INTRODUCTION Moving low-income people to self-sufficiency ACCOMPLISHMENTS requires a set of tools to build assets, successfully invest those assets, and ensure alternatives to Researched the Ability of Low-Income Credit predatory or high cost products widely targeted to Unions to Serve Low-Income People low-income people. The Community Reinvestment Act (CRA) is one of those tools that have A new report from Woodstock Institute, Financial successfully leveraged billions of dollars in com- Services for People of Modest Means: Lessons munity development financial services from private from Low-Income Credit Unions, addresses credit sector financial institutions, making millions of union services for lower-income consumers and low-income people into new homeowners and under-served communities. For years, the Federal savers. Creating a mandate for banks to provide Reserve Board estimated that about ten million targeted investments in affordable housing, small households in the U.S. lack access to basic bank business development, affordable mortgage pro- accounts. However, a recent study by the General ducts, and low-cost bank accounts, the Community Accounting Office found that there are as many as Reinvestment Act has enjoyed substantial 22.2 million unbanked households---comprising bipartisan support, helping to create an ownership about 56 mil-lion adults. This staggering figure society that stresses access to capital at a fair points to a crisis in the bifurcated financial service price. world. During 2004, the success of the Community Financial Services for People of Modest Means, Reinvestment was severely weakened by a asserts that credit unions can make a significant regulatory agency that enforces the act for national contribution to reducing the number of unbanked savings and loans. Acting without notice to their and provide services to lower-income consumers. fellow bank regulators and failing to issue even a In fact, many credit unions offer financial services cursory public comment period, the Office of and loans desired by lower-income consumers. Thrift Supervision has unilaterally reduced the How-ever, there are serious questions about community reinvestment standards to which banks whether mainstream credit unions are adequately are held, and the number of banks to which the act serving people of modest means. applies. By turning back the effectiveness of CRA, this agency overstepped its fellow regulators and Previous Woodstock Institute research has illu- weakened the mandate placed on banks to help strated that many mainstream credit unions have low-income people build assets. Woodstock failed in meeting the needs of low-income people. Institute has worked diligently to describe Financial Services for People of Modest Means empirically the likely consequences of these finds that the low-income credit union (LICUs) actions and develop policy alternatives. industry is one segment of the credit union industry that has succeeded. Case studies of three low-income credit unions, Trustar FCU, Greater GOALS Abbeville FCU, and El Paso Employees FCU, provide lessons on how mainstream credit unions Woodstock Institute's goals are to promote can more effectively serve modest-income con- community reinvestment, economic development, sumers and communities. These lessons include: and access to capital and credit in lower-income the importance of financial education and and minority communities in ways that help counseling services; establishing partnerships with develop and support local leadership. Our specific other com-munity organizations or businesses; tools are applied research and policy development, generating financial support; developing technical assistance, public education, and financially sustainable initiatives; and establishing coalition-building. effective marketing strategies. Developed Community Partnerships with Mainstream Credit Unions In 2004, Woodstock Institute introduced a new As part of the project, Woodstock Institute issued technical assistance project, building on its long- Building Community Assets: A guide to Credit standing work bringing asset building resources Union Partnerships to help organizations and and services to low-income communities. Its goal credit unions sustain partnerships and meet the is to provide technical assistance to three or four future financial services needs of the underserved. non-profits seeking to expand financial It is also developing an Internet-based networking opportunities to low-income and minority families and communication tool that will enable credit and communities by partnering with mainstream unions, community organizations, and others to credit unions. exchange information on community/credit union partner-ships. Many families and communities simply do not have access to convenient and appropriate products Produced an Organizing Guide for Community and services tailored to their needs. Mainstream Organizations Seeking to Partner with Main- credit unions, who in past years have been stream Credit Unions struggling to meet the financial needs of low- income and minority families and communities, Woodstock Institute published Building Community represent unique partners. Their nonprofit status Assets: A guide to Credit Union Partnerships in provides them with the ability to offer mortgages October, 2004. This guide lays out the necessary and checking accounts at a lower-cost than banks. steps to: understanding credit union operations; By lowering the cost of basic services, more developing a partnership business plan; locating under-served families and communities can enter local credit unions; choosing and contacting the financial mainstream. possible partners; negotiating a partnership imple- mentation plan; and monitoring and evaluating the Woodstock Institute sees this as an opportunity to ability of the partnership to increase low-income work with community organizations and help membership. credit unions fulfill a critical part of their mission– –bringing low-cost financial services to the under- Mainstream credit unions have the ability to offer served. Four organizations working in underserved affordable financial products and services through communities were selected. their federal and state tax exemptions, but they have historically been unable to recruit low-income Fresno West Coalition for Economic Empower- people as members. Likewise, while community ment, Fresno, CA will receive assistance in de- organizations have many members who lack access signing a business plan for a new credit union that to basic banking services, they are unable to meets the transaction and short-term credit needs commit the resources to chartering a credit union. of the community. Spokane Neighborhood Action Partnerships between community organizations and Program, Spokane, WA is seeking to expand its existing credit unions offer both organizations the limited service credit union branch from a pilot chance to more effectively serve low-income project to a full service operation. Community people. Action Project, Tulsa County, OK is seeking a credit union to assist victims of predatory lending This guide was produced as part of Woodstock and help establish a financial education program. Institute’s ongoing organizing and technical assis- Hartford Individual Development Account Colla- tance efforts focused on increasing low-income borative, Hartford, CT is seeking assistance in membership in credit unions and ensuring that attracting a limited service branch of a local credit mainstream credit unions live up to their mission union that does not currently serve low-income of meeting the financial needs of people with families adequately. modest means. 2 Released Report Calling for Stricter Regulation of Bounce protection procedures are intentionally un- Overdraft Protection to Protect Consumers from clear so that consumers can’t compare it to other Abuse products. Many banks don’t even tell their cus- tomers they have bounce protection. Currently, Woodstock Institute released Reinvestment Alert banks aren’t required to tell accountholders the #26: Banking on Bounced Checks: Federal Pro- types of transactions covered, the amount of the posal on Bounce Protection Still Exposes Con- overdraft limit, and the order in which checks are sumers to Hidden Bank Fees, an alert describing processed. Some banks process the largest checks the perils of bounce protection, a loan program in- first to maximize the number of checks bounced creasingly offered by banks across the country. and the amount of fees charged. Woodstock Insti- The report, which examines the details of this tute and several other consumer groups are asking program at the Chicago area’s seven largest banks the Federal Reserve Board to regulate bounce calls for stricter regulation of bounce protection. It protection under the Truth In Lending Act to make also provides recommendations to consumers on these procedures more clear, and to impose how to avoid stiff fees and unclear disclosures additional consumer protections. from their banks. Released a Report Detailing the Strong Relation- Bounce protection is effectively a short-term loan ship between Subprime Lending and Foreclosures program. Customers have the ability to withdraw funds from an account above and beyond its In March of 2004, Woodstock Institute released current balance for a fee. The overdraft fees are, Risky Business–An Econometric Analysis of the in effect, an interest rate. Overdraft/non-sufficient Relationship Between Subprime Lending and