The progressive period of American history (roughly 1880-1920) was a time of reform at all levels of government. This exciting era saw the passage of civil service reform, national forest preservation, new bureaus for regulation of business and monopolies, limits on campaign finance, the establishment of the Federal reserve system, and the passage of four amendments to the constitution.
These four authorized the direct election of US Senators, the ability of Congress to levy an income tax, prohibition of the sale of intoxicating liquors, and universal women’s suffrage.
Credit unions also planted their roots in this period. The first credit union St Mary’s Bank was chartered in 1909. The follow-on efforts by Filene and others to build a cooperative credit system were a product of these progressive reform impulses.
There are two critical takeaways from the passage of the 19th amendment that are as vital today, as they were a century ago.
- One person can make a difference.
- States are the laboratory for change; Congressional legislation most often follows success from reforms proven at the state level.
Who is Harry Burns?
The final ratification of the 19th amendment required 36 states’ approval for it to be added to the constitution. The final success would rest on one person’s vote in the Tennessee House of Representatives.
The amendment passed the Tennessee Senate in August of 1920 but was tabled in a 48-48 tie vote in the House. Harry Burns, at 24 years old, was the youngest House rep. He wore a red rose signifying his opposition to the amendment. When the vote came up for ratification it was expected to again tie and therefore fail.
Instead Harry changed his vote to Aye, and the 19th amendment was approved. What changed? The morning Harry’s mother, Phoebe, had sent a note reading:
“Hurrah, and vote for suffrage! Don’t keep them in doubt. I notice some of the speeches against. They were bitter. I have been watching to see how you stood but have not noticed anything yet.”
The next day Harry explained his vote for universal suffrage:
“I believe we had a moral and legal right to ratify. I know that a mother’s advice is always safest for her boy to follow and my mother wanted me to vote for ratification.”
Yes, one person can still make a difference. One mother, one son. The efforts of a generation are realized. A reminder for when we might be that one needed vote.
The States as Incubators for Change
A number of states gave women the right to vote before passage of the 19th amendment.
The first was the territorial legislature of the Wyoming Territory which granted women suffrage in 1869. On September 6, 1870, Louisa Ann Swain of Laramie, Wyoming became the first woman to cast a vote in a general election.
Other states included Utah, Colorado, Idaho, Washington, California, Oregon, Montana, Arizona, Kansas, Alaska, Illinois, North Dakota, Indiana, Nebraska, Michigan, Arkansas, New York, South Dakota, and Oklahoma.
The states were the proving ground for women’s political power to get legislatures to enact their suffrage rights.
Where Change Starts
One of the recurring themes in the 110 years of the cooperative system has been innovation implemented first in states, sometimes decades before adoption at the federal level. The 25-year head start in state credit union chartering gave Filene “facts on the ground” to convince Roosevelt and Treasury Secretary Morgenthau to support passage of the Federal Credit Union Act in 1934.
Other significant innovations begun in the state credit union system include:
- Share drafts which were authorized for Rhode Island credit unions, as NOW accounts, a decade before the Monetary Control Act gave all credit unions the authority to have transaction accounts;
- Share insurance was begun in Massachusetts and expanded to at least 16 state sponsored programs. The NCUSIF was legislated in 1971. Moreover, it was the state’s cooperative financial model, with the 1% deposit requirement, that was the basis for the capitalization of the NCUSIF in 1984;
- Corporate credit unions evolved out of state “chapter” credit unions long before NCUA passed its first corporate rule distinguishing between a corporate and natural person charter;
- Mortgage lending was permitted early on In multiple state credit union acts. Senator William Proxmire from Wisconsin noted in a hearing in 1984 that he received his first mortgage from a credit union in 1948. This power was not authorized for federal credit unions until 1977.
- Credit union owned banks, needed for access to the country’s financial clearing and settlement networks, were formed in both Wisconsin (WISCUB) and Kansas.
- The first CUSO’s were approved at the state level. In Pennsylvania, the data processing firm Users, owned by its member-users became one of the first large multistate CUSO’s
- Most field of membership evolutions have been tested and proven first in the states. For example, every Rhode Island state charter could name a primary sponsor, but then add a catch all sentence to admit anyone who lived, worked or worshipped in the state.
- From 1977 through 1981, the Illinois Director of Financial Institutions Ed Callahan implanted the policy of deregulation and overhauled the examination and supervisory capabilities to transition the state’s credit union system to the market driven world of today. In October 1981, Callahan became the NCUA Board’s second Chairman. The NCUA was the first federal regulator to embrace complete deregulation of savings in April 1982. Additionally, he reformed the agencies administration and activities to support the new supervisory challenges in this chapter of cooperative expansion.
The list goes on. Today, the importance of innovation in the state system is more vital than ever.
As NCUA seeks to dominate all credit union regulatory options via NCUSIF insurance, the one area pioneering new approaches are state licensed CUSOs. All CUSOs are organized under state law and, where applicable, regulation. Whether the firm’s structure is an Inc., a cooperative, an LLC, or even a non-profit, the “chartering’ is done by the state. While NCUA can limit investments in or loans to CUSOs, the state prescribes the organizational opportunity.
That is why in the current credit union system, the CUSO option, especially multi-owned CUSOs, are proving to be one of the most important arenas for startups, fintech initiatives, and third-party partnerships.
Cooperative history is filled with examples of industry leadership arising from the state system. In addition to the initial pioneering charters, other organizations include state associations and leagues, share insurance options, and the corporate network. As these onetime innovators lose momentum, new efforts provide renewed leadership.
Today it is CUSOs who capture the passion and entrepreneurial spirit every industry needs to continually reinvent itself. Going forward it may well be CUSO creativity that renews the cooperative charter so credit unions can again be seen as progressives known for leading in solving members’ most important needs.