The problem: too many payday lenders with too few consumer-friendly alternatives. The solution: charter a new credit union.
“We had a heightened awareness to the fact that we had few financial institutions in these communities [in Kansas City, Mo.],” Ajamu Webster said. “But you could throw a rock and hit a payday-lending check casher.”
That's where WeDevelopment Federal Credit Union is hoping to come in, if it can finally get its charter application approved. Webster is the board chair of the group that has been working with the National Credit Union Administration to charter a low-income credit union in this area since 2009.
He and other board members came face-to-face with people in this community who could not get access to financial services because of low credit scores when the city put the board members on an economic development task force.
The task force was developed in 2009, during the throes of the financial crisis. Yvonne Hampton, the chair of that committee and now a board member of WeDevelopment, was in the middle of economics masters research at the University of Missouri–Kansas City when she was asked to be on the task force.
“Missouri has really lax payday lending laws,” Hampton said. “Driving around Kansas City, you keep seeing stores popping up.”
In Hampton’s research, she’s found that having as little as $300 in a savings account is enough to keep the average consumer from turning to a payday loan.
The task force talked to close to a 1,000 people in Kansas City, Mo. The report that resulted included several recommendations—one of them was to start a community development credit union.
“The idea for this credit union was not a few people thinking about something that would be nice,” Webster said. “It really came from a broad-based effort to look for new economic development that would have a high level of community control … nothing beats your community telling you you’re doing the right thing and ‘We can’t wait.’”
Surveys since have showed positive responses from a community that is still feeling the effects of a history where the west and east side of a street called Troost Avenue separates a white community and black community. According to Webster, this segregated history is outlined in a book titled, "Race Real Estate and Uneven Development: The Kansas City Experience, 1900-2010" by Dr. Kevin Gotham, a sociology professor at Tulane University in New Orleans, La.
The field of membership for WeDevelopment FCU reflects this racially segregated history. The low-income community that the credit union is planning to serve based on census tracks is entirely east of Troost Avenue. “Our line follows the historic segregation in Kansas City,” Webster said.
Gotham lays out the history of how restrictive covenants started in Kansas City, Webster said. “This is how east of Troost Avenue became our low-income designation,” Webster said. “School districts organized themselves around that boundary. As the African-American community grew, the boundaries were hemmed up by Troost Avenue and 27th street.”
At that time it was rare for African-Americans who had mortgages on their homes to go to a bank for them. Most African-American homes were financed by mortgage companies. Until the 1980s, banks would get around financing African-American homes by setting minimum loan amounts.
“The lending minimum amount was $50,000,” Webster said. “Most of our houses weren’t worth more than $50,000.” After several Congressional Review Act actions, the banks lowered their minimum loan amount.
But the effects of redlining can still be seen east of Troost Avenue today.
“You can have two houses built in the same time period, same square footage and same number of stories,” Webster said. “But if your house was east of Troost you would have less value than the same house two blocks west.”
This affects what Webster calls the “financial capacity” of those he seeks to serve through the credit union.
Financial capacity goes beyond just financial education. “It doesn’t just stop with info and education, it’s following up and working with people,” Webster said.
Hampton, who is in the final stages of his doctoral research, has turned from payday lending to personal finance with a focus on how mental health affects financial wellness. “When Ajamu speaks about financial wellness, it’s a total picture,” she said. “True financial wellness is interrelated. Financial literacy is the first piece, but understanding how to implement this financial literacy and how it fits into your own life and your own beliefs is the approach that we try to use.”
The credit union’s products are still being formed, and awaiting approval from the NCUA, but the board plans to market the credit union as an alternative to predatory lenders with a focus on second and third lending opportunities for members that default on payments.
The services that WeDevelopment FCU offers in the future are going to be driven by member demand, Webster said.
The credit union is also going where its members are. The board plans to send volunteers to bus stations, the housing development agency, and social services agencies.
The board is also placing the credit union near the second most trafficked transit space for the local bus company—at 31st street and Prospect Avenue. Thousands of people who use the stop will fit the profile of WeDevelopment FCU’s target market: Kansas City’s low-income, underbanked residents.
The location will also be surrounded by businesses from the Prospect Business Association, a conglomerate of 75 businesses along Prospect Avenue. “Everybody is excited about the idea of having a credit union in the urban core,” said Elbert Anderson, co-founder of the Prospect Business Association.
In support of the association, one of the long-terms goals of WeDevelopment FCU is the ability to make business loans to support business and entrepreneurial pursuits in and around Prospect Avenue.
“You've got to have a place to start and that's what we haven't had in the past,” Anderson said.
The Baptist Ministers Union and Missionary Baptist Convention has thrown its support behind the credit union, encouraging members to join and helping raise capital.
“We have a 100 black churches in Kansas City and so many of those churches do not meet the lending requirements of the bank,” said Rev. L. Henderson Bell, president of the Baptist Ministers Union.
Another source of support for the credit union is the mentorship of St. Louis Community Credit Union, a low-income CU with more than 50,000 members and 17 branches in St. Louis.
An Enterprise Bank community development employee told Webster about the St. Louis CU’s interest in helping WeDevelopment FCU get off the ground. “We made contact and three of our board members jumped in a car to St. Louis and spent all day with them,” Webster said.
Employees at the St. Louis Community Credit Union were happy to give them a tour.
“We talked to them about the logistics of operating a CDFI credit union and took them to two of our branches to get a feel for how we setup everything,” said Paul Woodruff, vice president of community development for St. Louis Community Credit Union.
St. Louis Community CU can’t build a branch in Kansas City because of the limits of its charter but is planning to make a deposit in WeDevelopment FCU when the credit union opens. “They are the best in the country in providing support for our target market,” Webster said.
The two credit unions have similar markets: Around 80 percent low-income African-American consumers.
Within Kansas City, Mo., the credit union’s field of membership has about 132,000 people, 78 percent of whom are low-income, much higher than the 51 percent minimum to be considered a low-income credit union.
Originally, WeDevelopment FCU had planned on a $25 membership fee, but revised that fee to $1 based on St. Louis Community CU’s suggestion.
In St. Louis there are a significant number of CDFIs, while Kansas City currently has just one CDFI credit union and one CDFI bank. “There’s definitely room for growth,” Woodruff said.
In this stage of the charting process, WeDevelopment FCU has gotten its field-of-membership laid out. The credit union has submitted its marketing and business plan as well as information on its board members, and raised the initial capital for two years of operating.
“It’s a matter of going back and forth with NCUA in terms of answering questions that they have,” Webster said. “The biggest hurdle we had to overcome was raising operating capital.”
For many in the Kansas City urban core, the credit union’s chartering will mean a new avenue for economic growth.
“If one corporation based in New York pays someone here and they buy something from a corporation based in Los Angeles, then there’s not much staying in the area and allowing the area to grow,” Hampton said. “The goal here is to make loans that help businesses based here where the money is going to stay here to grow our economy.”