Among concerns business owners need to manage is what kind of financial institution to bring onboard to meet the company’s banking needs. In general, choices include traditional banks that service the general public and offer standard financial services. Commercial and corporate banks provide specialty services to business accounts of all sizes. Investment banks handle more complex financial transactions and services like assisting with mergers and acquisitions, pension funds and hedge funds. Online banks with no brick and mortar presence are a newer form of “traditional” banks.
Then there are credit unions. They’re formed differently than banks, regulated differently and, when it comes to who owns them and who benefits from margins, they’re very different. They’re unique financial institutions, typically offering different, and sometimes niche benefits, alongside traditional banking services.
Risks
Two of the biggest concerns for anyone interacting with a financial institution, whether as a depositor, loan applicant or someone making complicated financial transactions, is the technology available and the security of their information that’s held by the financial institution. How credit unions manage technology and cybersecurity is obviously critical.
“I had a CEO [of a credit union] a couple years ago say they’re now a software company, and I think it feels that way,” said Scott Simpson, president and CEO, California and Nevada Credit Union League. “The delivery of financial services is still brick and mortar, they’re relieved to see somebody face to face. So much of our financial transactions are digital these days that technology is a critical component. We work very hard to defend the fortress, the digital landscape they have and they count on [third party] partners for the development of tools, but there’s no doubt it’s a challenge.”
“We definitely understand the need to have seamless technology, because everybody that interacts with it needs to have a good experience, both consumers and businesses,” said Matt Kershaw, president and CEO, Clark County Credit Union. “It’s something we pay a lot of attention to. It’s important, and it goes beyond checking balances online, making online deposits—those are just things they need to have. We work really closely with and collaborate with vendors that can provide products that create great member experiences because it’s hard for us to create all those things internally with how fast technology changes.”
Rize Credit Union partners with external cybersecurity experts to keep member information safe. “Also internally we have a well qualified, experienced information team that continuously monitors the cybersecurity landscape to identify any emerging trends or threats, and to ensure the security of the credit union’s environment,” said Jennifer Oliver, president and CEO, Rize Credit Union. Rize also performs extensive regular external exams and systems tests, and third party reviews.
“Protecting our member’s information is a high, high priority on our list, so we have FFIEC (Federal Financial Institutions Examination Council) audits that go in and look at how our systems are set up, make sure they’re set up the right way with strong passwords and good overlapping controls,” said Kershaw.
Credit unions also perform regular penetration tests, making sure internet-facing systems are protected, and employee training so employees don’t fall prey to social engineering.
“Our biggest vulnerability really does lie at member level, and that’s with social engineering,” said Oliver. “Social engineering is a huge threat.” Social engineering is when a bad actor convinces a credit union member or bank customer to give up their credentials, allowing the bad actor to pose as that person. “We constantly remind our members we’re not going to ask you for your password or access code, that’s what bad actors do. We’re constantly educating our members about social engineering.”
“Crime has become industrialized. You’ve got nation-states that are interested in America’s demise, so they’re trying to attack American institutions. You’ve got garden variety bad guys who are ready to take advantage of any and all of that. It’s serious business and requires constant vigilance,” said Simpson.
There are a lot of cybersecurity tools available to guard against things like zero day attacks and ransomware. “We focus a lot of effort [on technology and cybersecurity]—that’s what we have to do as a financial institution and as a credit union to make sure our systems are secure,” said Kershaw.
Regulations
Credit unions in Nevada are regulated by the state and follow industry standard guidelines like interagency guidance from FDIC and National Credit Union Administration (NCUA). There are some differences between how credit unions and banks are regulated, often because the two are structured differently.
Banks can grow equity through stocks and other financial avenues, credit unions grow equity through organic means. “When we generate that income, that goes to our equity,” said Kershaw. Differences in structure and ways to grow capital means regulations for credit unions don’t always apply to banks.
Regulations for credit unions aren’t significantly different from regulations for banking. The system itself is different, but runs parallel to that of banks. Credit unions have the choice of being regulated by the federal government or by the state government in the state where they’re chartered.
“And in some ways it’s kind of both,” said Simpson. Credit unions can be state or federally chartered and, once that decision is made, it becomes a different system of rules and regulations. For example, Nevada has a really strong state charter, and Nevada has both state and federally chartered credit unions.
The choice of charter affects how credit unions are insured. Most everyone understands FDIC—Federal Deposit Insurance Corporation—the brand that’s attached to deposit insurance for banks. FDIC insures up to $250,000 per depositor’s insurance. Credit unions, typically, if they’re federally chartered, have NCUA’s insurance fund.
“It’s the same coverage with the same function,” said Simpson. “There are some state chartered credit unions in Nevada that choose to be privately insured. That’s the same coverage. In fact, I was just looking at a relatively decent-sized credit union in Nevada that’s privately insured and they offer twice the insurance coverage – a primary $250,000 and then they offer another $250,000 deposit insurance on top of that.”
Clark County Credit Union uses American Share Insurance (ASI). ASI differs from federal insurance because it insures per account rather than per tax ID.
Obviously cyberattacks are among the biggest risks credit unions face. Another of the heaviest challenges is expanded regulations. “The growing of government regulatory pressure [is a challenge]. If you look at all businesses, most of them would say something similar to that,” said Simpson. “There’s just growing regulation and, at the end of the day, there is a choking off of financial institutions’ ability to lend, to add capital to the marketplace. Fraud is always a challenge. There are broad economic events that can happen, market fraud, market challenges that aren’t even U.S. foreign policy, those kinds of things are always out there. But, really it’s government overregulation at the top of the list right now.”
That may in part be due to continuing fallout from the 2008 recession. It may also be due to populist talking points from political parties that aren’t necessarily using the correct terminology but parroting talking points, sometimes irresponsibly, using terms like “junk fees” applied to legitimate products. “Historically, you don’t hear that kind of rhetoric out of federal regulators, but you’re hearing it today,” said Simpson.
Rewards
With a credit union, a group of people put their money together and loan the money out; the margin is used for the benefit of anyone participating in the member-owned cooperative. Everyone who uses a credit union is a member and owner. Everyone participates in the financial value.
Credit unions have stakeholder members. “For that reason, we’re trying to return as much as we can to our members,” said Kershaw. That can be through the best deposit rates, lower loan rates, more free services, the best technology and, significantly, for business owners, credit unions can focus on smaller dollar loan amounts.
“In 2024, Clark County Credit Union to date [November] has funded seven SBA 504 loans for just under $5 million, and Bank of America has funded six for about $12.5 million. That shows where our focus has been,” Kershaw said. He added that the focus of a local credit union is on helping local small businesses grow.
Economic Impact
No financial institution exists in a vacuum. The collapse of banks like Signature and Silicon Valley in 2023 had ripple effects outside those felt by customers. By the same token, the financial health of credit unions has an impact on a state’s economy.
Credit unions in Nevada make up the largest locally owned group of financial institutions at just over $8 billion when combining all the assets for state chartered financial institutions in Nevada, according to Kershaw.
In terms of local economic impact, by November CCCU had returned approximately $20 million in dividends to its members, up significantly from 2023’s dividend of approximately $14 million. “That $20 million goes directly to the pocket of an individual who is saving for something or wants to open a savings account to plan for a rainy day. For small businesses, it helps them to provide insurance, have maybe extra funds to pay for small expenses, or maybe help through a tough time, as well as just making additional investments they need to make. That $20 million can be spent in the local economy.”
In addition, CCCU has lent out $38 million to the local business community, and around $91 million to consumers in auto and other consumer loans, and they’ve done a significant number of home equity loans, often used to fund business startups.
Rize Credit Union’s mission is to empower everyone to reach lasting financial security by providing knowledge, access and care. For individuals and micro-, small and medium-sized businesses, that means affordable financial products.
Credit unions have a unique impact on local economies by supporting local businesses, hiring locally, offering accessible loans and reinvesting directly into community programs.
So How are Credit Unions Created?
“Created, like if somebody wanted to make a new one? That’s kind of challenging,” said Simpson.
There are federal and state chartered credit unions. Either charter can be used to startup a new credit union. “To get chartered through the state you go through the Financial Institutions Division here in Nevada and fill out all the applications and paperwork to become a credit union,” said Kershaw. After going through that process it’s basically funding the credit union to the point where it’s possible to get insurance, either private or federal through NCUA. “You would define what your charter looks like,” said Kershaw. “Credit unions are built around a specific community or group of people or association, and so you would figure out what that association is or what is the purpose of that credit union would be in regards to that community or association, and then structure around that to serve that group or association.”
“With our cooperative structure, credit unions tend to have a stronger consumer oriented focus and each credit union can have a unique niche,” said Oliver. “At Rize Credit Union we are focused on helping people realize potential through a social impact business model. We are a Certified Community Development Institution, CDFI, which means we are dedicated to offering safe and affordable financial products to people and businesses in low income or underserved communities.”
For example, Rize works with youth in the foster care system. Traditional banking requires anyone under 18 to have a parent or guardian sign on a checking account. Rize allows youths in foster care between ages 13 and 18 to open checking without a co-signer.
There aren’t a lot of new credit unions created anymore because it’s difficult. There needs to be deposit insurance in place and insurers want sufficient capital in place, and the way capital is formed in a credit union is different than with banks.
“A bank can go out and get started because somebody puts in their capital with the idea that the capital can be extracted at some point,” said Simpson. “But a credit union is a member-owned cooperative so if you contribute capital to a credit union, then it belongs to everybody. The formation of a credit union today has to be absolutely altruistic. Contributing capital to begin a credit union is a gift. It’s not an investment. So you don’t see a lot of new credit unions being created. It happens every now and again but it’s incredibly arduous and it really requires a patron saint, somebody wiling to contribute the initial capital against the initial deposit.”
