By Michael Fryzel
As an attorney and former state and federal regulator of financial institutions, I have always advocated for small credit unions. I believe they represent what the founders of the industry meant when they said that credit unions were there for service and not for profit, that the members and their financial needs always came first, and that they were there to counsel them through difficult times.
Fortunately, those attributes still exist within the industry. Unfortunately, the two-decade long trend of diminishing numbers of small credit unions continues.
Small, faith-based community and single employer credit unions are headed for extinction. Economics, lack of resources, shrinking member bases, the failure of succession planning and mergers are all factors that have contributed to their steady decline in numbers.
NCUA, state regulators, credit union leagues and national associations all have made efforts to help small credit unions, but the diminishing numbers show not everything is working. The fear that a continual decline in numbers will result in a loss to those that need financial services the most, in the inner city and in the rural areas, will be realized. Those not served or underserved will grow in numbers.
In recent weeks there have been calls for legislation and regulatory action to make it easier to charter credit unions and establish new financial institutions. Some believe that if chartering was easier there would be more credit unions and those communities in need of a financial institution would get one.
What’s Missing
What is missing from this proposed solution is that once a credit union is chartered there is no guarantee of success. In fact, the effort needed to get chartered even under current criteria may be easier than the path you need to follow, the goals you need to meet and the services you will need to provide once you have been chartered.
For example:
- On May 20, 2019 NCUA chartered the Otoe-Missouria Federal Credit Union to serve the approximate 4,200 members and employees of the Otoe-Missouria Tribe as well as 17 tribe-owned businesses. In the credit union’s most recent filing with NCUA it shows $1.7-million is assets and 500 accounts opened in 24 months.
- Harvest Federal Credit Union to serve approximately 13,000 members of the Maine Organic Farmers and Gardener’s Association. In the credit union’s most recent filing with NCUA it shows $3.2 million in assets and 88 accounts opened in 23 months.
- On August 18, 2020 NCUA chartered the Growing Oaks Federal Credit Union to serve the people who live, work, worship or attend school in Canadia, Cleveland, McClain and Oklahoma counties in the state of Oklahoma. The combined population of the four counties is approximately 734,407. In the credit unions’ most recent filing with NCUA it shows $1.9 million in assets and 69 accounts opened 18 months.
Not Working
The numbers reported by the three credit unions indicate that efforts to attract members appear not to be working and that the communities they are chartered to serve are not responding.
Further research is needed to reach specific conclusions as to why the growth of these credit unions has been so slow. It could be marketing, location, hours of operation, accessibility or lack of services. Help is needed if they are to accomplish the mission for which they were chartered.
While I was on the NCUA board there were numerous requests for expanded fields of membership to serve more individuals. Staff would present to the board a packet of documents submitted by the credit union to justify theses requests. There were maps, demographics, marketing plans and statements of how the new membership fields would be provided with a wealth of new financial services. After staff was asked questions by the board, the motion to grant the new field was passed unanimously. After all, who could refuse a request to serve and help the underserved?
Two Questions
I would ask the staff two questions. One, does the credit union have a sound plan to attract and serve the added members? And, two, will NCUA monitor the progress and chart the number of new members added? The answer to both questions was yes. If NCUA has the numbers, I think it might be interesting to know how many new members have joined from the additional approved fields.
New credit unions are not the answer to providing financial services to the areas were few or none exist. Chartering new ones will not accomplish the goal of serving the underserved anytime soon. New credit unions take years to grow financially and be in a position to offer products and services members need. The underserved have been waiting too long. They need help now.
There are more than enough credit unions to serve the millions of people who are not now members. Some may need assistance and direction as to how to accomplish that goal. Large credit unions must come together to help smaller credit unions succeed. Investment of time and money in smaller, struggling credit unions is essential. CEOs of large, successful credit unions need to step up and become mentors in the industry. They need to counsel others on what they did to achieve success.
An Example to Be Duplicated
I recall one individual who could write a book on mentoring. His efforts and counsel helped countless credit unions CEO’s build successful credit unions. Through hard work, determination and great vision, Jim Blaine built North Carolina State Employees Credit Union into of the second largest in the country. And he did it while still helping other build theirs.
Recently chartered and small credit unions should be assigned an industry counselor from a list of qualified mentors to provide assistance, direction, guidance and help to make sure that these credit unions not only survive but grow and thrive.
A Growing Desert?
The focus should not be on adding more to what we already have, but rather providing the help to those we have who are ready and willing to serve those who want and need financial services. NCUA, state leagues and the national associations must reassess where their energy and financial assistance is most needed.
Failure to do so will only result in the loss of more credit unions and the expansion of the financial desert.
Michael Fryzel is a former board member and chairman of NCUA now in private practice in Chicago.