Where Have All the New Charters Gone?

A recent Credit Union Times headline caught my attention – ‘Where Are New Charters?’ Asks Ex-League Head.

Congress in 1998, when it authorized multiple common bond credit unions, made it perfectly clear that NCUA was to encourage common bond groups to form new separately chartered credit unions rather than to merge the groups into existing credit unions.

However, between 2003 and 2007, only 40 new credit unions were chartered (data for 2008 is not yet available). That’s 8 new credit unions per year.

Does NCUA suffer from ADD (attention deficit disorder) or does the agency just have a hard time following instructions?

So, why were so few credit unions chartered?

Much of the problem has to be laid at the feet of the credit union regulators. They have erected barriers to entry making it virtually impossible for new credit unions to be formed.

While any size group may apply for a credit union charter, the group needs to demonstrate that the credit union will be economically viable. NCUA’s chartering manual states that the size of the group is a potential indicator of a successful start-up. In other words, bigger is better.

NCUA will require groups with fewer than 3,000 potential primary members to jump though more hoops to prove they are economically viable.

Why would any group subject themselves to this gauntlet, when it is easier to join an existing credit union than to form a new credit union?