By Ray Birch
ORLANDO—When delinquencies spiked at FAIRWINDS CU here, it turned to a solution that drove delinquencies down 75% over a five-year period—from 2.3% all the way to 0.59%.
Like many credit unions, the Great Recession markedly increased delinquencies at the $2.4-billion credit union, and Steve Plotkin, vice president of collections, said FAIRWINDS had to make a choice in how to respond: improve collectors’ skills, add staff, or outsource.
But in making its decision, the CU understood the key to correcting the problem would be making a lot of phone calls.
FAIRWINDS ultimately opted to outsource collections to San Antonio-based SWBC. The result: not only did delinquencies fall dramatically, but asset quality improved from 3.70% to 0.75% in the same timeframe, Plotkin said.
Plotkin told CUToday.info that internally, the biggest challenge was forecasting its budget during the period of high delinquencies, particularly charge-offs, especially given their direct impact on the bottom line.
“If we are too conservative, the allowance provision would be overfunded,” he said. “But if we’re too aggressive, we risk being underfunded.”
Jeff Mortenson, vice president of client relations with SWBC’s financial institution group, said reporting was key in the turnaround.
“For example, we give the credit union reporting daily, if they like, so they can see exactly what we did the day before,” explained Mortenson. “They can see that and say, ‘OK, I sent them 100 accounts and 40 said they would pay and 15 actually made payments over the phone.”
Improved Forecasting
Mortenson said that kind of detail makes it much easier for FAIRWINDS to forecast.
Jeff Mortenson
“When it comes to setting allowance for loan losses, consistent and accurate data on your delinquencies is very important,” said Mortenson. “This way they more accurately determine what their provisions should be.”
Added Plotkin, “Because of the reporting functionality available through the collections platform, FAIRWINDS knows how we are performing at any given time, and they use the reporting tools to measure their internal staff, which provides accountability throughout the collection process. Likewise, the platform allows FAIRWINDS’ staff to quickly and efficiently make it through their work queues.”
Another Benefit
Plotkin said there is another benefit in making the move to outsourcing to SWBC’s collection service.
“We train our team to be an extension of the credit union,” said Mortenson. “They understand the credit union’s brand and mission, and they are well-trained in the philosophy of the credit union movement. And, we're collecting in the first party—meaning we are collecting in the name of the credit union.”
Typically it takes a lot of “heavy lifting” to recover when delinquencies markedly spike, according to Mortenson.
“It's very difficult to do unless you're prepared to hire quite a few bodies to handle the volume,” he said.
Mortenson estimated the credit union saved 35% to 50% versus ramping up internally.
“And then what do you do with the extra human resources when you get delinquencies under control?” he asked.
Extended Hours
Plotkin said the credit union also reaches many more delinquent borrowers due to the outsourced call center’s extended hours.
“They work 8 a.m.—9 p.m. weekdays and weekends. We would never be able to do this with existing staffing levels,” Plotkin said.
“We're constantly looking at the best times to contact borrowers and the times when we get the best results,” added Mortenson. “Oftentimes, when a collector leaves a message, when the member calls back the credit union is closed.”
Mortenson added that to effectively reduce delinquencies a credit union needs to have a strategy and be persistent.
“So you’re trying to get a hold of members probably every four to five days,” he said. “It's such a high volume of calls that it can be a challenge for a credit union to get through it by itself.”