Historical perspective on common bond

I found Mike Welch's column in the June 28 issue of Credit Union Times ("It's time to toss outmoded common bond and FOM") concerning common bonds and fields-of-membership interesting. For more than 25 years, I have been amazed at the high level of confusion concerning this critical topic. So many within the credit union industry don't seem to understand why the common bond requirement was first created, and why it became obsolete so long ago. The common bond requirement certainly has nothing to do with credit unions' tax exempt status. I suggest that more people, including our banker friends, should study our history and think about the economic conditions in America during the late 1920's and early 1930's when the Federal Credit Union Act and many state acts were being enacted. We need to think about the risks back then of starting a new type of cooperative financial institution with no capital and no real financial backing (and don't forget there was no FDIC or NCUSIF at the time.) We need to reflect on the economic climate after so many bank failures in 1929. But most importantly, we need to realize that there were no credit reporting agencies at the time. Credit bureaus did not exist, and there certainly wasn't any way to determine the past credit history or current credit worthiness of an individual consumer applying for a loan. No wonder commercial banks did not loan money to individuals. Prior to credit reporting, consumer lending was very risky. But there certainly was a need for strong growth in consumer credit if the country was going to recover from the Great Depression. In that climate, credit unions were a great idea. But, only if credit unions made loans to members they knew. This is the only reason there was a requirement for a common bond and a defined field-of-membership. It had nothing to do with taxes or the structure of credit unions, and everything to do with knowing the "character" of members who borrowed from their credit union. Back then, credit committee members knew everyone who applied for a loan. They didn't need a credit bureau report and certainly wouldn't use a credit score in making a loan decision to a fellow worker or friend. The common bond requirement became obsolete and an unnecessary requirement when credit reporting became prevalent. This is the same time banks and other institutions began to make consumer loans, and loan sharks went out of business. As they say, "the rest is history." It's just too bad that more people don't understand our history and educate others. David Seely President Kirtland FCU