Customer Experience-The Key to Debt Collection

BY STEVE PLATT

If your credit union is still going about debt collection the old-fashioned way, it’s time to rethink your game plan. With charge-offs increasing, rather than decreasing, a customized strategy that takes your defaulting members’ individual circumstances into consideration may be a new better approach to delinquencies.

The debt collection process for credit unions has been the same for years. When businesses or consumers can’t repay a loan, the creditor or collection agency aggressively contacts them via phone or mail to obtain repayment. As you can imagine, this practice often results in a less than desirable experience for the member.

But how successful has thisprocess been overall?

According to the Federal Reserve, consumers accounted for $29.3 billion in charged-off credit card debt in 2016, a 15 percent increase from the prior year. That means 15 percent more dollars lost. Absorbingcredit losses at such a high rate can impactan organization’s sustainability. Clearly the process could use some adjusting.

Traditionally, debt collection has been all about the money. The priority was ensuring that as much of the outstanding debt as possible was repaid. But collecting needs to be about more than that. It also shouldfocus on the member and his or her individual situation. When it comes to debt collection, credit unions can’ttreat each member the same way. They should know the difference between a member who has simply forgotten to make a payment and one who is dealing with financial hardship. You need to communicate with yourmembers on a case-by-case basis depending on their unique circumstances.

For example, if a person is current on his or her mortgage payment but has slipped behind on his or her credit card payment, that doesn’t necessarily signify financial hardship. It’s an opportunity to work with themember to manage the debt and get back to current. Mortgages are different from credit cards, just as businesses are different from consumers. Credit unions need to tailor their approach to each product.

Credit unions have always built their strategies around members, and the collection process is another opportunity to reinforce this approach. The challenge is keeping members at the center while also managing against potential increases in delinquencies. This holistic approach may be slightly more complex, but credit unions can use technology and analytics to simplify the process and bring about a more engaging experience for their members.

The power of data and technology


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