CUs bridge the gap

Serving people in need brings hope to struggling communities.

Passage of the Credit Union Membership Access Act in 1998 gave credit unions the right to diversify membership. And it gave them a new opportunity to "serve persons of modest means," a directive contained in the original 1934 Federal Credit Union Act.

The 1998 act allows credit unions to serve low-income neighborhoods and low-income groups. But at first it was a "time-consuming and paperworkladen process," says National Credit Union Administration (NCUA) Chairman Dennis Dollar.

Three years ago, when Dollar became chairman, he set out to streamline that process with "Access Across America." The programs goal is to bring credit union service to 90 million people living in underserved census tracts. At year's end, 558 federal credit unions had adopted 975 underserved areas with more than 64 million people.

"We decided that without lowering standards NCUA could turn itself from the biggest deterrent to serving the underserved into the biggest facilitator," says Dollar.

NCUA helps credit unions identify underserved areas. There's a link on the agency's Web site that leads to the Treasury Department s Community Development Financial Institution (CDFI) program. Once there, a national map charts underserved census tracts, or in Treasury terms, "CDFI Investment Areas."

Underserved areas no longer need to be contiguous to a credit unions office, and more than one credit union may file to serve the same area. The reasoning is to give people "a choice of as many credit unions as they have pawnshops," says Dollar.

Helping those left behind

First Resource Federal Credit Union, Saint Joseph, Mich., added two census tracts in Michigan, two in Marion, Ohio, and tracts in four counties near its Fort Smith, Ark., office-two in Arkansas and two in Oklahoma.

The $377 million asset credit union has 43,000 members-1,300 of whom joined in the past year from the expansion areas. First Resource Federal originally served employees of Whirlpool Corp., the appliance maker. It began adding select employee groups (SEGs) in the mid-1980s.

"We're big believers in trying to give consumers a good deal," says David Weichhand, president/CEO. "As banks consolidate, we continue to see an element in the public that seems to get left behind."

Serving people in low-income census tracts comes down to checking their street addresses.

"We have a Web site where our member service people go to verify eligible addresses," Weichhand notes.

First Resource Federal made no special adjustments to its lending policies to serve the low-income areas. "We've used risk-based lending for several years, and we're able to approve the majority of loan applications," says Weichhand.

Since expanding, First Resource Federal has added a second office in Arkansas and is building two more there. The credit union adds 100 to 125 members a month from the Arkansas market. It's adding two more offices in Holland, Mich., to serve SEGs and underserved areas.

Dollar says growth rates for credit unions adding underserved areas have been 93% greater than the growth rates for the credit union movement as a whole during the past three years.

On Jan. 5, Desert Schools Federal Credit Union, Phoenix, made its first offer to lowincome residents in Maricopa County and neighboring Final County. Through its 28 branches, the $1.6 billion asset credit union is inviting people who carry a Mexican identification (ID) card to become members.

The Phoenix community development area is 64% Spanish-speaking, so a huge potential exists there. Mexico's consular offices in the U.S. issue the ID card.

"The card says, 'I'm a Mexican citizen, but I live in the United States and here is my address,'" says Laura Lowe Edgar, Desert Schools Federal's director of community development. "The card says nothing about their legal status. That's not our interest. We just want them to have a safe place to keep their money."

She explains Mexicans in the area often deal in cash. Hence they're subject to being robbed. And if not physically robbed, "They're robbed of a lot of good financial services," Edgar adds, "by checkcashing outlets and payday lenders."

Since joining Desert Schools Federal, Edgar did a year and a half's worth of research before moving forward with low-income service. The credit union is promoting IRnet, licensed by the Credit Union National Association (CUNA) and the World Council of Credit Unions. IRnet is an international wire network that gives Mexican nationals an economical way to send money home.

Why did Desert Schools Federal expand to serve low-income areas? "We want everyone to have access to credit union services," says Ron Amstutz, vice president/chief information officer, who has 22 years of credit union experience. He notes the schools-based credit union had been expanding with SEGs. Currently it serves nearly 1,500 SEGs, of which 48% are education-related.

St. Mary's Bank Credit Union, Manchester, N.H., the nation's oldest credit union, gives a similar reason for starting its $1 million per year commitment to community outreach: When President/CEO Ron Rioux looked at the credit union's rich history, he couldn't help noticing it was chartered to help people who were underserved. In 1908, the underserved were French Canadians who migrated from Quebec to Manchester to work in the textile mills.

Those members became mainstream consumers. Rioux asked himself, "What are we doing today to accommodate individuals in our community who can benefit?"

Today the underserved are new immigrants and single parents. Manchester is a community of 125,000 residents who speak 60 foreign languages. The city is a magnet for immigrants seeking entry-level jobs due to its proximity to Boston.

To reach new immigrants, St. Mary's has employees who speak Russian, Bosnian, Spanish, Polish, Korean, and Portuguese. At one branch office, 50% of employees represent minorities (see "Community Outreach Works," at creditunion magazine.com).

Still working away

As mainstream credit unions expand to serve low-income neighborhoods, they sometimes bump into community development credit unions (CDCUs). Some CDCUs have existed since President Lyndon Johnson's War on Poverty almost 40 years ago. Office of Economic Opportunity (OEO)-backed credit unions numbered more than 300 in the late 1960s.

The ranks of OEO credit unions have dwindled as federal funding dried up. OEO credit unions received subsidies from community action commission sponsors to get started. There's help available from the National Federation of CDCUs and from NCUA. But it takes time to request grants or technical assistance-time CDCU managers don't have. They're busy running the credit union day to day.

Meanwhile, the Federation's ranks have grown. It has doubled membership in the past 10 years by reaching out to faith-based and Latino credit unions. Its 225 members represent 700,000 credit union members and more than $2 billion in assets. Still, its member CDCUs are small institutions, with a median size of $1.4 million in assets and fewer than 1,000 members. Their median age is 30 years.

As larger credit unions expand into low-income neighborhoods, CDCUs already there are concerned they could be supplanted by larger credit unions with greater resources.

Creating community partnerships

To allay those concerns, the Federation helps CDCUs and mainstream credit unions work together. It plans to add an associate membership category, "Community Development Partners," for mainstream credit unions interested in becoming partners of CDCUs and in serving low-income neighborhoods.

The partnership model is $11.4 billion asset State Employees Credit Union in Raleigh, N.C., says Federation Executive Director Cliff Rosenthal. It provides backoffice support to Latino Community Credit Union, which grew to $13.3 million in assets and 11,600 members today from its inception in 2000, Rosenthal explains.

"Millions of low-income people are underserved. Our CDCUs have the will and the mission, but they sometimes lack the capacity," says Rosenthal. "The hope is by linking large, capable credit unions with CDCUs, we'll have the best of both worlds [mission and capacity]."

Rosenthal recommends that mainstream credit unions expanding into low-income neighborhoods coordinate their services with CDCUs already there. He says CDCUs know the neighborhoods so the larger credit unions can learn from them.

"If we can preserve that sense of community ownership and responsiveness, while linking the CDCU to a larger, more sophisticated institution, we may have a win-win situation," says Rosenthal.

NCUA also encourages credit unions to work together through a mentoring program, notes Anthony LaCreta, director of NCUA's office of credit union development. "Part of what we've been promoting are loan participations."

Many credit unions are working together. One of four (27%) overall, and more than half of expansion credit unions and those with more than $200 million in assets have provided technical or staff support, training, equipment, financial, and/or other assistance to credit unions serving low- and moderate-income members, according to a "Modest Means" survey conducted by CUNAs center for research and advice. Many of those credit unions provide multiple types of support.

Northside Community Federal Credit Union in Chicago understands well the benefits of "community ownership," says Ed Jacob, manager/CEO. "A lot of money flows through low-income communities. If it gets recycled two or three times [locally], we can build a healthier community." One way the credit union recycles money is with payday alternative loans ("PAE Befriends Members," p. 46).

Chartered in 1974, Northside Community Federal has 3,800 members and grew from $5.9 million to $9 million in assets during the past two years, in part because the neighborhood is becoming gentrified. It's close to Lake Michigan and to public transportation. Upscale newcomers join to support the credit union's mission, Jacob explains.

Another reason for growth is because Northside Community Federal works with trusted organizations. The Vietnamese Association of Illinois (headquartered in the neighborhood) made a deposit enabling its members to get smallbusiness loans. The Women's Business Development Center made a deposit for loans to help members start child-care centers. Chicago Women in Trade members receive apprenticeship loans. A local church maintains a share certificate to help its members get emergency loans.

Jacob's advice to credit unions adding low-income areas: 1) be prepared to jump in for the long term because doing so won't pay dividends for a year or more; and 2) Partner with community organizations people trust and respect.

Building on church, ethnicities

CDCU growth is coming from church- and Latino-based credit unions. One institution that fits both profiles is Family Federal Credit Union in Wilmington, Calif. Founded 20 years ago by Holy Family Parish, more than 90% of its 4,000 members speak Spanish, notes President/CEO Lucia Moreno Linares, who joined the credit union when it formed in 1983.

Family Federal serves first-, second-, and third-generation Mexican Americans. The church provided its quarters until last April when the $10.4 million asset credit union got its own office.

Most members are walk-ins. Few participate in payroll deduction. Their incomes range from $100 a week to more than $1,000. Some work as babysitters, house cleaners, or gardeners. Others hold manufacturing jobs, and some drive semitractor-trailer trucks. Most work, and few receive public assistance.

As a low-income credit union, Family Federal could seek nonmember deposits to aid growth but never has. Instead, Linares announces annual goals in the January member newsletter. "I might say, 'This year our goal is to grow by $500,000 and use most of that money for real estate loans. So as you grow your deposits, we'll be able to make those loans.' And what do you know? We grow."

The credit union keeps things simple by offering regular savings and checking accounts. It pays tiered rates on savings (between 1% and 2% in December). It sells money orders and traveler's checks, and it uses IRnet for 60 to 70 wire transfers a month, mainly to Mexico. That's in addition to 500 to 600 money orders a month that go to Mexico.

Things are simple on the loan side, too. The credit union lists $3 million in mortgages, but those aren't first-time mortgages. They're refinanced loans and home improvement loans.

The credit union doesn't sell loans to secondary markets or offer open-end loans. Every loan requires a loan interview. It means more work, but each loan interview is viewed as a counseling session, which benefits members and the credit union. Knowing a member's situation protects the credit union, Linares notes.

The credit union sometimes takes a tough stand in loan interviews, Linares explains. "We exist to help members. The funds we loan out belong to people who struggled to save them. So we have to be very careful with the funds."

Her point illustrates that it takes extra time to serve the underserved and bring them into the financial mainstream. Government programs can aid in that transition.

Access Across America offers credit union partnership opportunities with these government agencies: the Small Business Administration; for tax preparation, the Internal Revenue Service and its Volunteer Income Tax Assistance program; for housing initiatives, local housing authorities, Department of Housing and Urban Development, the Neighborhood Reinvestment Corp., and even the Agriculture Department; and for interns, the AmeriCorps Volunteers in Service to America program.

Access Across America is a broad program with a simple goal, says LaCreta: "To provide credit union service for people who want it." With service now available to 64 million of die 90 millionpeople goal, the program is nearly three-quarters of the way there.

But both LaCreta and Dollar know the results will be in bringing new members into the financial mainstream. "Access Across America has laid the groundwork for credit unions to prove over the next 10 years that their heartbeat for service to the underserved is not just philosophical," says Dollar. "There are substantive and concrete results being demonstrated."

For more information about how credit unions serve the underserved, visit CREDIT UNION magazine.com

Copyright Credit Union National Association, Inc. Mar 2004
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