When there are no startups in an industry, the question has to be raised: is the sector dying?
Here’s the worrisome question about the credit union movement: is the comparative lack of new charters a sign that the movement is floundering?
Proof of the difficulty is that since 2008, per NCUA data, just 28 new credit unions were chartered. “That is as close to zero as you can get,” said Paul Stull, CEO of the Credit Union Association of New Mexico.
In the years since, eight of the group vanished, either through merger, liquidation, or charter cancellation.
The inescapable reality: it isn’t easy to get a new credit union going.
But that does not mean it is impossible. It also doesn’t mean people aren’t out there, struggling to launch new credit unions—below we’ll look at two such efforts.
First, however, why is it so hard to charter a new credit union? The NCUA’s Federal Credit Union Charter Application Guide is a dense 114 pages. There’s even a 28-page NCUA document on the costs involved in a new charter.
Don’t ignore that costs guide. A few years ago, Thad Moore, a longtime Self-Help Credit Union leader and a participant in a number of chartering efforts, told me that in many instances capital is the biggest hurdle. “It’s gotten harder,” Moore told me.
NCUA gives the daunting math: “The actual amount necessary [for a charter] will not be able to be fully determined until completion of the pro-forma financial statements and plans for operating independently. However, if you wish to estimate the amount of funding required, we suggest using, at a minimum, the lesser of $300,000 or $100,000 per $1 million in projected assets during the first five years of PFCU’s operation. For example, if you expect the PFCU to grow to $5 million in assets by the end of year five, the organizers should obtain, pre-charter, at least $500,000 in commitments for start-up donated capital.”
It’s not easy to raise that kind of capital for a start up that likely will take years to reach its goal.
That’s a big reason why many would-be credit unions—nobody knows exactly how many—wave the white flag of surrender before they get a charter.
And yet the intrepid keep trying.
Up in Maine, Maine Harvest—a would-be credit union that I first reported on a couple years ago—continues to make steady progress. In mid-March, the Portland Press Herald declared it “a big step closer” to a charter.
Maine Harvest, which is intended to serve businesses involved in Maine’s food economy, nonetheless remains $1 million shy of the amount it probably needs to open. But it has now gathered support from many luminaries, including a grand-daughter of Franklin Delano Roosevelt.
A key driver for this credit union charter attempt is the need for access to capital by Maine’s small business food producers—blueberry farmers, fishermen, and the rest of the local food producers. No established financial players are tripping over themselves to make these loans, but Maine Harvest believes the loans are good business and good for Maine.
Scott Budde, slated to become CEO of Maine Harvest when it gets its charter, recently said, “We are still at it but with significant progress.”
Note: a key is Maine Harvest fills a real need that nobody else wants to fill.
It’s not alone.
In north Minneapolis, a different kind of credit union is coming together, with the hope of winning a charter by 2019. That’s where members of a group called Blexit are working to create a black focused credit union in a neighborhood that activist Me’Lea Connelly told KARE TV is a bank desert.
The City Pages newspaper reported that this would be MInnesota’s first black union.
Connelly told City Pages: “We have communities that are underserved and also taken advantage of by the most predatory businesses in our state. Regular banks don’t give them chances.”
Credit unions aimed specifically at low-income communities have access to grant monies earmarked for that purpose, and Connelly has pursued that funding.
A campaign on Facebook also has won a strong response, Connelly told City Pages.
Bottomline: both Maine Harvest and Blexit are fledgling credit unions driven forward by people who passionately believe in the need and the mission, and they also believe that credit unions are the only real way to provide the resources the target membership needs.
But isn’t that exactly how and why the first credit unions took root? Their founders saw a need, and they also saw nobody else wanted to fill it. And so they did.
In New Mexico, Stull said: “Many have forgotten why credit unions exist. They exist to help people, not to serve people with the lowest possible risk.”
His point: across large chunks of America, a lot of people are very much in need of the kind of financial services a credit union is intended to provide.
At least some look to be in line to be served—farmers in Maine and the underbanked in north Minneapolis.
And that’s good news for the credit union movement.