Credit unions posted another record year in 2015 — as detailed here in Callahan's fourth quarter Trendwatch — but hitting new highs in loans, deposits, and membership is not enough.
This is a movement. Credit unions have a responsibility that is built into the credit union charter and embedded in the business practices that have made cooperatives an attractive option to for-profit banks and non-bank competitors.
It’s one of those competitors — a well-heeled startup called Social Finance (or SoFi) — that got me thinking about something: that targeting “the best of the best” should rub everyone in the cooperative movement the wrong way and strengthen their resolve to do the most good for the most people.
Credit unions aren't here to lose money. Making money is not a bad thing, but now's the time to re-double efforts to provide the best financial deals for the most people, regardless of their circumstances.
Credit unions can do that by focusing on building financial wellness as well as the bottom line. The need is now perhaps as great as ever.
Consider some sobering facts: The average white household in America has wealth of approximately $111,000. Black households? Make that $7,000, a bit more for Latino households.
There are systemic inequalities in income and opportunity in America that aren’t going away anytime soon. Consider the residual impact of redlining. Now illegal, the effect remains in the form of housing prices typically being much lower in minority neighborhoods than similar white or mostly white neighborhoods. That depresses household wealth, of course.
Then there’s the issue of household incomes. Women make less than men. That’s a fact that hurts all households that rely on women wage earners.
Unions have largely collapsed, taking with them worker rights and protections that ultimately served millions who never set foot in a union hall.
The U.S. middle class, never before seen, was built on the idea of a living wage. But that, too, is now just a dream for millions of Americans as many full-time low-wage workers rely on public assistance for health care and even food stamps.
But these low-wage workers are not the only people a paycheck away from disaster. I regularly hear from credit union executives about members who have high incomes but no wealth. These are people one illness or injury away from a $100,000 income turning into bankruptcy.
Right now, in the world's wealthiest country, the Fed reports 76% of the U.S. working population is living paycheck to paycheck, half of the population couldn’t raise $2,000 in 30 days, and 47% of the population would have to borrow or sell something to cover a $400 emergency bill.
We’re All Cherries Here
Credit unions are a great example of a sustainable business model for a capitalistic, democratic society. They can offer better deals than for-profits while at the same time helping to build the financial wellness that affords members the realistic expectation that they can provide for themselves and their families over the long run.
But credit unions can’t do that by cherry-picking members. That’s my concern when I see the buzz around outfits like SoFi, a Silicon Valley startup that touts itself as a crowdfunding alternative lender, targeting young professionals with things like student loan refis, mortgages, and investing advice.
SoFi is a kind of relationship lender, ditching FICO scores for criteria that include payment history, monthly income versus expenses, and professional experience. It stresses community, organizes networking events around the country, and offers services to job seekers, including those who just lost their jobs. And it calls its customers “members.”
SoFi made a splash by spending approximately $5 million for a 30-second spot during the Super Bowl in February, according to a report in BankRate. A company can afford that when its crowd is funded by a billion-dollar injection of venture capital.
Competition is good, of course, but it’s this line cut from the original ad that caught my eye: ““Find out if you’re great at SoFi. You’re probably not.”
This company takes cherry-picking to new heights and adds a whiff of snobbery. It markets to a demographic it has determined will respond to appeals to be “one of the best of the best” and makes it clear not everyone is invited.
"Selectivity allows us to offer better rates because we know the people we're investing in are going to pay us back … Not everyone is going to qualify," its director of brand marketing says in a January article posted at Quartz.
Credit unions off better rates, too, and lots more people qualify.
The Real Crowdfunders
Credit unions are the original crowdfunders. That’s how and why they were created. It takes a village to support a village, after all.
Credit unions are prepared to handle the A-paper, but that’s not all. They offer great deals to everyone, as good as anything SoFi or others can do. And they have a long history of successful, safe lending to people whose means would not, in SoFi’s eyes, place them among “the best of the best.”
While SoFi works the other end of the spectrum from those who must resort to payday and title lenders, those borrowers are “smart people” too. They know very well how to stretch a dollar, where the best deals are, how to get by when just getting by is tough and getting tougher.
Maybe they’re the “best of the best,” too, those who successfully navigate these treacherous economic straits. What they need from their financial services providers is the help to take their short-term savvy and apply it to building long-term wealth, at least enough to live comfortably and feel secure about the future.
These Guys Get It
Credit unions are the original crowdfunders, the first crowdsourcers, and our industry needs to keep our eye on the “us.”
Not that many aren’t already doing that. There are credit unions across the land using similar criteria as SoFi, only to lend to folks who might not be deemed the “best of the best.”
There’s Tuscaloosa Credit Union, which is working with its local housing authority to finance new homes to replace some of those a devastating tornado leveled in that iconic Alabama town.
Or take California Coast Credit Union, whose board has directed its CEO to determine what a living wage is in San Diego and then pay that in its own shop.
There are many more. We write about it all the time at CreditUnions.com, about credit unions helping people one consumer or a whole community at a time.
Yes, the credit union industry is doing great, based on market share and all kinds of other metrics. But we can’t rest on our laurels, and we can’t rest on our past.
Disintermediators like SoFi are not just lurking, they’re thriving. And they might not even be doing their members all that much good.
After all, the California Department of Business Oversight is looking at 14 marketplace lenders — including well-known names like SoFi, Kabbage, and Prosper — because “there are some concerns that those receiving loans might not fully understand the terms of the personal loans they receive,” a BankRate report says.
The U.S. Treasury Department also announced last July it was seeking comment on “the various business models and products offered by online marketplace lenders, the potential for online marketplace lending to expand access to credit to historically underserved borrowers, and how the financial regulatory framework should evolve to support the safe growth of this industry.”
The potential for online marketplace lending to expand access to credit to historically underserved borrowers? That’s the credit union movement’s job, isn’t it? Whether the credit is extended online or in person.
Our challenge now is to make sure the marketplace doesn’t forget that.
Credit. Union. Uniting to provide credit.
Get it? Got it? Good.