More banking companies are bulking up their in-house collection departments, working delinquent accounts longer to save money and preserve good customer relations, bankers said.
"I've noticed a shift where banks concentrate now on in-house staff," said Nick Penfield, the vice president of recovery and bankruptcy for TD Banknorth Inc. of Portland, Maine, which has about $1.5 million of chargeoffs a month. "Even if … [a bank is] new to collections, you can probably make some pretty good money back."
Contingency costs for third-party collection agencies range from 15% to 40%, giving in-house collections an "inherent cost advantage," Mr. Penfield said.
Then there are the benefits of improved customer relations and sending cleaner accounts to vendors. Gary Urschler, the vice president of portfolio and default management at PNC Financial Services Group Inc. in Pittsburgh, said its PNC Bank works delinquent loan portfolios, both consumer and commercial, for six to nine months before sending the work out. Delinquent demand deposit accounts such as checking accounts are sent out in 90 days.
"But we'll assign accounts earlier if a collector says so," Mr. Urschler said. The executives spoke at the Consumer Bankers Association's annual collection conference in New Orleans in June.
Mr. Urschler and Mr. Penfield said they are investing more in incentive plans for their collectors, who are often entry-level employees looking to move up quickly into other departments. Collectors at both companies can earn a percentage of what they collect after reaching a certain minimum percentage, leading to an average monthly payout of $450 at TD Banknorth and $1,500 at PNC.
Switching from quarterly bonuses to percentage-based ones has increased internal recoveries at TD Banknorth and "made us not as reliant on vendors," Mr. Penfield said.
The companies allow the collector to suggest when the account should be sent out or kept in-house. It is a problem if a collector hangs on to an account too long, he said.
TD Banknorth collectors get six months to attempt to collect from the debtor; then the collector helps decide where the account should go, Mr. Penfield said.
The decision is partly driven by the debtor's asset picture - if they have jobs or own property, "those are great scenarios for litigation."
Both banking companies have decreased the number of collection agencies with whom they contract.
This year TD Banknorth has been using only two agencies to collect primary and secondary accounts, Mr. Penfield said.
PNC Bank has reduced the number of outside vendors in the last five years to only two, Mr. Urschler said.
"The more placements you give to a vendor, the better results you'll get," he said.
