California CU League Finds Strong Allies in CU Battle for Loss Recovery

RANCHO CUCAMONGA, Calif. – Just as the number of delinquent and bankrupt accounts increases each year, so does the need for credit unions to step up their collection efforts. The California Credit Union League here recently formed a partnership with two collection agencies to meet the growing collections needs of California and Nevada credit unions. The partnership was created to give credit unions a resource for collections, especially with the legal aspects, according to Sylvia Fath, League vice president, business services, who has been involved in credit union operations for 30 years. “The big problem with credit unions outsourcing very delinquent portfolios is that most credit unions will send them to several collection agencies, but the portfolios will just sit there,” she said. Based on the results of four focus groups and input from some larger credit unions, the League opted to collaborate with The Best Service Company (TBSC) and JM Associates. “The average collection rate was 12 percent for the other credit unions,” Fath said. “These two companies have seen returns as high as 30 percent.” A lot of collection agencies work with multiple companies, such as hospitals and large retailers, Fath noted. “These companies focus on credit unions.” “The CCUL is offering another toolbox to be used on the collection side,” said Scott Holland, director of lending operations at First City Credit Union in Los Angeles. “The effort of sending those accounts to a collection agency is minimal and the agency will follow it through for you- and you only pay them after they collect. A collection agency offers what a lot of credit unions don’t have the time, the personnel, or the money to do.” JM Associates, located in Santa Monica, Calif., will be handling the collection needs of smaller credit unions, according to Fath. “This is because their infrastructure is smaller,” she said. “JM Associates is really focused on credit union activity.” TBSC, located in Los Angeles, will serve the larger credit unions. Holland remembers when First City, now with more than $300 million in assets and 45,000 members, first began working with TBSC, about eight years ago. “TBSC was referred to us at a time when First City had serious problems on the collection side,” he said. “Our first few years using TBSC were tremendous; our recoveries were in the thousands at the start. And those we didn’t get, we are still looking for.” Both agencies have a network of attorneys throughout the country, allowing them to recover losses from members who move to another state. Using collection agencies with this kind of expertise allows credit unions to keep portfolios open for years, according to Holland. “TBSC will file judgments for us, which are good for 10 years and can be renewed. We can keep a judgment open and on the books for as long as it takes.” No fee is charged for the service the agencies provide unless losses are recovered. One of main advantages of the alliance, according to Fath, is that the partner companies collect on negative share and negative draft accounts, which is difficult for some credit unions to do on their own. “The agencies have representatives who will meet with you one on one and tell you whether a portfolio is worth collecting,” she said. Another benefit is 24-hour access to the partners’ Web sites to view status reports. “The beauty of these two companies is that the credit unions at any time can track the progress,” Fath said. Besides collecting overdrafts and providing status reports, the partner companies file judgments, manage levies, liens, and subpoenas, and monitor bankruptcies. “They have avenues they use to collect that we don’t have access to,” Holland said. “For instance, they can skip-trace better than we can; they can do legal things we don’t even know about, or that we don’t have the manpower or the time to do, i.e. searching for records.” Theresa Halleck, CEO of The Golden 1 Credit Union in Sacramento, Calif., noted the challenge credit unions face when attempting to collect. “When you make a loan, it’s a good loan-otherwise you wouldn’t have made that decision,” she said. “But circumstances change, people lose jobs, they divorce-unexpected things happen. The challenge is to balance the need to serve your members with your desire to be compassionate.” The underlying reason for credit unions to collect, Halleck added, is because it’s the general membership’s money. “When you add it up, every time someone doesn’t pay back a loan, that could be one more ATM that you couldn’t afford to buy for your members.”