Alternatives Federal Credit Union (Ithaca, NY) has 41 employees and operates out of one office. Membership stands at 8,500 versus 5,800 at year-end 2000; assets at $50 million versus $34 million. In its most recent Annual Report, Alternatives says that while it faced some operating losses earlier in the decade during a period of growth, it returned to profitability more quickly than anticipated. Entering 2008, it continues to offer a robust menu of socially responsible services.
Neil Cotiaux spoke with Tristram Coffin, CEO of Alternatives FCU, about Alternatives’ cutting edge initiatives.
Tell me a bit about the growth of Alternatives FCU and your competition.
“We started in 1979. We rose from the grassroots. The competition here is primarily locally owned regional institutions, although Bank of America® has a presence here. We built an institution dedicated to providing education and access to capital outside the target group of other financial institutions.”
Your no-fee tax preparation program, now entering its sixth year, is open to single persons earning up to $25,000 a year and families with incomes up to $40,000. It has processed 4,000 returns and produced $6 million in refunds for your clients over the past five years. How does it assist financially at-risk individuals and families?
“We get most of our volunteer tax preparers from our members. We will also recruit accounting students from Ithaca College. The program is open not only to members of Alternatives but also to the entire community. We try to get as much free media as possible to tell everyone that they’re welcome. In 2006, we helped members save over $150,000 in tax preparation fees.
“The Earned Income Tax Credit (EITC) is the largest federal anti-poverty program and yet in 2005, less than 20 percent of the returns eligible for EITC were actually claimed. In 2006, EITC claims (through Alternatives) totaled over $700,000, so that’s the primary way we assist lower-income individuals in accumulating wealth.”
Does this tax preparation program help recruit new members?
“The tax program is one of our educational programs where we see a direct correlation between the people we serve and new accounts opened. They like the experience of being at Alternatives and we make it easy for them to get their refunds direct-deposited. It’s one of the things that help our bottom line. Nonetheless, we also rely on outside financial contributions from the county and foundations to fund this initiative.”
You offer tax refund anticipation notes - small dollar loans that can serve as an alternative to payday lending. How are they priced?
“They’re priced at an APR of 12.9 percent plus a $20 application fee (well below the charge typically incurred when using payday lenders). Average interest paid has run just over $5. Our anticipation notes are designed as a flexible, short-term way for people to borrow against their anticipated refund.”
Alternatives FCU’s Credit Path® is a business model that moves members of the community from transactor to saver to borrower to owner. How do your Individual Development Accounts (IDAs)—which include mandatory financial literacy training - factor into the Credit Path model?
“An underserved consumer can make the step from being a transactor to being the owner of assets. IDA’s really help grease the wheels for someone in creating greater self-sufficiency. They’re designed to help people accumulate money for a down payment to buy a house or for education or to help start a business.
“For each dollar that someone saves you can get a match of three-to-one and get in a home more quickly than otherwise. It’s a great alternative to sub-prime borrowing and it’s a way to encourage people to maintain responsible savings habits and get in good shape financially before a large purchase. Right now, we have 69 accounts open. We are looking to fund an additional 50 in 2008.”
And for those wealth accumulators who want to start a business, you have a micro enterprise program.
“We’ll help the very small borrower start or expand their business. More importantly, we provide the knowledge that will help people become successful entrepreneurs. Our Business CENTS program provides training for everyone (with a sliding scale participation fee based on income), from persons first thinking of going into business, to established entrepreneurs who need advice on tax management or marketing or strategy. There is a layer of one-on-one coaching that we provide through trained business consultants, separate and apart from any loan that someone may have with us or with any other institution.”
You’ve also found a way to instill the virtues of saving to students while creating potential new business. Tell me about the student savings program you’ve put in place at seven area schools.
“What we’ve done is try to move beyond financial education to give kids successful experience at saving money, so we have programs primarily in the elementary schools where kids bring money to the student credit union every week and establish the regular habit of saving money. Up to a third of the kids may come from lower-income families.
“The effect on the kids is remarkable. Parents tell us that behaviorally, we’ve made a difference with their children. There’s an example of kids who didn’t want to go on vacation with their families because they didn’t want to miss a deposit. In 2007, we opened 330 new student accounts in the schools. The kids tend to hang onto their money once they save it.”
How are you faring in the marketplace as a result of all these programs?
“All of these programs give Alternatives a brand position. They help us stand out against the very strong competitors we have in our area.
“We typically hold a national seminar each year where we invite other community development credit unions to come and hear about what we’ve done so they can take our best practices back to their markets. This, in turn, makes the entire community development credit union world stronger.”
The FDIC is starting a pilot program in the first quarter of 2008 aimed at encouraging banks to get more involved with small dollar lending and financial literacy. What basic pointers can you offer to any institution that wants to take up the FDIC’s suggestion?
“For an organization unlike ours, it doesn’t have to be a strategy of institution replication but a product replication strategy. They can adapt what we‘ve done to their own reality, use it to become successful, and live up to the mission that FDIC sets out as they ask banks to become more active in these smaller projects.”
For more information on Alternatives Federal Credit Union’s approach to small dollar lending and wealth accumulation for at-risk individuals and families, call Alternatives at 607-273-4611, ext. 417, or visit alternatives.org.
