The most difficult part of starting a credit union is putting together all the right pieces, in the right way, at the right time, says Carmen Perez, CEO of $350,000 asset ERDA Federal Credit Union, founded by Bishop Mitchell Taylor, president of the East River Development Alliance (ERDA) in Long Island City, N.Y.
“You need to orchestrate events so all the different elements come together at the right time,” she says. “You need to think about compliance, the business plan, start-up capital, your organizing team, future members, and having the right leadership on your board. You need all those elements not just to make your case to NCUA, but also to be able to run a successful credit union.”
Perez came on board in October 2008, after Taylor and others had spent a couple of years raising funds and scoping out community needs. They hired Perez to educate the community about credit unions and to do the legwork to obtain a charter.
All along, the organizers envisioned the credit union as being fully staffed and open four days a week. “The most important thing for any organizing group is to make sure your funding adequately supports the business plan you put on the table,” Perez says. ERDA submitted a charter application to NCUA in March 2009 and won approval that December. The credit union opened its doors in April 2010.
Throughout the organizing process, Taylor and Perez sought help from various credit union resources. “Working with Neighborhood Trust and Brooklyn Cooperative [both federal credit unions in New York City] was extremely helpful to us,” Perez says. “They’re both successful and growing.” Other key resources included Brian Gately and Pablo DeFilippi from the Federation and Nick Sanimarco from NCUA. “Having all those different perspectives was a major help,” Perez says.
Initially, ERDA Federal offered only regular savings accounts. Within a few months, offerings included certificates of deposit, check cashing, direct deposit, online account access, e-statements, and other basic services. In December, the credit union added personal loans of up to $5,000.
“We didn’t expect to be starting a credit union during a serious recession,” Perez says. “Even so, we were able to open 600 new memberships in our first year.”
Credit union organizers need to know they’ll encounter bumps along the way, Perez points out. “Don’t expect a smooth ride,” she says. “There were times when something we expected didn’t come through from NCUA. When that happens, you can either turn back or become more determined.”
While Inspire and ERDA Federal have been operating for only about a year, Bradley Initiative Credit Union in Cleveland, Tenn., has a longer tenure under its belt. Chartered in 2003, it now has $2.2 million in assets and nearly 1,400 members. It sits in the midst of one of the most impoverished areas in the state. “A flat tire represents a financial emergency for many of our members,” says CEO Denis Collins.
Still, the credit union started to make money by its second year, Collins reports, although it lost money in the past two years due to the nation’s economic woes. “We thought we’d be shielded from that,” he says, “because people here don’t own houses or have permanent jobs. Most of them have temporary jobs and are teetering on the brink.”
But the temporary jobs disappeared, too, and members’ dire financial situations worsened, causing losses for the credit union. “This year we hope to turn it around,” Collins says. The credit union has added one part-time financial literacy director to the two full-timers already on staff, counting Collins. Plans for the immediate future include opening a branch in the local high school, which will serve two purposes: adding new members and providing financial literacy training to youth.
Now in its eighth year, Bradley Initiative offers savings, direct deposit, money orders, prepaid Visa cards, and loans—90% of which are used-vehicle loans. Besides trying to stimulate loan growth, the other key challenge is shouldering the regulatory burden, Collins says.
“The regulatory requirements are the same for us as for any credit union,” he explains. “When you serve low-income members, meeting those requirements is extremely difficult. When NCUA examiners come in, they compare us to traditional credit unions. I understand it’s about safety and soundness, but it puts us in a difficult situation. Good loans are scarce here.”
That’s why nonmember deposits are crucial, Collins notes. Bradley Initiative now has $646,000 in such funds, for which depositors receive no interest. “That has really helped us,” he says. “If you’re a true low-income credit union, you must have those extra funds to keep going because you’ll have loan defaults.”
What odds does he place on the credit union still being in business 10 years from now? “I’d say we have an 80% chance of survival,” Collins says. “If we were someplace else, I wouldn’t give it that much. But community support is the reason this credit union is able to survive. When I talk to groups who want to start a credit union, that’s the first thing I ask them. What commitments do you have in your community, and how strong are those commitments?”
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