Jordan Modell is president/CEO of Internet Archive Federal Credit Union ($2.8M, New Brunswick, NJ). A former big banker, Modell worked with Internet pioneer, entrepreneur and philanthropist Brewster Kahle — founder of the Internet Archive — to open IAFCU in 2012 as a Low-Income Credit Union focused on serving underserved, heavily Hispanic communities in New Brunswick and Highland Park, NJ.
Modell says his small credit union has gone through 5,776 application changes and at least six re-submissions during the NCUA chartering process, and was preparing for its ninth examiner visit in two years when he wrote this opinion piece. In it, he calls for change and offers to work with the regulator and other credit unions to bring it about.
As we at Internet Archive Federal Credit Union await our ninth NCUA examiner visit in our short two years of operation, I thought this might be a good time to share with other credit unions what we’ve gone through. And make some suggestions for change.
We’re a $2.8 million credit union with about 500 members, $40,000 out in loans, and $1 million in secondary capital. Not much threat to the NCUSIF, I don’t think.
We spent two years working on a charter application, one that has gone through 5,776 changes — yes, that’s correct — and at least six re-submissions. We had to pick our board two years before they could even think of serving and commit our capital a year out.
It seemed the call would never come but then it did: The NCUA was sending our charter. Along with one small catch, a Letter of Understanding and Agreement.
We’ve been approved as a low-income credit union, but the LUA informed us that we would not be able to immediately offer our prospective members — including underserved residents of our field of membership in New Jersey — essential products like online banking and debit cards.
What can we do?
We can make loans up to $5,000. Unsecured loans. The riskiest there are.
We also can do share-secured loans, but those in our FOM who have the means to secure their loans like that don’t need them. Those who need that loan, to boost their credit rating or some other immediate need, might take out a $200 share-secured loan that costs us $20 to process and reaps us all of $4 in interest.
Come to think of it, we have to pay $2,000 every year just to get the loan forms to write up the $4 interest loan. And it’s that low because CUNA Mutual — who is seriously great to small credit unions unlike others out there — will actually work with you to keep costs down.
So what about the NCUA examiners?
An examiner who makes 50% more than the average CEO at a small credit union, and that is no exaggeration, might tell you your expenses are too high and you should cut your salary.
Then they will examine you, or they have us, like you’re a $100 million to $500 million credit union. We spent 35% to 50% of our total budget last year on compliance. I have the figures.
Or they might give you permission to provide banking to bitcoin firms and then write you up for doing so. How about some consistency?
What about the NCUA’s director of examinations and insurance testifying to Congress that his agency is “easing regulatory burden on small credit unions.” I’ve met Larry Fazio and found him to be honorable and straightforward, but he’s apparently not being told about what’s going on in the trenches. Do you really want to write us up for “too many loops” in a loan signature? Is that easing the regulatory burden? We could so easily partner; why do some examiners have to be adversaries?
We have $1 million in secondary capital against $40,000 in loans, yet examiners have visited us 11 times in the past 15 months. I know of one $500,000 credit union — yes, a credit union with a half-million in assets — that’s had a CAMEL 2 rating for the past 10 years and just had three examiners in its one-room office for a week.
But what about the Office of Small Credit Union Initiatives, you ask?
I’d have to say the OSCUI has come a long way in the past two years, but still, recommending we charge 30% interest on a payday loan to people barely eking out a living is not helpful.
Enough whining from me. Here instead are three steps the NCUA could take to help remedy this situation.
Put examiner resources where they are most needed and judge new credit unions on the risk they really pose to the share insurance fund. That’s usually quite low.
Don’t impose LUAs that force credit unions to take on risky loans or risky ways to increase fees. Instead, match the LUA to the real risk and pair small credit unions with larger mentors. For example, Affinity Federal Credit Union ($2.2 billion, Basking Ridge, NJ) was willing to do participation loans with us. Why stop them?
Work with us. Commit grant money where it’s needed, including to pay for folks who can help us with our real marketing needs.
Put business people with credit union experience in charge of the NCUA staff that grants new applications. We spoke to no one who had business planning experience or who could provide a road map for breaking even.
Implementing these changes would help de novo credit unions avoid crippling regulatory and compliance barriers. They also would mean less work for NCUA examiners — who already work hard enough — and more of a chance for these credit unions to succeed.
I’ll help, too. I am happy to talk to credit unions and regulators alike about ways we can work together to improve the process for everyone, especially our members and members-to-be. You can reach me at email@example.com or 646.675.6002.
— As told to Marc Rapport.