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Turning the Tables on Collections
Today's realities may call for a new internal mindset.

This is bonus coverage from "The Carrot or the Stick" in the November 2009 issue of CUES' Credit Union Management.

Oct. 28, 2009

By Karen Bankston

As they deal with persistent mortgage problems and other delinquencies, credit unions may need to focus on internal behavior change rather than relying on a traditional collections mindset, says Karin Brown, VP/collections for Lending Solutions Consulting. Instead of desperate measures in these desperate times, Brown calls on collectors to come up with solutions for members who have fallen behind on their loans.

In convincing collectors to consider a new, more effective approach, Brown shares an old skit from comedian Bob Newhart (search for "Bob Newhart Stop It" on YouTube, in which he plays a brusque psychiatrist with two words of advice for a distressed patient: "Stop it!"

"What they've been doing for years-focusing on 'I need a payment by the end of the month'-doesn't work anymore," Brown says. "Collectors have got to quit being collectors and become the resolution solution. Members want to pay the credit union; they just don't know how. They're asking for help. If you give them a solution, they'll pay you every time."

She advises collectors to focus on a big-picture view: the value of the collateral, members' intent and ability to repay, and such options as waiving late fees and reducing the interest rate. Brown is not an advocate of skip-a-payment, which she contends benefits neither side in the long run, but she says firmly that members need to be guided into a plan to "pay something" regularly until they get back on track.

Education is a big part of this solution-based approach, especially for members who have never been delinquent before. Brown recommends reviewing their credit report with them and counseling them on the need to change their spending habits.

"You need to ask a lot of questions before you start identifying potential solutions," she notes. "You may be dealing with a different member today, not just those who are traditionally credit-challenged. Now more members in the A and B credit tiers are going delinquent. They're embarrassed, and they truly don't know what to do, because they've never been delinquent. But on the plus side, they have more to work with to offer solutions."

In many cases, the simplest solution is the best bet, she adds, citing well-publicized complaints about the complex modifications and continual changes some lenders are requiring borrowers to undergo.

"Credit unions are known for their flexibility to come up with simple solutions to make a loan work by reducing rates and payments instead of making their members jump through a lot of hoops," Brown says.

Collectors should be prepared to shift their focus over the long haul, as credit unions may be dealing with continued financial fallout from this recession for the next few years. "Stop thinking end of month and start thinking end of time by looking for a solution for the rest of the term of the loan," she advises.

Another area where credit unions may need to change their own behavior is in how they market themselves, says John Revilla, CEO of the Credit Union Service Alliance Group, LLC, Langdon, N.H. In a cost-conscious era when many credit unions have shifted to an emphasis on their free services, he recommends that they focus on positioning themselves as the financial institutions that know their members personally and stand ready to act as their financial advocates. And they should hire front-line employees who appreciate and know how to deliver service that exceeds members' expectations while simultaneously cross-selling services and promoting low-cost delivery channels.

"If your main message is, 'We're free,' you can't deliver on that message and stay in business," he insists. "When we do strategic planning with credit unions, we shop their markets and find that the main reason people come here is because of the people who serve them."

Offering that level of personal service affords myriad opportunities to influence members' behavior on a one-on-one basis, he adds. One example is training loan officers to use risk-based lending as a tool to lend to members who have no credit.

"Bring in a 20-year-old and make their dreams come true by starting them on the right track using credit," Revilla says. "Educate your members on how to improve their credit scores, and then tell them, 'If you follow these guidelines and your credit score improves, we'll lower your rate. Meanwhile, you can get a loan to buy the car you need to get to and from work.'"

Karen Bankston is a long-time contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Stoughton, Wis.

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