Repossessions, the Credit Union Way
When it comes to repossessing items, such as a vehicle, credit unions strive to balance the service to members that they pride themselves on with the financial impact the delinquent loan has on the overall health of the credit union.
Dave Cottone, vice president of lending at Ohio HealthCare Federal Credit Union in Dublin, Ohio, said that they try to avoid repossessing a vehicle at all costs.
The credit union has a credit committee made up of Cottone, the chief financial officer and the CEO. Cottone said they will also bring in the collector or collectors to the committee. The committee meets on a weekly basis to evaluate loans at risk to determine how to collect on them and what the next step will be.
"We're aggressive in engaging members, so when it gets to the point of repossession, it's more difficult to work with members because we've exhausted all possible solutions," Cottone said.
Partners Credit Union in Orlando, Fla. has a similar team set up to evaluate loans that are at risk. In early 2008, Marketing Communications Manager Billy Stanek said the credit union created a loan-loss mitigation team to begin contact with members before their loan reaches a significant state in delinquency.
"For auto loans, we don't just look at the loan itself, but all monthly expenses affecting the member's ability to make their payment. Simply walking through a member's monthly budget with them and finding out where money is being spent helps tremendously. In most cases, if they have made at least 12 months of payments on their auto loan, we can lower their monthly payment by restructuring it."
One thing Ohio HealthCare has done to prevent repossessions is eliminate a time frame. Many financial institutions send a notice that they will repossess a vehicle in a certain time, such as 45 days. Ohio HealthCare eliminated this process to be more flexible in working with members.
Another thing Cottone said the credit union does is work with members to have them sell the car before the credit union has to repossess it. The sale of the car is managed by the member, but Cottone said they help provide them with NADA black book value information. They will even allow the member to pay less than what is owed on the car, release the title and then convert what is left over to a personal loan at the same rate as the car loan.
Cottone said depending on the circumstances, they will also waive late fees or go interest-free.
"The bulk payment will help to bring the loan current and in this area we see 400-800 cars up to auction each week. If we're lucky we'll get 50% of book value on the car. If the member sells it on their own, they could get 70-80% of book value so we come out ahead."
The credit union's health care employee field of membership is fairing pretty well in this economy, Cottone said, but he has had members call that don't know what to do and want to walk away from the vehicle.
At that point, Cottone tells the members they have a 15- to 30-day period before they will hear from the credit union again and suggests they try to sell the car in that time.
"I just ask them that prior to making a deal they call me and tell me what their negotiation range is and as long as it's not completely out of the ball park, we'll work with it. Even if we have to charge off some of it it's better than having to take it to auction."
Even if it is determined that the credit union needs to repossess the car, they still give the member one last shot to get current on the loan and provide a couple of payments in reserve. Usually, Cottone said, the threat of repossession is enough to scare the member into knowing they are serious.
"A lot of members like doing biweekly payments, we don't fight that as long as they keep up with it, we're happy."
Stanek said that at Partners they often find too that repossession is not the answer.
"Our goal is to support our members by suggesting creative resolutions for them. We can usually come to an agreement that fits within their monthly affordability. If there is no other option, we handle the situation with the member's best interest in mind. Additionally, we offer loan protection services for life events that could prohibit them from making their payment on time, giving them options in a worst-case scenario."
Partners also developed a section on their Web site, www.PartnersFCU.org, called the "economic recovery resource center" that gives members options and resources from auto loans to mortgages and investment review to help solve their financial issues.
For Westerra Credit Union in Denver, Colo., Chief Lending Officer John McCloy said that when it becomes evident that repossession is the only option left, they move fast and keep turn-around times between repossession and auction very fast.
The credit union has a CUSO, Westerra Services, that it uses to manage repossessions. The credit union will also do voluntary repossessions if a member truly can't afford to keep the vehicle.
"Once we realize repossession is a factor we move quickly. We find that speed is the most cost effective solution, and the sooner we get the car to auction the better," said Lee Damiano, vice president of default management at Westerra.
Damiano said that they also find that they don't recoup the cost for a certification program on vehicles that go to auction, so they keep repairs on the vehicle to a minimum.
But before it gets to the repossession point, Damiano said they make contact with the member and discuss whether the issue is a short-term matter, like a divorce, or something long term. If it's short term, she said they will often defer the loan for one or two months, and if it's long-term they discuss options and possibly rewrite the loan if the situation calls for it.
She also said the credit union works with members in a way that is more like financial counseling. "We get them to see that if their income is only X amount, then their outcome can only be X amount."
According to Cottone, managing collectors to make sure they are in line with the credit union's process and attitude is another important aspect of preventing repossessions. At Ohio HealthCare he said that the credit committee works as a checks and balance system.
"It's sort of micromanaging, but in this market I think collections has to be micromanaged."
The credit union also has an extensive electronic memo system to track accounts and see which members have promised payments but never paid and see what members are trying to make payments. "If a collector is not doing the right thing, we can tell because the member won't respond."
Other signs a collector isn't acting in the best interest of the member and the credit union are if they are seeing a lot of accounts going from 30 to 60 days delinquent, if they are seeing the same people in collections and, Cottone said, they read through e-mail interactions between the collector and the member.
Cottone performs these checks on a biweekly basis.
Damiano said that at Westerra they train their collectors on an annual basis. The collectors are trained to make contact with members every three to five days and to check credit bureau reports to see if they're in trouble in other areas as well.
"We teach them that you've got to pull it out of people and make it comfortable for them and show that you want to help them. We find that if you're factual and use a firm voice, then people are receptive to honesty about their situation."
For 2009, Cottone predicted that collections is going to be an area of difficulty nationwide.
"In this economy, collateral is irrelevant-equity in home or a car doesn't matter. Character is everything; it's going to dictate where we go in terms of collections."
The attitude of members toward collections is an area where Cottone said he is already seeing a change that is going to be difficult for financial institutions to manage.
"We have members come in with the attitude that it's not their fault and for some it's not. But others come in with built-in excuses."
McCloy said that at Westerra he is seeing an attitude of entitlement. He said people have taken the attitude that they can't afford it because of the economy at the moment. They think that they don't have to pay because they see in the media that there are programs out there that make it so they don't have to pay because of the economy.
"We see people that say 'I can't pay, but I understand I don't have to make a payment because I read in the newspaper that there are programs out there that make it so I don't have to.'"
The change in attitude makes the importance of building a relationship even more crucial, Cottone said. That's why the credit union looked to hire collections officers that don't just have experience, but also have the ability to build relationships with members.