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An Analysis of Public Policy on Credit Union Select Employee Groups

This report evaluates the implications of the court ruling that a federally chartered credit union cannot serve more than one employee group. 

  • Stephen Senior Economist at Michigan State University
  • William Kelly Center for Credit Union Research at University of Wisconsin-Madison

Executive Summary

In a landmark case, the United States Court of Appeals for the District of Columbia Circuit ruled that a federally chartered credit union cannot serve more than one employee group. Because a credit union requires a sufficient number of members to be economically viable, the court’s ruling denies employees of small and medium sized companies access to federal credit unions. The total number of U.S. workers affected by this ruling is substantial: 62% of the employed labor force in the private sector works for firms employing fewer than 500 workers. On average, employees of small and mid-sized firms earn significantly lower wages and are much less likely to receive health and pension benefits than workers at large firms. Therefore, the court’s decision effectively reverses one of the purposes of the Federal Credit Union Act, which is to provide people of modest means access to a national system of credit cooperatives.

What is this research about?

This report has two purposes: (1) to evaluate the implications of a recent court interpretation of the Federal Credit Union Act with regard to select employee groups (SEGs), and (2) to make public policy recommendations based on our economic analysis.

What are the credit union implications? 

Credit unions are depositor-owned cooperatives, and represent an ownership structure with a valid and legitimate role to play in the market economy of the U.S. as well as in many other countries. The theory of ownership structure provides an established conceptual point of view through which the value of credit unions, as well as other non-investor-owned entities, is recognized as a means to deliver goods and services in a market economy. Investor-owned businesses are the most common, but are not always the most efficient or the only efficient means of organizing ownership structure. As such, public policy should not arbitrarily restrict the development and growth of credit unions or other businesses with an ownership structure different from investor-ownership.

This report is sponsored by the Center for Credit Union Research, School of Business, University of Wisconsin-Madison.