Federal Credit Unions
Contributors
Edith Philip is a senior at Tufts University from Baton Rouge, Louisiana, and is pursuing a double major in Economics and English. Passionate about making economics accessible to the working class who are often overlooked in these conversations, she aims to bridge progressive economic policy with public understanding. As a Tisch Scholar at Tufts, she serves as a legal aid for a non-profit dedicated to advancing Indigenous land rights and protecting forests globally.
Key things to know
Federal Credit Unions (FCUs) are not-for-profit, member-owned financial institutions chartered by the National Credit Union Administration that provide affordable financial services.
FCUs are owned by members who share a common bond (e.g., occupation, neighborhood) and have equal voting rights in credit union governance regardless of how many shares they own.
FCUs invest their profits back into the community rather than distributing them to shareholders like bigger banks. This funding supports services such as affordable housing and free financial literacy programs.
Some benefits of being a member include lower loan rates and higher interest rates than traditional banks, which combat predatory lending practices, like payday loans, that are people's only option.
Many low-income individuals and underserved communities lack access to traditional banking services, leaving them reliant on predatory lenders or cash-only systems, and having limited access to affordable savings and investment options exacerbates the wealth gap, especially in marginalized communities.
Case study
The Digital Credit Federal Union (DCU)
The DCU is based in Massachusetts and has more than a million members in all 50 states.
Credit Unions have donated over $200 million to Children's Miracle Network Hospital since 1996, making credit unions the third largest lifetime donor.
DCU in particular has donated more than $28 million to charitable organizations as well as employees have been mentoring students on financial literacy.
Shannah Compton Game, a Certified Financial Planner explains it as, “For me, going with a credit union is going out to eat at your local restaurant where they know you and they know what you like to eat,” she said. “There’s a very familiar aspect, versus going to a chain restaurant where nobody knows you and nobody knows your order.”
DCU offers many services such as commercial lending to small businesses as well as financial relief programs.
Lower East Side Federal Credit Union (LESFCU)
The LESFCU has remained a smaller bank since its inception in 1986 with only $55 million in assets but has given out more than $100 million in loans.
They received a grant of $700,000 from the Community Development Financial Institution last year to expand their work to reach more low-income and immigrant families.
They welcome anyone who lives or works in a neighborhood they have a brick-and-mortar location in, as well as anyone who lives in NYC at all and makes sub-$48,500.
They offer many financial services regardless of immigration status or documentation, as well as other resources for those less financially literate, such as free tax preparation and financial literacy classes.
Small business lending makes up 28.3% of their spending portfolio.
Only a $5 annual fee to keep the account open.
This chart showcases the differences in interest on average between FCUs and banks. We see that there is a higher average interest rate on savings accounts via credit unions and a lower interest rate on credit cards.
Potential pitfalls
Many FCUs lack physical branches in rural areas, which makes accessing in-person assistance more difficult. This is especially poignant as those in rural and underserved areas are those who can be best helped by FCUs.
FCUs must comply with both federal and state regulations, which can be burdensome for smaller or community-based credit unions, particularly in terms of reporting, auditing, and maintaining capital reserves. However, regulatory reforms that reduce bureaucratic processes and are more applicable to FCUs can alleviate this issue.
