Community development financial institution (CDFI) credit unions (CU) in the US have seen significant growth in recent years, while at the same time, the country’s CU sector as a whole faces challenges over leadership recruitment and member loyalty.
A report published by the Federal Reserve Bank of New York found that between 2019 and 2023 the number of CDFI credit unions almost doubled, from 290 to 529. This brought the total number of CDFIs from 1,066 to 1,487. CDFI assets have nearly tripled over the last five years, with credit unions holding 66% of these assets.
United States CDFIs are federally certified financial institutions that often have a focus on serving low-income or underserved communities. CDFI certification can open up opportunities for government support and funding and has been taken up by a number of existing CUs over the past five years. More than 70% of CUs receiving certification in this period are over 50 years old.
The increase in CDFI credit unions can be explained in part by dramatic growth in the number of Puerto Rican CDFI credit unions; 88 of the 239 CDFI credit unions certified between 2019 and 2023 are in Puerto Rico. This may be attributed to the Puerto Rico CDFI Initiative, an outreach and capacity-building initiative led by community development credit union trade association Inclusiv.
Chriselle Martinez, Inclusiv’s CDFI program director, said:
“Our CDFI Certification campaign that included both mainland credit unions and cooperativas in Puerto Rico had a fundamental impact on communities and people that historically have been left out of the financial system, especially Black, Hispanic, Native and AAPI communities as well as low-income communities.
For CDCUs, CDFI certification has had a significant positive impact, helping co-operative financial institutions secure critically needed resources and advance their commitment to the 8th Co-operative Principle: Diversity, Equity, and Inclusion.”
Meanwhile, a reported “mass exodus” of credit union senior leaders across the country is pushing boards to look for new executives to take the reins.
With US unemployment rates low, credit unions are facing a challenge in replacing these leadership roles, as older CU executives who delayed retirement during the pandemic are leaving the movement.
Vice president of culture and talent for the Texan credit union trade group Cornerstone League, Brooke Stone, told American Banker that CUs are now looking to issues such as equity, diversity and inclusion in their succession planning, calling it a “logical business conclusion”.
American Banker also reported that younger candidates for CU leadership positions are often seen to lack the necessary experience to lead larger CUs, requiring them to build their experience in smaller institutions for lower pay, which isn’t always viewed as an attractive prospect.
Cornerstone’s vice president of executive recruiting, Marcus Cotton, warned that smaller CUs are “dying on the vine” while “starved for leadership and talent”.
On the consumer end, a recent report from PYMNTs has warned that CU members are looking to other financial institutions (FIs) for some services and products.
The report examined consumers’ criteria for choosing credit products outside of their main financial institution.
Some of the main factors influencing where FI customers may choose to shop around for products included rates and terms, trust in the institution, online access to services, convenience and quick or instant approval for credit. The most influential factor among these was found to be rates and terms, with 26% of customers stating this as the most important consideration when shopping around.
CU members, at 32%, were more likely to shop around for products such as credit cards, personal loans, auto loans and mortgages, than non-CU members, at 26%.
The report found that CUs are focusing efforts on cutting down credit product setup times, with 45% of CU executives saying they have made very or extremely significant efforts to improve this. However, the report highlights that with just 5.8% of customers reporting that the quick availability of funds is the most important factor for them when choosing a financial institution, this may not be the most crucial area to focus on.
“Amid high inflation and the possibility of tougher economic conditions to come, CUs’ reluctance to offer products that are in demand among demographic groups that are in the prime earning years may impact their ability to attract or retain members,” says the report, adding:
“Reducing account setup times is helpful, but that is best achieved through payment innovation and the use of technology, both areas in which FinTechs have shown greater inclination to adapt than CUs.”
