The Credit PathWilliam Myers, Alternatives CU
We look at any member as on a continuum between poverty and wealth. Our job as the financial institution of the community is to move members along that continuum, to offer opportunities for movement, empower them to make decisions that will move them towards wealth. We design our services to take into account the different needs of members on four different sections of that continuum, the Credit Path.
** The first step **
for our poorest members is the transactor stage.
There are two common bank models of pricing for this level of services. Banks forgo charges for these types of transactions on the basis of compensating balances. That is, for customers who have a $10,000 CD, there are no money order fees. This, in effect, denies reasonable access. Check cashing outlets use predatory pricing, making transactions overly expensive. We price these services to reflect who we expect to buy them. We also price the service to make money for the Credit Union., in other words fair pricing so that we can continue to deliver services at this level. We as an institution will not have to say, "We don't make money on transactors so we don't need that kind of members." We're trying to encourage ourselves to develop profitable services for this niche.
** The second level **
is the saver and this is a traditional Credit union market.
** The third level **
is a standard level for both banks, which we call the borrower level.
** The fourth level **
which for our type of CDFI we consider the top level of services, is what we
The other side of the fourth level is micro enterprise lending. A lot of the lending we do is for small start up businesses, mom and pop stores, secondary income. Many are spousal loans where a couple will have one paycheck job and their sanity and hope is a small business they're starting. They look forward to the day the business income will grow and they can leave the paycheck job. In the meantime the paycheck provides stability.
These products that provide opportunity for ownership are our top lending products. We've been experimenting with this model over a few years and have measured our impact. In consumer lending, the borrower stage, we've reached something like 80% of borrowers being low income. We have substantial impact in these products. We can't measure the income of those at the transactor level because they haven't yet applied for a loan and given us credit information. For the ownership level, our affordable mortgage is targeted to be attractive to those who do not qualify for secondary market loans, though of necessity this is a somewhat higher income member. The loans are designed to extend the frontier of mortgage lending through our 24 additional underwriting criteria.
William Myers - WMyers@alternatives.org
Manager, Alternatives Federal Credit Union
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