By Ray Birch
AURORA, Colo.—Changing a credit union’s business model to serve the underserved is a major undertaking that takes years to perfect, says one CU that began moving in that direction in the early 2000s.
Fitzsimons Credit Union has changed its fundamental focus in shifting from serving a local military base here to supporting the local community—a population of largely low- to moderate-means consumers that includes a large Hispanic segment.
Nina Myers, VP of operations, said it has been a learning process in making the change, which has included numerous new products, services and policy adjustments.
“It has meant finding ways to serve these underbanked consumers,” said Myers.
More than a quarter of the residents Aurora, Colo., are Hispanic, so the credit union has developed specialized loan products for those members. That includes making loans to members without legal status, who can present an Individual Taxpayer Identification Number.
For its successes, Fitzsimons CU was recently awarded an Excellence in Lending Award from CUNA Mutual Group.
Serving Hispanic Community
A big change, said Myers, has been learning how to effectively serve the Hispanic community. The credit union has hired bilingual and bicultural staff and trained the rest of its team to understand the challenges that the Hispanic community faces.
“We are seeing a pretty good adoption rate among this segment,” said Myers about the credit union that in 2016 received the “Juntos Avanzamos” (“Together We Advance”) designation from the National Federation of Community Development Credit Unions. It is one of only two financial cooperatives in Colorado to be recognized for outreach to the Hispanic community.
“Sometimes it’s a slow adoption, because Hispanics don’t immediately trust a new financial institution. In Latin America there are a lot of banks that are corrupt. For Hispanics to trust you, it can take a while,” observed Myers.
That lack of trust often manifests itself with the new Hispanic member first opening a savings account, and then waiting nine months to open a checking account.
“Gaining profitable members who trust you does not happen overnight here,” she said.
But in the long run, if the credit union can get a Hispanic member, or any of the low-income residents into a loan product, then they quickly move on their way to becoming profitable members, Myers said.
Big Lending Change
In addition to the adjustments the adjustments the credit union has made with staffing and offering its website and marketing materials in Spanish, another major change came in its approach to lending, Myers said.
“We have learned to underwrite based on risk, not credit score,” said Myers. “We use the FICO to appropriately price the risk, but we don’t simply say good credit is approved and bad credit is denied. We look beyond the score. Our lending team asks questions like is a person with a challenging credit score on their way back up? Can they afford the payment? Do they need a car to go to work for a job they have steadily held for the last ten years? We find ways to help them out.”
Myers said that thinking has led to the expansion of its DREAMer loan program, a small-dollar, 0% interest loan to help with expenses associated with the U.S. citizenship process.
“We started out with that loan for that purpose, to cover the $465 it costs for Deferred Action for Childhood Arrivals program, or DACA, application,” said Myers. “But when that loan became popular, we opened it up for other immigration and naturalization purposes. People can now use it to pay for citizenship papers, those types of things. And we increased the loan limit to $700.”
Overall, Fitzsimons now aims for a “balanced approach” in lending, offsetting costs associated with its low-dollar loan programs to lower-income members with growth in mortgage and auto loans.
Good For Community And CU
Myers explained that its unsecured loans, which include a payday alternative, deliver the highest net interest (8.5%) of all loan products, not including expenses. Used auto loans contribute 5.72% net interest after charge-offs.
“Used autos are also the single largest income contributor to our portfolio over the last 12 months, contributing $2,179,100 towards interest income,” Myers told CUToday.info.
Fitzsimons Credit Union’s auto loan portfolio grew from $34.7 million in March of 2017 to $48.6 million in February, 2018. The mortgage/home equity portfolio grew from $46.5 million in March of 2017 to $48.9 million through February of this year. The payday alternative loan expanded from $69,863 in March to $80,572 in February.
Fitzsimons’ delinquency rate is 0.69%.
Myers said the business model shift has been good for the community and the credit union. Fitzsimons has been averaging about $420,000 in net income over the last five years, according call report data. The CU increased assets to $184 million from $165 million in 2013; capital stands at 11.47%
But outside the numbers, what may be the best sign the credit union is on solid footing is that much of its growth has been organic, said Myers.
“We have seen a lot of growth among members’ friends and family,” she said. “Once you have built trust and provide great service, our members are willing to talk to other people about us.”