Ottawa is letting credit unions break free from their provincial boundaries.

New federal rules will spawn CUs with operations spanning from coast to coast, just like our major banks.

The regulations that permit this are currently up for a 30-day industry review.

Once those regulations come into force, mortgage customers can expect:

1. More aggressive mortgage offerings
   • Federal credit unions will have greater economies of scale, especially in terms of mortgage funding and technology costs. Lower costs per customer will help them compete more aggressively against banks. In turn, we could see better rates and more product innovation from national CUs.
2. Accelerated consolidation
   • The number of CUs has already fallen 16% in the last three years. Consolidation will increase further as mega credit unions bring smaller CUs into their fold to build scale and assets.
3. Easier porting
   • Interprovincial operations will allow federal credit union members to port their mortgages to other provinces.

People choose credit unions for a variety of reasons. Among them:

• CUs either reinvest their profits for the good of the organization or return them to members or the community
• Banking fees are often lower
• Deposit and mortgage rates are sometimes better (but far from always)
• CUs frequently have more flexible lending guidelines than major banks
• Every member is a shareholder, and each member gets one vote
• Some CUs enjoy more extensive deposit insurance, depending on their province (sometimes it’s unlimited coverage, whereas unregistered bank deposits are insured to a maximum of $100,000 by CDIC).

Currently, CUs are provincially regulated. Once formed, however, those that are federal will fall solely under the supervision of the Office of the Superintendent of Financial Institutions (OSFI).

Despite having the option, few CUs are expected to convert from provincial to federal. Those that do will likely be companies with the revenue and scale to handle OSFI’s greater regulatory burden. The first examples may be the likes of B.C.’s Coast Capital and Ontario’s Meridian.

Factoids:

• Almost 1/3 of Canadians belong to credit unions
• Credit unions have been on a tear in the last year, with 8.7% lending growth year-over-year in Q1 (for Central affiliated credit unions and caisses populaires).
• B.C. has the largest CU membership outside of Quebec with 1.84 million members. Ontario is second with 1.26 million and Alberta is third with 632,000.
• The country’s 10 biggest credit unions hold 41% of CU assets
• More than half of the population in Manitoba, Saskatchewan and Quebec have credit union accounts. In Ontario, credit unions have just 12% market share.

Rob McLister, CMT

Last modified: May 24, 2022