There are some risks that credit unions should take on, according to Sharon Angle, the CEO of Butte Federal Credit Union.
Its expansion into an underserved field of membership is one of those risks she recommends.
"There are so many people out there who need financial services," she said. "Every financial institution chases A paper, but it is more important to help those who can't go anywhere they want."
NCUA approved Butte FCU's application to adopt an underserved FOM in August 2003. The new field of membership includes seven counties of underserved consumers surrounding Butte County-an area of Northern California about 50 miles north of Sacramento.
The adoption already has been a success. Angle said the $24-million, 6,200-member CU had expanded its field of membership before, but the previous efforts did not generate much response. In an average year, it adds a net of approximately 300 new members. In 2003, it added 700-most of whom came on board after August.
"We wrote $2.8 million in loans last year, most of those in response to the advertising we did to our new, Hispanic members," she said.
Butte FCU helped generate interest by advertising on Spanish-language television and radio in the newly adopted counties. To accommodate the influx of Spanish-speaking members, it added three bilingual speakers to its staff.
Risk-Based Lending
Angle said the credit union has not developed specific programs for the underserved FOM. Instead, it offers all of its products using risk-based lending.
"The most important thing we did was create an atmosphere they could feel comfortable in by hiring bilingual staff members," she said.
Due to its small size, Butte FCU does not have formal financial literacy programs, Angle added.
According to Angle, the term "underserved" often carries with it a negative connotation. She said the experience of adopting the underserved FOM has been anything but negative, despite public perception.
"These people are not 'stupid,' 'poor,' 'lazy' or 'losers,' as some might think," she declared. "There simply is no bank in the area to help them. If they are working, making an effort to better their lives, then we give them a chance. On the other hand, people who are looking for something for nothing-who are not working or otherwise are exceptionally risky-it's not going to happen."
Angle said not enough time has elapsed to measure the profitability of the adoption of the underserved FOM, but "we know we have had a wonderful response."
Asked what advice she would give to other CUs contemplating adoption of an underserved FOM, Angle said they should look at it as a necessary duty.
"Again, it is too early to be certain there won't be a problem here and there. We expect we will have a higher delinquency rate -and we had to explain that to the board-but it is important to help people. If credit unions have zero delinquency, they're only chasing A-paper, guaranteed loans. Those people can go anywhere."
"We don't chase A-paper people, because they might come to us for a great rate, but then they'll move on in six months if they get something better elsewhere," Angle continued. "The people who are risky-if we give them a chance-they are never going anywhere else. And I've seen their credit reports-they pay us every month, even if they don't pay anybody else."
