Case Studies in Impactful Lending Initiatives
By Jessica Jacobson, CNote
November 21, 2023
One of the greatest strengths of credit unions is their community focus. Being in constant contact with the members and local communities allows for the development of products, services, and programs to address members' most pressing challenges.
For credit union leaders, however, crafting these new services can present formidable hurdles. Creating innovative products from scratch requires time and resources that could otherwise be directed to current offerings. One solution is to draw inspiration from other credit unions that have already pioneered innovative lending initiatives within their respective communities. Examining the products and offerings developed by credit unions with similar member bases, credit unions can learn from the experiences of others.
In this article, we present three examples of products developed to meet member needs. All of the featured credit unions are partnered with CNote, which provides deposits to support impactful loan activities, such as those highlighted here, and connects credit unions with like-minded peers.
1. Freedom First Credit Union: Responsible Rides Program
Norma Fralin had never felt comfortable navigating dealerships because there were uncertainties surrounding her credit. Thankfully, she was able to take advantage of Freedom First Credit Union’s Responsible Rides® program, which helps low- to moderate-income earners who need their own car but struggle to afford a loan due to credit challenges. Within a week, Norma had a car.
In cases where applicants have a subprime or no credit history, Freedom First explores alternative payment records, such as utility bills, insurance payments, rent history, or court fund payments, as indicators of creditworthiness. Moreover, each loan application submitted to Freedom First's underwriters allows the applicant to share a personal narrative detailing how car ownership would transform their life. These stories have included single mothers who need reliable transportation to provide for their family, young people who need a car to get to their first job, and older, fixed-income individuals who struggle to get themselves to doctor’s appointments and the grocery store.
This creative approach, considering character and individual stories alongside established criteria, enables Freedom First to approve more applicants for auto loans. These loans have a maximum interest rate of 18%, significantly lower than those offered by predatory lenders. As borrowers' credit profiles improve, Freedom First offers opportunities to refinance auto loans, reducing monthly payments. Over the past eight years, Freedom First has successfully originated 523 Responsible Rides loans, totaling $5.9 million.
2. NYU Federal Credit Union: Mortgage Program and Creative Partnerships
Over the past 17 years, NYU Federal Credit Union has expanded its mortgage program to include mortgage preparedness loans, first-time homebuyer loans, and down-payment assistance loans.
The credit union is still too small to carry a high number of mortgages on its balance sheet despite the demand from its membership. To meet members' needs, NYU Federal Credit Union formed a strategic partnership with the United Nations Federal Credit Union. Under this arrangement, NYU Federal Credit Union sells its mortgages to the United Nations Federal Credit Union while retaining a 10% stake in each loan. This mutually beneficial arrangement allows NYU Federal Credit Union to serve the mortgage needs of more members while improving the United Nations Federal Credit Union's balance sheet.
Last year, this collaboration resulted in NYU Federal Credit Union earning approximately $400,000 in fees, representing a significant boost to the credit union's financial health.
3. Comunidad Latina Federal Credit Union: Share Secured Loans Program
Despite limited resources and a team of only five employees, Comunidad Latina FCU provides high-impact financial products to its members, which consists of approximately 98% undocumented individuals, with over 90% having an annual household income below $50,000.
One standout offering is the Share Secured Loans program. Drawing inspiration from the global practice of rotating savings and credit associations, commonly known as "tandas," popular in many countries, including some in Latin America, the credit union has developed a similar model.
We created these loans because that’s what our members understand,” said Azul Sanchez, CEO of Comunidad Latina FCU. “Being able to understand our members and to provide guidance while allowing them to preserve their dignity is very important to building trust with them.”
Individual members save and lend money to pay off a loan before they receive it. The reverse loan allows members to not have to worry about coming into the credit union with a deposit to use as collateral for a loan. Additionally, because these loans have an interest rate of 3.5% (compared to between 12% and 20% at big banks), this product also creates opportunities for members to build their credit as they plan for big expenses.
In the world of credit unions, impactful lending initiatives are key to serving diverse and underserved communities. These stories demonstrate how credit unions have harnessed innovation and collaboration to address the financial needs of their members.
As you continue on your journey of finding new ways to support your membership, we invite you to connect with credit unions like these and use collaboration to build stronger and more inclusive communities.
Connect with CNote to learn more.
CNote is a technology platform that provides a sustainable flow of non-member deposits that are low-cost and deliver consistent value. This service is available at no cost to CUNA member credit unions as arranged by CUNA Strategic Services.