Where are all the Credit Union saplings?

by Ron Daly

There are two things I never want to do: 

1) Become President of the United States,

2) Start a credit union.

I guess I'm not alone on #2, since only two credit unions were started in 2009 (click here for the story). Only two?!? That seems...well, not too far off, given what we know about the past year. Failures, mergers, and acquisitions in the financial industry have become part of the territory. While banks have failed at a much higher/faster rate than CUs (106 bank failures to ~20 CU failures, according to this story), credit unions still have cause for concern.

Does that mean that the need for credit unions is waning? I don't think so. There are underserved communities that could really benefit from a credit union. Consider forestry - when a tree is cut, dies, or is destroyed by fire, a new sapling must be planted to bring the forest back to life. But where are all the credit union saplings?

Part of the problem is in scale. How do small, newly-formed CUs gain ground when they have to deal with competition from a decades old, multi-million (or billion) dollar credit union or bank? So much goes into bringing services to members that many startups are hamstrung by the "need" to bring everything members want the moment your charter is approved. "Start small", it seems, is no longer an option. 

One possible solution was put forward by Robbie Wright over at "Life and Times of a CU Employee" came up with an interesting white-paper called "Outsourced CU". His suggestion? A CUSO that starts credit unions. They manage facilities, they provide training, they handle marketing, they provide insurance, etc. This basic skeleton of services would be brought in to support the chartered CU and help it find and serve its market. Is now the right time for a service such as this?

I don't know whether this CUSO would prompt more folks to start up CUs, but I will say this: I do know WHAT the future of an industry is when new players don't enter the industry.

Your comments/thoughts are appreciated, as always.

Comments

[Anthony Demangone]

My personal thought is that many banks are formed because one can make a lot of money doing so. No one really gets rich off of credit unions. That takes greed off of the table. What do you have left? That would be a group of civic-minded folks who want to pool resources in order to promote savings and thrift. That's who would start a credit union. Greed is a bit easier to find nowadays.

[Greg Carroll]

As the project manager of a proposed credit union, I can attest to the difficulty chartering a new credit union. NCUA has been overly cautious in it's due diligence of applications. But, on the up side, there are many people out there, like myself, that are going through the process. You just have to hang in there!

[Cliff Rosenthal]

I'm glad that others are paying attention to this.
For the last 25 years, the National Federation of Community Development Credit Unions, of which I am the president, has devoted time, scarce resources, and our heart to helping groups start new credit unions. We have nurtured, advised, and counseled hundreds of groups through a painful process that typically last 3 to 4 years! Last year, in order to expedite the process at NCUA, we suggested that chartering be centralized and coordinated, so as to avoid the inconsistency and delays at the regional offices. The result: the process has been reorganized twice at NCUA, the regional offices are still involved, and the hoped-for streamlining is unlikely to take place.
We have written a 400-page manual for people organizing a credit union, which takes people through a step-by-step process. Regrettably, our advice to many groups is that you shouldn't go down this path, unless you can identify $500,000 in grants or in-kind to carry you through the first few years, when you will be losing money. Few groups can meet that test.
There is much, much more that I could say, but this will give you some insight as to what things look like froim a national perspective.