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After nearly a decade of healthy economic growth, financial institutions have experienced a surge in consumer lending, paired with a decrease in delinquencies. However, the economy is undergoing a seismic shift due to rising inflation, increased consumer debt and hardships resulting from the pandemic. According to reports from March, consumer credit hit a record high of $52.4 billion – a notable jump from $37.7 billion the previous month and the pre-COVID average of close to $15 billion per month.
Additionally, not only is the economy declining, but Paycheck Protection Program (PPP) and COVID impact loans, as well as disaster relief funds, have dissipated, with an influx of delinquencies expected on the horizon now that repayments are required. Before this shift, credit unions were not accustomed to seeing late charges, overdue accounts and delinquencies, with collections and recovery departments operating on spreadsheets, manual systems, or inexpensive and unscalable solutions.
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Despite these economic conditions and an exponential number of loans on the books, credit unions need a system that can both track and work the loans efficiently, while also meeting members where they are most comfortable. Tapping technology that is powered with data insights positions credit unions to successfully and efficiently reduce loan loss reserves, increase revenue and minimize costs associated with delinquencies – all while handling the topic with personalization and sensitivity.
Using Data as an Indicator of Members' Finances & Overall Economic Health
Utilizing data insights, credit unions can easily identify predictive patterns, including members' buying and deposit patterns, as well as overall expenses. This allows credit unions to assess risk more efficiently, and act on collections based on an individual's level of risk. Predictive intelligence and automated risk scoring tools can also be used to analyze different types of accounts, spanning from share draft, negative share draft and credit cards, to tracking and recovering these assets. By collecting, analyzing and understanding the patterns hidden in the data, credit unions can have confidence in the experience provided to their valuable members.
In addition to supercharging a credit union's member experience, data can be a key indicator of the economy's health. In a strong economic environment, the rewards associated with indirect consumer lending and credit cards outweighs the risk of higher delinquencies and charge-offs. Yet, in struggling economies much like the U.S. is currently facing, credit unions can take more proactive means to monitor their portfolio for potential delinquencies to identify relationships that may be running into trouble, including:
- Regularly updating credit scores;
- Identifying credit score downward trends;
- Analyzing deposit account balance trends;
- Identifying previously automated deposits that have been reduced or stopped, such as payroll deposits; and
- Identifying deposit accounts that are closed.
When potentially troubled relationships are identified in advance, the credit union can proactively take steps to assist members before the loan goes delinquent. Some simple and comprehensible strategies to accommodate members that face a delinquent loan include offering free credit counseling to members, short-term or long-term loan term modifications, and restructuring and/or providing loan payment skip offers.
Using Technology to Collect With Care & Manage a Successful Portfolio
Data enables credit unions to identify the trends, but when powered with workflow and automation, credit unions are equipped with the tools to make sense of the data and ultimately reduce costs associated with the management of delinquencies, loss mitigation and recoveries. Considering there is an industry-wide increase in loan losses, many credit unions must implement the technology to better understand and service their members. Outdated, manual systems lack the scalability and effectiveness to help credit unions remain competitive in the post-pandemic environment, revealing the need to prioritize technology investments to be better prepared to support members through economic uncertainty.
As member-driven organizations, credit unions aim to provide encouragement and guide their members through financial hardships, regardless of the situation prior to a member falling into delinquency. Augmenting data analysis with predictive technology and automated workflows not only allows credit unions to save time and money, but also to ensure additional resources are available to handle these timely situations with sensitivity and care.
Kris Bishop Kris Bishop is CEO of the Birmingham, Ala.-based FIntegrate, a data-driven analytics company focused on portfolio tracking, collections and revenue recovery software for the financial industry.
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