SAN DIEGO-California Coast CU knew something needed to be done to stem the flood of auto loan delinquencies.
"We have enough of our members' cars-between 150 to 200 repos at all times," reported Mitzi Zarcone, senior vice president, lending and collections, for the $1.8-billion credit union that serves 120,000 members here.
"I was reviewing the delinquency list and trying to find niches in the list for us to do something different with," Zarcone recalled. "I found there were a number of members who had made 36 or even 45 payments on a 72-month auto loan, and suddenly they weren't paying."
Many of the loans in question were made between 2004 and 2006, she continued. "The common theme was so many had paid perfectly," she related. "I know how many delinquent loan notices have been sent out and how many automated phone calls we had made, and saw we needed something fresh."
Zarcone's solution: send selected members "thank you" cards for paying as long as they did, along with an offer to make continuing their payments more affordable. The cards were hand-addressed and personally signed by Zarcone. A regular stamp was used, rather than a meter, to make it look more like an invitation-and thereby increase the chance of the envelope being opened.
These thank you cards became the first step of Cal Coast's MAP, or Member Assistance Program. For qualifiers, the program is simple: the credit union extends the term of the loan, dropping the monthly payment by $100 or more. To qualify, members must have paid on their auto loans for two-plus years without late payments, and be 31 to 90 days delinquent.
"My team manually reviews the files to see if a modification will work," said Zarcone. "I include my business card and answer my phone. People are shocked to be able to speak with me."
The first mailing went out Sept. 26, 2008. In the first month, 238 offers were mailed, of which 86 were accepted, and $1.1 million in secured balances were brought current-which told Zarcone MAP was on the right track.
Through the end of February, 919 offers have been mailed, 566 accepted and more than $6.3 million in secured balances have been brought current. In some cases, members have added delinquent unsecured balances (usually credit cards) to their auto loan balances, moving $143,917 from unsecured debt to secured loans.
Members have responded with numerous telephone calls and letters, thanking Cal Coast for enabling them to retain their vehicles, which Zarcone said was the main goal all along.
"It is really geared toward relationships. What we find is car loans are important to these people, and their credit union is important to them. If we reach out to them, and recognize the relationship, we believe we improve our chance of repayment. Members are shocked at this offer because none of their other lenders are doing anything like this. I've had grown men cry, telling me, 'You have no idea how much this is going to help put food on my table.'"
The Continuing Goal
The continuing goal of the program is to target auto loans that have sufficient equity to make them work, Zarcone explained. In many cases, a $600 payment can be reduced to $350 per month, or even as low as $250 per month, without adjusting the interest rate.
Zarcone said she is "amazed" at what a "simple idea" has done in just a few months.
"We just wanted to bring down the payment to the basics. The idea was hatched when I had lunch with my mom. She has been around a long time, and she said it would be a 'gift' for someone like a single mom to receive a thank you card for making her payments for so long."
Cal Coast does not need a lot of automation to run MAP, and Zarcone said it doesn't require members "to have to jump through hoops." They do not even have to come to a branch to modify their loans, she said-they simply sign a modification agreement, which has been pre-calculated for them, then fax or mail it in along with their new payment amount.
"It is simple, and it gets them on track," she assessed. "We are trying to find ways to talk to members who are being harassed by so many collection agencies."
Instead of moving into a repo or a chargeoff, Zarcone said MAP is improving Cal Coast's chances of getting paid.
"The philosophy of our collections department is to care and cure - we want to care first, then cure their problem. Since we started in October, we have seen a significant change. Of the $6.3 million in secured balances brought current, at least 50% could have been lost in repo auctions if we had to go to that."
