Starting a New Credit Union Shouldn’t Be That Hard | Journal of Credit Unions
I was comforted recently to see past and present members of the National Credit Union Board of Directors express concerns about the need for new credit unions.
It was especially encouraging to see them link the issue to considerations of diversity, equity and inclusion. For nearly 30 years, I have helped organize CDCUs, community development credit unions that serve low-income and minority communities. With my colleague Linda Levy, former CEO from the Lower East Side People’s Federal Credit Union in New York, we wrote “Organizing Credit Unions: A Handbook.” But often we had to advise community groups against suing a credit union – even if credit unions are a compelling answer for communities long disempowered by the traditional banking system. Why?
First of all, as any manager of a credit union can tell you, it is difficult to operate a highly regulated business. The day-to-day operations of a credit union are generally much more demanding than those of a non-profit organization. In addition, setting up a credit union is a long and demanding process, usually taking at least two or three years, but often five or more years. You can start a non-profit organization much more easily. Then there is the crucial question of access to capital.. As the NCUA noted, obtaining capital is perhaps the biggest challenge for a future credit union.
This, unfortunately, is where unregulated institutions have a major advantage. I co-founded the CDFI Coalition in the hope that the CDFI Fund would be the solution, providing capital to low-income and wealth-deprived minority credit unions. But for more than 20 years, as I detailed in my book “Democratizing finance”, 80 cents of every dollar of CDFI Fund grant went to No Deposit Loan Fund.
But this year promises to be a game changer. Recent federal COVID-19 credits provide $ 12 billion to minority depositories and CDFIs – including $ 9 billion is specifically for banks and credit unions. Potentially, this could make a huge difference to existing credit unions, but not necessarily for future black credit unions and other minority startups.
The problem is a Catch-22 in the regulation of the CDFI Fund, which effectively prevents the fund from committing to an investment in a chartered group before the credit union is legally incorporated. If this hurdle is removed – for example, if the CDFI Fund could pledge $ 1 million to a future credit union (subject to a charter being granted) – it would be much easier for a community group to raise funds. additional capital and galvanize community support. The creation of a credit union within one to two years could become a reality.
Removing the barrier through a regulatory change would be the quickest way, but it may be necessary to pursue a technical change in the CDFI Fund and / or Treasury Department statutory language. This should be followed by the Treasury and the CDFI Fund dedicating a small portion of new and future CDFI funding to credit unions and start-up banks serving blacks and other minority communities.
I do not claim this path is easy. But the potential benefit – a new generation of credit unions that can advance diversity, equity and inclusion – is well worth it.