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Almost two years after favorable legislation went into effect, the door is still wide open for state-chartered credit unions to serve economically disadvantaged areas, an issue that has increasingly become a “hot button” for credit unions on a national basis.
 Credit unions received the authority to more readily expand services to persons residing in these areas in 2004 via S.B. 3021, a League-initiated measure containing amendments to the Illinois Credit Union Act (Act). Illinois Governor Rod Blagojevich signed the measure into law that year.
As a result of the amendment creating §16.1 of the Act, Illinois-chartered credit unions were given the power to serve persons residing in areas that have been made part of the U.S. Department of Treasury’s Community Development Financial Institutions (CDFI) Program, which focuses on investment areas and targeted populations that meet its “distress” criteria. Areas of the state of Illinois that qualify under the CDFI Program can be easily located via www.cdfifund.gov. A search can be conducted by using county names, census tract numbers or addresses, and a color-coded map will be generated identifying the areas that qualify.
The §16.1 amendment created a whole new category of ‘common bond’ that encompasses almost 40 percent of the territory of Illinois under the CDFI criteria. The measure enables credit unions to implement strategic opportunities for substantial membership growth. In addition, no amendment to a credit union’s charter or bylaws is required in order to serve investment areas.
Sherwin Williams ECU is one example of a credit union that has been servicing a specific geographic region under the CDFI criteria for the past year. As a credit union already serving many Select Employee Groups (SEG)s in a relatively underserved area of blue collar manufacturing companies in the southwest suburban area of Chicago, incorporating a nearby investment area as part of its charter was a logical step.
“While other financial institutions are going after more high profile members, we asked ourselves, ‘Why can’t we also do more for the underserved?’” said Ray Santare, CEO. “There are a lot of people that need our help and don’t have access to traditional financial institutions. This takes us back to the roots of why credit unions were developed in the first place.”
The credit union has two locations, one of which was already in the designated investment area. In addition, given its existing field of membership, the credit union also had the proper line of products in place to effectively serve the community.
Credit unions like Sherwin Williams that utilize the new authority under §16.1 of the Act will be able to accept as members any person that resides in the investment areas they choose to serve, as well as businesses and organizations located in the areas. Residency is the key factor, not whether the person meets any particular “low income” criteria. To qualify, credit unions must serve the area by maintaining a facility in the area. A facility could include a branch, a shared branch, an office operated on a regularly scheduled weekly basis, or a credit union owned electronic facility that, at a minimum, accepts deposits and loan applications, and disburses loans. Under the criteria of the amendment, ATMs do not qualify as an electronic facility.
“Through this initiative, credit unions can complement current efforts by the State of Illinois to serve the underserved, economically distressed areas, and provide alternatives to predatory lenders,” said Dan Plauda, ICUL President/CEO. “The measure also provides state-chartered credit unions parity with federal credit unions, and an opportunity to demonstrate service to these areas on the local level as the movement moves forward with critical examination of serving people of ‘modest means’ nationally.”
As you may be aware, this issue was brought to the forefront last November. As part of its examination of tax-exempt organizations under the internal revenue code, the U.S. House Ways and Means Committee held a six–hour hearing in Washington D.C. to challenge whether credit unions are serving their intended goals. Examples of initiatives like serving investment areas here in Illinois may become increasingly important in the coming months as NCUA releases data of a recent survey showing the extent to which credit unions are actually serving these areas.
Credit unions desiring to serve an economically disadvantaged area must prepare a written business plan prior to initiating services. The business plan must document the fact that the area meets the CDFI investment area criteria and identifies the credit and deposit needs of the persons to be served and the manner in which services will be delivered. In addition, periodic status reports describing how needs are being met, based on the credit union’s review of its business plan, needs to be provided to the Division of Financial Institutions (DFI) after the business plan is implemented. The League’s Office of General Counsel can assist credit unions in their preparation of the requisite business plan.
To assist credit unions in delivering financial services to disadvantaged areas, the Illinois Credit Union Foundation established a grant program, known as the Financial Independence & Revitalization Effort (FIRE) Program. Under this program, credit unions can apply for grants of up to $15,000 to reach out to low-income and underserved communities in Illinois. Potential FIRE fund projects include teaching financial literacy programs, establishment of a branch/satellite office in an underserved area, expansion of financial products offered to low-income members, development of bilingual programs and implementation of IDA accounts.
“Financial resources and other assistance is available for credit unions to serve these investment areas and we encourage credit unions to investigate the feasibility of incorporating these regions into their fields of membership,” said Steve Olson, Executive Vice President, General Counsel and COO.
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