The need for safe and affordable savings, credit, and transaction services among low- and moderate-income communities is tremendous: More than 68 million American adults are unbanked or underbanked.
Many of these working people have been disappointed or disenfranchised by large banks and seek alternatives to high-cost and complex banking instruments.
This presents a “historic opportunity” for credit unions, says Cathie Mahon, president/CEO of the National Federation of Community Development Credit Unions.
How the movement takes advantage of this moment affects the visibility of credit unions and ultimately their market share in the financial services industry.
Many credit unions have already stepped up to fill the nation’s underserved markets. And many are using NCUA’s low-income designation to do it.
This designation entitles credit unions that meet certain lowincome membership criteria to a number of legislated benefits, including eligibility to:
Accept nonmember deposits from any source;
Offer secondary capital accounts;
Receive exemption from the aggregated loan limit for member business loans; and
Apply for grants and low-interest loans from NCUA.
As of August 2013, 1,961 credit unions with over $157 billion in assets are designated low-income.
“The opportunity to empower underserved communities through credit unions is possible on a scale that didn’t exist before,” Mahon says about the NCUA designation.
While some credit unions might worry about the risks associated with serving consumers with little or no exposure to formal financial services, Mahon says it can be good business.
“Tapping into an underserved marketplace is the perfect example of ‘doing well by being good,’ a win for credit unions and a win for the underserved,” Mahon says.
In fact, she says credit unions that embrace a community development mission tend to find a wealth of resources, partners, and good will that can “catapult their business” forward.
The Federation has been supporting these “win-win” efforts for years.
During the past year, the Federation has further broadened its focus to provide the information, tools, and partnerships to help credit unions of all shapes and sizes serve underserved markets.
“We’re the bridge to connect the credit union industry to local economic development, safe and affordable home ownership, service delivery systems, and the vast network of nonprofit civic institutions that make communities strong,” says Mahon.
Three-pronged platform supports development
The Federation supports its 250 member community development credit unions (CDCUs) with a three-pronged platform:
1. Capital. The Federation invests in CDCUs to boost net worth and to promote liquidity through its Community Development Investment Program.
CDCUs have received more than $90 million in investments since the fund’s inception in 1982.
These funds provide member credit unions with a cushion to test innovative products and services while mitigating the risk to their institutions, Mahon says.
2. Knowledge. The Federation was instrumental in establishing the Community Development Financial Institutions (CDFI) Fund in 1994.
This fund promotes economic revitalization in distressed communities by providing financial assistance and information to CDFIs.
The Federation is a permanent member of the national CDFI Coalition.
“From this perch, we represent the credit union sector to the CDFI Fund, influencing major adaptations to their selection process” says Mahon.
Additionally, the Federation offers credit unions a wealth of experience in the certification and recertification process for the funds via its consulting firm CU Breakthrough.
3. Impact: The Federation assists credit unions by developing new resources.
The Federation recently developed an Emerging Market Review tool that’s proving especially useful for credit unions as they try to align their cultures, products, and services to the needs of low-income members.
“We’ve always been good at working with strategic partners to develop products for vulnerable populations,” Mahon says. “Now we’re focused on translating pilots into scalable programs that will succeed because they’ve been tested in the real world.”
Two additional tool kits will come out this fall:
1. “Borrow & Save,” a small-dollar loan that builds savings; and
2. “Better Directions,” a tool that helps seniors achieve and maintain financial security.
CUNA’s inaugural Fair Lending Workshop took place last week in Denver, leading to valuable discussions on compliance with the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act and more.