TWH – Last year, The Wild Hunt reported on plans for the creations of a federal credit union specifically for the Pagan community. Since then, the team has been able to meet key milestones, but new rules have now created a significant challenge.
Nevertheless, one major hurdle has already been overcome. One of these milestones is the extension of community support so the team can provide evidence of potential members to the National Credit Union Administration (NCUA).
The “good news is that we have all the community support we need in terms of interests,” said Lawrence Lerner, one of the steering team members of the project that is now called the Pagan Federal Credit Union, the last three words being mandated as part of the organizational title by the NCUA.
Jason Fletcher noted that “We have 118,000 potential members. The Correllian Nativist Tradition has reconsidered their support and that pushes us well over the top!” That top also being mandated by NCUA as a potential membership of 100,000 individuals.
The team has also added more steering committee members who will be forming an operating committee for the new credit union until, once it forms, it can elect its own board.
Fletcher noted, “We’ve passed most of the hurdles in the new process. We’ve written a high-level business plan and created the Field of Membership documentation. Once we pass their new screening we will apply for the name, we will create a 501(C)(14) and open a bank account to fund with donations for operational expenses.” A 501(c)(14) is an Internal Revenue Service (IRS) tax exemption status that applies to credit unions. The tax-exempted organization under this paragraph must share a “unifying bond” (such as “Pagans”) and operate as a non-profit financial organization.
But a new and somewhat larger challenge has emerged.
The NCUA board met in May 2019 and began rolling out new rules and tools to assist with the process of chartering new credit unions. The new “Chartering Proof on Concept tool” is, according to the NCUA, designed to help organizers better understand how to form credit unions. In addition, the “tool” will help organizers better evaluate if they meet the requirements of the four critical elements of the application: 1)purpose and core values, 2) the field of membership, 3) capital, and 4) subscribers.
With the new tool, The NCUA’s Office of Credit Union Resources and Expansion (called CURE) will evaluate an application and score it to determine how organizers have met the requirements of each of the critical elements. Applications must score 80 points out of 100 to proceed and submit a formal charter application.
The new rules and guidance require that new credit unions demonstrate working capital.
The NCUA guidance now states “The greatest challenge for organizing groups is identifying start up [sic] capital. A newly established credit union is similar to a newly formed business, as it usually takes several years to report a profit. From past experience, newly chartered credit unions require approximately $1 million in start up [sic] capital or more depending on the complexity of the financial services offered.”
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The funds are to cover the operating costs of the fledgling credit union, and presumably, to ensure its success. But it also represents a significant threshold for practically any community-centered, non-profit institution, even if it is in financial services.
The startup funds do not have to be immediately available. They can be letters of commitment, but they do need to be promised capital.
The NCUA application requests not only a list of funding sources and evidence in the form of promised support as well as the amount of capital pledged but also the years of sponsor support and projections for how the credit union will operate profitably and independently of donor gifts.
Furthermore, the capital is in the form of a donation. The NCUA states: “The funds are not a deposit, investment or loan, meaning the funds will never be repaid to the organization or individuals pledging the money. If an organizing group is unable to identify the required start up [sic] capital, the charter cannot be approved.”
The evidence is part of the “proof of concept,” that is that the credit union can become financially viable. But the NCUA is clear: “If an organizing group is unable to identify the required start up [sic] capital, the charter cannot be approved.”
The challenge is also complicated by other factors effectively closing off some avenues of alternative funding. Crowdfunding becomes impractical because that would require cash donations, and letters of commitment for small amounts also become a potential hazard because the NCUA implies that they want to see donors gifting large amounts.
The steering team recognizes the scope of this challenge and remains hopeful. They are looking for grants and donors. At the moment, they are seeking letters of commitment; but eventually, that working capital must be on hand at the time the credit union begins operation.
Editorial Note (21 Feb. 2020): Comments close on The Wild Hunt 48 hours after we publish an article. The steering team of the Pagan Federal Credit Union said that a discussion about the project will continue on their Facebook group where they will also be responding to questions.
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