Credit Union History Part IV - Coming to the United States of America

Throughout its history, cooperative lending institutions thrived when people were willing to take on their responsibilities in a democratic society.  Cooperative lenders reinforce democratic principles.  It is therefore no wonder that cooperative lenders finally landed on US soil during the Progressive movement in American politics.  It is also appropriate that establishing cooperative lending took a cooperative effort. In this first video, we set the political stage, and introduce our first American cooperative lenders (one you already know - he's Canadian), but the other is the descendant of a founding father of the US.  This video runs for about 16 minutes. 

 

So at this point, we have established credit unions in Massachusetts by Pierre Jay.  But it did not yet have the champion that it would need to grow to the size it has become today.  The most interesting component of the US cooperative lending story is that it was truly cooperative.  Pierre Jay lived in Massachusetts for just a few years.  But it was critical that he introduced cooperative lending to its next champion, Edward Filene.  His backstory and how he took up the torch are explained in these next 20 minutes.

The United States is a fantastic country (when it allows itself to be such).  Credit unions were started by Pierre Jay, a descendant of John Jay, the first Chief Justice of the Supreme Court.  But the torch of democracy was taken up by Edward Filene who was the son of enthusiastic immigrants.  And he spent years trying to wrest non-democratic practices from special interests in Boston before devoting much of the rest of his life to establishing cooperative lending in the United States.

And as is true in US society in general, to get anything done takes cooperation - the very essence of democracy.  The rest of our story will demonstrate how many like-minded patriots worked cooperatively to establish cooperative lending in the United States. And it is a good thing that so many were involved because it would take more attention to get cooperative lending to take off in the US.

Unlike in other countries, cooperative banking did not automatically take off for at least two reasons.  First, it would take decades to develop decades to write authorizing legislation in many states could not happen immediately.  Ultimately, it would take federal authorizing legislation which would provide federal infrastructure.  It is the Federal Credit Union Act that would be amended again and again.  In 1970 it would finally provide a separate agency - the National Credit Union Administration (NCUA) - and National Credit Union Share Insurance Fund (NCUSIF).  The final video will describe passage of that landmark legislation.  The following video runs for about 21 minutes. 

The second reason that cooperative lending did not immediately take off was that it was a solution in search of a problem.  In all countries where cooperative lending began, banks had been able to grow into financial empires.  However, in the United States of America, our founding fathers never really trusted commercial banks.  Regulations at the federal and state level had for most of our history had kept banks closer to Main Street - as well as Wall Street.  In all other countries, cooperative lenders were needed for banks to even see the small businesses in their own backyards.  

That was not true in the United States because banks were so small - until recently.  So small cooperative lenders in the United States had to find a new market that would focus on democratization of financial markets.  As the last video showed, Bergengren and Filene finally began to find growth when they began to focus on consumer lending.  But this was the only geographic location where that was true.  Cooperative lenders have always offered financial services demanded by their members.

Note that the founding principles of cooperative lending were also present in the United States.  First, credit unions were about offering some sort of financial service not currently offered to those of meager means.  It took a while to figure out that those people were likely taking on too much consumer debt (at exorbitant interest rates).  Second, the founders were interested in bolstering democratic institutions.  Pierre Jay came from a long family history of patriotism, and was willing to serve in the brand new Federal Reserve System.  Edward Filene was the son of immigrants from German autocratic monarchies.  He also spent some time living there as well.  And before pushing for credit unions, he was the driving force behind a progressive movement to clean-up Boston politics from the political machines which stole power from the people.  One of the biggest ways in which votes were obtained by political "bosses" at the time was that poorer people essentially sold their votes.  Make voters more self-reliant would free them from political tyranny which was one of the objectives of early credit unions.  Therefore, even in the USA, the underlying objectives of the founders were in alignment with those in other countries.