NCUA to issue provisional charter to solve 'chicken-and-egg' problem

NCUA Chairman Todd Harper
"A provisional charter is an excellent solution to the chicken-and-egg chartering problem, but I also know that it's hard to raise capital even if you have a charter," said NCUA Chairman Todd Harper.

It's a classic Catch-22 situation. 

Groups interested in organizing new credit unions are faced with the challenge of raising the capital necessary to implement their business plans and obtaining a charter. But in many cases those who provide the capital are not willing to make a firm commitment unless an organization has an approved credit union charter.

The National Credit Union Administration is now offering a solution.

At the board's monthly meeting Thursday, NCUA Chairman Todd Harper said the agency will begin issuing provisional charters in situations in which the charter is the last piece an organizing group needs to finalize all of its capital requirements. Under the pilot, the organizers would provide a capital funding plan and agree to secure their necessary funding commitments within 12 months.

"A provisional charter is an excellent solution to the chicken-and-egg chartering problem, but I also know that it's hard to raise capital even if you have a charter," Harper said.

NCUA Vice Chairman Kyle Hauptman hinted at the possibility of a provisional charter while speaking at the Credit Union National Association's Governmental Affairs Conference in February.

The agency said it hopes to roll out a pilot program by the end of the third quarter of this year.

Hauptman said on Thursday that the formation of a new credit union is the ultimate demonstration of this agency's dedication to financial inclusion.

"If we make it one minute harder for an immigrant group, or a church or a mosque or a temple to start their own credit union then we should revisit our financial inclusion," he said.

The arduous process of getting a new credit union off the ground has been a major complaint for several organizing groups in recent years and has likely led to the dearth of new institutions.

Since 2014, the NCUA has granted only 26 new charters. The regulator has approved two federal charters so far in 2023 after granting four charters each of the last two years. The NCUA approved just one federal charter in 2020.

In response, the NCUA rolled out new chartering guidelines last summer. Those changes included streamlining the chartering manual and publishing an updated guide that was supposed to be simpler for credit union founders to follow.

The board said Thursday that — other than securing capital — the biggest challenges for groups that want to obtain a credit union charter is demonstrating economic viability and having a management team that can build a business plan with reasonable assumptions, including member support.

NCUA board member Rodney Hood said credit unions give a hand up to people of modest means, creating opportunities to build wealth for working families and marginalized communities, and having new blood in the system is crucial.

"We aren't saying chartering a credit union should be easy, but it shouldn't feel impossible for many organizing groups," he said. 

In addition to the provisional charter and changing the chartering guidelines, the agency is working to modernize the de novo process to make it more transparent, easier to follow and more efficient. 

The NCUA has set a goal of having the entire process from its receipt of a complete charter application to charter issuance take no more than 180 days. That time period has already decreased from 564 days in 2018 to 185 days in 2022, the NCUA said.

Harper said a core mission of the NCUA is chartering new credit unions because they are vital to maintain a dynamic financial system.

"The NCUA is making meaningful improvements to its chartering process to bring new and more federal credit unions into the system. In doing so, we are providing more consumers with greater access to safe, fair and affordable services under the cooperative model," he said.

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