Cars and houses may be the most common products consumers uses loans to purchase, but they're not the only ones-and more credit unions are now offering "outside the box" lending offerings to meet those uncommon needs.
One example is Redwood CU in Sonoma, Calif., which began offering loans for solar-energy products a little more than two years ago. According to EVP and Chief Lending Officer Ron Felder, the loans were instituted based on member demand.
"Where we're located in Northern California, we're very environmentally conscious; our members tend to think green, so there were requests from them for this kind of product, as well as from solar providers as to if Redwood had a loan program, because they heard that from the folks they were installing systems with," Felder told CU Journal.
In the past few years Redwood has written nearly 150 solar loans for members, totaling more than $3 million. Average loan sizes are about $22,500, and the credit union underwrites the unsecured loans using risk-based pricing ranging from 6.99% to 9.49% for terms of five to 20 years, according to Felder.
Though some members finance the loans using their home equity, Felder said that the loans are unsecured to allow members with less equity in their homes to take advantage of the product.
"It's unsecured, but that doesn't mean there's no documentation," he said, noting that Redwood requires proof of installation, a copy of the installer's business license, copies of purchase contracts and more. "It's a little more intensive than a regular unsecured consumer loan, but far less intensive than going through the home equity-type process. The product structure balances convenience for the member but also gives the credit union the appropriate due diligence in making sure that we have appropriately partnered with a provider that is a legitimate installer."
While residents in the Sonoma region are generally an environmentally conscious bunch, Felder said that—at least for now—RCU doesn't get much competition from other lenders for this sort of product.
"Most of the competition we would see would be from the actual solar providers, if there are any that provide their own financing," he said. "There is some of that, as well as providers that offer lease terms, but in terms of a standalone product the way we've structured it, we don't see a lot of competition from other lenders in our market."
That's great news for Redwood, since demand is on the rise due to growing acceptance of solar power and increasing interest in alternative energy solutions. Felder said that there are no concerns about hitting a ceiling yet with lending, especially since solar loans are becoming less and less of a niche product. And that's could benefit other credit unions looking to expand their loan portfolios.
"If you look at consumer demand for solar on the broader basis, I think there is a lot of opportunity for credit unions to at least explore that to see if it makes sense for them," he said. "It may have started out as a niche product, but over time that's going to change somewhat and could be something more broadly available in the marketplace."
'MASS' SAVINGS
Similarly, Hanscom FCU in Massachusetts offers members interest-free loans for home improvements that boost energy efficiency.
The loans are offered through what SVP of Lending Tom Becker called "a quasi-government agency called Mass Saves," and members can borrow money to add insulation to their homes, replace windows, upgrade furnaces or convert from oil to natural gas. Just because they're 0% loans, however, doesn't mean the credit union doesn't make any money on them.
"You wonder why we're doing it and how we make money—the utilities sponsor the program and they reimburse us at a minimum of 5%," he explained. "So if it's a 60-month term, what they do is calculate the interest on the loan over a 60-month term" and pay the credit union up front.
Becker said HFCU has been involved with the program for about seven years, and one thing that has helped it grow is that the institution is among the few lenders in Massachusetts that loans statewide. Combine that with some rigorous marketing, and the loans have grown significantly over the last four years.
For example, he said, in July the credit union did about 100 Mass Saves loans for a total of $1.2 million.
"And that's probably on the low side," Becker was quick to add. "Back in October of last year we did $3.1 million (277 loans), and in September last year we did 197 loans for a total of $2.5 million. It varies based on not only the marketing, but as we get closer to the winter months, people start to say 'Jeez, I've got to get these windows replaced; I've got to get more insulation in or get this furnace replaced.' They do a little bit more in these upcoming months."
And after the harsh winter Massachusetts faced last year, it's a good bet that things will continue to grow.
According to Becker, not only has the credit union seen a fair number of new memberships as a result of its participation in Mass Saves, but "when they're doing these energy-efficiency loans, most of the time it involves some sort of home improvement," which helps cross-sell those members the occasional home equity line of credit.
BABY ON BOARD?
Even less conventional than solar panels or energy-efficiency loans are adoption loans, a product offered by only a handful of credit unions nationwide.
At Entrust Financial CU in Richmond, Va., members can apply for either an adoption loan or line of credit, depending upon creditworthiness. Both the loan and the LOC can go up to $30,000, though the terms vary depending on which product the member takes.
According to Greta Kidd, VP of marketing and outreach, the loan was only branded as an adoption loan about 18 months ago after Entrust converted from a SEG-based charter for faith-based communities and organizations to a community charter. So far, however, neither product has seen a tremendous amount of interest from members, but Entrust is working to find new ways to promote it, including forging relationships with social service agencies in the community.
One such agency, Bethany Christian Services, has allowed the CU to make presentations and meet with community members considering adoptions, but Kidd says there is still a ways to go to deepen that partnership and establish others.
Glendora, Calif.-based America's Christian Credit Union is one of the other few CUs offering dedicated adoption loans. ACCU representatives did not respond to interview requests from CU Journal.
PLASTIC SURGERY AND PIANOS
While some CUs offer one or two "outside the box" loans, West Jordan, Utah-based Mountain America CU offers a host of them through CU Direct's OnSpot platform, including loans for cosmetic and medical procedures, pianos, water conditioning systems, funerals and burial plots, and more.
According to Pat Simmons, lifestyle lending manager at the $4.6 billion-asset credit union, MACU started out primarily focusing on medical lending, offering loans for dental, bariatric and plastic surgeries primarily, before moving into the retail side of it. Whether retail or medical, though, he says he's noticed seasonal patterns.
Most of the cosmetic surgeries, he explained, tend to be done in winter and spring so that patients are ready for summer time. On the other hand, peak season for piano loans is April through August.
"It's just conjecture on my part, but I think kids are going back to school and parents are buying these instruments for them to practice on so they have some augmentation to the training they're getting in school," he explained. The pattern "is a visible thing; you can see it's right there."
Because these loans are indirect, MACU reaches out four times during the first 90 days after funding the loan to connect with the new member and familiarize them with the credit union. Those contact points have helped turn consumers who were only MACU "customers" into members.
No matter the kind of product being lent on, Simmons stands by lifestyle lending as a necessary service that can benefit both the member and the credit union.
"If we're not taking care of our members, somebody else is—and they're doing it typically at a higher cost than is necessary," he said. "Even if it's a loan, it's also a service for them, because it eliminates the need for them to go out and pay an exorbitant interest rate."
GET CREATIVE
Keith Troup, EVP/COO at Y12 FCU in Oak Ridge, Tenn., emphasized the importance that indirect lending relationships can play in growing "outside the box" lending programs.
"A simple unsecured loan can be used for so many purposes, but it means getting out where members make purchases and being willing to finance members' larger purchases even though they may be a little unique," he said.
Troup has only been with Y12 for a little over a year, and before that was chief lending officer at Washington State Employees CU, where he says he learned the importance of those relationships through lending to members for "outdoor living" products such as RVs, camping gear and other equipment.
While his current CU isn't yet doing much in the way of unconventional loans-loan growth is strong enough right now that the credit union doesn't currently need to move too far beyond its comfort zone, he said—Troup plans to begin moving into more unorthodox territory in the near future.
"I think the overall key to growing loans is you have to be where people are when they make purchases," said Troup, adding that the industry as a whole needs "to be more open to being more flexible with our terms, more creative in how we partner with people, and go back to the point-of-sale where people make purchases."
