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Phase 1: Establishing a Proof of Concept

Phase 1: Establishing a Proof of Concept


The purpose of the Proof of Concept is to demonstrate that your concept for the new credit union is well thought-out and contains four elements that are critical to the success of the credit union. These areas are usually the greatest challenge for organizing groups to overcome. You should use the research you perform and the information you have gathered to define your PFCU as a basis for completing your Proof of Concept, demonstrating to the NCUA that your proposal is well thought-out and contains the four major elements crucial to success:

POC Critical Element 1: Purpose and Core Values

Federal credit unions are cooperative associations organized for the purpose of promoting thrift among their members and creating a source of credit for provident or productive purposes. The purpose should reflect the credit union’s reason for existing. The core values might include items such as member empowerment or fiscal responsibility.

Before approving an organization certificate, the NCUA will review various factors to determine the fitness of management and viability of the proposed credit union. The first critical element of the Proof of Concept helps define those factors.

Economic advisability, which is the key factor in determining whether a potential charter will have a reasonable opportunity to succeed, is essential to qualifying for a credit union charter. An important consideration is the degree of support from the field of membership for the types of financial services the PFCU plans to provide. The charter applicant must be able to demonstrate that potential membership interest is sufficient to provide a reasonable prospect of viability.

Your application should include compelling reasons why the formation of a new credit union is in the best interests of the proposed group.

POC Critical Element 2: Field of Membership

As described earlier, the field of membership is the common bond of the group or groups of people the PFCU intends to serve. The FOM defines those persons and entities eligible for membership, and only persons or groups within the FOM—and a few others by virtue of their close relationship to members—may join the credit union.

Your application should identify which type of FOM you are requesting—single common bond, multiple common bond, or community—and describe the specific associational and/or occupational groups or the community you plan to serve. For example, “Persons who live, worship, work in, or attend school in, and businesses and other legal entities located in Pima County, Arizona.” The NCUA will review each submission to determine whether the proposed FOM meets regulatory requirements.

POC Critical Element 3: Capital Funding Plan

The actual costs for chartering and operating a federal credit union vary depending on the unique circumstances in which the PFCU plans to operate. Planned product and service offerings, the delivery mechanisms for products and services, staffing needs, and the proposed FOM all factor into these costs.

Understanding the estimated costs for the operations will help organizing groups project how much start-up capital is required to begin operations, absorb any operating losses until the PFCU is profitable from operations, and establish a net worth cushion for unforeseen expenses.

Start-up funding in the form of donations and grants may be critical to cover initial and ongoing costs until the credit union can achieve and sustain positive earnings and maintain an adequate capital position. Historical data suggests that newly chartered credit unions typically require at least $500,000 in start-up capital to achieve economic viability.

At this preliminary stage, the NCUA will review your general plan for obtaining donated funds to start operations and cover operating losses until you are profitable. The NCUA will evaluate the adequacy of your capital plans in detail when you submit pro forma financial projections in Phase 2. If an organizing group is unable to identify a credible funding source, charter approval is unlikely.

POC Critical Element 4: Subscribers

The NCUA will review each submission to determine whether the organizing group identified at least seven individuals to serve as the PFCU’s subscribers. Ideally, the subscribers will collectively have a sound understanding of or backgrounds in accounting, finance, business, and banking or related fields.

The subscribers are the people responsible for completing the research, establishing the concept of the new credit union, and ultimately applying for a new charter. It is important for the organizing group to research the requirements for chartering a federal credit union so they know what parameters a credit union must operate within and to establish an outline of what the PFCU will look like (the concept) before a detailed business plan, financial projections, and other application requirements are completed.

The organizing group should designate a primary contact, or organizer (this could be a subscriber or a consultant), to complete the Proof of Concept and submit it to NCUA to start the chartering process. Please complete this phase before you begin the first step in Phase 2, the potential member survey. You will want to obtain the NCUA’s preliminary approval of your FOM in Phase 1 before you distribute the survey to a random sampling of the potential membership. This will ensure your sampling methodology considers the entire approved field of membership, as necessary to meet the random sampling requirements. Several other activities in Phase 2 and Phase 3 can be completed concurrently once the FOM is approved.

Submitting Phase 1 Materials

We strongly encourage you to complete Phase 1 by registering with the NCUA’s online Chartering Proof of Concept tool through the CyberGrants portal and completing the requested data discussed below. Your work can be saved in the online Chartering Proof of Concept tool as you complete it. Once you are finished completing all sections, you can submit the file to NCUA for review. After reviewing your submission, the NCUA will send you a letter with a preliminary field-of-membership approval and confirmation of the credit union name reserved for you. If there are deficiencies in your submission, the NCUA will notify you and provide an opportunity to resubmit a revised file. After you receive the NCUA’s letter with the preliminary approval of your field of membership, you can begin working on the application documents required in Phase 2, starting with a potential member survey.

In Phase 1, subscribers should:


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