This Credit Union in Disguise Is Helping Poor Latino Communities

Low-income Latinos often rely on predatory payday loans and high-priced check-cashing services. Savings accounts can change that.

Employees of Community Trust Prospera, a credit union that seeks to bring unbanked Latinos into the financial world, meet with low-income families at Sunday Friends, a San Jose community service organization.
National Journal
June 6, 2014, 9:34 a.m.

Neon win­dow signs ad­vert­ise money trans­fers and “cam­bio de cheques” (check cash­ing). Sand­wiched between a beauty salon and a con­veni­ence store, Com­munity Trust Prospera looks like any oth­er check-cash­ing shop in the largely im­mig­rant neigh­bor­hood in East San Jose, Cal­if. Ex­cept it isn’t.

In­side, Span­ish-speak­ing em­ploy­ees urge cus­tom­ers to open a sav­ings ac­count or ap­ply for a cred­it-build­ing loan. Com­munity Trust Prospera is ac­tu­ally a cred­it uni­on in dis­guise.

The store­front on Story Road is one of six check-cash­ing-and-bank­ing branches opened in San Jose and Los Angeles County in re­cent years. It’s the Self-Help Fed­er­al Cred­it Uni­on’s new ap­proach to bring­ing poor Latino com­munit­ies in­to the fin­an­cial main­stream. “It’s a baby step,” says Randy Cham­bers, CFO of Self-Help, a cred­it uni­on that serves low-in­come cli­ents and runs Prospera. “Many have nev­er had a cred­it his­tory and now they’re build­ing cred­it.”

The goal is to reach “un­banked” Latino im­mig­rants who are stuck in a cash-based world. A 2013 sur­vey by the Na­tion­al Coun­cil of la Raza shows that two out of 10 Lati­nos in the United States don’t use banks — a high­er rate than Asi­ans and Afric­an-Amer­ic­ans. They are also highly likely to rely on pred­at­ory pay­day loans and high-priced check-cash­ing ser­vices. 

“Own­ing a bank ac­count is not a sil­ver bul­let to fin­an­cial wealth. But it is the first step,” says Mar­isa­bel Torres, a wealth-build­ing policy ana­lyst for the coun­cil. Tra­di­tion­al banks have mar­gin­al­ized im­mig­rant com­munit­ies for many reas­ons, says Torres: They of­ten come have little in­come, no cred­it his­tory, and — in some cases — no So­cial Se­cur­ity num­ber.

But cred­it uni­ons around across the coun­try are start­ing to see the Latino com­munity as a prom­ising mar­ket. The num­ber of cred­it uni­ons has been de­clin­ing for dec­ades. Each month about 20 of these non­profit fin­an­cial in­sti­tu­tions close, ac­cord­ing to data from the Cred­it Uni­on Na­tion­al As­so­ci­ation.

Cred­it-uni­on lead­ers say they see the “un­banked” Latino com­munity as cru­cial for their growth. And many have come up with unique ways to lure Lati­nos, par­tic­u­larly im­mig­rants, in­to the fin­an­cial main­stream. One cred­it uni­on in North Car­o­lina of­fers mem­bers a pre­paid deb­it card that they can send to re­l­at­ives abroad. A cred­it uni­on in Iowa of­fers a spe­cial quinceañera loan for fam­il­ies who want to throw their 15-year-old daugh­ters the tra­di­tion­al Lat­in Amer­ic­an birth­day bash.

Prospera’s check-cash­ing mod­el hasn’t yet caught on, but it seems to be work­ing. The first branch opened in 2010 and now all six count a total 11,000 mem­bers and $1.3 mil­lion in sav­ings, ac­cord­ing to Cham­bers.

Dar­win Morán, 36, first start­ing go­ing to Prospera in East San Jose to cash paychecks from his land­scap­ing job and to wire money to his moth­er in El Sal­vador. At first, he didn’t real­ize it was a cred­it uni­on. Morán once had a Wells Fargo sav­ings ac­count, he said, but nev­er used it be­cause he lived paycheck-to-paycheck. He didn’t want an­oth­er one, but Prospera’s staff kept bug­ging him about sav­ing his money.

“I star­ted to be­come friends with them and slowly I star­ted to change my mind,” says Morán, who opened a sav­ings and check­ing ac­count three years ago. Morán ap­plied last year for a “Fresh Start” loan, which puts $1,000 in­to an ac­count that cus­tom­ers can’t touch un­til it’s paid off. He wanted to raise his cred­it score after cred­it-card debt had tanked it, he says. Last month, Morán made his fi­nal $100 pay­ment and saw his score jump 3 points.

“Fix­ing my cred­it and pay­ing my debts was so im­port­ant to me,” says Morán, who sup­ports his wife and 11-year-old daugh­ter on about $2,500 a month. “Maybe I will buy a home one day, but that seems out of reach right now.”

Morán rep­res­ents the largely un­tapped mar­ket that cred­it uni­ons are eager to at­tract. In 2009, the Cred­it Uni­on Na­tion­al As­so­ci­ation partnered with Co­opera, a His­pan­ic con­sult­ing firm that shows cred­it uni­ons how to reach the loc­al His­pan­ic mar­ket. Co­opera has since helped more than 200 cred­it uni­ons change the way they do busi­ness, wheth­er it means hir­ing bi­lin­gual staff or of­fer­ing ways for cus­tom­ers to send money abroad.

Miri­am de Di­os, CEO of Co­opera, says many Latino im­mig­rants avoid banks be­cause they usu­ally re­quire a driver’s li­cense to open an ac­count. But it’s per­fectly leg­al to ac­cept a for­eign gov­ern­ment-is­sued ID, De Di­os says. She of­ten trains cred­it-uni­on em­ploy­ees about the dif­fer­ent forms of in­ter­na­tion­al iden­ti­fic­a­tion they can ac­cept. That is one huge step to open­ing up bank­ing to the cash-only com­munity, De Di­os says. “They have been miss­ing out. By deal­ing in cash, you can’t build cred­it. It af­fects what you pay in rent and your in­sur­ance,” she says.

De Di­os even worked with one cred­it uni­on in Trav­is County, Cali­for­nia, to de­vel­op a mod­ern ver­sion of a Mex­ic­an lend­ing circle known as a tanda. In­stead of mak­ing monthly cash pay­ments to a group lead­er who safe­guards the money pot, par­ti­cipants pay off a group loan that they can only ac­cess after the last pay­ment is made. De Di­os de­scribes it as a sav­ings ac­count that also builds cred­it.

Only 2 per­cent of all fed­er­ally-in­sured cred­it uni­ons primar­ily serve His­pan­ic com­munit­ies, ac­cord­ing to the Na­tion­al Cred­it Uni­on Ad­min­is­tra­tion. Fol­low­ing the fin­an­cial crisis, Con­gress re­cog­nized a need to pre­serve com­munity cred­it uni­ons that primar­ily serve eth­nic minor­it­ies. The Dodd-Frank Wall Street Re­form and Con­sumer Pro­tec­tion Act of 2010 re­quired cred­it uni­on ad­min­is­tra­tions to cre­ate a pro­gram that provides these in­sti­tu­tions with train­ing, ment­or­ship, and tech­nic­al as­sist­ance.

Nueva Es­per­anza in Toledo, Ohio, was among the first to re­ceive a grant un­der the pro­gram. The fledgling cred­it uni­on is the first charted by the state of Ohio to serve Lati­nos. The old brick store­front in south Toledo of­fers sav­ings ac­counts and small loans to people from Bolivia, Ecuador, Peru, and Mex­ico, says CEO and Pres­id­ent Sue Cuevas. Gain­ing the trust of a com­munity used to liv­ing in the shad­ows is hard, says Cuevas, who star­ted the cred­it uni­on with sev­en mem­bers in 2011. But it’s worth the ef­fort to see someone buy enough equip­ment to start a land­scap­ing busi­ness or re­place a broken fur­nace in their homes.

“I al­ways re­mem­ber how I felt the first time someone signed a check and gave me the loan,” says Cuevas, who has en­rolled about 500 mem­bers in Nueva Es­per­anza. “Someone be­lieved in me.”

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