Walking the Community Development Path
Freedom First FCU is transforming a community—one story at a time.
First-generation immigrants Francisco and Imelda Zuñiga needed help after medical costs and their daughter’s college tuition wiped out their savings and left them with significant debt.
They found it at $311 million asset Freedom First Federal Credit Union in Roanoke, Va.
The couple worked with the credit union’s financial educator to assess their situation and assist with budgeting.
“We could not get student loans for our daughter’s college tuition, and we fell behind in other payments, mostly medical bills,” says Francisco Zuñiga.
A big concern was Francisco’s credit score, which was only 500 despite being a small-business owner and leader in their church.
Freedom First Federal—a member of the National Federation of Community Development Credit Unions— worked with the couple to improve their credit via financial education, credit counseling, and regular payments on a loan designed to build credit.
In about a year, Francisco’s credit score was up to 640 and the couple made other improvements to their financial situation. They eventually moved into a new home purchased with down-payment assistance and a loan from Freedom First Federal.
“We trust Freedom First,” Francisco says.
It’s a story that might not have been told, had it not been for a major strategic pivot by Freedom First Federal about five years ago. That was when the credit union’s leadership team took a step back, looked around, and saw their members and communities in need.
Many members had low incomes and lacked access to reliable transportation and affordable housing. Many nonmembers in the community were unbanked or underbanked and at risk from predatory lenders.
To serve this population, the leadership team realized it had to make some changes. “We said, ‘Let’s be different,’” recalls President/CEO Paul Phillips.
Under Phillips’ leadership, the credit union embraced the mission and vision of community development credit unions. “In doing so, we’ve breathed new life into the credit union. It gave us all a greater sense of purpose,” he says.
In addition to being a member of the National Federation of Community Development Credit Unions, Freedom First Federal sought and received a “low-income credit union” designation from NCUA and a “community development financial institution” (CDFI) designation from the Treasury Department in 2010.
These designations and connections gave the credit union access to capital and technical assistance. This helped the credit union obtain grants, develop new products, and collaborate with community partners. The credit union has also reassigned more staff to meeting the needs of its community.
“Freedom First has done a remarkable job of creating a development strategy that’s sustainable, relevant, and successful,” says Pablo DeFilippi, the Federation’s director of membership.
The credit union offers specialized programs, products, and services with its members’ best interests and needs in mind. One such program is Responsible Rides, which incorporates financial education and vehicle-maintenance classes to help borrowers purchase and maintain reliable transportation.
Retirees Augustine and Christine Vergies have benefitted from the program. Before working with Freedom First Federal, the couple relied on family and friends to take them shopping or to the medical clinic. The Vergies couldn’t qualify for a loan at a reasonable interest rate because they lived on a fixed income.
“The car has given us independence,” Christine says.
Other Freedom First Federal programs and products specifically seek out unbanked and underbanked consumers—almost a quarter of the households in the credit union’s service area. These include:
►Borrow and Save Loans—a partially secured, 12- to 36-month loan that makes a portion of the loan proceeds available upon approval and places the remainder in a locked savings account to be released at maturity.
This gives borrowers an opportunity to build good savings habits by repaying the loan before the second portion is available. When the loan is successfully repaid, the credit union invites the borrower to invest some or all of the funds in a certificate of deposit with a preferred interest rate, which makes additional funds available for unexpected needs.
►Credit-builder loans—small loans that work in reverse to help borrowers build credit. The loan proceeds are placed in a secure account while the borrower makes regular payments. When fully repaid, the borrower receives the loan proceeds.
By establishing positive payment histories, borrowers can improve their credit scores in a relatively short time and qualify for lower interest rates.
►Individual development accounts—matching savings plans for low-income individuals who want to save for homes, start businesses, or pay for their education. Program participants receive financial counseling.
►Micro loans—unsecured loans of up to $3,000. They don’t generate big profits, but they have a big impact.
►Payday alternative loans—options for consumers to avoid the cycle of debt that can be caused by payday lenders. These loans save borrowers money and they introduce borrowers to the benefits of credit union membership.
NEXT: No handouts
Freedom First Federal’s community development strategy is like a return to “the grassroots of underwriting,” says Dave Prosser, the credit union’s vice president of community development.
Credit union staff work with members and potential members to learn more about their past problems and to discover their future goals and ambitions. The credit union takes a holistic approach—not just focusing on one-off products—to help people reach their goals.
“We kind of become case workers for these folks,” Prosser says. “When we work with a person, the answer is very rarely ‘no.’ Instead, the answer might be: ‘Not today, but this is what you will need to do in the next few months, and if you can show us you’re on the right path, then we’ll help you and grant that request.’ ”
These aren’t handouts, Prosser stresses. Users are asked to work for it, which sometimes means participating in the credit union’s financial education programs or meeting some other requirements.
“If they’re still willing to commit to it, we know they’re engaged,” Prosser says. “The person who’s really willing to fight for it is the person who will be successful.”
Prosser should know—the credit union collects a lot of data on outcomes. The numbers are studied, analyzed, and compiled for the board of directors.
The credit union monitors and diligently tracks return on investment on each community development product. The community development side of the credit union’s operations has its own balance sheet and financial statements.
“We look at each product to determine if it’s sustainable. It’s important to our board to know we’re doing the right thing and being financially responsible. It’s one of our core goals to remain financially safe and sound,” Prosser says.
While some of the products for low-income members make a small contribution to Freedom First Federal’s bottom line, they make a big impact in the community. Access to reliable transportation through the credit union’s Responsible Rides program can help a member find a better day-care solution, or earn a higher wage by working the night shift without having to rely on public transportation.
Prosser says his staff have become emotionally invested in the work they do.
“My folks are jazzed up by the fact they’re making a strong impact on people’s lives,” Prosser says. “We have staff meetings every two weeks and everyone is expected to bring a story of how they’ve been able to make a difference in a member’s life.”
Freedom First Federal is currently expanding into one of Roanoke’s most economically challenged neighborhoods. The area is consumed by poverty, joblessness, and crime. It has a palpable lack of medical clinics, gas stations, and grocery stores.
But in April, the credit union broke ground on a new branch as part of a local revitalization project.
“We want to restore dignity to this neighborhood,” says Prosser. The branch—the first in the area—will extend services and educational programs to combat nearby payday lenders, pawn shops, and rent-to-own companies.
The project, made possible by an $850,000 CDFI Fund grant from the Treasury Department, will also include a community center, a future community kitchen, and a permanent home for a local farmers’ market.
“Roanoke is fortunate to have a financial institution like Freedom First invest in an underserved community,” says Chris Morrill, Roanoke city manager. “I commend them for taking the lead in this important initiative that can make a real difference in people’s lives.”
Freedom First Federal wouldn’t be able to serve its primarily low-income members and communities without the help of community partners. That includes big employers, nonprofits, faith-based groups, local government, and even for-profits.
“We work incredibly well with our partners,” says Prosser. “With the relationship we’ve built up with our partners, they’re consistently sending their clients to us so we can help them.”
The credit union’s award-winning Responsible Rides program owes its success to collaboration with Enterprise Car Sales and a pair of nonprofits. The nonprofits provide client intake and assessment services, the credit union provides financing and financial education, and Enterprise Car Sales provides reliable vehicle options to eligible borrowers.
The credit union also provides and promotes financial education, works to improve housing with weatherization and accessibility projects, and works to move the unbanked and underbanked into the financial mainstream with community partners that include local government, the United Way, Big Brothers Big Sisters, Goodwill, and Habitat for Humanity.
Banking for good
Freedom First Federal is a prime example of what is possible for credit union’s with a community development mission, says the Federation’s DeFilippi.
“Freedom First is proving that it’s a great investment. They’re like the local media darlings now, because everything they do has a social and financial impact,” DeFilippi says. “This is a unique institution that no one else in that community, not even Bank of America, could compete with.”
“Our tagline is ‘Where people bank for good,’” says Prosser. “Our hope is that people will want to bank with the credit union, because they know that by banking with us they’ll be helping their neighbors with their struggles.”