Credit Unions Well Represented as Service Innovators
Five of the eight winners of the Center for Financial Services Innovation second round of Financial Capability Innovation Fund awards are either offshoots of credit unions, have credit unions partners or have a history of working with credit unions.
The eight winners will share a total of $2.5 million in grants. The CFSI did not release exactly how much each program received.
“The eight organizations funded this year offer fresh perspectives on the industry’s efforts to foster positive financial behavior and provide concrete mechanisms for meeting consumer needs in new ways,” said Jennifer Tescher, CEO of the CFSI. “By funding innovative programs like these, we seek to support promising interventions designed to transform the underbanked marketplace. We believe these programs will empower consumers to take greater control over their financial lives.”
The five winners include the Center for Community Self Help, a community development financial institution that is associated with a group of organizations that has grown out of the 39,000-member $580 million Self Help Credit Union, headquartered in Durham, N.C.
The organization will design a suite of small-dollar credit products to be launched across the credit union’s California branches, the CFSI announced. These will include a conventional overdraft line of credit linked to a checking account, an unsecured term loan and an overdraft line of credit with automatic repayment.
In addition, the CFSI said Self-Help will also use three distinct underwriting models to test their relative cost-effectiveness for facilitating the lending and repayment process. The conventional overdraft line of credit will feature default settings that encourage borrowers to pay down their balance at an accelerated rate. Borrowers of the other two products will be auto-enrolled in an offset savings account and interest will only be charged on the loan’s outstanding principal net of any accumulated savings.
“Self-Help is grateful to CFSI for this grant and the opportunities it creates,” wrote David Beck, policy and media Director for Self-Help, in response to the program announcement. “Self-Help intends to use this funding to advance a model for delivering small dollar credit that is accessible and affordable to consumers while simultaneously being sustainable and scalable to lenders. At present, the products offered by mainstream institutions generally are not accessible, affordable, or otherwise attractive enough to serve this market in a responsible and sustainable way.”
The second winner with a history of working with credit unions is the Doorways to Dream Fund or D2D. D2D was the organization that developed the idea of offering prizes to encourage savings which has been put into good effect in Michigan and other states.
The CSFI said D2D will design and launch SavingsQuest, a platform that will use a variety of gaming mechanics to increase consumer savings. Participating savers will be rewarded for demonstrating various saving behaviors, such as making regular deposits through a points-based system offered via an engaging and game-like interface. D2D and the Take Charge America Institute will test how the platform’s game mechanics affect cardholder savings behavior, providing insight to the underbanked financial services sector on how best to employ gamification strategies.
The third winner associated with credit unions is the Mission SF Community Financial Center, headquartered in San Francisco. Mission SF is an independent nonprofit organization that is partnered with Community Trust, another organization also branching off of Self Help Credit Union. Mission SF uses Community Trust, a division of Self-Help Credit Union. Through this partnership, Mission SF links its financial education and counseling participants with appropriate financial products and services provided by Community Trust.
The Mission SF program that won the grant will research which financial education and incentive approaches working best to help lower income young adults develop better financial management and savings habits. In the program, 800 lower income youth will be divided into four groups. Three of three groups will receive savings accounts and some basic education and incentives to start using them, but two of the three will also receive different degrees of personal attention from peers about the savings accounts. The fourth group will function as the control and not get any savings accounts at all.
The goal, according to Margaret Libby, Mission SF executive director, is to try to measure how much additional face to face attention from a trained peer is needed to get more impact from the savings program.
Libby explained that face to face contact with a trained peer is optimum in many ways, but it’s also expensive and time consuming to develop. Finding out how much face to face time is needed will help Mission SF learn how to replicate its savings program across a wider geographic area and for more people, she added.
The similarly named Mission Economic Development Agency, the fourth winner, is not an offshoot of a credit union, but has partnered with the 14,000 member, $104 million Cooperative Center Federal Credit Union, headquartered in Berkley, Calif., to implement its grant-winning idea.
In the program, MEDA and the credit union will allow participants at the organizations’ Volunteer Income Tax Assistance site to use some of their tax refund money to anchor a secured credit card. Participants in the program will then be offered guidance and counseling on how to manage their credit use and repay credit card loans on time, according to Jillian Spindle, Director of Development for MEDA. “The goal was to seize the opportunity,” said Spindle, who said that the money which could be used to anchor the credit card could be as little as $200 but which could still take a lower income client a great deal of time to save up outside of tax time.
The fifth winner to be involved with a credit union is Neighborhood Trust Financial Partners, a nonprofit organization partnered with the 3,500-member $9 million Neighborhood Trust Federal Credit Union to bring greater financial education and opportunity to the underserved parts of upper Manhattan and Washington Heights parts of New York City.
NTFP’s award winning program will work with employees of small and mid-sized firms to help them specify savings targets and then set aside a portion of each paycheck to flow into accounts set up to reflect those targets. The balance of the paycheck then goes to the employee. The program additionally provides pay stubs that reflect the progress made toward the goal with each passing paycheck, the CSFI said.