The number of credit unions is shrinking. Can the trend be slowed?

The credit union industry has had few de novos and a flurry of mergers in the past few years, so the National Credit Union Administration is exploring ways of breathing new lifeinto the sector.

The total number of credit unions in the U.S. fell from 5,785 at the end of 2016 to 5,099 last year, with most of those losses due to mergers. Since 2016, the NCUA has granted only 10 new charters, including two in 2019 and one last year. Those aren’t nearly enough startups to reverse the contraction

One credit union service organization believes the answer may be marrying groups looking to form credit unions with existing charters that are in need of a boost, and it is now working on its first potential pairing.

Victor Pantea, manager of marketplace alliances for the CUSO CU* Answers, said an association in Detroit that represents more than 200,000 Chaldean Catholics was considering launching a de novo but is now looking to partner with an existing credit union.

Either a state or a federal charter could work as a partner for the Catholic association, Pantea said. One of the primary benefits of a federal charter is the ability to branch across state lines, but the group is more interested in offering services via online and mobile channels than it is in traditional brick and mortar branching.

The ideal partner would be a credit union that’s lagging because of a loss of sponsor group, economic obstacles, insufficient capital or maybe even a lack of management succession, he said.

“Instead of going through all the rigamorol of starting a de novo and going through the chartering process, they can add a field of membership and come out of the cocoon looking like a new butterfly,” Pantea said.

The benefits for the credit union would include an expansion of the current field of membership, significant funding infusion from those members and a likely shift in strategic direction.

And, maybe most importantly, the group would only be subject to a new field of membership approval, which is much less cumbersome than the NCUA’s chartering process.

The hoops interested groups must jump through to form a de novo credit union are both legendary and dreaded.

For example, Clean Energy Federal Credit Union in Boulder, Colorado, was one of four credit unions chartered by the NCUA in 2017.

Its chairman, Blake Jones, said in an interview in 2017 that in some situations it took months to even get a response from the NCUA during the process, or an issue would be reassigned to another person and the credit union would have to redo some of the same work.

“In general, the process is incredibly inefficient. It’s incredibly frustrating,” Jones said at the time. “It’s a rough process. It’s painful. It needs a lot of improvement.”

It took Maine Harvest Federal Credit Union more than six years before the NCUA finally granted its charter in 2019.

Scott Budde, CEO and co-founder of the Unity, Maine, credit union, said that in fairness to the NCUA, the group was raising grant capital for about three of those years.

“We wanted and needed to start with a fair amount, and that takes a while,” he said. “Also, we spent a good year on research — probably more than most.”

At least one new credit union started down the partnership road but had less than encouraging results before ultimately going de novo.

The NCUA approved a charter for Community First Fund Federal Credit Union in Lancaster, Pennsylvania in June. It was just the second federal charter granted this year, and the entire process was completed in less than 12 months.

Joan Brodhead, Community First’s senior executive vice president and chief strategic initiatives officer, said early in the group’s investigation into starting a credit union that it considered merging with existing institutions and even contacted state and federal regulators to learn how a merger might work.

NCUA staff members provided guidance, she said, and the group ultimately approached about a half dozen existing credit unions and suggested holding exploratory discussions.

“But we found there was virtually no interest on the part of those credit unions,” she said. “One group responded to learn more about our plans, but we were asked by NCUA to limit our discussions since they were working with that credit union on undisclosed financial plans.”

NCUA board Vice Chairman Kyle Hauptman said during its most recent meeting that helping de novos was one of his priorities when he joined the agency. He said that is partly because the industry loses a “couple hundred” credit unions a year and needs to offset those departures.

“It’s not NCUA’s job to say how many [credit unions] there should be, but it is our job to say if someone can start a stable credit union, we ought to make that easy to do,” he said. “I don’t think we can speak as an agency about financial inclusion and about access … if we are making the de novo process one minute harder, one form harder than it has to be.”

Hauptman’s senior advisor Sarah Bang said to her knowledge the idea of merging a new field of membership into an existing charter has never been done, but she added that there was a recent situation that would have been a perfect fit for such an arrangement.

A credit union in the District of Columbia recently merged with another, but its field of membership was almost identical to that of a group trying to form a de novo, according to Bang. “And I thought ‘Dang it, they could have stayed up and running and not been merged in,’ but no one thought to say, ‘Well, why don’t we get these two groups together,’” she said.

Pantea has spoken with the Michigan Department of Financial Institutions and also met last week with the NCUA to talk about the concept and the Detroit-based group’s plans.

“Everybody on the regulator side is kind of mulling it about,” he said.

NCUA board member Rodney Hood said a lot of credit unions are being lost because of a lack of succession planning or competitive products and services rather than poor performance.

“Nothing hurts me more than when I read the list that are not going out of business but merging because they’ve exhausted all other options,” he said at the recent board meeting.

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