Volume 11; No. 1; Winter/Spring
Technology & Targeted Loan Products
By Alan Fisher, Executive Director, California Reinvestment Committee
and Lucio Reyes, Secretary-Treasurer of Teamsters Union Local 601
|Photo by: Carlos Gonzalez, San Francisco Chronicle
We live in a time when the use of advanced technology
is replacing human interaction in a number of service industries, including
banking. ATMs are replacing tellers, electronic banking is supplanting
branches, and automated phone lines are replacing customer service representatives.
The high-tech vs. high-touch approach to banking continues to be debated,
but the fact is, technology is being increasingly used by financial institutions.
The critical issue is whether banks use technology only for purposes of
cost-cutting and the development of massive, generic loan products, or
whether they creatively use technology to expand access to credit for
everyone. We know that technology is being used to target market niches
in middle- and upper-class neighborhoods. Products can also be designed
to meet the unique needs of traditionally underserved markets.
Bank regulations such as the Community Reinvestment Act, Equal Credit
Opportunity Act and the Home Mortgage Disclosure Act have improved access
to credit for low-income people and people of color, but many of these
customers continue to be relatively neglected. While finding lending and
investment opportunity in low-income or minority communities takes considerable
research and a creative, open mind, the customers in these communities
offer potentially profitable market niches.
The Case for Seasonal Loans
In San Joaquin County, California, the Coalition for Fair Banking became
concerned about branch closings due to a series of bank mergers and about
possible redlining by several local lenders. To research and address the
problem, the coalition formed a partnership with the California Reinvestment
Committee and set about conducting a preliminary needs assessment of San
San Joaquin is a rural county with much of its production dependent on
seasonal workers who staff the canneries and harvest the crops. Many of
them have been employed by the same company for years, have joined local
unions, and have established long-term residence in San Joaquin County.
They are stable wage earners, but earn most of their annual pay during
a six- to nine-month planting and harvest period.
Next to housing, transportation is a critical issue for farm workers.
Since agricultural fields are not generally served by public transportation,
workers will often buy a used car from a dealer who makes additional money
by securing a loan through a finance company. The loan is difficult to
repay because it often carries an exorbitant interest rate and demands
the same monthly payment whether or not the worker is in their earning
season. Ultimately, many seasonal workers lose their cars during the off-season,
damage their credit ratings, and then find it difficult to secure work
because they lack transportation.
As CRC staff and coalition members discussed this vicious cycle, someone
asked, Why cant banks lend in a way that matches income? In response
to this question, the coalition designed a consumer loan product that
matches loan payments to income stream. It is a concept that has some
precedence. For example, there are balloon loans that receive interest-only
payments in the early life of the loan until a balloon payment is due
at the end of the term. There are risk- adjusted loans where computers
analyze risk to determine approval and the level of interest rates.
Using the computer to establish payment cycles, a loan product could
be developed to match payment schedule with income stream. The loan would
receive the same aggregate repayment annually, but its structure would
allow for lower or interest-only payments during the borrowers off-season.
When the borrower is in his earning season, payment rates would increase
accordingly. This approach has tremendous potential for both the borrower
and the bank.
As noted earlier, many potential borrowers under such a program are established
employees who have worked for the same employer for years. Many are members
of local unions that track their dues and can vouch for their work record.
To enhance bank outreach efforts, the seasonal loan could be developed
as an affinity loan product, and marketed through the unions and/or
The original discussion of seasonal loans focused on agricultural workers,
but the product has broader applicability to other industries across the
nation, including lumber and fishing. Lenders interested in discussing
this loan concept and other program ideas are encouraged to call Alan
Fisher, executive director of California Reinvestment Committee at (415)
About the Authors
|Alan Fisher has served as executive director
of the California Reinvestment Committee (CRC) since 1992. CRC is
a coalition of nearly 200 community-based organizations advocating
for increased community reinvestment, particularly for low-income
and minority communities, from financial institutions in California.
Mr. Fishers previous background includes work as a labor and community
activist, small business owner and management consultant. Currently,
he serves on the board of directors of the national CRC, the Bernal
Heights Housing Corporation and other California organizations. Mr.
Fisher holds an M.B.A. from the University of California at Los Angeles.
||Lucio M. Reyes currently holds the elected
position of secretary-treasurer of Teamsters Local Union 601. As such,
he represents approximately 10,000 cannery workers and other seasonal
workers employed in San Joaquin Countys canneries and warehouses.
He is also a member of the board of directors of the California Reinvestment
Committee. Mr. Reyes has served in various elected posts including
president of the advisory board of Legal Aid of Stockton and the Emergency
Food Bank of Stockton. Mr. Reyes attended San Joaquin Delta College.