Credit unions have always been known for a keen awareness of theunique needs of their members.

Credit unions can work with borrowers in more creative ways thanbanks. Some offer rescue loans for members in need of emergencymoney. Others may offer shared appreciation loan modifications,allowing a troubled member to share any increase in the home'sappreciation with the credit union.

But over the past 20 years we’ve watched from a front-row seatas field service representatives witnessing an evolution amongcredit unions. For one thing, they are now more inclusive thanever, having expanded from targeted segment groups to communitycharters.

Today’s credit unions are positioned to provide resources topeople who are underserved by traditional financial institutions,especially in recent years as those institutions have sought torecover from historically bad lending decisions.

At the same time, many credit unions are acting more bank-likeand becoming financial aggregators. In addition to making more autoloans to their own members, many are buying paper from theChrysler, Ford and GMAC captives. That means they’re dealing withborrowers far away from their historical local community membershipbase.

While all of this new business is certainly welcome, it meansthat credit unions must rethink their traditional loan servicingand collections philosophy. Indeed, it is an unpleasant truth thatmany credit unions have hit some strong headwinds in the collectionarea recently, often due to lack of experience.

Credit unions have had to become more efficient at handlingdiverse loans, including B- and C-quality. You can’t collect onthose the way you do on A-borrowers, long the staple of the creditunion world.

There is thus a growing need for more personal, face-to-faceborrower contact. Such a strategy not only improves collectionsperformance but also helps distressed members avoid repossession orforeclosure or get help with a home modification.

This type of intervention is not inconsistent with thetraditional credit union philosophy of being member-oriented, asopposed to customer-driven. First and foremost, you are lettingmembers know you want to help them protect their credit and to keeptheir homes and property.

Yet, a third of all credit unions nationwide still rely ontelephone calls and letters–or costly repossessions andforeclosures–instead of speedier, in-person methods. Thoseconventional methods just don’t work anymore when you’re dealingwith a far-flung membership base, many of whom are sophisticated inthe ways to avoid creditors.

“As people move around the country, it is more difficult to havea personal presence with them,” said Frank DeAngelis, vicepresident and collections manager at Metro CU, Chelsea, Mass. “Wereally need a way to communicate with borrowers in a professionaland concerned way, and personal presence makes adifference.”

The bonus value, according to DeAngelis, is that in-personborrower contact “gives us a sense of the condition of the propertyas well.” Avoiding automobile repossession can save as much as $500a car, he adds.

It also benefits the credit union in terms of reduced loanlosses. Sandra Kaye Robertson, vice president, consumercollections, at Smart Financial Credit Union in Houston, said herorganization’s delinquency costs dropped 75% compared to five yearsago, before it began contacting borrowers in person.

It is this kind of personal service that credit unions havealways provided to their members, setting them above and apart fromother financial institutions. 

Jerry Rahon is COO at National Creditors Connection Inc.
Contact 800-300-0743 x7546 [email protected]