Boston Credit Union
By Joyce Moed, Reporter

BOSTON–Dan Picard, collection manager for the City of Boston Credit Union, said the reason the $224-million CU implemented a new procedure to assist in the recovery of charged-off balances is simple.

"You can't get blood from a stone," he said. "This change in procedure is directed specifically at those members who can't pay, rather that those who wont pay."
For those members that "can’t pay," Picard said, the CU’s new recovery process allows the members an opportunity to get back on their feet and secure a means of making their payments.
"We have found that this approach is much better than following the standard ‘charge-off, send-to-agency’ approach," he said.

In the new process, upon charge-off the CU assess the collection activity that has occurred on the account.

"For those accounts that have shown a willingness to work with the credit union, but are truly struggling, we temporarily hold off on recovery activity," Picard said. "We wait approximately six months–less if we discover the member’s circumstances have changed, more if the circumstances warrant it–and then send the member a letter."

The letter explains to the member that the CU would prefer to work directly with them to resolve the outstanding balance owed to it, and that it is willing to do so if the member submits a proposed repayment arrangement by a deadline. The letter goes on to explain that once the deadline is reached, the account will be sent to a collection attorney if the credit union has not established arrangements with the member.

"We stress our flexibility to work with them in establishing mutually agreeable arrangements," Picard said.

For each member who repays the credit union directly, the direct savings is the elimination of the agency fees, Picard noted.

"We have entered into repayment arrangements for accounts with balances totaling approximately $100,000 to date," he said. "After full recovery, that would equate to a savings of approximately $20,000 to $35,000 in agency fees–depending on the agency or attorney’s office used by our credit union for the recovery efforts."

Picard said there was no significant cost for City of Boston CU to implement the program, other than the time value of the funds they have yet to recover.

"With that being said, if you take into account the higher internal recovery rate, and the elimination of the time it takes to make assignments and manage the recovery process with the external attorney office or recovery agencies, no real cost is involved and it appears to be a significant savings as we no longer need to pay recovery fees on these accounts with an agency," he said. "The biggest con would be the time involved in monitoring the long-term repayment arrangements that are needed to make the program work."

As there was no cost to implement the program, Picard said the best way for the CU to calculate the ROI is the credit union’s ability to recover charged-off loan balances directly from the member, with an added plus side of a future borrowing relationship with that member.

"It costs a lot more to secure a new member than it does to maintain a relationship with a current member," Picard said. "`Once a member, always a member’ is a great theme for this program."
Picard said the new process has been very well received by members.

"Members appreciate the willingness of the credit union to work with them in tough financial times," he said. "While the member needs to understand the importance of their obligation and the fact that the terms of the original agreement were not followed, our approach is to work with the member to resolve the charged-off loan balance so we can loan those funds to other members in the future."

For other credit unions hoping to implement a similar program, Picard advises to take a sampling of small balance accounts–those under $5,000–sent to an agency about two years ago, and see how much was truly recovered and how many of those borrowers are back to being active borrowing members.

"Then take a similar sampling of accounts from 2008 and give the soft touch a try," he said. "You may be surprised that the members who avoided you during the collection process receive the letter from your institution and begin the repayment process directly. Just remember, you are looking for examples of members that can’t pay, not the ones that say they wont."

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