The ongoing economic downturn has caused credit unions to rethink strategies for reaching out to lower income communities, but, so far at least, it has not killed most of them outright. Instead, there are signs that reaching out to lower income members might move beyond occupying a specialized niche and more into the CU mainstream, according to executives tied to nationwide credit union efforts to help lower income communities.
First the bad news. The immediate impacts of the economic downturn and the NCUA assessments for the corporate stabilization plan have resulted in some credit unions pulling back on their out reach efforts to lower income areas, according to according to Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions.
“Right now what we have noticed is a general cutting back on budgets in this area,” Rosenthal said. “Even among some of our community development partner credit unions, there has been a marked shifting of focus,” Rosenthal said. He added that the retreats have been more pronounced in states where the downturn has been worst, but have hit CUs in every state.
Community development partner credit unions are mainstream credit union with a strong demonstrated commitment to serving low- and moderate-income people and communities. These partner with community development credit unions through a National Federation program in the effort to improve their skills and gain training serving lower income communities.
Rosenthal characterized credit union's efforts to work with lower income communities as “playing defense” in the face of the current poor economy and hits credit unions have taken from the corporate stabilization program.
“Credit unions are closing branches in underserved areas and slowing or stopping different programs,” Rosenthal said, noting that the slowing effort could, in turn, impact the arguments credit unions face over the federal Community Reinvestment Act.
“Right now, the topic is coming up in Congress, and the work that credit unions do with lower income communities needs to be continued and documented. There are real regulatory concerns and stakes in all this,” he said.
Rosenthal acknowledged that some of the shift away from one sort of program working with lower income communities needs to be in the direction of another pressing concern: mortgage loan modification.
Rosenthal called modifying mortgage loans of homeowners at risk of foreclosure the leading priority of both community development credit unions and mainstream credit unions, even as those efforts are usually not aimed solely at extremely low income communities or members.
But the shift in mortgage modification also pointed to a way some products and services first aimed at the lowest income communities begin to migrate into overall credit union membership, according to Lois Kitsch, national program director for the National Credit Union Foundation's Real Solutions program.
Real Solutions is the NCUF program that seeks to discover successful products, services and approaches for reaching out to lower income communities at some CUs and then introduce them to other credit unions to use.
Kitsch acknowledged that, in some ways, the economic downturn is serving to broaden the pool of people in mainstream credit unions interested in the sorts of products and services originally thought to have been primarily for lower income communities. She noted in particular that payday loan alternative programs as well programs to help members away from predatory consumer loans.
Kitsch recounted how one of the Real Solutions credit unions that has a program in place to help lower income members refinance high-interest car loans recently helped a 70-year-old member out of a jam. Even though the member was not necessarily low income, she had nonetheless gotten herself into a card loan that, if it had run its course, would have seen her pay $30,000 for an $18,000 automobile.
“As the economic downturn has had an impact on employment and credit scores, we are starting to see more and more members who falling victim to some of the institutions that making it so expensive to be poor in America,” Kitsch observed. “Isn't it funny that we are going back to character lending as a result of all this?”
Kitsch said she has observed the ways that credit scores are starting to be a steadily less reliable measure of a borrower's reliability when it comes to repaying loans. Job losses, drastic reductions in real estate values and the continuing economic downturn have forced more Americans, including credit union members, out of the middle-income category and into having lower income and lower wealth.
“A number of CEOs have reported the phenomenon of 'jingle deposits' to us,” she said.
Jingle deposits are when a member puts their auto loan payment book and the keys to the car they have parked in the credit union parking lot through the credit union mail slot because they can no longer make the payments.
The important questions for both Kitsch and Rosenthal is how the economic downturn, particularly the high unemployment, will last and whether the changes being wrought in the American economy are more or less temporary or more or less permanent.
Rosenthal admitted to a significant pessimism. Recovery seems very far away indeed, he said, and the one bright spot that CDCUs have seen this year has been the revival of grants under the U.S. Treasury Department's Community Development Financial Institutions Fund.
But Kitsch saw optimism in credit unions' abilities so adapt to the changing economic demographics of their members and return, in a sense, to the member relations and focus that has been their traditional strength.
“I think, ultimately, we will look back on this time as a source of tremendous opportunity for credit unions,” she said.
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