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Are State Charters on the Decline?

By CUCollaborate Staff - November 08, 2019

The Latest Trends in CU Charters

As the NCUA changes the rules around field of membership, more charter options are available for new and existing credit unions. For years, the dual charter system has featured more federal charters converting to state charters compared to state charters switching to federal charters, but the pendulum has swung both ways throughout credit union history. Field of membership rules are continually being challenged by banks, which has led to groundbreaking decisions modernizing credit union field of membership. With new federal charter types such as a multiple common bond born of HR 1151, states charters lost some momentum. Let's dive into the stats!


State-chartered credit unions have held their own. Based on NCUA call report data dating back to 1994, state-chartered credit unions have remained relatively consistent at 39% of credit unions. This year, a slight increase in the number of state-chartered credit unions has occurred. According to the National Association of State Credit Union Supervisors, mid-year data released by the National Credit Union Administration – along with figures NASCUS obtained on privately insured credit unions – show state charters holding 49% of assets ($753 billion) and 48% of credit union memberships (57.4 million). NASCUS says those figures are the highest they have been in four years although the number of new state charters has been on the decline.

State charters face fierce competition from federal multiple common bonds. There have been approximately 61 new federal charters and 23 new state charters since 2000, based on information found in the NCUA's annual reports. The data portrays a strong preference toward federal charters for de novo credit unions in the last few years. Two trends could be causing a shift toward federal charter preferences. The first is the expanded field of membership rules for federal credit unions, and the second is around a lack of online resources.

Based on CUCollaborate's experience, we see more state-chartered credit unions becoming interested in what a multiple common bond has to offer. This charter type, by far in our opinion, is the best for credit union field of membership expansion. Adding multiple select groups currently allows credit unions to serve a more substantial area around their branches. Multiple common bonds are also the only federal charter type that can expand through underserved areas. This charter type provides a variety of growth options than a state-chartered credit union. The NCUA also approved a rule in 2016 that allows federal credit unions to consider rural districts with populations up to 1 million people, while also counting parts of a combined statistical area of up to 2.5 million people as a well-defined community.

The second reason CUCollaborate sees for the shift in charter preference revolves around resources. If you Google "starting a credit union," a majority, if not all, the search results that pop up are related to starting a federal credit union. State-chartered credit unions are not even mentioned on the first page. For de novo credit unions, the first information that appears to them is from or about the NCUA. This education gap could explain the rise of new federal credit unions in the last 20 years. The digital edge of the NCUA may be influencing the trends around credit union charters. 

State-chartered credit unions could make a comeback and regain more market share from federal conversion transfers, but it will have to be a group effort. The different state governing bodies will have to focus on a collaborative approach to market the benefits of establishing a state-chartered credit union. A digital campaign could be what they need to educate those interested in opening up a credit union. There also needs to be a focus on making sure their charter types stay competitive. As this article mentions, a federal multiple common bond provides a more substantial avenue for growth than a majority of state charters. 

If you are interested in learning about other chartering options or expanding your field of membership, CUCollaborate is happy to walk you through your different options.
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