any source in
total sum which shall not exceed fifty per cent of its assets.

Sec. 16. Loans. A credit union may loan to members. Loans must be for a
provident or productive purpose and are made subject to the conditions contaimhd
in the by-laws. A borrower may repay his loan in whole or in part any day the
office of the credit union is open for business. No director. officer or member of com-
mittee may borrow from the credit union in which he holds ofiice beyond the.
amount of his holdings in it in shares and deposits. nor may he endorse, for
borrowers. ,

 

 

 

I‘ _l “'V'

 

 

 

 

 

Sec. 17. Reserves. All entrance fees. fines (which may be provided by the
hy-laws for failure to make repayments on loans aml payments on shares when
due). and each year. before the declaration of a dividend. twenty per cent of the
net earnings, shall be set aside as a reserve fund which shall be kept liquid and
intact and not loaned out to members, and shall belong to the corporation to be
used as a reserve against bad loans and not be distributed except in case of liquida-
tion.

Sec. 18. Dividends. On recommendation of the directors. :1 credit union may.
at the end of the fiscal year, declare a dividend from net earnings, which divi-
dend shall be paid on all shares outstanding at the end of the fiscal year. Shares
which become fully paid up during the year shall be entitled to a proportional part
of sfaild dividend calculated from the first day of the month following such payment
in ul.

Sec. 19. ExpuMom—Withdrawal. A member may be exlielled by a two-thirds
vote of the members present at a special meeting called to consider the matter
but only after a hearing. Any member may withdraw from the credit union at any
time but, notice of withdrawal may be required. All amounts paid on shares or as
deposits of an expelled or withdrawing member, with any dividends or interest
accredited thereto. to the date thereof. shall. as funds become available aml after
deducting all amounts due from the member to the credit union. he paid to him-
The credit union may require sixty days’ notice of intention to withdraw shares and
thirty days' notice of intention to withdraw deposits. Withdrawing or expelled
members shall have no further rights in the credit union but are not. by sin-l)
expulsion or withdrawal. released from any remaining liability to the credit union.

Sec. 20. Dissolution. The process of voluntary dissolution shall be as follows

(a) At a meeting called for the purpose (notice of which purpose must be ('nl .-
tained in the call) four-fifths of the entire membership of the credit union Inn 3'
vote to dissolve the credit union.

(b) Thereupon they file with the said commissioner of the state banking depar 1-
ment a statement. of their consent to dissolution. attested by a majority of ti 1e
officers and including the names and addresses of the officers and directors.

(c) The commissioner of the state banking department determim-s whether . tr
not the credit union is solvent. If such is the fact he issues in duplicate a et- r-
tificate to the effect that this section has been complied with.

(d) The certificate is filed with the county clerk of the county in which the
credit union is located, whereupon the credit union is dissolved and shall cease to
carry on business except for the. purpose of liquidation.

(e) The credit union shall continue in existence for the purpose of disehargi ing
its debts, collecting and distributing its assets and doing all other acts required in
order to wind up its business. and may sac and be sued for the purpose of ent‘ure.
ing such debts and obligations until its afi'airs are fully adjusted and wound up,
for three years.

See. 21. Change in Place of Business. A credit union may change its plaeo
of business on written notice to said commissioner of the state banking thqmrtnn-nt.

Sec. 22. Taxation. A credit union shall be deemed an institution for savings
and, together with all the accumulations therein, shall not be stlhject to taxation
except as to real estate owned. The shares of a credit union shall not be subject
to a stock transfer tax when issued by the corporation or when tmnst'erred from
one member to another.

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APPENDIX B

FEDERAL CREDIT UNION ACT

105

 

 

 

BIBLIOGRAPHY

Books

1 ‘5’.

Barrett, Roger 5., Compilation of Consumer Finance Laws, National
Consumer Finance Association, Washington, D. C., 1952, pp.
295—300.

 

Ln 5.01
I
p
I v
.H’ ~ ~\

Bergengren, Roy F., Crusade, Exposition Press, New York, 1952,
pp. 14-125.

 

{nun-i.» . . .-
m

, Credit Union North America, Southern Publishers, New
York, 1940, 390 pp.

 

, CUNA Emerges, Credit Union National Association, Madison,
Wisconsin, 1935, pp. 80-176.

 

Clark, Evans, Financing—the Consumer, Harper & Brothers, New York,
pp. 12-108, cont., 119-132, 336-344.

 

Giles, Richard Y., Credit for the Millions, Harper 8: Brothers, New
York, 1951, 200 pp.

 

Hardy, Charles 0., Consumer Credit and Its Uses, Prentice-Hall,
Inc., New York, 1938, pp. 172-180.

Herzog, Peter W., The Morris Plan of Industrial Banking, A. W.
Shaw Co., 1928, pp. 1—67.

Moen, R. 0., Rural Credit Unions in the United States, Privately
Published, 1931, pp. 1-48.

 

Neifield, M. R., The Personal Finance Business, Harper 8: Brothers,
New York, 1933, pp. 36-93, 226-249, cont., 403-458.

, Cooperative Consumer Credit, Harper 8.: Brothers, New
York, 1936, pp. 3-175.

 

 

107

 

108

Nugent, Rolf, and Robinson, Louis N., Regulation of the Small Loan
Business, Russell Sage Foundation, New York, 1935, pp. 79-
1953.

 

, Cooperative Consumer Credit, Harper & Brothers, New
York, 1933, pp. 1-169.

Tregoe, J. H., Credit and Its Management, Harper 8: Brothers, New
York, 1930, pp. 1-126.

 

Wolff, Henry, Co-operative Credit For the United States, Sturgis &
Walton Co., New York, 1917, pp. 1-95, 131—289.

Articles and Pamphlets, Signed

Bradley, J. F., A Financial Analysis of Federal Credit Unions Oper-
ating in Pennsylvania, Bureau of Business Research, Perm-
sylvania State Universgty, Bulletin No. 55, 15 pp.

Clark, L. H., The Credit Union Legal Framework, The Journal of
Business, University of Chicago, Vol. XVII, No. 1, January,
1944, 66 pp.

Croteau, John T., Federal Credit Union Liquidations, 1935-1951, The
Journal of Business, University of Chicago, Vol. XXV, No. 3,
July, 1952, 17 pp.

 

Doig, Thomas W., The Credit Union's Proper Place in History, re-
printed from Bridge, Credit Union National Association, Madi-
son, Wisconsin, 1947, 7 pp.

Fort, D., and Reil, K., Credit and Sales Reported by Regulation W
Registrants, Federal Reserve Bulletin, Board of Governors of
the Federal Reserve System, Washington, October, 1951, 13

PP-

Foster, Le Baron R., Credit for Consumers, The Public Affairs Com—
mittee, Inc., New York, 1942, 30 pp.

 

“an

3

 

f»
bid—... . Iv .f.
I

 

 

109

Friedrich, Anton, Are Banks Cooling Toward Instalment Credit, Bank-

i_r_1_g_, Journal of American Bankers Association, Jan., 1955, p.
55, cont., 80.

Miller, Charles, Lending to Credit Unions, Banking, Journal of
American Bankers Association, April, 1955, pp. 57-58, cont.,

137.

Perrin, Robert, State‘s Credit Unions Weathering Blow, Detroit Free
Press, March 20, 1955, p. 8A, col. 2-4. '

Stuart, M. 8., Credit Unions-~The People's Banks, Public Affairs
Pamphlet, Public Affairs Committee, Inc., New York, No. 50,

1942, 39 pp.

Upton, Miller, An Economic Appraisal of Convenience and Advantage
Licensing by Small Loan Statutes, The Journal of Business,
University of Chicago, Vol. XXV, No. 4, 14 pp.

Wilcox, Francis E., A Statistical Study of Credit Unions in New
York, The Journal of Business, University of Chicago, Vol.

X, No. 2; Vol. XIII, No. l, 50 pp.
Articles and Pamphlets, Unsigned

Bureau of Federal Credit Unions, Report of Operations, of Federal
Credit Unions, U. S. Department of Health, Education, and

Welfare, Washington, 1937-195 3.

 

, Procedure for Organizing Federal Credit Unions, Federal
Security Agency, U. S. Department of Health, Education, and

Welfare, Washington, 1948, 26 pp.

, Security Throggh Credit Unions, Federal Security Agency,
U. S. Department of Health, Education, and Welfare, Washing-

ton, 1948, 6 pp.

, Federal Credit Unions, Division of Programs and Reports,
Federal Security Agency, U. S. Department of Health, Educa-
tion, and Welfare, Washington, October, 1948, 12 pp.

$1,174“?! “0‘. ~ I»

"1' W33 “

 

 

110

, Federal Credit Union By Laws, U. S. Department of Health,
Education, and Welfare, Washington, 1950, 14 pp.

, Federal Credit Union Act, Federal Security Agency, U. S.
Department of Health, Education, and Welfare, Washington,

May 19, 1952, 20 pp.

Credit Union National Association, Credit Union Yearbopk, Madison,
Wisconsin, 1954, 28 pp.

Federal Reserve Bank of New York, Bank Reserves, Some Major
Factors Affecting—Them, March, 1951, 28 pp.

Federal Reserve Bulletin, Consumer Instalment Credit, Board of
Governors, Federal Reserve System, September, November,

and ’December, 1954, 10 pp.

Michigan Credit Union League, lst. Annual Statistical Yearbook, De-
troit, 1954, 16 pp.

Monthly Labor Review, Credit Union Operations, U. S. Department
of Labor, Bureau of Labor Statistics, Washington, 1920-1955.

Pollack Foundation for Economic Research, Small Loan Laws of the
United States, Jaffrey, New Hampshire, Sixth edition, Novem-

ber l, 1945, 28 pp.

 

State of Illinois, Illinois Credit Union Act of 1953, Auditor of Public
Accounts, Chicago, 1953, 31 pp.

State of Michigan, Model By-Laws for State-Chartered Credit Unions,
in Michigan, Michigan Banking Department, Lansing, 11 pp.

, Michigan Credit Union Act, State Banking Department, Lan-
sing, 1925, 4 pp.

, Michigan House Journal, Lansing, 1925, Vol. II, pp. 1098,
1255, 1246; 1929, Vol. I, p. 536.

, Abstract of Reports of Credit Unions, State Banking Depart-
ment, Lansing, 1937-1953.

" .h..’.~

'éw ' -‘i.im Wis—3%

 

111

, Michigan Senate Journal, Lansing, 1941, Vol. II, pp. 1001,
1590.

 

 

, 1951 Revision of MichijLan Financial Institutions Act, De-
cember 3, 1951, pp. 16-134, 144-156, 160, 162-535.

, Michigan Legislative Senate Bill, 1248, 68th Legislature,
Regular Session of 1955, Lansing, 23 pp.

 

United States Department of Health, Education, and Welfare, Credit : I“
Unions Under State Charters, 1953, Social Security Bulletin, 1! .7
Social Security Administration, Washington, Vol. XVII, No. '
11, November, 1954, pp. 15-18.

 

 

 

 

United States Savings and Loan League, savtgin 3 ind Lgan Fact Book r -3
£253.» Chicago. 1954. pp. 55-71.

Wyandotte Chemicals Employees' Credit Union, Annual Financial Re-
port to Shareholders, Wyandotte, Michigan, 1954, 4 pp.

 

 

 

 

 

 

INDEX OF PER SONS
(Interviews)

David Arsenault,_Treasurer-Manager, Wyandotte Chemicals Employ-
ees' Credit Union, Wyandotte, Michigan.

C. J. McLanahan, Director of Training, Michigan Credit Union League,
Detroit, Michigan.

Delmar C. Nagel, Deputy Commissioner, State Banking Department of
Michigan, Lansing, Michigan.

Lou Segadelli, Public Relations Director, Michigan Credit Union
League, Detroit, Michigan.

Ralph L. Stickle, Executive Manager, Michigan Bankers Association,
Lansing, Michigan. -

Luther A. Whipple, Treasurer, Michigan State College Employees‘
Credit Union, East Lansing, Michigan.

112

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