Forming New Credit Unions to Meet Our Mission
We lose approximately 250 to 300 credit unions per year to mergers, liquidations, and conversions. Only a handful of credit unions have been formed in the last ten years that survive today. While I understand that credit union assets and members are growing despite the reduction in the number of credit unions, I submit that an industry that cannot replenish its franchise is a bad sign for any industry.
It is my opinion that our future success as an industry requires the ability to form new and viable credit unions. We will not be able to replenish credit unions at the same rate that we are losing them but we must create business models to make it possible to form and operate a credit union in the 21st Century.
Credit unions were formed by people who were disenfranchised from or not yet assimilated into the establishment. They did not have access to or trust in the banks for financial services. For some Americans this remains true today. I believe that there are great opportunities to form credit unions to serve first and second generation immigrant families who tend to be hard working, financially conservative, and less trusting of banks. My observation of credit unions with ethnic fields of membership is that they tend to create very high levels of member loyalty. Existing credit unions can cater to ethnic groups within their field of membership but I find that ethnic groups have greater loyalty to credit unions that are formed and run by their fellow ethnic group members who understand their needs and communicate with them culturally and, in some cases, in their native language.
While many credit unions have the knowledge and the capital to help form new credit unions and guide them through the start-up process, why would a credit union do this? The answer is that helping form credit unions is the right thing to do in order to fulfill the credit union industry mission and to stay strong politically. Congress has told credit unions that they need to prove their unique value in serving the underserved if credit unions expect to retain their non-profit tax status. Helping new credit unions can also be financially rewarding to a sponsoring credit union.
How can existing credit unions and CUSOs help? They can be catalysts to identify ethnic groups who may have an interest in forming a credit union, help them create a business plan and work with the regulator to issue the charter. A sponsoring credit union can buy share certificates from the new credit union at a discounted or zero interest rate to help grow capital faster. A sponsoring credit union or its CUSO can provide operational services which help not only the new credit union but also spreads the cost of operational services for the sponsoring credit union over more users and reduces its costs. The sponsoring credit union can participate in loans issued by the new credit union which leverages the new credit unionâ€™s capital and provides lending opportunities to the sponsoring credit union. The sponsoring credit unionâ€™s CUSO can be compensated to help the new credit union work with brokers to provide insurance and investment services to its members which generate non-interest income for the new credit union and valuable member services. In effect the sponsoring credit union provides the engine to run the back office functions to support the service needs of the new credit unionâ€™s members as determined by the new credit unionâ€™s directors. In order that the model is sustainable, the sponsoring credit union is fairly compensated over time for the services
Our countryâ€™s demographics are shifting and credit unions are poised to ride that wave of change if we adopt a strategy to help first and second generation immigrants. I am sure there other unique niches credit unions can serve. By starting new credit unions that serve specific loyal market niches, the touch points to people increase exponentially and credit unions as an industry will have a more significant impact and role in the financial marketplace. We need to stay relevant and grow our franchise. We have the resources. We just need a plan and the will to do it.