Recently, I had the opportunity of spending several days with the remarkable people at a Large Community Credit Union. The purpose of my visit was to identify sustainable opportunities for expanding its outreach of products and services to a large and growing low-income population. To accomplish the task, I reviewed all aspects of the credit union’s products, services, management, and operations that could help or hinder a successful expansion to serve a low-income market. Several themes emerged from the team interviews, which included feedback from teller supervisors, middle management, the executive management team, and the president/CEO. The overriding message received from each level of the team was a deep desire to do more to help the credit union’s membership and the community as a whole. This desire was accompanied by a real sense of urgency to find more effective ways to help more members (and potential members) who were struggling financially. The intent and desire expressed by the team collectively was inspiring. The financial needs of the people living in their low-income communities is great and, truly, this credit union is ready to take its (already great) impact to the next level. At the end of the task, during a debrief review of the opportunity at hand, the CEO summed it up best for all of us, saying: “It’s time to kick ass.”
Working towards the next 100 million
CUNA reported earlier this month that credit union membership in the United States had reached and exceeded the 100-million mark. It’s remarkable that one in three Americans now belong to a credit union. It will be interesting to see how quickly we reach the next 100 million, and how different that group will be from the first. Collectively, the next 100 million members will be younger and much more diverse. It’s possible (likely) that some of the products or services we will be offering when the next milestone occurs have not even been thought of yet. Getting to the next 100 million is going to require lots of change, new emerging markets, new ideas, new mistakes to make, new risk to manage, more investment, and a continual focus on our philosophical roots, keeping all that we do about the people and communities we serve.
Competition for loan growth
Credit union loan balances are expected to increase 8 percent next year, seeing increased mortgage, auto and credit-card growth. Consumers will be feeling more confident from rising home and investment values, and this will encourage borrowing. Light vehicle sales are expected near 17 million units in 2015, which is the best that has been seen in years. This forecast is encouraging! However, the competition for each loan will be hard-fought. Successful credit unions will be very proactive (aggressive) to earn each dollar of loan growth – they will not be waiting idly for the next loan application to walk through their front door.
I estimate that about half of all credit unions will not grow loans next year. I spend a lot of time in many credit union markets. I typically find that between 60 and 70 percent of all loan growth is achieved by a handful of the largest credit unions in the area or state. For those credit unions not experiencing meaningful loan growth today: it’s going to take a kick-ass attitude to make it possible next year.
Leveraging resources to expand service to underserved markets
Balancing purpose with profit brought us to where we are collectively today. We changed lives for the better and we prospered. We cannot afford to overlook the lower-income and other emerging markets in our areas. They drive cars, but seldom new ones. They earn paychecks, but not big ones. Many own homes. Most pay taxes. Half are married, and nearly half live in the suburbs. None is poor, but many describe themselves as barely scraping by. Down, but not quite out, these Americans form a diverse group sometimes called “near poor” and sometimes simply overlooked, and a new count suggests they are far more numerous than previously understood. The number of Americans either in poverty or considered “near poor” sits at approximately 100 million people. And we have already agreed that that is a significant number.
Today, there are more than 2,000 credit unions that have been designated by the NCUA or their state regulator as low-income credit unions, and more will become so with the specific intent to better serve these lower-income communities. These credit unions will leverage the regulatory benefits that accompany the designation – access to secondary capital, exemption from the MBL cap, grant funds, and other benefits – to reach and serve more people. I have seen secondary capital for credit unions, and it is a beautiful thing!
As of today, there are hundreds of credit unions with applications in process to receive the coveted CDFI (Community Development Financial Institution) designation from the U.S. Treasury. By year’s end, the National Federation of Community Development Credit Unions estimates that there will be more than 300 CDFI-certified credit unions. Why the rush? These credit unions intend to leverage the (up to) $2 million in grant funds available to increase lending into these communities. On average, CDFI credit unions leverage each grant dollar into 10 loan dollars. What can a credit union do with $2 million in loan loss reserves or secondary capital? Kick ass.
Some of the most relevant, impactful, profitable, and fastest-growing credit unions in our system today are low-income designated. Providing affordable access to underserved consumers gave birth to and supported our first 100-million milestone. I pray that that vision will expand and help us reach the next 100-million mark.
Lace your boots up and let’s start kicking together!