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THE CREDIT UNION MOVEMENT IN TEXAS AUSTIN Credit unions groups of people who put their money into a common pot and lend it to each other at low interest ratesnow have two thirds of a million Texas members. About 2,000 representatives of the 1,160 Texas credit unions met in Austin last weekend for a quiet housekeeping convention during which their leaders renewed the philosophy of cooperatives with equanimity enjoyed only within established m o v emen ts. One state leader admitted that Texas industrial and governmental workers are not as good prospects for organization as they once were and advocated the formation of more credit unions embracing entire rural communities. “The credit union idea” is the idea of a credit cooperative. Explained Texas Credit Union League President R. C. Morgan of El Paso in his report in Austin Saturday, “The members of a credit union pool their savings and use them to make loans to each other for provident and productive purposes.” “It is a wonderfully practical, commonsense. down-to-earth idea, based upon f a simple truth that man is dependent upon his fellowmen for his well-being,” Morgan asserted. Glenn Addington, public relations director for the state league, says of the credit union, “It’s a group of people getting together to save their money in order to make low-cost loans to each other. We feel it’s economic democracy the idea of self-help.” Criticism of credit unions is not often heard nowadays, but American Mercury, an ultra-conservative U.S. magazine, last June carried an article ‘signed “Politicus” which suggests the gist of the current opposition. Reviewing the remarkable growth of the credit unions, the article said it is explained by “just one thingtax exemption,” exemption “from taxation of their profits.” Credit unions, the article said, have “become huge, profitmaking lending organizations competing heavily and unfairly with banks, building and loan associations, and other free enterprise institutions.” Entitled, “Avenue to Socialism,” the article declared that the credit Chiefly Postal Business Books Shown by Appointment STIEFEL’S Dealer in Rare, Out-of-Print Books 1312 10th St., Huntsville, Texas Telephone 5-4449 Use our International Search Service for those hard to find books at no extra cost to you. union movement “is a road toward ultimate Socialism. In many respects, the cooperative movement is more dangerous to free enterprise than the official Socialist political movement, for its actual purpose is unrecognized by the average man.” The National Tax Equality Assn., which Addington said is more than 50 percent bankers, also has opposed tax exemption not only for credit unions, but for all cooperatives. The credit union pays no corporate income tax “because it has no income,” Addington said. When a bank pays Interest on savings, the payment is tax deductible as a cost of business, and credit union dividends on shares should be deductible by similar logic, he added. Addington said that a bank’s loans are inflationary since “in effect a bank creates money when it lends it,” but a credit union is “completely non-inflationary” because it can lend only money saved by its members, “dollar for dollar.” Credit unions encourage saving and, by reducing interest charges, increase funds available for productive expenditures, Addington argued. “The business community, not the loan shark, gets more business,” he said. Each credit union is required to keep its funds in a bank. Addington reasoned that credit unions handle a lot of little savings accounts, some of which would be money-losers for banks, and gives banks larger, profitable commercial accounts. While there are no credit unions among employees of Texas banks, Addington said there are 36 bank employees’ credit unions in the country. “We have no fight with the banker in the small loan field,” Addington said. “A loan shark is something else again. Will Wilson has made it clear that on loans of less than $350, a small loan company has got to get about 20 percentit can’t survive with less than that. And many of them are getting from 100 to 500 percent.” Congressman Wright Patman of Texarkana, who addressed a banquet during the convention, told the Observer: “The credit union is the most wonderful organizationit’s next to the church. It’s made up of’ dedicated people, helping the members. . . . If we had more credit unions we’d have fewer loan sharks, and people would have more money for the necessities of life.” The Interest Rate Any group with a common bond in work, church, club, or neighborhood can form a credit union. “There should be at least 100 in the group,” Addington stated. By law, a credit union cannot charge more than one percent interest a month on the unpaid balance of a loan, which is 12 percent “simple interest”; there are no other charges. Patman said this rate “means 62 percent interest on a loan amortized over the period of a year. Most improvement loans, such as those made by FHA, are based upon a 5 percent discount rate, which means an interest rate of 9.7 percent.” Addington said many of the unions charge only three-fourths of one percent per month on the unpaid balance, and in Texas, about 15 percent of the unions have been paying “interest dividends” back to lenders which average about ten percent of the interest. All the credit unions have insurance to guarantee that “the debt dies with the debtor,” Addington said. Some provide disability insurance, or life insurance matching credit union savings up to $2,000. Credit unions may be formed under state or federal laws. Only the treasurer may be paid among the officers; loan officers and clericp1 help are also paid. A union may do business only with members of its own group, which includes persons who have paid a 25-cent membership fee and bought at least one $5 share. The maximum return on the share is six percent a year; the average rate in Texas is between four and five percent, according to Addington, who said the shares “are savings, and are withdrawable shares.” They do not increase in value, except that should a credit union liquidate, each shareholder receives his portion of the distributed assets. Each credit union bears any defaults on its loans. Over the years the loss on bad loans in the credit union movement has been less than one-fifth of one percent, Addington said. Credit unions can make real estate or auto loans, business loans, farmers’ loans, or personal loans. Addington said that credit union loans are based less on the collateral than on the character of the borrower: Patman has called them “character loans.” Started in 1929 The first Texas credit union was formed in the summer of 1929, just before the market crash. In 19331934, Sen. Morris Sheppard and Rep. Wright Patman of Texas shoved through the Congress the credit union act of 1934. The first federal credit union under the law was the Morris Sheppard credit union in .Patman’s home town, Texarkana, Tex. Before the end of 1934, 36 people representing the 46 Texas credit unions existing by then met to organize the Texas Credit Union League. Today Texas has become the third state among the 50 in. number of credit unions. There are about 1,160 credit unions with about 685,000 members in Texas; Patman Optimistic On ‘Truth in Credit’ AUSTIN Congressman Wright Patman of Texarakana flew to Austin from Washington to address the Texas Credit Union League convention banquet. He accused Federal Reserve chairman William McChesney Martin of repairing behind “psychology” predictions that changes Patman advocates would result in inflation because of public reactionas an excuse for failing to effectuate reforms. Patman said he does not expect substantial reforms in “our money and credit systems” during the current Congress except for Sen. Paul Douglas’s legislation “to require all lenders to make full disclosure, to the customer, of the amount of interest, fees, and other finance charges which the customer is about to contract to pay.” 73 were formed last year, while only 24 were liquidated. Total assets of Texas credit unions at the beginning of the year were $302 million; loans to members outstanding totaled $238 million; Texas members’ share deposits’ totaled $264 million. In 1959, Patman and Sen. Lyndon Johnson were principal sponsors of a law making certain changes in the credit union law. Federal credit unions can borrow from each other within their localities; signature loans, formerly limited to $400, can now be granted for up to $1,000; loan terms are extended from three to five years. Patman, as chairman of a banking and currency subcommittee, presided over hearings on the legislation and led the fight for House passage. Johnson is credited with a major part in its Senate passage. \(In the United States there are between 19,000 and 20,000 credit unions with between 13,000,000 and 14,000,000 members and assets totaling about $5 billion, AddingThe Credit Union League provides field services for member unions. The delegates to the state convention last weekend attended 177 educational sessions on how to run a credit union. The league also provides help on books and bookkeeping and looks out for the legislative interests of the members. As of the end of 1959, 999 credit unions-87 percent of the Texas total at that timebelonged to the League. Membership fees are based on a credit union’s assets: the maximum fee is $1,000 a year, plus eight cents per year to the Credit Union National Assn, T.C.U.L.’s 1960 budget totals $235,000. The Church Unioni The Dallas teachers’ credit union is the largest in the state with 11,000 or 12,000 members and assets of more than $12 million. Credit unions are numerous among telephone company employees and federal government employees \(e specially postal ers at city and state levels. Houston has about 200 credit unions and Dallas about175. “Some labor unions” have credit unions, Addington said, adding hastily, “We have no connection with unions at all. One thing management and organized labor usually agree on is the credit union.” Some credit unions have been organized among Catholic parishes in Texas. “In other states, there are more in Protestant denominations. But the Catholic Church has supported credit unions to up-. grade the economic level of their members,” Addington said. In Balmorhea, Texas, he said, 80 Latin American workers have formed a credit union which now has $5,000 or so in assets. The money is “on loan all the time.” The union had only one delinquent loan outstanding at its first annual meeting, about which the members were much disturbed. The delinquent borrower was a Latin-American who had thought his loan was a gift to him from the Catholic Church. It also took a while for some of the members to realize that their investments in the credit union were not gifts to the church, Addington said. The formation of “community credit ,unions” in small towns which do not have banks may be the next step in Texas. Such unions exist now in Hereford, Muleshoe and four or five other Texas cities. James Barry, state managing director of the credit union association, made an important admissionthat “to some extent THE TEXAS Page 6 it seems time to agree with those who’ say the credit union movement is running out of opportunities to form new ones”and continued: “However, in the field of community based credit unions, or those based on church or fraternal or. rural association, the credit union movement in Texas has advanced relatively little.” He said Atty. Gen. Will Wilson has emphasized that “the wide development of credit unions among the smaller cities of Texas would have beneficial effect on cutting down on the loan shark problem.” In the Hereford federal credit union, Addington said, some farmers’ equipment loans have been made; “two or three businessmen in the town owe their existence to the credit unions.” Citizens in some small towns have to drive 40 or 50 miles to reach banks, he said. R.D. The Choice Rejected Sir: Re: The Rev. Richard Kelley’s that liberals might support Orval Faubus rather than Bruce Bennett for Governor of Arkansas in this summer’s Democratic primary. Forced to choose between “a Nixon and a McCarthy,” I would choose the dead man. Less mordantly, I would pick the man who poses less continuing threat to society. Without belaboring the analogy, I ask the Rev. Mr. Kelley to consider the political implications of re-electing the present governor, even over a more unsettled but less politically oiled bigot. If Faubus wins a fourth term as Governor, he will be in a prime position to defeat William Fulbright, much-respected chairman of the Senate Foreign Relations Committee, for the junior Senate seat in 1962. This is obviously where the “shrewd, even brilliant” Faubus is aiming. To set up such a possibilitysuch a calamitous possibility for the state and nationleaves the proponent with a grave burden of proof. It would also leave Faubus open to handpick a baiter of Bennett’s ilk or a machine man of his own lineage to carry on the gubernatorial ‘;chores. The present Governor and his well heeled political entourage have left Arkansas with no elbow room. From the bureaus he controls to the state police who are his personal Gestapo, Faubus, admittedly with some touches of Longian benevolence, has worked to the overall detriment of the state that ironically calls itself the “Land of Opportunity.” His continued reign would only tighten the grip. In the words of Carl Sandburg: “If God be Faubus, who can be against us?” I think that Arkansas liberals should concentrate their attention not on choosing between shades of darkness but in standing strongly against both the entrenched despotism which is Orval Faubus and the potential madness which is Bruce Bennett. I suggest not the more ‘vitriolic attorney general as a short-term lease on hell to get rid of a longterm lease on purgatory.’ I would urge instead that a man of stature stand up .against the present Govrneor and offer some decent liberal \(or should I say Robb K. Burlage, Richards Hall RELIABLE REAL ESTATE SERVICE Arthur Hajecate METROPOLITAN REALTY Co. 4340 \(Telephone Road HOUSTON, TEXAS OBSERVER 203, Harvard University, Cam April 1, 1960 bridge 38, Mass.