BEDFORD, Ind.—Will the U.S. see more CUs use the “network credit union” model in the coming years?
One of the architects of the concept, George McNichols, CEO of Hoosier Hills CU, thinks that could well occur after NCUA provided his credit union with a legal opinion letter stating it is permissible for merging multiple group federal credit unions to operate as a network of credit unions.
NCUA Vice Chairman Rick Metsger also put the spotlight on the network model during his remarks at CUNA’s recent GAC in Washington.
The network credit union model merges in several credit unions under one large “network” credit union, all sharing a common backoffice and systems. The move allows smaller credit unions to gain the advantages of greater scale—such as spreading the compliance burden and lowering operating costs—while still maintaining their local presence and brand. Network credit unions keep their current name but operate as a division of the network CU. A few of these models have been established in the U.S., most recently in Pennsylvania.
Letter Delivers 'Confidence' In Network Model
McNichols told CUToday.info that the opinion letter gives credit unions the confidence to pursue the network model, which he termed another merger option that is “friendlier.” McNichols said his credit union sent NCUA documents outlining the network model more than a year ago, asking for the agency’s legal opinion on the merger structure.
With that favorable opinion letter now in hand, McNichols said it should spark healthy conversations between credit unions leaders and among their boards about mergers.
“I think it will lead more credit unions to say (merger through the network model) is a good thing for us to look at and consider,” said McNichols who believes the model will help many small credit unions continue and grow.
It was a comment echoed by Metsger at GAC, where he cited it as one potential way to help smaller, struggling credit unions not only survive, but grow..
In the Feb. 17 letter from General Counsel Michael McKenna to the $435-million Hoosier Hills, NCUA explained that the merged-in CU can continue to operate under its existing name. But the agency explained that the CU must ensure its members understand they are dealing with one credit union rather than different credit unions.
Hoosier Hills CU
The letter also stated that the Federal Credit Union Act permits the continuing credit union to appoint an advisory committee comprised of officials of the merged credit union to serve in an advisory role. NCUA also said the continuing credit union may reserve one seat on its nominating committee for a representative of the merged credit union.
NCUA also said the agency believes the network model is permissible under the Federal Credit Union Act and the agency’s Chartering and Field of Membership Manual.
Numbers Hide Story
Speaking at the GAC, Metsger noted the strong overall CU numbers for 2015 actually masks what is happening to the small shops.
“The averages obscure the growing disparity between the haves and the have nots. Credit unions over $250 million in assets experience almost double-digit growth in shares and loans, but below $100 million we see declining growth,” stated Metsger, who pledged that the Federal Credit Union Act “won’t be an impediment for smaller credit unions to join together. The death of the small credit union does not have to happen.”