President Obama's executive action on immigration — a measure that, if enacted, would give an estimated 5.2 million undocumented immigrants some protection against deportation — could eventually provide U.S. credit unions with additional business from a largely ignored and under-served segment of the population.
The Migration Policy Institute reported that the presidential action would apply to almost one-half of the estimated 11.4 undocumented immigrants currently living in the U.S. — a largely unbanked or underbanked constituency.
Given that the overwhelming majority of immigrants that would be covered under the action (or their children) originally hail from Mexico and Central America, credit unions based in U.S. states with heavy Hispanic populations — especially California, Texas, Arizona, Florida and New York -- are likely to see the greatest impact.
"While many undocumented immigrants don't trust traditional financial services firms, President Obama's plan certainly can be an opportunity to provide vital services, including financial education, to a population that has been largely underserved," Diana Dykstra, president and CEO of the California & Nevada Credit Union Leagues, told Credit Union Journal.
Generally, undocumented immigrants with individual taxpayer identification numbers or some other form of identification can become members of credit unions.
"The regulation [credit unions] need to follow is CIP [Customer Identification Program], in which, as long as they feel confident they know whom they are dealing with, they don't have to consider immigration status or even use U.S.-issued identification to start an account," said Ben Rogers, research director at Filene Research Institute.
Dykstra explained that the assumption that undocumented immigrants don't have a taxpayer ID isn't necessarily true. Nonetheless, she noted, credit unions can also choose to take alternative forms of identification, such as the 'matricula consular' [a form of identification issued by the Mexican government for its nationals living abroad].
Jeanne Hogarth, vice president of policy at Center for Financial Services Innovation (CFSI), said she expects the fulfillment of Obama's immigration order to lead to many undocumented immigrants joining credit unions in order to participate in the US financial system. "If somebody is on the fence about opening up a bank account, this action by the president may encourage that person to open accounts, which would benefit credit unions," Hogarth said.
Miriam De Dios, the CEO of Coopera, a Des Moines-based Hispanic credit union consulting firm, spelled out the myriad effects of the immigration plan. For example, as the 5 million people affected by the President's orders start to go through the immigration process, they will need to pay fees for filing immigration paperwork and tax returns, as well as to obtain country-of-origin documents required for the process.
"They will be seeking financial tools to help them with these immediate expenses, which might be cost prohibitive initially, especially if multiple people in a household are going through the process at the same time," De Dios said. "That means savings and lending products for this specific purpose."
In addition, De Dios explained, the executive action calls for providing an option for naturalization applicants to use credit cards to pay the application fee, which means those that don't have a credit card today, could seek credit unions for that option as well.
"After obtaining their temporary status and work authorization, this immigrant group will also be seeking new jobs, obtaining driver's licenses and seeking financial partners to help them with their financial goals, which means more deposit and lending accounts and a long-term financial relationship," she noted. "And, because many undocumented immigrants live in mixed-status households, their family members and friends whom may be documented, will be interested in seeking financial relationships with institutions that have welcomed their family members. Credit unions are poised to provide the dignified financial services that those affected by these orders will need, whether they be documented or not."
A key part of the credit union/undocumented immigrant issue may relate to how credit unions could seek to change their policies on membership and what types of identification they will require — in connection with the Bank Secrecy Act (BSA) customer identification policies.
For example, the $3.6 billion OnPoint Community Credit Union in Portland, Ore., currently requires that applicants must be at least 18 years of age, a U.S. citizen or U.S. resident alien. Applicants also need various items, including a U.S. Social Security number, a "valid form" of identification including driver's license, state ID, military ID or Passport, among various other proofs of residence.
Presumably, CUs like OnPoint could relax or fine-tune their identification policies to attract more customers from a long under-served market.
Some credit unions around the nation have already expanded their services for the local undocumented community in anticipation of Obama's new order.
For example, Latino Community Credit Union in Durham, N.C., (a state with a burgeoning Hispanic population) has a finance program called "Dreamer Loan" which is designed for younger undocumented immigrants and requires no credit history.
Moreover, as long as applicants have a valid photo identification from any nation (not necessarily US-issued), a valid tax ID number and proof of residence, they can join the $146.6 million CU and qualify for the loan.
LCCU estimated that some 50,000 people in North Carolina alone would qualify for the Dreamer' program.
On a national level, the nation's fast-growing Hispanic population (who are now the largest single minority group in the country), offers a tantalizing market segment for credit unions, given that many low-income immigrants cannot afford lofty bank fees and tend to distrust large commercial financial institutions.
The FDIC indicated in a report last month that more than one-in-six Latinos in the United States are "unbanked" — meaning they have no bank accounts and tend to rely on "alternative" (and often predatory) financial service providers.
"Regardless of your politics, Latinos are the next big growth market," said Filene's Rogers. "Immigrants, and especially children of immigrants, follow the product path that credit unions are eager to capture: checking accounts, auto loans and mortgages."
Indeed, in a report released prior to Obama's order, Filene determined that in the United States, "unbanked" and "underbanked" immigrants (comprising both legal and undocumented people) represent some 15.7 million people with a potential annual market value (including checking accounts, savings accounts, remittance services and small-dollar loans) of about $3.2 billion.
"Credit unions might want to think about working with neglected parts of the immigrant market, which... may be a lot more lucrative than they appear from afar," the report indicated.
In a recent report, CFSI has called financial institutions in the U.S., including credit unions, to develop "foundational products like credit-building loans and... basic transactional, saving, and credit services that put immigrants on the path towards long-term financial health."
Still, given that Republicans in Congress have already expressed virulent opposition to Obama's immigration order, some credit union trade associations believe it may be far too early to evaluate the ultimate impact of Obama's executive action.
"We are monitoring [it] as the issue evolves," said a spokeswoman for NAFCU.
Rogers similarly cautioned that any potential impact on CUs could take years in the making.
"The Obama administration's immigration actions won't have impacts on most credit unions next week, but they will further cement the importance of long-term market strategies for all credit unions," he said.