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Expansion strategies differ as field of membership opens up

As both state and federally chartered credit unions gain more latitude to expand their fields of membership, differing expansion strategies are emerging.

Field of membership has been one of the most-discussed issues in the credit union space recently, especially after the National Credit Union Administration in October 2016 passed a rule to modernize its applications. The NCUA said the new rule is intended to expand access to potential credit union members and is necessary to keep up with the societal and technological changes that have occurred since the Federal Credit Union Act was passed.

The NCUA hinted that the move was at least partially motivated by several states having recently updated their field-of-membership rules for state-chartered credit unions, which led some institutions to change from a federal to a state charter.

Not everyone was thrilled with the NCUA's decision. The American Bankers Association on Dec. 7, 2016, said it filed a lawsuit against the regulator over its field of membership rule. NCUA spokesman John Fairbanks said recently that there has been no news yet regarding the case.

Some institutions, including Fremont, Mich.-based Gerber Federal Credit Union, have taken the opportunity to expand to a community charter. Such a charter opens up membership to anyone who lives, works, volunteers, goes to school, or attends religious services in a particular city, county or counties. The NCUA in March approved the expansion of Gerber's field of membership to people and businesses in Newaygo County, and certain portions of Muskegon County.

President and CEO John Buckley Jr. said in an interview that he and the credit union's board believe that Gerber's community is very well-defined and has consistent values and aspirations. "We were serving approximately 25% of the whole county population prior to the charter change, and we were the largest depository institution in the county," he said.

Gerber is trying to encourage the idea that its services can have value for more people so it can help them save and prosper, and in doing so it will be able to do more for its existing membership, Buckley said. With changing consumer behavior, it was more difficult to reach potential members through the old Select Employee Group channels. "We were doing so much in the community already, it made sense to include the community in our potential field of membership," he said.

But some expanding credit unions are not big believers in the community charter. New York State's Department of Financial Services in February approved Municipal Credit Union's charter expansion. With the expansion, the credit union can now serve the more than 20,000 current students at St. John's University's four campuses in New York. Students of the City University of New York were added as a field of membership in 2014.

President and CEO Kam Wong said in an interview most of the credit union's members work for government entities, and the idea is to diversify the member mix. "That's one of our strategies," he said. "To dilute or mitigate our concentration risk in the future."

Wong said Municipal CU is staying away from the community charter idea because it believes the concept is not in line with the overarching philosophy of what a credit union should be. "Basically there's no common bond, in our opinion," he said.

The credit union now has more than 400,000 members, but Wong believes in time that number could grow to 1.5 million even without expanding to another group of potential members. All healthcare professionals who work in New York State are eligible to join, and Wong said that is a group with a lot of membership potential. But he said the credit union is unlikely to add many more brick-and-mortar locations and instead will focus on its digital offerings.

Online and mobile will resonate much more than branches would with the incoming college-aged members, Wong said. The CUNY system has about 500,000 students and St. John's University has about 21,000 students. Wong said getting even 10% of them as members would be a significant win.

As far as Gerber's membership growth in the next year or two, Buckley said the credit union's projections indicate 7% to 8% growth per year annualized. But that will not necessarily lead to Gerber expanding its suite of offerings on the lending side. The institution believes its retail lending platform is pretty complete. "I believe this expansion will help us more on the mobile and app side as we will have more capacity for e-services," Buckley said. "But we are open to adding brick and mortar as demand dictates."