If this is indeed the case, credit unions are doing their part to make amends by financing green initiatives such as hybrid vehicles, solar panels, and home improvements. As they do, they’re enhancing their brand, building relationships, and growing their loan portfolios.
Green lending is relatively new at credit unions, and data about it is limited. A recent survey of 144 credit unions by the Filene Research Institute, “Finding Sustainable Profits: Green Lending in Credit Unions,” found that 42% of respondents offered at least one of the green lending products the survey identified (“Green loan products,” p. 29).
The report also revealed that green loans:
► Are low-risk. Borrowers tend to have pristine credit, and most participating credit unions had no delinquencies.
► Require no special underwriting.
► Attract young borrowers. Most members who apply for green loans are 20 to 40 years old.
► Are unsecured.
► Have an average balance of $10,000 to $20,000.
The research also found that secured and unsecured green loans have almost identical loan performance. “Our anecdotal research indicated that unsecured green loans actually had a marginally better delinquency rate than secured green loans,” says W. Robert Hall, president of Hall Associates Consulting and author of the Filene study.
Build portfolios and relationships
At GEMC Federal Credit Union in Atlanta, green loans are a “stepping-off point for a bigger conversation about members’ financial needs,” says Denise Swan, president/CEO of the $89 million asset institution. “They create cross-selling opportunities with auto loans, credit cards, and more.”
► Green loans tend to be low-risk. Most borrowers have pristine credit records, and participating CUs report little delinquency.
► Educate staff, members, your partners, and the general public about your program’s elements and benefits.
► Board focus: In some cases, green loan programs require compliance with both government programs and CU regulations.
Members who apply for green loans tend to be homeowners who’ve lived in their houses for at least 10 years, she says.
For years, GEMC Federal had a modest green loan program, which provided a 50 basis point interest-rate reduction for hybrid car loans. But the invitation to partner with a local electrical membership cooperative (EMC) in February 2010 was the incentive the credit union needed to think bigger.
“The EMC developed a rebate program for certain energy-efficient equipment and asked us to be their funding partner,” Swan says. “We helped develop marketing tools and provided the financing.”
The program’s success drove a larger effort through Oglethorpe Power Corp.—one of the nation’s largest power supply cooperatives. “They received federal stimulus money that allowed them to buy down the loan interest rates on home improvements to 0% and asked us to be their partner,” Swan explains.
That program launched in July 2010 and ran through June 2012. It offered unsecured home improvement loans for up to $5,500 with a three-year term.
As a result, GEMC Federal booked $9.2 million in new loans and gained more than 1,700 members. To date, 26 EMCs have joined the program and Swan anticipates increased participation going forward.
Program administration is handled through the EMC, with loan payments included on the member’s utility bill. Most marketing is done through the utility, although GEMC Federal brainstorms on promotional elements and audits the loans to ensure compliance. The credit union has also co-hosted a number of events, such as home shows, with its program partners.
Some of the program’s most important marketing has been to area contractors, who have embraced the program, says Mark Nofi, GEMC Federal’s marketing director. “Some say this has kept them in business. They’re paid quickly, and cash flow is vital to these small businesses.”
Although the program expired in June, GEMC Federal plans to create a new program with an 84-month term, a $25,000 limit, and an 8.9% rate (with the option of a one percentage point discount for automatic payments or if the payment is included on the member’s utility bill).
The revised program will also relax some of the federal program’s most stringent energy efficiency requirements.
NEXT: Insulation: The new granite countertop