Legal Definitions - mutual association

A mutual association, particularly in the financial sector, refers to an organization that is owned by its members or customers, rather than by external shareholders or investors. Instead of issuing traditional stock, its capital is derived from the deposits or contributions of its members, who effectively hold a share in the association. The primary goal of a mutual association is to serve the financial needs and interests of its members, with any profits typically being reinvested into the organization or returned to members through improved services, better rates, or dividends.

Here are some examples to illustrate this concept:

• Credit Unions: Imagine a local credit union where you keep your savings and get loans. Unlike a traditional bank owned by shareholders, a credit union is owned by its members – the people who deposit money and borrow from it. When you become a member, you typically have a small share in the credit union, giving you voting rights in its governance. The credit union's profits are not distributed to external investors but are instead used to offer better interest rates on savings, lower rates on loans, or reduced fees for its members.

  This illustrates a mutual association because the institution is collectively owned by its users (members), who benefit directly from its operations and have a say in its direction, rather than being beholden to external stock owners.

• Mutual Insurance Companies: Consider an insurance company that offers car or home insurance. If it's a mutual insurance company, its policyholders are also its owners. When you purchase a policy, you become a member. Instead of issuing stock to investors, the company's capital comes from the premiums paid by its policyholders. If the company performs well and has surplus funds, these might be returned to policyholders in the form of dividends or lower future premiums, rather than being paid out to shareholders.

  This demonstrates a mutual association because the individuals who use the service (policyholders) are also the owners of the company, and its operations are geared towards their collective benefit, not the profit of external shareholders.

• Mutual Savings Banks: Some older savings banks are structured as mutual savings banks. These institutions are owned by their depositors, meaning the people who keep their money in savings accounts or checking accounts are the de facto owners. They do not issue stock on public exchanges. The bank's mission is to provide secure savings and lending services to its community and its depositors, who benefit from the bank's stability and service offerings.

  This example highlights a mutual association as the bank's ownership resides with its customers (depositors), and its operations are focused on serving their financial needs without the pressure of generating returns for external shareholders.