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Idea for Intellectual and Developmental Disability Federal Credit Union



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One of the big hurdles in providing housing and services to people with intellectual disabilities is the initial capital required.

I think people that care and advocate for people with intellectual disabilities should form a Federal Credit Union.

“A credit union is a member-owned, member-controlled, not-for-profit cooperative financial institution formed to permit groups of persons to save, borrow, and obtain related financial services and to participate in its management. Member ownership and member control are what make credit unions unique.“

“Membership is limited to a group, or multiple groups, each defined in the credit union’s charter, each of which have a common bond of occupation or association, or are located within a well-defined neighborhood, community, or rural district.”

As far as I know no credit union has been established around the common bond of a disability.

A Credit Union will require organization and association to come together to form it. Individuals cannot form a credit union without becoming an organization. All parents and advocates I have met so far say they would be depositors and use an Intellectual and Developmental Disability Credit Union.

Intellectual and Developmental Disability Federal Credit Union Formation Information
(A Road Map)

Working Mission: To help provide financial services and stability concerning housing and services for the well-being of people with intellectual disabilities.

Credit Union Formation Overview

The forming of a credit union may look daunting at first, but it does not require building all credit union services from top to bottom. Most credit unions use Corporate Credit Unions to take care of many of the back infrastructure services like ATM’s, transaction, accounting and debt collection. Corporate Credit Unions are credit unions for credit unions and are not used by the public.

Forming a credit union may require hiring loan officers, but even this can be farmed out to existing credit unions or bank loan officers as a partnership. An organization seeking a loan to buy a home for people with intellectual and developmental disabled individuals may go to a credit union or bank and find out that they could qualify for a lower interest loan through an IDD credit union through that loan officer. Through the Community Reinvestment Act (CRA), banks and savings associations are required to help meet the credit needs of all segments of their community, including low- and moderate-income neighborhoods and individuals.

As an IDD credit union would probably qualify as a Community Development Financial Institution, it would qualify for free mentorship and consultation from the National Credit Union Association, NCUA.

Most credit unions are relatively small, company employees banning together to form a credit union. An IDD credit union could start small and build from there. A “multiple common bonds” designation allows for other organizations with similar objectives to join a credit union later.

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Advantages:

- It would be like a bank: savings, checking, debit and credit cards, and loans. The pooling of money to provide capital needed for projects that benefit people with disabilities. Once the credit union gets started, there should be no costs to members and they should receive interest from loans made to companies supporting people with intellectual disabilities.

- Credit Unions have the same deposit insurance of up to $250,000.00 per individual as a bank.

- Credit Unions are nonprofits so they can usually offer better loan rates and higher deposit rates than a “for profit” bank. Essentially credit union depositors/members are the shareholders as opposed to stock market shareholders of private banks.

- ID credit union would also cater to people with ID and encourage them to have accounts.

- Possible employment for people with ID

- Help families establish third party trusts and Able accounts.

- If a Federal credit union qualifies as catering to a low income community (50% + 1 requirement), you get additional benefits like:
- ability to apply for up to a $300,000.00 grant
- apply for a below market interest loan

People with intellectual disabilities are almost always low income or no income beyond SSI and other government services. Families of people with ID are across the income spectrum. I think we could qualify. There is the ability to qualify as a low income Federal credit union in the organizational phase.
- Since the credit union is a non-profit, it can also take donations and give grants from those donations. It can also receive charitable donations to help with start-up costs.

Risks:

- A credit union has many of the same risks as a bank which includes bad loans, fraud and theft.

- If a loan defaults, we could be the owners of a house or other property. Since the housing would most likely involve people with ID, we may also become property managers. It would be against the mission to ask people with ID to vacate a premise.

- Safeguarding of personal information in the digital age, though we would be using software and systems used by other credit unions.

- First 3 years of a credit union’s existence is when the most credit union failure occurs.

- Deposit vs loans
- Too little in the way of deposits means you do not benefit from economies of scale and service costs can mean a negative return on assets (ROA). I have looked at recent financial data of credit unions in CA and having a low amount of assets often means a negative ROA. This can be mitigated in the organizational process as part of the process is to get people to pledge to deposit an amount before the credit union is started.

- Growing deposits greater than the ability to make loans or have means money sitting on the side can have a negative impact on ROA. Money can be lent to other Federal Credit Unions. While this not officially a part of the organizational process, it would probably be beneficial to solicit loan commitments a month before officially opening (being chartered).

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State or Federal Credit Union or Both:

The information, resources, and support to start a Federal credit union are far better than the state of California information. The federal credit union website for credit unions is: https://www.ncua.gov/services/Pages/resources-expansion.aspx

There are lots of pdfs and webinars on all subjects about starting and managing a credit union.

The National Credit Union Association, NCUA, has both a consumer side and a credit union side to their website, so if you search for it you may end up on the consumer side and information to start and manage a credit union is not on that part of the website. There is a way to navigate over to the start and management part of the website though it is not so obvious. I go into what pdfs you should read first and link to them further down below.

On the California state side the information comes down to one pdf: http://www.dbo.ca.gov/forms/credit_unions/DBO391.pdf

There are some links to regulations and other things on this webpage: http://www.dbo.ca.gov/Licensees/credit_unions/default.asp

Given the support for starting a Federal credit union and that the ID community is not defined in one state starting a Federal credit union seems to be the way to go.

There are credit unions that are both state and federal and I can’t see why this would be a benefit. I suspect these credit unions started out as state and then later charted as federal also.

Community Development Financial Institutions (CDFI) Designation

“Community Development Financial Institutions (CDFI) is the U.S. Department of the Treasury’s recognition of specialized financial institutions serving low-income communities. Credit unions that are certified as CDFIs are eligible to apply for technical assistance and financial assistance awards from the CDFI Fund, as well as training provided through its Capacity Building Initiative.“

https://www.cdfifund.gov/Pages/default.aspx

One of the purposes of Community Development Financial Institutions is to serve the underserved, low income, and people with intellectual disabilities are definitely under served and low income.

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Start Up Cost

The estimated start up cost given by NCUA is a little bit confusing as the older Federal Credit Union Charter Application Guide gives start up costs as much higher than their newer pdf, Estimated Start-Up and Operating Costs in Chartering a Credit Union:

https://www.ncua.gov/Resources/Documents/CUDev/AcrobatDocument6-26-09.pdf

Regardless of what the actual start-up cost are, we can probably get grants and donations to cover the cost. One possibility:

“The California State Council on Developmental Disabilities (SCDD) and its regional offices, administers grants to community-based organizations to fund new and innovative program development projects. All projects are intended to implement the California State Strategic Plan objectives and improve and enhance services for Californians with developmental disabilities and their families.“ https://scdd.ca.gov/grantinformation/

There is much information to digest but one should start with these:

Federal Credit Union Charter Application Guide: https://www.ncua.gov/Resources/Documents/CUDev/Federal-Credit-Union-Charter-Application-Guide.pdf

This seems to be an old guide as some of the links to must reads in it go to pdfs or webpages that do not exist. Even if it is old, it does have a very informative step by step process for starting a federal credit union.

Credit Union Leadership Resource Manual (updated July 2016): https://www.ncua.gov/services/Documents/leadership-resource-manual.pdf

This pdf is a “cliff notes” pdf manual, very informative with links to resources and pdfs.

Maximizing the Low-Income Designation: https://www.ncua.gov/services/Documents/Maximizing-Low-Income-Designation.pdf

These guides and more can found here: https://www.ncua.gov/services/Pages/resources-expansion/resources/guides.aspx and more here: https://www.ncua.gov/regulation-supervision/Pages/manuals-guides.aspx

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Internet Credit Union Model

I do think the IDD credit union should be an internet credit union with no physical branches but access to ATM via an ATM network. This guy explains in his blog if he were to start a credit union today he would seriously consider the Internet model.
https://thatcreditunionblog.wordpress.com/2007/04/09/starting-a-credit-union-from-scratch-what-would-it-look-like/
This was written in 2013.

Since the ID community is spread out and knows no geographical lines, it does not make sense to have physical branches. We could have virtual branches, in having loan committees or loan officers and other committees in geographical areas and have a central deposit/services and customer care center(s). If this does not make sense now, it will make more sense once you read about how credit unions are structured.

While different geographical areas could set up separate credit union, there may or may not be the ability to share costs of background services.

Corporate Credit Unions

An internet model would use third party vendors or a corporate credit union to provide much of the back office transaction services like ACH, billing, statements, and ATM transaction services and networks.

“A corporate credit union provides services to natural-person (consumer) credit unions. In the credit union industry, they are sometimes referred to as “the credit union’s credit union.” Corporate credit unions may either be charted by the NCUA or under state authority if permitted under that state’s financial services laws.

Corporate credit unions are owned by the credit unions that choose to do business with them. Generally, they provide short- and long-term investments and financial settlement services through the clearing of payments (check clearing), automated clearing house (ACH), electronic funds transfers (EFT). and automated teller machine (ATM) transaction services and networks.“

Going with an Internet model of a credit union should reduce costs over physical branches. Interestingly in the NCUA pdf, Going Digital: Strategies for Providing Digital Services: https://www.ncua.gov/services/Documents/going-digital-guide.pdf

They say that right now most credit unions that integrate digital services do not save money. They blame this on existing credit unions not shifting most of their customer services onto the internet and relying too much on physical transactions at a physical location. Since we could start off as an internet based credit union, the IDFCU would not have to get customers to shift how they are serviced.

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Physical Location

One of the current requirements for chartering a credit union is you must have a physical location. It does not appear that the physical location necessarily be like a bank branch with tellers. I think there are a number of initial possibilities to meeting this requirement that would not require renting a large space. Depending on how large the credit union gets, there will probably be a need to have some office space(s) in the future.

Competition

As a non-profit FCU CDFI with a goal of increasing housing and day programs for people with intellectually and developmental disabilities, it could offer better rates and better terms than current banks and CDFIs. Clearinghouse CDFI is the largest in CA. Clearinghouse CDFI is a “for profit” financial institution owned by banks and a few insurance companies so that they can fulfill their Community Reinvestment Act requirements. They do not focus solely on the financial situation of people with intellectual and developmental disabilities. Clearinghouse CDFI prepayment penalty and loan rates are not charitable and better terms can usually be found elsewhere. List of CDFIs in California http://www.cdfi.org/wp-content/uploads/2015/03/California.pdf

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