Understanding members' struggles to Make Better Collection Decisions
Abby Progin – Vice President – Product Management
February 16, 2021
After months of uncertain stalemate, we seem to be entering a new phase in the COVID-19 pandemic. It’s not over by any means, but we’re seeing movement. Not just any kind of movement, either. For the first time in a year, it’s the hopeful kind.
New coronavirus cases have declined dramatically. Vaccine distribution is happening. Schools are reopening. In many places, restaurants, salons and even theme parks are reopening, and their millions of employees are finally going back to work.
I mean, c’mon! If the reopening of Disneyland, the Happiest Place on Earth, isn’t symbolic enough for you, I don’t know what is.
Regulatory crack-downs always follow an economic crisis, no matter the cause. On the flip side, Democratic control on Capitol Hill will produce larger stimulus packages and, if federal student loans are forgiven with federal funds, well-earning members 40 years and under may suddenly be able to afford that first home.
As we begin to shift from treading water to building up steam in a return to pre-pandemic life, we must keep in mind those members who still need extra assistance, and may need it for some time. Despite the positive trends in the economy – credit scores haven’t plummeted, jobs are returning – experts are warning of a potential spike in delinquencies toward the end of the year. On Feb. 1, the Washington Post summed up the “good news/bad news” prediction: the economy will come back stronger than expected this year, but the 10-year forecast does not include a return to pre-pandemic unemployment lows.
To exit the COVID tunnel gracefully, we need to take a fresh look at members who will bear some lasting scars from permanent economic shifts and make sure we truly understand them and their stories. A complete risk profile was performed back during the approval process, but things change. Life happens.
For–profit lenders cut losses like pruning trees. Struggling customers are expensive. If they don’t produce a healthy profit, they’re not worth the resources.
Credit union money also grows on a healthy tree, but the pruning strategy is a bit different. Treating each member as a link in a chain, like people helping people, isn’t just a service promise. The cooperative structure of a credit union means one member’s success is everyone’s success, both on the balance sheet and in keeping with the intent of the charter and Federal Credit Union Act.
How in the world can you truly understand your members when so many use digital access as their primary channel?
The answer is data. That understanding can be found in the existing wealth of information available at your fingertips. Data analysis isn’t a new topic by any means, but as we begin our return to normal, it’s worth taking a fresh look. Leverage historical performance data like payment history, promises to pay, delinquency occurrences and average days to cure. Also, do not forget about credit scores and behavioral trends at the transactional level. Analyze it and take note of both positive and negative indicators that may surface as you make decisions regarding recoveries.
Here are three specific examples of how you can use existing data to make more effective and understanding collections decisions:
Be Proactive with Payment Indicators
Use payment indicators as one point of reference utilized by your staff when reviewing member status. Specifically, check key indicators like the percentage of payments received on time, and payment behavior trends. Raising these trends allows you to identify if payments are slipping further beyond their due date. Maybe they simply need to adjust their due date to accommodate paydays, or maybe there is something more going on with their financial situation. With historical insight, your staff is now educated and will be prompted to ask better questions, have more productive conversations and make better educated decisions.
Keep an Eye on Credit Score Migration
How about credit score movement? For the most part, we haven’t seen members’ credit scores severely impacted. In fact, with the forgiveness environment, we are currently experiencing scores have remained rather stagnant. This will change, and when it does, being able to track and display credit score migration will provide your collections team another pathway into the mind of the member.
Share the Data
Most credit unions already track the likelihood of default over a specific time period to be reviewed by management and included in loss provision analysis. Here’s an idea: make that same predicted risk information (like probability of default at the account level) available to your collections team. Providing them with more data not only allows them to make more rational decisions, as in the first two examples, it paves the way for them to ask better questions and improve qualitative input.
Generally, the analysis available for credit score migration, probability of default, and historical performance is siloed, contained in a system used by a few on the management team. Let’s knock down those walls and clear the path to better understand your members.
Thankfully, a path to normal is reappearing. There are still going to be thorns along the way. Using data to properly support and service our members helps credit unions, and the entire cooperative can thrive.