Jessica Encarnacion’s credit rating was in the mid-500s when she left her husband about five years ago, taking her son with her. The marriage, which was financially abusive, had destroyed his credit. She wanted to start her own business in Staten Island, where she lives, but the banks she consulted had high minimums for opening a business account.
It was only when she joined the Assets of $92 million Lower East Side People’s Federal Credit Union in New York, which offered her free financial counseling and a micro-loan to build credit, which Encarnacion said she began to turn around her fortunes. In about nine months, his credit rating increased by more than 100 points.
“I was getting a lot of credit offers. I mean, it really made a difference,” Encarnacion said. She eventually started two small businesses with support from LES.
Encarnacion, who identifies as mixed-race Afro-Latin, Caribbean, Caucasian and Native American, said another reason for his close relationship with LES was his comfort with the staff there. The country’s black consumers seem to prefer credit unions to retail banks; the most recent data from the Federal Reserve, from 2019, reveals that credit unions The rate of belonging to African Americans is 17.4%against 12.8% for banks.
FDIC data shows that approximately 5.4% of US households, or 7.1 million, were unbanked at the end of 2019, which means they had no checking or savings accounts. Black and Hispanic Americans are each about five times more likely to be unbanked than white Americans. While only 2.5% of white households were unbanked in the FDIC survey, 13.8% of black households were unbanked, and 12.2% of Hispanic households were unbanked — and the number of unbanked households is likely increased during the pandemicwrote the FDIC in its report, released in October 2020.
Credit unions view outreach to these demographics as important not only for membership growth, but also for providing services to consumers and small business owners who feel they are not being properly served by traditional financial institutions.
Break down the barriers
Leading Edge Credit Union, with $146 million in assets and headquartered in Worthington, Minnesota, has changed its name from Fudla Region Credit Union in July as part of its commitment to diversity, equity and inclusion. This involved improving its reach to underbanked or unbanked communities.
“Over the past two years, especially once COVID hit, we decided it was time to rebrand as we tried to focus more on things like DEI, on inclusivity, with all our members. Across all ethnicities, races, genders, we just want it to be all-inclusive,” said Melissa Gehl, director of marketing at Leading Edge.
In Minnesota, where Leading Edge is based, “a large majority of our members [are] Spanish speakers. English is not their first language,” Gehl said. Leading Edge hires bilingual interpreters to help members with their money and has a robust referral system for educating immigrants about banking through partnerships with community agencies, she said.
“People who are having difficulty in the community can go to the local crisis center or help center, and then they in turn contact us because they know that we have bilingual employees, or that we are simply a little non-judgmental, we serve the underserved,” Gehl said.
Leading Edge occasionally offers free presentations to educate Hispanics in its community partner groups about personal finance in the United States, with workshop topics ranging from banking and credit unions to using debit cards and buying a first home. This organically leads to membership acquisition. “It’s good because I don’t have to spend a lot of those marketing dollars,” Gehl said, adding that Leading Edge is frequently asked to do such presentations and partners with local employers to recruit and hire new talent in town.
Pablo DeFilippi, executive vice president of credit union service organization Inclusiv Network and former head of LES, sees a growing urgency to serve immigrant communities in light of the hardship caused by inflation.
“Even middle-class people today can’t afford to buy a car,” DeFilippi said. Yet the need to drive to work is often essential to having a job, despite the recent shift to remote and hybrid offices.
“In rural communities and in many communities, [if] you don’t have a car, you can’t work. Or if your car breaks down, you’ll lose your job. It’s like a chain reaction, so having access to affordable cars is really important,” he said. Credit unions that offer affordable auto loans could make a big difference, he said.
They did it for Cesar Cuevas, a 45-year-old bartender and son of Mexican immigrants who used cash only in America for years out of distrust of financial institutions. After joining Mission Federal Credit Union, a $5.4 billion credit union in San Diego, about eight years ago, Cuevas quickly got approved for a low-interest car loan and has since bought three cars (one for himself and two for family members). His credit score was around 580-620 when he started at Mission, and this year it was 780. Mission is working with him to plan a future home purchase, he said.
DeFilippi also encourages credit unions to continue funding entrepreneurship among immigrants and racial minorities.
“Because of language barriers or job skills in more specialized industries, many immigrants actually start their own businesses,” he said. “And it creates a lot of jobs. It helps revitalize communities, [yet] almost no traditional lenders provide loans to these communities. »
Start from within
Despite progress toward racial inclusion and increased diversity in hiring Over the past two years, industry leaders say outreach to underbanked communities remains uneven.
HOPE Credit Union, which is based in Jackson, Mississippi with $536 million in assets, is majority black and women-owned. Bill Bynum, CEO of the credit union, said this diversity can help guide crucial decisions such as branch locations to better serve the local community.
“When you have a financial institution owned or run by people of color, those institutions are more likely to have branches in communities of color,” Bynum said. “There just aren’t many traditional banks, or traditional credit unions for that matter, that lean in and prioritize serving the communities we serve back home.”
Data Consumer Financial Protection Bureau published in 2017 shows that in Mississippi, black borrowers earning more than $150,000 had a mortgage rejection rate of 34%, higher than the 28% rejection rate for white borrowers earning between $31,000 and $50,000 $ and 21% for white borrowers earning between $51,000 and $75,000.
Camesha Moody, a K-12 teacher in Mississippi who identifies as African American and Banks with HOPE, said she had been trying to buy a house for years, but Banks “had a lot rules and limitations” which delayed the process. While his credit was good with a score of 711, Moody’s had paid off large student loans, so many banks turned down his mortgage application. But HOPE called her back two hours after an initial phone check and approved her for a mortgage, making Moody the first person in her family to be a homeowner. She moved into his house in 2019.
“The main asset most families own is their home,” Bynum said, adding that access to products such as mortgages and business loans is how credit unions and banks can help. close the black wealth gap. In this regard, he said, “credit unions can do more to serve the underserved.”