Ask a staffer at a smaller credit union how costly it is to keepup with collection efforts and the employee, who might be jugglinga number of different duties, will likely sigh, overwhelmed at theexpenses and time involved. 

The $73 million FedFinancial Federal Credit Union in Rockville,Md., is hoping a new partnership will offer some relief through CUCollections, its CUSO that services consumer receivables for creditunions nationwide. The entity is a division of Innovative StrategicSolutions LLC, which is also owned by FedFinancial.

Effective Feb. 1, CU Collections has partnered with CollectionBureau Hudson Valley Inc., a Newburgh, N.Y.-based company that hasoffered collections on accounts for credit unions, banks, healthcare providers and other organizations for more than 35 years. Inaddition to its bank clients, CBHV said it provides post charge-offcollections services to credit unions. That offering complements CUCollections' early-stage, pre-charge-off services, said JonathanRhodes president/CEO of FedFinancial.

“Smaller credit unions just can't keep up with regulations. Theyusually have one person collecting, and they need to be good at somany things,” Rhodes said. “ISS was created to help them.”

The recent expansion of services builds on ISS' launch in2002's  mission of helping smaller credit unionscollaborate to deliver more services to members. Rhodes saidresearch gathered from the credit unions that used the CUSO when itfirst rolled out determined that outsourcing collection services produced better success ratios and bettercollection rates than in-house programs. 

CU Collections currently serves 20 credit unions nationwideranging in asset sizes from $10 million to $1 billion, according toKenneth deMello, former CEO of ISS and chief financial officer forFedFinancial. The CUSO's niche is found among credit unions withless than $200 million in assets, he added. 

“When the CUSO started, we were a $35 million credit union. Jonand I used to work at a credit union with $7 million in assets so Iunderstand their needs,” deMello said. “We really saw the strugglesof trying to keep up.”

Still, larger credit unions tend to have specialized collectionsin areas such as auto, indirect and home equity lending, deMellosaid. Some are willing to outsource these segments of theirportfolio to collections entities outside of their credit unions,which presents more partnership opportunities for the new CUalliance to capture, Rhodes noted.

The timing of the collaboration between CU Collections and CBHVwas partly motivated by an increase in the regulation in the areaof collections, deMello said. 

“It's a concern for us. It's not just a numbers game anymore.For some credit unions, it's not just 'are we keeping up to datewith regulations' but' could there be a future lawsuit if we we'renot collecting properly,'” deMello said. 

Of CBHV's nearly 450 to 500 active clients, the firm providesthird-party collection services for roughly 20 credit unions,according to Eric Najork, CHBV president. The family-owned firm wasfounded in 1974 by Ralph Najork, Eric's grandfather. His father,Fred Najork, is a past president of the collections firm and aformer president of the New York State CollectorsAssociation. 

“We are very impressed with the results that CU Collections hasachieved for its clients and are not planning for any major changeswithin its operation,” Najork said. “We will, however, use ourmarket knowledge developed over 35 years in the collectionindustry, to augment their already impressive offerings.”

According to “Collections in a Post-Recession Environment,” a2011 white paper from the CUNA LendingCouncil, a segment of members who had delinquent loans in thepost-recession environment were from formerly affluent householdsbut still had relatively high credit scores. These households wereable to use their assets to cope with financial demands as theyadjusted to being unemployed or underemployed but as their assetswere exhausted and members were unable to find jobs, somehouseholds fell behind on payments, loans entered collection andsome had to file for bankruptcy. 

The paper's findings, which were gathered from lending andcollection leaders at six credit unions, found that credit unionscan meet members where they are through updated collectionprocedures, technology, loan modifications and engaging membersearly in the collections process.

Meanwhile, it was important for CU Collections to find a partnerthat shared the same values of helping credit unions to help theirmembers, Rhodes said. FedFinancial turned to Greenberg AdvisorsLLC, a Rockville, Md.-based provider of merger and acquisitionstrategic advice with the financial services and business services.The six-month search included conversations with between 80 and 100firms, according to deMello. The list was narrowed down to roughlysix to 10 serious buyers, he added. 

In addition to CBHV's early-stage, pre-charge-off servicescomplementing CU Collection's post-charge-off collections services,deMello said it was one belief that ultimately stood out from otherthe others.

“Everyone else initially asked, 'How can we maximize profits?'CBHV asked, 'How do we keep staff and clients happy?' That was hugefor us,” deMello recalled.