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
- Discuss the needs of prospected members who are most likely members of an association, people in the community, or group of workers.
- Make sure that the group has the necessary expertise and resources.
- National Credit Union Administration (NCUA) suggests minimum funding of $300,000 or $100,000 per $1 million in projected assets during the first five years of credit union's operation.
- Make sure that the group meets the requirements of a credit union field of membership.
LENGTH OF CHARTERING A CREDIT UNION
- The time required to charter a credit union varies depending on the subscribers’ knowledge, expertise, planned services, and timeliness in submitting the required data, but on an average, it takes one to three years.
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 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
- This part may be started after receiving the approval of the preliminary field of membership.
STEP 4: IDENTIFYING SUBSCRIBERS
- During the charting process, a primary point of contact should be identified, and this primary contact may be a subscriber or a professional organizer hired by the subscriber.
- Based on the Federal Credit Union Act (12 U.S.C. §1754), subscribers should undergo an "appropriate investigation." So, a Report of Official and Agreement to Serve (NCUA 4012) form in the appendix of the Chartering Manual is the document completed by the officials and employees to initiate this process.
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
- A letter informing the NCUA of the anticipated physical address of the main office and branches is required.
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
- Credit union applicants should identify an odd number of board of directors between five and fifteen, three to five members of the supervisory committee and an odd number between three and seven credit committee members.
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
- NCUA requires credit union applicants to submit a semi-annual and annual pro forma balance sheet and income statement projections.
STEP 12: DEVELOP A MARKET PLAN
- NCUA requires the submission of a formal written marketing plan, including costs associated with each marketing initiative.
STEP 13: COMPLETE REQUIRED NCUA FORMS
- NCUA requires applicants to submit NCUA forms 4001, 4008, 9500, and 9501
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
PART 4: NCUA ACTION
- NCUA staff will meet with the subscriber after satisfactory completing the charter application for finalizing a Letter of Understanding and Agreement.
- After the successful completion of NCUA’s onsite review and execution of the Letter of Understanding and Agreement, NCUA will issue a Charter and Certificate of Insurance to establish the new federal credit union.
DIFFERENCE FROM A TRADITIONAL BANK
- A bank should be a Federal Deposit Insurance Corporation member before the operation and must be given a charter by the Office of the Comptroller of the Currency.
- Credit union chartering is supervised by the NCUA while banks are under the supervision of Office of the Comptroller of the Currency.
- Charter filings for banks can be a standard review or expedited review.
- For banks, charter applications are in two steps: preliminary conditional approval and final approval.