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Interview: Promoting Integration through Financial Literacy

June 18, 2009

As part of AS/COA’s ongoing efforts to highlight best business practices promoting Hispanic Integration, Luis Pastor, CEO of the Latino Community Credit Union (LCCU) spoke with Michele Manatt of the Hispanic Integration Initiative. Developed “directly out of the Latino community’s need to be financially secure and independent,” LCCU opened its doors in 2000 in Durham, North Carolina. It now has eight branches serving 51,000 members, assets of over $73 million and has been rated as having the number one rate of return on assets and equity in 2008 and 2009 by Business North Carolina. The Wall Street Journal calls it a “model for the unbanked.”
 
Excerpts from the interview:
 
AS/COA: North Carolina is home to many banks and credit unions. What is your strategy for attracting and retaining customers, and what distinguishes you from other financial services providers in the marketplace?
 
Pastor: We place a high value on knowing our customer and treating them with the utmost respect, being mindful of cultural differences. This has not always been the case for many Latino immigrants, neither in their country of origin nor in the offices of commercial banks in the United States. For 75 percent of our members, the bank account and the banking relationship they establish with LCCU is their first. The lack of familiarity with banking provides us with an opportunity to expose them to the basic concepts of banking, saving and establishing credit. Prior to this, it is essential for us to earn their trust. Very often they have been abused by payday lenders, check-cashing businesses or remittance agencies with excessive user or transaction fees. Gaining their trust is our first objective.

Our current size is due almost exclusively to word of mouth. We do not advertise, sponsor sports teams or have booths at holiday fairs. We have found that operating in the community where our members work and live and having our staff reflect that community is the best way to establish a relationship based on trust. Our brand’s reputation has grown as the knowledge of our services increases.
 
AS/COA: As we have clearly seen in the midst of this financial crisis, many in the United States lack financial literacy. How important is financial education to the work of LCCU?
 
Pastor: It is vital, and it is without question a pillar in helping immigrants worldwide integrate more effectively and in giving them a greater stake in this country. 
 
There is no standard for financial education in the U.S. education system, be it in high school or beyond. With that in mind, we host biweekly, free-of-charge seminars at each of our branches. The seminars outline what a customer can expect from a credit union, how to best manage a bank account and maximize savings, and instructions on qualifying for home ownership and on saving money for higher education. To date, over 9,700 previously “unbanked” income earners have attended our seminars.
 
We try to have a culturally relevant teaching approach, with a horizontal and cooperative learning style. It is not a one-way conversation with an “expert” standing at the front of a classroom providing information. We have an experienced member who acts as a peer to prospective members, telling them about his/her experience with working, earning, navigating the ins and outs of identification documents, establishing an account, and managing their income and bill payments. 
 
The ethos of any good financial institution is to “know your customer,” and this is exactly what this process allows us to do. While opening and servicing accounts, we also have the opportunity to counsel members on the forms of identity documents that are accepted by LCCU, which complies with the NCUA regulations and the Bank Secrecy Act. We also relay to them the importance of paying taxes and not by-passing authorities. There is a deeply flawed stereotype that many Immigrants seek to avoid paying taxes. We do our part to encourage transparency in income earning and reporting, an essential American value. Conjoining those lessons with the safety and security of their earning with LCCU is a powerful message.
 
AS/COA: You take a very personalized approach to your services. How do you attract the staff and leadership of the LCCU?
 
Pastor: Human Capital is one of the most valuable assets that any institution has. That is 100 percent true in the case of LCCU’s 55-member staff, all of whom begin as tellers. Staff members need to prove they can interact successfully and respectfully with the customers or prospective customers where they experience the credit union—at the teller window, in the bank’s lobby, and over the telephone. In addition, all our staff has lived outside the United States, so we understand that “outsider” or “other” phenomenon. I moved to North Carolina from Spain when my wife came to pursue her MBA at Duke University. That was in 2000, and I am still here.
 
The same is true of our Board of Directors, many of whom are originally from countries all over the hemisphere, and we highlight that on our website. They come from many fields—local business, academia, other credit unions, and real estate. This is reassuring for our members, and it helps tell the story of successful immigrants to the broader North Carolina business and political community. 
 
AS/COA: For many lower-income immigrants, home ownership is a very important goal, allowing them to achieve something not always possible in their country of origin. LCCU now has a five year record of issuing mortgages. How sound is your mortgage portfolio, and what has happened to it during this economic crisis?

Pastor:  We are a community development credit union, so our vision and purpose in lending to our members is to see them thrive and maintain strong assets in our portfolio. Our goal has always been to keep and service the mortgages we underwrite in our Credit Union. We do not and will not sell them to third parties. Again, this reinforces our message of trustworthiness to our customer base and the wider community. 

 
LCCU has a mortgage delinquency rate of 2.2 percent over 30 days for current mortgage holdings. The average for the State of North Carolina was 4.72 percent for prime fixed-rate mortgages and 22.7 percent for subprime fixed-rate mortgages. The cause of our delinquency has not been our member’s financial problems (job loss and the like) but deportation. Fundamentally, our goal of sound home ownership by members is achieved because we know our customer, take the necessary time to educate them about responsible savings and credit practices and issue mortgages that we are confident that they will be able to afford, for the long term. All our mortgages are owner-occupied as well. We do not lend to property investors who have little interest in maintaining the caliber of the occupants and the quality of the property. This practice also deepens our member’s ties to the area, allowing them to set down roots in the community and take a greater interest in schools, parks, libraries and their overall neighborhood.