The ancestors came calling for Daniel Johnson, CEO-designate for Arise Community Credit Union — nearing six years in formation but inching toward its goal of becoming Minnesota’s first Black-led credit union. It would also become the state’s first new credit union of any kind in more than a decade.

Johnson was 11 or 12 when he first moved from East St. Louis, his birthplace and home to one grandfather, to the Northside of Minneapolis — home to his other grandfather. He took after both of them as entrepreneurs, starting young.

“I cut grass, I shoveled walks, I had so many hustles to make money, and people actually had the resources to pay,” Johnson says. “I thought this was the land of milk and honey. Of course it had its challenges…any side of town, when larger resources are geared away from it, then things do kind of fall apart.”

The more Johnson grew, personally and professionally, the more it seemed his beloved Northside was falling into disinvestment. His first real job was at the McDonald’s that used to be at Penn and Plymouth Avenues. His next job was down the street at King’s Supermarket. After taking an apprenticeship at a funeral home, he even dreamed of becoming a mortician. Then came retail jobs at a prominent downtown department store, and eventually back on the Northside at a branch of one of the big four banks.

“I opened up half of North Minneapolis’ checking accounts and teenage accounts for the people who are adults now,” Johnson says. Eventually he’d move into selling insurance at an affiliate of the bank.

It was one of his former banking clients who came to Johnson in 2021 and suggested that he throw his hat into the ring for CEO at Arise Community Credit Union. Johnson wasn’t sure at first. He’d been moving up, doing well financially and professionally selling insurance. So he called his mother, a trailblazing Black woman who spent 30 years as an executive at AT&T. He asked if she was proud of him, which she was; to that, he replied, okay, maybe he’d stick it out on his current path.

“There was crickets on the line,” Johnson says. “I’m like, Mom, are you still there? She said, ‘Well, you know, your grandfather sold ice and coal on the back of a horse driven buggy, and your other grandfather moved furniture for people in the hopes that one day that one of their descendants may go through the process and become a CEO of a financial institution. But no pressure.’”

Johnson sent in his resume as soon as he hung up the phone. After a year-long selection process, Arise Community Credit Union’s organizers named him as CEO-designate in October 2022 and submitted their application jointly to state and federal credit union regulators. With its final approval still pending, Arise Community Credit Union’s founding organizers are about halfway toward raising the $3 million in startup capital that regulators set as a target for Arise, based on the credit union’s initial three-year projections.

“This is what the community asked for after George Floyd’s killing, after Philando Castille’s killing and so many others [at the hands of police],” Johnson says. “The community said, ‘We don’t want another park. We don’t want another place just to throw flowers. We want something more tangible, something that we can have as an institution that will be around long after we’re gone.’”

Daniel Johnson sits at the head of the table for Arise Community Credit Union's first official board meeting; to his right sits Debra Hurston. (Photo courtesy Arise Community Credit Union)

A healthier lending ecosystem

Arise Community Credit Union’s formation has had its setbacks since the effort to launch it came together in the wake of Castille’s 2016 death. But right now, conditions for a new non-predatory lender in Minnesota are better than they have been in a very long time. New restrictions on payday lenders could potentially be clearing out much of Arise’s existing competition.

After years of advocacy, last month Minnesota Governor Tim Walz signed a bill establishing an interest rate cap on loans in the state. While advocates had been calling for a 36% rate cap, the final bill as signed into law sets an overall cap of 50% while requiring lenders to evaluate a borrower’s ability to repay for loans between 36-50%.

Currently 18 states plus the District of Columbia have established lending rate caps of 36% or below, according to the Center for Responsible Lending. The caps have proven their effectiveness. Nebraska voters passed a 2020 ballot measure to establish a 36% rate cap in their state, and since then payday lenders have disappeared across Nebraska, the Omaha World-Herald reported in May of this year. In Arkansas, where the last payday loan storefront in that state closed in 2009, retail borrowers since say they’re better off and have been finding their way to safer, non-predatory options — including new options like People Trust Community Federal Credit Union, a Black-led credit union chartered last year and that state’s first new credit union since 1996.

Arise’s existing predatory competitors have definitely established that there is a market need that a new credit union can help meet. In 2021, 39 licensed payday lending entities in Minnesota made 176,241 payday loans to 20,004 Minnesotans, according to the Minnesota Department of Commerce. The average borrower took out nine payday loans, at an average loan amount of $365, and was charged an average of 197% interest per loan. And there’s a growing pile of evidence that payday lenders tend to place their storefronts in Black neighborhoods like those on the Northside of Minneapolis. As those lenders retreat, Arise can be there to start picking up the pieces.

And it will be easier than five or 10 years ago to operate and scale up a small dollar loan program. Though it’s still a source of some sticker shock for lenders, the back-end technology for banks or credit unions to process and manage a small dollar consumer lending operation is becoming more reliable, efficient and accessible. As a result, credit unions nationwide issued $227 million in payday alternative loans in 2022, topping the previous record of $174 million (set in 2019), according to a Pew analysis of data submitted to the National Credit Union Administration.

On top of that, just over the past five years, six of the eight largest banks have launched small dollar loan products, driven in part by the availability of new technology to manage a high volume of small transactions — and also in part by the Consumer Financial Protection Bureau and other regulators pushing federally-insured, publicly-chartered institutions to do so.

An institution of their own

With big banks entering the small dollar loan space, it might seem like there’s no need for Arise Community Credit Union. But in surveys, town halls and even just informal conversations over the years, the Northside’s desire for its own institution has only gotten stronger, says Debra Hurston, executive director at the Association for Black Economic Power (ABEP), a nonprofit formed in 2016 specifically to launch a Black-led credit union based on the Northside.

“The mistrust in the banking community, it’s not a small thing, and it can’t be fixed overnight,” Hurston says. “We’re starting from the wrong spot…if I have to protest in front of you to make you treat me right. Something’s not right about that. So no one from our communities has ever asked me if we should just partner with a larger bank.”

Hurston joined ABEP in 2020, after the organization parted ways with its previous leadership due to what she characterizes today as “management missteps.” At one point, an idea did come up to partner with one of the more established credit unions in the Twin Cities to expand access to their products and services on the Northside.

“I took that concept to the community, and they said no, they did not want to partner,” Hurston says. “They appreciated the idea. They understood that that would be a much shorter path to getting this done. They did not want us to go that route.”

But chartering a new credit union today is like traversing a long lost trail through the woods, one that used to be well-traveled but is now overgrown or littered with fallen trees or other obstacles no one has had to navigate previously. Prior to 1970, there were 500 to 600 new credit unions chartered across the country every year. After a steep decline to near zero, the numbers have never recovered. Over the past ten years, fewer than 30 new credit unions have been chartered across the country.

ABEP’s route to chartering a new credit union has had both its frustrations as well as occasional breakthroughs. First came the loss of funding — a major early contribution from the City of Minneapolis had to be returned after the management transition led to deadlines being missed. Local foundations quietly stepped away and have yet to return to the table.

Given her background in association leadership, Hurston knew she could at least reach out to trade associations — in this case the Minnesota Credit Union Network, and the African American Credit Union Coalition. Through these groups, Hurston says, ABEP has been able to find pro-bono advisors to assist with everything from drafting the joint application for a state credit union charter and federal deposit insurance, to choosing a “core processor” — that’s the back end technology for the credit union to process deposits, withdrawals, transfers, loans and other transactions, and they’ve also helped with the CEO recruitment and selection process.

The Minnesota Credit Union Network even took an unprecedented step to launch a capital campaign for Arise Community Credit Union. The first of its kind the network has ever launched, the capital campaign so far has raised $1 million in donations from its members, covering part of Arise’s $3 million in required startup capital. On top of that, the Minnesota Credit Union Network’s campaign also raised $4 million in deposits pledged from existing credit unions, to be placed in new accounts at Arise after it opens for business.

“Credit unions have this philosophy of people helping people, and our industry’s history is about serving the underserved and marginalized communities,” says Andrea Molnau, executive director at the Minnesota Credit Union Foundation, the state credit union network’s philanthropic arm. “Because of that we felt that it was part of our responsibility as the trade association and the foundation to kind of step into this role.”

So far, nine Minnesota credit unions have made contributions for startup capital, and 20 have made deposit pledges. Those deposits from credit unions around the state will combine with $2 million and counting in deposit pledges for Arise coming from individuals or businesses in the Twin Cities. That will allow the credit union to start out with $6 million in assets, projecting to break even and have around $10 million in assets by its third year.

Molnau says the network is open to doing it again where there’s a need, which there very well might be in a state that recently established new restrictions on payday lenders. Minnesota’s racial wealth gap is the third worst in the nation, meaning other communities of color who might want to start their own credit unions in the coming years still don’t have equal access to the financial resources it takes to charter a new credit union in the 21st century. Nationwide, racial wealth gaps and the need for new credit unions to raise their own startup capital partly explain why out of 4,700 credit unions across the country, only 500 are self-designated minority credit unions, meaning a majority of their membership is made up of one or more racial or ethnic minority groups as reported to the National Credit Union Administration.

“One thing that we’re working on right now is coming up with a playbook because the chartering process is quite complex, and really trying to take the learnings that that we’ve had working with Arise and trying to come up with a resource that’s going to be helpful for additional groups going forward,” Molnau says.

Should other communities of color go ahead and start more credit unions — or banks — of their own? Especially after this year’s regional bank failures have many experts predicting only continued consolidation in the banking industry?

If a community wants it, if it can prove there is a market for such services that no one else is meeting, and if it can marshall the necessary financial, professional, technological and other resources necessary to pass regulators’ muster, then for now, any community has the right to try and answer the question for itself.

“I’ve been there in big box banking,” says Arise’s Johnson. “It’s more about what part that person can play in the empire of the bank, as opposed to partnering with a credit union where we can shake hands and start seeing things grow and develop on both sides. It’s important for people to be able to see that an institution has planted a flag that really represents them and isn’t driven by stockholders.”