Creating New Credit Unions From Scratch

Have you ever imagined what it would be like to open a brand new credit union?

Leaders of de novo credit unions in Colorado and Nebraska first imagined it, then lived it, then kindly agreed to share what they learned from their successes, challenges and expectations for future growth.

“I think it exceeded our expectations in that we’ve really only been launched since June,” Blake Jones, co-founder and board chair for the $1.7 million Clean Energy Federal Credit Union, said. The Centennial, Colo.-based credit union’s target is to meet the rising demands of consumers looking to finance clean energy products such as electric and hybrid vehicles, residential rooftop solar power panels and home weatherization projects.

About 500 miles east of Centennial in Lincoln, Neb., Mark Koller, president/CEO of the $341,709 Community HOPE Federal Credit Union, described his first year as a mixed bag.

“We’ve had some successes,” he reflected. “But it’s been a little slower than I would like it to be.”

Community HOPE’s target market is consumers of modest means, including those who want to get out from under the crushing scourge of predatory payday lenders; the credit union aims to provide affordable financial products and services.

Though Clean Energy got off to a slower-than-expected start, it has gained a lot of momentum over the last few months. Its field of membership includes more than 4,000 members of the American Solar Energy Society, a non-profit organization of renewable energy professionals, advocates and enthusiasts. ASES was founded in 1954 when Bell Labs discovered the photovoltaic effect of silicon, the highly efficient material that launched the solar power industry.

“We did a soft launch in January/February when we had a lot of early supporters who joined and helped us test out a few things, but we did a public launch and started accepting loan applications in June, so the numbers you are seeing are really only five months’ worth of loan activity,” Jones said.

From June to early October 2018, Clean Energy has signed up 451 members and $3 million in deposits. The credit union has received 379 loan applications worth $5.8 million and funded 96 loans worth $2 million. Most of the loans funded electric vehicles and rooftop solar installations, while a smaller number of loans funded the purchase of electric bikes and home weatherization projects.

“Our loan application volume continues to pick up, which is fantastic,” Jones said. “We just need to get our entire infrastructure in place to support that.”

Some technical and program management issues caused infrastructure and operational delays.

“We’re juggling a dozen different vendors and some of them were late with their deliverables, and that means you can’t get working on the next step of the process,” he explained. “There are so many things that definitely didn’t go the way that we thought. There’s no doubt that some of our software we’re testing for the online loan application portal right now is taking longer to debug than we would like. When we tested it, we found a lot of things that needed to be fixed and they’re just not fixing them as quick as we would like, so now the launch is Nov. 1.”

Since June, the credit union has been taking online loan requests from members and contacting them within 24 to 48 hours.

“We’re doing more loan applications, so we made the decision to make sure we’re providing excellent response times to all of those member requests and all of those loan applications even if it delays our ability or diverts resources [temporarily] away from our next infrastructure build out,” Jones said. “The good news is that we’re getting loan applications and we’re making more loans. The bad news is that it is going to delay some of those new products and services from being introduced.”

Despite these constraints and delays, Clean Energy managed to launch its first mobile banking app last month. Additionally, the credit union is planning to also offer IRAs and checking accounts in the near future, while mortgages, credit cards, home equity loans and commercial lending are also on the list to offer over the long run.

“We’ve got this long to-do list and we know it’s a step-by-step process,” he noted. “It should be interesting to see how the board prioritizes on what comes next.”

What comes next for Community HOPE will be a new marketing strategy.

“Marketing was, without a doubt, the biggest challenge,” Koller said, who previously worked as a commercial banker and bank examiner.

Community HOPE’s field of membership includes about 65,000 residents of low to moderate income who live, work, worship or attend school in the downtown Lincoln area. Membership is also open to people who participate in associations or programs to alleviate poverty in downtown Lincoln.

The Human Services Federation in Lincoln, which includes about 125 social services agencies, reported there was a huge need to reduce the effects of payday lenders on poor residents and the community as a whole. In Lincoln, there are just as many payday lenders, about 20, as there are Starbucks stores (six) and McDonald’s restaurants (14).

Koller said he met with many social services agencies and other civic organizations to help spread the word about the city’s new credit union. Through the social service agencies, Community HOPE receives referrals for potential members who are looking to open a bank account to help rebuild their credit.

“It’s one of those deals where people would come up to me and say, ‘Mark, what a great idea. We like it. What can we do to help?’” he said. “We would pick up about two to three members that way. But our primary [member] market, which is in the core of the city, has been pretty hard to reach.”

Nonetheless, the credit union’s word-of-mouth marketing efforts have attracted 180 members in the first year. According to its June 30 NCUA Call Report, Community HOPE manages $211,425 in deposits and has approved 19 unsecured loans, 11 used vehicle loans and five other secured non-real estate loans.

Although the credit union also offers payday alternative loans, Koller noted they are not popular with members, pointing out that no PALs have been underwritten thus far.

“When people find out they can get a [personal] consolidation loan for 18% or a payday loan for 28%, they are going to say, well, I’ll take the consolidation loan,” he noted. “The other thing is since we are under a letter of understanding agreement because we’re a new credit union, we are limited to $500 for PALs. If you know anything about the payday loans, they’re for more than $500 usually.”

Koller hopes to get some answers on how to improve marketing to its potential membership pool with assistance from a senior class of 30 students from the University of Nebraska. They broke up into three teams of 10 students, and each team is working on a strategic marketing plan for the credit union.

“This is one of those classes that goes out into the community to find businesses that need some marketing help, if you will,” Koller said. “They like our mission and they are very excited about what we’re doing, so they grabbed us as a client.”

Koller is looking forward to the student presentations in December, which will include results of a survey of members and nonmembers.

In addition to continuing to work with social services agencies and other organizations for member referrals, Koller plans to incorporate the marketing plans from the University of Nebraska students to reach new members.

“There are a whole lot of people out there who are not being served, and those people are somewhere between payday loans and a bank account,” he said. “There are about 65,000 who are in the donut hole, as I like to call it. That’s a lot of people. That’s the potential we’ve got.”