Are your collections people isolated from the rest of the creditunion, as though they were on an island?

If so and if you want to identify and help troubled membersearly before their financial rough water becomes a whirlpool,David Reed said you need to make some changes.

Reed, an attorney and speaker at credit union conferences, seesa mixed bag of approaches at credit unions and a need to shift to amore proactive approach. Most credit unions, he said, are behindthe curve.

“In order to proactively identify troubled members, they need todo things a little bit differently,” he said. “Many times creditunion collection departments do a lot of dialing for dollars. Theyutilize the delinquency report, call people, remind them thatthey're delinquent, ask them to meet their obligation, record thatpromise to pay and go on to the next person.”

“That's not the most effective way to identify a troubledmember. My philosophy is this–the credit union needs to try tofocus as many resources as possible in identifying troubledmembers, rather than working with delinquent members.”

Who are these troubled members? Those with a change in jobstatus, either personally or affecting somebody in the household.It may involve not only job loss but also reductions in overtime ormandatory furloughs. There may be relationship troubles, such asdivorce or separation. Medical issues are another major source offinancial problems. There may simply be bad planning, such as thatexperienced by members who bought themselves out of a financialsqueeze by tapping home equity and now find that equity isgone.

“Pretty much everybody who was ever charged off in a creditunion made their last payment. We just didn't know it was theirlast payment,” Reed said.

“I advocate trying to get the message across to all members thatthe credit union is there in bad times as well as in good times. Icall it collections marketing. The philosophy of credit unioncollections should be identifying the member's problem and linkingthat to the proper credit union solution. That's going to give usthe best opportunity for success.”

Reed asks credit unions to picture what they are marketing tomembers. What is in your newsletter? What is on your website? Whatinformation is available in your branches? What is in yourstatement stuffers? Do any of those marketing pieces have anythingto do with the fact you are there to help the member in good timesand in bad times?

To identify troubled members, he continued,try to promote their self-identification. If the member begins torealize they face some difficulties, they may contact the paydaylender, the loan shark, the bankruptcy attorney–or the creditunion.

If the credit offers just a little bit of information, forexample a note in the newsletter indicating the credit unionrealizes some members may be facing tough times, they are morelikely to reach out to the credit union.

“Be proactive,” Reed urged. “Understand what's going on withyour field of membership and your SEGs.” 

Too often, he stated, collections is off on an island by itself.Anybody can help the member if they walk in and have an 800 FICOscore. Educate everybody in the credit union about the memberservice function in collections so the credit union can also assistthe member with a 550 score and lead them to the person who canhelp.

Credit unions can tap their database to not only identifymembers who are already delinquent but to spot trouble signs. Forexample, a member's automatic paycheck deposit may have been cutoff. Has the member lost his or her job? 

Tellers can help. A member making a deposit may mention, “I hopethis isn't my last paycheck. I hear they may be cutting back in mydepartment.” The teller can send a heads-up e-mail tocollections.

The proactive approach Reed promotes has been put into action atGenisys Credit Union in Michigan. Peggy Dombrowski, collectionsmanager, explained that about two years ago the credit union beganreviewing collection processes and strategies. Early last year thatreview led to what she calls a transformation.

“I don't see us as collections people,” Dombrowski said. “I seeus as credit union people reaching out to help other people.”

One result is the fact that a year ago delinquency was at 1.44%.This year it is 0.4%.

“The big thing is our collectors are very creative about talkingwith members and making payment arrangements,” Dombrowski said. “Atthe same time, they're keeping dollars out of our reportabledelinquencies.”

“We're looking at accounts earlier in the collection process. Atone time we were looking at three or four weeks' delinquency. Nowwe're looking at 13, 14, 15 days. We want to be first in line andreach out to members if they're having a problem. We're doing arisk analysis and pulling a credit report. How does that creditreport compare to the one we had when the member got the loan? Whathave they been doing with their credit?”

Genisys can help in several ways. One is a short-term debtrelief program for members facing a temporary setback. It reducespayments for 90 days. There are also more extensive programs suchas forbearances and loan modifications, plus free budgetcounseling. During the past year loan modifications totaling $1.8million have been arranged for 150 members.

“What we're seeing now in our area are members who, at the timethey lost their job, had savings, retirement, 401(k) investments,”Dombrowski explained. “They started living off all those dollars.Now those dollars are exhausted. They've reached the point wherethey've never been in collections and now they're turning aroundand filing bankruptcy.” 

In about half the bankruptcies affectingGenisys, the credit union never spoke to the member before.Although bankruptcies have definitely slowed down lately, theystill often come as a surprise. The biggest challenge is gettingmembers to open up and discuss what they're going through.

“My team has had extensive training. We call it conversationtraining. That includes focusing on the member, getting them toopen up, and actively listening and trying to understand what themember is saying. We're not dialing for dollars any more. We getinvolved with the member,” Dombrowski emphasized.

“We have a poster in our area. It states: 'It's not aboutgetting a payment. It's about finding a solution for themember.'”