In 2015, NCUA granted federal charters to four new credit unions, and since 2010, a total of 16 de novo federal charters were approved.
That number may seem small, but consider that in the same time NCUA approved 16 charters, only two new pure de novo banks were chartered.
Still: why so few charters? The short answer is, because it's not easy but, the long answer is more complicated.
But first, a look at the four new federal charters of 2015: Redeemer Federal Credit Union (in late August); ELCA Federal Credit Union (early July); Seneca Nation of Indians Federal Credit Union (mid-May); and The Finest Federal Credit Union (mid-February).
These four institutions share some important things in common—they all cater to a finite and well-defined group of members.
For example, Redeemer FCU, which is based in Greenville, Tex., serves members and employees of the Redeemed Christian Church of God North America Inc., a Pentecostal and Bible-based church that opened in Detroit, Mich., in 1992 and now claims some 30,000 members.
Similarly, ELCA FCU, based in Chicago, serve employees and members of another religious organization, the Evangelical Lutheran Church in America.
The two other newly chartered credit unions, Seneca Nation of Indians FCU (Native Americans in western New York) and The Finest FCU (law enforcement officers in New York City), also serve very specific communities.
Connie Scherrer, the CEO of Seneca Nation, described for Credit Union Journal some of the unique problems faced by the credit union's targeted membership, whom she characterized as an under-banked and underserved community.
"We are going to provide our members with various financial services, including checking accounts, debit cards and loans, which they had asked for in a survey we conducted earlier," Scherrer said.
And since most of the target membership has no credit, a key part of Seneca Nation's strategy focuses on building credit and teaching financial literacy, especially to children.
Lucille White, chairperson of the Seneca CU board of directors and chairperson of the Seneca Nation of Indians Economic Development Co., also noted the difficult process in chartering the credit union.
"Steve Scott [acting deputy director of planning and development for the Seneca Nation and a member of the tribe] worked diligently with NCUA to make tweaks in our business plan and finally get it done," White said.
Scott himself said that there was a lot of "back-and-forth" with NCUA during the early stages.
"For example, when we first conducted our survey of the local community, we only got a 6% response rate, and the NCUA said we couldn't submit the results until we got a minimum of 25%."
Meanwhile, The Finest FCU had to wait for seven long years before its arrival – that delay was reportedly partially due to fallout from the economic crisis of 2007-2008.
The Finest FCU also faced some questions about the need for such a CU when there is another long-established New York City-based credit union, the century-old, $2.2-billion Municipal Credit Union, already serving police officers.
But James Shea, a volunteer member of the board of Finest FCU, told Credit Union Journal that while Municipal CU is an "excellent institution," his group had identified other specific and unique needs that could be satisfied by a credit union dedicated solely to law enforcement officers, employees and their families.
Keith Stone, president and CEO of the new institution added that the Finest FCU "will offer some unique products that other credit unions do not."
"For example, we are going to offer products that protect an officer and his family from financial ruin if the officer is killed in the line of duty, as well as scholarships established for the children of those same officers," said Stone.
Now as the calendar swiftly moves toward 2016, assuming no other credit unions receive a federal charter in the remaining few days of 2015, the four new credit unions would represent a slight increase from the three that were chartered by NCUA in calendar 2014.
According to NCUA Public Affairs Specialist John Fairbanks, the agency approved one new federal charter in 2013, four in 2012, one in 2011 and three in 2010.
Fairbanks noted the number of applications in any given year varies, but that "at any given time" the agency typically has about 25 applications "in the pipeline." The regulator wouldn't comment on the rate of approval.
Should the agency be approving more federal charters for new credit unions?
Dennis Dollar, a former NCUA chairman and now a credit union consultant based in Alabama, does not think so and feels the agency is unfairly blamed for the dearth of de novo charters.
"NCUA catches a lot of unfair criticism about not chartering more new credit unions, but the reality is that most entities that look into starting a new credit union find it easier and more productive for their purposes to affiliate with an existing credit union as a SEG [Select Employee Group] or an association," he said. "Despite a process that they have tried to streamline and a willingness on their part to actually help new credit unions get chartered, NCUA gets blamed for few new charters when actually it is the supply and demand of the marketplace that generally drives a group looking to charter a new credit union to instead become a part of an existing one."
John McKechnie, a partner at Total Spectrum who has stints at both NCUA and CUNA under his belt, noted that since he began in the credit union movement in 1987, there has always been a sense that it's difficult to charter a new credit union. "That's understandable, but it's not just a function of regulatory complexity," he clarified. "Economics, market conditions, and the basic mechanics of putting together a viable operation also play a big part. And when you talk to some of the more successful start-ups in recent years, it seems to be a matter of being able master all these tasks at once."
Dollar also noted that alternatives to chartering a new credit union are far more appealing and cost-effective.
"In the choice between going through the chartering process and maybe getting to have checking accounts and debit cards after a couple of years of capital-building and operational development or affiliating with an existing credit union and having all of those products and services today, it really is a no-brainer for a lot of organizations," he said.
But might we see more charter approvals in 2016?
Lance Noggle, senior director of advocacy and counsel at CUNA, does not expect the pace of charter approvals to change much next year.
"It requires a lot of effort, time and dedicated people to start a credit union," he said. "Plus, they have to prove that they are fulfilling a real need, that is, a target market that the new credit union can serve. So it's not an easy thing to do."
Noggle noted that starting a credit union is somewhat analogous to creating a new small business—both entities need to have sufficient operating expenses, office space, and sponsorship, etc. And starting a small business is just as difficult.
Noting that two of the new charters in 2015 were granted to churches, Dollar said that those entities that go through the charter process to create a new credit union are "usually faith-based organizations that see the credit union as an extension of their ministry; or they are niche groups… that have internal organizational reasons for wanting their own credit union."
Carrie Hunt, executive vice president of government affairs and general counsel at the National Association of Federal Credit Unions (NAFCU), commented that starting up a new credit union can be a "very daunting" task, especially considering that "we are now in a very tough regulatory environment."
But Hunt also noted that the NCUA has to exercise its authority since it must make sure that the entity seeking approval has sufficient capital to fund future operating expenses.
"Also, we need to remember that consumers are demanding so much more from their financial institutions in terms of services and products," she stated.
Hunt added that creating new credit unions is important, "but so is providing a positive environment for our industry as it stands. NCUA has proposed changes to field of membership rules, which will assist existing credit unions to serve even more members."
