The lingering slowdown that is afflicting the U.S. economy is forcing credit unions to pay more attention to collections, a part of their business that is often forgotten or ignored, according to a new report prepared by the CUNA Lending Council.
“Collections has always been on the back burner,” noted Jessica Anderson, collections manager at the $400 million 121 Financial Credit Union, Jacksonville, Fla. “We know they’re making a difference, but we’ve never seen the true impact of collections’ successes or losses until we’ve reached these economic times.”
The continuing slow economy has meant that the profile of credit union members drawn into the collections process has changed as well, according to the paper. As the economy has continued to limp along, increasing numbers of members in collections have been coming from formerly affluent households and likely still have relatively high credit scores. These households have drawn on their assets to meet financial demands so far, but they have often remained unemployed or underemployed, and the households have entered the collections process, the paper explained.
“Collections in a Post-Recession Environment” is based on information gathered from lending and collections leaders at six credit unions as well as two experts from companies that provide outsourced collections services for financial institutions, the council said.
The white paper also explores how credit unions can update procedures, use technology, engage members early in the collections process, design loan modifications and take other steps to refine collections.
The report also looked at the dual role collections has to play for credit unions, one of helping members live within the reality of reduced financial circumstances and still retaining the member relationship.
For many CUs, the council reported, the full impacts of the recession and slow-growth economy caught them off guard. The leadership of Ent Federal Credit Union, a $3.1 billion CU headquartered in Colorado Springs, Colo., began to understand its looming challenge when a retired Air Force colonel with a high credit score stopped by to drop off the keys to his house. He explained that he had been trying to sell the home for 18 months, but its location, 30 miles into the countryside, scared off potential buyers.
“We knew we were getting back more vehicles on repossessions. but we never thought about the impact of gas prices on real estate values and sales,” the council quoted Bill Vogeney, chief lending officer at Ent as saying. “We thought, ‘Gosh, we might see a bigger impact than we anticipated.’ ”
Peggy Dombrowski, collections manager at the $1.3 billion Genisys Credit Union, headquartered in Auburn Hills, Mich., told the council that her credit union had anticipated an increase in bankruptcies but had not been prepared for the numbers of members who filed for bankruptcy after having little or no delinquency history.
“Although it was inevitable that bankruptcies would increase, an unforeseen issue was the number of members that have filed for bankruptcy that never had delinquency issues,” Dombrowski told the council. “Many of these members have been living off of savings, retirement funds or other investments, while being unemployed. Now these funds have been exhausted, they are still unemployed or under employed.”
The council reported that from 2008 to 2009, Genisys saw a rise of 515 bankruptcy filings for a $7.7 million increase and an overall delinquency increase of nearly one percentage point, with the highest increase experienced in the mortgage and participation portfolios.
Helping members wrestling with these changes has meant both focusing on helping them address difficult questions to protect the CU and preserve their relationship with the credit union as well, the report explained.
Preserving the relationship means often looking at the tone of member collection communications from the very first letter or phone script through the entire process, with the emphasis on helping the member move past a time of financial challenge. Some CUs have even changed the names of their collection departments, renaming them things like member recovery departments to emphasize that the CU wants to help the member as a way of helping itself.
Techniques to refine and improve collections efforts include reaching out to members during the first signs of trouble in their accounts, as early as five days into delinquency, in order to preserve the greatest flexibility in resolving the situation. Other credit unions have replaced the 30-day delinquency letter with a personalized note from a staff member assigned to the account and then keeping those accounts with the same staff member as long as the member keeps up the payment schedule, the council said.