The movement’s history is rich with stories of credit union pioneers barnstorming the U.S., starting credit unions on a shoestring and storing deposits in a shoebox.
During the credit union movement’s early years, organizers Thomas Doig and Louise McCarren Herring together organized more than 1,500 credit unions. The growth of credit union charters reached its peak in 1954 with 960 new credit unions.
Today, NCUA issues just a few charters each year, and most of those are community development credit unions (CDCUs) located in economically distressed areas. To start a credit union today, you can forget the shoestrings and shoeboxes. Instead, you’ll need patience, perseverance, dedicated people, and a few hundred thousand dollars.
Although NCUA has no minimum capital requirement before granting a charter, “the reality is you need to raise at least $250,000 to $500,000 to carry you through the first few years,” says Cliff Rosenthal, president/CEO of the National Federation of Community Development Credit Unions in New York City. That’s before you even open your doors and begin accepting member deposits.
Besides the need to raise money, anyone hoping to create a credit union will face meticulous scrutiny as regulators assess an applicant’s ability to operate a sound financial institution in today’s complex environment. Possessing a hefty dose of determination is vital, Rosenthal says.
“You have to be beyond persistent,” he says. “You need the focus and drive of a marathon runner. And at the finish line, you’ll drop to the ground exhausted.”
Even so, some actually subject themselves to this test of endurance. Since 2000, 44 out of the 77 credit unions that have been granted charters remain in operation. Because individual credit unions have expanded their fields of membership, “the impetus to start new credit unions is much diminished,” Rosenthal says, “except in truly underserved populations.”
Getting a credit union charter is “a slow birthing process,” says Dave Morton, board chair at $680,000 asset Inspire Community Development Federal Credit Union, Battle Creek, Mich. “It’s like watching a soap opera in which one of the characters is pregnant and then delivers two years later.”
In Inspire’s case, three years lapsed between submitting documentation to NCUA and obtaining a charter. “We had to jump through a lot of hoops,” Morton says. “Sometimes we felt we were told one thing only to find out we had to go in a different direction.”
The length of the process turned out to be an expensive surprise. Morton, a local minister, and other community leaders spent a couple of years laying the groundwork. They brought in Rosenthal to explore the possibilities of a CDCU, and some attended the Federation’s CDCU Institute.
Another early step was to hire an outside consultant, who spent a year assessing community interest and raising start-up funds, totaling roughly $500,000 in grants and deposit commitments from foundations and various organizations. Then the organizers were ready to rent office space and hire a CEO to navigate the chartering process.
Three years passed, and still no charter. And because they were paying rent and a CEO’s salary, “we were eating into our capital,” Morton says. “We didn’t expect it to take so long.”
Their charter finally materialized in March 2010, and the credit union opened for business two months later. “We were the first new credit union in Michigan in 25 years,” Morton reports. Inspire offers basic services such as deposits, money orders, and personal loans of less than $5,000. It plans to offer checking
and vehicle loans within the next couple of years.
To anyone thinking about starting a credit union, Morton advises taking advantage of training from sources such as CUNA and NCUA. Do so, he stresses, even before you have a charter in hand.
“It can be hard to convince board members, even when they’re very supportive, to invest time and money in training before you know whether you’ll get chartered,” Morton says. “But I think getting training up front saved us from making mistakes, and it helped us interpret the issues NCUA brought to us.”
While the chartering process can be frustrating, “we got through it because we had a board of seven people who were committed to getting this off the ground,” Morton says. “We weren’t going to back away from it.”
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