For the credit union's MasterCard program, those charge-offs amounted to $33,000 – small, perhaps, but still a challenge to recover. For one thing, much of the debt was stale, Torrance Community President/CEO Steve Stoppel told CU Times.

"Understand that a good chunk of what we got back for that year was definitely charged off from prior years," Stoppel, who has been with Torrance Community for 13 years, said. "It takes time; it's not like you can charge off $50,000 and within a year you've gotten that back."

But it got back every penny of that $33,000, thanks to four strategies Stoppel said any credit union can use.

1. Start the recovery process at the beginning

Torrance Community starts openly mitigating charge-offs before members even apply for loans.

"We actually do periodic seminars on how to improve your credit score," Stoppel explained. "We give members their credit reports and their scores. Usually, it's in a group setting, so we don't especially sit down with them. After the seminars, we do talk to them about coming into the credit union and talking one on one with a loan officer. We start it before we even give them a loan."

At closing, credit union members reinforce the message by reminding borrowers to contact the credit union if they ever have problems making payments, Stoppel added.

2. Call at the first sign of a late payment

After late-payment notices have gone out, the staff gets on the phone with members who appear to be struggling, Stoppel said. Thanks in part to that practice, Torrance Community, which only has 17 employees, has also recovered $11,466 of unsecured loans (it charged off $8,700 that year) and $6,500 of $13,000 in charged-off car loans, Stoppel said.

The calls are less about verbalizing what's already written in the late payment notices and more about understanding the root cause of the problem.

"We let them know that we'll work with them, and try to let them know that they want to maintain their relations with the credit union. We want to be their lender for life," he said. "We know that everybody at some point, if they fall behind, it's usually for a reason. We tell them we'll work through whatever issues they're going through. A lot of times it's a divorce, loss of job. Even cutting hours on the job – we have a lot of police and fire who get a lot of overtime, but if that's interrupted for some reason, their income goes down."

At that point, members tend to open up and let the staff know what's going on, which also builds loyalty, he said.

3. Offer a real incentive to catch up

Stoppel said Torrance Community makes its flexibility known to struggling borrowers. Often, the approach includes giving the person more time to pay, he said.

"We offer that," he said. "We don't wait for them to suggest it."

After about six months, the credit union might take more steps to improve the situation.

"We just let them know, if we need to modify the loan just to get our principal back, we'll do that," he explained. "We have special programs where, if they go to a credit counseling agency where we bring them current, we waive all the interest charges and late fees. We're involved with Balance Financial Fitness program; it's operated by a third party. Because if a member doesn't want to come to us and spill their guts about what's going on, they can go to the Balance program. They have counselors and education opportunities. It's not just a collection effort for us. It starts way before that and continues way after that."

4. Focus less on collections

Stoppel said this is the biggest difference between the credit union status quo and the way he handles recovery efforts at Torrance Community.

"I worked at probably six or seven different credit unions, and it's all focused on collection calls," he said. "That's where they put their emphasis, their time."

Stoppel said he can understand the allure of prioritizing collections programs.

"You ramp up collections – that's how you get recoveries," he noted. "That can work for some, but when you go to collect a loan, there are two things you need: You need that member to have the money to pay you, and you need them to want to pay you. The want-to-pay-you is the hardest part. If they don't have the money, they just don't have it. They may have the money and just want to pay somebody else or want to spend it on somebody else. But if there's a relationship there, then they'll want to pay you."

He continues, "To me, that component is always missing. The way we've found to make them want to pay us is to lay that groundwork up front."

It does take more time and effort than other credit unions are usually willing to spend, Stoppel said. But to him, the alternative is worse.

"It's a hard hit in collections – you charge off a $20,000 loan and you take a hit to income for $20,000," he said. "To me, it's like if you have to spend a little bit up front to save that $20,000, then it's totally worth it."