Credit union membership expansion into these communities opens real opportunity.
“Underserved community” typically calls up in our minds images of unemployed and subprime financial consumers, but this characterization can be misleading. Some credit unions are indeed serving (and serving well) people who are unbanked and subprime through underserved FOMs, but another opportunity may await. Many areas defined as underserved also open opportunities for credit unions to serve wealthy, prime and super-prime borrowers.
Most metropolitan commercial areas qualify for development under the Community Development Financial Institutions Fund, but allow credit unions to serve the businesses and the people who work for them in that area. Underserved areas are defined by the people who live in an area rather than the people who work in that area, but people who live in wealthier areas and work in the underserved areas are part of the potential membership. Indeed, FOM rules typically allow credit unions to serve people who live, work, worship, study, volunteer or run businesses in the community.
Take Washington, D.C., for example. With an underserved charter, a credit union could serve K Street lobbyists making $600 an hour and people who work on Capitol Hill, plus currently underserved areas undergoing gentrification. These areas offer great potential for credit unions to serve more consumers, many of whom are prime and super-prime borrowers who happen to work in underserved areas. As urbanization continues, these areas could develop an increasingly attractive borrower profile, including having significant percentages of young people.
Underserved area expansions are available to federally chartered credit unions with select employee group-based FOMs and to state-chartered credit unions with parity provisions. Many states allow state-chartered credit unions parity with federal FOM regulation, meaning if the federal FOM rules are more liberal than that particular state’s regulations, the credit union may follow the federal rule. In all, these credit unions don’t have to stop serving their original SEGs to add an underserved area.
To take advantage of this opportunity, your credit union must already have or be willing to place a service facility in the prescribed area. If you believe in the investment, here are steps to pursuing the many opportunities:
- Identify the area you want to add to your field of membership.
- Choose a location for your service facility in the area if you don’t already have one. Selection criteria should include SEG locations where existing members live and you will achieve the most foot traffic.
- Identify and persuade a large employer within the area to become an anchor SEG for a sizeable captive audience of prospective new members, mitigating your investment risk.
- Apply to amend your field of membership to serve the prescribed area.
- Add new members and grow!
Executing on a solid strategy will be a sound investment in your credit union’s future.cues icon
Sam Brownell is founder of CUCollaborate, which has built software to guide credit unions through the field of membership amendment process. The company also offers field of membership consulting services to help credit unions identify and implement progressive field of membership strategies to accelerate growth.