Start-up credit union finding paperwork headaches; push to offer more products has been met with regulatory barriers

<p>HARRISBURG, Pa – Carl Payne wants to make sure that he doesn’t make either his regulator, the Pennsylvania Department of Banking, nor his insurer, NCUA, angry but he also strongly believes regulatory caution has left his credit union, The Greater Harrisburg Community Credit Union, with much slower growth than he thinks it could have. “We understand the regulators’ concerns entirely,” Payne said. “They don’t want the NCUSIF invaded by any losses from an upstart credit union. But from our point of view the safeguards are already in place to make it very unlikely that this would happen.” Greater Harrisburg, a $1.7 million credit union with, so far, 570 members is about half as big as Payne thought it would be when it opened in late April, 2001. As a Pennsylvania chartered institution, Greater Harrisburg had to submit a business plan to the state regulator indicating both what it was the credit union hoped to do and how it proposed to do it. The charter was granted on that basis of those plans, the safeguards of which, Payne believes, Greater Harrisburg has honored. But it is precisely because the credit union wants to add products which were not part of the original plan that the state is cautious about it, said Michael Wishnow, spokesman for the Pennsylvania Department of Banking. “Any time a new credit union, or any new financial institution, seeks to add products or services that were not covered in the original charter we are going to make sure they have the policies and procedures in place to handle those new products and services,” Wishnow said. Greater Harrisburg’s desire to offer members share draft accounts and auto loans are what is causing the real friction, Payne said. From the credit union’s point of view offering these products are essential since a pre-chartering survey of 1,500 potential members revealed that 85% of possible members want share draft accounts. “Without being able to offer checking we aren’t being seriously considered as a financial option by too many people,” Payne said. Payne emphasized that he understood the state regulator’s concerns since another start up Aliquippa Regional Credit Union, also a Pennsylvania Charter, was forced to merge with New Alliance Federal Credit Union in order to avoid serious financial difficulty because of defaulted loans. But Payne pointed out that the state “learned” from its experience with Aliquippa and tried to avoid anything similar by insisting, as a condition of Greater Harrisburg’s charter, that it rely heavily on its two mentoring credit unions, the $1.7 billion Pennsylvania State Employees Credit Union and the $183 million Belco Community Credit Union for policies, procedures and technical help. Payne said that Greater Harrisburg’s reliance on these two more experienced institutions has blessed the credit union with greater stability from the state regulator’s point of view but may have made it more difficult for the credit union to prove its skill level to the NCUA. Currently, as part of its charter, Greater Harrisburg can offer unsecured loans of between $50 and $7,000, but only with Belco’s ultimate approval. The staff at Greater Harrisburg goes through the same underwriting procedures that Belco’s staff uses, Payne explained, but then Belco actually has to sign off on the loan before it can be made. The credit union has similarly adopted procedures used by PSECU and will enter into agreements with each of them to help with the credit union’s issuing of debit cards in the future. “We aren’t trying to do all these things on our own right away,” Payne said. There appears to be some discrepancy about to whom it is, exactly, that Greater Harrisburg has to prove the worthiness of their policies and procedures. When pressed on the matter Wishnow maintained that the Department of Banking “worked very closely with NCUA” and that both agencies, together, had to sign off on a credit union being able to offer new products, the Department of Banking as the regulator and the NCUA as the insurer. “Both signatures need to be on the bottom of paperwork going forward,” Wishnow maintained. Payne felt that Greater Harrisburg’s problems had been with NCUA and that federal uncertainty had been the hold-up. He said that the Greater Harrisburg’s Board of Directors has requested a meeting with NCUA’s Region II Director but that no meeting date had yet been set. Payne said he feels acutely frustrated by the situation because, with $1.7 million in assets now and another $500,000 imminent, Greater Harrisburg has the money to lend. “Everyone, both the state and the NCUA, wants us to be self-sufficient as soon as possible,” Payne said. “But in order to get to be self-sufficient we have to be able to do some business.” Payne said the additional $500,000 has been pledged from a number of sources, about 1/3 from banks, which for one reason or another have had to change their schedules in delivering the money. In the case of the banks’ money, the delays have been caused by mergers, which have not prevented the banks from fulfilling their commitments but have slowed up the process somewhat. Stressing that he could not speak to Greater Harrisburg’s exact circumstances, Clifford Rosenthal, Executive Director of the National Federation of Community Development Credit Unions, said, in general, that “if a state has not done a lot of chartering start-up credit unions, the path to getting a community credit union chartered can be rockier.” He also observed that mentoring relationships between older credit unions and start-ups have been touted as a means of easing some start-up problems. “I find it really ironic if such a relationship winds up contributing to regulatory uncertainty for a start-up,” he said.</p>