New credit unions are stuck in limbo—Here’s how we can help

There were 5.5 million applications to start new businesses in 2023, according to the U.S. Small Business Administration. That same year, the credit union movement started just two.

Back when I worked for the national trade association, I would semi-regularly receive phone calls from groups who were working on starting a new credit union.

In many cases they were just starting off on their journeys. And when they would inquire about resources to help them navigate the process, the only support I could really offer was connecting them to other credit unions that had recently formed. Who would know better, right?

The problem was, that group of newly established credit unions is a very small pool to draw from. And as I’ve dug more into the issue, it’s pretty clear why.

First, the process is complex, with sizable barriers to entry at multiple phases along the way. Even current CEOs I speak with who are already operating successful credit unions are intimidated by the process.

I have sincere appreciation for NCUA Board member Kyle Hauptman, who made improving that process one of the key pieces of his agenda when he first joined the agency several years ago. Thanks to his leadership, the NCUA has recently approved a provisional charter as part of a broader set of enhancements to aid groups trying to form new credit unions.

But we’ve still only seen one group granted a provisional charter to this point, even though in 2023 there were 50 applications, a number that has now grown to more than 60 in 2024.

Which brings us to the real culprit for the slow credit union creation rate. That, my friends, would be capital.

The NCUA states that groups forming a credit union must raise at least $500,000—and we’ve heard that, often, the agency requires much more—to safely open their doors. And it’s obvious that these groups are having a difficult time coming up with the money.

To be clear, it’s expensive to run a financial institution, especially looking at it through the lens of a legacy credit union operating model. Overhead, core processing, third-party contracts, interchange costs, web hosting, mobile banking, audits, regulatory compliance, the list goes on.

But that doesn’t mean it’s impossible. And let me point out, a little can go a long way.

Clean Energy FCU in Colorado, which was established just a few short years ago, has nailed its business model so squarely in the jaw that it is bursting at the seams with loan demand and organic growth. They are now $63 million in assets.

The service at The Finest FCU, a $30 million credit union in New York City that received its charter less than a decade ago, has resonated so strongly that it’s posting annual ROA of 8% and 9% on top of 45% loan growth. Not a typo.

Lakota FCU in Kyle, SD moved mountains to navigate the chartering process and opened the only traditional financial institution on the tribe’s reservation. They are regularly held up as an inspiration for their innovation and inclusivity as a credit union.

And each of these operations started with a small amount of capital. They were successful mainly because they’d correctly identified a community need and a market opportunity.

Ultimately, new credit unions don’t have the channels they need to access the capital that is required. The NCUA does accept in-kind contributions from industry groups that can count as capital. Otherwise, they must raise funds from sponsors that can be hard to identify, especially if you’re a credit union working to serve low-income or marginalized groups.

It is truly hard to swallow that there are dozens of would-be credit unions languishing in the chartering process because of this single issue.

(It’s also hard to accept how quickly the credit union industry is falling behind in terms of the additional innovation that we would realize if we invested more in these new shops. Who’s breaking the mold and evolving this industry? Clean Energy is an online-only credit union serving a brand-new market (green loans). The Finest operates at non-traditional hours to serve Police. Lakota FCU pioneered the “Rolling Rez,” a mobile branch that brings the credit union to neighborhoods where access is an issue. New credit unions lead to new innovations).

As an industry, we’ve got to come together to help these groups. And here’s one way how.

A new organization has been formed called the Credit Union De Novo Collective Foundation that launched the aptly named Louise P. Herring Fund last month, whose central purpose is to raise money to help these credit unions meet their capital requirements. (I should probably share at this point that I was recently named to the board of this organization).

We are more than excited to make this opportunity available for the entire credit union movement to make true investments in the future of the industry.

Because that’s how we see it. Putting myself in the shoes of a CEO of a larger credit union with the capacity to contribute to a cause, I’m not sure my philanthropic dollars could go anywhere better. The new credit unions that this funding will help are expanding access to affordable credit to low-income and underserved communities. They also usher in the spirit of entrepreneurship, innovation, and toughness into which our movement should always be investing.

Speaking of toughness, Louise Herring is famous for starting more than 500 credit unions during her career—an unfathomable number by today’s standards. And her reasons for doing so were the same in every single case: Because the groups those institutions served NEEDED a credit union.

I know we all believe our communities need a credit union. I couldn’t imagine my own community without one. Imagine if the only financial institution you could access was Wells Fargo, or a check casher. Yet that is the reality for more communities than we’d all like to admit. According to the Federal Reserve, there are still more than 3,000 banking deserts in the United States today.

Now, just think, we have the power—and the opportunity—to fill in those gaps across the country where our movement doesn’t yet have coverage.

Let’s not miss it.