Exploring New Wrinkles in Lending

Mark Meyer, Filene Research Institute
February 25, 2005

As health-care costs continue to outpace inflation, more medical procedures deemed "not medically necessary" are being excluded from health benefits coverage. Cosmetic surgery is a good example. Baby boomers seeking to postpone the inevitable wrinkles, bulges, and sags are creating a demand for surgical image improvement that's likely to expand.

Skeptical? Just tune in reality TV show Extreme Makeovers.

The anticipated demand for cosmetic surgery and other elective medical procedures has caught the attention of the Lifestyle Lending work group of the Filene Research Institute's i3 initiative. The 26 members of i3, assembled in 2004 to tap the power of innovation within the credit union industry, have divided into smaller groups to explore ideas that will help CUs better serve their members and communities.

Pilot Program Has Some Success

Lifestyle lending is gaining credit union converts seeking innovation and growth in their loan portfolios. This type of lending, typically unsecured, has evolved to cover nontraditional loans that can enhance a member's lifestyle such as adoptions, cosmetic surgeries, infertility treatments, and uninsured medical expenses. Lifestyle loans are consistent with the origins and philosophy of credit unions: They meet the needs of members at different stages of their lives.

A pilot program has found some success at Toledo Area Community Credit Union ($182 million assets, 19,000 members), home of i3 member Barry Shaner. The credit union partners with physicians who perform gastric bypass surgery for morbid obesity with costs that can run as high as $25,000. "We're looking at a lot of patients down the road, not just with the cosmetic surgery, but other areas of uninsured surgery," says Shaner, the credit union's president. "In looking at demographics and other statistics, we felt this (surgery) was a growth area."

Cosmetic surgical procedures topped 1 million for the first time in 2003, increasing 15% from the previous year, the American Society of Plastic Surgeons reports. When including minimally invasive cosmetic procedures such as Botox injections, cellulite treatment, and laser hair removal, the 2003 total climbs to 2.88 million procedures, a 41% overall increase from 2002.

Tiered, Unsecured Loans

The credit union offers both secured and unsecured loans up to 60 months, working with the member to get the best rate, according to lending vice president Ron Patton. The tiered, unsecured loans comprise some of the first risk-based lending the credit union has done, Patton says, with rates topping off at 9.99%.

"The volume isn't great yet," says Shaner, but TACCU has helped a handful of members with cosmetic surgery costs.

Shaner indicates the credit union works with a physicians group that refers members for loans, akin to an indirect auto lending arrangement. The credit union hasn’t marketed the loans, but has not ruled it out.

"We've not seen spectacular results," Shaner notes, "but we’ve chosen a soft sort of release for the product, and we'll learn our way."

Mark Meyer is director of innovation at Filene Research Institute. This article first appeared in Added Dimensions, CUNA Mutual Group’s online publication at http://www.cunamutual.com/cmg/addedDimensions/home/0,1775,9057,00.html. Reprinted with permission.