The flexibility and member-oriented focus of credit unions allowed them to pass stalwartly through the sea of delinquency woes that foundered other financial institutions in 2009. Even with a four basis point rise in the net charge-off rate from the third quarter to the fourth quarter of 2009, credit unions have maintained an annual charge-off rate less than half that of their FDIC competitors.
Yet, it’s no secret as the delinquency rate grows, so do the complaints against collection efforts. Factor in the number of members who are experiencing money problems for the first time and public frustration with collection efforts can diminish the good publicity credit unions have achieved.
When loans do not work out as planned, the collection process itself can be a way credit unions exemplify their standard of member service, says Casey Perkins, collections manager for Ent Federal Credit Union ($3 B, Colorado Springs, Colorado).
During a January 2010 collections webinar, Perkins outlined a program Ent initiated to better serve its members. Ent offers its members preemptive, custom tailored options – including short-term deferments and carrying loans past due as long as a member can make a monthly payment. At the time of the webinar, Ent had modified 67 mortgages with a 60-day performing ratio of more than 93%. Of its 700 consumer loan workouts in 2009, more than 95% are performing, Perkins says.
Although Ent is now posting phenomenal numbers, it took a wake-up call and hard work to reach that plateau. The day a member with an 800 FICO score who was a few days past due on a loan “dropped off his keys” and walked away was a catalyst for change at Ent, Perkins says. The credit union decided to take a proactive stance in the collection process, focusing on reaching problem loan holders with assistance and options before it was too late.
To help solidify its change in attitude, Ent’s collection team donned the new title “Member Solutions Group.” In addition to newsletter and online campaigns to reach struggling members, a dedicated line helps track calls from members who are worried about or have begun falling behind. In 2009, the team received an average of 200 inbound calls per month.
To make sure its staff is distinct, Ent hires mainly from within, ensuring collectors have experience providing quality member service. This also eliminates the probability of collectors from other agencies bringing in bad habits such as over-aggressiveness.
Ent also uses a custom home equity portfolio analysis to track factors such as substantial drops in credit scores or growing loan-to-value ratios. These indicators allow Ent to reach out and offer assistance to 10 potential problem loan holders, each less than 30 days past due.
Extensive training efforts teach collectors to examine factors such as loan length, payment history, and income, much like in a loan application process. This allows them to truly understand the member’s potential strengths and shortcomings, rather than just “demanding money,” Perkins says.
Credit unions don’t have to earn back the public’s trust, but they do need to hang on to it. The willingness of the industry to stand by delinquent members and modify $5 billion in mortgages has spared credit unions much of the collections backlash. Now Ent has successfully demonstrated with the proper approach, collections efforts can remind members in even the worst of situations why working with credit unions is a choice well worth making.