Southern California Edison's federal credit union has branched into Boyle Heights to serve immigrant Latinos, launching a competitive money transfer program to Mexico, El Salvador and Guatemala on Friday that will be a template for credit unions across the country.
The service is expected to help credit unions grow by tapping the vast market of "unbanked" Latino consumers who rely on check cashers, payday loans and higher-cost money transfer services including Western Union and MoneyGram.
While smaller federal credit unions have started serving immigrant Latinos in Pico-Union and elsewhere, the utility's operation is the largest to do so, with 35,000 members and assets of $230 million.
"We felt it was time for a large, mainstream, well-capitalized credit union to expand to reach the underserved, and what better [community] than the growing Hispanic community in Los Angeles, specifically in Boyle Heights and East Los Angeles?" said SCE Federal Credit Union Chief Operating Officer George Poitou.
The credit union is poised to introduce the most significant alternative yet to the often exploitative rates of the storefront financial services operations that dot East Los Angeles.
"We know our presence here will put pressure on them to evaluate themselves and . . . they might [adjust] their prices in order to compete," Poitou added.
The Boyle Heights branch, in a remodeled plaza at First and Chicago streets, will attempt to serve immigrants who work in the informal economy or have no traditional credit history, Poitou said.
"We may not be able to get a TRW report . . . for mariachi [musicians] who get paid under the table," he said. "Instead we'll talk to friends or relatives . . . and look at 'Did you pay your rent on time? Did you borrow from your brother and pay him back?' "
SCE's credit union acquired a small credit union in 1998 from the activist Los Angeles-based Community Service Organization, which was unable to maintain it. Last month it moved it to its current location and began spreading the word through neighborhood groups and churches.
The money transfer program is expected to be crucial to drawing thousands of new members into the branch, which now serves about 1,200. It is being run through the World Council of Credit Unions Inc., an organization based in Wisconsin that recently formed the International Remittance Network, or IRnet, to break into the wire transfer field.
IRnet debuted in California and Nevada last year with help from then-Assembly Speaker Antonio Villaraigosa (D-Los Angeles) and promised to bring more competition to a multibillion-dollar industry that has been criticized for high and allegedly hidden costs.
The program made 620 credit unions in California and 30 in Nevada eligible to participate in the money transfer service through an arrangement with Mexico's largest credit union, but few had signed on. The program was vastly expanded Friday in a partnership with New York-based Vigo Remittance Corp., which serves 41 countries.
World Council Chief Executive Arthur Arnold said the initiative "provides a safe, rapid and economical way for credit union members to send money internationally."
It also will help credit unions reinvent themselves. The 50-year-old SCE credit union, which by law is separate from the utility, was created to serve Edison employees. In an effort to boost its rolls and compete with banks and other financial services organizations, it has expanded to serve employees of other corporations. The move into underserved markets, along with the money transfer business, is the latest attempt to remain competitive.
"It's a way to bring people in the door," said Dave Grace, the World Council's financial services officer.
The cost negotiated by IRnet will be $8 for up to $1,000 transmitted to Mexico, significantly lower than that of the money transfer giants. Furthermore, the company has agreed to charge only about 3.5% more than the interbank foreign exchange rate and to disclose exactly how much money will arrive in Mexico.
MoneyGram and Western Union earn much larger, undisclosed profits from the foreign exchange spread without informing customers, a practice that has led to a massive nationwide settlement now under review by a federal judge in Illinois.