What follows is a case study excerpt from the Hispanic Opportunity Report developed as part of the California and Nevada Credit Union Leagues’ newly formed partnership with Coopera.
With 80 percent of its members identifying themselves as Hispanic, First Imperial Credit Union (FICU) of El Centro, Calif., knows the importance of catering its products and services to serve the specific needs of this influential community.
Headquartered in close proximity to the U.S.-Mexico border, El Centro is situated in the Imperial Valley, one of southern California’s larger agricultural communities, attracting field workers and laborers from Mexico. Because of the seasonal nature of Imperial Valley work, the region suffers a 28-percent unemployment rate and a history of financial instability. Financial institutions (FIs) tied to the long-standing practice of lending money based solely on credit scores have had trouble realizing the growth potential and revenue opportunities that can come from properly serving the Hispanic market.
When now President and CEO Fidel Gonzalez joined FICU in 2009, he understood to successfully serve the local Hispanic population the credit union would need to change its lending philosophy. “Most Hispanics are in need of financial services, and they are frequently turned away from other FIs because of their credit scores and employment history,” said Gonzalez. “They need FIs who are willing to take a chance on them. So, FICU adopted a new lending structure allowing our credit union to place more emphasis on a member’s ability to pay moving forward, rather than on past delinquency.”
To do this, Gonzalez worked closely with his staff and industry. First, the team altered the credit union’s practice of using a member’s credit score as an approval mechanism. Rather, Gonzalez encouraged his team to focus on the member’s employment status, working to approve loans for members with 12 months of work history and able to maintain their existing trade lines. The staff also reviewed an applicant member’s credit history to better understand other financial obligations and the types of loan applicant members could afford. Under the new lending structure, a member’s credit score became a pricing tool in the loan application process, rather than a deciding factor.
According to Gonzalez, FICU today works with members to book a series of small loans, starting with $500 and working up to larger loans as credit improves. “We want members to be successful. So together we set realistic goals, loaning to them based on what they can afford,” said Gonzalez. “We impose credit limits to offset the risk, and we educate our loan recipients on the importance of paying — if they pay us, we’ll lend to them again. That’s a powerful motivator for our Hispanic members.”
To supplement its loan-builder program, Gonzalez also instituted the Opportunity Checking program at FICU. The program is designed for any member who has been denied a checking account in the past because of account mismanagement or a Chex Systems record. The goal of the program is to re-establish members into normal financial services and encourage them to stop using check-cashing establishments that charge high fees for access to cash.
Members open an Opportunity Checking account for $50 and are charged a $10 monthly maintenance fee to receive many of the advantages of a traditional checking account, including an ATM or debit card. The cards carry lower limits, but there is no minimum balance required and the accounts offer free home banking and bill pay. After 12 months, the Opportunity Checking account converts to a regular checking account that includes overdraft privilege, regular ATM and point-of-sale (POS) limits and other perks.
“The feedback from our members has been extremely positive,” said Gonzalez. “Because many of our members get paid weekly, the monthly fee is small compared to the 3- to 5-percent check-cashing establishments typically charge. This program is a win-win — Hispanics are gaining access to the financial services they desperately need at prices they can afford and with terms they can meet, and the credit union is able to capture lending activity that would have been lost had we not created a relationship.”
In the 18 months since Gonzalez and his team implemented these new programs, FICU opened 330 Opportunity Checking accounts and realized nearly $40,000 in fee income. The credit union also booked more than $1 million in loans and increased total net membership by 1,958 members, a 17-percent increase in a year and a half.
For FICU, Gonzalez concluded that “Making a Difference, One Member at a Time” isn’t just a clever marketing slogan. Rather, it’s a true reflection of the credit union’s commitment to innovation – stepping up to provide fair, dignified and affordable services to a deserving group of influential members.
