The Dow might be hitting record highs, but millions of people are still suffering from financial distress related to the COVID-19 pandemic and segments of the economy remain fragile.
An estimated 10 million people are jobless — 4.1 million have been out of work for 27 weeks or more. According to a Yelp survey, 60% of small businesses that closed in 2020 are not expected to reopen. The poverty rate — which was 11% in December — has nearly returned to the recession levels of 10 years ago. An estimated one in seven children are classified as poor, and African Americans are more than twice as likely as whites to live in poverty. A recent survey found 72% of people of color in Mississippi couldn’t pay their bills after three weeks without a paycheck.
Hope Federal Credit Union ($367.6M, Jackson, MS) is no stranger to crisis. Founded in 1995 to bring financial services to distressed areas of the Deep South, Hope more than doubled its membership and assets in the wake of Hurricane Katrina in 2005 as thousands of members opened accounts to deposit FEMA checks.
Three years later during the recession, as banks began closing rural branches in record numbers, Hope opened new ones, expanding from 8 to 24 branches. During the pandemic, business lending at Hope ballooned from 50 loans a year to 2,800 Paycheck Protection Program (PPP) relief loans.
Bill Bynum, CEO, Hope Credit Union
“We’ve seen so many mom-and-pop businesses — restaurants, hairdressers, childcare providers — shut down,” says Bill Bynum, CEO of Hope. “Many will never reopen. When we have these crises, these people and their communities are disproportionately harmed. Credit unions are made for times like this; in fact, credit unions should play an oversized role.”
Last year, credit unions rolled out PPP loans, low-interest personal loans, payment deferral programs, and more, but Bynum says the movement can do more. Conversations with credit union leaders focused on low-income communities provide myriad ways to help people and communities in need. Here’s a list of 20.
1. Ask communities about their needs — then, listen. Hope Community Partnership (HCP) engages local citizens to identify their community development priorities. The organization then works alongside community leaders to identify the resources needed to realize the vision.
CU QUICK FACTS
HQ: Jackson, MS
Data as of 12.31.20
12-MO SHARE GROWTH: 23.9%
12-MO LOAN GROWTH: 5.9%
“As member-owned financial cooperatives, it is imperative credit union leaders understand both what the members and the community needs,” says Felicia Lyles, senior vice president of retail operations at Hope. “Such an understanding comes only through meaningful engagement anchored by authentic listening.”
2. Introduce borrow-and-save loans. Payday lenders often trap low-income borrowers into never-ending cycles of low-balance, short-term loans with APRs that range from 390% to more than 500%. Originally piloted 10 years ago by Inclusiv, borrow-and-save loans are responsibly underwritten, affordable, small-dollar loans based on a borrower’s ability to repay. They include a credit-building component and an asset-building component that offer an alternative to high-cost payday loans.
3. Offer affordable housing loans. Hope offers a mortgage product that requires no down payment and no mortgage insurance. Additionally, Hope assess the borrower’s ability to repay using non-traditional sources of credit, such as rent, cell phone, or cable bill payment histories. More than 70% of the mortgages Hope closed in 2020 were Affordable Housing Program loans. A vast majority of borrowers were people of color, women, and first-time homebuyers.
4. Partner with down payment assistance providers. Hope also offers down payment assistance programs through partnerships with organizations such as NeighborWorks America and Wells Fargo. The Neighborhood LIFT program made grants ranging from $7,500 to $10,000 available for qualified homebuyers in Mississippi.
5. Refinance predatory auto loans. Low-income borrowers with no banking relationships often turn to auto dealerships and associated finance companies that lock borrowers into high-interest loans for six years or longer. Hope’s auto loan refinancing programs have helped borrowers get out of 27% interest rates and save up to $10,000 over the life of the loan.
“In communities throughout the Deep South where public transportation is limited, access to a vehicle is critical for maintaining employment,” says Calandra Davis, policy analyst at Hope. “Credit unions should actively work to make sure their members — current and prospective — are not being taken advantage of by predatory auto lenders.”
6. Offer child savings accounts. Research shows that children of low-income families with $500 in savings for college are three times more likely to go to college and four times more likely to graduate than their peers. Hope partners with cities, churches, and nonprofit organizations to offer child savings accounts throughout its footprint.
7. Place branches in low-income communities. According to a study by the National Community Reinvestment Coalition, the presence of bank branches is associated with increased rates of small business and mortgage lending. By contrast, when financial institutions close branches in low-income communities, high-cost alternatives emerge to fill the gap. To counter this trend, Hope has located 22 of its 24 branches in communities where the poverty rate exceeds 20%, a federal indicator of distress.
8. Take credit union products and services to the people. Through the Hope Affinity Network (HAN), Hope partners with schools, nonprofit organizations, churches, and small businesses to offer products and services to their associates as a benefit of employment. Through HAN, Hope representatives visit places of employment to work on-site with associates.
9. Make products and services accessible to people impacted by the criminal justice system. People who were formerly incarcerated face many challenges re-entering society. A 2019 study by Hope Policy Institute found that debts associated with the justice system in the Deep South topped $4 billion — twice the amount held by people who were formerly incarcerated just 10 years earlier. The absence of a relationship with a financial institution can be a barrier to employment.
“Credit unions should accept municipal and prison identification documents to open accounts and make use of non-traditional forms of credit in underwriting,” Davis says. “Additionally, credit union outreach should prioritize partnerships with nonprofit organizations dedicated to re-entry.”
10. Expand affordable housing programs. Low-Income Housing Tax Credits (LIHTC) help commercial borrowers subsidize the acquisition, construction, and rehabilitation of affordable rental housing for low- and moderate-income tenants. To support affordable housing, Hope has deployed 40% to 50% of its commercial loan portfolio to provide the permanent debt on LIHTC projects. The credit union has expanded the impact of LIHTC loans by providing credit counseling, financial education, and management of child savings accounts residents.
CU QUICK FACTS
Southwest Louisiana Credit Union
HQ: Lake Charles, LA
Data as of 12.31.20
12-MO SHARE GROWTH: 55.9%
12-MO LOAN GROWTH: 7.0%
11. Target education and training assistance. Southwest Louisiana Credit Union ($157.9M, Lake Charles, LA) supports communities that have a large industrial base. In its communities, oil, gas, and refinery plant workers often seek training from local trade schools and community colleges. To remove a barrier for obtaining higher education, the credit union created a $5,000 student loan product that covers six- to eight-week certification programs as well as rental assistance or childcare.
“We try to be the bank of second chances that fills the void left by mainstream financial services,” says Chad Miller, CEO of Southwest Louisiana.
Read more about these programs from SLCU in “Small-Dollar Loans Boast Big Career Potential” and “A Bank Of Second Chances For SEGs In Southwest Louisiana,”a Callahan client exclusive.
CU QUICK FACTS
Brooklyn Cooperative FCU
HQ: Brooklyn, NY
Data as of 12.31.20
12-MO SHARE GROWTH: 56.4%
12-MO LOAN GROWTH: 10.2%
12. Help aging members with estate planning. One major way to support the building a wealth within a community is to ensure its smooth transition from one generation to the next. In 2008, Brooklyn Cooperative Federal Credit Union ($47.2M, Brooklyn, NY) formed Grow Brooklyn, an affiliate nonprofit that provides a variety of services, including end-of-life planning and estate services to homeowners whose property title is in legal jeopardy. Grow Brooklyn also prepares tax forms for 7,200 residents every year, which helps increase the delivery of the earned income tax credits (EITC) to the community.
Brooklyn Cooperative FCU builds wealth and resilience among Brooklynites. Learn more in the Callahan client exclusive “Responding To The Local Needs Of 300,000 Residents.”
13. Partner with anchor institutions in communities of color. Through the Deep South Economic Mobility Collaborative, Hope, nine historically black colleges and universities (HBCUs), and seven cities are working together to provide business education, technical assistance, and small business loans to advance small business ownership — particularly among black entrepreneurs.
14. Meet borrowers where they are. When a member applies for a loan and does not qualify for the product at that time,Hope embraces the philosophy: “Not no; simply not yet.” The credit union follows this mantra with robust step-by-step financial planning to help members meet their goals.
CU QUICK FACTS
DC Credit Union
HQ: Washington, DC
Data as of 12.31.20
12-MO SHARE GROWTH: 18.2%
12-MO LOAN GROWTH: -9.0%
15. Reach out to immigrant communities. The roots of DC Credit Union ($75.7M, Washington, DC) date back to black municipal workers in the 1950s. In 2006, the credit union opened its firstfully bilingual branch in the Mount Pleasant neighborhood of Washington, DC, to support the growing Latino population. The cooperative provides financial education — and tax preparation help — to assist these low-income residents.
“When we became a CDFI-certified credit union in 2009, we had experience and expertise in serving low- to moderate-income families through this branch,” says DC Credit Union CEO Carla Decker. “We’ve since learned the products and services that work well for one underserved group translate to other groups that might be underserved.”
Carla Decker, the CEO of DC Credit Union, discusses community commitment and how the COVID-19 pandemic has affected her shop. Read more in “A Benefit For Credit Unions With A Conscience In Community Development,” a Callahan client exclusive.
16. Support programs to build lower-cost renewable energy sources. According to research by U.S. News and World Report, one in four households struggles with high energy costs, hitting low-income residents, older adults, and people of color the hardest. Supported by the U.S. Department of Solar Energy Technologies Office and the Hewlett Foundation, Inclusiv in November introduced the Solar Lending Professional Training and Certificate Program, which provides virtual training in consumer and commercial solar lending. The program is designed to not only improve environmental conditions of communities but also help people and businesses become more energy independent.
17. Engage in actions to change inequities in the financial system. For every $100 in wealth held by white families with children, black families with children hold $1. Given the profound effects of the racial wealth gap, credit unions can engage in actions to fundamentally change the system that created it. Last year, in the midst of racial unrest across the country, the African-American Credit Union Coalition launched the Diversity Equity and Inclusion Leadership Academy for Financial Professionals. To further illuminate DEI among credit unions, AACUC’s interactive program invites in-depth exploration of diversity, equity, inclusion, and the nuances of racism.
18. Encourage voter registration. Credit unions can and should support efforts to engage in nonpartisan voter registration activities. For example, Hope promoted National Voter Registration Day across its communication platforms to advance voter registration in the Deep South in advance of the 2020 election.
19. Advocate for programs that impact distressed members. During the past two years, Hope has taken on efforts aimed at weakening Fair Housing and Consumer Protection laws. Additionally, financial service sector leaders have engaged the Consumer Financial Protection Bureau on how to gather race data on small business loan applications.
“Credit unions should lead on matters of financial service access and a regulatory environment that fosters it for historically excluded populations,” says Ed Sivak, executive vice president of policy and communications at Hope.
20. Join Inclusiv, the association for community development credit unions. Currently, 359 credit unions are certified community development financial institutions (CDFIs), which makes them eligible for grants and secondary capital infusions available through Inclusiv. Jules Epstein-Hebert, director of membership at Inclusiv, says he’s seen a major upswing in interest in CDFI certification since the introduction of PPP loans in 2020.
“We are seeing interest in this designation like never before, and we expect to see a record in new CDFI certifications for credit unions in 2021,” Epstein-Hebert says. “During the two rounds of PPP loans, there were a lot of Mighty Mouse stories — examples of credit unions with $20 million in assets issuing $3 million in PPP loans to small businesses. We saw small credit unions being agile and punching way above their weight.”
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