Dearth of De Novo CUs

On March 21, the House Financial Services Committee held a hearing on the dearth of de novo charters.

Between 2000 and 2016 there were 93 new credit unions chartered. Pre-Dodd Frank Act, the number of new charters average 7.7 credit unions per year. After Dodd Frank the number of new charters averaged only 2.3 credit unions per year.

According to the testimony of Keith Stone, President and CEO of The Finest Federal Credit Union, starting a new credit union is an altruistic endeavor. He pointed out that the initial capital infusion and cash outlays are often too great for many communities and associations, thereby hindering the formation of new credit unions. He also blamed the rising cost of compliance for deterring many potential credit union start ups.

But National Credit Union Administration (NCUA) should also be held accountable for the dearth of new credit unions charters.

The Senate Report on the Credit Union Membership Access Act of 1998 encouraged the formation of new credit unions. The Senate Report stated:

The NCUA Board ("Board") shall encourage the formation of a separately chartered credit union instead of approving an additional group within the field of membership of an existing multiple common-bond or single common-bond credit union.

However, the Senate Report provided an exception to a multiple common-bond credit union to add a group with 3,000 or more potential members, if NCUA determines the group is unlikely to succeed as a new credit union.

But it appears that this exception has become the norm. For example, NCUA in 2016 approved adding 89 groups with 3,000 or more potential members to an existing multiple common-bond credit union, while only one credit union was chartered.

The following table shows the trend between the number of new charters compared to the number of groups with 3,000 plus potential members from 2008 through 2016.

In fact, NCUA now believes that a new credit union with fewer than 5,000 potential members is not viable.

It is likely that the drought of new charters will continue without a change in direction at NCUA.