Collecting On Loans
By Joyce Moed, Reporter

Burlington, Vt.–Credit unions are having an increasingly rough time collecting on loans, thanks to the effects the current economy is placing on its members.

"Our members are more stressed than ever before with rising medical debt, credit card debt, increases in food and fuel costs, and declining home values," said Cheryl Fatnassi, COO for Opportunities Credit Union, here.

A common result of this stress is to avoid creditors and to not open your mail, Fatnassi noted.
"This makes it even more challenging to work through loan modifications, extensions, forbearances and other tools that can help members get back on track," she said.

City Credit Union in Dallas says that while it is seeing a small increase in collections, it’s bigger surprise is the increase it is seeing in voluntary repossessions.

"People with good credit histories who just can’t make the payment or afford the gas," said Sharon Moore, president and CEO for City CU.

At present, the credit union is keeping collections in-house, but Moore said they are currently researching a third party for the possible future.

"Our collections department is doing a great job at keeping both delinquencies and charge-offs down," she said.

Fatnassi said that Opportunities CU has had to become more aggressive such as repossessing cars or starting foreclosures, when its members avoid all contact with them.

"Our letters and calls always indicate our willingness to help members build budgets and action plans to get back on track or to recognize their debt," she said. "Sometimes this works well. Other times the family simply cannot afford to live in their home."

Reasons stem from rising fuel costs, taxes and declines in income or job loss, Fatnassi said.
"We now do some collection calls at night, use a variety of registered letters and have tellers and all customer contact staff work with members at any point of contact on payment plans," she said.
The CU is also using the opportunity to offer financial counseling to those members who have reached collections’ status.

"Our collections associated are inviting members to come in and let us assist them with their budgets," Moore said. "When appropriate, they are providing information on a consolidation or home equity loan, which can help a member consolidate higher-priced debt, really save money, plus allow them to make payments."

Opportunities CU is making similar efforts.

"Many do meet with our HUD-certified counseling staff, and often this can help them determine if there is a budgeting issue that is temporary or a more permanent situation where assets may need to be sold, or changes made in their lifestyle," Fatnassi said.

Paul Stull, senior vice president of marketing for Arizona State Credit Union, in Phoenix, said that though more people are having a more difficult time stretching their resources, Arizona State CU is not seeing a high delinquency in its loans compared to its peers, thanks to its overall credit quality. He said that many members value their relationship with the CU, and this works to the credit union’s advantage in making contact when payments are missed.

"Credit union associates handle all collection and recovery efforts in-house," Stull said. "We do use automated systems that deliver early stage reminder calls for accounts that are 11 to 29 days past due. While we haven’t made any strategic changes, we have taken the opportunity to look differently at the type of contact we make. This means putting more emphasis on the quality of each call instead of just the number of calls."

To help its members that may be facing difficulties, Arizona State CU has developed a program that provides both education and an opportunity to restructure debt, Stull said.

"Our professional staff is the first line of assistance, but we rely upon consumer credit counseling agencies and the Balance Fitness program to deliver additional support," he said. "These services can help members get out of debt and then educate them to help avoid future financial difficulties."

When it comes to helping members during this time, the key is getting the member to call, said Denise Zuehlke, director of collection services for United Solutions Group, a CUSO in Tallahassee, Fla.

"It’s hard," Zuehlke said. "A lot of people are just walking away from their homes. They’re just turning in the keys to their house."

One things Zuehlke said she is seeing credit unions do is be creative in ways such as allowing their delinquencies to be higher than they should, and offering creative mortgages, such as a three-year balloon mortgage with hopes that the economy will be better in three years and people can refinance at that time."

Zuehlke said she sees differences in the ways CUs handle collections, compared to other lenders–mainly that credit unions tend to be more "member-friendly" because of the closer relationship they have with their members.

"And our goal is to be an extension of the credit union," she said. "We make sure when we hire people that they fall into that credit union philosophy."

John Revilla, CEO of Credit Union Service Alliance Group LLC (CUSAG), a CUSO based in Langdon, N.H., said the biggest challenge for credit unions that try to do collections on their own is not having the resources or staff to handle the burden.

"If you aren’t calling them as frequently as you should, you’ll be the last to collect," he said. "It’s paramount that you be at the forefront in contacting these people. If you don’t have a good, consistent approach that works, you’re doomed to fail."

When it comes to collection calls, Revilla said that it’s not a task that can be passed on to the average employee.

"It takes a unique individual who is enthusiastic about collections," and will make numerous calls," he said.

Revilla said that delinquent members are also more likely to open a letter that is handwritten, and not addressed with a printed label.

"When you sit down and hand-address it, and actually put a stamp on it, some people say ‘I wonder what this is.’ And they open it."

Because a trained staff with specialty experience is imperative to collections, CUSAG stresses outsourcing.

"We believe outsourcing is a good solution because you get a professional solution," he said. "Yes there is a cost, but there is more of a cost to not do it effectively."

CUSAG sets up toll-free telephone numbers for each of its credit unions.

"We become an extension of their staff," he said.

For credit unions hoping to do collections on their own, Revilla advised: "Be consistent. Be persistent. Tighten underwriting."

ww.citycu.org
www.oppsvt.org
http://www.uniteddatatronics.com
www.cusag.com