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  • Writer's pictureFirst Step Alliance

Planned Credit Union for Formerly Incarcerated Seeking Startup Funding

Discrimination in financial services is a huge problem for millions of formerly incarcerated individuals, and especially impacts people of color, women, and the LGBTQ+ community. An unwelcoming financial system forces people to rely on check cashers, payday lenders and other high-cost, non-bank alternatives. These services are often predatory, and do not provide people with financial guidance or opportunities to save, build credit, and develop long-term financial security.

The Organizing Members of Diverge Proposed Federal Credit Union are committed to changing this narrative. In a recent interview with lead organizers Nancy Eiden, Founder of First Step Alliance, and Thomas O'Shea, former CEO Aspire Federal Credit Union, David Baumann of CUCollaborate discussed this "de novo institution seeking to provide financial services and education [to formerly incarcerated people] as an alternative to predatory lending."

The following are excerpts from David's article, Planned CU for Formerly Incarcerated Looking for Start-Up Capital, published on April 10, 2023:

“There is a very strong correlation between having a bank account and re-incarceration,” explained Nancy Eiden, the founder and secretary of First Step Alliance, in the interview. Eiden, who also serves as a board member of the group, added, “The lack of financial resources is a contributing factor. The lack of access to financial services…and education is astounding.”

Eiden noted that there have been some efforts in the credit union industry to help formerly incarcerated people, but often, when they try to open a bank account, they do not have a valid driver’s license. And their names are “immediately flagged.” The only identification they may have is a parole card, O’Shea said. And that may not be enough to open an account.

Predatory lenders often are the easiest way for these people to get loans, a situation, Eiden added, “That exacerbates the problems they already have.”

What Services Will the Credit Union Provide?

Diverge intends to offer “Fresh Start Banking,” including low-cost, no-minimum checking accounts, saving accounts, certificates of deposits, direct deposit of paychecks and debit cards.

Members, who will gain membership if they are associated with the First Step Alliance, will be able to obtain access to their accounts at branches, shared branches with other credit unions, on-line and mobile banking, and an extensive fee-free ATM system.

Members also will be able to build their credit through secured credit cards, credit builder loans and small-dollar loans for emergency needs. To provide those services, the credit union will need to create a unique onboarding process, O’Shea said. For instance, he asked, “How do we look at creditworthiness?”

When Does the Credit Union Hope to Launch?

Eiden said the NCUA has “blessed the concept” and approved the proposed field of membership.

The next steps are to rally the credit union community behind the effort and raise $2 million in capital. O’Shea said organizers have been meeting with officials from individual credit unions to aid in that effort.

While the two acknowledge there is still much work to be done, they anticipate the credit union will open for business about a year after the capital is raised.

The Credit Union Difference

In the United States, there are nearly 6,000 credit unions providing services to more than 100 million members. Like banks, credit unions accept deposits and make loans. But when someone joins a credit union, they become a member-owner, not just a customer.

Credit unions are not-for-profit financial institutions that exist to serve their members, and provide a safe place to save and borrow at reasonable rates, rather than concentrating on profit margins, as do most banks.

Formerly incarcerated individuals, friends, family, and allies will be welcome at the new credit union. The Diverge Organizers are encouraging those interested in becoming a member of the future credit union to take its community interest survey so they can better understand the financial needs of its future members. The survey link can be found here: Member Survey

cover photo credit: CUCollaborate



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