Filling The Collections Plate
Seattle Metropolitan Credit Union says it is getting good results from a philosophical switch last year that made its collections department more friendly and less confrontational. In fact, the department is not even called "collections" any longer-it is known as accounts recovery.
The transformation began soon after SMCU named Karlena Pierce manager of the collections department in May 2003. The department's name change followed in October. Pierce's background was in lending before she moved to collections in 1997. She said the collections staff must be a credit union's best sales people.
"So many credit unions are going to community charters, adding SEGs and doing other things to bring in members," she explained. "But if you don't establish a relationship with those members, then you are just BofA to them. You are a finance company."
"A lot of the credit union philosophy is getting lost in the switch to community charters and the competition with the big banks," she continued. "We want to keep the differentiation between banks and credit unions alive. We don't want to seem like the collections department for BofA."
Pierce said the four members of her staff, like her, have lending backgrounds and no prior experience in collections. She views the absence of that experience as a positive, as she believes it gives the staff the ability to bounce ideas off each other.
"No one is afraid to make suggestions. It is a very cohesive team; the strongest team we've had. My staff looks for ways to make things better. They not only are not afraid of change, they embrace change," she said.
When collections changed its name to accounts recovery in October, the members of the newly renamed department did a presentation for the rest of Seattle Metropolitan's staff. Pierce said the staff was taught to understand that members who fall behind on their payments often feel strong, negative emotions such as frustration, guilt and embarrassment, and need to be spoken to gently to avoid being put on the defensive.
"We told them to avoid bluntly telling members things such as, 'Your account is in collections.' Using certain words creates fear and creates walls. If the idea is presented poorly, then we have to work to go back and tear down those walls."
What The Numbers Show
Seattle Metropolitan's approach to debt seems to be working. During the first three months of 2003, before the change in philosophy, SMCU's overall delinquency rate was .72. By the last three months of the year, the delinquency rate had declined to .40 in October, .50 in November and .39 in December.
Another change SMCU made was a more proactive approach to reaching out to members who missed a payment.
Instead of waiting for the entire grace period to elapse, an accounts recovery representative might call the member as soon as five days-especially on a loan that came to the credit union through its participation in Credit Union Direct Lending (CUDL).
When the member is called, instead of a confrontational approach, he or she is asked if there is a problem, if the missed payment was an oversight, or if there is something the credit union can do to help the member.
According to Pierce, the long-term goal of accounts recovery is to help members get out of trouble. She described this as not only a benefit for the CU's members, but for the community as a whole.
"We listen empathetically to understand why it happened," she said. "Then, we help them prepare budgets and we explain repayment options and other tools available to them. In the case of people who have never had a loan before, we have to train them on the repayment habit. Immigrants sometimes don't understand what credit is, and need education on what is expected."
A new loan might not always be in the member's best interests, Pierce added. If someone has had four debt consolidation loans in just a few months, a fifth one probably isn't the answer. "We must look at the member's whole picture."
Members are responding positively to the new philosophy, she said. Many send thank you notes to the credit union's CEO because they felt respected and were given options, and were not treated like a collections account.
"It is incredibly rewarding when you impact someone's life in a positive way and you see them get back on track," said Pierce.