Consider A Community Charter, Then A State Charter

If Blue Lakes really wants growth, it should let go of the idea of growing by SEGs.

Wayne Vann, CEO, Navy Army Community Credit Union responds to the 1Q 2012 CUSP Theoretical Case Study: Exploring A Different Charter.

KAREN, HERE IS SOME ADVICE BASED ON OUR OWN experience at Navy Army. We converted to a community charter in 2003. We converted to a state charter last year.

I believe trying to grow by SEGs is a slow haul. If Blue Lakes really wants growth, then it should let go of the idea of growing by SEGs and convert to a community charter. Later it could consider converting to a state charter as we did (more on that later).

A community charter gives you a far greater population from which to attract members. The recent history of credit unions shows quicker growth has come this way. So for growth, go to community charter, and if you want to leave the federal charter for a Minnesota one, so be it.

You will hear from people who are apprehensive that establishing a community charter will bring in so many new members that the existing members will be upset. But this won’t happen if you work your front door well, that is, continue to serve your membership with outstanding service. In fact, if you convert to a community charter, you might be opening new branches, which can be more convenient for your traditional member base.

One of the first things you should do is consider what you want to be, what you should go after, and who your traditional members have been. Figure out what is going to be dominant in your new community charter configuration: auto loans, mortgages, credit cards, etc. Do your research on who has been traditionally linked to you because, at least for a while, they are going to be the core of your membership. Determine if your core membership will support you in what you are going after, that is, the auto loans, mortgages, etc. There should be a good match between what your traditional membership wants and where you want to go.

There should be a good match between what your traditional membership wants and where you want to go.

Be aware of obstacles, and this better to be able to overcome them. You might lose your corporate SEG- related branches because they may not allow community access. You might have to make up for a lack of branches with greater emphasis on technology. Would you be ready for that? You are going to have to be out in the community more, shaking hands and making yourself more visible. Your marketing budget is going to increase. Marketing is difficult, but there are packaged campaigns that can help. You have to tell your story, but every credit union has a good story to tell. Because anyone can join a community charter from a particular area, you can herald your credit union as a low-cost alternative to traditional banks, thereby attracting disgruntled bank customers. Navy Army grows 10-20% in membership a year, mostly from former banking customers (indirect lending is another source).


Converting to a community charter can be a painful experience. But in the long run, I believe the benefits outweigh the problems.

Converting to a state charter might be helpful to you, but this too will take some study. For Navy Army, we have found the conversion to a state charter has been helpful.

We converted last year after we began to feel we could not prosper in the way we wanted under a federal charter. But it took us three years to get there. That was not because the charter conversion took this long; it was more studying the problem and deciding the best course for us.

We were not sure if we wanted to convert to a state charter and if we did convert how we would proceed. We commissioned two studies, one for expansion and one for the resulting facility requirements. These revealed the area we wanted to serve matched our current demographics and gave us confidence our business model would perform well. We had a good relationship with NCUA and had no reason to change charters, but through discussions with the regulator we realized there was no real avenue for expansion. You will have to go through the same research and discussions and come to your own conclusions.

Don’t try to do this all by yourself, or even to do the applications internally. Hire someone who knows the ropes. The expense is worth it. A consultant will keep you on schedule and within the law. It’s likely you should get off the dime. Now is a good time to take action and make significant if not drastic changes in your credit union. Too many credit unions amble down the road with their existing franchise, and their members age out. With no access to new, younger blood, you die. But now is a great time to make bold moves. People are really upset with banks and are leaving in droves.

There is nothing particularly difficult in dealing with a state regulator. We found the Texas regulations just about the same as those from NCUA. The state did grant us the expansion we had hoped for, and we have already realized the benefits of additional opportunity. One drawback is now we have to pay state sales tax on the products we buy. This might happen to you in Minnesota as well.

Note that if you convert to a state charter, you have six months to remove the word federal from your name and all media; this can be somewhat costly.

The conversion process takes about six months. It requires notices to members, a member vote approving the change, and a special meeting with the members. You must also get the federal and state regulators to agree to the new charter. Making the move depends on your own circumstances, Minnesota regulations, Minnesota law, and your own relationship with federal and state regulators. It worked for Navy Army. Good luck.

May 28, 2014

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