ORIGIN AND INTENT OF CREDIT UNIONS

One of the greatest financial innovations for working men and women in the early twentieth century was the creation of the credit union—nonprofit monetary cooperatives designed to provide saving and lending opportunities exclusively for their membership. Originating in Germany in 1852, by the early twentieth century this increasingly popular form of banking had reached the United States, and in 1925 Reuben Soderstrom decided to bring the advantages of the credit union to Illinois in the form of his Credit Union Bill. The principle behind credit unions—that communities sharing a common bond should be allowed to have control over their own financial future—eventually became one of Reuben Soderstrom’s core pillars of a successful and thriving world of work.

In the mid-1920s, many workers had a difficult time securing credit. All too often, a laborer in need of a small loan or payday advance turned to the local “loan shark,” lenders who offered small, short-term, high-interest loans meant to trap the borrower in debt.[1] Credit unions allowed groups to pool their resources in order to make small, low-interest loans their own members, creating “a source of credit for [members] at legitimate rates of interest for provident purposes.”[2] Some of these institutions already existed in rudimentary form at some of the state’s industrial plants.[3] However, state banking laws declared these unions unlawful, as only banks and trust companies—under strict federal and state supervision—were permitted to engage in such practices.[4] Reuben’s bill put these existing unions and all subsequent ones under the direct supervision of the state auditor, making them safe and sanctioned sources of small, short-term loans.[5] Loan interest was to not exceed 1% a month, with loan amounts limited to $50 for unsecured loans and $1,000 for secured loans.[6]

A credit union did more than just loan money; it also helped workers save. According to Reuben’s bill, a primary purpose for these organizations was “promoting thrift among its members.”[7] As ISFL President John Walker wrote in an open letter to the Assembly in support:

This is a bill for the benefit of the poorest of the poor people. The maximum value of shares in the credit union is ten dollars—no one can own more than five shares—all officers serve without remuneration. The loans are limited to provident and productive purposes…These organizations not only relieve many distressing cases, but they are creative of a spirit of thrift.[8]

A credit union was meant to serve people and communities that banks typically overlooked—those who would typically deposit less than 50 cents.[9] This made them ideal financial alternatives for Illinois laborers. “A worker’s best key to financial security is membership in a credit union,” Reuben later wrote. “When you need to borrow money you can get it without red tape or a red face because you’re dealing with your friends…That’s what I mean by financial security, a good safe place to save, with honest and friendly people to borrow from.”[10]

REUBEN BRINGS CREDIT UNIONS TO ILLINOIS

Soderstrom’s interest in credit unions began when, at the urging of ISFL President Walker, he attended an intriguing talk on the subject by a Boston businessman named Leiter. As he later recounted:

During the talk [Leiter] pointed out the benefits of a credit union, how they could work together to loan money to the membership, and how they would outlaw or push the loan sharks out of the picture. I thought there was something to this credit union thing. I was opposed to loan sharks, as we had them in the printing industry. Our printers would be paid on a Saturday, and many of them were broke on Wednesday. If they borrowed $5 they had to give the office loan sharks $6 on pay day. I wanted to get rid of them.

After the meeting was over a man reached over and touched me on the shoulder, and he said, “Soderstrom, you’ll never make a banker out of a blacksmith.” That remark bothered me, and still has all these years. You can make a banker out of anybody if he has the opportunity and intelligence to become a banker.[11] After that meeting, Reub set out to provide every laborer that opportunity. Working with fellow representative Ralph Church, Reuben slowly built strong bipartisan support for his proposed Credit Union Bill. It enjoyed broad support from multiple sectors and interests, including bankers, laborers, farmers, and welfare societies.[12] By the time it came for a final vote, Soderstrom’s proposed act was passed by a vote of 90 to 22, far above the required constitutional majority.[13]

The victory became one of Soderstrom’s most enduring advances. In the decades that followed, Illinois credit unions continued to evolve to serve the needs of working men and women. Even as late as 1962, the now-elder statesman was able to boast “I worked hard to help pass the Illinois Credit Union Act in the 1925 Illinois Legislature—and through these 37 years I’ve been very pleased with the way Credit Unions have developed and delivered for the working people I am certainly proud of the fact that I had a hand in establishing many successful credit unions.”[14]

Three years later, William Brietzke, Managing Director of the Illinois Credit Union League, took to the stage of the Illinois AFL-CIO Convention to give special thanks to Reub for the role he played in bringing credit unions to Illinois. “It was forty years ago this spring when Reuben G. Soderstrom and Ralph Church introduced the Credit Union Act,” he declared. “Little did these two gentlemen realize that by introducing this legislation they would bring better working conditions, better living conditions, and a wiser use of credit to presently over a million active members.”[15] Brietzke then presented the Illinois AFL-CIO President with an award in special recognition of his efforts, reciting aloud the inscription which read:

The Board of Directors of the Illinois Credit Union League, mindful of more than forty years of felicitous relations, presents this token in admiration and appreciation to Reuben G. Soderstrom, who as an Illinois State Representative, outstanding leader of Labor, and beloved President of the Illinois State AFL-CIO has toiled earnestly, constantly and untiringly to further the Credit Union Movement and introduced the original Credit Union Act in 1925, and who has remained our courageous advocate and friend before committees in the General Assembly, and in this State Convention of Organized Labor.[16]

Today there are over 250 chartered credit unions in the state of Illinois.[17] True to Soderstrom’s original intent, they continue to empower workers financially, as they are more secure and structured to avoid the kind of risk-taking that too often drives their for-profit counterparts.[18] In a world of big banks and “too big to fail,” the democratic, non-profit, and local character of credit unions make them an ideal alternative for working men and women of every color.

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