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Partnering: It’s perhaps one of the most worn out buzzwords within the business world of the last decade. But for a federal credit union, it can be a clear opportunity to participate in a win-win relationship.
In a solid partnership, everyone benefits. A credit union partnering with a community group gains new members, and the members receive financial services that might be difficult to obtain outside such a partnership. The community obtains a funding source for its members.
In late 2003, credit unions in New Hampshire pledged $35 million to fund special affordable housing programs through a partnership with a community housing authority. The funds were used for mortgage loans for housing agencies such as Manchester Neighborhood Housing Services, which works with credit unions to identify true cases of need for either mortgages or emergency loans. The partnership effort is one spearheaded by the National Credit Union Administration’s NeighborWorks® program which fosters partnerships between credit unions and community housing agencies.
In the case of Manchester, N.H., the local housing agency provides training for borrowers through such services as personal financial budgeting, financial management and property maintenance. For the person utilizing the credit union resources, the program is a wellspring of financial resources, including. budgeting, cash management and of course, mortgage loans. The precise efforts of credit unions in Manchester, N.H. parallel the partnerships established by Ithaca, New York-based Alternatives FCU.
According to Bill Meyers, the credit union’s CEO, it has solidified several partnerships that provide a range of services to a diverse market. “We are partnering with the Abilities Fund to receive training so that Alternatives can provide business plan counseling to our differently ‘abled’ members,” says Meyers.
“Our free tax preparation program (VITA) involves partnerships with Ithaca College, Tompkins Cortland Community College, the IRS and several others. The National Community Reinvestment Coalition is [a partner] in our Predatory Relief Mortgage[program] Alternatives’ Livable Wage Initiative is promoted locally by our partner, the Living Wage Coalition, a union group.”
The “un-banked”
Alternatives FCU’s most popular partner program is Community Partnership Lending; its partners are non-profit community organizations. Through the Community Partnership Lending program, the credit union has made car loans available via loan funding from the New York State Wheels to Work initiative. Alternatives FCU has also partnered with the Tompkins County Department of Social Services, and offers zero interest loans to people who have been on public assistance for a year, and have a job or a bona fide job offer that they cannot accept because of a lack of transportation.
In most cases, those who would receive a loan must take a financial education program either through the community group or the credit union (via the community group).
“We look for organizations with similar goals and dissimilar strengths. We want each of us to bring something of value to the table,” says Meyers. “Alternatives [is] good at capital investment, deposit raising, account servicing and financial education. Our partners bring outreach (client referral), branding and advocacy, and subsidy capture.”
Most of Alternatives FCU’s loans have a maximum amount of $3,000 with the minimum limit of $100. Traditional banks consider small loans trivial and not worth the bother because the profit margin is low to non-existent . Alternatives FCU views these small loans as a way to reach the underserved, and move them along a continuum between poverty and financial self-sufficiency.
“The estimates of the un-banked market varies from 5 to15 percent of households,” says West. “I think we can work with partners to bring these households into the financial mainstream and into credit unions.”
Bruce Jolly, a partner at Venable, a law firm in Washington, D.C., represents many of the major credit unions within the federal and state government. He cites the Social Security Administration FCU of Baltimore, Md., as a credit union that has reached out to the under-banked portions of inner city Baltimore.
For example, SSA Baltimore FCU brought most of the city of Baltimore within its field of membership as an underserved area. Though its primary focus remains the historic occupational base at the Social Security Administration and the Health Care Finance Administration in Baltimore, the credit union reached out to the community to serve its new group of potential members in the under-banked portions of the city.
During the application process, the credit union saw there were far more check cashing outlets than bank branches in those underserved areas. In response, it entered into partnerships with local check cashing outlets in underserved parts of the city and now conducts basic banking services through those outlets.
“One of the biggest challenges in 2004 will be reaching out to the community to convey credit unions as an excellent solution for a mortgage loan,” says Linda Clampitt, vice president of CU Members Mortgage, an organization that provides mortgage origination and servicing to more than 300 credit unions nationwide.
“Reaching out to realtors and building relationships is very important. Once the credit union is able to convince the realtor community that they can provide excellent service, then the realtor will be willing to bring additional borrowers to the credit union .”
The new piggy bank
It’s not just underserved areas that form the basis for excellent credit union partnerships. Often times, local public school do so as well.
Cumberland County Teachers FCU in Portland, Maine, formed a partnership with Harrison Lyseth Elementary School. This partnership was designed to teach kids about something they don’t usually learn about until later: money. At the school, a credit union branch is open every Friday; the students can deposit their pennies or withdraw a bit of cash—as long as they have parental permission.
For as little as one dollar, kids may open an interest-bearing account and watch it grow. Kindergartners get to tour the facility to view the safe and security cameras. They find out how these and other technologies operate. As students grow older, they learn different things. Third-graders learn about balancing their checkbooks. Fifth-graders learn the differences between interest-bearing accounts and checking accounts.
In New York, Governor Pataki recently signed a law that encourages schools and credit unions to partner together. The law was sponsored by state Sen. Stephen Saland, chairman of the Senate Education Committee.
The impetus behind the law was to educate students early on and protect them from many of the devastating effects of poor financial management, debt and credit risk. The New York law allows for credit union branches in schools, and it prohibits teachers, administrators, parents and relatives of the students from joining or using the credit union.
Alternatives FCU, operates a youth credit union, which has 1,225 members, $.9M in deposits and four branches, all as a result of its partnerships with area schools.
Community FCU in Plymouth, Mich., is on the same track. The school partners with the local school district to provide financial services to about 1,200 students in 17 schools.
The school district and credit union believe that early education and good healthy financial practices are good for the individual and the credit union. Students at Community FCU can apply at 13 or 14 years of age for a Visa credit card with parental permission. (Most students get the card when they are 15 or 16.)
Identity and branding
“I think the potential is very great for federal credit unions to benefit from partnerships,” says Greg Hoffman, president of Redbeard Communications, an advertising and public relations agency whose client base is highly focused on credit unions. “The credit union industry as a whole is still slightly behind the curve when compared to the global retail marketplace. Credit unions are still struggling with identity and branding issues. Smart credit unions now recognize the value of their brand and the influence that the brand can have in creating member loyalty and product penetration.”
“Community credit unions should strive to align themselves with similarly minded organizations and events that promote the ideals of the credit union” adds Hoffman. “Sponsoring or co-sponsoring events which benefit the community is a great idea. Just be sure to carefully select your affiliations; you’ll want to choose opportunities that are most likely to be noticed by the community at large—
ones that will be promoted in the general media and ones that provide opportunities to tell the credit union’s story and reasons for being involved are best.”
In positioning the value of their brand and the sizzle of their partnership, Jolly warns of overlapping interest in creating partnerships. He notes that good intentions are not always matched by business judgment. According to Jolly, that can lead to disaster.
“A credit union undertaking a partnership needs to evaluate the risk and make sure the opportunity isn’t diminished by that risk,” says Jolly. “It is one thing to set up a credit union office in a housing project in a low-income neighborhood. It is quite another to take a sponsorship interest in the development of the same project. Each is likely to involve expense to the credit union and at least some risk. One is within the zone of knowledge possessed by the credit union; the other is not normally within the core competency.”
Jim Romeo is a free-lance writer. He writes on a variety of subjects, including technology and business.
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