Changing economic circumstances among its members have led yet another mainstream credit union to the realization that it has effectively become a community development credit union.
In a manner almost eerily reminiscent of the $30 million Communicating Arts Credit Union, the winner of last year's Credit Union Times Trailblazer Award for Outstanding Service to the Underserved, the $14 million Community Plus Federal Credit Union saw its community’s economic fortunes decline significantly after a local military base closed in 1993. Further, also like Communicating Arts, the credit union decided it had to meet its members where they were–even though that meant learning a host of new skills and applying for new classifications.
"We already had compiled a great deal of member census data when we converted from a state to federal community charter in 2005," explained Community Plus CEO Mike Daugherty. "In 2008, I met one of the NCUA board members at a conference, and they encouraged us to apply for low-income designation from the NCUA," he added.
Community Plus began life as a CU in 1943, when it was chartered to serve the civilian employees of the military services stationed at Chanute Air Force Base in the community of Rantoul, Ill.
The base had been established in 1917 as one of the earliest Army Air Service (later Air Force) installations and grew in later years as primarily a technical training base until it was closed in 1993. Community Plus had sought to insulate itself somewhat after the base looked like it might close in the 1980s by moving to a federal community charter, but that move could not mitigate against the tsunami of change that the closing of the base represented.
"The base population accounted for a great deal of business throughout Rantoul," Daugherty recounted. "Our population exceeded 20,000, successful businesses were here, and the housing market was strong. The officers from the base and many of the enlisted men’s families could afford to purchase or rent many of the homes in town."
But when the base closed in 1993, all that changed, primarily because of the population drop. Without the additional base population, businesses closed or moved to other communities, Daugherty explained. The housing market suffered, as sales were slow and prices depressed, and rental properties went begging. Rantoul’s population slipped to its current 12,000. And the makeup of that population had changed as well, he explained.
Not all the base buildings were abandoned. Some base housing was made available to civilians and some buildings, even with asbestos and other problems, were made available to entrepreneurs.
New residents of Rantoul now included low-income families who were attracted by the depressed housing market and the opportunity to get away from larger cities.
In many instances, they brought with them a lack of financial knowledge or ability to manage money, a challenge many other traditional or better known financial institutions did not wish to meet.
"We truly believe that education is the key for all people to better themselves and their lot in life," said Daugherty. "Without education, a person is limited to what they can do and what they can attain. In many instances, our new residents’ lack of education hurt their ability to responsibly manage their money."
"They had jobs, were able to rent or purchase a home, but over time their mismanagement of finances got them in trouble. Many were unable to get a loan or to open a checking account, the very things that help a person manage their life."
Daugherty explained that the credit union soon introduced a number of outreach and community-based programs to help the city’s new residents, as well as anyone else who might need assistance.
"Too often, low-income families rely on payday loan stores that charge ridiculous interest to be their financial institution," he pointed out. "People of limited means should not be denied access to professional financial assistance. We believe our programs and efforts have benefited a great number of people in the Rantoul and Champaign communities. We fill both an education and financial service void for these people," he added.
One of the things Community Plus found it had to do in a hurry was to apply to be certified as a Community Development Financial Institution by the Treasury Department’s CDFI Fund. But the Treasury upped the ante when it announced the creation of a Community Development Capital Initiative, a program through which the Treasury Department would loan CDFIs money for up to eight years on very favorable terms to use to supplement capital.
"That lit a fire under us," Daugherty admits, "because we knew that not only did we qualify, but also that the CDCI program and funds would be in great demand."
Daugherty gave credit to the National Federation of Community Development Credit Unions for the strong support it provided through the process, which involved applying for CDFI certification and a CDCI loan at the same time.
It worked well, he explained, because the CU got a $450,000 CDCI loan for use as secondary capital for seven years at a 2% interest rate with a one-time payback.
The credit union's management determined that making transportation available, by making auto loans, would be the primary use of the loan funds.
"Providing affordable auto loans serves several purposes," explained Daugherty, "not the least of which is that these individuals and families will have a means to get to and from jobs. Without transportation, it is even more difficult to find and keep a job," he added.
Additionally, he points out that the auto loans will be made with local and area car dealers, effectively benefiting local businesses and the local economy. "Increasing numbers of people are seeing the value and benefit of shopping local," he says. "Keep your dollars local. And that even applies to the financial institution where you do business. Credit unions are excellent at keeping monies–and business–local because they are owned and managed by people in the communities they serve."
Further, having auto loans on the credit union’s books as capital helps it grow, too, which, in turn, strengthens its ability to better serve its members and communities.
In addition, while the majority of loan funds will be distributed via auto loans, the credit union also will make credit builder loans. These typically are loans for small amounts, between $500 and $1000, with very low interest and an easy payback period. Such loans help people slowly build up their credit-worthiness and, in time, prove themselves as low risks for larger loan amounts.
"The big picture is to make sure we are serving the underserved, those who have historically been ignored by other institutions," Daugherty concludes. "As I said before, education is the key, and we believe that people inherently wish to improve themselves and their lives," Daugherty concluded.