Reducing regulation has been a focus of the Trump administration, and credit union advocates say it is now much more possible to see light at the end of the regulatory tunnel after years of stricter oversight following the financial crisis. But whether that easing will translate into an influx of de novos is another matter.
After 2016 came and went with no federal charters being awarded, four were granted last year. Raleigh, N.C.-based Civic Federal Credit Union in December became the final federal charter granted in 2017. The National Credit Union Administration earlier in the year chartered Clean Energy Federal Credit Union, Community HOPE FCU and Firefighters First FCU.
The recent shortage of de novos is due in part to regulatory requirements that are "daunting to say the least," said Paul Mercer, president of the Ohio Credit Union League. Even in an improving environment, it would be difficult to build a new credit union from the ground up and would require a team of passionate, determined and patient leaders, Mercer said. Startup capital could be tricky to gather and consumer demand for sophisticated financial products is high, making it tough for a small, fledgling organization to compete.
Toledo-based Nueva Esperanza Community CU was established in 2010 and was the most recent de novo in Ohio. Mercer said getting that institution off the ground took a long time and "extraordinary" effort. It also requires many parties working to assemble the necessary capital and talent. "And it was still next to impossible," he said.
Clean Energy FCU Chairman Blake Jones called the chartering process inefficient and frustrating. "It's a rough process," Jones said. "It's painful. It needs a lot of improvement."
Unlike a bank, which can generate capital from investors, a new credit union would have to build a base of depositors, said Patrick Jury, president and CEO of the Iowa Credit Union League. Initially these small de novo credit unions would have to compete with more mature and larger institutions boasting a full complement of products and services. "It is tough to start a new credit union, however under the right circumstances it can occur," he said.
Existing small credit unions are under a great deal of competitive pressure and facing headwinds that are in many cases unique to them. Primarily, they are faced with the accumulated regulatory burden of the last 10 years, which has a disparate impact on the smallest institutions. "We are hopeful that there will be common-sense regulatory relief that doesn't put the consumer at risk, but rather mitigates unnecessary busy work," Jury said.
Those institutions also have to keep up with technology being offered by banks on just about every corner, Mercer said. "Some of them are handling that very well, and some are really challenged by it," he added.
More often than not, those challenges lead to mergers. Mercer said Ohio is down to about 280 credit unions after peaking at more than 1,400 in the early 1970s, and he expects to see about 15 mergers in the state during 2018.
He said the league is working on some regulatory relief projects at the state level but there are not many areas to target. The federal level is a different story, he said. "You don't have to look very far without bumping into a rule that generates cost and burden and distraction for a credit union and that doesn't meaningfully add value to our communities," he said.
One reason for optimism is the ideological changes at the NCUA under J. Mark McWatters, Mercer said. Over the past two years — with McWatters and previous Chairman Rick Metsger at the helm — the regulator has made steps toward modernizing call reports, allowing alternate forms of capital and lessening on-site exams. "You could use the word 'renaissance' to describe the regulatory-relieving that has taken root at the NCUA over the past year or two," he said.
