Bank With a Heart : Church Credit Union Helps a Community Manage Its Finances

They came clutching bags of money.

There were dozens of them, all parishioners at Holy Family Catholic Church in blue-collar east Wilmington. Gardeners and housekeepers and factory workers, they jammed the church hall after Mass, waiting in seemingly endless lines to put their earnings into a new financial institution: a church-run credit union.

Some had never had a bank account. “They had this money sitting at home, under a mattress or something,” said Lucia Moreno, whose own parents had always kept their money at home.

“A lady came out, put her hand in her bra and came out with a wad of money,” said Connie Calderon, who along with Moreno volunteered to help get the credit union started. “There are so many stories--people came out, older people with their life savings in their hands.

“And with such trust!”

That was November, 1983.

Quiet Drama

In the more than five years since, a quiet drama has unfolded in east Wilmington as the founders of Family Federal Credit Union tackled complex government regulations--and their own inexperience--to bring economic hope to the Latino community at the southern end of Los Angeles.

Along the way, they survived a severe financial crisis, discovering that not everyone who goes to church on Sunday pays debts on time. They also made the tough decision to tighten loan requirements, even though it meant cutting off some of the people who needed money the most.

In this age of high-tech banking, Family Federal reflects the century-old principle behind the credit union movement: That a group of working people, tied together by a common bond, can pool their money to help one another.

“They sound like the classic kind of volunteer credit union that could have been started in the 1930s and ‘40s,” Neil Sawyer, spokesman for the California League of Credit Unions, said of Family Federal. “That’s how it used to be. But it doesn’t happen a lot now. The consumer is more sophisticated and the consumer financial market is more sophisticated.”

Since the advent of financial deregulation, people who propose small credit unions are encouraged to instead join with larger, existing credit unions that can offer a wider range of services. And credit unions that are not affiliated with businesses face an additional hurdle, because they lack payroll deduction services that guarantee members will repay loans.

$8.7 Million in Loans

Yet, during its short life, Family Federal has loaned nearly $8.7 million to its members, many of whom would not be eligible for similar loans elsewhere.

It has $4 million in assets, offers its members up to $3,500 on a signature loan--one without collateral--and up to $50,000 for a secured loan. More than 4,500 people, all of them Holy Family Church members or their relatives, have active accounts there. Last year, the average account balance was $839.

By credit union standards, these statistics are unremarkable. California has 1,013 credit unions, 44 of which are affiliated with churches, and Family Federal is among the smallest. The American Baptist Credit Union in Covina, for example, has more than $100 million in assets.

But, says Father Luis Valbuena, Holy Family’s pastor and founder of the credit union, numbers are not the only measure of success.

“You cannot evaluate the credit union by the loans that we do,” Valbuena insisted. “I evaluate the credit union by the happiness and the security and the progress that it is making in the community.”

Indeed, in a neighborhood where financial security means being able to pay the rent or having a car that won’t break down on the way to work, Family Federal has spelled progress.

It has taught its members how to manage their money and how to save. It has kept them from paying fees to local check-cashing shops. It has paid dividends--the current rate ranges from 4% to 6.25%--to those who never before saw a return on their money. It has helped finance weddings and funerals, automobiles and back-to-school clothes, applications for amnesty and trips back to Mexico.

A Place to Turn

“Homes have been saved,” Calderon said. “Kids that are newlyweds and can’t get credit will apply there and buy a car to be able to go to a job. It pays for medical bills--a lot of people don’t have insurance. Anything that anybody needs, where they couldn’t get it any place else, they’re getting it there.”

The Ortiz family--Jose, Maria and their seven children--are one example.

They live three blocks from the church in an upstairs apartment that consists of a kitchen, bathroom and a small living room that doubles as a bedroom for the entire family--minus one daughter, who is married and lives elsewhere.

Money is tight. Jose Ortiz brings home $1,200 a month from his job as a machine operator at an aluminum factory in Gardena.

Yet Family Federal has made several loans to the Ortizes. Last year, it financed immigration amnesty applications for the family, which began its migration to the United States a decade ago. Once those applications were approved, the credit union loaned the Ortizes money for a Christmas trip to Mexico, where some of the children met their grandparents for the first time.

“It was like a dream,” said daughter Maria, 18. “We always wanted to go and all of a sudden we were there. They cried when we got there, and they cried when we left.”

Although the credit union has clearly helped improve his family’s life style, Jose Ortiz said that is not the only reason he puts his money there. “We know that we have money in the bank,” he explained in Spanish, “and we also help some other people who need it.”

Other credit union members cite similar altruistic motives--a reflection of the teachings of their pastor, Valbuena.

A priest with a reputation as a community activist, Valbuena has succeeded at making Holy Family a place where people go for more than religion.

Church youth groups, non-existent before his arrival in 1982, now hold dances in the church hall at night. The church helps resolve landlord-tenant disputes, raises college scholarship money and has contracted with a dental clinic to provide low-cost care for parishioners. It also sponsors a food co-op that sells groceries at just above cost, in keeping with Valbuena’s oft-repeated maxim that “you can’t feed the soul without feeding the stomach.”

It wasn’t long after Valbuena came to Holy Family that he began preaching about a credit union. This was the pastor’s second such venture; in 1970, he established a credit union at Santa Rosa Catholic Church in San Fernando.

Avenue to Aspirations

“When you live with the people, and when you feel the struggles of the people . . . you put two and two together,” he said. “Most of these people, they are condemned not to progress along. They can never dream to better their homes, to move forward in life, to send their children to college.”

With 11 Masses each Sunday at Holy Family, and about 10,000 church members, Valbuena had a large audience for his message. He delivered it in a sermon. “I told them that God wants them to progress, especially the poor, and make something out of their poverty.”

Thus was Family Federal Credit Union born.

Some took their money out of bank savings accounts to invest in Family Federal, even though they knew there would be no dividends for at least a year. During the credit union’s first month in business, 463 accounts were opened.

“We would do it after Mass, take their money, open their accounts, file and sort,” Calderon recalled. “It was such a big mess; how they ever deciphered it and got everything in order is beyond me. None of us are bank people. We just went in there and worked with our hearts.”

The credit union staff--a handful of the volunteers eventually became full-time, paid employees--learned its lessons the hard way. “If you wait until you’re all educated to start, well, then you’ve let so much time go by,” explained Moreno, who became credit union manager in 1987.

Moreno, who at the time was a 21-year-old college student, said she and the others struggled to make sense of government regulations, taking the thick manuals home to read at night.

They muddled through audits in which federal examiners uncovered flaws in their handwritten ledgers. They discovered--belatedly--that they were required to obtain Social Security numbers when opening new accounts, and had to backtrack to comply with the rule.

The loan committee met once a week to sift through applications. In the early days, they didn’t even verify employment; a paycheck stub was enough. According to the credit union’s former manager, Peter Mendoza, that practice ended after Family Federal realized it had been duped by a group of six men, all of whom applied for $1,000 signature loans claiming to work for a company that didn’t exist.

Even after that change, the loan delinquency rate was high.

Performance evaluations conducted by the National Credit Union Administration, which regulates federal credit unions, show that in 1984, 1986 and 1987, Family Federal’s delinquency ratio far exceeded the national average for credit unions its size.

Worst Year

The worst year was 1986, when more than 13% of Family Federal’s loans fell into default, contrasted with a national average of 2.6%. The next year, a federal examiner forced the credit union to write off nearly $70,000 in bad loans and to hire a consultant to straighten out its books.

The records were such a mess, Mendoza acknowledged, that the credit union once bounced a $20,000 check.

Although he was criticized in several audits for the delinquency rate and for his reluctance to dun members who did not pay back their loans, Mendoza argued that his “broad lending policy” was necessary for Family Federal to reach out to the poorest of the poor.

“These banking people,” he complained, “they don’t see faces and people who need an opportunity. They see equations, they see statistics, they see curves, and that’s how they do their job. If we start running this like Security Pacific and Bank of America, then what’s the sense of having it?”

Others disagreed. One former member of the Family Federal board of directors, Abelardo de la Pena, said he quit because he thought Mendoza--who later resigned as well--had too much power. De la Pena also complained that Family Federal had inadequate criteria for issuing loans.

“We didn’t have proper training, we didn’t have any guidance,” he said. “So everybody was doing whatever their common sense (dictated).”

When consultant Elsie Guimont arrived, she balanced the books and wrote policy manuals for the credit union. She encouraged Family Federal’s staff to sue members who fell behind on their loans, and she also instituted more stringent loan requirements.

These changes were not lost on Mike DeSisto, who sat on Family Federal’s loan committee when the credit union first opened.

DeSisto, who works as a gasoline blender for Union Oil Co. and owns a pizza parlor in Wilmington, recently asked Family Federal for a loan so he could buy drapes for his house. He was turned down.

“They’ve got so much red tape now, you can’t believe it,” he grumbled. “I applied for a loan for $3,500 and you’d think I’d asked for the end of the world. And I have a full-time job. Back when I was on the loan committee, if the guy had a job, we gave him the loan.”

Yet as a result of the new policies, the credit union’s loan delinquency rate dropped to 2.5% last year, just below the national average. The number of delinquent loans is down to 150 from about 500, according to the credit union’s loan collector, Luisa Valladolid.

Like Any Bank

Now, the workings of Family Federal appear like those of any bank--simple, clean, professional. The credit union has its own office in the church hall. Account records are stored in $160,000 worth of IBM computer equipment. Each of the four tellers has a terminal and, with the tap of a few keys, a customer’s numbers are called to the screen.

Nevertheless, Moreno said, “everyone is still learning.” She constantly second-guesses herself, worrying that any mistake she may make could cost the membership money. At night, loan applications sometimes pop up in her dreams.

“I feel a big responsibility,” she said. “This isn’t like a regular job for us. This is something that we worked at in the beginning. It’s important that it succeeds because I need this place. My parents need this place. My friends need this place.”