Loan Justice : For Years, Banking Services in South L.A. Have Been Scarce and Credit Hard to Come By. But Since Opening Its Doors 2 Years Ago, a Credit Union Has Stepped In Where Many Other Institutions Have Feared to Tread.

It seemed unlikely that Olga Cook could get a bank loan to fix her ailing Ford Explorer, its spent engine bleeding oil.

Cook, 62, had defaulted on two student loans five years ago while she was studying for her job as a county psychiatric technician. So with great apprehension, she filled out an application for a $2,500 loan from South Central People’s Federal Credit Union, the fastest-growing credit union in the south Los Angeles area and one a relative had told Cook might help her.

It did, as it has done for hundreds like her since opening almost two years ago.

Many of the credit union’s 1,400 clients would be turned away by mainstream banks. No matter. Born from an idea to nurture financial self-determination among the area’s low-income residents, the credit union provides loans and savings accounts to anyone with $35 who lives, works or worships in the 49 square miles bounded by the Santa Monica Freeway, Imperial Highway, Alameda Street and La Brea Avenue.

Although Cook’s delinquent loans raised some concern among the credit union’s volunteer loan committee members, the panel ultimately determined that her five-year employment record and steady efforts to complete payment on her defaulted student loans offset any blemish on her credit report.

That willingness to take a risk where most won’t has helped the credit union grow from 380 accounts its first year to roughly 1,400 this year--a jump 45% higher than its closest competitor. South Central People’s is now the fastest growing of 20 credit unions in the south Los Angeles area, according to statistics from the California Credit Union League.

What’s more, the institution is poised to gain an additional 350 members through a pending merger with a small credit union at the Frederick Douglass Head Start program.

Credit unions differ from banks because clients are shareholders and can vote for the volunteer board of directors that sets loan and operational policies. In addition, all profits are funneled back to members through lower loan rates or higher interest paid on savings.

At South Central, manager Tammy Brown says the institution makes extensive efforts to reach out to the community and provide banking services--especially loans--to people who have been historically denied them.

Poor credit histories among many in the south Los Angeles area, coupled with mainstream-bank redlining and racial discrimination, have long kept credit out of reach, experts say.

Nowhere is the credit union’s mission more evident than in figures indicating it has loaned out roughly 99% of its $1.5-million asset base. The average loan amount has ranged from $2,000 for personal use to $15,000 to purchase new or used automobiles.

Yet in its eagerness to extend credit to people most other financial institutions would shrink from, South Central People’s has chalked up roughly 10% in delinquent loans--more than twice the average for California credit unions designated as “low income.� A loan is considered delinquent if no payment has been made in 90 days.

“I think the main thing is, we’re really new to this,� Brown said, adding that under early lending guidelines, roughly 80% of loan requests were granted.

The rate of defaulted loans, however, does not raise concern among national regulators since so-called community development credit unions, like South Central People’s, historically operate with a higher delinquency ratio than regular credit unions, said Cherie Umbel, spokeswoman for the National Credit Union Administration.

Regional officials, Umbel said, are “satisfied that the credit union is working on the delinquency and is improving.�

To curb delinquency, the credit union has begun to deny loan requests it previously would have granted and has hired a part-time bill collector to go after members who make no effort to arrange repayment on defaulted loans.

But even as South Central People’s tightens its loan policy, officials say, the institution is still committed to helping members realize their goals with increased efforts to assist in credit repair and a new program that allows 100 area youth the opportunity to run their own credit union.

While South Central People’s still needs a larger asset base to offer such services as checking accounts and small business loans, supporters say the institution has made great strides toward filling a near-vacuum in full-service banking in the area.

During the late 1980s and early 1990s, banks began closing branches across Los Angeles, citing the need for consolidation and cost-cutting in an increasingly competitive market.

Between 1987 and 1991, the number of bank branches in the city dropped by 416, with south Los Angeles one of the hardest-hit areas. Residents of the Vernon-Central neighborhood, for example, were left with no banks in a three-mile radius when a Bank of America branch closed in 1988 at 34th Street and Central Avenue.

When the dust settled, the south Los Angeles area, with roughly 600,000 residents, was left with only 19 bank branches while more than 42 check-cashing businesses with high transaction fees and no savings opportunities opened to fill the void.

“You could see the capital just draining out of the community,� said Gilda Haas, a lecturer at UCLA’s School of Architecture and Urban Planning, who helped the credit union draft its business plan and eventually win its charter.

With shrinking financial services, activists from three organizations joined forces in 1989 to pursue a grass-roots credit union free from the whims of corporate boardrooms.

“We decided it was time we had our own financial institution so that no one could ever again deprive us of our right to credit,� said credit union co-founder Juanita Tate, who also runs the Concerned Citizens of South Central Los Angeles community organization.

“We decided the only way we could have what was important for us was to do it ourselves.�

The Black Employees Assn., which represents 5,000 African American city and county employees, and the Vermont-Slauson Economic Development Corp. were also driving forces behind the effort.

But while the goal of establishing a credit union was clear, the execution was anything but smooth.

“It was a very long process, much longer than we thought it would be,� said credit union co-founder and association President Clyde Johnson.

In 1989, South Central People’s was the first so-called community development credit union to pursue a charter in five years, and not much technical assistance was available, recalled Diana Mullins, a credit union consultant who helped shepherd the institution through the chartering process three years later.

There was a general reluctance among state and national trade organizations to get involved in the effort, she said, because so many community development credit unions had failed in the past. “At that time, the organizers of South Central were swimming against the tide,� she said.

Many community development credit unions failed because of a combination of bad loan policy and scant community and monetary support, Mullins said.

South Central People’s is considered a community development credit union because more than half its members earn less than 80% of the national average wage of $31,617. The designation also means the institution can accept deposits from individuals or entities who are not members to shore up weak assets. Mullins said a desire to help low-income neighborhoods is the primary reason non-members make deposits.

Left basically to their own devices, organizers pounded the pavement for two years gathering the requisite pledges of support from potential members before they could file the charter application in January, 1992. Approval came nine months later, but only after Mullins had to scramble to raise $3.5 million in deposits from other credit unions to placate concerns by the National Credit Union Administration that South Central People’s asset base was insufficient.

But even with the charter, the credit union’s struggle was not over.

It took another year before the facility opened in a small office at the Black Employees Assn. headquarters on Crenshaw Boulevard. Organizers say the delay stemmed from unmet hopes of moving into a vacated bank branch.

The Crenshaw location proved only temporary, however, as BEA teamed up the with the Phi Beta Sigma fraternity last year to move a former credit union building from Downtown Los Angeles to the site of a Leimert Park liquor store burned in the 1992 riots.

The new facility opened Dec. 5, but the credit union that once granted 80% of loan requests had started to change.

Faced with a high percentage of delinquent loans and $12,000 in “charge-offs,� or loans with little hope of repayment, the credit union decided to tighten its loan policy. Now only 50% of loan requests are granted.

“Initially our goal was to get as many people as possible involved,� Brown said. “Our goal now is to make safe and sound loans.�

She added: “What we loan out is members’ money. We have a responsibility to them. What we lose is their money.�

At a recent loan review meeting, Brown and credit union volunteers Robin Cannon and Rose Wright took no longer than a minute to deny one loan request because the applicant had multiple delinquent loans on her TRW credit report.

The woman--like many in her situation--was referred to the nonprofit Consumer Credit Counseling organization, which helps people figure out ways to budget or increase income to pay off their bills.

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Another loan request for $1,000, however, sparked debate among the group after Brown suggested giving $500 to a man with two delinquent loans.

“Why give him anything?� Wright declared.

“Because someone has to give him a chance,� Brown responded.

The group eventually decided to give him $500 over six months on condition that part of the money go toward paying off his defaulted loans.

Even while the credit union decreases its flow of loans, officials say they remain committed to working with members who make an effort to repay defaulted loans. Reduced and even waived interest charges and late fees are among the concessions the institution sometimes makes to recover its loans.

“If you have any problems, please call,� Brown tells members. “We can make arrangements.�

Those who ignore this advice, however, face a possible lawsuit and even a lien on wages or property.

As part of its no-nonsense policy, the credit union in January hired a part-time bill collector who does everything from send initial late notices to plead collection lawsuits before judges.

So far this year, the credit union has filed 23 lawsuits compared to seven filed over its first two years of existence. Brown said all but 10% of delinquent loans are eventually recovered.

But while delinquency is a vexing problem, credit union officials say the vast majority of members who default on loans make voluntary repayment arrangements.

Officials are also quick to point out that more than 90% of the loans they make are trouble-free.

Take the case of Crystal Davis.

The 34-year-old director of a fledgling performing arts school did so well on paying off her first loan that she was recently given another one.

Davis plans to use the $2,500 to make a master recording of her youth choir singing rap and traditional gospel songs.

“This’ll get us going,� Davis said, referring to the loan. “The credit union is a very good and positive thing for people in the inner city.�

Meanwhile, Olga Cook waits for an appointment to have her Explorer’s engine overhauled, happy with her treatment at South Central People’s.

“They really helped me in a time of need,� Cook said. “They were very supportive. I really look forward to doing more business with them.�