WASHINGTON-Nearly 4,000 credit union representatives will arrive in the nation's capital this week, and many will head to the Hill to press Congress to support their priorities.
Few of them, however, will give much thought to a critical piece of legislation that passed 78 years earlier and made federal credit unions possible, and which only came about thanks to a fortuitous alignment of the stars.
But the passage of the Federal Credit Union Act in 1934 wasn't the result of an astrological assist, but instead of years of behind-the-scenes hard work and grit, not to mention the most difficult economic times the country had ever encountered.
The Great Depression began with the stock market crash of 1929. The crash was severe, but it was initially seen as just another of the many recessions the United States had battled through since its founding. Recession gave way to Depression, however, when investors lost all confidence in the stock market. Between a September peak and November low, U.S. stock prices fell by 33%, and as 1930 made its debut economic output declined substantially.
By the autumn of 1930, the country had experienced the first of four banking panics that were to occur over the next two years. The last of the four was a ten-day shutdown on March 6, 1933, and banks would not re-open until a new concept called "deposit insurance" was in place.
Credit unions found themselves in the middle. Seven banking institutions were included in Roosevelt's bank holiday declaration (Proclamation 2039). Number six in the lineup, alongside Federal Reserve banks, national banking associations, trust companies, banks, savings banks, building and loan associations, was credit unions.
'Caught Off Balance'
Including credit unions came as a surprise to credit union pioneer and activist Roy Bergengren. In his own words, he was "astounded" and "caught off balance." At that time, credit unions were organized state by state, and there was no such thing as a federal credit union charter.
Bergengren's focus had been on helping credit unions-nearly all of which were tied to employers-get through the banking crisis and on protecting them amid a tottering banking structure. Even if credit unions had not been closed during the holiday, essentially their operations would have been suspended anyway, as most credit union funds were kept on deposit in local banks. Bergengren feared credit unions would be the last institutions to be examined, and as a result, the last ones to reopen.
A decade earlier, in 1921, Boston businessman, social entrepreneur and philanthropist Edward Filene hired Bergengren to head what he initially called the Credit Union National Extension Bureau (CUNEB). The Bureau, predecessor to CUNA, worked at the state level to bring about laws for credit union development, organize credit unions and instill business plans so they were self sustaining. Filene would become the first to combine the federations into a self-sustaining national association.
The idea of enacting a federal credit union law to allow the financial cooperatives to incorporate in any state or territory predated the Depression, with Bergengren mentioning it to Filene as early as 1920. But in the meantime, their efforts were toward passing state legislation.
But by the early 1930s, Bergengren had seen the necessity of federal legislation. A federal charter, Bergengren believed, would help the credit union cause to spread, especially in states the refused to pass enabling legislation. Moreover, such a federal law would keep existing states from repealing credit union law, and it would help boost CU organization in states with weak or defective laws.
Bergengren wrote that a federal credit union law would be "a sort of blanket insurance policy for all our state laws, giving us an alternate method of organization."
In a 1932 letter to Filene, Bergengren said that when credit unions formed a national association, he desired "a completed legislative job, with a United States (where) organization was possible everywhere."
By the time he took the presidential reins in 1933, Franklin D. Roosevelt was familiar with credit unions. As a New York state legislator he had introduced the state's first credit union bill. By the time he became president, it was obvious that the nation's banks weren't fulfilling Roosevelt's desire to give the common individual free access to credit, safer ways to save money and more control over their financial destiny. Banks were largely organized to serve businesses and higher balance depositors.
But having Roosevelt as president wouldn't guarantee that a federal credit union bill would become reality. The old saying, "You don't want to know how sausage and legislation are made" is true here. It would still take the expertise and skill of a group of legislators to see any bill arrive at Roosevelt's desk for signing.
That task fell primarily to two Texans-Sen. Morris Sheppard and Rep. Wright Patman. Bill Sloan, in the book "Where Credit Is Due," points out that the pair was a portrait in contrasts-Sheppard a respected elder of the Senate, Patman, a young, fiery congressman.
Sheppard was a veteran United States senator from Texas. He served as a Democrat in the House of Representatives from 1902-1913 and as senator from 1913-1941. Sloan called the distinguished, silver-haired man the "Dean of the U.S. Congress." Sheppard was the Democratic whip from 1929-1933, and is probably best known (and infamous to many) as the author of the bill that became the 18th Amendment and which ushered in almost 14 years of national Prohibition.
TIn Congress, A Contrast
For many years in Congress, Sheppard was interested in cooperative banking, especially short-term credit for farmers. After he was elected to the Senate, Sheppard supported programs of rural credit and even introduced a bill modeled after the German Landschaften (rural credit) system. Credit unions, of course, also have some of their roots in Germany.
By contrast, Rep. Wright Patman was one of the most junior members of Congress, elected to his first term in 1928 at age 35. He developed a reputation as a maverick-in his first speech in Congress, Patman demanded that Congress make immediate cash payments of $2-billion to World War I veterans. Sloan notes that Patman was of a more liberal persuasion than Sheppard. Patman came by his populism honestly, born in 1893 in a three-room log cabin on his parents' cotton farm.
But despite very different backgrounds, these two Texas legislators were united in their desire to see credit unions expand to all Americans, to combat the ravages of the Depression, and to diffuse the concentration of wealth in American society.
1933-Time to Act
By 1933, after four banking holidays had roiled the country and eroded consumer confidence, the time was ripe for a federal credit union law. Bergengren was the spark plug behind getting legislation to Congress. He enlisted Filene's help, even though Filene wasn't an enthusiastic supporter of the effort.
Not surprisingly for a man whose owned department stores, Filene's focus was on helping the average consumer experience more purchasing power. But Filene had had contact with Roosevelt, and in March 1933, Bergengren asked Filene, who was planning a trip to Washington, to meet with Roosevelt to determine the feasibility of a Federal Credit Union Act. Bergengren believed such a meeting would "do more to make possible the organization of our National Association than could any one accomplishment."
Filene was unable to see the president. But despite the setback and Filene's lack of enthusiasm for a federal credit union law, by the end of April 1933, he and Bergengren agreed on the form of legislation. The main features would be federal incorporation of credit unions and the creation of a Central Fund in each state with rediscount privileges with the Federal Reserve Bank.
Sen. Sheppard was drawn into the mix in March 1933, when he and Bergengren developed three credit union bills for introduction into a Congressional special session.
If Shoeless Joe Jackson's and later, Willie Mays' gloves were the places where triples go to die, the same fate almost happened with a trio of credit union bills. The pieces of legislation were introduced on May 1, 1933 and a month later, Bergengren and Sheppard were testifying before Congress on behalf of the bills.
S. 1640 would permit credit unions to make deposits and borrow from Federal Reserve banks. E.R. Black, governor of the Federal Reserve Board, however, opposed it, as did the Treasury Dept. and the Post Office Department.
Similarly the same groups lined up to oppose S. 1641, which would allow credit unions to use the postal savings system.
That opposition scuttled the two pieces of legislation. Only one federal credit bill-S. 1639-was left. It would allow the federal incorporation of credit unions and the operation of state central credit unions. But as is so often the case, there wasn't enough time in Congress' 1933 special session to take up the bill and it had to wait for the 73rd session of Congress starting in January, 1934.
During this time, Bergengren and Sheppard were in close contact. Credit union supporters from around the country contacted their legislators. At the start of 1934, there were still 10 states where no credit union-enabling legislation had been enacted.
Backers of the plan to get a federal bill passed gained some momentum in March 1934, when the Committee on Banking and Currency issued a favorable report on a somewhat modified S. 1639. There would be no relationship between credit unions and the Federal Reserve System under the new plan.
At the end of April, the bill was brought up again. Three senators, including Sheppard, rose up to praise credit unions, but Sen. Alva Adams of Colorado asked for postponement. Bergengren then brought in the big gun-Filene-to write to Adams, urging him to support the bill. With the help of Filene's letter and Colorado credit unions and supporters, during the next few days Adams would receive mail bags full of correspondence from his constituents.
The legislation also got a boost when the Farm Credit Administration agreed that it would provide credit unions an administrative home. The Senate passed it by unanimous consent on May 10, 1934.
With the Senate passage behind it, the companion legislation now needed to pass in the House. The next day just such a bill was referred to the Committee on Banking. Bergengren asked Earl Rentfro, a credit union supporter, to be responsible for lobbying the bill.
The clock was ticking again, however. When the House took up the legislation there was just a month remaining before Congress was to adjourn. During that short time language as rewritten and other adjustments were made to S. 1639. A Farm Credit Adminstration attorney redrafted the bill, and Filene talked to President Roosevelt and his son, James. In early June, Roosevelt wrote to Treasury Secretary Henry Morgenthau, Jr., stating, "I really believe in the usefulness of these credit unions. Would you please take it up with the Congressional Committees concerned and see if we can get it passed without opposition in the closing days?"
Down To The Wire
The game clock on the effort to create a Federal Credit Union Act was running out. On June 13, Henry Steagall, chairman of the House Banking Committee, sent for Bergengren and associate Earl Rentfro and gave them what the authors of "The Credit Union Movement" described as "the third degree."
Bergengren was not discouraged, however, and showed his doggedness and persistence by taking with him a copy of a petition from Steagall's Alabama constituents. Bergengren, as later recalled by those who were there, let the papers unfold across the floor. He further reminded Steagall that he'd been sent all kinds of material about the bill. Steagall turned to a colleague and said, "It's no use...This man has been pestering us with this bill ever since I can remember."
With two days left in the session, Bergengren and his fellow credit unionists used all their resources to put heat on Congress. On June 8, Patman, whose support was critical to passage, wrote to the Democratic members of the Banking Committee, and said the bill "should be enacted without delay...I am sold on this legislation one hundred percent."
On the final evening of the final day of the session, Steagall walked onto the floor of the House and asked for unanimous consent to pass S.1639. Before the 30 minutes allocated for debate was over, the House passed the bill, with two dissenting votes.
But the bill still had to proceed through the enrollment office for certification and go back to the Senate. Senator Sheppard received the bill at 8:30 pm. Now, S.1639 would either have to be referred to a conference committee to resolve the differences between the Senate-passed bill and the House version, or Sheppard could bring it to the floor and ask for unanimous consent for passage of the bill, unread. It was too late for the former option. Sheppard interrupted a senator who was holding the floor and discussing airmail contracts. Bergengren said that he and Rentfro "stopped breathing," knowing that if just one senator raised his voice against the bill, it would be defeated.
Roosevelt Signs The Bill
There were no objections. History was made. Roosevelt signed the measure on June 26, 1934. He sent the pen he signed it with to Filene, who forwarded it to Bergengren. Filene said the pen "clearly should have gone to you. You did the work, without which the bill would not have passed..."
The passage of new Federal Credit Union Act immeasurably widened and broadened the arc of credit union creation and expansion.
Bergengren wrote that it was "the greatest single step forward in the history of the credit union movement."
For More Reading:
The Credit Union Movement Origins and Development, 1850-1970J.
Carroll Moody and Gilbert C. Fife
Crusade
Roy F. Bergengren
Where Credit is Due
Bill Sloan
