ROCKVILLE, Md. - Are small- to mid-sized credit unions giving collections services – especially now – the attention it deserves? One CUSO dedicated to doing just that believes that many are not.
Credit Union Collections LLC, is a CUSO that supports collections operations for 19 Mid-Atlantic CUs ranging from $2 million to $200 million in assets. It was formed in 2004 and has been working to reduce the amount of charge-offs and increasing recoveries for credit unions, explained Ken DeMello, president of CU Collections and CFO of the $50-million Fedfinancial, the CUSO’s owner.
“The net effect is the credit union has to set aside less money in provision for loan loss, which is money in their pocket,” DeMello said.
With a full-time staff of eight, DeMello said CU Collections gives CUs the benefits of a large CU’s union’s collections department at a cost that’s lower than if they had to hire from within our outside.
“For every credit union we’ve worked with, we’ve lowered their costs from what they were paying to do collections,” DeMello said, citing the example of one CU that dropped its delinquency ratio to .4% from 1.11% and decreased charge-offs to .49% from .81%. “The annual cost of using the CUSO was $36,000, and we saved them over $300,000 in their provision for loan loss in one year.”
Friendly But Aggressive
The CUSO employs an approach to collections it calls “friendly but aggressive,” and makes sure the right people with the appropriate skill sets are calling members.
“We’ve found that collections services are sales,” DeMello said. “If individuals are delinquent with the credit union they are usually delinquent with multiple creditors. So we hire people to do collections who have experience in this area and they try to convince members it makes sense to pay the credit union before they pay other creditors. When you are making sales, your demeanor is a little different. You want to be positive–not overly upbeat because your members are facing a difficult situation–and you don’t want to be negative.”
Choosing the right employees to make collections calls is where many credit unions fail, DeMello contends. They place employees who may not have done well in customer service into collections, instead of hiring an individual experienced in doing collections well.
“Some credit unions place employees who have been a little rough, or even rude, in member service into collections because they feel collections people don’t have to be as nice as their customer service staff,” DeMello said. “That’s a mistake.”
Even though CU Collections takes a friendly approach, it also moves quickly, as soon as the member is 11 days delinquent. Waiting to call later, such as 35-45 days, doesn’t send the right message that the credit union “is on top of things,” reported Jon Rhodes, the CUSO’s treasurer and Fedfinancial CEO. And it doesn’t allow the CU to work with the member on a possible solution.
“If you wait too long, you reduce your ability to help the member,” Rhodes says, “to get them into another mortgage product, for example. Maybe you can qualify them to get into a fixed-rate product before their variable-rate loan adjusts up.”
Both Rhodes and DeMello believe that with rising delinquencies credit unions should pay close attention to this part of their business.
“You need collections experts now more than ever because it’s becoming much more complicated,” Rhodes said. “Members are having trouble making their mortgage payments outside of other credit obligations.”
The Rockville, Md.-based Fedfinancial is the sole owner of the CUSO, which is located in Manassas, Va. CU Collections provides services to credit unions in New York, Pennsylvania, Maryland, Delaware, Virginia, and Washington, D.C. Participating CUs are charged a fee based on the number of their outstanding loans.
