People Power and Democratic Banking? Look No Further Than Your Local Credit Union
Editor’s note: This is a transcript of Laura Flanders’ interview with Linda Levy for GRITtv.org.
A financial institution you can run? Better than that, a financial institution you and your neighbors can own and manage in your neighborhood? Credit unions are exactly that and they’re getting a fresh look since the so-called Great Recession, which they weathered a whole lot better than many private banks. What’s a credit union? How is it different from a private bank and what laws hold credit unions back? To talk about that and more we’re happy to welcome Linda Levy, CEO of the Lower East Side People’s Federal Credit Union. It has been serving people and businesses on the Lower East Side and Central Harlem in New York since 1986.
Laura Flanders: So, tell us how much money have you lent out since 1986?
Linda Levy: Amazingly enough, we have lent out $65 million.
LF: Sixty-five million dollars! Who has it gone to?
LL: It has gone to the people that live and work on the Lower East Side and since 2005 also to people in Central Harlem. It is mostly low-income people and local small businesses.
LF: Describe for a little bit the scene on the Lower East Side when you started. You were there at the start in 1986, right?
LL: The East Village, Lower East Side back then was a lot of drugs, it was very impoverished, the city had basically abandoned the community, the banks had abandoned the community, which is why our credit union got started. So it was a very different place than it is now.
LF: So you had been working in co-ops but mostly food co-ops, consumer co-ops.
LL: Yes, before that I had been working food co-ops and got to the point where I felt that the food co-op movement was not really able to make major social change because of a lack of capital. So I thought, let’s see about getting access to capital for low-income people and then I found out about credit unions.
LF: So how do credit unions do that for people and what makes them different from a private bank?
LL: Credit unions are owned by their members and only lend to their members. Our credit union started and served only people who lived between 14th Street and the Brooklyn Bridge, from Bowery over to the East River. The only people who could borrow from us who would join the credit union and were owners of the credit union. So all the money that they put in went back out into the community and never went anywhere else. So Bank of America, City Bank, they may have a branch in a neighborhood but their money can go wherever they choose to invest it.
LF: On this question of ownership, who owns it and how is it run?
LL: Credit unions are democratically run: one member, one vote. Every member has the right to vote for the board of directors, the board of directors sets the policy, we have an annual meeting every year at which the members come and exercise their vote, but the main point of it is one member one vote, which is very different than how it is done in banks where you get more votes if you have more stocks.
LF: Are they voting on who to lend money to?
LL: The membership at large doesn’t vote on who to lend money to, but we do have a credit committee which is elected by the membership.
LF: I’m impressed by how much you have all loaned out, but it’s a pretty small percentage of all of the assets that are loaned by financial institutions. Why is it so tiny a proportion?
LL: For one thing, we only loan to our members and we only get money from our members. I always say that a credit union is only as rich as its membership. We are a low-income credit union: that is a designation by the national credit union administration. Since our members are low income, we are low income, as a credit union. So we don’t have as much money as we might want to lend out. There was a point a few years ago that we were lent out at 125 percent: that was pretty scary. We didn’t have much liquidity at all and we did have to borrow money to continue to lend.
LF: Could public monies come through credit unions?
LL: Unfortunately in New York state, municipal deposits are not allowed in credit unions. That means that even though a couple of years ago when Mayor Bloomberg made an announcement that he was going to put millions of dollars into credit unions, little did he know he couldn’t do that because there is a state law that says that all municipal funds must be deposited in banks, not credit unions, not thrifts only banks.
When we have tried to change this law, the bank lobby gets very upset.
LF: Where does that law come from?
LL: I often think that they never even thought about credit unions. They were writing this law stating that money had to be kept in a safe and secure place, so they said you have to keep municipal funds in banks. Well, credit unions are insured in the exact same way that banks are. I really believe it was an oversight, they didn’t even think about credit unions.
LF: What difference would it make if you could be a depository for some of that municipal funding? Meaning development loans, I’m imagining, other kinds of monies, what kinds are we talking about?
LL: They have talked about pension funds being put in credit unions. Because they want to put the money in an institution where it will be put back into the community. Community development institutions, which we are one of, have an incredible track record of getting money back out into the community. We’re probably better at doing that than anybody else.
LF: How do you measure that?
LL: We measure that by the fact that all of our members are getting loans and if they go into a normal bank they’re not getting loans. The history of red-lining, Community Reinvestment Act laws which wouldn’t be there if banks were willing to put money into communities by themselves. Under the CRA, the banks do sometimes give us deposits for maybe $100,000.
LF: So going back to the difference it would make if you had those municipal bonds....
LL: If we had those funds, we would be able to our members, for example our low income house co-ops. Right now a lot of our membership is people who live in those housing co-ops, or the buildings themselves. They have a lot of needs for capital and we have had periods where we have had to say, “Sorry, we can’t make any more loans.”
LF: We have a moment in our economy with banks famously refusing to lend out money, sitting on trillions of dollars. Credit unions with the kind of track records you have, is this something you want to see changed? Maybe with the de Blasio administration?
LL: It would be great to see it be changed, but since it’s a state law there is little that de Blasio himself, or any mayor of New York or a city council member of New York can do. They can get Albany to change the laws.
LF: It’s not just a city problem, there are credit unions all over the state.
LL: All over the state and the Credit Union Association of New York has had this as one of their major efforts legislatively, and every time the banks say, “No no no, we’re going to pull all of our money away from legislators.”
LF: So you do have some initiatives on the horizon you’re excited about—I hear there is a merger underway.
LL: Yes, April 1, a credit union merged into our credit union. Union Settlement Federal Credit Union located in East Harlem. They have been around since 1957, and very sadly they have had issues and started struggling over the last 18 months. We were really honored because they went to the regulator and said that they wanted to do a voluntary merger and they wanted to do it with us. We now have Union Settlement as a part of us. So their name is now Union Settlement Federal Credit Union, a division of Lower East Side People’s Federal Credit Union.
LF: And not to sound like a broken record, but would those municipal funds have helped that Harlem credit union to survive?
LL: Oh, totally. They would have. Because they really were very short on capital and they just did not have what they needed to be able to serve the community and in the end it puttered out because it did not have enough income coming in.
LF: So for people who are anxious and think, "Why would I want to get into financial bed with a lot of really needy people in my neighborhood?"
Your neighborhood, for example, is divided between the super wealthy who have come in the past few years, and those occupying those low-income housing units that remain. Why would someone who has some assets or some resources want to get involved in a financial institution where they are responsible for people a lot less well-off than they are?
LL: There are a lot of reasons. For one thing, look at what happened just a few years ago. Our credit union did not fail because of the crisis in 2008/2009. In one way you could say that credit unions are actually a safer place to keep your money than some of these big banks.
LF: Because you’re not leveraging out to buy mortgage debt in other states and countries.
LL: Exactly. We’re also very careful when we do our underwriting for our loans. We don’t want our members to get into trouble. We don’t want them to take on more debt than they can afford. Whereas most banks, all they want to do is make the loan. They don’t care about your ability to repay. That is another reason that makes it a very safe investment, a very sound investment.
And lastly, back with Occupy Wall Street we got a lot of new members because some people think, “Maybe I should be doing something good with my money” instead of just making more and more money hand over fist. It is a good way of giving back.
LF: So maybe we should shift all of our massive amounts of GRITtv money into your credit union.
LL: You should!
LF: Clearly, you love this work. I’d love you to talk about what it is like doing it on a daily basis and whether you feel like you have built wealth in the way that you had hoped to in 1986.
LL: One of the things about the credit union is that once you go in there, you can’t leave. I was the first manager at the credit union. I left after five years. I stayed on the board of directors. Then I came back as CEO. I’m not the only person that has done that. It is because there is something about the atmosphere, and the feeling that everyone has that we’re—it sounds corny—but we’re a big family. Our members are a family. We really care about our members. We look forward to seeing them. We mark their anniversaries when they have babies, everyone is cooing over them.
LF: Can you bank online?
LL: Yes, of course we can. We have every service that a bank has.
LF: All right, I’m going to come talk to you about joining your credit union! Thank you so much. Linda Levy, really great talking to you.