Part of the credit union advantage is the ability of a cooperative institution to address the distinct needs of its membership. Credit unions, such as Manatee Community Federal Credit Union ($25.9M, Bradenton, FL), do that by creating niche products and services. Manatee Community serves approximately 3,200 members. The 55-year-old community development financial institution serves a large Latino population and offers its Fresh Start loan to help members accrue savings and cover immigration expenses.
Here, Sherod Halliburton — who earlier this month took the helm at Manatee Community as president and CEO — discusses the value of niche loans, what they mean for the credit union, and what they mean to the community.
How did the credit union decide to focus on the Latino community and immigration?
Sherod Halliburton: The credit union was founded by Tropicana Products, which employs a large number of Latinos and immigrants. Focusing on the Latino population felt like a natural fit for us, and we loved the idea of creating a product that instills good financial habits.
How does Fresh Start work?
SH: The Fresh Start loan is the first of several products we’re rolling out. It helps members who have no credit, limited credit, or challenged credit establish credit as well as build savings. That is important for individuals generating the financial capacity to immigrate.
The Fresh Start loan is a $1,000 secured loan that we put directly into a savings account. The member can’t touch it until the loan is paid off. The member pays $80 a month for 13 months with an interest of 8.5%. At the end of the 13-month period, they have accrued $1,000 in savings and can use that money directly toward expenses associated with immigration. In addition, they have built a payment history with our organization. For some, this will move the needle up a bit on their credit score, which then opens the opportunity for them to apply for unsecured products.
It’s a stair-step approach to helping them establish a solid relationship with a financial institution. It builds their savings, builds their credit, and ultimately allows them to start applying for unsecured funds.
How did Fresh Start come about?
SH: A number of members have credit challenges, so we’re always looking for ways to help. I received a phone call from a local immigration law firm that was interested in assistance-financing loans for some of its clients. The law firm was deciding whether it made sense to finance its services. Through extensive conversation, we concluded that partnering with our financial institution would make sense for the firm. Then we rolled out [Fresh Start] in spring of 2013.
How does Fresh Start benefit members?
SH: A lot of our members are not comfortable with consistent savings, and the Fresh Start loan forces them to save money. By paying the loan, they are building savings. Second, increasing their credit score allows them to borrow more money with our institution. It also puts them in a position to access credit benefits outside of Manatee Community. The individual who doesn’t have credit or has challenged credit can have problems renting a home or securing a job. They’re going to pay more for auto insurance. Having a low credit score will negatively affect them in many ways.
For us, it’s important to assist these individuals and help them build that credit score, not only to solidify their relationship with us but also to relieve some financial pressure outside of their relationship with the credit union.
Instead of coming to Manatee Community for a loan, what is the alternative?
SH: The reality is, their options are limited if they don’t have credit or have challenged credit. They can go to the payday lenders and, when all is said and done, the interest rate is going to be in the 250-300% range. They can look at pawnshops. They can look at relatives if relatives have any money.
If they don’t have verifiable credit, their options are limited. But moving beyond the verifiable credit, if they don’t have a relationship with a financial institution, then they are carrying a lot of money on payday. This puts them at risk. Individuals are aware they might be carrying large sums of money on their person, so they’re subjected to crimes.
We want to bring that population into the financial mainstream. We welcome them as members in our institution. As we grow as an institution, we want to help them build their financial capacity as well.
How do niche loans benefit the credit union?
SH: First and foremost, we have the opportunity to grow our membership base because there are a lot of people in the community who are not being served by mainstream financial institutions. They don’t feel welcome or don’t understand the existing financial structure. It’s a niche population, and as an organization we’ve made a commitment to serve that population. We are a small financial institution and the reality is we might not be able to compete with a lot of the larger financial institutions in our community by way of all the online services and things of that nature. So we have to create a niche, and this is a part of that niche.
We believe in investing in people. These people are moving through life and a number of them become more prosperous over time. If we can help them manage their financial situation early on, it creates a sense of loyalty. Those individuals will use our services throughout their life and bring others to our institution. That’s what we’re looking for. We’re looking for people who are moved by our commitment to them and who in turn make a commitment to us.
What advice would you give other credit unions looking to create personalized products for their memberships?
SH: This is a product that does not put our members’ money at risk. It has long-term benefits for all parties involved. We’re starting with a secured loan; money doesn’t leave the branch. It is a loan that goes on the books, and it’s a loan that helps teach our members how to be responsible in how they manage their money. It is a low-risk product to the lending institution, builds loyalty, and offers long-time financial capacity for the member. It has a tremendous potential upside for the individual taking out that loan.