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Building Community Assets: Growing Lower-Income Credit Union Membership through Community and Credit Union Partnerships

June 25, 2008

This report details the partnership process and lessons learned from a two-year technical assistance program designed to help community organizations partner with mainstream credit unions with the goal of enrolling new lower-income members or expanding an existing partnership. The case studies describing these partnerships identify four strategic areas through which partnerships can be strengthened and the common barriers to developing a successful partnership can be overcome.

Cooperative Credit: How Community Development Credit Unions are Meeting the Need for Affordable, Short Term Credit

May 1, 2007

This report summarizes an 18-month evaluation of the affordable payday loan alternative products offered by six community development credit unions. In addition to describing loan activity, the report identifies the financial and operational factors that account for the program's success.

Building Community Assets: A Guide to Credit Union Partnerships

November 1, 2006

The purpose of this guide is to help community organizations enable their members to join a mainstream credit union and begin building modest assets. Many credit unions offer financial products and services tailored to the needs of low-income people, but mainstream credit unions have not historically reached this population. Partnering with community organizations expands a credit union's membership while giving community organizations the tools to help their members build assets.

A Lifetime of Assets - Asset Preservation: Trends and Interventions in Asset Stripping Services and

September 26, 2006

This paper focuses the increase in high cost consumer and home mortgage debt as a dangerous threat to asset preservation and examines the Consumer Rescue Fund, innovative program administered by the National CommunityReinvestment Coalition (NCRC) that employs several strategies that enable consumers to preserve home ownership in the face of foreclosure by high cost lenders.

Reinvestment Alert 25: New Terms for Payday Loans - High Cost Lenders Change Loan Terms to Evade Illinois Consumer Protections

April 13, 2004

Describes changes in the Illinois payday lending industry since 2001 when state rules regulating the industry were approved.

Financial Services for People of Modest Means: Lessons from Low-Income Credit Unions

March 1, 2004

Describes the regulatory and other industry trends that impact the penetration of lower-income markets by credit unions. The report recommends that the Community Reinvestment Act (CRA) be amended to include credit unions.

The Foundation of Asset Building: Financial Services for Lower-Income Consumers

January 14, 2003

As many as 22.2 million U.S. households comprising about 56 million adults are unbanked. Thisstaggering figure points to a crisis in the bifurcated financial services world where some consumers do not have access to mainstream financial institutions. These households are disproportionately lower-income and minority. Households that do not have bank accounts are disadvantaged in several ways. They spend up to three times as much for basic services using check cashers than consumers with accounts at mainstream financial institutions. Unbanked consumers also lack access to instruments like savings accounts that encourage modest savings. Further, the unbanked may not be able to establish a credit history, which has implications for future credit applications and for employment and insurance coverage. This report, "The Foundation of Asset Building: Financial Services for Lower-Income Consumers", describes some of the best practices in the banking industry to reach low-income, unbanked consumers. These practices include affordable checking or lifeline accounts with account opening criteria and other features that are appropriate for lower-income consumers, innovative financial literacy programs, and creative outreach and marketing strategies. This report explores the financial sustainability of these account products and observations from the bankers on strategic factors of success. An inventory of lifeline banking resources comprises the last section of this report. This report profiles the Acceso Popular Account at Banco Popular de Puerto Rico, Cash and Save Program of Union Bank of California, First Bank of the Americas in Chicago, First Interstate Bank in Montana and Wyoming, and Wells Fargo Bank Wisconsin's participation in the Get Checking Program. The case studies reveal that lifeline banking does more than reduce the number of unbanked consumers; it can also be financially sustainable for the bank. Our basic finding is that banks with a commitment to reach unbanked or under-banked households can do so effectively and efficiently. Some financial institutions claim that it is not financial sustainable to serve such consumers and communities. However, the banks profiled here have demonstrated that with energy and creativity, it is possible to provide retail banking services to people previously considered unprofitable customers.

Critical Capital: How Secondary Capital Investments Help Low-Income Credit Unions Hit Their Stride

May 14, 2002

Credit unions that serve predominantly low-income consumers or low-income credit unions (LICUs) tend to be smaller and experience greater challenges maintaining adequate net worth than mainstream credit unions or banks. Concerns regarding adequate net worth have increased since the National Credit Union Administration (NCUA) approved "Prompt and Corrective Action" (PCA) regulations in August 2000. PCA is an early warning system that is used by NCUA to identify credit unions that are not sufficiently capitalized. NCUA has developed several policies to support LICUs, such as allowing them to accept deposits from non-members. In 1996, it approved a regulation that allows LICUs to increase their net worth by accepting secondary capital investments. The NCUA Board intended that the additional capital be used to support increased lending and services. Therefore, applicants are required to submit a long-term business plan to NCUA that describes how the secondary capital will promote institutional growth and stability and help the credit union achieve its goals.

Reinvestment Alert 16: Affordable Alternatives to Payday Loans: Examples from Community Development

May 8, 2001

The payday loan industry, which enables borrowers to take out small loans for a term of two weeks or more, has tapped a market opportunity. Virtually unheard of in the early 1990s, the number of payday lenders nationwide is currently estimated at 8,000-10,000. Borrowers can use a payday loan to pay for car repairs, medical expenses or other emergencies and then repay it when they receive their next paycheck.However, payday loans carry a very high cost. In Illinois, where no usury laws exist, the cost of a payday loan is typically 20 percent of the amount borrowed. The annual percentage rate of these loans can be over 500 percent. As the number of transactions (loans or rollovers) grows, the cost of the loan increases. For instance, if a consumer takes out a $250 loan and takes six weeks to repay it, the total loan cost is $150. The cost of borrowing $250 rises to $650 for 26 weeks and to $1,000 for 40 weeks.Despite industry claims to the contrary, a Woodstock Institute analysis of data collected by the State of Illinois determined that the average payday loan is rolled over 13 times. Woodstock Institute analysis also documents that payday loans are often made to lower-income borrowers and may create a greater burden for minority borrowers. Such costs can easily trap lower-income consumers in a downward spiral of debt.

Reinvestment Alert 15: Community-Bank Partnerships Creating Opportunities for the Unbanked

June 14, 2000

Lower-income consumers often experience severe challenges to accessing basic financial services. This alert describes how the Financial Services Task Force of the Chicago CRA Coalition, in partnership with Chicago area banks, is expanding opportunities for lower-income consumers to establish deposit accounts, improve their financial literacy, and develop assets. The Alert begins with an explanation of the importance of asset development and the role that being unbanked and/or having poor financial literacy skills plays in impeding wealth accumulation. It then identifies account features that the Coalition determined are integral to lifeline banking for lower-income consumers, including the role of marketing and financial literacy training. Partnerships between the Services Task Force of the Chicago CRACoalition with Bank One, LaSalle Bank, Old Kent Bank, and Charter One Bank FSB are then described, and opportunities and challenges that other organizations may face in developing similar partnerships are outlined. The Alert ends with a description of how to evaluate lifeline banking programs.

Accessing Markets and Fortifying Entrepreneurship: Sectoral Approaches to Microenterprise Development

March 1, 2000

The purpose of this study is to document two microenterprise sectoral programs. Rural Ohio's Appalachian Center for Economic Networks (ACEnet) Food Ventures program enables local food specialty processors to access regional and local markets. Chicago's Women's Business Development Center's (WBDC) Apparel Roundtable fortifies entrepreneurship by facilitating peer support for lower-income entrepreneurs who design and assemble clothing. The technical assistance, mentorship, and networking services of each program are described as well as how the programs affect job creation, increase sales and improve entrepreneurial capacity. Last, the advantages and challenges of this approach to microenterprise development are identified. This report begins with a background on business networks and descriptions of microenterprise development and the adoption of sectoral networks by microenterprise support agencies.