One of the first things many credit unions may need to do when collecting on delinquent credit card accounts might be to resolve to simply start doing it.
“You would be surprised how many credit unions really don't apply concerted efforts to collecting on cards,” said Karin Brown, vice president for collections at the Lending Solutions Consulting Inc., an Elgin, Ill.-based firm that specializes in helping credit unions streamline their loan programs.
Not putting a lot of resources into credit card collecting can seem logical, Brown added. When compared to banks, credit unions tend to use significantly more conservative underwriting on their credit cards and have lower delinquency and chargeoff rates, according to Brown. Credit card balances are also usually far lower than balances on car loans and mortgages. If a credit union believes it has limited staff for collections, it may make sense to put more resources toward the loans with the higher potential losses, she offered.
“Collections are the place where credit unions meet their members at their times of greatest need,” Brown said. “The old attitude about collections used to be entirely adversarial. The 'you owe us money, now give it to us' approach. But what we have figured out is that successful collections are a much more cooperative process that focuses on the relationship with the member.”
The reason for the shift is that a relationship-based approach is more likely to succeed in helping members bring their accounts current while the relationship is preserved, Brown said. Credit unions should look to their members for hints of when they might be sliding into trouble and then plan to get involved quickly.
“Contacting a member early about a late payment dramatically increases the chance of a credit union getting paid,” Brown said. “Doing that in a way that is sensitive to the member’s situation and seeks to help the member out of their dilemma can mean they become a champion credit union member."
Member stress can be seen through more frequent use of card cash advances, changes in credit scores, an increase in credit balances and a shift in payment patterns. Members who used to always pay their credit card bill ahead of schedule but have started making later payments are also red flags.
In these scenarios, an automated call will go out two or three days after the payment due date. Members will hear a payment reminder and resource for assistance.
Brown said 50% of American consumers have told researchers that they would not be able to come up with $2,000 in a short amount of time to meet a pressing need. She suggested credit unions be ready to work with members who might need to skip a payment to avoid falling behind on bills.
“Credit unions need to look for ways to help members make their payments more affordable and easier during the time when they are facing harder economic times,” Brown said.
Credit unions may also be competing with other parts of their members' lives for a shrinking pool of available money, Brown said. “Practicing relationship collections, getting to know the member and their struggles, helps make sure that when it comes time to make payments, the member is going to want to make sure the credit union gets paid.”
Brown also noted that the current low state of card delinquencies, both at credit unions and in the industry overall, means that many credit unions are experiencing a drop in members with card problems. For this reason, she has been urging credit unions to get their card collections programs up and running before the pace of delinquency picks up again, which she believes it will.
“We know that card delinquency tracks most closely with unemployment and we have a lot of Americans now who have been unemployed for a long time. I have to believe those long-term unemployment numbers are going to start showing up in the card delinquency statistics sooner or later. Credit unions need to be ready when that happens.”