Forward-Thinking Lending Approach Invigorates California CU
Policies that favor job status over credit history attract more Hispanic members.
With 80% of its members identifying themselves as Hispanic, $72 million asset First Imperial Credit Union of El Centro, Calif., knows the importance of catering its products and services to serve the specific needs of this influential community.
Headquartered near the U.S.-Mexico border, El Centro is situated in the Imperial Valley, one of southern California’s larger agricultural communities, attracting field workers and laborers from Mexico. Because of the seasonal nature of Imperial Valley work, the region suffers a 28% unemployment rate and a history of financial instability.
As such, financial institutions tied to the long-standing practice of lending money based solely on credit scores have had trouble realizing the growth potential and revenue opportunities that can come from properly serving the Hispanic market.
When President/CEO Fidel Gonzalez joined First Imperial in 2009, he understood that to successfully serve the local Hispanic population, the credit union would need to change its lending philosophy.
“Most Hispanics are in need of financial services, and they are frequently turned away from other financial institutions because of their credit scores and employment history,” Gonzalez says. “They need financial institutions that are willing to take a chance on them. So, we adopted a new lending structure allowing our credit union to place more emphasis on a member’s ability to pay moving forward, rather than on past delinquency.”
To do this, Gonzalez worked closely with his staff and industry colleagues. First, the team altered the credit union’s practice of using a member’s credit score as an approval mechanism.
Rather, Gonzalez encouraged his team to focus on the member’s employment status, working to approve loans for members with 12 months of work history and who were current on their loan payments. The staff also reviewed an applicant member’s credit history to better understand other financial obligations and the types of loan that applicant members could afford.
Under the new lending structure, a member’s credit score became a pricing tool in the loan application process rather than a deciding factor.
First Imperial works with members to book a series of small loans, starting with $500 and working up to larger loans as credit improves.
“We want members to be successful," Gonzalez says. "So together we set realistic goals, loaning to them based on what they can afford. We impose credit limits to offset the risk, and we educate our loan recipients on the importance of paying—if they pay us, we’ll lend to them again. That’s a powerful motivator for our Hispanic members.”
To supplement its loan-builder program, Gonzalez also instituted the Opportunity Checking program. This is designed for any member who has been denied a checking account in the past because of account mismanagement or a Chex Systems record.
The goal of the program is to re-establish members into normal financial services and encourage them to stop using check-cashing establishments that charge high fees for access to cash.
Members open an Opportunity Checking account for $50 and are charged a $10 monthly maintenance fee to receive many of the advantages of a traditional checking account, including an ATM or debit card. The cards carry lower limits, but there is no minimum balance required and the accounts offer free home banking and bill pay.
After 12 months, the Opportunity Checking account converts to a regular checking account that includes overdraft privilege, regular ATM/point of service limits, and other perks.
“The feedback from our members has been extremely positive,” Gonzalez says. “Because many of our members get paid weekly, the monthly fee is small compared to the 3% to 5% [that] check-cashing establishments typically charge.
"This program is a win-win," he continues. "Hispanics are gaining access to the financial services they desperately need at prices they can afford and with terms they can meet. And the credit union is able to capture lending activity that would have been lost had we not created a relationship.”
In the 18 months since Gonzalez and his team implemented these new programs, First Imperial opened 330 Opportunity Checking accounts and realized nearly $40,000 in fee income.
The credit union also booked more than $1 million in loans and increased total net membership by 1,958, a 17% increase in a year and a half.
For First Imperial, Gonzalez says “Making a Difference, One Member at a Time” isn’t just a clever marketing slogan. Rather, it’s a true reflection of the credit union’s commitment to innovation—stepping up to provide fair, dignified, and affordable services to a deserving group of influential members.