A new NCUA rule went into effect last week that could set New Hampshire’s credit unions up for growth even as COVID-19 continues to rock the local and national economies.
While community banks point to their efforts during the Paycheck Protection Program as helping to expand their customer base, New Hampshire’s credit unions had a limited role in the small business lending program.
Even without much participation in one of the pandemic’s most notable economic responses, the state’s credit unions have provided relief to members, including in mortgage and other loan deferrals, according to the Cooperative Credit Union Association, the trade organization for credit unions in several states, including New Hampshire.
“Credit unions exist for one reason only – to serve their members, and they have really stepped up during the pandemic to do just that,” CCUA president and CEO Ron McLean said. “That means keeping a roof over somebody’s head, that means putting a meal on somebody’s table, that means getting people through a rough patch in life.”
Because credit unions are member-owned, not-for-profit organizations, they have historically been able to offer more affordable products and better rates compared to banks, making them also a resource for underserved communities. With membership declining and the pandemic accelerating the adoption of online banking, credit unions are seeking new opportunities for growth to compete with banks and other digital banking options.
Expanding Memberships
A new NCUA rule that goes went into effect last week could provide one opportunity to help credit unions expand their memberships.
Credit union membership is built around a common bond, such as working for a specific employer or living in the same community. The new rule will allow credit unions to define a local community based on combined statistical areas, or part of that area, with less than 2.5 million people.
The rule is not a response to the pandemic but instead dates to 2016. It was opposed by the banking industry, which has long argued that expanding the field of membership erodes a credit union’s common bond. Unlike banks, credit unions are tax-exempt organizations.
A lawsuit by the American Bankers Association against the NCUA moved through the court system until June of this year, when the U.S. Supreme Court declined to review the case, opening the way for the NCUA to finalize the rule.
McLean said it was too early to know how the expanded definition of a community would affect New Hampshire’s credit unions. He added that having the option to increase the field of membership would help residents.
“Financial choice and access to affordable financial services is really the driving point and the result of this,” McLean said. “It opens up for possibilities to bring more access to more residents of the state and to all Americans.”
For many credit unions in the U.S., finding opportunities for growth is not a priority right now, said Jim Perry, a community bank and credit union consultant with Market Insights. Organizations are instead focused on dealing with the pandemic, Perry said, with those tied to employer groups experiencing the challenges of the recession.
“Folks have really had to scramble,” Perry said. “And despite some of the larger national efforts to position the industry overall for growth, I think when you get into local markets and you start talking to folks that are on the front lines – trying to find new ways to present their case to the consuming public – they realize they’re facing a lot of challenges right now.”
When credit unions do evaluate growth, Perry said, they should look not just at year-over-year performance, but also at how their members’ experiences compare to those from other financial providers, including online competitors.
Closed branch lobbies during the pandemic provided a barrier to bringing on new members, Perry said, but as national and regional banks begin implementing branch closures in some areas, credit unions will have opportunities to step in to serve local markets.
While the branch experience is considered an advantage for credit unions, helping them to know their customers, Perry said credit unions should also look at how online tools can help them migrate the personalized experiences into the digital space.
“Credit unions have a long and proud history of economic justice,” McLean said. “Credit unions serve not some people or certain people, they serve all people, so I think credit unions have been and continue to be a force for economic justice for consumers, and that’s just in their DNA.”
