Question: How have credit unions tried to protect themselves and their members against unforeseen costs due to loan defaults or bankruptcy?

Answer: In a financial cooperative, losses caused by one member affect all members because credit unions are forced to make up costs by raising loan rates and reducing dividend rates. Credit unions have a major advantage over many other financial service providers in that the people who receive loans from their credit union are member owners and, thus, have a greater sense of loyalty to the credit union. Credit unions also work hard to help members plan for their future financial health — not just their immediate desires. As a result, credit union “write off” or default rates are, on average, lower than that of banks.

If credit unions feel it is necessary, they will also pursue reform of current laws and regulations. This was the case in 2004–2005 when credit unions lobbied for bankruptcy reform. Currently many credit unions are working hard to help their members restructure troubled debt.