Top regulators at the National Credit Union Administration have simplified the procedure to start up a new credit union as the agency continues its fight against the tide of closures and consolidations.
This month, the NCUA published an updated guide to the federal credit union chartering process that it drafted through collaboration with the agency’s ACCESS initiative to provide those navigating the founding process a clearer and less intimidating framework for what is required at each benchmark. ACCESS, or Advancing Communities through Credit, Education, Stability and Support, was founded in October 2020 by then-NCUA chairman Rodney Hood to help further the prudential regulator’s financial inclusion efforts.
“The announcement of the new chartering guide is an important first step, but what I want to emphasize is that it’s the first step [as] we will continue to explore what more we can do,” said Todd Harper, chairman of the NCUA.
Harper said that when reviewing the original path that prospective credit union founders needed to take to obtain a charter, the agency eliminated redundant steps and restructured the process to consist of three cohesive themes: proof of concept, completing the application and final regulatory approval.
Tandem to the release of its new documentation, the NCUA is also exploring the establishment of a fund similar to the Federal Deposit Insurance Corporation’s Mission-Driven Bank Fund to help applicants obtain the necessary capital they need to begin the process.
”You really do need local institutions that understand the community [and] quite frankly, it’s the basis for how we have done much of our lending throughout our country’s history … it makes sure that as institutions grow larger, that smaller and underserved communities aren’t ignored simply because of their size,” Harper said.
The total number of federally insured credit unions in the U.S. has continued to shrink since 2016, with recent NCUA data reporting a total of 4,942 as of the fourth quarter of 2021. Against the trend of closures are those who recently obtained a charter in less than a year amidst a simplified process, whereas previous applications took much longer.
Scott Budde, president and CEO of the $2.9 million-asset Maine Harvest Federal Credit Union in Unity, Maine, set out to found the nation’s first credit union exclusive to farmers and others in the food services industry in 2015 after spending nearly two years researching the application process.
“For any group, one of the biggest challenges was raising startup capital … you need to raise a lot of grants to be able to lose money for years and years and [be able to] come out the other end well capitalized,” and for us that was the single longest activity throughout the process, Budde said. MHFCU finalized its application and was awarded its charter in 2019.
Budde explained that despite NCUA experts working with the planned credit union’s team throughout the lengthy application period, the burden from documentation requirements took a toll.
“Our application was probably around 1100 pages … [and] there was all this emailing and attaching which is fine for a memo or two,” but is not conducive for documents that are hundreds of pages and are subject to multiple revisions back and forth, Budde said.
In addition to guidance from NCUA staffers, credit union experts from other institutions within the state stepped in to offer MHFCU support that ranged from looking over supporting documents and providing templates for policies, to supplying the credit union with secure file cabinets to store documents once operational.
“I’ve had people at all of these credit unions do things for me, just because they wanted to help … there was nothing in it for them other than what they viewed their role being as helping other credit unions,” Budde said.
Community institutions in Maine that assisted Budde include Evergreen Credit Union in Portland, Acadia Federal Credit Union in Fort Kent, CPort Credit Union in Portland, Five County Credit Union in Bath, Downeast Credit Union in Baileyville and New Dimensions Credit Union in Waterville.
But despite the efforts from the NCUA, experts from credit union trade groups like the National Association of Federally-Insured Credit Unions worry that pressures from other regulators will serve to increasingly challenge those interested in launching a community financial institution.
“In the aftermath of [the Great Recession], we’ve seen a layering on of numerous complex regulations with more to come, as there are still significant components of the Dodd-Frank Act awaiting final rule implementation that could further impact credit unions,” said Andrew Morris, senior counsel for research and policy at NAFCU. “All this piling on to an already complex startup process … just adds to the overall challenge for any institution that doesn’t have the benefit of larger scale, right out of the gate.”
Outside of the challenges posed to applicants, the NCUA’s momentum for improvements is slowed amidst concerns of safety and soundness from the risks posed with new startups.
Dennis Dollar, who was chairman of the agency from 2001 to 2004, explained that an additional factor limiting the number of new charters awarded to applicants each year stems from the agency’s role as custodian of the share insurance fund.
“[Issues within the charter process aren’t] an easy fix because NCUA is first and foremost a protector of the credit union share insurance fund … history has shown them that smaller credit unions, regardless of their length of time in existence, traditionally carry with them the most financial and operational struggles,” Dollar said.
To keep new credit unions viable, sponsoring groups who backed the institutions during the founding process should stress the growth of membership and suite of services in order to support future expansion, Dollar said.
“The toughest challenge for sponsoring groups of de novo credit unions is not to give up and to go into the process assuming they will not be able to operate as fully as their business plans might hope until year four or five … in the meantime, they should focus on building their membership base and resulting business in hopes of beating NCUA’s expectations and timetables,” Dollar said.
Using its adjusted manual as a springboard, the NCUA will continue to explore how it could best improve the chartering procedures and bolster de novo activity.
“It’s not something that you’re going to be able to turn the tide overnight, but I think it’s important to bring new credit unions into the system, because if you look at how the system developed [and] how it operates, it’s providing access to affordable financial services and it’s often these new credit unions that are getting started in underserved communities,” Harper said.

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