In 1934, Congress passed the Federal Credit Union Act "to establish a Federal Credit Union System, to establish a further market for securities of the United States and to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States." That Act, as amended, sets forth the basic structure which governs federal credit unions today:
- Each credit union is funded by shares purchased by its members. The purchase of a share allows the member to become an owner with the right to vote.
- Membership is limited to a group, or multiple groups, each defined in the credit union's charter, each of which have a common bond of occupation or association or are located within a well-defined neighborhood, community, or rural district.
- Member control is democratically exercised regardless of the number of shares held. No member has more than one vote.
- Management is placed in the hands of volunteers. Only one board officer may be compensated. No other member of the board of directors or any other committee member shall, as such, be compensated.
- Loans, which are the primary investment for credit unions, are made exclusively to members.
Today, the credit union industry’s dual chartering system means that there is a choice between state and federal regulators and their corresponding field of membership guidelines. Some state regulators have been more progressive in modernizing their FOM rules, while others have maintained relative parity with the federal regulators (there are still other states with no state-chartered credit unions at all).
The Federal Credit Union Act recognizes three types of federal credit union charters -- single common bond (occupational and associational), multiple common bond (more than one group each having a common bond of occupation or association), and community. For federal credit unions, each charter type has different statutory requirements that must be met. There are also special rules for credit unions serving low income groups.
While some state regulators have been more liberal with their FOM rules, they all generally follow the same general categories of field of membership types. However, many state regulators will allow state-chartered credit unions to combine what would be available to a federal community and federal multiple common bond credit unions. The benefits of a federal credit union charter can often outweigh the benefits of being a state chartered credit union. Also, underserved areas, underserved rural districts in particular, allow for federal multiple common bond credit unions to often obtain larger "communities" than either state chartered or federal community chartered credit unions.