WHAT IS A CREDIT UNION?
First, let’s define what a credit union is.
A credit union is a cooperative, nonprofit financial corporation owned by its members and incorporated under either state or federal law. Organized to serve their members, democratically controlled credit unions provide a safe place to save, borrow, and access financial services at reasonable rates. Credit union members pool their funds into share or deposit accounts, which provides the credit union a source of funds to loan to other members. The management of each credit union is vested with a board of directors elected by and from the members. In electing directors and addressing other governance matters, each credit union member has one vote, regardless of the amount the member has on deposit with the credit union.
The credit union motto is: “Not for Profit, Not for Charity, But for Service.”
WHAT IS DEPOSIT INSURANCE COVERAGE?
Next, founders need to understand the concepts behind deposit insurance. Credit unions are required to have share insurance protection on their share and deposit accounts. In most credit unions, members are insured by the National Credit Union Administration (NCUA) through federal share insurance. The NCUA’s share insurance fund is called the National Credit Union Share Insurance Fund (NCUSIF). However, currently ten states allow credit unions chartered in those states to choose to have their deposits insured by a private insurance provider rather than by the federal share insurance provider. In those ten states (AL, CA ID, IL, IN, MD, MT, NV, OH, TX) credit unions may choose to use share insurance provided through American Share Insurance. Furthermore, credit unions chartered by Puerto Rico are insured through the CORPORACIÓN PÚBLICA PARA LA SUPERVISIÓN Y SEGURO DE COOPERATIVAS DE PUERTO RICO (COSSEC)
Basic Share Insurance Coverage
While there are subtle differences between the insurance provided by the three deposit insurance providers, each generally provides credit union members with up to $250,000 in coverage for their individual share and deposit accounts. These accounts include savings, checking, and certificate accounts. Individuals with account balances totaling $250,000 or less, as well as certain retirement accounts, such as Individual Retirement Accounts (IRAs), are also insured up to $250,000 per member per federally insured credit union.
Additional or Excess Share Insurance Coverage
Suppose a depositor has more than $250,000 in an individual credit union. In that case, the credit union may provide “Excess Share Insurance” to protect depositor funds in “excess” of those covered by “Basic Share Insurance”. Thirty-five states allow credit unions the option of providing excess share insurance through American Share Insurance. The state of Massachusetts requires credit unions to provide this type of insurance through the Massachusetts Credit Union Share Insurance Corporation (MSIC).
To fully understand these deposit insurance options, credit union founders should carefully review the relevant information from the provided links and contact the relevant parties to discuss the available basic and excess share insurance options and their interactions.
HOW DO I JUSTIFY THE NEED FOR THE CREDIT UNION AND ESTABLISH ITS VIABILITY?
After analyzing the initial results of this process, the organizers will need to complete the pre-planning process by conducting a potential member survey, analyzing the results, and reviewing current market conditions and the relative need for the proposed credit union. Organizers will also need to begin securing donated capital and/or obtaining critical sponsor commitments and/or mentor relationships to support the proposed de novo charter.
A business plan will need to be developed that creates a mission statement for the credit union, outlines what products and services will be initially offered, develops at least three years of proforma financial statement forecasts, establishes the corporate governance structure and management plans, identifies a physical address for the credit union, and formalizes a marketing plan. As part of the corporate governance process, bylaws will need to be created, usually from model or standard bylaws available from the relevant state agency. These links are provided on the NASCUS Around the States website for each individual state. Another part of this process is preparing the required policies related to the major operational areas that will need to be addressed by the credit union’s proposed product/services mix, as well as its strategic plan initiatives. For guidance on policies, interested stakeholders should contact both the state regulator with jurisdiction and the credit union trade association from that state. Those links for each state can again be found on the NASCUS Around the States web page.
At this point, if the efforts of the founding members continue to justify the credit union’s necessity, representatives of the proposed institution should ask to meet individually with the relevant state regulator and the state trade association/league to discuss their plans, potential challenges and to identify parties or programs within the state that may be able to aid in the charter application process. Furthermore, the founding members should consider whether to continue organizing a new De Novo credit union or, based on their research, whether the viability or effectiveness of a new charter is unlikely. Suppose the founding members believe the challenge of creating a De Novo credit union is likely insurmountable. In that case, they should consider approaching an existing credit union that may be able to incorporate their group as a common bond within an existing field of membership.
WHEN DO I NEED TO SUBMIT A FORMAL APPLICATION?
Once organizers have completed the initial steps discussed above, they should begin preparing an official application to be filed with the relevant state agency with a parallel application to the chosen primary share insurance provider. At this point, the founding members will await charter and insurance approvals while maintaining contact with the related agencies to answer any questions that may arise or address any deficiencies identified in the applications.