ALEXANDRIA, Va.-When one CU decided to hire in-house counsel to improve its efforts around collection items referred for litigation, it knew it was a good idea-it just didn't know how good.
State Department FCU has not only reduced turnaround time it had been getting from local attorneys, it has improved recoveries by 22%, it also decreased delinquencies, and it has saved significantly on attorney costs.
"We were simply not getting the response or turnaround we wanted or expected on collection items that we referred for litigation," said Veronica Trotta, director of lending. "So we decided to establish an in-house counsel position to oversee these items. It instantly reduced the cost of outsourcing items to law firms in different cities and states. It also increased response time and ensured timely follow-up. In short, it has allowed us to completely control the process."
That was what SDFCU was counting on. What it didn't expect was being able to recoup attorney expenses on collection items in its judgments, which now covers a good portion of the in-house counsel's salary, and reduce delinquencies. Trotta explained that since the credit union can reach out to delinquent accounts sooner, it is improving collection results. In one year SDFCU reduced delinquencies from .74% to .45%. "We have also recognized a 16% decrease in outside legal expenses year-to-date compared with the previous year."
While improvement in turnaround was expected as a result of having a dedicated attorney in-house, avoiding being treated like a "little fish in a big pond" by law offices, Trotta said SDFCU now acts as a first-party collector, a big benefit the CU did not see coming.
"Our attorney's efforts are not covered by the Fair Debt Collection Practices Act. That means we are not required to send a 30-day debt validation notice required of third-party collection agencies and law firms. That reduced the delay in filing time significantly."
Courting Other Savings
The credit union, too, is now filing all of its claims to its local Alexandria, Va., court regardless of the venue in which the member resides. "This reduced travel expenses and turnaround time," Trotta explained. "We went from approximately 90 to 120 days from referral to judgment on cases with good service to 30 days or less. This allows us to enforce the judgment by liens, garnishments, and attachment of assets much quicker."
In addition, State Department FCU's legal counsel has used settlement orders and promissory notes with a confession of judgment provision in many instances to settle cases before judgment. "Even where the member is beyond the reach of service of process," added Trotta.
This result is a win for the credit union and the member; said Trotta. "The member does not have a judgment on his credit report and the credit union is still paid in full. If the member eventually defaults on the new terms, there is no need to re-file and serve the member. Jurisdiction comes from the member signature on the document, allowing judgment to be entered even when the service of process was not possible."
In-house counsel is not currently used for foreclosures and bankruptcies only because the CU wants to refine its new process before using it for those purposes. "This has been a big benefit for our credit union, much more than we ever expected."
