An Ingenious Business Model: Speak Spanish and Serve Immigrants

Paula Carde's family business almost didn't get off the ground, because no traditional bank was willing to extend an initial line of credit to the fledgling construction company. "I went to SunTrust, I went to BB&T, I went to Four Oaks," says Carde, "and because our business was so new, they weren't willing to give us enough."

The only North Carolina financial institution willing to take a chance on Carde, her brother, and her father — all immigrants from Chile — was the Latino Community Credit Union, headquartered in Durham. The 26-year-old Carde had been depositing her paychecks there for years, and in retrospect she should have approached LCCU first. Taking chances on immigrants is what the credit union does.

LCCU, which has 10 branches throughout North Carolina, serves a population that most other financial institutions overlook. Many of its members live paycheck to paycheck, have never opened a deposit account, and don't speak fluent English. Yet LCCU is one of the fastest-growing and most financially stable credit unions in the country, with a delinquency rate lower than those of its peers.

The credit union was initially chartered in response to a crime wave in Durham. In the late 1990s, muggers in the city began targeting Latinos because they were more likely to be carrying cash. It's a problem across the United States: approximately one-fifth of Latino households in the U.S. don't have a deposit account, according to the Federal Deposit Insurance Corp. In households where Spanish is the only language spoken, more than one-third don't have bank accounts. Some working-class Latinos may feel they don't make enough money to merit opening an account, while others may be uncomfortable dealing with bank employees who may not speak their primary language.

In North Carolina, two existing credit unions and a nonprofit decided to help move the Latino community's paychecks out of people's pockets and into a vault. The result was the LCCU, an independent entity that now carries over $112 million in assets and serves more than 54,000 members. In its first eight years of operation, whenever LCCU opened a new branch, the host county saw robberies drop by 4.2 percent, according to one University of Virginia study. Over the same period, property values rose in host counties by almost 4 percent — $9.8 billion in overall property-value growth.

Some longtime members have moved into the middle class, says Erika Bell, vice president of strategy and services at LCCU. "They now own a home, they have gotten into the habit of budgeting and saving, and have kind of been integrated into the mainstream financial system," she says. That movement into the middle class starts with opening a deposit account. Putting money into an account makes a whole host of transactions cheaper and safer, facilitates saving, and allows members to create a credit history.

You don't have to be a U.S. citizen to open a deposit account in the United States, although you do have to present identification and many banks ask to see a Social Security card. (LCCU requires applicants to show a government-issued ID, but they accept IDs issued from foreign countries.) Not all newcomers know the requirements, however, and many financial institutions don't make an effort to do business with them. For one thing, dealing with immigrants can be expensive: It means hiring bilingual staff and investing in outreach.

Bell attributes LCCU's success to its staff, its simple approach, and its partnerships. All services are provided in both Spanish and English. Staff members at branches are drawn from the communities they serve, and they get to know members one-on-one. LCCU offers products that are easy to understand, and it provides financial education services that range from online videos to a six-week course in money management.

The credit union has a number of partners, most notably the State Employees' Credit Union. By contracting its bookkeeping and some other financial management logistics out to the more-established institution, LCCU has been able to focus on front-office outreach. "It's very hard for even a mainstream credit union to start, because of the resources that are needed and all the regulations that are involved," says Mike Banks, senior vice president at State Employees' Credit Union. "You've got to have a big brother."

Unusually, LCCU doesn't price based on risk; it offers loans to members who don't have a credit history at no extra cost. "We will look at alternative credit histories: How do you pay your light bill? How do you pay your gas bill? How do you pay your cable bill?" says Banks, who oversees LCCU's mortgage program. This more open-minded approach to underwriting has been surprisingly successful, according to Banks. LCCU's financial stability and growth prove that individuals new to credit are no more of a lending risk than anyone else.

Yet LCCU's model can be difficult to reproduce. Ohio's Nueva Esperanza Community Credit Union has struggled to overcome start-up costs since it was chartered in 2010. Hoped-for federal and state grant money has failed to materialize, and the credit union is operating out of a temporary office. "We're just more of a savings and loan because of the limited space right now," says Nueva Esperanza Community Credit Union President and CEO Sue Cuevas. And there's a limit to how many people a given credit union can serve, as each is chartered to serve a particular community in a particular area. Big banks have a nationwide reach, but even for them, LCCU's labor-intensive model is hard to bring to scale.

Even so, traditional institutions ignore these new customers at their peril. The services immigrants adopt and the kinds of establishments they patronize often shape the future mainstream. Take the bank founded by Italian immigrants in California at the turn of the last century. The Bank of Italy was set up to serve a community that conventional banks turned away. Now that bank is called Bank of America.