NEW BRUNSWICK, N.J. — Internet Archive Federal Credit Union (IAFCU), a $2.8-million CU aimed at serving the burgeoning Mexican immigrant community here, is helping immigrants get their Individual Tax Identification Numbers (ITIN), their "passport" to legally working in the U.S.
And it's helping them do it without having to surrender their actual passports.
The ITIN is a tax-processing number issued by the Internal Revenue Service that is also available to undocumented immigrants.
Under Federal law, undocumented immigrants with ITINs are protected from deportation procedures since the IRS is barred from revealing their tax information data with other government agencies such as the Department of Homeland Security.
To obtain an ITIN number, an individual cannot qualify for a Social Security number and must have tax reporting responsibilities. An ITIN can only be applied for through the IRS and that application must also be filed with an individual's federal tax return.
Internet Archive FCU CEO Jordan Modell said that most of his credit union's current members have their ITINs — but those members who lack the number, or are awaiting it, are hamstrung since they cannot take out an unsecured loan nor build a credit history.
One of the key difference between IAFCU's ITIN program and other such programs is that the credit union doesn't require the applicant to surrender his passport.
Modell said most program require the immigrant to surrender his passport for two months while waiting for the ITIN to be issued, which can be a major barrier for many immigrants.
Chartered in 2012, the improbably named Internet Archive FCU has already reached its initial target of 500 members, but certainly has much more room to grow, Modell said. In fact, the New Brunswick-Highland Park area of New Jersey is currently home to an estimated 15,000 to 20,000 Mexican immigrants, most of whom work in local small businesses or in landscaping. Many are undocumented aliens.
With an extensive background in banking — including stints at Citibank, American Express, Chase and Bank of New York — Modell said Internet Archive FCU has also provided his credit union members with such products and services as debit and ATM cards, online bill pay and online banking, essentially making it a full-service standalone operation.
The credit union, which owes its unusual name to the Internet Archive — a digital library led by co-founder Brewster Kahle that donated seed money — has become so popular that its Spanish-speaking clientele have dubbed it "Caja D'Oro" ( Spanish for "Box of Gold").
Another central feature of the credit union relates to its use of the Directo a Mexico wire transfer service, which allows members to send remittances home at a fraction of the cost of other services — $50 per wire transaction in the old days versus $5 per transaction now under Directo a Mexico. This program is coordinated with the U.S. Federal Reserve and Banco de Mexico, the Mexican central bank.
"It is a great program under Jorge Jimenez, a director at the Federal Reserve, as it allows for safe, low-cost money transfers," Modell said. "[One] can even now open an account for someone in Mexico directly in the credit union so both parties can become banked."
Modell said that the credit union can now also offer mortgages through a CUSO, although providing auto loans is currently beyond its reach.
Indeed, there are some problems inherent in running a small credit union that serves an under-banked community like Mexican immigrants.
"The one area we would like to get into is student loan lending," Modell said, adding that would require permission from NCUA to increase the size and scope of its loan facilities beyond $5,000. Modell cited the example of an Hispanic immigrant who needed to borrow $8,000 in order to pay for tuition for his senior year at nearby Rutgers University. Even though the student had a credit score above 700, NCUA told Modell the CU could not extend him such a loan. IAFCU currently has $1 million in secondary capital against only $40,000 in loans which, Modell said, is all they can make with the restrictions imposed upon them by regulators.
"This, combined with the fact that we cannot do participation loans under the guidance of larger credit unions, really hurts our ability to break even and sustain ourselves," he said.
Indeed, IAFCU has loans outstanding of about $40,000 and also posted a net loss of $4,357 year- to-date through September 2014.
As such, Modell would like to see his credit union reach 1,000 members by the end of the year — but that target depends upon the NCUA allowing him to expand his products and services, including student loans.
A handful of other credit unions across the U.S. are also seeking to help Hispanic immigrants with documentation problems. Miriam De Dios, the CEO of Coopera, a Hispanic credit union consulting company affiliated with the Iowa Credit Union League, told Credit Union Journal that one of her client credit unions, Fitzsimons Credit Union, a $166-million firm based in Aurora, Colo., just became an ITIN acceptance agent. Another of her clients, the $48-million Des Moines Metro Credit Union in Des Moines, Iowa, is also exploring the possibility of becoming an ITIN acceptance agent.
The ITIN number, De Dios explained, helps unbanked and underbanked immigrants move closer to the financial mainstream.
"Immigrants as a whole, including Mexican immigrants, tend to be more unbanked and underbanked than non-immigrants and are largely relying on using cash and costly alternative financial services to meet their everyday financial needs," she said. "A traditional financial institution like a credit union or bank can offer immigrants basic financial services like savings and checking accounts, as well as possibly loans and other financial services."
But De Dios cautions that receiving an ITIN does not automatically allow an undocumented immigrant to join a credit union.
"This depends on the Customer Identification Program (CIP) of every credit union, which outlines the identification and documentation needed for members to join and open accounts," she said. "We have credit union clients that open non-interest bearing savings accounts for individuals who do not have a taxpayer ID number, whether it be a [Social Security number] or ITIN, as a safe place to deposit their money and join the credit union. However, not all credit unions offer these non-interest bearing accounts."
In an interview with Credit Union Journal, Traci Stiles, the business development manager for the Des Moines Metro Credit Union, said her credit union currently refers its members to a tax preparer who is also an ITIN acceptance agent.
"Most of our members we serve already have an ITIN or SSN," she said. "If they don't, we have safe' accounts, which is a safe place to put their money and [where they can] access it. The money does not earn interest. We have products and services specifically designed for members with an ITIN, such as our Credit Builder loan."
De Dios further noted that the "unique cooperative structure and the people-helping-people' philosophy of credit unions creates a more inclusive culture that's in tune with the financial needs of the local community, allowing them to accept alternative forms of ID to open accounts, to assist people in obtaining ITIN numbers, to work with community organizations to provide financial education and do other grassroots outreach to immigrant groups, whereas banks may not be as likely to invest so much in the community in that form."
Credit unions also tend to offer more affordable financial products because of their cooperative model and that's "tremendously helpful as immigrants integrate into the mainstream," she noted.
Looking ahead, Modell hopes that with his still-young credit union, he can eventually establish a sustainable model that will allow it to break even and show other small credit unions how to survive in a climate of consolidation where hundreds of small credit unions are disappearing annually.
"But this cannot be done without reforms at the NCUA on the governance of the little guy — the types of restrictions put on start-ups will not allow them to thrive," he said.
"Our goal is and always has been the advancement of credit unions as an alternative to the big banks. We try to serve the communities that the big banks can't or do not want to serve and that credit unions were created to serve. All we want is a fair shot to prove that small credit unions can actually thrive and increase in numbers not decrease."
Hispanics are one of the fastest-growing ethnic groups in the U.S. and have already supplanted African-Americans as the No. 1 minority in the country. And they're not just concentrated in border states such as California, Texas and Florida. Indeed, Stiles of Des Moines Metro CU said that some 15% of her credit union membership is Hispanic, while about 5.5% of the total Iowa population is Hispanic.
"In Polk County, where [our] credit union is based, Hispanics make up 7.6% of the population," she noted.
And these numbers are rising — given the large number of underbanked Hispanics, credit unions have a huge potential with this segment of the population. Stiles said she believes more credit unions should cater to the needs of the Latin American/Hispanic immigrant community.
"We have had a strategic plan in place to better serve the Hispanic community for seven years," Stiles commented. "I would think credit unions, especially those where there is a higher Hispanic population, would be doing the same. It's a win-win, helping credit unions and the community."
Of course, the immigration reform proposals of President Barack Obama — which could protect some 5 million immigrants from deportation — may also provide a huge opportunity for financial institutions like credit unions.
"I think that more immigrants will take advantage of traditional financial products and services because they won't be afraid," Stiles said. "They may also have the potential to buy a house in the future, so for those of them who don't have a financial institution relationship, they will want to begin to build credit, file taxes, and have a credit union/bank account."
