While credit unions that have converted to community charter have discovered that they abandon their SEG programs at their peril, federal credit unions that convert to community charter must be very careful about how they word that charter if they intend to continue to mine their SEGs for business, according to NCUA.
When a federal credit union converts to a federal community charter, they lose the privilege of serving their SEGs, unless the new charter is meticulously worded.
For example, a community charter can be written to include simply anyone who lives in a particular geographic area. In that case, people who had been eligible to join the credit union through a SEG may well still be eligible to join if they live in that area, but the credit union can no longer serve the SEG as a whole and cannot recruit people via the SEG channel, explained NCUA Spokesperson Cherie Umbel. Existing members who joined through the SEG would still be allowed to retain their CU membership through the "once a member, always a member" rule, but no new members could be recruited from the SEG.
But a community charter can also be written to include anyone who lives, works, worships, or businesses in the given area. "As long as they specify that they also want to serve the businesses in the area they are asking for, then they can continue to reach out to the businesses in that area," Umbel related. "But if one of their SEGs is located outside of the geographic boundaries of their charter, then they have to notify the SEG that due to the conversion, they will no longer be able to serve them, but that existing members will continue to be served by the credit union."
A credit union such as Truliant FCU in North Carolina, for example, would be an unlikely candidate for community conversion because its SEGs are spread throughout such a wide geographic region. Indeed, although Truliant CEO Marc Schaefer is a card-carrying member-and chairman-of the National Association of Community Credit Unions, Schaefer has told The Credit Union Journal that for as much as Truliant is deeply embedded in the various communities it serves, the CU could not afford to convert to a community charter and lose the ability to serve its SEGs.
In many states, state-chartered CUs are allowed to maintain their SEGs after converting to community charter, and there have been efforts to gain this same ability for federal charters in CU reform bills before Congress. At press time, it was unknown whether such a provision will be included in the new version of the Credit Union Regulatory Improvements Act that is expected to be introduced in May.
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