Samira Salem

Reaching and serving diverse populations

Credit unions have a long history of serving diverse and underserved communities.

February 7, 2019

Credit unions are reaching and serving diverse members: How are they doing it and why does it matter more now than ever?

Credit unions have a long history of serving diverse and underserved communities. This goes back to their founding mission to promote thrift and provide access to credit for provident purposes, especially for people of modest means.

It is also consistent with credit unions’ “people helping people” philosophy and unique structure: member-owned, democratically controlled, and not-for profit. This ensures credit unions’ success is bound up in the success of their members and communities.

Continuing to reach and serve diverse populations matters for a variety of reasons:

1. Multicultural consumers accounted for 100% of U.S. population growth and 61% of credit union growth over the past five years, according to research by CUNA Mutual Group.

This trend will continue, according to U.S. Census population projections, making it a critical market for credit unions. To stay relevant, credit unions must reach more diverse and often underserved populations, and they must continue to improve and tailor products and services to the needs of this rapidly growing group.

2. Newly elected congressional leaders, as well as regulators, have made it clear that they care about deepening financial inclusion for diverse and underserved populations.

Late last year, Sen. Elizabeth Warren, D-Mass., introduced a broad affordable housing bill (the American Housing and Economic Mobility Act) which included language that would subject fintech mortgage originators and some credit unions to the Community Reinvestment Act (CRA). That’s just one recent example of how financial inclusion has become a priority for policymakers.

Further, NCUA's Minority Depository Institution (MDI) Preservation Program is in part designed to preserve existing MDIs and encourage the establishment of new MDIs.

‘Despite field-of-membership restrictions, credit unions are doing a good job reaching and serving diverse populations.’
Samira Salem

How are credit unions reaching and serving diverse populations? Recently released 2017 Home Mortgage Disclosure Act (HMDA) data reveals that compared to banks, credit unions originate a higher percentage of mortgages to African-Americans (6.6% vs. 5.2%) and Hispanics (7.9% vs. 7.3%) despite field-of-membership (FOM) restrictions.

This difference may in part be because credit unions also receive a higher percentage of mortgage applications from African-Americans, Hispanic non-Whites, and other minority groups than banks—suggesting that these groups find credit unions more appealing when it comes to mortgage borrowing.

The most recent Federal Reserve Survey of Consumer Finance (SCF) provides further evidence concerning how credit unions reach and serve diverse populations.

The 2016 SCF demonstrates that credit unions serve approximately the same percentage of households of color as banks (34%). This is laudable given that, unlike banks, credit unions must comply with FOM rules.

Furthermore, the SCF shows that credit unions serve a relatively larger percentage of African-American households than banks (17.4% vs. 12.8%). But the data also reveal an opportunity for credit unions to expand in the Hispanic market where banks serve a relatively higher percentage of Hispanic households (10.5% vs. 6.8%).

The SCF data highlights that credit union members across all categories of race and ethnicity save at least one percentage point in interest rates on auto loans as compared to banks and other financial institutions. This difference is particularly pronounced for people of color.

For example, interest rates on auto loans for African-Americans are, on average, 1.7 percentage points lower at credit unions than at banks and other financial institutions, and 1.4 percentage points lower for Hispanics.

NEXT: MDI credit unions

MDI credit unions

Credit unions are also reaching and serving diverse populations through the 551 MDI credit unions that serve 3.9 million members (3.5% of credit union memberships), represent 9.9% of the total number of credit unions, and hold 2.7% of total credit union assets.

MDI credit unions are those where more than 50% of their current membership, potential membership, and board members are minorities.

MDI credit unions represent a significant proportion of credit unions and their assets, especially when compared to the more modest number of MDI banks (152). MDI banks represent 2.8% of the total number of banks and hold a mere 1.3% of total bank assets.

CUNA estimates that MDI credit unions generate significant benefits for their members. Between September 2017 and September 2018, MDI credit unions provided $314 million in direct financial benefits to MDI credit union members. These benefits are equivalent to $83 per member.

A commitment to diverse communities

Through participation in other designations and certifications such as the low-income designation, community development credit union certification, Community Development Financial Institution certification, the Juntos Avanzamos designation—and by taking advantage of resources such as Coopera—credit unions are further demonstrating a commitment to serve diverse and underserved communities.

Despite FOM restrictions, credit unions are doing a good job of reaching and serving diverse populations—but there is room to do better.

Credit unions that reach these populations successfully use innovative products and services that meet the needs and demands of their diverse communities, such as ITIN loans, small dollar loans, emergency loans/payday alternative loans, and small business loans.

Doing better in an increasingly diverse marketplace means deepening credit unions’ reach and continuing to invest in gaining a deeper understanding of diverse groups to develop tailored products and services to better serve them.

SAMIRA SALEM, PhD, is a senior policy analyst for CUNA.