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"I never heard of a church with a credit union!" We often hear that comment from visitors and new parishioners. We received a federal charter in 1964. In fact, the "link" between credit unions and churches goes back a long time.

By M.P. Taylor

[This article is from the September/October 2004 issue of "The Federal Credit Union", a publication of NAFCU (National Association of Federal Credit Unions), a national credit union trade association. Queen of Peace Arlington Federal is a member of NAFCU.]

Faith-based credit unions trace their roots back to the very start of the movement in America. They were started in church basements, in parish council meetings, in church members’ homes— wherever two or more could gather to discuss the establishment of the credit unions and their mission to serve their members, who were primarily residents of underserved or low-income communities.

Indeed, these credit unions were among the first to witness the proliferation of payday lenders into neighborhoods abandoned by banks and were among the first responders as well, offering short-term “grace” loans to people with emergencies but who would not ordinarily qualify for credit from other institutions. Today, their mission remains the same. Faith-based credit unions continue to fight the financial discrimination that plagues underserved and low-income areas.

Payday loans

“Grace is an unmerited favor,” says Rita Haynes, manager/CEO of Faith Community United CU in Cleveland, Ohio. Haynes, who also serves as the chair of the Board of the National Federation of Community Development Credit Unions (NFCDCU), developed and named the loans offered by Faith Community United CU to combat payday lenders who set up shop in her neighborhood a decade ago.

“When the banks moved out, the neighborhood was inundated with check cashers and payday lenders—one of them only a block from the church,” she says. Credit union volunteers were surprised to see members using credit union checks to pay off payday loans. The credit union decided to give the unwelcome neighbors a run for their money and rolled out $500 one- or two-month loans at 17 percent interest.

Each time a check would come in that had been written to a payday lender, we’d call the member and offer them [a] loan,” Haynes said She notes that the credit union also counsels its members not to continually seek out payday loans. “That’s a job,” she says. Payday loans, which feature exorbitant interest rates and high service fees, become a financial calamity because borrowers are rarely able to pay them off with the next paycheck—or the one(s) after that. Borrowers then fall into a “debt trap” in which they must continue to roll the loan over, often paying thousands of dollars in interest and fees on an original loan of several hundred dollars.

Dan Morrisey, treasurer of Queen of Peace of Arlington FCU in Virginia, says his credit union’s board reacted with disbelief when he first broached the subject of offering members an alternative to borrowing from payday lenders. “They couldn’t believe anyone would ever actually do this,” he recalls. But in fact they do. “We know the number of credit union members who use payday loans is significant,” says NFCDCU Director Clifford Rosenthal. “Off the top of my head, I’d say the number is in the single digit millions.” Those who have fallen into the debt trap often turn to their credit unions to help them climb out.

Brookland FCU, part of the social ministry of Brookland Baptist Church of West Columbia, S.C., recently made a consolidation loan to a young couple who had gotten in over their heads with a payday lender. Initially, they sought enough to get them through financial problems that started when their baby got sick and a tire on one of their cars blew out, but ultimately, they ended up with multiple rollover loans. Now, in addition to repaying a consolidation loan through automatic deductions to their credit union account, the couple must come in monthly for financial counseling or be considered in default on the loan. They also must save a portion of their income.

“The saddest thing is they have enough income to stay out of this kind of financial trouble,” says Brookland FCU CEO/manager Rosalyn Glenn. “With two incomes, when the tire blew, maybe somebody had to be inconvenienced for a week. It’s the mindset [that got them into their situation]. The next time a tire blows, they’ll be able to get the money from their savings.” The credit union also makes grace loans. This loan product requires a credit check that determines a rate of interest between 9 percent and 18 percent.

“Unfortunately, most of our loan requests are for day-to-day living costs,” Glenn says. “We don’t really like to make them for that reason because that light bill is due every month.”  Still, the loans are made. “God gives us grace and mercy and we are giving back the grace to the extent we can,” says Glenn. “Through the grace program, we try to give people a second chance.”

A ministry

While a firewall exists between church and credit union operations, there is also a keen sense among the credit union leaders that their work is a ministry of faith; many have personally experienced the sting of financial discrimination —often racial or ethnic in origin—they seek to heal. Faith Community United CU was founded in 1952 in direct response to lending discrimination against its African-American congregation members. “The church has always had benevolent funds, but the credit union could assist people in becoming financially responsible and stable,” says Haynes. She was drawn to work at a credit union several years later after a bank refused her and her new husband credit.” I was so upset. I had to see how I could do good, and I asked the Lord to help me help others to not have to go through this hurt,” she says.

“The origins of the whole credit union movement in North America are in ministry,” notes Morrisey. The trailblazer was Alphonse Desjardins, a Canadian civil servant devoted to Catholic social teachings, who saw in the European cooperative banks a way to bring financial empowerment to the poor in his own country. He organized the first credit union in 1900 in his home, an effort that was reportedly not popular with his wife. Responsibility for day-to-day operations fell to her because her husband spent so much time traveling. In 1908, he helped organize the first credit union in the United States, La Caisse Populaire Ste. Marie (St. Mary’s Bank) in Manchester, N.H., to serve a poor French-speaking Catholic parish.

“From the very beginning, the missions of faith communities and credit unions have been very closely aligned but their missions are also very clearly different,” says NAFCU Senior Vice President and General Counsel Bill Donovan, a former board member of St. Ann’s of Arlington FCU. “The mission of the faith community is the salvation of souls while the mission of the credit union is the temporal well-being of members.”

“We’re very careful about separating the credit union from how the pastor would deal with the same person,” says Donley Stocking, former president of St. Ann’s of Arlington. “We have a working relationship with the pastors and associates and they will offer suggestions, but we try not to infringe on the spiritual aspects when we deal with people.”

Church and credit union “must be separate, but the tie that comes through the volunteers is a healthy one,” says former NCUA Chairman Dennis Dollar. “It enables a synergy that comes from involvement in both.”

Faith Community United CU’s motto is “We care about the least of these.” Its pastor regularly refers people to Haynes for help. Often, congregation members and even the church itself will pledge shares to help a non-qualified person obtain a needed loan.

“When a person is in need, and the church can’t help, they will ask, ‘Why am I going?’” Haynes says.

“Sometimes [someone’s] credit rating is so bad we can’t put a loan on the books,” says Robert Coleman, president/ CEO of Northwest Baptist FCU in Seattle, Wash. “But… if we turn them down, where are they gong to go? The point is that we are always looking for alternate ways to help people.”

Being of service

“Credit unions do not survive as charities; it doesn’t work,” says Morrisey. “But there are a number of people who can be helped by having a financial entity that is on their side.” Some can be helped only with great difficulty and others cannot be helped at all at the time they come in. Knowing the difference takes considerable skill. 

M.P. Taylor is a free-lance writer and a regular contributor to the Cooperative Business Journal.

The origins of credit unions are intertwined with religious principles and organizations. There were various models of cooperative credit developed in Europe in the mid and late 1800's. In 1900, Alphonse Desjardins organized a credit union (caisse populaire) in Levis, Quebec, Canada.. People were poor, interest rates were financially crippling, and the credit union offered a way out. That first Canadian credit union was small by modern standards. The first savings deposit was only 10 cents; the first collection from all the members totaled only $26. Desjardins relied on Catholic social teaching and Biblical principles in the organization and operation of credit unions.

Even today, in some countries, credit unions start small. But Desjardins persevered and, with the support of his wife Dorimene, devoted a good part of his life to credit union development in North America. He founded other credit unions, including the first one in the United States, in 1909 in New Hampshire. This first U.S. credit union, called St. Mary's Bank, was organized for French-speaking parishioners of St. Mary's Church, in Manchester, New Hampshire.

Today, there are hundreds of faith based credit unions in the United States. Catholics, Baptists, Methodists, Pentecostals, and many other denominations support credit unions, either for the particular faith community or in the larger community.

 VATICAN (CWNews.com) June 26, 1998 -- In an address to a group of Italian bankers, Pope John Paul II today encouraged workers to pool their resources into credit unions and cooperate banks-- a form of financial organization which he called "economic democracy."

The Pope was speaking to the leaders of Italy's central organization of credit unions-- a group which claims inspiration from Catholic social teachings. The organization now counts 600 small institutions, many of them located in the countryside or small villages.

The Pope noted that the Italian group was set up through the leadership of Father Luigi Cerruti, a priest of the late 19th century. He cited the need for "solidarity" and "defense of the rights of the weakest" as the demands that justice makes upon any economic system. Those demands could be met, he said, by such cooperative banking associations.

The key to the success of such work, the Pope continued, lies in the ability to put the individual person in the center of every economic decision. Such groups can also help to preserve family life and to encourage small enterprises. In this way, he concluded, small credit unions provide an important service to "the entire society."