On Nov. 24, 1908 the first credit union in the United States opened for business in Manchester, N.H. Founded on a belief that people with limited financial means should form a cooperative alternative to the commercial banking system, the success of the Manchester venture spawned further development of these entities throughout New England and elsewhere.
The origins of the modern credit union in North America can be traced to Germany. In 1853 Hermannn Schulze founded a society to raise funds (capital) for loans to its membership. Members were employed mainly in industry and commerce in urban areas. Nine years later, Friedrich Raiffeisen established a similar society at Anhousen to help poor rural workers. Credit cooperative societies then quickly began to spread across other European countries.
A caisse populaire credit union in Lévis, Quebec, c. 1920
North America’s First Credit Union
Credit unions first appeared in North America in Quebec, Canada. On Jan. 23, 1901 Alphonse Desjardins opened his La Caisse Populaire de Levis (The People’s Bank of Levis) in Levis, Quebec. As in Germany in the mid-19 century, farmers and industrial employees struggled to earn a living. They also faced difficulties in dealing with commercial banks, and they had to pay high interest rates for borrowing from unscrupulous lenders. Desjardins wanted only “honest and laborious” members in his cooperative association who would make their deposits and could obtain loans. Men and women who wanted to join had to pay an entrance fee and buy a minimum of one $5 share.
Alphonse Desjardins
Meanwhile, Monsignor Pierre Hevey, pastor of Sainte-Marie parish in Manchester, became aware of the success of the Quebec credit union. He then invited Desjardins to meet with him in May 1908 to form a similar financial institution. Desjardins agreed to meet. Hevey told him that his relatively poor French-Canadian parishioners lacked access to needed funds, given their low-wage employment in the Amoskeog Textile Mill and elsewhere. Desjardins then gave advice about how to create such an entity to Hevey and others.
Monsignor Pierre Hevey
St. Mary’s
Based on the successful organizational model created by Desjardins, the St. Mary’s Cooperative Credit Association began its operations on Nov. 24, 1908. Thus it became the first credit union in the United States. The initial location was in the parlor of the home of Joseph Boivin, who became the president and manager. The New Hampshire General Court subsequently granted the credit union a charter by a special act on April 9, 1909. By 1913 it had its own building.
The not-for-profit financial entity was member-owned and operated. Each member had to buy at least one $5 share in the corporation and pay an entrance fee. Membership was initially restricted to the men, women and children of Manchester. The pooled savings deposits (credits) became the source for loans to the members at an interest rate capped at 6 percent.
Workers at the Amoskeag Mill Yard
The organizational structure of the credit union had three groups: at least five directors; a three-member supervision committee; and a three-member credit committee. The directors oversaw financial affairs; could declare a dividend payment from net earnings, subject to a 20 percent contribution to a guaranty fund for unforeseen expenses or incurred losses; and initially had to select a president, treasurer and clerk.
Moreover, the state exercised control over the credit union through supervision by bank commissioners. It also required payment of the same types of taxes that were imposed on savings banks.
A New Name
On April 3, 1917, the New Hampshire Legislature allowed the credit union to change its name to La Caisse Populaire Ste. Marie (Bank of the People, St. Mary’s). A further change came on April 28, 1925, that allowed the credit union to use its 1917 designation or be known as St. Mary’s Bank.
Ste. Marie Church in Manchester
Meanwhile, Edward Filene, a Boston department store owner, and Pierce Jay, the Massachusetts banking commissioner, saw a need to encourage the formation of credit unions (coined by them) through a state general incorporation law, rather than through special acts pertaining to a specific entity (i.e., St. Mary’s). Thus, they helped secure passage of the Massachusetts Credit Union Act on April 15, 1909 (six days after the granting of St. Mary’s charter). That became the first general law for the creation of credit unions.
The Industrial Credit Union opened in Boston in 1910, becoming the first credit union in Massachusetts. Within New England, other credit unions emerged. Rhode Island started its first in 1915 (La Credit Union de Notre Dame de Central Falls, Maine in 1921 (Telephone Workers Credit Union of Maine), Vermont in 1925 (Montpelier Credit Union) and Connecticut in 1938 (Manchester Teachers Federal Credit Union).
Edward Filene
Legacy of the First Credit Union
Since its founding in 1908, St. Mary’s Bank has been durable and popular. It has survived both world wars, the Great Depression (especially after the bankruptcy of the Amoskeag Manufacturing Company in 1935) and various financial turmoils over succeeding decades. Its popularity had depended on higher savings rates on deposits, lower interest rates on borrowings and customized personal services offered in a local setting. Nevertheless, challenges have included questions about its management, computer software usage and external threats. Those criticisms, however, are common to other financial institutions.
Edward T. Howe, Ph.D. is Professor of Economics, Emeritus, at Siena University near Albany, N.Y.
Images: Illustration of Desjardins and Hevey created by ChatGPT. Ste. Marie Church by By John Phelan – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=30614758
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