Credit unions face many challenges on a day-to-day basis that prevent them from
reaching and exceeding their goals. It makes it especially difficult for a credit union to thrive when delinquency rates and charge-offs are running rampant. Everyone
knows the first step in winning the delinquency war is to implement and enforce
sound lending policies. But, what happens if you have implemented these policies
and still have a problem with delinquencies and loan losses? That's where a
good collections program comes into play. Many credit unions are doing a great
job of lending, but a very poor job of collecting when good loans go bad. Let's
examine some of the challenges and solutions credit unions face in establishing
an effective collections program.
Following is an excerpt from the July 2005 advice column by Brett Christensen
of Lending Solutions Consulting, Inc. that appeared on www.rexcuadvice.com:
Please remember that successful collections is not rocket science - it is really
very simple. You must do three things well to have an effective collections
effort at your credit union:
1. Early Contact. There are two reasons why your collecting
has to start as early as possible: First of all there are proven studies
that you will get more dollars from a member with sugar than spice and
by calling early your approach can be a whole lot more positive. The second
reason for early contact is that you are beating other collectors to the
limited funds that the member has for meeting their financial obligations.
Calling early is especially important as credit quality goes down (i.e.
on your D and E paper loans).
2. Frequent Contact. Frequency of contact is very important.
I am speaking of every two or three days until the delinquent account
is resolved. If your collector is waiting a week or two or three between
member contacts, your member will be happy to take advantage of your hospitality.
Frequent contact is vital because again, there are proven studies that
"squeaky wheels get the grease."
|3. Follow Up. Your collectors must follow up on the commitments
a member makes and then breaks. If you do not, you will lose credibility
with them and you will also lose more dollars come charge-off time. If your
collections department does these three steps well, your members will quickly
learn that your credit union takes collecting seriously. This is what you
want them to learn. In the credit unions that have a weak collections effort,
the members learn that they can take advantage of your generosity. You know,
it is a great deal to be able to drive a nice car around for four or six
months without having to make a payment on it! The role of a collector is
very simple. Most collectors think their job is to contact a member in order
to obtain a payment arrangement or collecting of a payment. No. No. No.
The role of a collector is to resolve the account and to never add to the
loss. What every collector needs to understand is that some loans were losses
the day they were made and no matter how hard the collector tries, it is
still going to be a loss.
In addition to keeping delinquency rates down, the other main collections-related
challenge for credit unions is staffing. Turn-over rates for collections departments
are notoriously high due to a number of factors including: low pay, job stress,
having to work nights and Saturdays, etc. Christensen says, "Collectors
should have individual performance goals and meaningful incentive pay. You would
be hard-pressed to identify any employee at the credit union that has such a
direct impact on the credit union's bottom line as a great collector."
Depending on their geographic location, some credit unions may not have access
to a talent-pool of experienced collection professionals. If that is the case,
Christensen recommends, "For those of you that are really struggling to
develop a competent collections effort, I would recommend to you that you seriously
consider outsourcing the work. Having a strong collections effort is too important
for you to put up with a mediocre effort and marginal results. If you are unable
to find the leadership and staff to do collections well then you should certainly
look to the outside for help."
The Ohio Educational Credit Union is one credit union that chose to outsource
their collections program and they have been excited about the results so far
according to Bruce Aiello, Credit Manager at OECU: "OECU partnered with
Lending Solutions, Inc. to assist in the collection of past-due accounts within
our expanding indirect auto-lending portfolio. OECU recognized that an aggressive
program of tracking and contacting delinquent accounts was an essential ingredient
to a successful program. We have been impressed with the results and professionalism
of LSI and look forward to working with them further."
Credit unions, large and small, can benefit from taking a closer look at their
collections program to examine areas that need improvement. With budget season
approaching, now is a great time to identify those weaknesses and formulate
a plan to finish 2005 on a high note and get off to a fast start in 2006.
Bill Hultstrand is manager of marketing & communications for Lending Solutions,
Inc. and can be reached at firstname.lastname@example.org
or (800) 937-4249.
Brett Christensen is a consultant for Lending Solutions Consulting, Inc.
and can be reached at email@example.com.
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