Where Credit Is Due : Approval of Lending Institution in South L.A. Expected
Last January, the federal agency regulating the nation’s credit unions rejected with little fanfare an application to charter an unprecedented credit union serving 600,000 residents living in the 50-square-miles of southern Los Angeles.
Officials with National Credit Union Administration’s regional office in Concord at the time expressed concern over the “the appropriateness of the common bond which defines the community, and the economic vitality of the proposed institution.” They recommended that the organizers should instead find an existing credit union with which to affiliate.
What a difference a riot makes. In the wake of the disturbances last spring, the South-Central Los Angeles Community Development Federal Credit Union is now on the fast track for approval.
At a meeting in Washington today, the agency’s three-member board is expected to follow a recommendation from its lawyers to approve a charter. If it does, as early as December a new credit union could be taking deposits, offering consumer loans and making small business loans in an area where basic banking services have often been in short supply.
No one involved in the approval process makes any secret that the April riots are the main reason for the change of heart. “It has everything to do with it,” said Clyde Johnson, president of the nonprofit Black Employees Assn., a southern Los Angeles organization that for three years has led the efforts to launch the credit union.
For one thing, Johnson and others say, the disturbances have focused new attention on the need to quickly improve banking services and the availability of credit to help improve the economy in southern Los Angeles.
“The riots helped focus on a need that is real,” said Laura Porter, senior vice president with the California Credit Union League. “The feeling is: Let’s do this now rather than spend a couple more years fooling around with it.”
The credit union, which had limited financial backing before, is now awash with commitments. About $5 million in low-interest or no-interest deposits, about half placed by members of the credit union league, will be used as seed money to start the institution.
Money also flowed in from charitable foundations such as the James Irvine Foundation as well as from a few banks such as Union Bank and Bank of America, which is considering making one or more closed branches available to the credit union. It also received free assistance from the influential Westside law firm Manatt, Phelps, Phillips & Kantor.
The most unusual effect of the riots was that Johnson and other organizers were better able to persuade regulators that they should view southern Los Angeles as a community. The reason: The boundaries for the proposed credit union are similar to the area under the initial curfew imposed during the riots. The curfew, however, was quickly expanded citywide.
“They had said the area we selected to serve was too large to be considered a community,” Johnson said. “That is the kind of judgment you make if you don’t live in Los Angeles. It’s difficult to tell someone outside of Los Angeles how large this place is.”
In its application, the organizers proposed that membership include people who live, work, own businesses and belong to churches in an area bounded by the Santa Monica freeway to the north, Imperial Highway to the south, La Brea Avenue to the west and Alameda Avenue to the east.
Officials with the credit union agency say the riots aren’t the only reason why the charter is on the verge of approval. They add that the organizers also revised downward what agency officials believed were unrealistic growth projections.
Most credit unions--which differ from banks and thrifts in that they operate as nonprofit cooperatives--typically are formed to serve professions such as teachers, employees of large companies or religious groups.
Credit unions typically specialize in consumer loans--car, personal and home equity loans--although the southern L.A. credit union also plans to offer some small-business and home improvement loans.
Fewer than 100 of the nation’s 13,000 credit unions are “community development” credit unions formed to serve residents in low-income areas under a special provision in the law.
In Los Angeles, the 2,200-member Watts United Credit Union was formed after the 1965 riots.
Cities such as New York have several community development credit unions, but none across the country is believed to have a potential membership of low-income residents as large as that proposed for the South-Central credit union.
The main push to form the credit union came after a controversial 1988 decision by Bank of America to close a branch on South Central Avenue, part of what residents say is a disturbing trend in which large financial institutions have closed branches in southern Los Angeles.
Organizers say that the application for a charter was given a big push this year when one of the agency’s members, Robert H. Swan, took it up as personal cause after the riots. “We’ve got a critical problem delivering financial services to people in inner cities. I don’t think there is any question that the board will approve this,” Swan said.
If the charter is approved, Johnson said, a branch will be opened soon at the Black Employees Assn. offices on Crenshaw Boulevard, with a permanent office to be found later.
