Study Eyes Penetration Among Poor

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During CUNA's GAC in 2002, The Credit Union Journal posed the question on its front page: How many of those eligible to join a credit union in newly added underserved areas are actually joining? No one knew.

One year later, CUNA is back with some answers.

CUNA's Market Research Department has produced a sizeable new study entitled the 2003 Serving Members of Modest Means Report, which concludes credit unions are making inroads in low and moderate-income communities in the wake of NCUA's expedited process for adding such areas.

Among the findings:

* In just a little more than seven months, on average credit unions expanding into underserved areas in 2001-02 are now serving more than 600,000 members in low- and moderate-income areas.

* Those members have applied for a quarter-million loans totaling $2.9- billion, and have made deposits of $2.1 billion.

* Of the 2,548 CU respondents, the survey found that 256 credit union had expanded into underserved areas under NCUA's streamlined process, adding 470 such areas to their membership.

* It required an average of 7.3 months to add groups. Of the total potential membership of 22.5 million, 615,000 people signed up.

* The number of services offered to low- and moderate-income households averages 4.7.

"There is quite a lot that credit unions are doing to serve these areas," said CUNA's chief economist Bill Hampel, who added that due to the self-selecting nature of the survey CUNA has weighted the sample back to the whole population of credit unions in order to give the survey validity.

Among the "telling statistics" that indicate how firmly credit unions are committed to such markets, said Hampel, are minimum amounts for account openings and loans. One-third of those surveyed will open a CD for $100 or less; two- thirds for $500 or less. Similarly, more than one-third will make loans for as little as $100 (excluding credit cards), and about two-thirds will make loans of $300 or less.

One area in which data was difficult to quantify for survey respondents was the income levels of new members, as such information isn't available unless a loan has been applied for. The study defined low income as earning less than $20,000 annually; moderate income as $20,000-$40,000; upper-middle income as $40,000-$80,000 and $80,000 and above as upper income.

Many of the participants then estimated incomes of members. Hampel said that while the survey found slightly higher penetration rates in upper-income groups than lower-income groups, the study also concludes that credit unions are not "cherry picking" the best members.

"The fact is credit unions have traditionally been occupation-based, and another quirk of the numbers is that the higher your income, typically the more financial relationships you have," he observed.

CUNA said that one surprising finding in the study is that credit unions that have expanded into low-income areas have higher average penetration rates than do credit unions that have not expanded.

Hampel said he anticipates other credit unions will use the data to offer guidance in their own product offerings.

"Credit unions are really good with occupation-based FOM," pointed out Hampel. "But that portfolio of services is not necessarily what low-income people want. They need short-term, bridge credit. It's going to take a while."

In the wake of several critical studies of credit union dedication to low- income communities during 2002, Hampel said, "For those who question credit unions' commitment to the social missin of credit unions, this study is one way to respond. I am convinced credit unions should be able to offer these types of services that low/mod people get elsewhere at a cooperative price that doesn't have to be given away."

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