Community Development Credit Unions must fight hard for survival early on

<p>WASHINGTON – What’s going on with community development credit unions? In the last six weeks the NCUA has liquidated one community development credit union and another has had to publicly take measures to confront specific problems. The latest, NCP Community Development FCU, based in Norfolk, Va. has begun a capital campaign in order to obtain the backing it needs to keep going. None of these cases share precisely the same roots, but they all point to the reality that starting up a community development credit union requires time, careful planning and access to deep pockets – and even then cannot be counted as a sure thing. “Our biggest problem was that there was no Credit Union Membership Act (CUMAA) when we started planning the credit union and by the time we opened it, there was,” said Jesse Fleming, CEO of the just over $1 million credit union. The chief problem with CUMAA has been the Prompt Corrective Action (PCA) requirements that, Fleming said, “have placed obstacles in our path that we didn’t expect to face so soon.” According to the NCUA, NCP had net worth of 1.53% in December of 2001, compared to an average of 17.98% among its peers. It has seven more years to bring that number up. NCP stands for Norfolk, Chesapeake and Portsmouth, the three “pretty distressed” areas that NCP founders hope to serve, Fleming said. Historically the area made its living on the shipyards, serving both the Navy and the commercial shipping industry. “But the shipyards have been downsizing for a while now and the only work they have available is maintenance of ships, not ship building.” Fleming said. The depressed nature of the area, combined with the absence of any minority-owned banking alternatives, led Fleming and other community leaders to begin planning and working to get a credit union charter in 1994 and were finally granted a charter in 1998. Aron Weisner, communications officer for the National Federation of Community Development Credit Unions (NFCDCU), said the long planning time was one of the things that differentiated starting a community development credit union from starting a faith-based credit union. “In starting a community development credit union there can be obstacles of public education about credit unions, there are more surveys to be done and more requirements in general,” he explained. Essentially, many of the types of things an established multi-SEG credit union would have to do in order to obtain a community charter, a group starting a community development credit union can also have to do, he noted. In addition to its capital problem, NCP also had anticipated using more volunteers than paid staff, a situation which did not square with the requirements of running a credit union in 2002, and so had to hire staff rather than volunteers, a factor which cut further into the credit union’s meager income stream. In 2001, according to NCUA, NCPhad a two-person paid staff at $13,803 per year, $438 under the average for its peer group. NCP went to a paid staff when it became clear that it could not get the long-term commitment and control it needed from volunteers. Fleming anticipates that the capital campaign, which was kicked off with support from the Virginia Credit Union League as well as local politicians and bank representatives, will serve as the first step in what will be an ongoing effort to “knock on every door possible” in search of the vital capital. But not every community development credit union starts so roughly. Weisner and other NFCDCU staff have been very pleased with the performance of Bushwick Cooperative Federal Credit Union, a $880,000 credit union that has only had its doors open for fifteen months but which, its CEO Jack Lawson is pleased to note, has seen 50 new members each of those months. “We aren’t out of the woods yet by any means, but we are doing OK,” Lawson said. Bushwick is based in Brooklyn, New York, and has a predominantly Hispanic field of membership in a community of about 110,000 people. Most of the population works in the low-pay garment industry jobs that “could be reasonably characterized as sweatshop jobs,” Lawson said. The average household income is $18,000 per year. Like NCP, Lawson said Bushwick’s start-up time had been about three years, “with the last 18 months being the most intense.” Like NCP, Bushwick’s organizers had to conduct detailed surveys of the community and faced a public education challenge. However, unlike NCP, Bushwick had an advantage in that the community’s population is heavily Puerto Rican and Ecuadorian, nations that have experience with financial cooperatives, and thus knew credit unions and were open to joining one. The organizing effort also benefited from an established network of PTA meetings, little league games, and neighborhood block parties which made conducting the surveys and education easier than it might have been. Bushwick also benefited from opening its capital campaign before it opened its doors, a fact that is reflected in its net worth of 8.39% which lags its peers 17.08%, but is a lot healthier than NCP’s 1.53%. Nonmember deposits have come in from credit unions and donors to the credit union in the form of grants include Citigroup and Chase Manhattan, in addition to the Treasury Department’s CDFI fund which granted Bushwick $100,000 on April 10, Lawson said, and it has given him the freedom to concentrate on “deepening and strengthening” the credit union’s loan program. Lawson also gave credit to the NFCDCU, which is also in New York, for helping with the training and mentoring the credit union needed and NFCDCU Executive Director Cliff Rosenthal clearly agreed. The NFCDCU runs a twice yearly Institute which is designed to bring community credit union leaders, organizers, and staff up to speed on what they will need to know to run a successful community development credit union. The full course of education runs six weeks, or three years at two weeks a year, Rosenthal added. In addition, NFCDCU is also establishing a new research arm of the organization that will study what makes community development credit union start-ups successful and documenting those practices so that others can emulate them. Rosenthal said that there are about 24 community development credit unions under five years old in various parts of the country and unknown number getting organized. One of the most recent organizing efforts belongs to the Hacienda CDC, a Portland, Oregon housing group that has applied to the state regulator for a charter to open the Hacienda Community Credit Union, an effort being supported by the Oregon Credit Union Association. Hacienda has been in contact with the Federation but has not entered into any training yet, according to Alan Hipolito, one of the credit union organizers. Rosenthal wished the group well but noted that community credit unions being chartered in states that have not chartered credit unions in a long time often face the most problems. “Both the organizers and regulators often underestimate what it takes to start a CDCU,” Rosenthal noted, “and it can be a feather in the cap for the chartering state. Everyone loves a newborn – whether a person or an institution – but sometimes few can be found for the funeral.”</p>