A Burlington credit union banks on low-income borrowers' success
Most mainstream banks, even those with a community conscience, probably would not take a chance on would-be borrowers like Winston Lacasse, Ian Rhein or Anastasia Terechin. Burlington-based Opportunities Credit Union is not a mainstream bank, however, and it did grant loans that changed each of these people's lives.
Opportunities has helped thousands of low-income Vermonters who would have been deemed credit-unworthy by traditional lenders, or been exploited by predatory lenders who charge ruinous interest rates. Caryl Stewart, Opportunities' founder, president and CEO, says the credit union's practice of counseling-based lending enables it to succeed in cases that most conventional institutions won't touch.
Under this innovative approach, loan applicants with bad or nonexistent credit ratings are painstakingly prepped to achieve modest financial success. Opportunities has won national recognition for this method of reducing poverty one person at a time. The credit union has also grown rapidly in the 16 years since its founding, attracting investments from a few famous philanthropists, and deposits from hundreds of work-a-day wage earners.
Winston Lacasse, 48, was homeless 12 years ago when a social worker told him about Opportunities Credit Union -- then called the Vermont Development Credit Union. His shoulder had been crushed in an accident on a Colchester dairy farm, and Lacasse was able to work only sporadically at minimum-wage jobs. A counselor at the credit union eventually persuaded him that he would be able to repay the $5000 mortgage Opportunities offered to purchase the mint-green mobile home on Burlington's North Avenue where he now lives.
"I was reluctant to do it because I'd never owed that much money before," Lacasse says. "I did owe the hospital $3000 once for frostbite treatments, and it took me seven years to pay that off."
Today, Lacasse is thinking about applying for another home loan from Opportunities so he can move to a quieter neighborhood and enjoy a bigger back yard. "I've almost paid off the mortgage, so maybe I can find something nicer," he says.
Ian Rhein has a bullet lodged in his back and cannot work in the heating-ventilation-air conditioning trade for which he was trained. Two years ago, the disabled U.S. Navy and Army veteran moved with his wife and two young sons from a ramshackle 150-year-old house in downtown Waterbury to the Thatcher Pines trailer park about three miles away. One week after settling in there, Rhein says, his family received a notice that the park owner intended to sell, leaving the 14 households of Thatcher Pines one year to find new places to live.
Opportunities Credit Union, meanwhile, had received a grant to develop a Vermont version of a financing formula that has enabled residents of 70 mobile-home parks in New Hampshire to buy the properties. "We were maybe a year away from implementing it here when Thatcher Pines happened," says Stewart.
A mad scramble ensued. The trailer park's owner had stipulated that he would sell to a private developer unless all the Thatcher Pines households agreed to purchase the land on which their homes sit. That required Opportunities to arrange mortgages for several of the residents in just a few months -- and some of them had poor credit histories.
"You can imagine the frenzy of families with children, all of them clamoring at once," Rhein recounts. "You can imagine the pressures on the credit union."
In the end, Thatcher Pines was purchased by all its residents, with Opportunities providing more than half a million dollars in financing to eight households, including Rhein's. "They did an amazing thing," he says.
Rhein is happy living on the two-acre plot he bought for about $60,000. In fact, he's considering replacing his mobile home with a newly built house.
Anastasia Terechin moved to the village of Waterbury six years ago, from Russia by way of Brooklyn. She had gone through a divorce and lost a family business, and was living on welfare when she found Opportunities. The credit union gave Terechin a $3000 loan to buy a used Thunderbird so she could drive to natural-food stores around the state, dishing out samples of the Russian delicacies she hoped to make the basis of a new family business.
Opportunities also approved Terechin for a business loan and a personal loan as her enterprise began to grow. "I had no credit history and I was on welfare, but the credit union gave me a start," she says. Today, Terechin's company, called A Taste of Russia, has a half-dozen full-time employees and sells its foods to three supermarket chains, as well as to stores in immigrant neighborhoods in the New York City area.
Opportunities Credit Union isn't really a community-action agency, and Stewart insists that it does not do social work. But as its 13,500 members in 210 Vermont towns can attest, Opportunities does do socially beneficial work in numerous communities. The credit union's stated mission -- "to create wealth among low-income people" -- is being fulfilled on a daily basis even as it earns money for its depositors and complies with federal financial safeguards.
Established in 1989 with a $20,000 grant from the Burlington Ecumenical Action Ministry, Opportunities now ranks as a $37 million institution that has made a total of $140 million in loans. Few big-time banks can boast a repayment rate higher than the 99.5 percent Opportunities reports. These achievements were acknowledged in February when Opportunities won the highest honor awarded by the national credit-union movement.
The name change to Opportunities earlier this year was intended to signify the credit union's ambition to situate its services within a one-hour drive of everyone in the state who needs them. At present, Opportunities maintains a financial-services and administrative office on Pearl Street and a teller location at the corner of North St. and North Ave., both in Burlington.
Opportunities started small and grew smart. The financial counseling service at the core of its operations grew out of a research project the credit union undertook a year after it opened its doors; the study revealed that the nonprofit was shutting out half the people who came to it seeking loans.
Through focus groups and a review of scores of rejected loan applications, the credit union realized the inadequacy of existing consumer financial-education methods. "We also developed a better understanding of why people turn to predatory lending, which only saps wealth and creates poverty," Stewart says.
Along with the counseling-based system came the corollary principle of "treating every potential client with respect as an individual," Stewart explains. Opportunities' determination to tear down barriers to bankability is expressed in the slogan, "We don't say no; we say when."
Financially marginalized Vermonters who dream of buying a car or a home typically make their way to Opportunities through word of mouth, says home-ownership manager Lynn Roberts. Such a person probably doesn't have a credit card or health insurance, she notes. Lack of health coverage is often significant, Roberts says, because the only entry in this individual's credit record may well be a medical collection account. Poor and uninsured Vermonters who receive hospital treatment will often rack up debts that wreck their credit rating; that was the case with Winston Lacasse.
Unlike a bank that follows a computerized formula, Opportunities may choose to look past such a shortcoming and approve a loan for someone it judges to be otherwise financially viable and stable, Roberts says. The applicant's attitude is at least as important as his or her assets or credit rating, she adds. "Everything depends on the motivation of the person who walks in. It all comes down to whether someone wants to be successful," says Roberts, who has done counseling work at the credit union for the past 10 years.
Individual financial performance is less encouraging among the 50 percent of loan applicants to whom Opportunities says "when." In these cases of deferred loan approval, the credit union tries to build a positive financial record week-by-week, month-by-month, year-by-year. The process begins by devising an action plan intended to give access to the financial mechanisms available to most Vermonters.
Every action plan includes education in the basics of budgeting. In addition, a counseling client will often be awarded a small "tracker loan." Through this transaction, someone who doesn't qualify for a regular loan is lent, say, $500 in installments, and is required to deposit equivalent sums in a savings account. The loan gets paid back -- and a positive credit rating gets constructed -- over the course of a year or more.
Approving a tracker loan is "a no-brainer for us," Roberts says. The credit union isn't risking much, and the loan recipient may be gaining a lot. The modest financial victories that can result from tracker loans can nevertheless be enormously important, psychologically. For the process to work, however, a client needs to remain committed and patient, Roberts emphasizes. Some inexperienced borrowers take out two or three tracker loans before a positive outcome is achieved, she notes.
Despite all this personal attention and encouragement, the success rate is not very high for individuals who fall into the "when" category. Poverty can often prove self-perpetuating, as Opportunities' experience illustrates. Roberts estimates that success occurs in only about one-quarter of the credit union's counseling cases involving mortgages over a three- to four-year period. On both sides of the desk, the process can be emotionally turbulent, she relates. "There's a feeling at first that you want to help everybody, and it's difficult when you realize that isn't possible," Roberts says. "But when you're finally able to help someone buy a house for the first time, it's a really gratifying feeling."
These satisfying experiences are what keep her working at Opportunities Credit Union. It certainly isn't the money. "If I were working at a mainstream financial institution, I'd be getting commissions for what I do," Roberts notes. "Here, we're all on salaries. We work for the people, not for the pay."
Appearances notwithstanding, Caryl Stewart rejects the suggestion that Opportunities functions as a social-work agency. She holds a Master's degree in social work from McGill University in Montréal, so perhaps she knows best. But she does argue that successful financial counseling can lead to improvement in all aspects of a poor person's life. Inability to cope with the world of credit and debit is as much a cause of poverty as it is a symptom, Stewart says.
Borrowing a line from Thoreau, she observes that most poor people "live lives of quiet desperation." Stewart offers the example of a credit-union client who goes weeks without opening her mail because she knows it's full of bills she can't pay. Typical too, Stewart says, is the low-income person who scrapes to save $100, only to blow it all in an attempt to relieve the stress that can come from financial discipline.
The credit union's ability to overcome these syndromes was what sold Lorna-Kay Peal on Opportunities. An arts consultant from Cincinnati, Peal moved to Vermont three years ago partly because she expected to find this sort of productive compassion. The former executive director of the South End Arts and Business Association, she opened an account at the credit union after attending a Burlington presentation at which Opportunities investors Ben Cohen and Jerry Greenfield spoke.
"I loved the idea that they wanted to make loans to people who can't get loans in other places for something as basic as housing," Peal explains. She was so enthusiastic that she persuaded her husband, a chemical engineer, to open an Opportunities account as well. Their experiences at the North St. teller office quickly confirmed that, unlike most banks, the credit union specializes in the human touch.
"From the very first time my husband was there, they seemed to know him and treated him on a personal basis," Peal recounts. "It would be a hundred years before a regular bank would act that way."
While clearly idealistic, Peal is also prudent. "I have to carefully guard my savings," she says. "I work very hard for what I earn." Peal is confident that the federally insured credit union will manage her money responsibly, but she also maintains a checking account at a mainstream bank for her business.
Opportunities Credit Union pays about 1 percentage point less on certificates of deposit than does a traditional bank, notes Gretchen Morse, director of the United Way of Chittenden County. Her agency's $47,000 account at Opportunities earns about 1.5 percent interest, compared to 2.5 percent available at local banks, Morse says.
Opportunities spokeswoman Ann Ryan says, however, that the credit union's interest rates for money-market and savings accounts are comparable to those offered by area banks.
Whatever that differential, it doesn't deter the United Way from depositing a small share of its funds at the credit union. This division represents an appropriate balance between her agency's fiduciary responsibilities and its social obligations, Morse says.
"We were one of the credit union's original depositors, and we have remained with them year after year because many of the clients served by agencies in the United Way are in need of financial counseling," Morse notes. "Disciplined financial planning -- this is what the credit union does that's distinctively different from banks."
Morse calls Opportunities "a wonderful organization." She suggests, though, that most mainstream banks doing business in Vermont are also "amazingly responsive to community needs."
For all the credit union's achievements, Stewart feels frustrated by its limitations. "We're using mechanisms that are geared to the middle class," she says. "Federal regulations hold us to the same standards as the biggest and wealthiest credit unions in the United States."
She's not angling for her own credit union to be exempted from rules intended to protect customers, Stewart says. It's just that one-size-fits-all regulation often prevents Opportunities from responding to its clients' particular situations.
Because they lack financial buffers, "a lot of our folks do get behind in their payments," Stewart notes. "Our collection department knows that they're usually trying to make good on the loans, but regulators tell us that when you hit 12 months [of delinquency] you've got to charge them off."
This exasperating requirement underscores the need to create "an entire community banking system with its own regulations and processes," Stewart says. "And that's not an impossible idea."
Caryl Stewart became the steward of Opportunities Credit Union after working for years in both the private and nonprofit sectors. A South Dakota native, she moved to Vermont in 1960 thinking it would be a good place to raise her two daughters after her marriage broke up. She also had relatives in Derby who took care of her kids while she studied for her Master's at McGill. Stewart worked for a few years as a pediatric social worker, but left the profession out of frustration at being "unable to get from where you are to where you want to go."
Stewart cofounded the Bennington Potters North store, then went to work for the Dean Witter investment firm in Burlington. These stints in the for-profit business world were more satisfying, in some respects, than her career in social services. "In the private sector," Stewart reflects, "if you have a good idea, nobody throws a lot of bureaucratic stuff in your way."
Still, she yearned for the intangible rewards community service can provide. Stewart, who will not reveal her age but appears to be around 70, left Dean Witter in 1988 to become director of the Burlington Ecumenical Action Ministry. BEAM had begun exploring models for establishing a community development credit union in Burlington. And Stewart was already well acquainted with the field, which she then decided to enter full-time. She had sat on BEAM's board for several years, and had been a player in Vermont politics, serving as chair of the Burlington Democratic Party and running unsuccessfully for the party's mayoral nomination and for a State Senate seat.
As the results demonstrate, leading the Opportunities Credit Union is a job that suits Stewart well. "It combines the excellence you can find in the private sector and the equity that's the objective of the nonprofits," she says. "It takes the best of both worlds and rolls them into one."