Sarah. Cooke, Monday, September 9
An appeals court decision, NCUA Chairman Rodney Hood’s agenda and the Federal Reserve’s decision to cut interest rates have one thing in common: They’re all signs of an increased interest in low-income lending, especially for community credit unions.
Marketing to low-income borrowers, many of who have a thin credit history or poor credit, requires a different strategy than most credit unions are used to, especially if they primarily serve suburban markets. We’ve got three important low-income strategies your credit union will need to be successfully attract this market, but first, it’s important to understand the forces driving this trend.
On August 20, 2019 a federal appeals court dismissed most of a lawsuit filed by the American Bankers Association against the NCUA contesting FOM regulatory relief provided to community credit unions.
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However, the court did not dismiss a section of the lawsuit that involved allowing a community credit union to add a large city and its suburbs to its field of membership without having to serve its urban core. The NCUA must return to court to explain how it could enforce this rule, while also preventing credit unions from redlining, an illegal business strategy in which a lender refuses to make loans in low-income or minority neighborhoods within a service area.
NCUA Chairman Rodney Hood has gone beyond basic lip service when talking about the need for credit unions to serve underserved communities. The Republican has spoken about financial inclusion at most, if not all, public appearances since he was sworn in on April 8, most recently in an Aug. 20 speech at the Defense Credit Union Council’s annual meeting. Board Member Todd Harper, a Democrat, has also said he is deeply committed to increasing access to financial services for all.
NCUA staffers don’t always enforce the board’s intent at the examiner level, but Hood and Harper’s comments signal a shift from an era of post-recession risk management that has made it more difficult for credit unions to serve low-income or credit-challenged members.
The Fed’s decision to lower rates, combined with expert predictions of a looming recession, further increase the likelihood that community credit unions will find themselves serving more financially challenged members due to economic realities.
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As a marketer, how can you adjust your credit union’s strategy and message to increase low-income market share?
The signs are clear: Credit unions will increasingly serve low-income borrowers in coming years. Financial cooperatives that embrace this trend early and adjust their marketing strategy will win the day and weather any potential economic storm.