OneUnited Bank, the controversial Boston-based lender, is trying to make a comeback from its financial problems with a new credit card aimed at consumers who are trying to repair bad credit.
The card could help OneUnited, one of the largest black-owned banks in the country, overcome criticism from federal regulators that it does not lend enough money to low- and moderate-income borrowers, despite having branches in underserved neighborhoods.
The credit card, billed as the "comeback card" will initially be marketed in the bank's three primary locations, Boston, Los Angeles, and Miami, said Teri Williams, the bank's president.
It is he first major product launched by OneUnited since the 2008 financial crisis, when the bank lost $50 million because of investments in Fannie Mae and Freddie Mac, the giant mortgage financing companies taken over by the federal government. Since then, OneUnited has faced other losses, including some $5 million in real estate loans to historic Charles Street African Methodist Episcopal Church in Roxbury.
The church case is in Bankruptcy Court after One United threatened to foreclose, raising the ire of community groups.
Meanwhile, One United remains one of the few banks yet to repay US taxpayers for bailout funds received under the Troubled Asset Relief Program, or TARP.
Williams declined to comment on the bank's plan for paying back its $12 million bailout, saying only that OneUnited is in discussions with the Department of the Treasury.
But, Williams said, the bank's struggles can help it understand the challenges of customers for whom the new card is designed: those with spotty credit records.
"These are people who have hit a bump in the road," Williams said. "We can relate, whether personally or as an institution, when you hit a bump in the road. The message that we would like to send is that you can come back from that."
OneUnited's new product is a secured card, meaning that a customer must give the bank a security deposit before using the card. The size of the deposit is tied to the credit line. For example, a consumer would have provide a $500 deposit to charge up to $500.
The interest rates and fees are also are also steeper than with standard cards. But as customers establish a history of making on-time payments, they can rebuild their credit, allowing them to qualify for traditional cards and other loans.
Initially, the bank plans to spend $500,000 on advertising aimed at African-American and Hispanic consumers, Williams said. OneUnited hopes the card, along with the bank's accompanying financial education program, will gain a wider audience as credit ratings become more crucial for everything from lending rates to finding jobs.
"People have been hurt by this recession," said Williams, who has written a children's book about finances. "A lot of people who had good jobs lost their jobs. A lot of people who had good credit don't have good credit."
Like all banks, OneUnited is trying to find new sources of revenue, and the new credit card is one option, said Thomas O'Connor, with G.T. Reilly & Co., a Milton financial advisory firm that works with 35 community banks and credit unions in Massachusetts.
Banks can make money from credit cards by charging fees and higher interest rates than for many other loans, O'Connor said. But they are also risky, especially for small banks with smaller capital cushions, since customers may not pay their bills.
In addition, small banks must contend with the big financial services firms that dominate the industry. "The competition is tremendous," O'Connor said.
While OneUnited's loan portfolio has grown slightly to $338 million, it is down nearly a quarter since 2007. Its credit card loan portfolio has slumped even further, down 30 percent to $385,000, according to the bank's latest quarterly financial filing.
The bank reported $688,000 in profit, a 70 percent drop from the same period in 2007.
Williams and her husband, Kevin Cohee, the bank's chief executive, have experience in the credit card industry, including operating a company that marketed credit cards to military personnel. Williams said that expertise gives OneUnited an edge over other small banks.
The secured card also offers the bank an opportunity to recover from the "needs to improve" rating that regulators gave the bank for the 2007 to 2010 lending periodunder the Community Reinvestment Act, which encourages banks to lend to poorer customers in the communities they serve.
But it all depends on how OneUnited markets the card and whether it fulfills its promise to help consumers rebuild their credit, said Kenneth Thomas, a Community Reinvestment Act consultant in Miami who is a frequent critic of the bank.
"This looks good on paper, this looks good on the website," Thomas said. "The question is how will they implement it?"