Charter challenges: Checking in and looking ahead with 2017's new CUs
For all the growth credit unions continued to see throughout 2017, one area continues to struggle: the number of new institutions.
Just two new credit unions were chartered in 2017, and observers say there are several good reasons for that. For one thing, the process isn’t easy – it usually takes a significant amount of time, money, and a high tolerance for frustration and rejection.
Those CUs that were chartered this year, however, are aiming high for 2018.
Community HOPE FCU
Community HOPE Federal Credit Union has accumulated assets of about $400,000 since being chartered earlier this year, and the Lincoln, Neb.-based CU is on track to expand its product offerings in 2018.
“We are working on some new product lines for next year, including a branded debit card and a credit card,” president and CEO Mark Koller told Credit Union Journal. The credit union already offers a plethora of financial products, including auto loans, money orders, and cashier checks. The credit union is also planning to offer financial literacy training programs.
Koller said he expects the credit union to reach 300 members and have more than $1 million in assets by the end of 2018. Thus far, he noted, representatives have gotten the word out to the community through direct calls and networking in order to reach new members.
Community HOPE currently serves about 30 members. It was chartered by the National Credit Union Administration in the summer of 2017 to provide affordable financial services to low-income consumers.
According to its charter, Community HOPE FCU seeks to serve a population of about 40,000 people in a part of central Lincoln called Antelope Valley. The credit union’s website says it aims to “reduce the influence of predatory payday loans and its devastating impact on families’ health and financial well-being” in Lincoln.
Koller said the credit union has also received Low-income Designated Federal Credit Union charter from NCUA, which will allow it to seek donations for operations and accept non-member deposits.
“HOPE” is an acronym for “Helping Our People Excel.”
Clean Energy FCU
In mid-September, NCUA approved a federal charter for Clean Energy Federal Credit Union of Boulder, Colo., which seeks to serve more than 4,000 members of the American Solar Energy Society, a non-profit that advocates for sustainable living and 100 percent renewable energy
Specifically, Clean Energy FCU plans to provide consumer financing for clean energy projects such as the purchase and installation of solar panels and “high-efficiency” home energy improvements, as well as the purchase of electric and hybrid vehicles.
Terri Mickelsen, CEO of Clean Energy FCU, told Credit Union Journal, the credit union has not officially launched yet, but expects to do so in January or February.
“In 2018, we plan to offer savings accounts, clean energy CDs, clean-energy vehicle loans, residential solar electric system loans, and green home improvement loans,” she said. “Our board has not yet finalized our formal financial targets for 2018.”
Clean Energy FCU took three years to obtain a charter, a process Chairman Blake Jones called “inefficient and cumbersome.”
“The federal charter application process was incredibly inefficient and difficult to navigate,” he said. “Also, it’s no easy feat to raise the volume of donations that are required for starting a de novo credit union.”
Chartering may not change
While most in the movement are happy to see new entrants to the CU system, the low number of new charters each year isn’t nearly enough to compensate for the overall number of losses due to mergers and liquidations — a figure likely to top 200 for 2017 when all is said and done.
Dennis Dollar, a former NCUA chairman and now a credit union consultant in Alabama, pointed out that the annual number of new credit union charters has been in the single digits for the past twenty years – and new rules from NCUA may make de novo charters even more of a rarity.
“With the expanded field of membership rules, it is frankly easier for an employer, a faith-based group, an association or even a neighborhood to get themselves included in an existing credit union than it is to jump through the hurdles to form a new credit union,” Dollar elaborated. “Even with NCUA’s express charter process, it is a cumbersome process to charter a new credit union, and there are naturally some restrictions placed on what services a start-up credit union can offer.”
Another significant voice, Michael Fryzel, a former chairman of NCUA and now an attorney and financial services consultant based in Chicago, indicated that it can take years for a CU to go from a wild-eyed idea to the point where organizers receive their charter.
”The individuals involved not only need to put together the financial requirements, but must dedicate thousands of hours of their time to comply with all the regulatory requirements,” he said.
Choosing a state or federal charter, private or federal insurance, as well as picking a field of membership, office location, board composition and hiring of CEO are just a few of the many decisions the organizers must make.
“It is a long and sometimes discouraging process,” Fryzel stated. “Existing credit unions have the resources to meet the needs of anyone seeking the financial services of a credit union. If they have an aggressive CEO and board, they can put a lock on potential new fields that may open up.”
As an example, Fryzel cited the Brooklyn, N.Y.-based Polish & Slavic Federal Credit Union which for decades have served the Polish community in New York and New Jersey. Chartered in 1976, Polish & Slavic FCU now has $1.8 billion in assets and more than 92,000 members.
“Five years ago they ventured into Illinois and brought the largest Polish population outside of Warsaw into their membership, thereby pre-empting what a new credit union in the Chicago area could have done,” he said.
More to come?
But will the pipeline of new charters ever speed up?
Don’t hold your breath, sources said.
“I expect it to remain in the single digits for the foreseeable future,” said Dennis Dollar. “Nobody’s fault – it’s just easier to affiliate with an existing credit union with a full suite of services than to work two years to get chartered for a start-up credit union with limited services.”
Michael Bell, an attorney at Howard & Howard Attorneys PLLC in Royal Oak, Mich., who has worked with credit union charters, said he sees some signs that this activity is slowly picking up.
“Personally, my conversations with parties interested in chartering a new credit union have increased compared to past years,” he said. “I expect those conversations to continue to increase but I don’t expect to see a large increase in the actual number of new charters.”
But Bell doesn’t blame the regulators for the paucity of new charters. “I see it as more economic in nature,” he said, adding that he is currently speaking with two different groups evaluating forming a new credit union, one of which is a “likely candidate” to receive a charter in 2018.