Should you consider a network credit union?
Should you consider a network credit union? For those of you looking for a middle ground between a merger into a larger credit union or trying to stay alive in an increasingly competitive environment, I have some good news for you this morning, or at least news that should spark your curiosity.
On February 17th NCUA officially released a legal opinion letter authorizing the creation of a network credit union. This is the most important statement NCUA has made so far about letting multiple credit unions join together in a unified structure while maintaining their individual identities. Under the approach analyzed by NCUA, credit unions in Indiana are planning on becoming a single credit union with a unified board of directors. But the credit unions want to keep their individual identity as well as continue to have the ability to impact the direction of the credit union.
First, NCUA opined that the merged credit union could continue to operate and serve members under their old credit union name so long as members understand they are dealing with one credit union rather than multiple ones. The merged credit unions could refer to themselves under their own name “a division” of the new network credit union.
The second issue when creating a network credit union is how to create the merged entity while continuing to let the old credit unions have a role in the direction of the merged operation. NCUA opined that the unified board could be empowered to appoint committees comprised of officials from the merged credit unions to serve in an advisory capacity. Finally, NCUA opined that the continuing credit union could reserve one seat on its nominating committee for a member of the merged credit union.
While the letter is a welcomed thumbs up, it also underscores that there are many legal issues that need to be hashed out as this new model evolves. For what it’s worth, I would point out the need to pay very close attention to what NCUA has authorized. For instance, while NCUA has long authorized credit unions to use nominating committees, it has also repeatedly stressed to credit unions that being nominated can never be the sole means of getting elected to a credit union board. Furthermore, while boards of directors are free to create committees, the ultimate authority to make decisions must remain with the unified board.
I don’t know if a network merger is ultimately the best way to go for most credit unions. For instance, many back office efficiencies can be accomplished by smaller credit unions simply creating a unified CUSO. That being said, supporters of this approach argue that it creates a more permanent structure and creates a mechanism for credit unions to work more collaboratively in the merger process. It is certainly an approach worthy of consideration and I hope that NCUA chooses to play an active role, perhaps in the form of additional guidance, to help credit unions interested in considering this unique approach.