The Credit Union That Never Was

We frequently receive requests of assistance from individuals and groups as they work to charter new credit unions. Some requests are rather interesting, like the one we received to aid in chartering a credit union that would serve the medical marijuana industry in Colorado. The idea fell apart when we advised them that NCUA would probably not grant a charter to serve the “patients” – a key segment of their proposed membership base.

Some requests are based on misunderstanding, like the one we received where the “founder” wanted to rally a cadre of investors with the promise of great returns on investment derived from credit union operations. Obviously a non-starter strategy for a cooperative institution. And no, his name was not Madoff.

There was one request from a not-for-profit institution, however, that really had it all in terms of required components. Here are the specs:

  • An ample source of capital: The institution’s cash position was such that they were able to contribute between $10 and $20M in start-up capital.
  • A niche market: The institution’s core consumer base of 100,000 individuals (and growing) had a very defined common bond that met the requirements for a membership group.
  • A receptive field of membership: The institution’s core consumer base indicated receptivity to credit union participation.
  • Financial expertise: The institution was a financial company with a key financial product already in use by its consumer base. The leadership understood lending-based decision-making and risk mitigation.
  • A non-branch delivery system: Consumer support was already managed by remote interaction via the institution’s well-staffed call center and web-based systems. They were primed to support a geographically diverse membership.
  • An existing marketing pipeline: The institution regularly marketed to its consumer base, and enjoyed a high rate of consumer engagement with, and trust in, marketing outreach efforts.
  • An experienced collection department: A set of loan products made up the institution’s consumer offering, and as a result they had a seasoned collection department versed in collecting lending debt.

If chartered, an institution of this size, scope and complexity would have made a splash in the national credit union trades, much like the chartering of Realtors Federal Credit Union did when it launched with Tom Glatt, Sr. at the helm (no affiliation with Glatt Consulting, LLC).

The only headlines of late regarding new credit union charters are for low-income/community development credit unions, obviously not the well-heeled institution defined above. The bottom line is that the credit union never got off the ground.

There are many reasons that it failed to move from solid concept to chartered credit union, including disagreements amongst the institution’s board on the use of capital and legislative changes that had a substantial impact on the institution’s core business. Regardless of the rationale for not proceeding, they would have been a success. In fact, our modeling suggests that even with a forced low rate of loan growth and expectations for above-average delinquencies, charge-offs and provision expenses, this credit union would now be profitable, well-capitalized, and hold between $89 to $100M in assets.

This post is not really about the failure to get a credit union chartered, however. It is about credit union potential.

Because I know a bit about the people in the proposed field of membership I can safely say that the majority of those in the pool likely did not have existing credit union relationships – yet they were receptive to joining a credit union. What is really disheartening, though, is that the reality is most of these people were (and are) in the field of memberships of existing credit unions. 100,000 people, receptive to credit union membership, virtually unknown and certainly untapped by the credit union community.

To me this suggests a lack of vision for growing meaningful member relationships. Not for every credit union, of course, but the majority. I’m not alone. Consider this quote:

Nothing else – not assessments, interchange, or business lending – is more important to the long-term health of credit unions than sustainable membership growth.

It was in the leader for a very good article written by Mark Meyer at the Filene Research Institute. You can read it here.

One of the key points Mark makes is that we should be growing membership at a consistent 2%-5% rate, year-to-year. I agree, but the latest numbers show the industry overall is only growing membership at 1.13%, and that is on the heels of .86% growth in 2010. I’ll add that I think industry growth numbers are inflated simply because I believe some membership growth comes from existing credit union members joining other credit unions – not from “new” credit union converts.

Maybe we need to start thinking like a start-up credit union. Perhaps your management teams should consider what you would need to do to charter a new credit union. Where would your members come from? If you needed to reach the common-bonded, 3,000-member threshold required to charter a new credit union, where would you find such a group? How much capital would you need to grow from 0 members and $0 assets to a viable, going concern? What would your service delivery model look like? In short, what is your start-up business plan?

Start-up institutions are really fun to work with because they have unbridled optimism, a passion for the business, and will do whatever it takes to be successful. They rally team members (not staff…but team members) around a singular vision, and charge team members to make that vision a reality. They are exciting places to work. They take calculated risks. Sometimes they make decisions on a whim. We need that spirit in the credit union community.

Yes, I know, there are lots of valid reasons why taking a start-up approach is bad business. I’ve heard them all, and most have to do with the NCUA. But they all prove a point made to me by an industry friend and credit union CEO. She said that “the movement is the NCUA.” In short, there is no credit union movement anymore. If that is true, it is because we allow a fear of the NCUA to throttle our passion for exploration and risk taking on behalf of our memberships, and perhaps especially on behalf of those who are about to pay $5.00 for the use of their debit cards only because they do not know of the great value credit unions offer.

That “credit union that never was” I referenced early in the post proves, even in its failure, that the country is hungry for a credit union message. We just need to let them know we are here.

And for those credit unions that REALLY want to push the envelope, I hear there is a large group of potential members in Colorado waiting just for you!

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