local government federal credit union

local government federal credit union

The Role and Impact of Local Government Federal Credit Unions

1. Introduction to Local Government Federal Credit Unions

However, during the basic formative year in the establishment of a national credit union policy, the actual circumstances of the formation and development of this specialized type, plus their current status, have been overlooked. It is the purpose of this study to set forth the highlights of the creation and operation of the local government federal credit unions during the 25 years from the date on which they were granted special recognition in the initial Federal Credit Union Act.

Credit unions for municipal employees of the United States were first established through enabling legislation enacted by the Maryland General Assembly, and they began to operate during 1903 under the supervision of the State Banking Department. During 1925, the Long Beach City Employees Credit Union of California was incorporated and issued its Certificates of Incorporation. This institution calls attention to its position as “The first credit union in the U.S.A. solely for Public Employees.”

The establishment of effective financial services, both for salaried employees of local government and for the local government itself, is an important objective of those who believe in the principles of local self-government. To carry on the essential work of local government in local communities, a close, sympathetic working relationship must exist between local officials and their finance organization.

2. History and Evolution of Local Government Federal Credit Unions

In January 1984, about the time we broke ground for the new headquarters building, we hired the first actual LGFCUP employee, Peggy Barnes. Peggy began inputting the group applications and pre-employment payroll authorizations into our IBM mainframe. The goal was to complete payroll authorizations in time for our “Grand Opening” scheduled for May 26, 1984. With a marketing budget of $25,000, and an employee staff of 150, we invited members to join LGFCUP with various incentives which included money for each new member, 1-year free safe deposit box rental, $250 savings bond grand prizes, along with door prizes at each of the state Capital Area locations. The January through June opening promotion saw 3,200 members join LGFCU but only $4 million of the $89 million total June year-end assets came from the Washington, DC postal deduction move. The remaining 817 members were selected from field trips around the state in order to increase the LGFCUP insurance coverage to $250,000. With our new members, our Board of Directors was increased to 13 members and the credit union recruited some “friends of the LGFCUP” to join a Supervisory Committee. With initial operating cost projections met, the LGFCUP experienced profitability, grew membership with new group additions, capital resources positively supported the 12-15% targeted loan growth, and the future looked very positive. As a $150 million credit union, LGFCU was able to break the 8.5% amendment barrier in 1985.

In 1982, LGFCU developed a unique strategy through the formation of a separate federal credit union that would provide services to the employees of the nation’s cities, counties, and towns. After years of revisions to state law and through the political difficulties, LGFCU obtained its federal insurance in 1983. In February 1984, in an unprecedented and lauded public-private sector agreement, the North Carolina General Assembly passed Senate Bill 294 providing the necessary statutory changes to begin LGFCU operations. In April 1984, the National Credit Union Administration (NCUA), our federal regulator, granted LGFCU a federal charter to begin operations. In May of that same year, LGFCUP became the first FCU chartered as a broad-based Local Government Federal Credit Union.

3. Services and Benefits Offered by Local Government Federal Credit Unions

A credit union offers a variety of financial services to its members and may charge for those services at favorable rates compared to other financial institutions. The member-owner of a credit union is known as a “sharee.” He or she buys a share in the credit union by placing a deposit at the institution. The deposit must be held in order to retain membership, and it can be returned upon withdrawal from the credit union. The member account-holders elect the representatives who serve as directors of the institution. These directors in turn hire the management personnel. The day-to-day operation of each credit union is under the jurisdiction of a volunteer credit committee. This credit committee is responsible for overseeing the operations of the credit union.

Account-holding individual members of local government credit unions become eligible for certain benefits. Local government employees as a group also avail themselves of these benefits. In evaluating the role and impact of local government credit unions, it is helpful to identify the benefits and costs to account-holding individual members and to local government employees of the existence of local government credit unions. In this section, the range of services offered by credit unions in general is briefly described. Then, the specific services offered by local government credit unions are outlined. The services and benefits are both direct and indirect. They are offered to the account-holding individual members and local government employees. Finally, the operational expenses incurred in providing credit union services are discussed. These expenses provide an indication of the degree to which local government credit unions, because of their relationship to the local government sector, may be in a position to offer special benefits to members and to provide those services at favorable rates.

4. Regulations and Governance of Local Government Federal Credit Unions

The National Credit Union Administration (NCUA) is the federal supervisory agency for all federally chartered credit unions and for federally insured state-chartered credit unions. It operates on funds obtained from the federal credit unions. It is governed by a three-member board appointed by the President of the United States. The board serves independently and does not rely on appropriations from Congress. It became an interim supervisor for the five state credit unions organized in Lansing, Michigan, in November 1934. It is prudent to support federal credit unions by offering the liquidity program. The federal credit union liquidity program, as explicated in 12 U.S.C. §1789(a)(b), stipulates that the NCUA is authorized to charter and capitalize a national, central Federal credit union. The Federal Credit Union Council is an agency for examining and supervising federal credit unions and the operations of the Central Processor.

Local Government Federal Credit Union’s (LGFCU) rates, policies, and regulations are established by the board of directors. Federal credit unions are established and regulated under the Federal Credit Union Act, 12 U.S.C. §1751, et seq. The Act contains provisions that establish the general framework of federal credit union organization, operation, and supervision. In addition, the Act and regulations promulgated by the National Credit Union Administration (NCUA) contain many specific requirements relating to the operation of federal credit unions, including provisions that impose standards for financial soundness and safety on federally insured credit unions. Regulation of federal credit unions is based on the principle of self-regulation through market discipline. The NCUA is not a source of federal funding or grants for these credit unions. In addition, through an inspector general, the NCUA School offers graduate programs in organization management with an option in credit union management.

5. Case Studies and Success Stories of Local Government Federal Credit Unions

LGFCUs that have inserted themselves into the proper niches in the marketplace can generate a for-profit credit union model that provides needed banking services for their specific field of membership while providing these services at a lower cost than the banking alternatives offered by the regulated for-profit banking industry. By doing so, LGFCUs are able to strengthen their affiliate groups, thereby positively contributing to the solid economic capital of the area being served. By thus improving upon local social issues, LGFCUs maintain and “enforce” their membership’s local brand with the resultant impact that the available for-profit market share for which they were originally chartered remains intact.

In the Carolinas, and in other areas of the country where LGFCUs have a significant market share, these credit unions have had a great positive economic impact on the communities they serve. Just as successful traditional for-profit cooperatives often claim success stories of their members, so should LGFCUs claim success stories of their respective local municipalities and affiliate groups. In support of the many success stories that are included in this overview, a handful of local LGFCU executives have added to this overview their specific examples of what impact their credit union has had within their local community. A common theme for all of the provided successes is the underlying social benefits that penetrate the community by banking locally.