Credit unions could play a crucial role in providing banking services to Native Americans, a group that is among the most underserved in the country.
There are only a handful of credit unions that are dedicated to providing affordable financial services to this demographic. Reaching Native Americans is complicated by the fact they tend to live in more remote areas with limited mobile access.
But credit unions can help by maintaining branches in these areas and providing a full range of banking products, including checking accounts.
“Indian Country is primarily a rural landscape dotted with small populations,” said Patrice H. Kunesh, director of the Center for Indian Country Development at the Federal Reserve Bank of Minneapolis. “In areas where Native financial institutions are serving Native communities, the majority do not offer depository services.”
Since 2001, the number of mainstream financial institutions, including Community Development Financial Institutions, that are owned by or serve Native Americans has increased from 40 to about 100, according to a
Despite these increased options, many Native Americans still struggle to get mainstream banking services. More than 44% of Native Americans were unbanked or underbanked in 2017, according to data from the Federal Deposit Insurance Corp.
That’s partly because about two-thirds of the institutions that work with this demographic are CDFIs that can’t take deposits or provide savings and checking accounts. Overall, there are 14 Native American credit unions – a designation given to a credit union when at least half of its members fall into this demographic – serving about 57,000 members.
But not all of these credit unions offer a full range banking products. All provide savings accounts but only some offer checking accounts. Pieratos, who is also the former CEO of Northern Eagle Federal Credit Union, which was chartered in 2013 to serve the Bois Forte Chippewa community in northern Minnesota, said only three of these credit unions offer mortgages or real estate loans and only one makes commercial loans.
Instead, many of these credit unions rely on making auto loans. More than 60% of loan portfolios for most Native American credit unions are auto loans, Pieratos added.
Phil Peters, president and CEO First American Credit Union in Casa Grande, Ariz., explained that for many Native American credit unions, the resources needed to implement a new loan or product can be a barrier. Many tend to be smaller – these credit unions average $21.5 million in assets. That means the costs to meet regulatory requirements, technology, staffing and servicing for a new product may be too great.
Additionally, there aren’t enough institutions to effectively serve the more than 570 tribes and 5 million Native Americans in this country, said Cathi Kim, director at Inclusiv/Capital. The distance between these communities and the nearest bank can be much as 60 to 80 miles, she added.
Consolidation of banks and credit unions has only made this worse, Kunesh said.
“While new institutions have opened, others have also closed, leaving tribal communities without access to mainstream financial services,” Kim said.
Peters said the shift in technology is also a problem. The shift away from traditional delivery channels of branches and telephone banking to mobile and online banking have left some areas worse off.
“This is problematic in rural parts of the country, and especially tribal land, due to [lack of] adequate broadband coverage,” Peters said. “The thought of shifting membership away from expensive delivery channels such as physical branches and audio banking is tempting to many [financial institutions], but once you stand in a rural part of tribal land trying to access your mobile banking app, you quickly realize this is not entirely practical.”
There are times that lending to Native Americans require special expertise and underwriting skills, experts said. While Native American CDFIs and tribal housing agencies, like the Salish & Kootenai Housing Authority in Montana, have models and expertise in this area, there remains great need for credit unions to also develop this capacity. That could lead to credit being more widely available.
For example, mortgage lending for Native Americans can be challenging to both lenders and borrowers due to, among other things, the lengthy review and approval processes by the Department of the Interior’s Bureau of Indian Affairs, Kunesh said.
“A sizable proportion of [Native Americans] live on reservations where lending on trust lands can be difficult due to a different process to securitize the loan,” Kunesh said.
Tongass Federal Credit Union in Ketchikan, Alaska, allows borrowers to use “fish tickets,” which document the fish sold, discarded or retained by the fisherman, as proof of income for commercial loans. That helps borrowers since they may have seasonal income and often lack traditional paystubs required by mainstream financial institutions, Kunesh said.
The most popular loan products for the $85 million-asset Tongass are signature and car loans, said Denise Hudson, a branch manager. But it also provides home equity loans and mortgages and finances fishing boats for commercial use.
Laura Aguirre, CEO of Hawaii First Credit Union of Kamuela, said some Native Hawaiians struggle to get access to mainstream financial services partially due to low or no credit scores.
“Lack of financial guidance has resulted in poor credit decisions which leads to the use of predatory lenders to meet basic living expenses,” said she, adding that previous credit issues can prevent loan approvals.
To alleviate these issues, Hawaii First created its community resource centers to provide financial coaching and other services such as computer access, assistance with job searches, resume writing and free tax preparation.
The $39 million-asset credit union also offers a low-dollar loan meant to help build the member’s credit. The hope is that one day the borrower will be able to get a loan to construct a home on “ceded land,” which is similar to Native American reservations on the mainland, since affordable housing in the state is limited.
Still, experts believe credit unions, particularly Native American institutions, can play a large role in closing the financial services gap for Native Americans.
Kim pointed to Tongass opening its first branch on tribal property in Metlakatla in 2005 after a bank closed and left people without access to financial services. Tongass expanded its product offerings to help members build credit and expand savings. Further, the credit union hosts free tax preparation sessions at the branch, which helps to bring $150,000 in tax refunds back to Metlakatla communities, she added.
“With this inclusive model, 1,200 of the 1,400 adults residing in and around the Metlakatla branch have become credit unions members,” Kim said. “The branch has originated $7 million in loans and has taken in $3.5 million in deposits.”
Peters recommends that credit unions not abandon delivery channels that best serve Native Americans while at the same time providing convenient technology when possible.
“Among all financial institutions, Native credit unions are well positioned to provide a full array of financial services, loan products and much needed deposit services … and perhaps less expensively than their bank counterparts,” Kunesh said.
