At Opportunities CU, It's Not `No' But `When?'; Wegner Award Winner Trying to Penetrate its Unbanked Potential

BURLINGTON, Vt. – Most credit union executives would cringe if 50% of their members were not bankable. But for community development credit unions, including Opportunities Credit Union, that’s why they exist. When it comes to loans, the word “No” becomes “When?” How soon can they help a member reach a financial status that makes a loan possible? OCU is in the midst of trying to compile more data on its members. But research by the University of Vermont a couple years ago indicated 43% had annual household incomes below $20,000, and 76.5% below $40,000. Forty-two percent had a high school education or less. OCU has already recorded a couple significant events this year. In February the credit union changed its name from Vermont Development Credit Union. That same month OCU received the National Credit Union Foundation’s 2005 Herb Wegner Award to an outstanding organization. The credit union expects to record a couple more significant events this year. If details are ironed out as expected, in May the credit union will formally take over a loan fund that allows people with disabilities to purchase items such as wheelchairs, scooters, hearing aids, adapted computers and vehicle lifts. Also in May plans call for opening an outreach office in Rutland. That will allow the credit union to move a step closer to its goal of having a location within an hour’s drive of every Vermonter. OCU is the state’s only community development credit union. OCU President Caryl Stewart, who received the U.S. Small Business Administration’s 2004 Financial Services Advocate of the Year award, explains the credit union has actually administered the loan fund for the disabled for 10 years. The fund was established by the federal government under the Americans with Disabilities Act. Every state was eligible for a grant. “It’s a typical example of a nave expectation that anyone can operate a loan fund,” Stewart says. “A non-profit organization got the fund and simply didn’t have the skills to make loans and collect. We realized we might be of service. “The fund came complete with a loan board. We trained the board. They came to respect our expertise and became pretty sophisticated about what a financial institution could do. If the money comes to us as a grant, it becomes capital. We can leverage it with deposits.” The state was reluctant to turn the fund over to a private entity. But the fund kept getting loaned out. Eventually the state agreed it would be wise to turn the fund over to OCU. It turns out there is one pot of money totaling $800,000. The credit union helped the state write a grant application for another $600,000. This time the federal government said the state must pass the money through. But it can’t come to the credit union. So all this is being handled through a Byzantine complex of organizations that includes the credit union, the credit union’s own 501(c)3 offshoot, and an umbrella 501(c)3. A five-year plan calls for the adaptive loan funds to grow to $2.2 million and become self-sustaining. Is there enough demand for the potential amount? “There’s no question,” Stewart says. “The state did a study and found something like one out of every four families responding had at least one person in the family who could use that kind of fund. What we will do once we get those funds under our total management is be a lot more creative about marketing them.” The office in Rutland also reflects some creativity. The expansion manager hired for that office won’t put in much time behind a desk. Although she will have a base at Heritage Credit Union, she will devote many hours to roaming a three-county area. Heritage is providing a lot of high-tech help. OCU, in turn, will train Heritage staff in making mortgage loans to low-income members. “We have not used the word `branch,’” Stewart notes. “She will have an office and some specific hours but she will spend a lot of time in her car. We probably already have 1,800 members in those counties. We have relationships with organizations we’ve worked with, and there won’t be any problem meeting someone in, say, Bennington. She’ll arrange to meet them at so-and-so’s office.” The Rutland undertaking will serve as a test for what OCU hopes will eventually become a presence in five areas covering the entire state. “We like to think our entire operation can be defined as community economic development. We’re been defined in Vermont statutes as both a community development credit union and a community development financial institution,” Stewart explains. “We’re a community development financial institute as defined by the U.S. Treasury, which enables us to compete for capacity-building funds. It all fits our self-definition as a grassroots community development investment organization,” Stewart says. As far as Stewart is concerned, the lesson OCU offers to mainstream credit unions is it’s possible to target a low- and moderate-income population, do it successfully with market-rate loans, and avoid risk-based lending. It does mean, she adds, giving up some profits. It requires counseling-based lending, which is more labor-intensive than a loan to a typical credit union member. When 50% of your members are not bankable when they first come to you, you can either tell them you can’t serve them or you can decide they are part of your target market and you will work with them until they are bankable. High on the list of needs are loans for used cars to get members to jobs. “I like to call that the most basic economic development loan there is,” Stewart says. “I don’t think that will ever go away. The other thing is those 50% who aren’t bankable have credit problems and they may not be very sophisticated about money management. “So we’ve created a loan process that enables those who are motivated to begin to understand savings and credit. It is what we call a tracker loan, based on the idea of being on track. It’s a loan tailored to what they can manage at the time and put into a separate savings account. They essentially pay themselves. They show us they can make their payments on time and they create a small asset for themselves.” Raising enough capital is a challenge, as well as helping the regulatory bodies become more knowledgeable about this market. “If there’s ever a rationale for credit unions, we’re the best example of it,” Stewart declares. -