Home Banking & Finance Connecticut’s credit unions soldier on despite challenges

Connecticut’s credit unions soldier on despite challenges

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Jill Nowacki, president and CEO of the Credit Union League of Connecticut. Photo by Phil Hall.

There is good news and bad news in regard to Connecticut’s credit union market. First, the good news: Jill Nowacki, president and CEO of the Credit Union League of Connecticut, a trade association headquartered in Meriden, said membership in these nonprofit financial institutions is strengthening after a period of unsteadiness.

“We’re growing,” Nowacki said. “We’ve moved over the last five years from a declining membership rate to a growing membership. We are now at around 900,000. Nationwide, one out of three people are members of a credit union. Here in Connecticut, it’s closer to one out of four.”

Connecticut’s credit unions total just over $10 billion in assets, although the median asset size for these institutions is $20 million. While most offer an  array of products and services, Nowacki pointed out that auto loans have been “the go-to product” for these institutions and many have focused on helping with vehicle financing for low-income borrowers.

“In Connecticut, we don’t have the same source of public transportation as you could find in New York City or Boston, yet we have a large population who do not have access to affordable transportation and need to access jobs that are not necessarily on the bus line,” she said. “A big area of focus is used-car loans that are being made at reasonable rates for cars that won’t break down.”

The bad news, however, involves the quantity of credit unions. According to Nowacki, the number of credit unions in the state has declined from 125 in 2013 to 95 today, with consolidation rather than closure soaking up the disappeared entities. She blamed much of the shrinkage on the federal regulatory regimen put into place on all financial institutions with the Dodd-Frank Act of 2010. Although the legislation was designed to address the conditions that led to the Great Recession, Nowacki argued that it created a one-size-fits-all regulatory blanket that covered both the Wall Street behemoths and the community-level credit union, with the latter struggling to keep up with onerous compliance requirements.

“Those requirements are a lot of the reason why we are seeing the merger activity that we’re seeing,” she continued. “The industry started consolidating at a faster rate since 2008 and a lot of that can be attributed to the additional burden that was never intended for credit unions or smaller financial institutions, but were trickled down because there was no way of separating that. A credit union with tight parameters and closed field for membership is not needing to be subject to the same regulations as JPMorgan. It is definitely a burden that has caused credit unions to have difficulty in serving their members as well as they would like to.”

And the notion of starting new credit unions is not an easy strategy. 

Credit unions are limited in their membership based on place of residence or occupation. For example, some churches in the state have small credit unions for their parishioners. Unlike banks that can raise capital from a variety of sources, Nowacki said, a startup credit union can only be created with member money and then financed going forward through its earnings. As a result, she said, there are relatively few de novo credit unions today — two of the most recent, the New York Police Department’s Finest Federal Credit Union and the Seneca Nation of Indians Federal Credit Union in Irving, New York, were chartered in 2015.

“They are very specific niche-focused and serve groups that somehow have the capital in their membership from the beginning,” she said.

Despite the challenges faced by Connecticut’s credit unions, they still have work that needs to be done. Nowacki stated that cybersecurity is a major concern and her trade group is working with the credit unions to keep the hackers out.

“We have a cybersecurity network where we are bringing together the executives from credit unions to work with the cybersecurity field on putting together best practices,” she said. “We’ve hosted and co-hosted events with law enforcement officials who work in cybersecurity to make sure that credit unions are getting education on what we’re seeing in the up-and-coming trends, not just with cybersecurity but also other crimes like ATM skimming.”

The Credit Union League of Connecticut, a statewide nonprofit trade association, is working with its member institutions on other high-tech strategies to protect consumer data. “For example, we are studying how distributed ledger and blockchain may help members’ identities be better protected into the future,” Nowacki said.

Also on the trade group’s calendar is the return of its’ two-year education program to help credit union executives master all aspects of managing their operations. Nowacki is also keeping an eye on the state and federal elections in order to better coordinate the next wave of 2019 outreach to legislators.

“On a broad level, it’s our mission to make sure that credit unions are positioned so consumers can choose them as their financial choice,” she said.

“We are ensuring the environment is well positioned for credit unions to preserve — in Hartford with the state’s Department of Banking and in Washington with the National Credit Union Administration and the Bureau of Consumer Financial Protection. We work on the advocacy side to keep credit union executives aware of what kind of changes and trends are happening in financial services, and we all work together collaboratively to better serve consumers.”

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