Credit Unions Reacting More Quickly to Delinquent Loans; it Takes Different Tactics to Get Members to Pay Up

WYOMING, Minn. – Kelly Becker sees credit unions becoming increasingly willing to contact delinquent members quickly, instead of hesitating to act. That’s good news as far as Becker is concerned. He’s head of CU Recovery, a firm serving more than 1,400 credit unions in 22 states. Becker notes while delinquency rates have remained fairly steady, bankruptcy continues to creep up. “One of the keys to managing bankruptcy loss is to get on the telephone early in the process,” he says. “That isn’t going to stop anybody from filing bankruptcy, but you may establish a relationship where you have greater likelihood of having the debt reaffirmed. “Credit unions are getting better at that and are getting on the telephone early. Before they probably thought they were offending the member or being too pushy,” Becker says. Today more and more credit unions are adopting the idea there’s nothing wrong with picking up the phone and talking to a member who is 10 or 20 days delinquent, especially when that’s done with a service mentality focused on the credit union trying to prevent a situation from going bad. Some credit unions still resist. Becker recalls talking at a recent conference to someone from a credit union that doesn’t phone a member until a loan is 60 days delinquent. “By that time, in today’s market, those people are on the verge of bankruptcy,” Becker warns. On the flip side, sometimes lenders – including credit unions – are approving loans they shouldn’t. There’s heavy competition for credit card business, mortgages and auto loans. When that happens it’s vital to control margins in every department, including the back end. The reality is, Becker says, the credit union doesn’t exist unless it puts money on the street. You can’t lose sight of that and the fact 98 or 99% of loans are repaid. “Losses are part of the cost of doing business. If there isn’t some loss, you aren’t being aggressive enough in the marketplace,” Becker suggests. At the same time he underlines the value of acting promptly when a loan does become delinquent, Becker also stresses the need to develop a rapport with the delinquent member and motivate that member to make good on the loan. In fact, he titles the talks he delivers to credit union groups “Motivating the Delinquent Member.” “Most people think collections involves more intimidating than motivating,” Becker says. “Frankly, the good collectors are the ones who have figured out intimidating people may get the job done, but when you intimidate people you lose a certain amount of them because they won’t be intimidated. “If you try to motivate everybody, you can catch those people you couldn’t get to pay because you were trying to intimidate them.” A good collector is really a good salesperson, Becker continues. A member may not be paying bills because they lost their job, they were divorced, or they are struggling with drug or alcohol problems. They don’t bury the money in the back yard and simply refuse to give it to you. They either don’t have the money, or believe they don’t have a way to get the money. They need to talk to someone who isn’t trying to beat them over the head. “The key to being a good collector is having solid people skills so you can establish rapport and gather information. Until you collect that information, you can’t help them solve the problem,” Becker says. “If the member acknowledges they do have a moral obligation to repay the loan, that’s half the battle. Then the question becomes how to pay the loan, and you take on the role of a helper.” Sell the Debt However, he continues, when credit unions spot an employee with great sales skills they immediately put them in lending or member services. Instead that sales mentality should be put to work in the collections department helping members solve financial problems. “When you start thinking about selling, and you look at collections, that is exactly what we’re doing,” Becker insists. “Somebody told me that years ago and I didn’t believe them. But the more I thought about it the more I realized that is exactly what we’re doing. “The difficult thing we’re selling is the concept it’s better to bring this loan current. That’s a very tough sell. You can’t feel it, smell it or eat it. It’s an intangible. It takes very good sales skills to sell an intangible.” The outsider assumes debt collection involves calling someone every day for the next four months. Becker sees that as a waste of time. If you’ve made three efforts to contact someone over a 10-day business period and the person doesn’t contact you back, you’re getting your answer. The person is saying they will pay you when they want, how much they want, if they want. “Is the thirty-fifth message going to be any more effective than the third?,” Becker asks. He offers a rule of thumb. If the loan is 90 or 100 days delinquent and the member hasn’t paid or made an arrangement to get caught up, the credit union needs to think about legal action. A contact plan is vital, he insists. That plan should specify the credit union will contact a delinquent member at a specific point, work with the member through a specific period, then take further action if the member hasn’t performed by a certain date. He’s convinced credit unions that have such a plan, and stick with it, succeed. Credit unions without such a plan are probably losing more money than they should. “The debt collection industry is full of people who are burned out. I personally believe that happens if you do take an intimidating view to collections. After a while, I don’t think you’ll like yourself very much,” Becker observes. “You have to believe you are trying to help people. If you do that, it should make coming to work more pleasant.” -