Michigan Credit Union Lets Its Members Lead It Into a New Identity
Although it may be hard to believe now, the $29 million Communicating Arts Credit Union, winner of Credit Union Times 2010 Trailblazer Award for Outstanding Service to the Underserved, was not founded to be a community development or low-income credit union.
The 75-year old state-chartered credit union, headquartered in Detroit, began life in 1935 as the credit union serving primarily reporters and staff from Detroit's two biggest newspapers, The Detroit News and The Detroit Free Press. Communicating Arts kept pretty closely to that field of membership for 60 years until it became very clear that the credit union's members and hence the credit union was going to have to change.
In 1995, after two or three years of difficult labor relations, the unions representing workers at the papers called a strike at both. The labor action, controversial and bitter and eventually violent, initially left the credit union on the sidelines. Communicating Arts was had no formal union ties, although it had many members who were also labor union members.
But the strike began to have a direct impact on Communicating Arts when, two months into the struggle, the newspapers announced that they would hire nonunion workers to replace the striking workers. Eventually, the papers hired about 1,600, according to union accounts of the strike, and Communicating Arts found it suddenly faced a choice of whether to offer credit union services to the new, nonunion workers.
"It was a very difficult and controversial decision," explained Communicating Arts CEO Hank Hubbard. Hubbard did not become CEO of the credit union until the strike had begun to wind down, but he worked as an information technology consultant for the CU at the time. "Communicating Arts had some strong union members on its board, though not all of them were, and I believe there were some very hard words over whether or not to offer credit union membership to those nonunion workers," he said.
But in the end, Hubbard explained, a sense a fairness prevailed. "The new workers were part of our field of membership, and I think the board thought it would not be fair or just to not offer them a chance at being credit union members," Hubbard said. "I still think highly of the chairman and the board for the way they handled that decision."
But when it opened membership to the nonunion workers, Communicating Arts soon discovered that it had opened the door to broader change. Because the nonunion workers the credit union had coming in as new members were not like members Communicating Arts had ever had before, Hubbard said.
Prior to the strike, Hubbard recounted, Communicating Arts had almost exclusively members who had long job histories, lots of experience at being employed, solid and predictable credit histories and scores. But the new members coming in as a result of the labor conflict were an entirely different sort of member.
"To begin with, to take one of those nonunion jobs in 1995 and 1996, you had to be someone who was pretty desperate to work," Hubbard said. "And that meant they were often coming from the ranks of the long-term unemployed. They often had sharply lower credit scores than we were used to seeing, had much lower savings rates and were oriented a lot more toward transactions than we were used to. They often lacked financial education and savvy," Hubbard added.
Hubbard said listening to the new members and learning how to better meet their financial needs gave the credit union an expertise in working with lower-income members. And Communicating Arts would have to call upon those skills more quickly than they might have expected.
Another wave of new members came after Detroit legalized casino gambling in 1997. By 1999, the first of what would become three gambling casinos was up in running, and Hubbard said Communicating Arts saw a need.
"We realized pretty quickly that these folks [working in the casinos] were pretty much the sort of people we were already serving and that they would need the same sorts of services the others did," Hubbard said. But casino workers were far outside the credit union's field of membership at the time, so the credit union approached its regulator and changed its field of membership to be able to include the casino workers.
About the same time, Hubbard said, Communicating Arts leaders and staff began to shift in the way that they thought about the credit union.
"Communicating Arts was always firmly rooted in the credit union philosophy," Hubbard said. "The member and serving the members always came first." But the credit union also gradually began to expand its vision of who its members were or could be. "We came to realize that this work we were doing with our lowest income members was the work that came closest to the heart of what it meant for us to be a credit union. It was a big part of why we exist," he added.
The biggest step along that path came in 2008 when the credit union decided to open a branch, not in a wealthier, upper-class suburb outside Detroit. Instead, it opened the branch in a separately incorporated city, Highland Park, that is located within the heart of Detroit.
"When I told people we were getting in a new branch, they are often all excited and congratulatory until I tell them where it is. And they say, 'Are you sure you want to put one there?'" Hubbard said, chuckling. "I think part of them could not believe it."
There was a lot about the move that would seem to challenge belief. Shortly before the credit union opened the branch, Highland Park had gone bankrupt. It had not been able to maintain its own police force. It had no other financial institutions, Hubbard said, except for payday lenders, check cashers and pawn shops. But where other people saw little but challenges, Communicating Arts saw opportunity and a chance to help make more of a difference in its community.
And so far, it has paid off. According to the credit union's September 2009 Call Report, the last for which there is data on both the credit union and its peers, Communicating Arts has a higher net worth ratio than its peers and, at least since last September, a significantly higher return on average assets. But, as Hubbard points out, the credit union also has significantly higher default rate on its loans than do its peers, a higher charge-off rate and higher expenses.
"What people don't understand is how expensive it is to be poor," Hubbard said. "We have a membership which is very transactional, tends to be suspicious of direct deposit and sometimes has unstable income. As a group low-income members are just more expensive to serve."
It's not always easy. Hubbard maintained that there have frequently been discussions among the credit union leaders about the extent that users of the credit union's more mainstream products subsidize losses in the products used primarily by lower income members. But the discussion always comes back to their purpose as a credit union and who they are meant to serve.
Its increased level of transactions helps Communicating Arts have a significantly higher fee income ($1.7 million) than its peers, a fact that Hubbard attributes to the number of transactions CACU's member's make compared to members of other credit unions and helps offset losses in other areas, he explained.
Even though Communicating Arts is a community development credit union and has the NCUA's low-income designation, Hubbard believes the credit union has spent most of its life as both a low-income and community development credit union as well as a mainstream credit union. Having been a member of both categories lets Communicating Arts lead the way for other credit unions that have also begun to expand their ideas on who their members are and how they can best serve them by both going to where they are and offering them the kinds of products and services they need.