A conversation with Clifford Rosenthal former Chief Executive Officer of the Federation of 
Community Development Credit Unions (the Federation) and Director at the Consumer Protection Finance Bureau (CFPB) written by Bernell K. Grier, Bard MBA ’15
On February 16, 2015 Mr. Clifford Rosenthal was so kind as to allow an interview with him at his home in Park Slope Brooklyn. The questions asked of Mr. Rosenthal were open ended and resulted in a flowing conversation revealing a rich history of his involvement with community based financial institutions with a focus on the credit union movement. It became a unique opportunity to learn the history and future of community development financial institutions (CDFIs), community development credit unions; as well as a bit of leadership advice.
Bernell: My capstone project at Bard College MBA in Sustainability involves the expansion of Neighborhood Housing Services of New York City, enabling a CDFI to offer first mortgages to low- moderate income families seeking to buy homes in New York City. I having learned of your current study regarding the history and future of CDFI’s, as well as your experience leading The Federation ask if you could you share with me your experience and thoughts regarding credit unions and CDFIs.
Cliff: Running the Federation for 32 years exposed me to a lot of pain. The Federation is an association of credit unions around the country—all of whom are very mission driven, all of whom are highly committed to low-income folks. I have written a couple of articles; one about leaving The Federation and succession planning that you may find that interesting. The other was about the culture shock of going to the Consumer Protection Finance Bureau (CFPB).
I came to this out of a radical left wing perspective. A Russian historian, in graduate school, I found it an interesting time to be at Columbia, with the uprisings and activism. I began working in the cooperative movement in 1970 as a volunteer, and organized a food coop in my building in Washington Heights. I was involved in the cooperative movement throughout the 70s. I found credit unions in the late 1970s when I worked with a farmer organization in DC who said, “We want a credit union to serve the employees and clients of farm work organizations.”
What attracted me to the credit union movement was that these were cooperatives that were sustainable, financially. Credit unions have a 100-year history, going back to 1908. The first one in the country (there wasn’t even a name for credit unions back then) was called St Mary’s Bank. It still exists in New Hampshire. There is a certain elegance to the idea of pooling money and relending it; starting from a very low-cost overhead base and volunteer support. This was a very compelling idea.
When I came to credit unions in 1980, there were 20,000 of them separately incorporated. Today there are 6,500. Five years from now there will be 4,000. There has been a relentless process of consolidation, merger and sometimes liquidation. We have seen it in New York as well. It is a very tough business to be in and it will become tougher.
To some degree the banking environment has become more sophisticated. The choices available even to low income people have multiplied. Their expectations for the level of service have multiplied as well. For the 25th anniversary of the Federation in 1999, I did a video called “Dollar by Dollar,” interviewing folks who have long been involved in the credit union. I Remember Ruth Atkins, an African American women up in Union Settlement in East Harlem who had been on the board for many years. Ruth said, “Back in the 50s and the 60s, women just did not get credit and I as a single mother—it was not possible for me to get credit from any source.” Initially, the core idea of the credit union was saving money and providing loans. But in the end transaction business and transaction expectation is very costly. You need economy of scale enough to do it.
People have other options even low-moderate income people. Some options are good and some not so good. I think an analogy to some degree is the historically black colleges and universities. As segregation begins to disintegrate and as African Americans have other places to go, those colleges are in distress. I think of North Carolina where there were lots of black credit unions in the 40s and the 50s, started through the auspices of the local Department of Agriculture (and similar entities). They were the sole source for African Americans to get loans. When they were based upon communities of people who knew each other, then they enjoyed extraordinary success for decades. As the banking opportunities opened up for employment, for credit and the middle class began to form. Persons who came to the credit union were not motivated by the pure motives of the people in the 40s and 50s and the desperation of it. We saw failures, we saw corruption, we saw all sorts of things. It is very painful for me to think about this.
In terms of the sustainability of these institutions, it has become a much more complicated business. It has become a much more highly regulated business. The Patriotic Act and the ways in which credit unions have had to become an agent of the Federal government rather than the private lending operation make it all vastly more complex.
There are 100 million members of credit unions. They have reached scale in that sense but the purity of mission has been diminished, generally speaking. The largest credit unions resemble banks; a billion dollar credit union is a big deal. The biggest is Navy Federal with $60 billion in assets and 4 million members. It advertises in the NY times. However, New York institutions that have been around for decades are struggling. I helped to organize the Lower East Side Credit Union. It is very successful now. It has taken in a number of CDCs that have not thrived. Union Settlement ran into problems in the 90’s and went out of business a year ago. Only the fact that the Lower East Side Credit Union was able to take them via a merger mean that services continue in East Harlem. Lower East Side Credit Union is now a $40 million institution that started with scraps and CRA concessions from Manufacturers Hanover Trust. The credit unions’ current products include home purchase loans for single family homes; loans for limited equity cooperative buildings and their individual unit owners; consumer credit; and small business lending. Over the last ten years the portfolio of mortgages are now up to 40%.
Bernell: What would happen if CDFIs did not exist?
Cliff: I asked people at the CDFI fund what if it did not exist. In 1989 I did a study about the lending of Lower East Side Credit Union. We looked at every one of the first couple of hundred loans they gave and asked that question. The fact is that there still are informal lenders, internet based payday lenders and so forth that offer high cost loans. I believe without credible community lenders it will be much harder for individuals to obtain credit at an affordable rate. I think we probably will go back to 30 years in history where credit was only available to a certain few; with certain individual’s ability to own anything being much diminished.
Bernell: I sometimes think there is a conspiracy involving who will be renters versus owners. I have attended forums where the topic has been how to lend to ethnic groups, millennials, and seniors who have been deemed to be a poor risk. To me owning property brings a power with it. Do you believe there may be a plan designed to have property ownership be in the hands of only a few?
Cliff: Capitalism runs in cycles; boom and bust cycles. We have seen a bust. But I guess the victims tend to be the usual victims. I don’t so much ascribe intentionality to it but I am not sure whether that becomes a distinction without a difference at some point; which is to say it may not be some sort of a grand plot but it happens almost inexorably as if it were a plot.
Then there is the question about minority talent: is it going into commercial banking anymore? There probably is no really great push to recruit minorities. So when you talk about not being attendant to the needs of certain communities you may not find motivation to engage. Perhaps the best and brightest go into investment banking, as it is much more lucrative. Some of the techniques of commercial banking, historically, lending based on character, you don’t see anymore. Probably the credit training programs don’t exist anymore; like the Chase credit training program. I think there are a number of those factors coming together resulting in inequities in the market.
Bernell: Do you still believe there is a future for credit unions and CDFIs?
Cliff: You are asking a really tough existential question. In my darker moments I think I spent 30 years on this and there will be very few survivors because of this consolidation trend. The loan funds have done pretty well; the mortality rate among the non-regulated institutions is not that high. The CDFI fund has made a big difference in the sustainability of these institutions to provide funding. But I believe financial institutions have moved away from significantly supporting CDFIs.
I do think there is a future for the sort of community-based work you are doing, having the specific knowledge of a community, its borrowers and their needs. The theme of inequality is not going to go away. The strings of inequality have come to an insufferable point. If a financial institution has lost the talent, orientation, organization to do the work itself, then using an intermediary is helpful.
My last word of advice to you, Bernell, is don’t leave this business. It may be a bit lonely but you have a rare and very valuable skill and commitment. If it is possible to do anything in this environment it is up to folks like you.
* Clifford Rosenthal was the CEO of the National Federation of Community Development Credit Unions for more than 30 years. His concept papers and draft legislation in the 1980s provided the initial impetus for the development of the national CDFI movement, which he helped found and lead. After leaving the National Federation in 2012, he joined the new federal Consumer Financial Protection Bureau (CFPB), running the Office of Financial Empowerment, which is the focus for policy- and program-development that addresses the needs of low-income consumers.
Rosenthal is currently a Visiting Scholar at the Milano School of the New School for Public Engagement in New York City. He has authored various articles and monographs about credit unions and financial services for low-income consumers, including Credit Unions, Community Development Finance, and the Great Recession, published by the San Francisco Federal Reserve Bank in 2012. He has been recognized for his work by the Opportunity Finance Network (Ned Gramlich award), the National Credit Union Foundation (Herb Wegner Award), the Insight Center for Community Economic Development, the Lawyers Alliance of New York, and other organizations.
He was trained as a historian at Columbia University. His book, Five Sisters: Women Against the Tsar (with Barbara Engel) has been used in college courses for more than 30 years.