The National Federation of Community Development Credit Unions (CDCUs) has released a report on the experience of eight prominent CDCUs in using multi-part organizational structures to enhance the financial and related services of credit unions serving the low-income market.
“Community Banking Partnerships: Legal Structures that Work” was released through a series of presentations on November 15 and 16 at meetings of the Debt on our Doorstep Network and the National Association of Credit Union Workers.
The study examines the use of affiliate structures to help CDCUs gain access to better resources and meet their ambitious social agenda without jeopardizing their status as regulated financial institutions.
The eight CDCUs whose cases are reported in the study are:
Alternatives FCU (Ithaca, NY) Appalachian FCU (Berea, KY) 1st Delta FCU (Marks, MS) Hope Community FCU (Jackson, MS) Neighborhood Trust FCU (New York, NY) Santa Cruz Community CU (Santa Cruz, CA) Self-Help CU (Durham, NC) Opportunities Credit Union (Burlington, VT)
Since the 1973, the Woodstock Institute has been involved in the formation and development of credit unions, and has advocated for credit unions to work more effectively to recruit members from lower- and moderate-income households. This report is another example of how innovation and flexibility through structural affiliates can help credit unions provide financial resources for households of all income levels.
As the controversy around the impact of overdraft protection on lower income people continues, credit unions have received the latest warning. Last week, the NCUA, which regulated federal credit unions, announced that credit unions considering bounce protection programs to boost fee income need to carefully evaluate the impact of these types of programs on their members.
NCUA Chairman JoAnn Johnson also recognized that there is a very real potential for members to receive repeated overdraft charges. These charges may have a substantial negative impact on their financial well-being.
Bounce protection programs are not considered loans under federal regulations, making them exempt from the Truth in Lending Act--a decision which Woodstock Institute opposed during a recent federal request for comments.
A study on the high cost of bounce protection offered by Chicago-area banks found that fees for most bounce protection loans range from $25 to $35, and many had daily maintenance fees. In fact, the cost for a two week overdraft of $200 comprised of five debits was about $186.
Woodstock Institute agrees with the NCUA. Any financial institution should carefully review the negative impact this type of product can have on the financial health of its lower-income customers. Credit unions are no exception.
