“That's not the most effective way to identify a troubled member. My philosophy is this–the credit union needs to try to focus as many resources as possible in identifying troubled members, rather than working with delinquent members.”

Who are these troubled members? Those with a change in job status, either personally or affecting somebody in the household. It may involve not only job loss but also reductions in overtime or mandatory furloughs. There may be relationship troubles, such as divorce or separation. Medical issues are another major source of financial problems. There may simply be bad planning, such as that experienced by members who bought themselves out of a financial squeeze by tapping home equity and now find that equity is gone.

“Pretty much everybody who was ever charged off in a credit union made their last payment. We just didn't know it was their last payment,” Reed said.

“I advocate trying to get the message across to all members that the credit union is there in bad times as well as in good times. I call it collections marketing. The philosophy of credit union collections should be identifying the member's problem and linking that to the proper credit union solution. That's going to give us the best opportunity for success.”

Reed asks credit unions to picture what they are marketing to members. What is in your newsletter? What is on your website? What information is available in your branches? What is in your statement stuffers? Do any of those marketing pieces have anything to do with the fact you are there to help the member in good times and in bad times?

To identify troubled members, he continued, try to promote their self-identification. If the member begins to realize they face some difficulties, they may contact the payday lender, the loan shark, the bankruptcy attorney–or the credit union.

If the credit offers just a little bit of information, for example a note in the newsletter indicating the credit union realizes some members may be facing tough times, they are more likely to reach out to the credit union.

“Be proactive,” Reed urged. “Understand what's going on with your field of membership and your SEGs.” 

Too often, he stated, collections is off on an island by itself. Anybody can help the member if they walk in and have an 800 FICO score. Educate everybody in the credit union about the member service function in collections so the credit union can also assist the member with a 550 score and lead them to the person who can help.

Credit unions can tap their database to not only identify members who are already delinquent but to spot trouble signs. For example, a member's automatic paycheck deposit may have been cut off. Has the member lost his or her job? 

Tellers can help. A member making a deposit may mention, “I hope this isn't my last paycheck. I hear they may be cutting back in my department.” The teller can send a heads-up e-mail to collections.

The proactive approach Reed promotes has been put into action at Genisys Credit Union in Michigan. Peggy Dombrowski, collections manager, explained that about two years ago the credit union began reviewing collection processes and strategies. Early last year that review led to what she calls a transformation.

“I don't see us as collections people,” Dombrowski said. “I see us as credit union people reaching out to help other people.”

One result is the fact that a year ago delinquency was at 1.44%. This year it is 0.4%.

“The big thing is our collectors are very creative about talking with members and making payment arrangements,” Dombrowski said. “At the same time, they're keeping dollars out of our reportable delinquencies.”

“We're looking at accounts earlier in the collection process. At one time we were looking at three or four weeks' delinquency. Now we're looking at 13, 14, 15 days. We want to be first in line and reach out to members if they're having a problem. We're doing a risk analysis and pulling a credit report. How does that credit report compare to the one we had when the member got the loan? What have they been doing with their credit?”

Genisys can help in several ways. One is a short-term debt relief program for members facing a temporary setback. It reduces payments for 90 days. There are also more extensive programs such as forbearances and loan modifications, plus free budget counseling. During the past year loan modifications totaling $1.8 million have been arranged for 150 members.

“What we're seeing now in our area are members who, at the time they lost their job, had savings, retirement, 401(k) investments,” Dombrowski explained. “They started living off all those dollars. Now those dollars are exhausted. They've reached the point where they've never been in collections and now they're turning around and filing bankruptcy.” 

In about half the bankruptcies affecting Genisys, the credit union never spoke to the member before. Although bankruptcies have definitely slowed down lately, they still often come as a surprise. The biggest challenge is getting members to open up and discuss what they're going through.

“My team has had extensive training. We call it conversation training. That includes focusing on the member, getting them to open up, and actively listening and trying to understand what the member is saying. We're not dialing for dollars any more. We get involved with the member,” Dombrowski emphasized.

“We have a poster in our area. It states: 'It's not about getting a payment. It's about finding a solution for the member.'”