🔒Few credit unions take advantage of new state law that allows membership expansion

Nutmeg State Financial Credit Union last year was the first member-owned cooperative to expand its membership field under a new state law.

Ten months later, the move is paying dividends, as it has allowed the Rocky Hill-based credit union to add about 1,300 new members.

Nutmeg previously only enrolled people who live, study, volunteer, worship or work in Middlesex, Hartford, Tolland and New Haven counties, as well as eight towns in Fairfield County.

Beginning early last October, Nutmeg began enrolling members of the AAA Club Alliance, which is active in 13 states, and Community Impact Fund, which provides financial education to economically challenged communities nationally.

The expansion allowed Nutmeg to add members across state lines for the first time, particularly low-to-moderate income individuals, helping support the not-for-profit credit union’s mission. It was permitted under a 2023 change in Connecticut banking regulations that, among other things, gives state-chartered credit unions the ability to enroll members based on geography, employer groups and associations; previously they could base enrollment on only one of those categories.

So far, Nutmeg is the only credit union to make use of the policy change.

Credit Union League of Connecticut President and CEO Bruce Adams said he believes more credit unions have applications in the works.

“In the natural order of things, there will be more and more applications as credit unions do their strategic planning,” Adams said. “I expect that activity to pick up at a steady pace.”

Adams noted this isn’t the first time Connecticut-chartered credit unions have crossed state lines. East Hartford-based American Eagle Financial Credit Union — the state’s largest credit union with $2.7 billion in assets — has members in Massachusetts, he said.

Conversely, Massachusetts-based Freedom Credit Union, with $740.1 million in assets, entered the Connecticut market more than a year ago with a loan production office in Enfield; and Holyoke Credit Union, with $285.1 million in assets, recently asked permission from the state Department of Banking to expand its field of membership into Hartford County.

Growing multiple ways

Last year’s regulatory changes gave state-chartered credit unions the same flexibility that was previously afforded to federally chartered not-for-profit cooperatives, Adams said.

“I think a legal or political border doesn’t have any real strong significance that it might have had 100 years ago,” Adams said. “We have the internet and sophisticated enough regulators that they can deal with minor variations in state regulations.”

The change also allows state-chartered credit unions to better compete with banks, Adams said. Nationally, credit unions represent an average of about 10% of deposits. In Connecticut, credit unions’ market share is around 7%, he said.

Last year’s regulatory changes occurred as the state’s credit union industry searches for ways to grow in a world where the escalating costs of regulations, technology, personnel and providing services make it harder to operate.

That’s contributed to an industry consolidation wave: Over the last two decades, Connecticut lost more than half of its credit unions, with 76 operating in the state at the end of the first quarter of 2024. That’s down from 164 credit unions in Connecticut in March 2004, according to National Credit Union Administration data.

Despite the shrinkage, the state’s credit unions over the last 20 years have more than doubled their assets to $15.2 billion and grew membership about 3% to 944,388.

Nutmeg Financial Credit Union in July merged with the smaller First Bristol Federal Credit Union. As a result, Nutmeg’s membership rolls grew from about 42,000 to more than 50,000, and its assets from $562.4 million to more than $700 million.

The inclusion of AAA and Community Impact Fund members also helped grow membership, but that was not the prime motivator, Nutmeg CEO John Holt stressed. Rather, it helps the credit union better deliver on its mission, he said.

“This is not about us trying to grow our field of membership, per se, or to go into other states, per se,” Holt said. “It is to take our strategy and offer our products and services to low-to-moderate income communities of people throughout most of the country.”

Launched in 1935 to serve members of the Hartford Telephone Co., Nutmeg has since expanded to offer services to the general public in several counties. Last year’s expansion to AAA members and the Community Impact Fund makes Nutmeg’s services available in states, like Missouri and Kansas, where there is a denser population of low- and moderate-income families, and more areas that lack banking and financial services, Holt said.

Much of the growth from the credit union’s new association partnerships has come from offering car loans to communities that might not otherwise be able to access auto credit, Holt said.

“It has to be about serving communities and helping people,” Holt said. “That’s what our mission is. It’s not about how many more loans we can do. That’s not why we are in it at all.”

No headlong rush

Wethersfield-based Dutch Point Credit Union doesn’t have any short-term plans to take advantage of last year’s change in banking regulations. The 24,000-member credit union with $498.7 million in assets is still working to fully penetrate its home turf, which includes Hartford, Middlesex, New Haven and New London counties, said Dutch Point President and CEO Charlyn Tanner.

“We will continue to prioritize within our established community charter,” Tanner said. “There are a lot of people in Connecticut who don’t know what a credit union is.”

Tanner said she feels that distant members are less likely to maintain a long-term relationship with the credit union.

“You can’t be all things to all people,” Tanner said. “So, serving the communities we are already in is what we are focusing on.”