Virginia Credit Union eyes continued expansion with switch to federal charter – Richmond BizSense

Still looking to grow after being stymied in an expansion attempt by the State Corporation Commission last year, Richmond’s biggest credit union is sidestepping the regulator by taking its charter to the federal level.

Virginia Credit Union, the largest credit union regulated by the SCC’s Bureau of Financial Institutions, is in the process of converting into a federal credit union.

The move will allow VACU, which has more than $5 billion in assets, to avoid being regulated by the state. If approved, it will be solely overseen by the National Credit Union Administration.

VACU is one step through the three-step conversion process, having recently received approval from its board of directors. Next it must get the go-ahead from its 324,000 members, followed by the final stamp of approval from the NCUA.

Its members have already begun to vote on the change. Balloting began Aug. 24 and will run through Sept. 21.

Upon approval, the Chesterfield-based credit union says it will continue to use its Virginia Credit Union and VACU trade names, though the word “federal” would be added to its legal name.

VACU also emphasized that members will see little to no impact to products and services because of the charter change.

A VACU spokesman said it had been considering the charter conversion for several years and is motivated in part by its desire to expand by offering membership to more people. It said the transition also would streamline its regulatory requirements, because the credit union already is under the jurisdiction of the NCUA, as well as the SCC.

“Having NCUA as our primary regulator makes it more efficient and easier for us to add new groups and areas to our field of membership,” the spokesman said in response to questions from BizSense.

The effort comes about a year after VACU was thwarted in a drawn-out legal battle against a group of bankers who sought to block the credit union from expanding by offering membership to the 10,000-member Medical Society of Virginia.

The dispute began in 2019, when VACU applied for permission to bring MSV into its field of membership at MSV’s request. The bid initially was given the thumbs up from Bureau of Financial Institutions Commissioner Joe Face before the Virginia Bankers Association and seven Virginia banks joined together to try overturn that decision.

The VBA-led group argued that VACU’s request went too far beyond the statutory limit of credit union membership expansion of 3,000 potential new members at a time. The MSV request was the largest such request ever by a credit union in Virginia, due to the sizeable group’s statewide reach.

The physicians that make up the bulk of MSV’s ranks are also seen as a coveted customer segment for banks.

The State Corporation Commission building in downtown Richmond.

After three years of legal wrangling, a panel of SCC commissioners ruled against VACU and denied its MSV request.

While VACU didn’t say explicitly that the MSV saga was driving the conversion, eschewing SCC regulation will help it avoid such a battle on the state level in the future should it attempt to expand.

VACU’s move to the federal system also will deal a financial blow to the BFI. The SCC bureau funds its entire $16 million annual budget with fees paid by the institutions it regulates.

VACU is the largest state-chartered credit union among the 23 such credit unions in Virginia. VACU was required to pay $816,000 in assessment fees to the BFI this year, accounting for nearly 40 percent of the $2.1 million in total assessments the regulator received from credit unions statewide.

BFI received an additional $9 million from Virginia’s 48 state-chartered banks. The remaining balance of BFI’s budget comes from other businesses it regulates, such as money transmitters, mortgage companies, small lenders, debt settlement companies and student loan servicers.

Joe Face

Face, the BFI commissioner, acknowledged the hit from VACU’s impending departure from the state system but said the BFI can absorb it.

“It will have an effect. But we can manage,” he said.

Face, who’s been with the BFI for 45 years, said such conversions aren’t uncommon for credit unions and banks.

“Banks and credit unions do have a choice of charter in this country,” he said. “I never like to lose a credit union or a bank or any institution for whatever reason, but it does happen and it is a business and each business has to do what it believes is in its best interest.”

Face added that the number of state-chartered credit unions and banks has been on a steady decline.

“It’s been dwindling over the years through conversions and mergers,” he said. “I don’t see any of that subsiding.”

Carrie Hunt, CEO of the Virginia Credit Union League, which lobbies and advocates on behalf of credit unions in the state, said VACU’s move is not unusual.

“It is very common for not just credit unions, but banks can do it too,” Hunt said. “We have a very healthy dual charter system in this country.”

Hunt, speaking generally about why a financial institution may change charters, said there are several reasons.

Carrie Hunt

“One of the biggest (reasons) is field of membership,” she said. “Over the course of history field-of-membership rules have been more favorable in certain states and that pendulum has swung the other way. You really do need to have a federal charter if you do a lot of work across the country.”

Illustrating that factor, Hunt said of the 104 credit unions based in Virginia, only two dozen are state-chartered. “As a state, we lean federal very heavily,” she said.

Another reason, Hunt added, is to eliminate dual regulatory examinations.

“All state-chartered credit unions in Virginia have to have federal deposit insurance and be examined by the NCUA” in addition to an examination from the BFI. “So every one of them gets examined twice. It is a real factor.”

Might the pendulum swing back in favor of state regulation at some point?

“Given there are so few state charters in Virginia, to be frank, I think we would need a dramatic change in the laws that govern state-chartered credit unions to make institutions want to go back in that direction,” she said. “I hope we keep the dual chartering system alive.”

While it waits for the rest of the conversion process to play out, VACU is in expansion mode in its home territory.

It has been on a branch opening streak within the city of Richmond of late, planting its flag on at least five new locations over the last year. The latest is in the works in Shockoe Slip.