CLEVELAND, Ohio — When lending to members with C, D, and E credit, CUs should focus first on getting the collections process in order.
Karen Smaby stressed that point to attendees at a breakout session at the Ohio Credit Union League's annual meeting here. Smaby has more than 20 years of experience in the credit union movement, much of it in the collections area. She currently is a territory manager for CU Recovery, based in Wyoming, Minn.
The biggest mistake Smaby has seen credit unions make when they move into riskier lending is "not knowing how to collect on that paper," she told Credit Union Journal. "C, D, and E paper is a whole different monster. These are people who you must communicate well with. They have to know what the consequences are of not paying, and you have to set up in the beginning how they are going to perform on the loan."
Borrowers should know up front that if they are 30 days past due, they are risking repossession, Smaby insisted. "It doesn't mean the credit union will keep saying it will come get the car when delinquent members don't call. It means getting the car. It's putting the responsibility on the borrowers to contact you if they are in trouble."
Smaby emphasized not only having the policies for collecting from riskier borrowers locked down, but staffing the collections team correctly, as well. "It's having the right talent in the right position," she said. "I've seen so many situations where the credit union does not know what it is getting into and ends up with a mess."
Smaby said credit unions should evaluate skill and personality type when aligning its collections team. Some people move fast and do well on the five-day calls, she pointed out. Others move more slowly and do better on the 90-day calls, since they take longer. "If you have staff who speak slowly and dial slowly, they will never get through the five-day queue," Smaby said. "There is nothing worse than having a collector in a position who doesn't want to be there and doesn't want to pick up the phone."
The ability to talk to people and provide a solution is a skill that's especially necessary for collectors during early stage calls, reminded Smaby. She said that the credit union's policies and approach to its collection team should be such that the collector feels "empowered" to make decisions quickly and work with members to find solutions that work for the credit union and the member.
"Your collection policies should clearly outline to the staff what they can and can't do so they can make the decisions when the member is on the phone - because that's one of the most crucial times. You have the member on the phone, let the collector make the decision then."
Smaby said that collectors should also have credit counseling skills to develop the best solutions, but insisted that the collectors refrain from performing that function. "Credit counseling calls take time. You need to have financial counselors on staff so that collections can pass members on to them."
Smaby summed up that the goal is to find solutions that work for both parties. "You don't want to devise solutions that do not work for the member, because all you'll get is broken promise. And when you get a broken promise, you may not be able to talk to get that member on the phone again."
