Membership Expanded by Reaching out to the Unbanked

Corporate America Family Credit Union ($550m) in Elgin, IL, began two programs to serve the unbanked. Learn how these programs helped attract new members and strengthen its bottom line.

 
 

It is estimated that as many as 40 million consumers in the United States do not use traditional banking institutions. These “unbanked” are often from minority ethnic groups, under age 25 and single, or earn less than $25,000 per year according to the Federal Reserve Board’s 2001 Survey of Consumer Finances.

Some credit unions are already expanding their product and service mix to appeal to this new membership segment. Such credit unions are fulfilling their social mission by serving their communities. These services also provide a sound return as well as expand future business potential.

Case Study: Corporate American Family Credit Union

Corporate America Family Credit Union (CAFCU) in Elgin, IL, with $550 million in assets recently launched two programs – Quick Cash and Fresh Start Checking – to assist all members in securing loan and transaction accounts. In addition, the credit union offers BALANCE, a financial fitness program.

Through the programs, CAFCU appeals to existing and potential sponsor companies with employee bases whose members require additional financial assistance. Credit union executives are also using the programs to strengthen financial performance. They performed net rate of return analysis to demonstrate that the financial benefits would counteract the increase in delinquencies and write-offs

CAFCU has been adding to its suite of risk-based products over the past eight years, and the implementation of Quick Cash and Fresh Start Checking represent an extension of these services. Quick Cash launched in April 2003 to compete with traditional payday lenders.

The structure of the program is as follows:

  • Instant approval if qualified
  • $1,500 line of credit
  • Interest rate of 29.9 percent
  • Minimum monthly payment of $75
  • $25 application fee

When designing the program’s structure, CAFCU assumed a 20 percent charge-off rate – much higher than the actual experience to date and the net rate of return has far exceeded expectations (see chart below) . To date, Quick Cash has generated loan balances of approximately $10 million and 7,500 loans.

 
Budget
Actual
Delinquency
5%
4%
Charge-offs
20%
5.4%
Net ROI
9.90%
21.40%

To qualify, all applicants must be members with a minimum balance of $100 in regular shares. The members must be in good standing and must have direct deposit or payroll deduction. No credit check is performed and the entire application process can take place through a teller window within 10 minutes.

Fresh Start Checking
Launched in 2004, Fresh Start Checking is designed for members who do not qualify for traditional checking accounts. CAFCU does not actively market the product but offers it to members who would be turned down otherwise.

The program requires a $10 monthly fee, in comparison to no fee for a regular account, and has a daily limit on ATM withdrawls. Much like with Quick Cash, applicants must be a member. They also must have direct deposit and not have a fraudulent checking history. Finally, all applicants must complete InBalance Checking Account Management Education Program.


CAFCU markets Quick Cash and Fresh Start Checking primarily through sponsor companies. However, the credit union also relies on word of mouth referrals and in-lobby displays. As a result of the success of the programs, the credit union is considering expanding services such as title loans, international remittances and non-member check cashing to these individuals.

For more information on how credit unions are responding to the needs of their underserved members, check out our new Underserved Strategies Collection: Expanding Service Offerings to the Underserved. This three-in-one package provides you with one Market Update research report and two webcasts featuring credit unions who have taken initiative to serve the underserved.

The full version of this article originally appeared in the September Callahan Report.

 

 

 

Dec. 13, 2004


Comments

 
 
 
  • Test Test
    Anonymous