The Cradle of Credit Unions

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Boston is known worldwide as the cradle of American liberty, but few realize Boston, more than any other city, gave birth to the America's credit unions.

Indeed, if one looks carefully, not far from where tens of thousands of tourists follow historic Freedom Trail and visit the American landmarks along its length, is a relief of credit union pioneer Edward Filene that was put in place in 1957 in the Boston Common along with a plaque recognizing him for his work in founding credit unions.

Boston wasn't the site of the world's first credit union or, for that matter, even the first one in the United States. But more happened in Boston to help craft the credit union movement as it exists today than in any other community in the country.

Part of that may have had to do with proximity. Boston is close to Canada, where North America's credit unions gained their first foothold. The city has a history of passing socially beneficial legislation and was a leader in stridently opposing the practice of slavery long before the start of the American Civil War.

Boston also was home to several credit union pioneers, men of influence who used that influence to turn their dreams of financial cooperatives owned by the country's working class into a reality. That desire for financial freedom may even have been flavored by the spirits of those who earlier fought for the freedom of the country.

In any event, visitors at this year's NAFCU conference in Boston are taking part in history at multiple levels. In a very real sense, conference attendees will tread hallowed ground with the spirits of Alphonse Desjardins, Pierre Jay, Edward Filene and others responsible for making the credit union dream a reality.

A Vow of Prosperity

Credit unions, like other great crusades, would not have progressed without a figurehead. More than any other single individual, Boston merchant Edward A. Filene is credited with being the father of the Credit Union Movement. Filene traveled the world, viewing first-hand the effects of poverty and usury on uneducated populations without sufficient recourse or financial independence to fight back. While in India he was exposed to the idea of financial cooperatives as a means of people lifting themselves up.

Emboldened by his experience and flush with the necessary financial resources, Filene returned and became a guiding force in credit union development. He was convinced a new kind of bank could turn any population's unintentional vow of poverty into one of prosperity, and set out to make that happen in his native Massachusetts.

Filene provided early financial support and intellectual guidance to the fledgling movement, using the business savvy he learned as head of Filene's Department Store in Boston to help develop a new kind of financial institution. In the end, as the first president of what is now CUNA & Affiliates, he also provided leadership in the final years before his death in 1937 at age 77.

But Filene was one of several influential men and, in the eyes of some, not even the most influential. Those debates are best left to historians, but one thing is clear. Credit union development was a long and challenging process that involved the influence of dozens and the commitment of thousands starting more than 150 years ago.

Credit unions got their start in the mid-19th century in Germany as craftspeople and farmers banded together to build financial cooperatives that got them out of the hands of usurious money lenders and helped them develop financial freedom. In fact, two separate systems developed in Germany in the mid-1800s. After years of experimentation with the model, Frederick Raiffeissen founded what would become the Raiffeissen Bank and Franz Schulz-Delitzsch started the Schulz-Delitzsch Credit Association, both designed to provide reasonable credit from funds pooled from among the member-owners.

The Invitation

The idea began to spread to countries throughout the world including India, where Filene witnessed the positive contribution the cooperatively owned bank made to the lives of its members, mostly craftswomen. In 1900, French Canadian newspaperman Alphonse Desjardins brought the idea to Levis, Quebec, where he helped found the first la caisse populaire, or "people's bank."

Desjardin's efforts on behalf of his fellow Canadians had a profound effect on U.S. observers and the seeds of a movement were planted.

If anyone can be credited for bringing credit unions to the U.S., it's Desjardins. He did just that at the invitation of Monsignor Pierre Hevey, the priest at St. Mary's Parish, which served the spiritual needs of the Catholic Franco-American population of Manchester, N.H. The priest was concerned for the financial well-being of his parishioners and had heard of the good work Desjardin's people's banks had done in Canada.

In 1909 Desjardins, under a special act of the New Hampshire legislature, helped the founders of La Caisse Populaire Ste. Marie and the country's first credit union was born. But truth be told, the groundwork for America's credit union had been laid in Boston years before. In fact, formation of the Globe Savings and Loan Association in 1892, designed to serve the credit needs of employees of the Boston Globe newspaper, was an early indication that cooperative banking was an idea whose time had come.

That spirit was seized early by Pierre Jay, a direct descendent of John Jay, the noted American statesman, New York governor and first chief justice of the U.S. Supreme Court. Pierre Jay became Massachusetts' first commissioner of banks in 1906 and, as such, was convinced cooperative banking was the way to save the state's working class from the clutches of money lenders and loan sharks.

In 1907, Jay visited Desjardins in Quebec and observed the success of les caisses populaires firsthand. In July 1908, Jay invited Desjardins to Boston, where the Canadian addressed the state legislature's Committee of Banks, one of the members of which was a young Calvin Coolidge, the future 30th president of the U.S. Filene also testified, relating what he saw in his travels much the same way he had in an earlier meeting with President Theodore Roosevelt. Another Boston merchant, Felix Vorenberg, also shared his views.

The combined testimony was sufficient to convince the Massachusetts Legislature to pass a bill drafted by Jay's Committee on Banks that became the Massachusetts Credit Union Act on April 15, 1909. The law set the standards for credit unions as financial cooperative and the related chartering requirements that still serve as the basis of today's institutions. (Near the main entrance inside the Statehouse is a plaque recognizing Jay for his work on the credit union-enabling legislation.)

Despite its prompt action, Massachusetts missed becoming the first state with credit union legislation by just nine days. On April 6, the New Hampshire Legislature enacted a special law allowing incorporation of St. Mary"s Cooperative Credit Association, the credit union formed by Desjardins some months earlier.

No matter who enacted a law first, the necessary groundwork had been laid and credit unions were ready for their first phases of development. Despite the enthusiasm of those early pioneers, the movement didn't seem in any hurry to get where it needed to go.

Extending Cooperative Influence

Despite early enthusiasm, credit unions got off to a slow start, taking 22 years for the movement to reach its next major phase. That had less to do with a lack of interest and more to do with simply not being sure what to do once the law had been passed. Jay was enthusiastic about the credit union concept and passing laws to make them a reality in Massachusetts, but no mechanism then existed for the formation of credit unions. He toured cooperative banks in Europe, met again with Desjardins and Henry Wolff, the English author whose book, People's Banks, helped inspire his interest in the first place. Yet he shied away from the suggestion of attempting to spread the credit union credo before it was firmly established in his home state. Eventually, he moved to New York.

Although an enthusiastic supporter of credit unions from the start, Filene had not yet narrowed his focus only to them. The businessman/philanthropist enlisted the aid of muckraking journalist Lincoln Steffens in an attempt to right a whole slate of social wrongs plaguing Boston, of which usury was only a small and not very evident part.

Despite the best effort of numerous social and government agencies, credit unions were slow to form in Massachusetts and elsewhere even as credit union legislation was being passed in other states. By 1921, it was legal to establish credit unions in Nebraska, New York, North Carolina, Oregon, Rhode Island, South Carolina, Utah and Wisconsin in addition to Massachusetts. However, the ensuing 22 years only resulted in the formation of 199 credit unions, most of them in Massachusetts and New York.

The institutions were not without some blue chip supporters, among them Sen. Franklin D. Roosevelt of Dutchess County, N.Y., who promoted agricultural credit unions, and Filene himself who, with fellow merchant Vorenberg and several others, formed the Massachusetts Credit Union in Boston in 1914. Without any organizational support, however, most credit unions found support where they could and largely functioned on their own.

One of the first efforts in that direction was a statewide meeting of all Massachusetts credit unions held at the Boston Bay Club in 1915. It was after that meeting the Filene began to focus his efforts on credit union development. It dawned on Filene that credit unions were slow in developing because people lacked understanding of the cooperative ideal. That recognition set the stage for efforts soon to come.

Similar efforts elsewhere were also underway, especially in support of agricultural credit unions. Both presidents Theodore Roosevelt and William Howard Taft were sympathetic to farmers' credit needs and interested in how credit unions could meet those needs. But like the other types of credit unions, agricultural credit union development proceeded slowly.

Where great strides were made during this period, however, was in refining the concept and structure of credit unions, as well as limiting government encroachment into credit unions' operations. Filene became more involved, contributing funds and expertise to the growth of the movement.

The movement hit a milestone April 3, 1917 when the Massachusetts Credit Union Association was chartered in Boston. It was the first such organization devoted to the growth of credit unions as a movement and an industry. (Interestingly, although it was first and would change its name to the Massachusetts league, it would not become part of the Credit Union National Association CUNA that would be formed in 1934 in Estes Park, Colo. A separate, CUNA-affiliated group with an unwieldy name, the Massachusetts CUNA Credit Union Association, would be formed and the two operated separately until 1998, when they merged.)

By 1919 other similar trade groups had formed in other states, prompting Filene to first float the idea of a national association. The National Committee on People's Banks was born. Filene was elected vice chairman and provided most of the funding for the organization, designed to spread credit unions and supporting state legislation throughout the country.

The idea was a good one, but the committee was populated by business leaders of the day who failed to have the necessary commitment to make things work. The committee dissolved by the end of 1919 and even the Massachusetts Credit Union Association had little to show for its initial three-year run.

But interest still existed, along with state associations in New York and North Carolina. Filene's interested in making credit unions a national movement grew until, in 1921, he formed the National Credit Union Extension Bureau. Located at 5 Park Square in Boston, the Bureau was bankrolled completely by Filene, who eventually contributed more than $1 million to fuel the growing effort.

Filene hired Roy F. Bergengren, a young lawyer from Lynn, Mass., to run the bureau. The merchant's funding, coupled with the attorney's commitment and natural sales ability as well as his endless traveling and concerted efforts to found credit unions whenever a group of people would listen to his pitch was the impetus the movement needed to get to the next stage.

The next 13 years were some of the most productive in the credit union movement's history, with state laws being passed and credit unions being formed in greater abundance than ever before. The period culminated with President Franklin Roosevelt signing into law the Federal Credit Union Act in 1934, which made credit union formation legal anywhere in the United States or its territories.

That same year a group of credit union people met at the YMCA campground in Estes Park, Colo., and the National Credit Union Extension Bureau, which had completed its task, evolved into the Credit Union National Association. Filene was named CUNA president and Bergengren its managing director.

The organization eventually moved to Madison, Wis., a city recommended to Filene for its progressive ways, liberal attitude and proximity by train to Chicago, and credit unions became a worldwide movement. But it all began with a group of Bostonians who felt the credit options available to people of their day were highly unsatisfactory and made a commitment to right this wrong.

It wasn't the first time such strong personal convictions led to a revolution in Boston.

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