By Sam Brownell, Founder, CUCollaborate
‘Underserved community’ calls up images of unemployed and subprime financial consumers for credit unions and more specifically their leaders. This characterization is extremely misleading. Underserved field of membership expansions allow credit unions to expand their reach, permitting them to serve growing young, super-prime communities.
Some credit unions are serving the unbanked and subprime through underserved FOMs and serving them well, but a greater opportunity awaits. Many areas defined as underserved also open opportunities to serve wealthy, prime and super-prime borrowers to balance the equation.
Underserved area expansions are available to federally chartered credit unions with SEG-based FOMs and state-chartered credit unions with parity provisions. Many states allow state chartered credit unions parity with federal FOM regulation, meaning if the federal FOM rules are more liberal than that particular state’s regulations, the credit union may follow the federal rule. These credit unions don’t have to stop serving their original SEGs to do it. Underserved FOM expansions allow credit unions with employer-based fields of membership to preserve their original FOMs, while also adding geographically defined communities of service.
Most metropolitan commercial areas qualify for development under the Community Development Financial Institutions Fund but allow credit unions to serve the businesses and the people who work for them in that area. Underserved areas are defined by the people who live in an area rather than the people who work in that area, which means people who live in wealthier areas but work in the underserved areas are fair game because FOM rules typically allow credit unions to serve consumers who live, work, worship, study, volunteer, or businesses in the community.
Take Washington, DC, for example. With an underserved charter, a credit union could serve K Street lobbyists making $600 per hour and Capitol Hill, plus currently underserved areas undergoing gentrification that can be grandfathered within your FOM. These areas offer great potential for credit unions to serve more consumers, many of whom are likely prime and super-prime borrowers simply because they work in these areas. As urbanization continues, these areas will develop an increasingly attractive borrower profile and they tend to be younger.
To take advantage of this opportunity your credit union must already have or be willing to place a service facility in the prescribed area. If you believe in the investment, determine how to pursue the many opportunities:
- Identify the area you want to add to your field of membership.
- Choose a location for your service facility in the area if you don’t already have one. Selection criteria should include SEG locations where existing members live and you will achieve the most foot traffic.
- Identify and persuade a large employer within the area to become an anchor SEG for a sizeable captive audience of prospective new members, mitigating your investment risk.
- Apply to amend your field of membership to serve the prescribed area.
- Add new members and grow!
Executing on a solid strategy and executing it will be a sound investment in your credit union’s future. CUCollaborate has built software to guide you through the field of membership amendment process and offer field of membership consulting services to help credit unions identify and implement progressive field of membership strategies to accelerate growth.