At the recent National Collections & Credit Risk Conference, financial experts shared their perspectives on managing collections in a presentation titled, “Decrease Defaults with Untapped Customer Information.” This article is a continuation of that discussion.
Several industry experts discussed what they are seeing in the industry, the challenges they face in today’s economic unrest and how to drive effective change.
The panelists included: Bobbie Britting, research director of consumer lending at TowerGroup; Sue Saathoff, senior vice president of operations at World’s Foremost Bank and vice president of Cabela’s; John Pannell, vice president credit risk and finance at First Interstate Bank; and Tom Johnson, vice president of product development at Zoot Enterprises.
Given the challenges that come with streamlining collections to be more effective, the panelists shared strategies that are working.
“Our collections shop used to operate in a vacuum. Once an account went delinquent it became collections responsibility and no other departments got involved," said Saathoff.
The process worked well when times were good. But as the market changed and losses began to rise, a change was needed. Adding staff to manage collections was not the answer, she added.
“We recognized that a more strategic approach to collections was necessary and developed a scoring model designed to better predict the likelihood that a customer would pay on their account. The model is used to determine how often our bank needs to pull updated risk scores on each consumer. This strategy allows the bank to segment and be more focused in our collections efforts," Saathoff said. "We are able to save money by only pulling the consumer credit bureau files that are absolutely necessary."
First Interstate Bank implemented a new officer for enterprise risk management whose responsibility is to take a big picture, organization-wide point of view, said Pannell.
“His job is to work across the enterprise to ensure needless chances are not taken and all lines of business are working together. If an auto loan is made and then a credit card product is sold to the same person, there is new risk added to the first line of credit. That top-of-the-house view tells us, regardless of the line of business, we need to treat these customers and manage risk on the whole and not as an individual line,” he added.
According to Johnson, with Zoot Enterprises, the down economy and corresponding rise in delinquencies has meant internal politics often have broken down within banks.
"It is back in vogue to have an enterprise credit officer. Many credit risk staff are now doing modeling in collections and bringing their expertise to the table,” said Johnson. “There is a close tie between how credit cards are used and propensity to default. Some of our larger clients are looking at purchase and spending habits and modeling that to predict defaults. Our clients are also using trending behavior of customers to make better collections decisions.
"If a customer’s credit score drops from 750 to 650 lenders can look at the data they have over time and determine the best action to take. With consumer behavior changing a drop in FICO score may not necessarily be a reason to seize the property. A look at more detailed data may be necessary to determine the right approach with that customer," he continued.
Britting added that now is the time to put aside the politics that come with lending across multiple lines and competing in collections for customers' limited resources.
"One of the most successful strategies is to employ an enterprise view of the customer and credit data," she said. "This allows institutions to pull all the data they need, calculate attributes the same way across all lines of business, and model the appropriate actions. Standardizing data provides a common base to work from and a single view of customers across all their relationships with the bank
Karen Gordon is a public relations strategist at Zoot Enterprises.