Starting a credit union today is difficult, but not impossible. We have been working closely with several de novo credit unions, and we've identified three main hurdles to starting a credit union:
- Opening the Doors (and keeping them open)
The latter two are also often given as the reasons that existing credit unions feel they have no choice but to merge.
NCUA Vice Chairman Kyle Hauptman made a pledge to the 2021 GAC attendees that he would work hard to modernize the charter process, saying “There has got to be an easier path for de novo credit unions”
And true to his word, NCUA released a new process in 2022! The beginning stages are now handled online, with clearer guidance and timelines.
Many of the credit unions listed on our de novo page are stuck here. Depending on the business plan submitted, they may be required to raise up to one million dollars in capital before they can open their doors!
The CU De Novo Collective has formed a foundation (501c3, pending approval). Once approved, the foundation will seek donations to provide grants for de novos (as well as “at risk” credit unions). The grant program will be structured somewhat like the Community Development Financial Institution (CDFI) grants, and will provide assistance in two important areas
- Technical assistance: This will help them with the most expensive startup investment, the core processor, as well as digital banking, card processing, etc.
- Capital: This could be all or a portion of the capital required by the NCUA.
So that we don’t add complexity to the new charter process, the de novo credit union would submit the same documents the NCUA requires in Phase 2 of the charter application process. This is the business plan that includes products, services, financial projections, etc.
From the 1930s until the 1970s, one of the chief duties of the Credit Union League system was to promote and help facilitate the chartering of new credit unions.
The state Leagues also operated for profit "services corporations" which provide services (credit card processing, commercial printing, ATM networks, shared service centers, etc.) to credit unions and to other state leagues. This was to ensure even the smallest credit union had access to the products and services they needed to remain competitive.
These services rarely exist today in a form that's affordable or accessible for small and de novo credit unions. This is another reason that mergers are commonplace.
The sixth cooperative principle: cooperation among cooperatives is the answer!
Ironically the state leagues figured it out when they formed Plexcity to provide collaborative back-office expertise for the state and regional credit union leagues and other trade associations, allowing the trade associations to focus on their core strategic values.
This is the blueprint for the Revolution CUSO, a new CUSO (Credit Union Service Organization) currently in the development phase that will provide leading-edge back-office and technology services to small and startup credit unions at sustainable prices. (Keep your eyes open for more Revolution CUSO news in the coming months!)