Pondering A Community Charter? Some Steps To Be Taken First

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Boards must recognize that the move to a community charter involves more than just paperwork, according to one person.

Prior to converting to a community charter, a credit union must overcome misconceptions, define the potential market, determine acceptable risk and get local organizations involved. And before approving a conversion, a credit union's board of directors must ensure the entire organization is ready to make the necessary commitment to all of those steps, according to Patricia Sterner, president, JFB & Associates.

Sterner, whose Boulder, Colo.-based company works with foundations and non-profits in addition to advising credit unions on community charter conversions, told attendees of the Credit Union Executives Society's recent Directors Conference here the No. 1 misconception about "going community" is a reliance on the catch phrase of the 1989 Kevin Costner movie "Field of Dreams." In the film, Costner's character is advised by a mysterious voice: "If you build it, he will come." This leads to the creation of a baseball diamond in an Iowa cornfield, and ghostly ballplayers magically appear to play in a game.

When converting to a community charter, "It does not happen that way," she said. "Credit unions think they are going to go community and get blasted by people coming in. More often, if you build it, they will not come. People do not just walk in the door."

Sterner, who was most recently executive director of the National Credit Union Foundation, recalled the example of a CU that converted to a community charter, promoted its grand opening for weeks-and had a total of three people walk in on the first day. "They got four on the second day, and had a total of five members by the end of the week. That was a tough week."

Other common misconceptions include:

* The community is waiting for our services. "Probably not," assessed Sterner. "Or, they are not necessarily waiting for you."

* Everyone understands credit unions are better. "We all know this, but the public doesn't."

* Our brand is recognized in the community. "If a credit union is serving many select employee groups, a credit union might feel this way, but it's still not necessarily true."

* CUs won't have to compete for low-income members. "Credit unions will have to compete, because these potential members are using services-they just are using non-traditional services such as payday lenders and pawn shops. Credit unions must draw them away and treat them well."

* Everyone knows our products and services are more competitive. "Like the airlines, if we lower our loan rates, the banks will, too."

Five Areas of Focus

Sterner said two of the most important early questions in a conversion discussion are: would a community charter add value for existing members? And, how would the new charter fit with the current field of membership?

"Adding value starts at the board level," she said. "The board has to define 'extended community.' This means examining perceptions about the expanded community of members, potential members and member financial needs."

In addition to defining the extended community, Sterner listed four "areas of focus" to assess to determine if a CU has the required organizational commitment: integrating the financial and social mission, defining market segments and measuring market penetration, identifying financial services and goals, and determining acceptable risk. She said directors, management and staff should be involved in the process.

The integration of a credit union's financial and social mission means creating a value proposition by defining "service to the community," she said.

"Find a way to tie the financial and social aspects of the credit union. Become a stakeholder in the community and provide a benefit to the entire community-including non-members."

A value proposition could be: providing a range of convenient, personal and competitive financial education services while earning and maintaining community trust. Another example: increasing the financial literacy of an entire community to displace predatory lenders.

Reaching The Targeted Segment

To define market segments and measure market penetration, a CU must compile data on how to best reach the targeted segment, and how the credit union's brand might relate to the segment.

"It is important to really understand the market," she said. "This means knowing the generational concepts, ethnic and cultural considerations, and appropriate communications to market segments."

The board and the staff should give their perceptions about current and potential member demographics and product and service usage to help set financial services and goals. These perceptions should be broken down by household income level. Sterner said this lets a CU examine who it thinks it is serving, and is a "great way to find out what it knows, and what it doesn't know."

The determining acceptable risk category branches in two directions, Sterner explained. Management is responsible for identifying areas of risk and flexible methods to manage it, and the board must adopt goals or levels for risk tolerance.

"Ask the board and staff to vote on acceptable levels of risk and growth. This is a great exercise to do, because it brings things up on the table that might have been under the table before."


After a decision is made to convert to a community charter, a credit union must make the community it wishes to serve a "collaborator," Sterner said.

This begins with identifying local business and community leaders, determining common goals, agreeing on leadership roles and-most important-making sure the benefits flow both ways.

Community points of access include local businesses, the Chamber of Commerce, the Economic Development Council, community-based organizations and non-profits, churches and foundations, she continued.

"Women hold the financial purse strings in a lot of households. How can a credit union get to them? Through involvement in various organizations and activities."

When the members of the community feel like a part-owner, the credit union will be well on its way to being successful, she added.

The Conversion Plan

A credit union must have a detailed conversion plan, Sterner said. This includes defining the credit union's long-term goal, identifying and defining the market including the competition, developing and introducing appropriate products and services, creating and following a sound financial plan, and developing and utilizing a success model.

"The plan must say what it is going to take, and what it is going to cost to convert. Building branches, staffing and marketing, all must come into the decision."

Sterner said any credit union considering conversion should look at what other credit unions went through.

"Both successes and failures, all types of credit unions, all areas of the country. It is really important to do homework and use others' experiences."

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