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PITTSBURGH – Citizens East Community Development Credit Union, currently a $322,000 CU headquartered on the economically depressed eastern edge of Pittsburgh, Pennsylvania, has turned to direct mail advertising to try to raise the money it needs to move back into a healthy capital position. “We know credit unions have a tradition of helping their own,” said Patsy Austin, CEO and Manager of the struggling institution. “We thought a direct mail letter would be one way to go about collecting the donations we needed.” “Our credit union is in trouble and we need your help,” the letter reads. “We were chartered in July 2000 with a low income designation and we have grown faster than our ability to make a profit. Therefore we are asking for a small donation of $500.00 to help us improve our net worth.” The letter is accompanied by a detailed document which outlines the demographics of the area as well as its economic deprivation and the vulnerability of its residents to the check-cashers and payday lenders that do business there. It also makes the point that the community has received the credit union well, helping the institution achieve a market penetration of 5% in its first three years of life. “Statistically many credit unions have not achieved this goal even though they have been in operation 30 years,” the credit union noted. But while Austin reported that Citizens has sent out “a ton” of letters to credit unions, moving down the alphabet state by state from Alabama through New York, the appeals for help have only garnered a little bit over a $1,000, and that includes a $500 donation that one credit union manager made out of his personal account. “We aren’t crushed but we are a little discouraged,” Austin noted Part of the problem so far might have been that the letters asked for donations from both federally and state chartered credit unions when, according to at least one credit union league, federal regulations prevent most federally chartered credit unions from making the sorts of donations that Citizens has solicited. The New York State Credit Union League has warned its FCU members not to help Citizens because federal regulations forbid FCUs from making such donations at a distance, even though the League acknowledged that the credit union’s need appeared genuine. Federal regulation permits FCUs to make charitable contributions and/or donate funds to recipients not organized for profit that are located in or conduct activities in a community in which the federal credit union has a place of business or to organizations that are tax exempt and operate primarily to promote and develop credit unions, the League explained. “Since this scenario does not fit into either of the above criteria-particularly the first one-FCUs in New York may not donate money to this Pennsylvania credit union,” the League said. State chartered credit unions have substantially broader regulations that would appear to allow them to make the donations, the League observed. Austin said she was puzzled to hear about the New York warning since Citizens had given a copy of the letter to their NCUA examiner before they had sent it off and she believed he had forwarded it on to someone else for approval. “Surely someone would have told us if we were asking federal credit unions to do something that was disallowed,” she said. Support Sought At Home First Austin said their examiner had been enthusiastic about the letter idea after the credit union’s initial attempt to find support closer to home had failed. Citizens had sought help from the Pennsylvania Credit Union Association, Austin explained, but had been turned down because, she said, they had been told the Association “had no money.” Michael Wishnow, vice-president of communications for the Association, explained the Association’s Foundation had money but that it did not make donations to credit unions to help with net worth. He said, and Citizens agreed, that the Foundation had made two grants to Citizens in the past to help with technical and training issues, “but we just don’t have any money for purely net worth needs,” he said. Citizens is also a member of the National Federation of Community Development Credit Unions and Austin said that while the Federation had been helpful in the past, including getting grant money, that she had not always been sure who she could have talked to there as the credit union’s financial problems deepened. Cliff Rosenthal, Executive Director of the Federation, was away from his office and declined comment on the specifics of Citizens’ situation without being able to check the organization’s records. However he did note that, in general, start-up credit unions, particularly community development credit unions without sponsors, can often find the first few years rough going. “Many smaller CDCUs do hit a wall at about the three to four year mark,” Rosenthal explained. “And that can be particularly difficult if they don’t have deep enough pockets.” Both Austin and Garland Hawkins, Chairman of Citizens East Board, chalk up the credit union’s current troubles up to inexperience on the part of the organizers and leaders as well as some advice that they might have misunderstood. “It took us eight years to get this credit union chartered,” Austin explained, “and since we don’t have a sponsoring organization, capital was always something of an issue.” She said that the credit union had been growing and drawing deposits as it became more known in the community. Hawkins noted that the credit union was not without financial experience as well, since it had one retired bank manager on the board, as well as a retired federal bank examiner on the supervisory committee. Citizens has kept its overhead low by keeping its paid staff to Austin and one teller and has generally tried to live within its means, Hawkins said. Austin said the problems really began after the credit union’s NCUA examiner, in September of 2002, had written up instances where he said the credit union had not been sufficiently aggressive in making loans. At that time, NCUA reports indicate Citizens had booked $331,000 in loans in 2002, but that almost $14,000 of them were at least 60 days delinquent and $5,000 had been charged off completely. But by December of 2002, 90 days later, NCUA records show the credit union had booked $672,000 in loans and had $41,000 delinquent, with $7,000 charged off, and by June of 2003, nine months after the write ups for not making enough loans, $56,000 of the $98,000 in loans that the credit union had booked that year had to be considered as lost. “We knew we wanted to be able to make the loans and help our members,” Austin said, “but we probably didn’t have the experience in lending that we really needed at that time.” Hawkins agreed but added that the credit union was learning from its mistakes and looked forward to helping to fill a real financial niche in the struggling community. “If there is one thing that has become clear from our three years here,” he said, “it is how badly this community needs access to a credit union.” -

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