Matz: Small CUs Necessary to the Industry, Disappearance is a `Disturbing Trend'

ALEXANDRIA, Va.-Small credit unions are going the way of the do-do bird and Tyrannosaurus Rex, NCUA Board Member Debbie Matz fears. Data recently released from NCUA demonstrates the increasingly speedy disappearance of small credit unions and the need for NCUA’s new Office of Small Credit Union Initiatives, she said. In the first 11 months of 2004, 260 credit unions under $10 million in assets closed due to merger or liquidation, NCUA reported. This is up from the 242 lost in the first 11 months of last year. “For the past year, we have been sounding the alarm about this disturbing trend – yet the losses of small credit unions are actually accelerating,” Matz emphasized. “If this dangerous pace continues,” she added, “by the year 2020, small credit unions will be a thing of the past. This would be an absolutely devastating loss for the entire credit union community.” “Small credit unions are in neighborhoods where there’s no interest by any other financial institutions,” Matz explained. The absence of small credit union could push people in these communities to high-cost fringe alternatives like payday lenders and check cashers. For example, NCUA is currently working with $6.8 million Hospitality Community Credit Union to keep its members in the affordable financial services loop. Matz said the credit union, located in Northeast Washington, D.C., is the only affordable financial service provider in the community. The credit union is in a troubled position, but Matz declined to go into any specifics on its problems. This is exactly a scenario where the agency’s new Office of Small Credit Union Initiatives-expected to be up and running by March-could help out, Matz pointed out. “Small credit unions are very important to people in those neighborhoods and I think, we should be doing everything that we can to make sure the members have access to their credit unions,” she said. But even when small credit unions doors are not shuttered forever and they are merged with other institutions “frequently” the acquiring credit union closes that branch, Matz said. However, “When the credit union keeps that branch and improves that branch, that’s not a bad thing at all,” she added. For instance, GTE Federal Credit Union in Florida recently took in NOME Federal Credit Union in Louisiana, but kept the credit union’s office up and running under the NOME brand and expanded services. Additionally, Truliant Federal Credit Union recently merged with Victory Masonics Federal Credit Union and expanded services but left the branch and its name. While these credit unions are serving the members of the merged institutions better, “more often than not, that is not the case,” Matz said. And, positive as these deals are, those may not even need to be made if NCUA’s Office of Small Credit Union Initiatives is there to head off problems and guide small credit unions to useful resources. Why does the number of small credit unions continue to decline? “There’s no one answer,” she observed. Sometimes the manager retires with no succession plan, or sponsors go out of business, or there is mismanagement or fraud. This is why it is fundamental that all agency examiners dealing with small credit unions are trained in small credit union problems, prevention of problems, and recommending resources to help them stay afloat, Matz advocated. It’s too easy and too simplistic an answer to say they’re too small,” she said of the viability of credit unions under $10 million. She pointed out that Shiloh of Alexandria Federal Credit Union is around $1 million in assets and yet it began an affordable mortgage program earlier this year through a partnership with Fannie Mae and it offers check cashing services. One other reason small credit unions may be going by the wayside is lack of strong leadership. Matz acknowledged that the new Office of Small Credit Union Initiatives cannot make someone into a good leader, but “We can help those that are.” Though the disappearance of small credit unions is not a safety and soundness issue in the short-term, it could lead to “reputational risk.” According to Matz, some members of Congress see these small credit unions as the reason credit unions remain tax-exempt. “If losing small credit unions led to credit unions being taxed, I think it is a safety and soundness issue,” she stated. Taxation of credit union would deplete their net worth and put many in trouble with Prompt Corrective Action. The number of credit unions chartered each year is probably under 10, Matz estimated. Still about half of all credit unions are under $10 million in assets but represent a very small percentage of credit union assets, she noted. Matz said she does not believe the new office dedicated to small credit union issues can completely stop the disappearance of small credit unions. Some cannot be helped, she admitted. But, she believes NCUA is at least looking to slow the trend down. [email protected]