In my most recent survey of American Indian credit unions I could find only 14 of them majority-owned by a tribe or an individual Native. Credit unions, which are depository institutions, could be a good place for disinvesting deposits from the big banks that are funding the Dakota Access Pipeline. And one way to go may be for a tribe to start its own.
Unlike commercial banks, credit unions are nonprofits. Their cooperative nature (the members are the owners of the credit union) seems more of a philosophical fit to the structure of Indian tribes. Each of their depositors or shareholders (a credit union deposit is called a share) gets one vote in how the business is run.
Some of the key questions tribes considering chartering federal credit unions (there are also state credit unions, but considering the state of tribal-state relationships, the federal charter may be better) are: how long does it take to start one? Figure an average of one to three years. How much money do you need to start one? Roughly $100,000 for each $1 million in assets projected achieved in the first five years.
Also, like banks, credit union deposits are insured by the federal government, up to $250,000. The insurer is not the Federal Deposit Insurance Corp., however, but the National Credit Union Administration.
How to start a credit union? A good place to start is here.
The first thing to do is to discuss the potential need with the members of the group the credit union will serve. Then call or write NCUA’s Division of Consumer Access (firstname.lastname@example.org.) In many instances NCUA will send a representative to discuss the process with you and assist you with preparing an application.
Next, establish a name for the credit union and a field of membership. The FOM is a big way credit unions vary from banks. You need to have people with a common bond of occupation or association or community. Tribes are well suited to show an FOM. Tribal members on a homeland would be a good FOM. Tribal members and employees might be another one.
One thing that will work for many tribes is to seek a low-income designation if a majority of members are at 80 percent or lower of area median income. This designation allows for additional powers. A low-income credit union can accept non-member deposits to the greater of $3 million or 20 percent of shares. It can receive technical assistance grants and low cost loans up to $300,000. And it can get an exception to grant members business loans in excess of usual limits.
After getting FOM approval from NCUA, you should identify “subscribers,” seven or more people who seek the credit union designation.
A credit union must have at least one physical location, so that must be decided on. The potential credit union also must survey potential membership to determine their financial needs and then analyze results of that survey.
Finding a mentor, someone who has been through the chartering process successfully and can advise you, is also a requirement. A tribe that has chartered a credit union would be a perfect mentor. The Seneca Nation of Indians in New York state, for instance, chartered a credit union in 2015.
There is still a big number of things that must be checked off before NCUA will grant a charter. These include: identify officials, board and staff. Prepare a business plan and mission statement. Identify products and services to be offered in first two years. Identify location and cost of physical office. Obtain surety bond coverage. Create pro-forma financial statement assumptions and projections. Develop a marketing plan. Complete NCUA forms. Establish credit union bylaws. Draft written policies and procedures. Meet NCUA staff. And the final step is, a charter is issued.
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