An organization in New Jersey is working to launch a new credit union that will serve the LGBTQ community as well as other underserved groups.
The National Credit Union Administration recently approved the "proof of concept" application for
Nancy Eiden, founder of First Step Alliance, a New Jersey nonprofit that is one of the organizing members of Diverge, said the body's long-term goal is to add other groups to its field of membership, including veterans and immigrants, so it can be an option for those that have been shut out of mainstream banking.
But for now, Eiden said Diverge will focus on and work to treat LGBTQ and formerly incarcerated members “in a much more affirming way than at times a lot of folks are unfortunately accustomed to” with traditional financial institutions.
The credit union also plans to tailor its products and services to those groups, said Ari Farrell, one of the Diverge organizers and a program analyst for the $1.8 billion-asset Northwest Community Credit Union in Eugene, Oregon.
Diverge's products will likely include loans for same-sex couples to adopt, Farrell said. Those costs can run as high as $100,000. The credit union will also offer loans for gender affirmation surgeries that can cost tens of thousands of dollars. “We’re talking about life-affirming surgeries,” Farrell said.
Sometimes members of the LGBTQ community encounter problems with traditional banking because they do not look like the photo on their identification or they are part of a same-sex couple, Farrell said.
Down the road, the group envisions making small- business loans too. “But obviously we have to walk before we run,” Eiden said.
And those early steps begin with fundraising.
“We’ve got everything else except the capital,” Eiden said.
The group wants to raise between $1.5 million and $2 million for the first two or three years of operations, although Elden said more capital will probably be needed.
“If we really want to serve a good part of the market here and help a lot of people in need we’re going to need more than that, but that will allow us to open our doors,” Eiden said.
The group considered applying for a state charter because there are typically fewer hoops to jump through in that process than with federal charters, according to Eiden, but she said a federal charter made more sense for the credit union's national scope.
“Being able to be in any state where there was a need was really more important even though we know going for a federal charter might be a little more complex,” she said.
And the NCUA has been supportive of the group’s mission.
NCUA board Vice Chairman Kyle Hauptman
"I'd like to commend the team behind Diverge PFCU's charter application. Their concept is an example of true financial inclusion, and it's also an example of why reforming NCUA's chartering process is one of my top priorities," Hauptman said in a press release.
Since 2014, the NCUA has granted only 20 new charters. The regulator has yet to approve a federal charter in 2022 after granting four charters last year, which were the most since 2015. The NCUA approved just one federal charter in 2020.
All four of the new charters granted last year were completed in less than a year as the NCUA has
While this streamlining may help bring in more de novo applications, the real barrier is regulatory compliance, aid Tim Scholten, president of the credit union and community bank consultancy Visible Progress.
The amount of time, effort and cost to prove compliance makes getting to profitability a challenge, according to Scholten.
“It is one of the reasons we continue to see larger and larger consolidations,” Scholten said. “My sense is that we will not see much of a change" in the number of de novos in 2022.
Farrell said it's true that back-office operations can be very expensive and can be a barrier for some de novos. Startup costs are not prohibitive, Farrell said, but as an institution grows so does the need for a more robust team on the compliance side, and that can be expensive.
But regulators are becoming more understanding of a credit union’s needs and are more willing to work through compliance issues with them, according to Farrell.
Eiden said the group plans to partner with a credit union service organization initially to help with the cost of compliance. “Shared resourcing and having a very low-cost partner with CUSOs are going to be critically important for any de novo,” she said.
The credit union will also try to hire people in those same underserved groups wherever possible. It has not yet been decided who among the Diverge organizers might fill specific roles once the organization is up and running, Eiden said.
Organizers expect the credit union to open its doors within a year. “I would love to say six to nine months, but I think it’s too early to really know,” Eiden said.
The credit union will likely open its first branches in New Jersey and California, she said.
Diverge is not the only new credit union on the drawing board. The Association for Black Economic Power also plans to
