Credit union gentrification is a mixed blessing

Everybody likes a nice neighborhood. It has less crime, more retail options, better schools and healthy property values. Nice communities are inviting and nearly everyone aspires to live in one.

However, when a neighborhood gentrifies, poor people are displaced. They suffer from affordability issues and feel unwelcome.

Credit unions have experienced a gentrification of sorts since the 1960s, growing from lunch break institutions run out of a cigar box to the billion dollar, multi-branch institutions millions of Americans patronize today.

Growth and an improved credit union experience are not bad things. Expanded fields of membership have enabled more working Americans to access financial cooperatives. That’s good for America.

With growth came the ability of credit unions to expand products and services while still offering better pricing. Attractive branches and user-friendly websites and mobile banking apps deliver cooperative value through channels consumers prefer and expect. That’s also good for America.

I disagree with those who say credit unions are only for poor people and cringe when I hear the phrase modest means. It’s a term bankers use to their advantage by leveraging the word’s limiting qualities.

Modest means should be replaced in the Federal Credit Union Act and our industry vernacular with working Americans. Yes, credit unions are a resource for those who can’t obtain funding from banks. It should also be a resource for those who don’t want to. All Americans – regardless of the size of their paychecks – have the right to form and join a cooperative.

This concept isn’t new. The factory workers, teachers and police officers who chartered credit unions 50 years ago weren’t poor. They were working Americans; the middle class.

I’ve had the privilege of working for two credit unions. Both served fields of membership that included workers who earned six figure salaries, but these folks weren’t wealthy. They were, and still are, working class Americans; many of them lack college degrees and would have few options if their jobs were displaced. They also live in high-cost areas of the country where a household income of $100,000 is enough to make ends meet, but doesn’t allow for much else.

What about the truly poor? Those who can’t make ends meet? Of course the credit union community should serve this demographic, but it’s not as easy as it seems.

A couple of years ago, the NCUA drastically improved the application and approval process for the low-income credit union designation, but the agency has since followed with cringe-worthy pitches to utilize the designation as a regulatory loophole, practically writing the banking lobby’s complaint letters to Congress for them.

Meanwhile, examiners challenge credit union efforts to serve the poor in the name of risk management. By the time a credit union satisfies an examiner’s concern or regulatory mandate, the product or service is priced out of range.

Then consider the dwindling number of small credit unions, which often serve the poor. There are too many credit unions that have failed to grow due to poor management and oversight. However, others have remained small because poor people don’t generate the kind of revenue that fuels robust growth. Yes, small credit unions can still effectively serve the poor, but to do so increasingly requires the elite skill and herculean effort of a Helen Godfrey-Smith or Bill Bynum. We should strive to be the very best credit union leaders possible, but we can’t all be superheroes.

I recall a thought-provoking discussion I had a few years ago with some credit union leaders about serving the poor. Think about your members. Would they feel comfortable if poor people – who sometimes lack social graces and appear intimidating – stood next to them in the teller line? Would poor people feel comfortable in your branch? For many credit unions, the answer to both of those questions is no. Gentrification.

How can credit unions provide more than plain vanilla services to the poor without the kind of net income the middle class can generate? Regulations that make it easier for low-income credit unions to access capital and funding is a good start. However, our government may need to provide some sort of guarantee so products that serve the unbanked can meet risk management requirements while offering affordable pricing.

Just look at the challenges the CFPB has faced drafting payday lending rules. On one side, financial institutions have complained – rightly so – that the rule’s limits on interest rates and fees don’t allow them to adequately cover risk. Meanwhile, consumer advocates have howled that the bureau caved to lobby pressure and proposed regulations that don’t go nearly far enough. If both are right, that means more regulation isn’t the answer. Letting the free market solve the problem isn’t working, either. We need to look elsewhere for solutions.

Financial cooperatives are a right of all Americans, regardless of income. It’s up to the credit union community to lead the way to ensure that right.