By Ray Birch
LANSING, Mich.—For a credit union to effectively serve the needs of low-income members, CASE CU says it must develop a dedicated line of products.
That’s what the $280-million CASE CU has done since it began to focus as a community development financial institution on the underbanked in 2010.
“In 2010, when we had new management come on board—including a new CEO—that is when we really started to make the underserved our focus and shifted resources. This has only accelerated over time,” said VP of Lending Brett Pacek, which converted to a community charter several years ago after serving teachers in the local area.
“About 30% of people in the Lansing area are at the poverty level,” Pacek told CU today.
The credit union has worked with community groups to develop loan programs that meet its members’ special needs. Its “Borrow and Save Loan” helps borrowers develop a savings habit by providing 50% of the loan amount up front and setting the rest aside in a savings account that is released when the loan is paid off.
Responsible Ride
The Responsible Ride Auto Loan Program, meanwhile, removes vehicle year and mileage guidelines so members can obtain financing for lower-cost vehicles. And the CU’s Property Tax Foreclosure Home Equity program offers financial counseling and loans for members who own homes outright but who are in danger of foreclosure for failure to pay property taxes.
CASE recently won a CUNA Mutual Group Excellence in Lending Award for its programs.
Pacek said the credit union began its efforts to serve the underbanked with a credit-builder Visa card and then a “pledge loan.”
“The pledge loan was our second product and members really use that,” said Pacek. “The pledge loan helps members build credit.”
The Borrow and Save loan allows members to take out as much as a $1,000, half of which is secured by a deposit.
“The $500 goes into a locked savings account, and once the member makes all of the principle and interest payments on the entire $1,000, we release the $500 to them,” explained Pacek. “Not only have they established credit and received a loan, they now have savings.”
Affordable Payments
The Responsible Ride auto loan program is helping members buy cars so they can get to work and to the grocery store, said Pacek. In removing the credit union’s vehicle year and mileage guidelines, CASE will make loans on vehicles as old as 2002 and loan up to $7,500 for terms up to 48 months for borrowers with FICO scores 650 and below.
“This loan typically produces a payment of around $220, which we find that people of low to modest means can manage,” said Pacek.
The Property Tax Foreclosure Home Equity program is offered through a partnership with local Capital Area Community Services.
“This group serves the Lansing area and works to prevent property tax foreclosures,” said Pacek.
He explained that often homeowners who own their homes outright fall behind on taxes due to a serious life event, such as an illness and its related expenses. Pacek said the community group works with homeowners who have fallen behind in their taxes by two-and-a-half to three years, about the time after which their homes could go into foreclosure.
Pacek said when Lansing residents fall behind on their taxes by $7,000-$10,000, they typically don’t have the means to pay the taxes and “simply stick their heads in the sand and then lose their homes. The group we have partnered with counsels these individuals and refers them to us. We won’t do anything larger than a $2,500 line of credit, which gets many of them back on their feet and repaying their property taxes. We escrow for taxes going forward and we offer this product for C, D and E credit.”
Borrower Expectations Made Clear
Pacek said the board and executive team agreed to accept higher delinquency rates to serve members of low to modest means and meet the credit union’s new mission. CASE’s delinquency rate typically ranges from 1.25% to 1.5%. He explained that the credit union extensively documents its approach in its strategic plans and shares those with examiners.
CASE, too, makes it very clear to borrowers what the expectations are of them.
“We have integrated into the loan closing process what I term a hard close,” said Pacek. “There are specific forms built into the loan process that are reviewed with borrowers by the MSR that reiterate the key requirements so everyone is on the same page. We carefully and clearly go over when payments will be made each month, the exact amount to be paid, the fact that payments need to be made on time to establish or keep a good credit history and to avoid repossession. It works for us.”