Despite the growing optimism among U.S. consumers about the economy and their personal finances, the rising debt from unpaid student loans, auto loans and credit card balances over the last 18 months should be disconcerting to all financial institutions, including community banks and credit unions. Thus, the importance of maintaining judicious loan practices and effective debt collection strategies cannot be emphasized enough during these uncertain times.
Community banks and credit unions are important components of regional cultures and have a longstanding tradition of integrating with local businesses and families. They also understand the dynamics of the local economy as well as trends affecting housing, retail, small businesses and start-ups. “Relationship lending,” in particular, is an invaluable asset because they often make loans to local businesses that would otherwise be denied by larger institutions.
Community banks and credit unions offer a wide variety of consumer loans such as personal loans and lines of credit, but those for education, autos and homes are typically underwritten by large financial partners.
On the business side, community banks and credit unions market term loans, lines of credit, and SBA loans guaranteed by the Small Business Administration while large lenders underwrite commercial mortgages.
When consumer or commercial loans erode into delinquency or default, the financial institution underwriting the contract is responsible for resolution. Consequently, community banks and credit unions collect on personal and business loans and lines of credit as well as issues with demand deposit accounts (DDA) such as overdrafts, returned checks or unpaid fees for a variety of bank services. Similarly, large institutions generally collect on unpaid loans for education, autos, homes and more in addition to problematic credit card accounts.
Community banks and credit unions conduct debt collections via internal departments, outsourcing to agencies or a combination of the two.
For example, some institutions conduct internal efforts (i.e. mostly written notices) during the first 30 days of delinquency, then outsource accounts to qualified agencies for third-party collections during the 30 – 60 day period where compliant calls from collectors have proven to be successful. The escalation to an external agency makes a profound impression on consumers and underlines the magnitude of their situation.
All internal collection departments and external agencies should possess an infrastructure composed of experience in financial services, compliance, certification, technology and data security. The goal is to collect all outstanding funds in a cost effective manner while maintaining brand protection and healthy customer relationships.
Whatever the approach, early intervention (i.e. the first 30 days of delinquency) is critical.
Successful collection efforts at community banks and credit unions are led by experienced management teams possessing a broad understanding of collections compliance, technologies and data security; the knowledge of current industry and economic trends; and a commitment to the institution’s mission, vision and values.
On the operations level, directors of collections are responsible for maintaining effective day-to-day call-center functions relating to employee supervision, strategies, technologies, reporting and more.
These directors utilize strategic predictive analytics to generate cost-benefit analysis, simulations to determine break-even points, advanced scoring models, and risk scores to compare segmentations affecting individual accounts. Predictive models analyze past behaviors to forecast the likelihood of future customer action such as making good on past-due notices, attrition or churn.
They are also responsible for ensuring that daily scrubs are conducted on all accounts using leading technology to verify the status and background of each consumer.
Directors also generate a variety of necessary reports. For example, instruments such as the report of accounts and balances received, standard summary report, and monthly status report should be submitted to management and stakeholders on a timely basis.
Experience is also needed on the collector level where compliant negotiations can result in establishing repayment plans.
Debt collection departments at community banks and credit unions must comply with all relevant laws. In addition to a variety of state laws, key federal regulations relating to consumer debt collection include the Fair Debt Collection Practices Act (FDCPA), Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Health Insurance Portability and Accountability Act (HIPAA). These laws work to safeguard data and prohibit invasive and aggressive collection methods.
Consequently, it is imperative to have a management team with considerable experience in financial services who are supported by certified collection officers and certified debt collectors to ensure full compliance and brand protection.
Maintaining proper certification is an important component of collections at community banks and credit unions. The core group of certifications includes:
- SOC I Type II audited financial reports pertaining to data security standards.
- SOC 2 Type II reports focusing on the effectiveness of non-financial reporting controls relating to security, availability, processing integrity, confidentiality, and privacy of a system.
- PCI DSS 3.2 — Payment Card Industry Data Security Standard certification.
- PPMS — Professional Practices Management System by ACA International.
Community banks and credit unions conduct successful collection operations by utilizing advanced customizable receivables management (RM) software to create and maintain workflow designs and automation for outstanding accounts. Managing these programs proficiently helps prioritize accounts with a greater tendency to pay and creates reports modified to individual business rules.
Offered as plug-ins to master RM suites, some contact management systems (CMS) contain features for compliance, traceability, transparency and reporting that can simplify coordination and management.
Directors may also use automated telephone dialing software such as power dialers and predictive dialers to optimize efforts by pre-loading lists of numbers to reach more consumers in less time.
Beyond the certifications mentioned above (SOC I Type II audited financial reports, the Payment Card Industry Data Security Standard, and the Professional Practices Management System), community banks and credit unions may choose to implement on-site security procedures and infrastructure:
- Pre-employment background checks (in accordance with state and federal laws) and drug screenings to ensure the safety and privacy of data and sensitive information.
- Closed circuit 24-hour video surveillance.
- Badge-only access to the collections department with additional security clearance needed in the call center.
- A call center clean desk policy where erasable grease boards are used instead of paper and personal electronic devices are prohibited.
Services for Community Banks and Credit Unions
Community banks and credit unions with successful collection departments utilize many or all of these measures. Led by experienced management teams and operations directors, they are able to leverage the time and commitment needed to launch and sustain the departments by keeping up to date with the latest industry and economic trends, compliance changes, collections software and data security standards. They are also able to obtain a favorable return on investment while engendering customer retention and brand protection beyond the cost of operating the department and maintaining the technical infrastructure.
The task is daunting for many small community banks and credit unions, prompting them to contract with best-in-class agencies for first- and or third-party collection services. Top agencies offer cost-effective, individualized collection strategies in conjunction with reports tailored to each client and consumer satisfaction surveys to help enhance customer retention.
Optio Solutions is a best-in-class agency offering considerable experience in financial services with a firm commitment to compliance, certification, technology and data security. Our clients benefit from favorable ROI and the peace of mind garnered by brand protection and customer retention. Contact us today to set up an appointment with Executive Vice President of Sales Todd Volkers to learn about an individualized strategy for your organization.