NEW YORK-Where the need is great, so too should be the response, said Peter Bray. "There are an estimated one-million households in the New York metropolitan area that are unbanked," said Bray, a former director of Bethex Federal Credit Union, Bronx, who had just resigned that post to form a group called the New York City Financial Network Action Consortium (NYC-NAC). Bray received a community fellowship from the Open Society Institute, which was set up by billionaire philanthropist George Soros. That freedom enabled him to organize NYC-NAC. The idea for NYC-NAC sprung from Bray's focussed thinking on how to solve problems faced by community development credit unions that want to grow but are limited by the cost of just about everything associated with expansion. "The credit unions in NYC-NAC have a combined membership of only 25,000. That means there is a potential to reach the rest of those 975,000 households. They need to learn that there are credit unions that want to serve them. The increased membership they represent means the credit unions can grow. But they have to be reached first," he said. "And the CDCUs that take them in need to be ready to offer and provide the lifeline banking services these members need, and to do that, they must have more branches, more employees, be linked to ATM networks and yada, yada, yada," continued Bray. It's the yada, yada, yada part that intrigued him, he said. A community development specialist with a talent for the real estate area, he saw a problem and sought to balance all the unknowns by combining a pool of potential partners. "At the very heart of this is plain old credit union philosophy," he said. "It's just cooperation, only applied a little differently." If you can't grow without assets, and you can't attract assets with limited services and availability it becomes a chicken or egg riddle, Bray reasoned. Alone, these CDCUs struggle sometimes, he said. But they share a similar dream, and they have decided to pool their money and resources to help create something that is bigger than the sum of their parts. So Bray came up with an idea to share the costs of legal representation, collection costs, bookkeeping, marketing and more among four CDCUs in New York City. The original four are: Bethex FCU, Bronx; Homesteaders FCU, Lower East Side People's FCU and Union Settlement FCU, Manhattan. Several other CDCUs may choose to join NYC-NAC in the future, said Bray, but an initial investment of $25,000 got it jump-started by incorporating the organization in mid-May. Most of the managers of these CDCUs were already having regular, informal meetings, he said. "It's just that kind of thing. There's a feeling that we're all in this together, and problems that arise in one place are likely to pop up in another." So it seemed reasonable that a combined answer could be applied. "Why should economies of scale only be available to large credit unions?" Bray asked rhetorically. "Take the need for new fixed assets. Right now, CUs are limited by NCUA rules and regulations to cap their fixed assets at 5% of their total deposits and reserves. This imposes a severe limit on their capacity to invest in technology, develop more branches, upgrade MIS systems and do other things that will allow them to expand lending and broaden membership. And the amortization of fixed assets investments increases their already high operating ratio, which undermines their capacity to add new products and services." NYC-NAC is an answer, said Bray, because it can assume financing of fixed assets through investments or loans, thereby lessening both operating costs and regulatory burden. By raising grant money that can be loaned to CUs at or below their own cost of capital, which is approximately 7%, NYC-NAC can help meet the working capital requirements of these growth oriented CDCUs. One way to do this may be to acquire the asset on behalf of a CU, then donating it or leasing it below market cost. NYC-NAC can attract funding from the Community Development Financial Institutions Fund by becoming a certified `Intermediary CDFI' said Bray, which is a CDFI that lends or invests in other CDFIs. NYC-NAC meets all the criteria required, Bray said. Tempering the expansive aspects of what NYC-NAC can do for small CUs that seek to serve low-income neighborhoods is the assistance it can bring to relieve the everyday tasks faced by them that are humdrum but necessary. NYC-NAC will hire a full-time bookkeeper that will assist all participating CUs. That person can do reconciliations, 5300 reports, budget and variance reports and be a temporary replacement when a CU staffer is on vacation or taking a training class. This will relieve staffers for other work, Bray said. The bookkeeper will have a laptop and the necessary software so that all files for the CUs can be maintained. NYC-NAC will hire a full-time collections specialist who will apportion his/her time making calls for member CUs. Typically, work-out agreements are very time intensive, Bray said. And because most CDCUs do not have a full-time loan collector, they lack expertise in that area. Another area for shared operations is the statement mailer. This is presently outsourced, he said, and while it is not on the top of his `to-do' list, it has potential, said Bray. "It's costly, and we might be able to lower the costs by sharing them. And it has the potential to create jobs for low-income people, because oftentimes, statements mailings include newsletters, brochures and new product offers." The most immediate benefit NYC-NAC can bring, however, is in the area of research and development and central purchasing, Bray said. Each credit union need a DP system, printers, fax machines, forms and many other supplies, and each one makes an individual selection after considering the products and/or services of several vendors. But what if one vendor could pitch to five credit unions at once? Bray said that this buying power potential has already kicked in. "We switched our ATM network from Mellon Bank to NYCE," said Pablo DeFilippi, manager of Lower East Side People's FCU. "We got a great deal because they saw not just me, but also Bethex and the rest." "This concept is so exciting," intoned Joy Cousminer, CEO of Bethex. "Because we all face the similar obstacles; we can apply similar solutions." The shared R&D approach can work for new product tryouts as well, especially for credit cards, bill payment, online banking and even investment services, said Cousminer. And these CDCUs are chomping at the bit to get started on growth plans. Bethex is expected to get Empowerment Zone funding to enable it to place a branch in a busy retail corridor of possibly the most devastated area of the south Bronx. Mott Haven has some 11,000 units of public housing and every social and economic dysfunction associated with a devastated income area. Other NYC-NAC members are also seeking branching capabilities, but most lack the real estate location skill, and negotiating skill that is necessary to secure the best price. Getting grant money, which is abundant at this time, thanks to a full and vibrant economy, said Bray, calls for a specialized writer experienced in the applications process. NYC-NAC can provide that skill. Because NYC-NAC is a non-profit, rather than a CUSO, it can qualify for numerous foundation grants, he said. That money will enable NYC-NAC to go forward with all these and other ambitious plans. Possibly the most ambitious of all is the marketing plan. Bray wants to reach those quarter-million households with TV commercials on cable television stations. It fits in with the overall CU branding strategy, he said, to promote the visibility of the credit union idea. But it can also be selectively used in different markets throughout New York City to help grow the memberships of these credit unions. "I know it can be done," he said. "We just have to be ready for it." -
caburger@cutimes.com
