By Sarah Bang
Earlier this month, former NCUA Chairman and Board Member Michael Fryzel published an opinion piece in this publication where he argued that newly formed credit unions are not a solution for the underserved.
Instead, Mr. Fryzel argued the focus should be on supporting existing credit unions because as he stated, “There are more than enough credit unions to serve the millions of people who are not now members.”
First, I agree with some of Mr. Fryzel’s comments, including that “small, faith-based community and single employer credit unions are headed for extinction,” if nothing is done. His suggestion about mentorships between large credit unions and small credit unions seems spot-on and has merit. I also agree with him that the continued consolidation with the credit union industry deserves attention from every level of the credit union movement.
Mr. Fryzel’s comment “…that once a credit union is chartered there is no guarantee of success,” is true for every business. As for Otoe-Missouria, Maine Harvest and Growing Oaks Federal Credit Unions, I respectfully disagree with Mr. Fryzel. Their “slow” growth is not unusual or alarming. The very existence of a financial cooperative founded by ordinary Americans to take control of their economic destiny is a success story.
One CU’s Example
In 1935, 18 blue-collar workers each deposited $0.50 and founded Fellowship Credit Union —a credit union with just $9 in assets. Adjusted for inflation, that $9 is equivalent to $180 in 2021. Today that credit union is now BECU, one of the country’s largest credit unions with more than $28 billion in assets and 1.3 million members as of the first quarter of 2021. Starting small and growing slowly is how virtually every credit union in this nation has started since the movement came to America in the early 1900s.
On a related note, there seems to be an undercurrent of belief that small or plain vanilla credit unions are somehow inferior. They are not. If a credit union wants to stay small, that’s their right. There are plenty of small, single-sponsor, faith-based and plain vanilla credit unions that are giving their members what they want in the ways they want it. We should be looking for ways to support them. We should not be shaming them into a merger just so their members can have a cool banking app on their phone.
NCUA’s Role
To be clear, Vice Chairman Kyle Hauptman’s focus on the chartering process is simply about making sure that Americans are free to start a credit union if they wish. It’s not the NCUA’s place to put its thumb on the scale by, for example, having an excessively difficult chartering process. By removing unnecessary barriers in the chartering process, we are facilitating the right of underserved Americans to choose for themselves.
There will always be groups in America that are easy to ignore because they aren’t politically correct, or they have no clout —like rural and inner-city America for example. My sister and brother-in-law live in a rural part of Wisconsin without reliable Internet access and mobile coverage. Online and mobile banking apps are useless to them and they are not alone.
Formerly incarcerated individuals are another perfect example of a group that is easy to ignore. Right now, I know of at least two groups of former inmates working to form their own credit union. For far too many individuals with criminal records, access to safe and affordable financial services is unattainable. Their needs aren’t being served by the traditional financial services community, so these two groups are doing the “American thing” and doing it for themselves — they are forming a credit union.
The Only Choice
For many of these communities that need access to financial services, the only choice they have is to form a credit union of their own. By removing unnecessary barriers in the chartering process, we are facilitating the right of these underserved Americans to choose for themselves.
The vice chairman’s de-novo initiative has also uncovered ways that would simultaneously assist groups like these trying to form a credit union and small credit unions that need reinvigorating. The notion of “recycling charters” isn’t new, but it is an often-overlooked option. Imagine a small credit union whose management wants to retire but can’t find new leadership. Finding a merger partner is often the first option.
We are also looking for ways to ensure that this credit union has every opportunity to be connected with folks interested in starting a credit union —possibly saving that existing charter. It’s a “shortcut” to the de novo process that helps the existing credit union and the group trying to form their own.
Although I may not agree with all of Mr. Fryzel’s comments, we do agree that something must be done.
Sarah Bang is senior advisor to NCUA Vice Chairman Kyle S. Hauptman.