Importance of diversity. Source:Shutterstock.

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When Franklin D. Roosevelt addressed a group of credit unionleaders in Georgia in 1929, he praised them for the moral characterof their work and then told them about a local black farmer whocouldn't get an affordable loan from a bank a few yearsearlier.

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The tenant farmer had saved $100 for a down payment on a 40-acreplot selling for $400. Banks and individuals would not grant him amortgage for less than 14% interest.

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"At that time, money rates were low and about all you could geton good bonds or for a good mortgagee was around 5% or 6%,"Roosevelt said in a speech covered by The New York Times.

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Roosevelt and the farmer agreed to a mortgage at 6%. "I let himhave the money and it is almost paid off now," he told members ofthe Credit Union League of Georgia.

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That Roosevelt would address the issue of credit unions with astory that involved race in the South was no accident. Access toaffordable credit was a key issue across the racial chasm, and inthe coded language of the time, Roosevelt was making clear that hisvision of fairness could cross racial lines.

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Moreover, it proved to be no mere rhetorical gesture. Rooseveltwas then governor of New York, and speaking five months before thestock market crash that would mark the beginning of the GreatDepression. Its onset and his ability to build a broad and intensebase of support allowed him to wrest the presidency from anincumbent in 1932, begin the first of four terms in 1933 and sign anational credit union bill a year later.

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NCUA Board Chair Rodney Hood mentioned that bill's signingduring a speech in Charlotte, N.C., in August at the conference ofthe African American Credit Union Coalition, which he noted was hisfirst speech since taking office in March.

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Hood said diversity and inclusion have been fundamental to thehistory and mission of credit unions. "From their beginning, creditunions were intended to serve people of modest means, who had beenoverlooked by traditional banks."

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He added, "From their very beginning, credit unions havefostered greater financial inclusion and an opportunity for sharedprosperity for all Americans."

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The argument for pushing for more diversity and inclusion isalso supported by demographic trends that are "changing around usvastly and rapidly," Hood said. "This is a time of seismicchange."

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Census projections show that non-Hispanic whites will become aminority by 2045, and by 2027, they will be a minority among those18 to 29.

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The non-Hispanic white population grew by almost none from 2010to 2018, and is projected to decline in coming decades. Meanwhile,minority populations, especially Hispanics and Asians, are expectedto grow significantly.

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"We know the United States has experienced a period of rapid andunprecedented demographic transition," Hood said. "That transitionpresents both challenges and opportunities."

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In fact, research by CUNA Mutual Group in Madison, Wis., foundmulti-cultural consumers account for 100% of U.S. population growthand 61% of credit union growth over the past five years.

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Eric Hansing, CUNA Mutual's vice president for corporatestrategy, said credit unions generally mirror the ethnic, racialand income profiles of the communities they serve. One gap is amongHispanics, where about 10% of credit union members are Hispaniccompared with about 18% of the population.

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But credit unions will have to keep up with rapid demographicchanges.

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"In every community all across the country, the communities thatcredit unions are operating in are becoming more diverse," he said."It matters. Organizations that are thinking about the future arethinking about the implications of that."

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To remain relevant in a changing marketplace, credit unions needto continue to serve diverse members and deepen their reach,Hansing said.

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Low-Income Designated Credit Unions and Community DevelopmentFinancial Institutions are programs that many credit unions use toreach more broadly into their communities, Samira Salem, a CUNAsenior policy analyst, said.

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"Credit unions have a long history of reaching and servingdiverse and underserved populations," Salem said. "Reaching andserving diverse populations matters now more than ever becauseaccording to U.S. Census population forecasts the U.S. is becomingincreasingly diverse."

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Financial inclusion also matters because new congressionalleadership as well as regulators have made clear it's a priorityfor them, Salem said.

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One measure of diversity is the Federal Reserve's Survey ofConsumer Finance for 2016, which showed that credit unions andbanks each serve about 34% minorities.

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"This is impressive because, unlike banks, credit unions mustcomply with field of membership rules," Salem said.

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The data also shows credit unions serve more African Americans:17% for credit unions, compared with 12.8% for banks and 13.4% forthe U.S. population.

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However, credit unions served only 6.8% Hispanics, compared with10.5% for banks and 18.1% for the U.S population.

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Salem completed a study this summer of how credit union and bankbranch locations are related to diversity and inclusion. Heroverarching question was: "What does that say about theirpriorities about members and serving members?"

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Branches are expensive assets for financial institutions, andcredit unions have far fewer of them than banks. "We know thatplace matters," she said.

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Her finding: Community-chartered credit unions located a higherpercentage of their branches in low-income areas, as well as inmiddle- and moderate-income areas, while banks tended to place ahigher percentage of their branches in higher income areas.

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Her study found that among community-chartered creditunions:

  • 6.3% of branches were in low-income areas, compared with 5.3%of bank branches.
  • 70.9% of branches were in middle- and moderate-income areas,compared with 65.9% of bank branches.
  • 22.7% of branches were in upper-income areas, compared with28.8% of bank branches.

One of the most detailed sets of data for diversity amonglenders is collected under the Home Mortgage Disclosure Act. In2017 it contained records for more than 5,000 lenders of all types,including 1,702 credit unions. Those credit unions granted nearly1.2 million real estate loans from home equity lines of credit toinvestments in apartments.

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CU Times analyzed 433,647 first-lien purchase mortgages made by1,528 credit unions. These mortgages were narrowed to those forowner-occupied single-family homes, including manufactured housing– criteria selected to match national reports for all types oflenders. In all, the credit unions lent $101.3 billion, or $233,700per mortgage, in an area where minorities accounted for 25% of thepopulation. The analysis shows:

  • 40% of credit union loans went to families making less than themedian income for their metro area, compared with 30% forbanks.
  • 13% of credit union loans went to households making 100% to120% of the median metro income, compared with 10% for banks.
  • 47% of credit union loans went to households making 120% ormore of the median income, compared with 60% of bank loans.
  • 19% of credit union loans went to African Americans, Hispanicsor other minorities, compared with 25% of bank loans.

A CUNA study of a broader set of HMDA data also found banksoriginated a higher percentage of mortgages to minorities thancredit unions, but the difference was narrower: 20.3% for creditunions versus 21% for banks. Moreover, looking more closely at thedata, it found credit unions originated a higher percentage ofloans to blacks and Hispanics.

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The study by Salem found credit unions granted 6.6% of mortgagesto African Americans, compared with 5.2% for banks. Credit unionsgranted 7.9% of loans to Hispanics, compared with 7.3% forbanks.

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Salem said CUNA focused on community-chartered credit unionsbecause they have no restrictions on where within their servicearea they will invest in placing a new branch.

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"You don't locate, for example, in the Ford plant, becausethey're Ford employees," she said. "You actually choose a communityto locate your branches in."

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Jim DuPlessis

A journalist for decades.