In 2014, Louisiana reported the sixth lowest median household income of any state, according to American Community Survey data. This provides credit unions in the Pelican State ample opportunity to serve the unbanked and the underbanked.
However, expanding into underserved areas is time consuming and labor intensive, says Michael Hooper, CEO of LA Capitol Federal Credit Union ($476.8M, Baton Rouge, LA). And as a credit union with fewer than 200 employees, LA Capitol must be creative in finding the bandwidth to tackle such projects.
In this Q&A, Hooper discusses the difficulties in expansion, how his credit union serves the underserved, and potential payday loan alternatives.
What is LA Capitol's field of membership, and how does that play a role in where you expand?
Michael Hooper: We’re a multi-SEG credit union. We serve state employees and have members throughout the state of Louisiana. So a community designation doesn’t work well for us.
Michael Hooper, CEO, LA Capitol Federal Credit Union
The NCUA's underserved designation has helped us compete in our Terrebonne Parish, Tangipahoa Parish, Rapides Parish, Natchitoches Parish, Washington Parish, Lincoln Parish, and Baton Rouge markets, where state employment numbers have decreased. Some of the SEGs we relied on back in the 1990s are either no longer in business or are in a much diminished state.
What challenges have you faced with the underserved designation?
MH: The underserved designation works well and has been helpful, but in 2008, the NCUA made the requirements to get an underserved designation onerous. So we’ve had to put our expansion on hold. For example, we would like to serve an underserved population in New Orleans, but we haven’t been able to do it because of the challenges of competing the underserved designation and other things we’ve got going on.
Before 2008, a credit union would go to the CDFI website, find an underserved area in which they had a physical location to serve members, and submit to NCUA that information along with a business plan for serving that underserved area.
Now, in addition to obtaining the information from the CDFI that certifies the area is underserved, credit unions must conduct their own research to prove the CDFI is correct. You have to find information on the number of banks, credit unions, check cashers, and more. It’s more hoops, red tape, and information to gather. It’s time consuming and expensive.
CU QUICK FACTS
la capitol FCU
Data as of 06.30.16
HQ: Baton Rouge, LA
12-MO SHARE GROWTH: 2.61%
12-MO LOAN GROWTH: 20.18%
Sometimes with regulations — whether CFPB or NCUA — what might be well-meaning makes it more expensive and more difficult to serve underserved groups, who are sometimes higher risk and more expensive to serve anyway. These regulations make it to where you can’t break even. We’re not-for-profit, but if we don’t make some profit, we can’t build capital. If we can’t do that, we can't stay in business.
How do you collect that information?
MH: The easiest way is to go to the NCUA's Office of Consumer Affairs and say, 'We’re trying to do this, can you help us?' And they have. They’ve been helpful in identifying the data they are looking for. Kudos to NCUA.
Who from the credit union is involved in collecting this information?
MH: We put one of our managers on it. They work with the NCUA to find out what data to pull, and then pull it. It takes a week or so to pull that together because it’s not something we do every day. Then the marketing department outlines our marketing strategy for that area.
It takes us a good bit of time to pull something together like this. We’re beating ourselves coming and going just to serve our members on the day-to-day. Trying to find the extra time to pull this information is challenging.
What attracts you to an underserved areas?
MH: When we look at an area, our interest depends on how underserved it is. Is the area growing? What's the population? We see what other banks and credit unions are there because we will have to convince their customers that our credit union is a better deal. That takes time and effort.
I’m not interested in entering a market with a large number of credit unions and banks unless it is a growing area where there is potential to help the people who are there. If they are well-served, that’s a red ocean.
We want an area that is underserved, that needs our services, where if we go in we can make a difference and can improve financial lives.
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What's LA Capitol's philosophy on expansion?
MH: We've found we have offices in underserved areas where state employment and other economic factors are changing. So for us, it isn't that we are going into new areas — we're already there — it's about serving more people in those underserved areas.
What's it like to go into those areas?
MH: Much of it is changing our mindset from focusing on state employees to now looking at the underserved people in this area and how we think we’ll work in the larger community. We know state employees, we understand state employees. We probably have the same challenges as a credit union that converts from being a single sponsor credit union to a community chartered credit union.
Are there considerations for rural versus urban areas?
MH: We’re in both rural and urban areas. In our rural areas people are not as likely to want to use our mobile app because they don’t have good cell service. There is less of a market for commercial loans in rural areas and less potential for mortgage loans because there are fewer businesses and fewer mortgages. We see a lot more turnover in car loans in rural areas because people in those areas drive a lot more. And the roads aren’t in as good condition so often their cars wear down faster. But we don’t want to make too many generalizations.
What kind of products are effective in serving your underserved members?
MH: When you look at the incomes of Louisiana compared to the rest of the nation, almost everyone in Louisiana is poor. Therefore we have a lot of members who struggle from day-to-day, month-to-month, to make ends meet. We’ve got a 30-day loan. The interest on it is 17%, and we charge a $20 processing fee.
We also have a line of credit that’s got a 60-day repayment schedule. It has an annual fee, but there is no per-item fee and the interest rate is less than 18%, although it varies a bit.
The most popular loan we have is an 11-month, $1,100 holiday loan that members take out every year.
What are the challenges in competing against payday lenders in these markets?
MH: People from all walks of life are interested in payday loans because they are fast. So our challenge, and why our loans are not as competitive, is that our hours cannot match what the payday lenders have. Our number of branches can’t match what they have. We’re less convenient. If you are a consumer and you want fast, you don’t think of credit unions first even though we have a better price. They’re willing to pay the price for the convenience.
Our management team is trying to come up with a loan that has a one-minute approval and funding and accessible on a mobile phone. That’s what we need to compete against the payday lenders. We need something like that to beat them on convenience and to keep the price where we don’t lose, but it’s not as costly as a payday loan.
It's a long-term process. It takes three to five years to build the name recognition and get people to come to us as opposed to where they are going now.
How long does it take to get these underserved individuals to accept you?
MH: It’s a long-term process. At least it is for us. It takes three to five years to build the name recognition and get people to come to us as opposed to where they are going now.
Do you have a set way you introduce yourself?
MH: We get involved with the community and community organizations. In one of our areas we just partnered with A Perfect Fit Foundation, which provides shoes for children who are in need, for its annual pancake fundraiser. We were featured in all of its television and radio advertising. Our local branch manager went on the local cable news and spoke about it. That got our name out.
Paid advertising is expensive. Mass media is part of the solution, but we can't totally rely on it. We have to get involved in the community and in front of the people we are trying to serve so they know we are there. And some of them will give us a chance.