A Human Touch in Times of Tragedy

One of the key reasons people bank at credit unions is for the human touch. They tend to be smaller than many banks, often tied to a local community or profession, and are not-for-profit. So when their members are afflicted by natural disasters – from wildfires in California to hurricanes on the East Coast – credit unions have the ability to connect on a very human level to offer assistance and help people put their lives back together. The last thing a homeowner needs following a disaster is to get a call from a nervous lender asking if they’re still able to make that month’s payment.

It’s not enough for credit unions to have procedures, guidelines and policies in place. To be able to respond quickly and effectively when members lose their homes or suffer other losses, it’s important for institutions to have a “playbook” that documents declaring a disaster and the subsequent actions to be performed by loan servicing staff. To reinforce those guidelines during calm times, make sure key employees and executives are trained to handle various scenarios, and to communicate to members what they should do in the tragic event that their lives are upended by a fire, storm, earthquake, flood or other emergency.

Here are six ways credit unions can offer assistance to member borrowers in times of need:

Outreach Initiatives

Reaching out to members is an opportunity for credit unions to provide a best-in-class member service experience while also assessing a disaster’s damage and level of impact to the member. Call centers can help collect information for analysis and tailor a timely response strategy. This strategy can be necessary for products with time-sensitive deadlines. Members unable to make payments for other reasons may warrant “personal” servicers to properly identify and resolve issues. Additionally, enhance your website to include a disaster relief section that clearly outlines your program with contact numbers for borrowers and any additional helpful links.

Dispute Management Teams

Member dispute management teams (and other member-facing personnel) should be trained on the organization’s disaster relief strategy and have clear, documented guidelines to ensure that each member is treated according to policies. Dispute resolution may also be a natural channel for consumers to request relief on the basis of their individual disaster impact. Dispute management teams must be prepared (and staffed) for higher call volume and ensure compliance with federal and state regulations.

Fee Waiver Programs

Conditions immediately following a natural disaster may cause missed payments due to lost cellular/internet connections, delayed regular income or inaccessible bank accounts. In such circumstances, institutions should be prepared to waive late payment charges, pay-by-phone charges, deferment enrollment fees and/or additional miscellaneous charges as a sign of good faith. As an extra step, credit card issuers can waive cash advance fees and overdraft protection fees.

Deferment and Forbearance Programs

These can help members avoid account delinquency when abnormal situations and unexpected costs make regular payments difficult. Deferment programs can provide immediate relief for consumers by pausing regularly scheduled payments before resuming normal payment periods. Forbearance programs offer a similar benefit or reduce the regularly scheduled payment for a specified period. Both programs allow institutions to leverage existing procedures and reduce the effort and risk of complex, customized solutions.

Loan Modification Programs

Loan modification and refinancing offer longer-term relief. Loan modifications help borrowers by adjusting loan terms to reduce the monthly payment amount or reduce interest rates to manageable levels. Other modification options include loan extensions or adding skipped or deferred payments to a later balloon payment. Modification and refinance options can offer long-term relief throughout the remaining life cycle of the product and provide borrowers with much-needed flexibility to focus on other matters.

Suspension of Collection or Collateral Recovery Activities

For collateral-secured products, creditors can suspend collection, auto repossession or foreclosure on a case-by-case basis. For mortgage products, there are additional, explicit requirements regarding natural disasters for servicers to grant relief and/or forbearance to borrowers. For example, Fannie Mae suggests deferring foreclosure actions on current accounts or accounts not severely delinquent for a 90-day period, and to grant relief to borrowers unable to remain current on their bankruptcy repayment plan after a natural disaster. Though such relief is not required for all financial products, relief may even be explicitly required by a GSE for home mortgage loans. Altering procedures or minimum recovery timelines for consumers in impacted areas can grant consumers the needed time and opportunity to cure delinquency and resume normal payments.

A personalized touch, taking individualized needs into account and showing the credit union member a human face (preferably a consistent point of contact), will allow lenders and borrowers to work together, with sensitivity and purpose, in their mutual interest to pick up the pieces after a disaster.

Beji Varghese is Managing Director, Financial Services for Navigant Consulting Inc. He can be reached at 704-347-7639 or beji.varghese@navigant.com.