SAN JOSE, Calif. — With delinquencies growing, many credit unions are scurrying to improve collections processes and outsource some of the work.
That's the opinion of Bill Garcia, president and CEO of Solutions in Finance, a lending and collections consulting firm that works with credit unions nationally. Garcia said that many CUs are "scrambling" due to the fact there has been a lack of emphasis on collections over the years and the function's importance has suddenly taken on a renewed immediacy.
"I have been somewhat surprised by the lack of attention credit unions have given collections," Garcia told Credit Union Journal. "As a result, they are now doing whatever they can to improve collections results. And that could be anything from analyzing their in-house collections processes or looking at options to partially outsource some of their operations."
Low delinquency rates have long kept the collections team off the CEO's radar, Garcia suggested. "This is a tidal wave that has crept up on them. It's certainly a wake-up call."
While Garcia sees many credit unions doing the right things, most of those having collections problems are in the unenviable position due to a lack of sound organization in the collections area.
"Good structure is the key," insisted Garcia, who said a big problem, and common issue, is credit unions taking the "cradle to grave" approach to collections. "This is where a collector handles an account from the time it goes delinquent to the point that it is charged off, if that eventually occurs. We do not recommend this approach. It is not efficient."
Garcia said collector queue assignments, instead, should be based on delinquency buckets. He also pointed out that the credit union can outsource early-stage delinquencies, those accounts under 30 days past due, so it can focus on the more troubling cases. "We are seeing more credit unions turn to outsourcing," he said. "We hardly ever see them outsource 100% of the work, and we don't recommend that. They need to keep control over the delinquent accounts."
Another practice that hampers efficiency is having collectors do too many tasks that take them away from their primary role of collecting payments and preventing delinquencies from rolling from one delinquency bucket to the next. "Focus is a priority today with the extra demands on the department. I see plenty of tasks being performed by collectors that should be handled by clerical staff," said Garcia, pointing to working with impound notices, repossessions, and sending out notice-of-intent letters.
Garcia also questions whether some credit unions are truly utilizing their core systems to process collections, many still relying on "paper" to work accounts.
The inefficiencies detract from working accounts in a timely manner, Garcia reminded. "Many times we go into credit unions and find that some accounts have not been worked for 30 to 45 days," he said. "You just can't do that."
Credit unions need to have a collections strategy that addresses risk-how it will manage low- and high-risk accounts. "They need to focus on the high-risk first," Garcia reminded. "It doesn't always happen."
Garcia expects the move to outsource collections will continue to grow during the recession. "It's not just due to the fact the credit union needs help. It's because they don't want to hire additional staff. Some credit unions look at this as a temporary situation and they won't need the staff when the economy turns around."
