Those with poor or non-existent credit often find themselves in a vicious cycle, struggling to make ends meet and, when in need of a money, ensnared in payday loan traps from which escape is difficult.
The Osage Nation is looking to change that by establishing a Community Development Financial Institution – essentially a bank for those who are not welcomed by traditional banks because they have lousy credit or lack collateral.
The Osage CDFI has been in the works since April 2021, when the Osage Nation Congress passed legislation that authorized its creation. Since then, the Nation has progressed through the first 10 of 28 steps before it opens the bank, 𐓀𐒰𐓒𐒷𐓆𐒼𐒰 𐓂𐓈𐒰 𐓊𐒻, or a “A Place to Borrow Money.”
Principal Chief Geoffrey Standing Bear said that he visited the Citizen Potawatomi tribe last year to look at various programs they had, and he was impressed by its CDFI.
“It has been a really good program for them and after a few years of doing it, they have moved on to buying actual banks,” Standing Bear said.
The chief said that loans will be available for Osages nationwide when the CDFI opens – scheduled for next year but dependent on federal approval – but the bank is intended to grow gradually. For instance, low-interest personal, business, and car loans will likely be available to start, but mortgage loans would be introduced later. And given the complexities of foreclosure and the expense of hiring out-of-state lawyers, mortgage loans may be limited to Oklahoma.
The goal of the loans, which would be meted out with financial education, is to build credit for borrowers and, moreover, to put the need to help community above maximizing profits.
The trickle-up approach to lending has met with success at other tribes and in other communities.
Candy Thomas, the Nation’s Director of Self Governance and Strategic Planning, said that the Potawatomi Community Development Foundation is a CDFI that has been in operation for 14 years, has loaned upwards of $40 million for car loans, mortgages and all manner of financial instruments – and has experienced a 2 percent default rate on those loans that traditional banks would deem too risky to make. In the same period, commercial banks had a default rate for all loans that ranged from 5.2 percent down to 1.35 percent, according to the Federal Reserve Bank.
But consumer loans were defaulted on far more frequently: For instance, more than 4 percent of car loans were past-due in February of this year, according to Deutsche Bank. The delinquencies grew back to pre-pandemic levels due to the fact that Covid relief money was drying up.
Mortgage loans in 2020 spiked to an 8.22 percent delinquency rate, down one point from a peak of 9.3 percent during the mortgage crisis of the late 2000.
Study found need, especially in Oklahoma
A market study for the CDFI that was completed in January shows remarkably different needs – and attitudes – among Osages depending on where they live.
Within Oklahoma, for instance, just 42 percent of Osages surveyed agreed they had access to affordable credit locally, compared to 63 percent of Osages in other states. Similarly, 46 percent of Oklahoma Osages were dissatisfied with the quality and affordability of credit available to them, compared to 23 percent of Osages elsewhere.
The survey also inquired about the respondents’ willingness to attend classes or training to gain financial literacy, whether setting up a business plan, filing taxes, or negotiating financial statements.
The answer: A resounding yes, both in Oklahoma (97 percent) and outside the state (94 percent).
The Nation currently has a $150,000 grant application pending to help set up the CDFI, and the chief expects to appoint five qualified board members in the next few weeks. The Nation is also seeking to partner with another financial institution to start. Potawatomie seemed a natural choice, but that tribe wasn’t interested, Standing Bear said.
Conveniently, the Nation owns the former First National Bank – which it bought in 2015 for about $275,000, and that building or part of it could serve as a future bank when the Osage Congress moves out after it builds a new Congress building.
Wherever it might be located, however, the Place to Borrow Money will serve a simple but worthy purpose, said Thomas: “To be able to provide capital to an underserved community and educate them to build credit ratings so they can manage loans and purchase things like cars and houses.
“It will open doors to those people who have been without credit.”