As member-oriented institutions, credit unionsare not necessarily ones to jump at the thought of placingcollections in the hands of someone else.

But according to a new white paper released byspecialist credit management and debt collection business Transcom,companies are trending toward third-party outsourcing, andinternational analyst firm Ovum predicts a 52% increase incollections outsourcing in the next five years.

Are their predictions reflective of thecollections operations of credit unions? CU collections managersand collections software provider Akcelerant say credit unions doinclude third-party outsourcing as part of their collectionsmanagement plans, but only after carefulconsideration.

Jay Mossman, CEO for Pennsylvania-basedAkcelerant, which serves approximately 400 credit unionsnationwide, said he’s noticed many credit unions using acombination of in-house and third-party staff to manage theircollections.

For example, some utilize third- party workersto get a hold of delinquent account holders after hours, whenthey’re typically easier to reach, he said.

“It’s not black and white – we see a mixture,”Mossman said of CU collections outsourcing. “They’re testing thewaters.”

The $2 billion Michigan State University FCUcompleted a trial run with a third party who contacted members toremind them of late payments, but found the level of service to belacking, said Sara Dolan, vice president of adjustments for theEast Lansing, Mich., institution.

“We found that our members frequently had otherquestions about their accounts that the third party could notanswer because they only had access to the delinquent accountinformation, and this didn’t meet the level of service that ourmembers expected,” Dolan said.

Cathryn Gorman Wolfkill, recovery manager forthe $7.8 billion Alliant CU in Chicago, said while her CU workswith a third-party collections agency, it does so in selectinstances. “We make sure it’s a last resort,” Wolfkill said. “We’revery selective about the information we put out to a thirdparty.”

For the $508 million, Beaverton, Ore.-basedRivermark Community CU, collections outsourcing isn’t currentlycost effective, Collections Manager Tom Winckler said. Instead, CUcollections employees are trained to focus on an area of specialty,such as bankruptcies, repossessions or garnishment.

Aside from making third-party outsourcingdecisions, credit unions face new collections challenges as theymonitor the evolution of their post-recession loan portfolios.Winckler said Rivermark’s total delinquent loan dollar amount isthree times higher than it was in 2007, but the increase is due toa rise in delinquent first and second mortgages, hesaid.

“It’s a different portfolio,” Winckler said. “Ialmost feel like I’m more of a property manager.”

Winckler added that high unemployment rates haverequired his CU to tackle delinquencies sooner than it has in thepast in order to more efficiently find solutions for strugglingmembers.

Rivermark typically calls members 15 days aftera payment is due, follows up every other day and considers avariety of non-payment resolution options depending on individualcircumstances, he said.

Michigan State University FCUalso saw a delinquent loan increase as the economy faltered – Dolansaid its delinquent loan to total loan ratio jumped from 0.84% in2007 to 1.46% in 2008 and 1.74% in 2010; it’s since fallen to1.52%. The CU generally handles collections by mailing a writtennotice at seven days past due and making a phone call and/orsending an e-mail at 15 days past due, Dolansaid.

Arranging for a recurring payment, such as anautomatic transfer or ACH, is the preferred non-payment resolutionmethod for Michigan State University FCU, Dolan said. And inspecial circumstances, the CU will offer options such as statemortgage payment assistance programs, loan extensions, creditcounseling and debt consolidation.

“If the member is having a financial hardshipsuch as a job loss, the adjuster assigned to the account willreview options to assist the member until they find newemployment,” Dolan said.

Wolfkill said Alliant CU’s initial contact andfollow-up schedule depends on the loan and member – grace periods,mailed payments and the member’s history are taken into account(for example, they’ll call members who “need a little extra nudge”earlier than others).

The CU utilizes software from Akcelerant, whichWolfkill said allows staff members to track every collections file,seamlessly connect to third-party collections products and getahead of schedule on their entire collectionsprocess.

Mossman said generally speaking, one of thebiggest collections challenges credit unions currently face ishandling “specialty processes” such as bankruptcies, foreclosures,repossessions, legal matters and fraud. “Right now, it’s not justabout handling the delinquent account,” he said.

Akcelerant also works with 125 banks nationwide,and Mossman notes that the collections challenges faced by creditunions and banks are “essentially the same,” adding, “consumers areconsumers, and some are not going to pay.”

Dolan, Wolfkill and Winckler all noted their CUsoffer complimentary programs to help those members in financialbinds. Michigan State University FCU connects members with theMichigan State Housing Development Authority’s Help for Hardest Hitprogram and credit counseling service Greenpath, Inc. In-housefinancial counseling is also provided to assist members withbudgeting, Dolan said.

Alliant CU offers a financial assistance programfor every product it sells, which Wolfkill said helps membersfigure out their financial situations and helps the CU see members’situations clearly. And Rivermark Community CU begins givingstruggling members financial counseling early in order to findtailored solutions to their dilemmas, Wincklersaid.

“We’re here for the member to do what we can,”Winckler said. “We don’t consider ourselves ‘collectors’ as much aswe do ‘problem solvers.’”

The Top 8 Elements ofa Successful CU Collections Program

Focus on finding a solution forthe delinquency, not just on collecting today’spayment. Dolan stressed that each member’ssituation should be handled differently – one may need long-termassistance, while another may just need a reminder. “The key tosuccessful collections is developing a relationship with members sothey will share information early in the collections process andwork with you for a solution,” she said.

Communicate with other CUdepartments. Wolfkill said good communicationthroughout the entire credit union is key to fully comprehendingmembers’ financial situations. “Maybe there’s something going onupstairs that can help us understand what’s happening down here,”she noted.

Be flexible andlisten. Good listening skills are crucialwhen you’re dealing with members facing financial hardships,Wolfkill said.

Implement an effective follow-upprogram. Winckler said a follow-up systemthat’s firm and diligent lets members know you’re serious aboutcollecting their money. “You have to be empathetic and show thatyou care, but follow-up is the most important thing,” hesaid.

Train a highly skilledstaff. Both Mossman and Winckler noted theimportance of having good collections employees who are fullytrained on how to handle members (Winckler said that his stafffollows a mantra of “smile and dial”).

Establish and track keyperformance indicators. In order for yourcollections program to perform at its best, you must identify signsthat tell you when collectors are doing a good job, Mossmansaid.

Utilize collector incentiveprograms. Mossman also emphasized theimportance of rewarding collectors for their successes in theworkplace. “That really keeps collectors focused and helps motivatethem,” he said.

Share andcollaborate. Both Wolfkill and Mossmanmentioned the value of joining user groups with other credit unionsthrough which you can share ideas and develop best practices on howto increase recovery.