ARLINGTON, Va.-Starting a brand, spanking new credit union isnot the same as it was in the old days. "It used to be in the pastthat leagues and the trades and NCUA tried to help credit unionsform," NAFCU Chief Economist Tun Wai explained. They are not inthat business as much any more, he said. That is not to say they donot help at all any more. He pointed to NAFCU General Counsel BillDonovan's involvement in the chartering of Shiloh of AlexandriaFederal Credit Union. Wai also commended NCUA for its work inchartering low-income credit unions. In fact, he credits this withthe slight increase in new credit union charters, from thesingle-digits and teens from 1996 through 2001 to the twenties in2002 through 2004. "The increase in formation is because NCUA hasdone an excellent job with low incomes. The problem in terms ofmaking these institutions viable is some of them just don't lastvery long," Wai said. He did not have statistics on the life spanof these newly formed credit unions. "I do know that smaller creditunions are being gobbled up.I do know that some of the ones beinggobbled up have been around for a while," Wai stated. He did saythat 60% of the net potential membership growth has come fromlow-income credit unions. The reality is that NCUA can offer fundsfrom its Community Development Revolving Loan Fund and other help,but, in the end, survival boils down to the support of themembership. It is much easier-and more lucrative-to open up a bank,according to Wai. "Banks can start up with stock and capital andcredit unions start with members contributing their shares, anduntil somebody takes out a loan, you can't make any money," heexplained. In today's world consumers do not have the patience fora financial service provider that only provides savings orchecking, which is how credit unions start out. Actually, CUNAChief Economist Bill Hampel cited this as the number one reason forthe decline in new credit union charters. "The biggest reason isthat credit unions now tend to be full service organizations, notyour basic savings and loan accounts." he said. "Now, straight outof the gun, if an employer may have grown [large enough to supporta credit union], it would take a long time for that credit union tobe a full-service credit union." Hampel also highlighted a keydifference in credit union law, which is the fairly recentpermissibility of multiple group credit unions. It is much moreattractive for a group that might be large enough to begin its owncredit union to join an existing credit union specifically to startwith a broad range of services. Additionally, an employer base wasan easy way to form a credit union, NAFCU's Wai said. Yourpotential membership was all right there, the sponsor oftenprovided space for the fledgling institution, and people stayed inthe same jobs for 30-plus years. Not so any more. SEGs havesaturated the larger companies and have whittled down the mediumand smaller ones as well, he explained. Also, people change jobs alot more frequently these days; mergers and acquisitions arerampant, as testified to by NCUA statistics that show the number offederal credit unions down from 7,302 in 1996 to 5,626 at year-end2004. Thus, start-ups are more likely to come from a church orother organization, where it is "harder to get that kind ofcommitment." More money must be spent on marketing, strategies needto be developed, and generally a greater effort is necessary to geta new credit union off the ground. Also, "You need your reputationto occur," Wai said. "You will always have people interested injoining a credit union," he explained, but starting one fromscratch is a whole different ball game. "It's easier to say youwant to join a credit union than forming one." While fighting forthe Credit Union Membership Access Act, interested parties came upwith 3,000 potential members as the magic number for arealistically viable institution, he indicated, which is anotherhurdle. Other factors that can impact the viability of aninstitution can be a change in the local economy and, again, lackof member interest due to lack of products and services. Wai notedthat the reason many of the small credit unions are merging is toexpand their service offerings. "Having new credit unions always isa good thing," he said. With just over one credit union per member,Wai said, "I don't think there's tremendous market saturationhere." However, Hampel said he does not foresee the trend away fromnew credit union charters reversing itself. "That would require aneasy say for a credit union to become full service," he said.Possibly, if a credit union were managed by another until it couldsplinter off on its own, similar to the relationship between LatinoCommunity Credit Union and Self-Help Credit Union and StateEmployees Credit Union in Durham, N.C., it could more easily becomeviable, according to Hampel. He also predicted that mergers wouldslow but not to the point they would become fewer than new creditunions. Hampel said his hunch is that the number of credit unionswill level off around 5,000. But, it is important to keep your eyeson the prize, he reminded. "The ultimate goal is to have as manyconsumers as possible become members of credit unions," Hampelsaid, and that can be accomplished through the chartering of newcredit unions or by joining an existing one. -

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