Loan Zone: Education program boosts member financial health and revenue

New research shows financial counseling is a powerful—and profitable—community support tool for credit unions.

Community development credit unions are mission-driven institutions that serve low-income, underserved communities across the country. Reflecting the needs of their members and communities, CDCUs specialize in high impact products like payday loan alternatives and credit-builder loans, as well as such key supportive services as financial counseling and education. Historically, these supportive services have been viewed as charitable activities and a cost center for financial institutions. However, new research conducted by Inclusiv, New York, and Neighborhood Trust Financial Partners, New York, has revealed that financial counseling can generate a positive return on investment for credit unions.

Inclusiv and Neighborhood Trust conducted their research through Pathways to Financial Empowerment, a joint program launched in 2015 that combines technology-supported financial counseling with credit union products. The Pathways platform enables holistic and detailed impact analysis by combining data from multiple sources including credit report and score plus credit union account data.

Clients served through the Pathways program are considered high-risk by mainstream financial services. They generally have low incomes, poor credit and high debt. Those clients who took out new loan products early in the program have a median income of only $28,000 and a median credit score under 600. However, as the research shows, by working one-on-one with members to improve their credit and financial health, financial counselors are able to convert these high-risk clients into excellent borrowers.


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