1971: The Year the Number of Federal Credit Unions Started to Fall

By Mark Treichel  |  Credit Union History

Consolidation is one of the most talked-about trends in the credit union industry. Every quarter brings another round of mergers, and every year the count of credit unions gets smaller.

It is easy to assume this is a recent story. It isn’t. The turning point is on page one of NCUA’s 1971 annual report, mentioned almost in passing.

From “Federal Credit Unions in 1971,” NCUA Annual Report 1971 (published August 1972).

"The first year since World War II"

At the end of 1971 there were 12,717 federal credit unions in operation — 260 fewer than a year earlier. The report put it plainly:

“Nineteen hundred seventy-one was the first year since World War II in which the number of operating Federal credit unions decreased.”

The rest of the numbers told the same story from both ends:

•        400 new charters issued — the fewest since 1948

•        461 charters canceled — the most in any single year to that point

•        777 federal credit unions either in liquidation or chartered but never opened, up 199 from the year before

Fewer credit unions were starting, and more were closing.

Why they closed

The report named the main reasons for cancellations: the inability to find officials to run the credit union; loss of field of membership, “mainly due to plant closings”; and poor financial condition. That last reason was growing fast — 20.2% of all reasons given in 1971, up from about 13% the year before.

Each of those reasons comes back to the same thing. In 1971 most credit unions were built around a single workplace. When the plant closed, the field of membership closed with it. When the volunteer treasurer retired, there was often nobody to take the books.

And they were small. Almost a third of the credit unions that finished liquidating in 1971 had less than $5,000 in shares. More than 70% had less than $25,000. Only two had more than $1 million.

Most closed the right way

The 1971 closings were, for the most part, orderly. Members got 100 cents on the dollar from almost three-fifths of the credit unions that liquidated, and another 30% paid their members a dividend on top. Fewer than 11% returned less than members had put in — and as a group, even those paid back an average of 85%.

Only 32 of the 461 cancellations that year were mergers. In 1971, a credit union that could not continue usually just closed its doors and paid out. Merging into a stronger credit union was not yet the standard path.

Meanwhile, the movement grew

Here is the part that is easy to miss. The same year the number of credit unions fell, everything else went up. Membership rose more than 6%. Assets grew a record $1.7 billion, or 19.1%, to $10.6 billion. Shares grew 20.5%, the fastest since 1955 — helped, the report said, by the first full year of federal share insurance.

Fewer credit unions, serving more members, with more money. That pattern has held for 55 years.

Why it matters now

Today there are fewer than 5,000 credit unions of all charters. The forces behind the decline have changed in their details — technology costs, compliance, succession — but the shape is the same one the 1971 report described: small credit unions with a narrow field of membership and thin management bench find it hard to keep going.