SAN ANTONIO — The costs to rescue corporate credit unions could make lowering delinquency rates a lot tougher.
SWBC here has learned that a number of credit unions report they are at a crossroads as to how to resource collections — delinquencies are rising and there's need to staff up, but the expense of the corporate bailout has resulted in hiring freezes at many shops.
"I think a lot of the credit unions knew that greater delinquencies were coming," said Mark Hein, CEO of SWBC's credit union division. "But I think what obviously caught everyone by surprise is NCUA's corporate assessment. That has really put a crunch on credit unions and made them relook at a lot of their strategies."
It may raise interest in outsourcing, said Hein, who noted SWBC has "models for both front- and back-end collections. "What we are trying to do with our payment reminder service is keep members out of the 60-day bucket. We feel by giving a real strong effort from day 10 up to day 45, we are able to significantly reduce the amount of loans that are going into that 60-day bucket, the point at which it often becomes too difficult for the member to catch up."
Since effective collections often rely on "the law of numbers," Hein recommended focusing most of the credit union's attention on early stage collections. Moving loan officers over to collections from a slow lending department isn't the answer, according to Connie Shoemaker, VP of SWBC's payment services. "It depends on the loan officer," she said. "But generally speaking loan officers are not the best collectors because their life is all about making loans."
Champion Challengers
Shoemaker recommended a champion challenger program for credit unions that are unsure if outsourcing is a solution. "Outsource a portion of it so you can compare the outsourcing company's performance against in-house collectors," she said. "When we've worked with credit unions on that, we often find that since the internal team knows they are being measured against another group, they pick up their own performance."
Some advantages an outsourcing team often has over in-house collectors are that they can call nights and weekends, and use a predictive dialer. Cost for outsourcing can vary by company, with some outfits keeping a percentage, generally about 30%, of what they collect, Hein explained. "Our charge is based on the number of accounts we are working," he said.
If credit unions face a crossroads with collections, they should decide on their course quickly, offered Hein. "The later the loan goes into delinquency, especially in today's economy, the more you are competing with other lenders to collect on bad debt. So get your loan cured first and let the other financials worry about their piece."
