What is a community development credit union?

To begin with, a credit union is a cooperative financial institution. Unlike a bank – where the owners may be a completely different group of people than those who actually use the bank’s services – a credit union is owned by the people who use it on a day-to-day basis. Opening a savings account at a credit union is the same as investing in the credit union. This is why people who deposit money at a credit union are called ‘members’ instead of ‘depositors’ – an initial deposit counts as a share in the cooperative.

Each depositor is a member of the cooperative and can actually exercise ownership of the institution. Credit unions hold annual meetings during which members elect a Board of Directors and influence the direction in which the credit union grows.

This kind of structure works best when the members of a credit union all have something in common. For example, many companies set up credit unions for their employees – working for the same company is a common bond. Those who do not share in the common bond are not eligible to join the credit union.

Members of a community development credit union, or a CDCU, have in common a geographic area such as a county or a neighborhood. Brooklyn Cooperative FCU serves a field of membership made up of people who live, work, volunteer, and/or worship in Bushwick and Bedford-Stuyvesant.

Why a community development credit union?

In many poor communities there is an extreme shortage of formal sector financial institutions. This makes it difficult for families to maintain financial savings, build assets, and obtain fair credit. As a result, many local families do not save. When they are in need of emergency funds, they are forced to turn to costly, sometimes dangerous, alternatives like pay-day lenders and pawnshops, as well as illegal moneylenders or prestamistas. Here in Bushwick a typical loan from a prestamista will cost $5 per month for every $100 originally borrowed, until such time as the entire principal is retired.

Where formal sector financial institutions are scarce, "fringe" banks may provide valuable payment and credit services to people in need. The problem is that "fringe" banks' services hinder rather than enhance a poor family's ability to maintain financial savings. They are a costly alternative to formal sector financial services, a disturbing example of the way in which the poor are often compelled to pay more.

Brooklyn Cooperative FCU strives to improve upon this undesirable situation – in a sense, to correct local market failures. But aside from correcting market failures, Brooklyn Cooperative FCU also deepens democracy in the community. The concept of being a stakeholder in a neighborhood institution - of having a voice in its growth and development - is not widely experienced in Brooklyn. Rather, a sense of dis-enfranchisement and lack of political control are common currency. The credit union is an institution that is open to all members of the community and directly accountable to them. Members are not simply clients and they are not just beneficiaries of a small loan fund. They are shareholders with a political voice in the institution that holds their savings.