3 principles for meeting the needs of LMI neighbors

Amidst record-high inflation and economic uncertainty, no community has been feeling the financial pressure more than our most vulnerable neighbors in the lower income brackets. The impact of a global pandemic is still reverberating, and recovery from that impact has been slow. There have always been opportunities to do more to support and work with this population, but the experience of the last few years has created an urgency to proactively do more than ever before.

Since Community Reinvestment Act (CRA) legislation was originally enacted in 1977, low-to-moderate income (LMI) areas have been a source of both optimism and concern for financial institutions. Optimism because institutions that have great strategies in place for these communities have seen how impactful support can be; concern because LMI areas are seen as risky, mandated and requiring more effort for fewer results if not done correctly. Historically, many institutions have settled for doing the bare minimum of penalty avoidance—which furthers the LMI markets remaining largely underserved.

But both can be true: Something can be mandatory and still full of potential. Few markets have changed quite as much in recent years as LMI areas. In fact, these communities could present banks with an opportunity to fill the void left by an anemic refinance market due to rising interest rates.

For instance, for the first time since the housing crash of 2008, many LMI areas have seen an increase in homeowner equity—which means that our neighbors here could use their properties as leverage to increase their financial security. That hasn’t happened for years. The data shows that this is an opportunity for financial institutions to provide a platform for better wealth management and economic stability.

Identified here is a three-pronged approach to driving growth in these markets, supported by data. With these three principles as your foundation, your institution can build a strong strategy for reaching your LMI neighbors. 

Education, awareness and targeted outreach are the three critical components of a CRA strategy that engages your community no matter what stage of life they are in. All three of these steps may require different approaches and contact points, with campaign results ultimately being determined by how well you meet the demands of your community.

Step 1: Education

Educate the communities you serve on what is available to them, both in terms of the products your institution offers, but more importantly about personal finances generally.

Offer resources that highlight personal finance tips, debt reduction tactics, and the specific ways your institution can help. This can take the form of traditional, proactive education, such as community classes, videos and in-person guidance, as well as targeted guidance along the way, as a customer is making financial choices.

A great example of this comes from United Bank in Atmore, Alabama, which took to social media to share information about Teach Children to Save Day with followers. United Bank’s CRA Action Committee marked the occasion by teaming up with the American Bankers Association to help educate young people in their communities about developing saving and budgeting habits earlier in life.

The saying “knowledge is power” could not be truer when it comes to financial awareness. Connecting with your community through education will help people—many of whom are not aware of the options available to them—build knowledge and better prepare them for financial success.

Step 2: Awareness

The next step in a successful CRA strategy is awareness—both community awareness of the products your bank provides, and your bank’s awareness of the community. Occupancy rates, first mortgage activity, equity levels and home valuations are all examples of data points that will help you build products for the unique needs of each community you serve.

Many banks will also have to establish trust within the LMI community. Some people may not trust that a bank has their best interest in mind, so you will need to build an awareness plan to help get the word out into the community and show that you will prioritize those customers’ financial well-being. It may take some time, but once the community understands how your products can change their lives and sees your ongoing commitment to working with them, you’ll become a partner, not just “the bank.”

California-based Tri Counties Bank is a great example of awareness in action. On their site, they have pages dedicated to their CRA and community support initiatives as well as their grant programs that focus on affordable housing, community services, economic development and community revitalization and stabilization. Even when a program has seemingly no financial benefit to the bank, its programs like these that illustrate how the bank cares and wants to help the community get access to all available resources.

Step 3: Targeted outreach

All low-to-moderate income areas are not the same, and one of the most critical pieces of creating a strategy is understanding your areas: What do your neighbors need to thrive? What aren’t they getting from their banks today? How is that shaping their financial decisioning?

Channels, tactics and messaging should all be customized to the audience, and you need a powerful data engine underpinning this to ensure you are reaching them in the right place, at the right time, with the right message. Industry-leading banks are tapping into demographic, property and credit data to build customized campaigns based on the individual economics of each of their marketplaces. To accomplish targeted outreach, you will need a data-driven marketing partner who can guide your foray into LMI areas.

Having access to decisioning information will help you formulate a plan to go deeper than just avoiding a penalty; it will start you down the road of becoming a trusted neighbor that these communities can turn to.

Key takeaways

Developing a strategy to reach LMI areas can be a daunting, but worthwhile task. Serving this market well requires utilizing data to understand the communities you operate in, what their needs are, and how to reach them.

Going all-in on this emerging market is not for every lending institution, and that’s not the point—in fact, if you do not consider your products and timing, the results could even be damaging. But having a game plan to do more than the bare minimum in neighborhoods and partnering as a financial friend will not only allow vulnerable neighborhoods to thrive, but it will also help institutions to avoid penalties, achieve higher CRA ratings, enhance and diversify portfolios—and most importantly, change lives.