Credit Union Creation Process

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Credit Union Creation Process

The step by step requirements in starting a credit union is detailed by the National Credit Union Administration (NCUA) in their Federal Credit Union Charter Application Guide. Chartering a credit union is under the NCUA while chartering of traditional banks are under the Office of the Comptroller of the Currency.

STARTING A CREDIT UNION

BEFORE DECIDING TO START
LENGTH OF CHARTERING A CREDIT UNION

PART 1: PRELIMINARY WORK

STEP 1: RESEARCH
  • The NCUA suggests that those who would like to create a credit union should review and be familiar with the Federal Credit Union Charter application guide, facts about Federal Credit Unions, Federal Credit Union handbook, NCUA’s Rules and Regulations, Appendix B of Part 701 of NCUA’s Rules and Regulations, also known as the Chartering and Field of Membership Manual, and the Express Chartering Procedures.
STEP 2: SELECTION OF CREDIT UNION NAME
  • A credit union name and an alternative name should be provided to NCUA. The credit union names should not be used by another federal credit union, not be confused with NCUA or other federal or state agency, and should not include misleading or inappropriate language.
  • NCUA provides a search portal to check for all credit union registered names in use.
  • A letter addressed to NCUA, including the name of the proposed federal credit union is required.
STEP 3: ESTABLISHMENT OF FIELD OF MEMBERSHIP
Requirements of a Credit Union Field of Membership:
  • The National Credit Union Administration's (NCUA) chartering and field of membership policies serve as a guide to the creation of credit unions and its memberships using the Federal Credit Union Act as the basis.
  • According to the NCUA's Chartering and Field of Membership manual, a charter may be granted by NCUA to single occupational/associational groups, multiple groups, or communities if the occupational, associational, or multiple groups possess an appropriate common bond or the community represents a well-defined local community, neighborhood, or rural district.
  • Definitions of a well-defined local community and rural districts are provided in the rules and regulations for the Chartering and Field of Membership for Federal Credit Unions.
  • Evidence that applicants can provide to show common bond/interest are, defined political jurisdictions, major trade areas, shared common facilities, organizations within the community area, and newspapers or other periodicals about the area.
DOCUMENTS NEEDED
  • Documents needed depends on the type of charter being applied for and are detailed in the Federal Credit Union Charter Application Guide.
  • Common documents included are letter identifying the field of membership, copy of association bylaws, and maps.

PART 2: SUPPORT AND LOCATION

STEP 4: IDENTIFYING SUBSCRIBERS
STEP 5: SECURE FUNDING
  • Funding is required to start a credit union. Documents required include a letter describing the source of funds and the actions taken to obtain the funds, a written commitment letter from the funding source, and bank statements or financial statements of donors.
STEP 6: IDENTIFY A PHYSICAL LOCATION
STEP 7: SURVEY OF THE POTENTIAL MEMBERS
  • NCUA requires that applicants of a survey of potential members and documents needed are tally of the membership survey results, written analysis of the survey, blank copy of the survey form, written explanation of the sampling methodology of the survey, and its method of distribution.

PART 3: PACKAGE ASSEMBLY

STEP 8: FIND A MENTOR AND OTHER RESOURCES
  • NCUA strongly recommends mentor relationships, and they require written acknowledgment letters of the mentor relationship established from the applying credit union.
STEP 9: IDENTIFY OFFICIALS AND MANAGEMENT
STEP 10: CREATE A BUSINESS PLAN
  • NCUA requires applicants to submit a business plan with the following sections required by NCUA; mission statement, market analysis, evidence of member support, products and services, goals for shares, loans, and number of members, management and staffing, operating facility, recordkeeping and processing system, surety bond coverage, source of funds and other support, plans for operating independently, and continuity plan for director, committee members, and management and staff.
STEP 11: CREATE PRO-FORMA FINANCIAL STATEMENT PROJECTIONS AND ASSUMPTIONS
STEP 12: DEVELOP A MARKET PLAN
STEP 13: COMPLETE REQUIRED NCUA FORMS
STEP 14: ESTABLISH CREDIT UNION BYLAWS
  • NCUA provides a standard Federal Credit Union Bylaws for proposed federal credit unions, and it should be filled up and submitted to NCUA.
STEP 15: DRAFT WRITTEN POLICIES AND PROCEDURES
  • NCUA requires applicants to submit all written policies and procedures which may include, fair lending policy and loan policy, collection policy, loan charge-off policy, allowance for loan and lease losses (ALLL) policy, investment policy, cash policy, bank secrecy act (BSA)/customer identification program (CIP), office of foreign assets control (OFAC) policy, truth-in-savings (TIS), director fiduciary duties, reimbursement policy, asset-liability management (ALM) policy, liquidity policy, vendor management/third party relationships, e-commerce policy, security program, disaster recovery and business continuity/resumption policy, privacy policy, identity theft red flags, credit report address discrepancies, and records, procedures for major operational areas, and policies for advanced services.

PART 4: NCUA ACTION

DIFFERENCE FROM A TRADITIONAL BANK

Sources
Sources

Quotes
  • "Credit unions are cooperatives and they require a field of membership which is the legal definition of the persons, organizations and other entities the credit union will serve. "
Quotes
  • "NCUA may grant a charter to single occupational/associational groups, multiple groups, or communities if: • The occupational, associational, or multiple groups possess an appropriate common bond or the community represents a well-defined local community, neighborhood, or rural district;"
Quotes
  • "In that context, a geographically certain area would be considered a WDLC when the following four requirements are met: (1) The area is a recognized core based statistical area (CBSA), or in the case of a CBSA with Metropolitan Divisions, the area is a single Metropolitan Division; (2) the area contains a dominant city, county or equivalent with a majority of all jobs in the CBSA or in the metropolitan division; (3) the dominant city, county or equivalent contains at least 1⁄3 of the CBSA’s or Metropolitan Division’s total population; and (4) the area has a population of 2.5 million or less people."
  • "The current chartering manual provides examples of the types of information an applicant can provide that would normally evidence interaction and/or shared common interests. These include but are not limited to: (1) Defined political jurisdictions; (2) major trade areas; (3) shared common facilities; (4) organizations within the community area; and (5) newspapers or other periodicals about the area. "
  • "Specifically, NCUA defines rural district in the final rule as: • A district that has well-defined, contiguous geographic boundaries; • More than 50% of the district’s population resides in census blocks or other geographic areas that are designated as rural by the United States Census Bureau; and • The total population of the district does not exceed 200,000 people; or • A district that has well-defined, contiguous geographic boundaries; • The district does not have a population density in excess of 100 people per square mile; and • The total population of the district does not exceed 200,000 people. "